OfficeMax 2006 Annual Report Download - page 77

Download and view the complete annual report

Please find page 77 of the 2006 OfficeMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

73
14. Financial Instruments, Derivatives and Hedging Activities
Fair Value of Financial Instruments
The carrying amounts of cashand cash equivalents,trade accounts receivable, other assets
(nonderivatives), short-term borrowings, trade accounts payable, and due to affiliated company,
approximate fair value because of the short maturity of these instruments.The following table presents
the carrying amounts and estimated fair values of theCompany’s other financial instruments at
December 30, 2006 and December 31,2005.The fair value of a financial instrumentis the amount at
which the instrument could be exchanged inacurrent transaction betweenwilling parties.
20062005
Carrying amount Fairvalue Carrying amount Fairvalue
(thousands)
Financial assets:
Timber notesreceivable ..... $1,635.0 $ 1,669.3$ 1 ,635.0 $ 1,669.3
Restricted investments. ...... 22.3 21.6 22.4 21.7
Financial liabilities:
Long-termdebt............. $409.9 $ 412.0$ 475.9$ 471.3
Securitization notes payable.. 1,470.0 1,440.7 1,470.0 1,440.7
The carrying amounts shown in the table are includedin the Consolidated Balance Sheets under
the indicated captions. The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
•Timber notes receivable: The fair value isdetermined as the present value of expected future
cash flows discounted at the current interest rate for loans of similar terms with comparable
credit risk.
•Restricted investments: The fair values of debt securities are based onquoted market prices at
the reporting date for those or similar investments.
•Securitization notes: The fair value of the Company’s securitization notes is estimated by
discounting the future cash flows of each instrument at rates currently available to the
Company for similar instruments of comparable maturities.
•Long-term debt: The fair value of theCompany’s long-term debt is estimated based onquoted
market prices when available or by discounting the future cash flows of each instrument at
rates currently offered to the Company for similar debt instruments of comparable maturities.
Derivatives and Hedging Activities
At December 30, 2006, the Company was not a party to any significant derivative instruments.
Changes in interest rates and currency exchange rates expose the Company to financial market
risk. Management occasionally uses derivative financial instruments, such as interest rate swaps,
forward purchase contracts andforward exchange contracts, to manage the Company’s exposureto
changes ininterest rates on outstanding debt instruments and to manage theCompany’s exposure to
changes in currency exchange rates.The Company generally does not enter into derivative
instruments for any purpose other thanhedging the cash flows associated with future interest
payments on variable ratedebt and hedging the exposure related to changes inthe fair value of
certain outstanding fixed rate debt instruments due to changes ininterest rates. The Company
occasionally hedges interest rate risk associated with anticipated financing transactions, as well as
commercial transactions and certain liabilities that are denominated in a currency other thanthe