OfficeMax 2009 Annual Report Download - page 77

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11. Financial Instruments, Derivatives and Hedging Activities
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable, other assets
(non-derivatives), short-term borrowings, trade accounts payable, and due to related party,
approximate fair value because of the short maturity of these instruments. The following table
presents the carrying amounts and estimated fair values of the Company’s other financial
instruments at December 26, 2009 and December 27, 2008. The fair value of a financial instrument
is the amount at which the instrument could be exchanged in a current transaction between willing
parties.
2009 2008
Carrying amount Fair value Carrying amount Fair value
(thousands)
Financial assets:
Timber notes receivable
Wachovia— ........... $817.5 $823.6 $817.5 $801.9
Lehman— ............ 81.8 81.8 81.8 81.8
Financial liabilities:
Debt .................... $297.6 $207.2 $355.0 $236.7
Timber securitization notes
Wachovia— ........... $735.0 $754.8 $735.0 $736.8
Lehman— ............ 735.0 81.8 735.0 81.8
In establishing a fair value, there is a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The basis of the fair value measurement is categorized in
three levels, in order of priority, described as follows:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement
date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices in markets that are not active, or financial instruments for which all
significant inputs are observable; either directly or indirectly.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair
value measurement and unobservable; thus reflecting assumptions about the market participants.
The carrying amounts shown in the table are included in 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 of the Wachovia Guaranteed Installment Notes is
determined as the present value of expected future cash flows discounted at the current
interest rate for loans of similar terms with comparable credit risk (Level 2 inputs). The fair
value of the Lehman Guaranteed Installment Note reflects the estimated future cash flows of
the note considering the estimated effects of the Lehman bankruptcy (Level 3 inputs).
• Debt: The fair value of the Company’s debt is estimated based on quoted 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 (Level 2
inputs).
• Timber securitization notes: The fair value of the Securitization Notes supported by Wachovia
is estimated by discounting the future cash flows of the instrument at rates currently available
73