OfficeMax 2015 Annual Report Download - page 84

Table of Contents
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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 $905 million and $926 million at December 26, 2015 and December 27, 2014, 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 $819 million and $839 million at December 26, 2015 and December 27, 2014, 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.
The sale of the timberlands in 2004 generated a tax gain for OfficeMax and a related deferred tax liability was recognized. The timber installment notes
structure allowed the deferral of the resulting tax liability until 2020, the maturity date for the Installment Notes. At December 26, 2015, there is a deferred
tax liability of $260 million related to the Installment Notes, that will reverse upon maturity.
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