OfficeMax 2007 Annual Report Download - page 75

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$85.5 million as of December 29, 2007 and $75.5 million as of December 30, 2006. As of
December 29, 2007, the maximum aggregate borrowing amount available under the revolving credit
facility was $700.0 million and excess availability under the revolving credit facility totaled
$614.5 million. At December 29, 2007, the Company was in compliance with all covenants under
the Agreement. The Loan Agreement allows the payment of dividends subject to availability
restrictions and so long as no default has occured. The Loan Agreement expires on July 12, 2012.
Borrowings under the revolving credit facility bear interest at rates based on either the prime
rate or the London Interbank Offered Rate (‘‘LIBOR’’). Margins are applied to the applicable
borrowing rates and letter of credit fees under the revolving credit facility depending on the level of
average excess availability. Fees on letters of credit issued under the revolving credit facility were
charged at a weighted average rate of 0.875% during the year-ended December 29, 2007. The
Company is also charged an unused line fee of 0.25% on the amount by which the maximum
available credit exceeds the average daily outstanding borrowings and letters of credit.
As of December 29, 2007, Grupo OfficeMax, our 51%-owned joint venture in Mexico, had short
term borrowings of $14.2 million. The short-term borrowings consist of three loans with balances of
$4.6 million, $4.6 million and $5.0 million respectively. Two of these loans are promissory notes to
be repaid in the first quarter of 2008. The third loan is a simple revolving loan. The financing for
Grupo OfficeMax is unsecured with no recourse against the Company.
Timber Notes
In October 2004, the Company sold its timberlands as part of the Sale and received credit-
enhanced timber installment notes receivable in the amount of $1,635 million. In December 2004,
the Company completed a securitization transaction in which its interests in the timber installment
notes receivable and related guarantees were transferred to wholly-owned bankruptcy remote
subsidiaries that were designated to be qualifying special purpose entities (the ‘‘OMXQ’s’’). The
OMXQ’s pledged the timber installment notes receivable and related guarantees and issued
securitization notes in the amount of $1,470 million. Recourse on the securitization notes is limited
to the pledged timber installment notes receivable. The securitization notes are 15-year
non-amortizing, and were issued in two equal $735 million tranches paying interest of 5.42% and
5.54%, respectively.
As a result of these transactions, OfficeMax received $1,470 million in cash from the OMXQ’s,
and over 15 years will earn approximately $82.5 million per year in interest income on the timber
installment notes receivable and incur annual interest expense of approximately $80.5 million on the
securitization notes. The pledged timber installment notes receivable and nonrecourse securitization
notes will mature in 2020 and 2019, respectively. The securitization notes have an initial term that is
approximately three months shorter than the installment notes. The Company expects to refinance
its ownership of the installment notes in 2019 with a short-term secured borrowing to bridge the
period from initial maturity of the securitization notes to the maturity of the installment notes.
The original entities issuing the credit enhanced timber installment notes are variable-interest
entities (the ‘‘VIE’s’’) under FASB Interpretation 46R, ‘‘Consolidation of Variable Interest Entities’’.
The OMXQ’s are considered to be the primary beneficiary, and therefore, the VIE’s are required to
be consolidated with the OMXQ’s, which are also the issuers of the securitization notes. As a result,
the accounts of the OMXQ’s have been consolidated into those of their ultimate parent, OfficeMax.
The effect of the Company’s consolidation of the OMXQ’s is that the securitization transaction is
treated as a financing, and both the timber notes receivable and the securitization notes payable
are reflected in the Consolidated Balance Sheets.
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