OfficeMax 2005 Annual Report Download - page 14

Download and view the complete annual report

Please find page 14 of the 2005 OfficeMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 132

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

ITEM 3. LEGAL PROCEEDINGS
OfficeMax Incorporated and certain of its subsidiaries are named as defendants in a number of
lawsuits, claims and proceedings. Some of these lawsuits and proceedings arise out of the
operation of the paper and forest products assets prior to closing of the Sale, for which OfficeMax
agreed to retain responsibility. Also, as part of the Sale, we agreed to retain responsibility for all
pending or threatened proceedings and future proceedings alleging asbestos-related injuries arising
out of the operation of the paper and forest products assets prior to the closing of the Sale. We do
not believe any of these retained proceedings are material to our business.
We have been notified that we are a ‘‘potentially responsible party’’ under the Comprehensive
Environmental Response, Compensation and Liability Act (‘‘CERCLA’’) or similar federal and state
laws, or have received a claim from a private party, with respect to 15 active sites where hazardous
substances or other contaminants are or may be located. All 15 active sites relate to operations
either no longer owned by the Company or unrelated to its ongoing operations. In most cases, we
are one of many potentially responsible parties, and our alleged contribution to these sites is
relatively minor. For sites where a range of potential liability can be determined, we have
established appropriate reserves. We believe we have minimal or no responsibility with regard to
several other sites. We cannot predict with certainty the total response and remedial costs, our
share of the total costs, the extent to which contributions will be available from other parties or the
amount of time necessary to complete the cleanups. Based on our investigations; our experience
with respect to cleanup of hazardous substances; the fact that expenditures will, in many cases, be
incurred over extended periods of time; and the number of solvent potentially responsible parties,
we do not believe that the known actual and potential response costs will, in the aggregate,
materially affect our financial position or results of operations.
Over the past several years and continuing into 2006, we have been named a defendant in a
number of cases where the plaintiffs allege asbestos-related injuries from exposure to asbestos
products or exposure to asbestos while working at job sites. The claims vary widely and often are
not specific about the plaintiffs’ contacts with the Company. None of the claims seeks damages
from us individually, and we are generally one of numerous defendants. Many of the cases filed
against us have been voluntarily dismissed, although we have settled some cases. The settlements
we have paid have been covered mostly by insurance, and we believe any future settlements or
judgments in these cases would be similarly covered. To date, no asbestos case against us has
gone to trial, and the nature of these cases makes any prediction as to the outcome of pending
litigation inherently subjective. At this time, however, we believe our involvement in asbestos
litigation is not material to either our financial position or our results of operations.
The Company and several former officers and/or directors of the Company or its predecessor
are defendants in a consolidated, putative class action proceeding (Roth v. OfficeMax Inc., et. al,
U.S. District Court, Northern District of Illinois) alleging violations of the Securities Exchange Act of
1934. The Complaint alleges, in summary, that the Company failed to disclose (a) that vendor
income had been improperly recorded, (b) that the Company lacked internal controls necessary to
ensure the proper reporting of revenue and compliance with generally accepted accounting
principles, and (c) that the Company’s 2004 and later results would be adversely affected by the
Company’s allegedly improper practices. The relief sought includes unspecified compensatory
damages, interest and costs, including attorneys’ fees. On September 21, 2005, the defendants
filed a motion to dismiss the consolidated amended complaint, which is pending. The Company
believes there are valid factual and legal defenses to these claims and intends to vigorously defend
against them.
In June 2005, the Company announced that the SEC issued a formal order of investigation
arising from the Company’s previously-announced internal investigation into its accounting for
10