OfficeMax 2006 Annual Report Download - page 95

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91
18. Commitments and Guarantees
Commitments
The Company has commitments for minimum lease payments due undernoncancelable leases
and for the repayment of outstanding long-termdebt. Inaddition, the Company haspurchase
obligations for goods and services and capital expenditures that were entered into in thenormal course
of business.
Pursuant to an Additional Consideration Agreement between OfficeMax and Boise Cascade, L.L.C.
related to theSale, the Company may be required to make substantial cash payments to, or receive
substantial cash payments from, Boise Cascade, L.L.C. Under the Additional Consideration Agreement,
the Sale proceeds may be adjusted upward or downward based on paper prices during the six years
following the Sale, subject to annual and aggregate caps. Specifically, we have agreed to pay Boise
Cascade, L.L.C. $710,000 for each dollar by which the average market price per ton of a specified grade
of cut-size office paper during any 12-month period ending on September 30 is less than $800. Boise
Cascade, L.L.C. has agreed to pay us $710,000 for each dollar by which the average market price per
ton exceeds $920. 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 an aggregate cap
of $125 million that declines to $115 million in the fifth yearand $105 million in the sixth year. (See Note
14, Financial Instruments, Derivatives and Hedging Activities, for more informationrelated to the
Additional Consideration Agreement).
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 theminority owner’s 49% interest in the subsidiaryifcertain earnings targets are achieved. At
December 30, 2006 and throughout 2006, OfficeMax de Mexico had met these earnings targets. The
earnings targets are calculated quarterly on a rolling four-quarter basis. Accordingly, the targets can be
achieved in onequarter but not in the next.If the earnings targets are achieved and the minority owner
electsto 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, taxesand depreciation and amortization
for the last four quarters, and the current market multiples for similar companies. The fair value purchase
price at December 30, 2006 is estimated to be$65 millionto$70 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 couldrequire the Company to make additional paymentsin thefuture. 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 30,
2006, the Company is not aware of any material liabilities arising from these indemnifications.