OfficeMax 2014 Annual Report Download - page 87

Table of Contents


Through the date of disposition, the investment in Boise Cascade Holdings was accounted for under the cost method because the Company did not have the
ability to significantly influence the entity’s operating and financial policies. The investment was recorded at fair value on the date of the Merger. At
December 28, 2013, the investment of $46 million is included in Other assets in the Consolidated Balance Sheet. Refer to Note 16 for additional fair value
information.
Additionally, in November 2013, the Company received a $35 million cash distribution as part of a distribution that Boise Cascade Holdings made to the
holders of its Common Units following an offering of common shares of Boise Cascade Company. This distribution is considered return of investment and is
presented as an investing activity in the Consolidated Statements of Cash Flows.

As part of the Merger, the Company also acquired credit-enhanced timber installment notes with an original principal balance of $818 million (the
“Installment Notes”) that were part of the consideration received in exchange for OfficeMax’s sale of timberland assets in October 2004. The Installment
Notes were issued by a single-member limited liability company formed by affiliates of Boise Cascade, L.L.C. (the “Note Issuers”). The Installment Notes are
non-amortizing obligations bearing interest at 4.98% and maturing in 2020. In order to support the issuance of the Installment Notes, the Note Issuers
transferred a total of $818 million in cash to Wells Fargo & Company (“Wells Fargo”) (which at the time was Wachovia Corporation). Wells Fargo issued a
collateral note (the “Collateral Note”) to the Note Issuers. Concurrently with the issuance of the Installment Notes and the Collateral Note, Wells Fargo
guaranteed the respective Installment Notes and the Note Issuers pledged the Collateral Note as security for the performance of the obligations under the
Installment Notes. As all amounts due on the Installment Notes are current and the Company has no reason to believe that the Company will not be able to
collect all amounts due according to the contractual terms of the Installment Notes, the Installment Notes are reported as Timber Notes in the Consolidated
Balance Sheets in the amount of $926 million and $945 million at December 27, 2014 and December 28, 2013, respectively, which represents the original
principal amount of $818 million plus a fair value adjustment recorded through purchase accounting in connection with the Merger. The premium is
amortized under the effective interest method as a component of interest income through the maturity date.
Also as part of the Merger, the Company acquired non-recourse debt that OfficeMax issued under the structure of the timber note transactions. In December
2004, the interests in the Installment Notes and related guarantee were transferred to wholly-owned bankruptcy remote subsidiaries in a securitization
transaction. The subsidiaries pledged the Installment Notes and related guarantee and issued for cash securitized notes (the “Securitization Notes”) in the
amount of $735 million supported by the Wells Fargo guaranty. Recourse on the Securitization Notes is limited to the proceeds of the applicable pledged
Installment Notes and underlying Wells Fargo guaranty, and therefore there is no recourse against the Company. The Securitization Notes are non-amortizing
and pay interest of 5.42% through maturity in 2019. The Securitization Notes are reported as Non-recourse debt in the Company’s Consolidated Balance
Sheets in the amount of $839 million and $859 million at December 27, 2014 and December 28, 2013, respectively, which represents the original principal
amount of $735 million plus a fair value adjustment recorded through purchase accounting in connection with the Merger. The premium is amortized under
the effective interest method as a component of interest expense through the maturity date. Refer to Note 8 for additional information.
The Installment Notes and related Securitization Notes are scheduled to mature in 2020 and 2019, respectively. The Securitization Notes have an initial term
that is approximately three months shorter than the Installment Notes.
85