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40
associates in the paper and forest products businesses, and transferred the associated assets and
obligations to the new plans. Effective October 29, 2004, under the terms of theAsset Purchase
Agreement with affiliates of Boise Cascade, L.L.C., we transferred sponsorship of the plans covering
active employees ofthe paper and forest products businesses to Boise Cascade, L.L.C.,and only
those terminated vested employees and retirees whose employment withus ended onorbefore
July 31, 2004, andsome active OfficeMax, Contract employees were covered under the plans
remaining with us. OfficeMax, Retail employees, among others,never participated in the pension
plans. The salaried pension plan was closed to new entrants on November 1, 2003, and on
December 31, 2003, the benefits of OfficeMax, Contract participants were frozen with one additional
year of service provided to active OfficeMax, Contract employees on January 1, 2004, at a reduced
1% crediting rate. As a result of the closure,freeze and spin-off, our annual pension expense and
contributions to theplans going forward will be less than the amounts included in prior periods.
We account for pension expense in accordance with SFAS No. 87, “Employer’s Accounting for
Pensions.”This statement requires us to calculate our pension expense and liabilities using actuarial
assumptions, including adiscount rate assumption and a long-term asset return assumption. We base
our discount rate assumption on the rates of returnon high-quality bonds currently available and
expected to be available during the period to maturity of the pension benefits.We base our long-term
asset return assumption on the average rateofearnings expected oninvested funds. We believe that
the accounting estimate related to pensions is a critical accounting estimatebecause it is highly
susceptible to change from period to period, based on the performance of plan assets, a ctuarial
valuations and changes in interest rates, and theeffect on ourfinancial position and results of
operations could be material.
For 2007, our discount rate assumption used in the measurement of our net periodic benefit cost
was 5.8%, and our expected return onplan assets was 8.0%. Using these assumptions, our 2007
pension expense will be approximately $10.0 million. If we were to decrease our estimated discount
rate assumption used in the measurement of our net periodic benefit cost to 5.55% and our expected
return on plan assets to 7.75%, our 2007 pension expense would be approximately $14.6 million. Ifwe
were to increase our discount rate assumption used inthe measurement ofour net periodic benefit
cost to 6.05% and our expected return onplan assetsto 8.25%, our 2007 pension expense would be
approximately $5.4million.
The Company adopted SFAS No. 158, “Employer’s Accounting for Defined Pension and Other
Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R),” effective
December 30, 2006. This statement requires the recognition of the funded status of a defined benefit
plan in the statement of financial position, and that changes in the funded status be recognized
through other comprehensive income (OCI), net of tax, inthe year in which the changes occur.
Actuarially-determined liabilities related topension and postretirement benefitsare alsorecorded
based on estimatesand assumptions. Key factors used in developing estimates of these liabilities
include assumptions related to discount rates, rates of return on investments, future compensation
costs, healthcare cost trends, benefit payment patterns and other factors. At December 30, 2006, the
fundedstatus of our defined benefit pension and other postretirement benefit plans was a liability of
$230.1 million. Changes in assumptions related to the measurement of funded status couldhave a
material impact on the amount reported.
Facility Closure Reserves
The Company conducts regular reviews of its real estate portfolio to identify underperforming
facilities, and closes those facilities that are no longer strategically or economically viable. Aliability for
the cost associated with such a closure is recorded at its fair value in the period in which it is incurred.
These costs are included in facility closure reserves in our Consolidated Balance Sheets and include
provisions forthe present valueoffuture lease obligations, less estimated sublease income. At