OfficeMax 2012 Annual Report Download - page 96

We recorded $6.2 million and $14.9 million of severance charges, related primarily to reorganizations in the
sales and supply chain operations in the U.S., Canada and Australia/New Zealand contract operations in 2012 and
2011, respectively. As of December 29, 2012, $6.0 million of the severance charges 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 (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. In 2008, we evaluated the carrying value of the Lehman
Guaranteed Installment Note and reduced it to the estimated amount we then expected to collect ($81.8 million)
by recording a non-cash impairment charge of $735.8 million, pre-tax.
An initial distribution of approximately $50 million on one of two claims was received from Lehman in the
second quarter of 2012 by the Note Issuers, pursuant to a stipulation entered into on October 7, 2011 and
approved by the bankruptcy court on December 14, 2011. The funds were released to the Securitization Note
holders in the third quarter of 2012.
During the third quarter of 2012, we entered into an agreement that extinguished the Securitization Notes
guaranteed by Lehman. Upon effectiveness of the agreement, the trustee for the Securitization Note holders
released OfficeMax and its affiliates from the non-recourse liabilities following the transfer from OfficeMax to
the trustee for the Securitization Note holders of the claims, the Lehman Guaranteed Installment Note and the
guaranty. As a result of the extinguishment of this debt, we recognized a non-cash, pre-tax gain of $670.8
million, equal to the difference between the combined amount of the carrying value of the Securitization Notes
guaranteed by Lehman ($735.0 million) and the related interest payable ($17.6 million) and the combined
amount of the carrying value of the Lehman Guaranteed Installment Note and the initial distribution made by the
Lehman estate (together $81.8 million.)
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