OfficeMax 2006 Annual Report Download - page 41

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37
the sameastheir carrying values. In the opinion of management, wedo not have anysignificant
concentration of credit risks. Concentration ofcredit risks with respect to trade receivables is limited
due to the wide variety of vendors, customers and channels to and through which our products are
sourced and sold, as well as their dispersion across many geographicareas.
Changes in interest and currency rates expose usto financial market r isk. In the past we have
used derivative financial instruments, such as interest rate swaps, rate hedge agreements, forward
purchasecontracts and forward exchange contracts, to hedge underlying debt obligations or
anticipated transactions. We do not use them for trading purposes.
At December 30, 2006, we were not a party to any significant derivative financial instruments.
Additional Consideration Agreement
Pursuant to an Additional Consideration Agreement between OfficeMax and Boise
Cascade, L.L.C., we may be required to make substantial cashpayments to, or receive substantial
cash payments from,Boise Cascade, L.L.C. Under the Additional Consideration Agreement, the Sale
proceeds may be adjusted upward or downward based on paper prices during the six yearsfollowing
the Sale, subject to annual and aggregatecaps. Specifically, we have agreed to pay Boise
Cascade, L.L.C. $710,000 for each dollar by which the average market price per tonofaspecified
benchmark grade of cut-size office paper during any 12-monthperiod ending on September 30 isless
than $800. Boise Cascade, L.L.C. has agreed to pay us $710,000 for each dollar by which the average
market price per ton exceeds $920. Under theterms of theagreement, neither party will be obligated
to make a payment in excess of $45 million in any one year. Payments by either party are also subject
to an aggregate cap of $125 million that declines to $115 million in the fifth year and $105 million in
the sixth year.
In connection with recording the Sale in 2004, we calculated our projected future obligation under
the Additional Consideration Agreement and accrued $42million in Other Long-term Liabilities on our
Consolidated BalanceSheet. Wecalculated the$42 million based on published industry paper price
projections. During 2006 and 2005,werecognized accretion expense on the discounted accrual
totaling approximately $6 million inour Consolidated Statements of Income (Loss). Due to recent
increases inactual and projected paper prices, the change in fair valueof this obligation resulted in
income of $48.0 million in our Consolidated Statementof Income (Loss) in 2006. As aresult, at
December 30, 2006, the net amount recognized in our Consolidated Balance Sheet related to the
Additional Consideration Agreement (either receivable or payable) was zero. Werecord changes in
the fair value of the Additional Consideration Agreementinour net income (loss) in theperiodthey
occur; however, any potential paymentsfrom Boise Cascade, L.L.C. to us are not recorded in net
income (loss) until all contingencies havebeen satisfied, which is generally at the endof a 12-month
measurement period ending on September 30. As of December 31, 2006, the average market price
per ton of the benchmark grade used to calculate payments due under the Additional Consideration
Agreement was $943. This average is theaveragefor thefirst three months of the12-month
measurement period ending on September 30, 2007. Market prices for paper are volatile and subject
to significant fluctuations. Accordingly, theaverage market price per ton for the12-month period
ending on September 30, 2007 may be significantly different thanthe average as of December 31,
2006.