OfficeMax 2005 Annual Report Download - page 104

20. Commitments and Guarantees
Commitments
The Company has commitments for minimum lease payments due under noncancelable leases
and for the repayment of outstanding long-term debt. In addition, the Company has purchase
obligations for goods and services and capital expenditures that were entered into in the normal
course of business.
The Company may be required to make cash payments to, or entitled to receive cash
payments from, Boise Cascade, L.L.C. under the terms of the Additional Consideration Agreement
that was entered into in connection with the Sale. Under this agreement, the Sale proceeds may be
adjusted upward or downward based on changes in paper prices during the six years following the
closing date, with the amount of any such adjustments being subject to annual and aggregate
caps. Under the terms of the agreement, neither party will be obligated to make a payment in
excess of $45 million in any one year. Payments by either party are also subject to aggregate caps
over the term of the agreement; these caps are $125 million in the first four years of the agreement,
$115 million in the fifth year and $105 million in the sixth year. The Company has recorded a
$42 million liability related to this agreement based on the net present value of the weighted
average expected payments calculated using industry paper price projections. In connection with
the Sale, the Company entered into a paper supply contract with affiliates of Boise Cascade, L.L.C.
under which we are obligated to purchase our North American requirements for cut-size office
paper, to the extent Boise Cascade, L.L.C. produces such paper, until December 2012, at prices
approximating market levels. The Company’s purchase obligations under the agreement will
phase-out over a four-year period beginning one year after the delivery of notice of termination, but
not prior to December 31, 2012.
In accordance with the terms of a joint-venture agreement between the Company and the
minority owner of the Company’s subsidiary in Mexico (OfficeMax de Mexico), the Company can be
required to purchase the minority owner’s 49% interest in the subsidiary if certain earnings targets
are achieved. At December 31, 2005, OfficeMax de Mexico had met these earnings targets. The
applicable earnings targets are calculated quarterly on a rolling four-quarter basis. Accordingly, the
targets can be achieved in one quarter but not in the next. When the earnings targets are achieved
and the minority owner elects to put its ownership interest to the Company, the purchase price
would be equal to fair value, calculated based on the subsidiary’s earnings before interest, taxes
and depreciation and amortization for the last four quarters, and the current market multiples for
similar companies. The fair value purchase price at December 31, 2005, was estimated to be
$50 million to $55 million.
Guarantees
The Company provides guarantees, indemnifications and assurances to others, which
constitute guarantees as defined under FASB Interpretation No. 45, ‘‘Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.’’
Indemnification obligations may arise from the Asset Purchase Agreement between OfficeMax
Incorporated, OfficeMax Southern Company, Minidoka Paper Company, Forest Products Holdings,
L.L.C. and Boise Land & Timber Corp. The terms of this agreement include purchase price
adjustments, which could require the Company to make additional payments in the future.
Additionally, the Company has agreed to provide indemnification with respect to a variety of
obligations. These indemnification obligations are subject, in some cases, to survival periods,
deductibles and caps. At December 31, 2005, the Company is not aware of any material liabilities
arising from these indemnifications.
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