OfficeMax 2008 Annual Report Download - page 93

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. or its successor, 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. Purchases under the agreement were
$668.3 million, $702.2 million and $644.4 million for 2008, 2007 and 2006, respectively.
In accordance with an amended and restated joint venture agreement, the minority owner of
our subsidiary in Mexico, Grupo OfficeMax, can elect to put its remaining 49% interest in the
subsidiary to OfficeMax if earnings targets are achieved. 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, the purchase price would be equal to fair value, calculated based on both the subsidiary’s
earnings for the last four quarters before interest, taxes and depreciation and amortization, and the
current market multiples of similar companies. At December 27, 2008, Grupo OfficeMax did not
meet the earnings targets.
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 27, 2008, 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 $4.7 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 27, 2008, the
Company is not aware of any material liabilities arising from these indemnifications.
17. Legal Proceedings and Contingencies
OfficeMax Incorporated and certain of its subsidiaries are named as defendants in a number of
lawsuits, claims and proceedings arising out of the operation of the paper and forest products
assets prior to the 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.
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