OfficeMax 2012 Annual Report Download - page 121

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15. Commitments and Guarantees
Commitments
On June 25, 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, 2013. If the term ends December 31, 2013 or a later date,
it will be followed by a gradual reduction of the Company’s purchase requirements over a two year period.
Purchases under the agreement were $645.5 million, $630.1 million and $615.6 million for 2012, 2011 and 2010,
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 2012, Grupo OfficeMax met the earnings targets and the estimated purchase
price of the minority owner’s interest was $43.7 million. This represents an increase in the estimated purchase
price from the prior year which is attributable to higher market multiples for similar companies as of the
measurement date and higher earnings for Grupo OfficeMax. As the estimated purchase price was greater than
the carrying value of the noncontrolling interest as of the end of the year, the Company recorded an adjustment to
state the noncontrolling interest at the estimated purchase price, and, as the estimated purchase price
approximates fair value, the offset was recorded to additional paid-in capital.
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 29, 2012, the Company is not aware of any material liabilities arising from these
indemnifications.
There are seven 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
$3.5 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, 2012, the Company is not aware of any material
liabilities arising from these indemnifications.
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