OfficeMax 2010 Annual Report Download - page 72

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3. Severance and Other Charges
Over the past few years, we have incurred significant charges related to Company personnel restructuring
and reorganizations.
In 2009, we recorded $18.1 million of severance and other charges, principally related to reorganizations of
our U.S. and Canadian Contract sales forces, our customer fulfillment centers and our customer service centers,
as well as a streamlining of our Retail store staffing. These charges were recorded by segment in the following
manner: Contract $15.3 million, Retail $2.1 million and Corporate and Other $0.7 million. During 2008, we
recorded a $23.9 million pre-tax severance charge related to various sales and field reorganizations in our Retail
and Contract segments as well as a significant reduction in force at the corporate headquarters and a $2.4 million
charge related to the consolidation of the Contract segment’s manufacturing facilities in New Zealand.
As of December 25, 2010, $0.5 million of the severance charges recorded in 2009 remain unpaid and are
included in accrued expenses and other current liabilities in the Consolidated Balance Sheets.
4. Timber Notes/Non-Recourse Debt
In October 2004, we sold our timberland assets in exchange for $15 million in cash plus credit-enhanced
timber installment notes in the amount of $1,635 million (the “Installment Notes”). The Installment Notes were
issued by single-member limited liability companies formed by affiliates of Boise Cascade, L.L.C. (the “Note
Issuers”). The Installment Notes are 15-year non-amortizing obligations and were issued in two equal
$817.5 million tranches bearing interest at 5.11% and 4.98%, respectively. In order to support the issuance of the
Installment Notes, the Note Issuers transferred a total of $1,635 million in cash to Lehman Brothers
Holdings Inc. (“Lehman”) and Wachovia Corporation (“Wachovia”) (which was later purchased by Wells
Fargo & Company) ($817.5 million to each of Lehman and Wachovia). Lehman and Wachovia issued collateral
notes (the “Collateral Notes”) to the Note Issuers. Concurrently with the issuance of the Installment and
Collateral Notes, Lehman and Wachovia guaranteed the respective Installment Notes and the Note Issuers
pledged the Collateral Notes as security for the performance of the Installment Note obligations.
In December 2004, we completed a securitization transaction in which the Company’s interests in the
Installment Notes and 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 ($735 million through the structure supported by the
Lehman guaranty and $735 million through the structure supported by the Wachovia guaranty). As a result of
these transactions, we received $1,470 million in cash. Recourse on the Securitization Notes is limited to the
proceeds of the applicable pledged Installment Notes and underlying Lehman or Wachovia guaranty, and
therefore there is no recourse against OfficeMax. The Securitization Notes are 15-year non-amortizing, and were
issued in two equal $735 million tranches paying interest of 5.54% and 5.42%, respectively. The Securitization
Notes are reported as non-recourse debt in the Company’s Consolidated Balance Sheets.
On September 15, 2008, Lehman, the guarantor of half of the Installment Notes and the Securitization
Notes, filed a petition in the United States Bankruptcy Court for the Southern District of New York seeking relief
under chapter 11 of the United States Bankruptcy Code. Lehman’s bankruptcy filing constituted an event of
default under the $817.5 million Installment Note guaranteed by Lehman.
We are required for accounting purposes to assess the carrying value of assets whenever circumstances
indicate that a decline in value may have occurred. In 2008, 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. The ultimate amount to be realized on the
Lehman Guaranteed Installment Note depends entirely on the proceeds from the Lehman bankruptcy estate,
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