OfficeMax 2008 Annual Report Download - page 13

some or all of the Company’s other outstanding revenue bonds will not be subject to similar IRS
determination.
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. Through our investment in
Boise Cascade, L.L.C., we also hold an indirect interest in Boise Inc., the former paper
manufacturing business of Boise Cascade, L.L.C. This continuing interest in Boise Cascade, L.L.C.
subjects 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, business and consumer credit availability, interest rates and weather. The recent falloff in U.S.
housing starts has resulted in lower building products shipments and prices. The supply of paper
and building products fluctuates based on manufacturing capacity. Excess manufacturing capacity,
both domestically and abroad, can result in significant variations in product prices. 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 Boise Inc.
and other market factors that may not be specific to Boise Cascade, L.L.C. or Boise Inc., 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.
Our obligation to purchase paper from Boise Inc. concentrates our supply of an important
product primarily with a single supplier. When we sold our paper, forest products and
timberland assets, we agreed to purchase substantially all of our requirements of paper for resale
from Boise Cascade, L.L.C., or its affiliates or assigns, on a long term basis. The price we pay for
this paper is market based and therefore subject to fluctuations in the supply and demand for the
products. Our purchase obligation limits our ability to take advantage of spot purchase
opportunities and exposes us to potential interruptions in supply, which could impact our ability to
compete effectively with our competitors, who would not typically be restricted in this way.
We have substantial business operations in states in which the regulatory environment is
particularly challenging. Our operations in California and other heavily regulated states with
relatively more aggressive enforcement efforts expose us to a particularly challenging regulatory
environment, including, without limitation, consumer protection laws, advertising regulations,
escheat, 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.
ITEM 2. PROPERTIES
The majority of OfficeMax facilities are rented under operating leases. (For more information
about our operating leases, see Note 8. ‘‘Leases’’, of the Notes to Consolidated Financial
Statements in ‘‘Item 8. Financial Statements and Supplementary Data’’ of this Form 10-K.) Our
properties are in good operating condition and are suitable and adequate for the operations for
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