OfficeMax 2011 Annual Report Download - page 111

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15. Commitments and Guarantees
Commitments
During the second quarter of 2011, we entered into a new paper supply contract with Boise White Paper,
L.L.C. (“Boise”), under which we have agreed to purchase office papers from Boise, and Boise has agreed to
supply office papers to us, subject to the terms and conditions of the paper supply contract. The new paper supply
contract replaced the previous supply contract executed in 2004 with Boise.
The paper supply contract requires us to purchase from Boise and Boise to sell to us virtually all of our
North American requirements for office paper, subject to certain conditions. After 2012, the paper supply
contract provides us more flexibility to purchase paper from paper producers other than Boise. The paper supply
contract’s term will expire on December 31, 2017, followed by a gradual reduction of the Company’s purchase
requirements over a two year period thereafter. However, if certain circumstances occur, the term may be
terminated earlier, beginning as early as December 31, 2012. If the term ends December 31, 2012, it will be
followed by a gradual reduction of the Company’s purchase requirements over a four year period. If the term
ends on a later date, the gradual reduction period will last two years. Purchases under the agreement were
$630.1 million, $615.6 million and $633.9 million for 2011, 2010 and 2009, respectively.
In accordance with an amended and restated joint venture agreement, the minority owner of Grupo
OfficeMax, our joint-venture in Mexico, can elect to require OfficeMax to purchase the minority owner’s 49%
interest in the joint venture if certain earnings targets are achieved. Earnings targets are calculated quarterly on a
rolling four-quarter basis. Accordingly, the targets may be achieved in one quarter but not in the next. If the
earnings targets are achieved and the minority owner elects to require OfficeMax to purchase the minority
owner’s interest, the purchase price is based on the joint venture’s earnings and the current market multiples of
similar companies. At the end of 2011, Grupo OfficeMax met the earnings targets and the estimated purchase
price of the minority owner’s interest was $27.6 million. This represents a decrease in the estimated purchase
price from the prior year which is attributable to lower market multiples for similar companies as of the
measurement date. As the estimated purchase price was less than the carrying value of the noncontrolling interest
as of the end of the year, the Company reduced the noncontrolling interest to the carrying value, with the offset
recorded to additional paid-in capital. There is no impairment relating to the assets of the joint venture as the
estimated future cash flows support the overall carrying value of its assets.
Guarantees
The Company provides guarantees, indemnifications and assurances to 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 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 31,
2011, the Company is not aware of any material liabilities arising from these indemnifications.
There are six 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
$3.0 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 31, 2011, the Company is not aware of any material
liabilities arising from these indemnifications.
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