OfficeMax 2007 Annual Report Download - page 12

We retained responsibility for certain liabilities of the sold paper, forest products and
timberland businesses. These obligations include liabilities related to environmental, health and
safety, tax, litigation and employee benefit matters. Some of these retained liabilities could turn out
to be significant, which could have an adverse effect on our results of operations. Our exposure to
these liabilities could harm our ability to compete with other office products distributors, who would
not typically be subject to similar liabilities.
Our business may be adversely affected by the actions of and risks associated with our
third-party vendors. We are a reseller of other manufacturer’s branded items and are therefore
dependent on the availability and pricing of key products including ink, toner, paper and technology
products. As a reseller, we cannot control the supply, design, function or cost of many of the
products we offer for sale. Disruptions in the availability of these products may adversely affect our
sales and result in customer dissatisfaction. Further, we cannot control the cost of manufacturer’s
products and cost increases must either be passed along to our customers or will result in erosion
of our earnings. Failure to identify desirable products and make them available to our customers
when desired and at attractive prices could have an adverse effect on our business and results of
operations.
Our investment in Boise Cascade, L.L.C. subjects us to the risks associated with the paper
and forest products industry. When we sold our paper, forest products and timberland assets,
we purchased an equity interest in affiliates of Boise Cascade, L.L.C. In addition, we have an
ongoing obligation to purchase paper from an affiliate of Boise Cascade, L.L.C. These continuing
interests subject us to market risks associated with the paper and forest products industry. These
industries are subject to cyclical market pressures. Historical prices for products have been volatile,
and industry participants have limited influence over the timing and extent of price changes. The
relationship between supply and demand in these industries significantly affects product pricing.
Demand for building products is driven mainly by factors such as new construction and remodeling
rates, interest rates and weather. The supply of paper and building products fluctuates based on
manufacturing capacity, and excess capacity, both domestically and abroad, can result in significant
variations in product prices. The level of supply and demand for forest products will affect the price
we pay for paper. Our ability to realize the carrying value of our equity interest in affiliates of Boise
Cascade, L.L.C. is dependent upon many factors, including the operating performance of Boise
Cascade, L.L.C. and other market factors that may not be specific to Boise Cascade, L.L.C., due in
part to the fact that there is not a liquid market for our equity interest. Our exposure to these risks
could decrease our ability to compete effectively with our competitors, who typically are not subject
to such risks.
We have substantial business operations in states in which the regulatory environment is
particularly challenging. Our operations in California and other similar states expose us to many
regulations relating to the conduct of our business, including, without limitation, consumer
protection laws, advertising regulations, and employment and wage and hour regulations. This
regulatory environment requires the Company to maintain a heightened compliance effort and
exposes us to defense costs, possible fines and penalties, and liability to private parties for
monetary recoveries and attorneys’ fees, any of which could have an adverse effect on our
business and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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