OfficeMax 2010 Annual Report Download - page 49

related guarantees were transferred to wholly-owned bankruptcy remote subsidiaries. The subsidiaries pledged
the Installment Notes and related guarantees and issued securitized notes (the “Securitization Notes”) in the
amount of $1,470 million. Recourse on the Securitization Notes is limited to the proceeds from the applicable
pledged Installment Notes and underlying Lehman or Wachovia guaranty. As a result, there is no recourse
against OfficeMax, and the Securitization Notes have been reported as non-recourse debt in our
Consolidated Balance Sheets.
On September 15, 2008, Lehman filed for bankruptcy. Lehman’s bankruptcy filing constituted an event of
default under the $817.5 million Installment Note guaranteed by Lehman (the “Lehman Guaranteed Installment
Note”) . We are required for accounting purposes to assess the carrying value of assets whenever circumstances
indicate that a decline in value may have occurred. After evaluating the situation, we concluded in late October
2008 that as a result of the Lehman bankruptcy, it was probable that we would be unable to collect all amounts
due according to the contractual terms of the Lehman Guaranteed Installment Note. Accordingly, we evaluated
the carrying value of the Lehman Guaranteed Installment Note and reduced it to the estimated amount we expect
to collect ($81.8 million) by recording a non-cash impairment charge of $735.8 million, pre-tax, in the third
quarter of 2008.
Measuring impairment of a loan requires judgment and estimates, and the eventual outcome may differ from
our estimate by a material amount. The Lehman Guaranteed Installment Note has been pledged as collateral for
the related Securitization Notes, and therefore it may not freely be transferred to any party other than the
indenture trustee for the Securitization Note holders. Accordingly, the ultimate amount to be realized on the
Lehman Guaranteed Installment Note depends entirely on the proceeds from the Lehman bankruptcy estate,
which may not be finally determined for several years. Our estimate of the expected proceeds has not changed,
and at December 25, 2010 and December 26, 2009, the carrying value of the Lehman Guaranteed Installment
Note remained at $81.8 million. Going forward, we intend to adjust the carrying value of the Lehman Guaranteed
Installment Note as further information regarding our share of the proceeds, if any, from the Lehman bankruptcy
estate becomes available.
Recourse on the Securitization Notes is limited to the proceeds from the applicable pledged Installment
Notes and underlying Lehman or Wachovia guaranty. Accordingly, the Lehman Guaranteed Installment Note and
underlying guarantees by Lehman will be transferred to the holders of the Securitization Notes guaranteed by
Lehman in order to settle and extinguish that liability. However, under current generally accepted accounting
principles, we are required to continue to recognize the liability related to the Securitization Notes guaranteed by
Lehman until such time as the liability has been extinguished, which will occur when the Lehman Guaranteed
Installment Note and the related guaranty are transferred to and accepted by the Securitization Note holders. We
expect that this will occur no later than the date when the assets of Lehman are distributed and the bankruptcy is
finalized. Accordingly, we expect to recognize a non-cash gain equal to the difference between the carrying
amount of the Securitization Notes guaranteed by Lehman ($735.0 million at December 25, 2010) and the
carrying value of the Lehman Guaranteed Installment Note ($81.8 million at December 25, 2010) in a later
period when the liability is legally extinguished. The actual gain to be recognized in the future will be measured
based on the carrying amounts of the Lehman Guaranteed Installment Note and the Securitization Notes
guaranteed by Lehman at the date of settlement.
At the time of the sale of our timberland assets in 2004, we generated a significant tax gain. As the timber
installment notes structure allowed the Company to defer the resulting tax liability of $543 million until 2020, the
maturity date for the Installment Notes, we recognized a deferred tax liability related to this gain in connection
with the sale. The recognition of the Lehman portion of the tax gain will be triggered when the Lehman
Guaranteed Installment Note is transferred to the Securitization Note holders as payment and/or when the
Lehman bankruptcy is resolved. In estimating the cash taxes, we will consider our available alternative minimum
tax credits, a portion of which resulted from prior tax payments related to the sale of the timberland assets in
2004, which were used to reduce the net tax payments.
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