OfficeMax 2011 Annual Report Download - page 98

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December 25, 2010
Fair Value Carrying
AmountLevel 1 Level 2 Level 3 Total
(thousands)
Financial assets:
Timber notes receivable
Wachovia ............................... $— $888,288 $ — $888,288 $817,500
Lehman ................................ $— $ — $81,750 $ 81,750 $ 81,750
Financial liabilities:
Recourse debt ............................... $— $255,519 $ — $255,519 $274,995
Non-recourse debt
Wachovia ............................... $— $811,093 $ — $811,093 $735,000
Lehman ................................ $— $ — $81,750 $ 81,750 $735,000
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 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).
•Recourse debt: The Company’s debt instruments are not widely traded. Recourse debt for which there
were trades on the last day of the period (the “measurement date”) was valued using the unadjusted
quoted price from the last trade on the measurement date (Level 1 input). Recourse debt for which
there were no transactions on the measurement date was valued based on quoted market prices near the
measurement date when available or by discounting the future cash flows of each instrument using
rates based on the most recently observable trade or using rates currently offered to the Company for
similar debt instruments of comparable maturities (Level 2 inputs).
•Non-recourse debt: 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 to the Company for
similar instruments of comparable maturities (Level 2 inputs). The Securitization Notes supported by
Lehman is estimated based on the future cash flows of the Lehman Guaranteed Installment Note (the
proceeds from which are the sole source of payment of this note) in a bankruptcy proceeding (Level 3
inputs).
During 2011, there was no change in assets and liabilities measured at estimated fair value using Level 3
inputs.
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