OfficeMax 2007 Annual Report Download - page 93

$800. Boise Cascade, L.L.C. agreed to pay us $710,000 for each dollar by which the average
market price per ton exceeded $920. Under the terms of the agreement, neither party was obligated
to make a payment in excess of $45 million in any one year. Payments by either party were also
subject to an aggregate cap of $125 million that declined to $115 million in the fifth year and
$105 million in the sixth year. (See Note 13, Financial Instruments, Derivatives and Hedging
Activities, for more information related 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 (Grupo OfficeMax), the Company can be
required to purchase the minority owner’s 49% interest in the subsidiary if certain earnings targets
are achieved. At December 29, 2007 and throughout 2007, Grupo OfficeMax had met these
earnings targets. The 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. If 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 29, 2007 is estimated to
be $65 million to $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 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 29, 2007, the Company is not aware of any material liabilities
arising from these indemnifications.
There are eleven operating leases that have been assigned to other parties but for which the
Company remains contingently liable in the event of nonpayment by the other parties. The lease
terms vary and, assuming exercise of renewal options, extend through 2019. Annual rental
payments under these leases are approximately $4.8 million.
The Company and its affiliates enter into a wide range of indemnification arrangements in the
ordinary course of business. These include tort indemnifications, tax indemnifications, officer and
director indemnifications against third-party claims arising out of arrangements to provide services
to the Company and indemnifications in merger and acquisition agreements. It is impossible to
quantify the maximum potential liability under these indemnifications. At December 29, 2007, the
Company is not aware of any material liabilities arising from these indemnifications.
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