OfficeMax 2006 Annual Report Download - page 63

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59
The Sale did not include the wood-polymer building materials facility near Elma, Washington.
(See Note 3, Discontinued Operations, for additional information relating to theElma, Washington
facility.) The Company also retained certainother assets and liabilities of the sold paper, forest
products and timberland business, including Company-owned life insurance policies, and liabilities
such as those associated with retiree pension and other benefits, litigation, and environmental
remediation at selected activesites and facilities previously closed.
In connection with the sale, the Company invested $175 million in securitiesof affiliates of Boise
Cascade, L.L.C. This investment represents continuing involvement as defined in SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets,”and accordingly, the historical
results of the sold paper, forest products and timberland assets are not reported as discontinued
operations.An additional $180 million of gain realized from the Sale was deferred as a result of the
Company’scontinuing involvement with Boise Cascade, L.L.C. This deferred gain is expected to be
recognized in earnings as the Company’s investment in affiliates of Boise Cascade,L.L.C. is reduced.
The Company received cash and other consideration of approximately $3.7billion from the Sale.
Total proceeds to the Company after allowing for the $175 million investment in the securities of
affiliates of Boise Cascade, L.L.C and transaction related expenseswere approximately $3.5 billion.
The consideration for the timberlands portion ofthe Sale included $1.6 billionof timber installment
notes receivable. In December 2004, the Company completed a securitization transaction and
transferred its interest in the timber installment notes receivable to wholly owned bankruptcy remote
subsidiaries in exchange for cash proceeds of $1.5 billion. Including the cashreceived at the closing
of the Sale and the proceeds from the securitizationof the timber installment notes, and deducting the
cash used to pay for the $175 million investment and transaction-related expenses, the Company
received a net total of $3.3 billion in cash from the Sale and related transactions. In 2004, the
Company used a portion of these proceeds to repurchase and retire outstanding debt, to redeem
outstanding Series D preferred stock and to make contributions to the pension plansfor active
employees who became employees of Boise Cascade, L.L.C. in connection with the Sale. In the
second quarter of 2005, the Company used substantially all of the remaining proceeds to repurchase
23.5 million shares of itscommon stock and theassociated common stock purchaserights through a
modified Dutch auction tender offer.
3. Discontinued Operations
In December 2004, the Company’s board of directors authorized management to pursue the
divestiture of a facility near Elma, Washington that manufacturedintegrated wood-polymer building
materials. The board ofdirectors and management concluded that the operations of the facility were
no longer consistent with the Company’s strategic direction. As a result of that decision, the Company
recorded the facility’s assets as held for sale on the Consolidated Balance Sheets and reported the
results of its operations asdiscontinued operations.
During 2005, the Company experienced unexpected difficulties in achieving anticipated levels of
production at thefacility. These issues delayed the process of identifying and qualifying a buyer for
the business. While management made substantial progress in addressing the manufacturing issues
that caused production to fall below plan, during the fourth quarter of 2005, the Company concluded
that itwas unable to attract a buyer inthe near term and elected to cease operations at the facility
during the first quarter of 2006.
In accordance with SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived
Assets,” the Company recorded pre-tax charges of $67.8 million inthe fourth quarter of2004 and
$28.2 million in the fourth quarter of 2005 to reduce thecarrying value of the long-lived assets of the
Elma,Washington facility to their estimated fairvalue.During thefirst quarter of2006, the Company
ceased operations at the facilityand recorded pre-tax expenses of $18.0 million for contract