OMX Officemax Incorporated

NAPERVILLE, Ill., Oct. 26 /PRNewswire-FirstCall/ -- OfficeMax(R) Incorporated (NYSE:OMX) today reported results for the third quarter ended September 30, 2006, including net income of $31.4 million, or $.41 per diluted share, compared with a net loss of $3.9 million, or $.07 per diluted share, in the third quarter of 2005. Results for the third quarter include items which are not expected to be ongoing. A detailed description of these special items and a reconciliation to the company's GAAP financial results are included in this press release. For the third quarter of 2006, net income before special items was $43.2 million, or $.56 per diluted share, compared with net income before special items of $9.9 million, or $.12 per diluted share, in the third quarter of 2005. "We are pleased with our third quarter results," said Sam Duncan, Chairman and Chief Executive Officer of OfficeMax. "In both our Contract and Retail segments, we continued to execute our turnaround plan objectives to deliver substantial operating income margin growth." Contract Segment OfficeMax Contract segment sales increased 1.2% in the third quarter of 2006 compared to the third quarter of 2005, reflecting modest sales growth in both our U.S. and international operations. Excluding the special item, Contract segment operating income increased to $45.7 million in the third quarter of 2006 from $34.0 million in the third quarter last year. Contract segment gross margin increased to 22.3% in the third quarter of 2006 from 21.7% in the third quarter of 2005, primarily due to a focus on higher margin sales opportunities, including growing our middle market business, and improvement in our international operations. Contract segment operating income in the third quarter of 2006 also benefited from reduced integration costs and targeted cost reduction programs. Retail Segment OfficeMax Retail segment same-store sales growth during the third quarter of 2006 was flat. Adjusted for the company's initiative to eliminate mail-in rebates and to provide instant rebates in lieu of national, vendor-sponsored mail-in rebates, same-store sales improved by approximately 1% during the third quarter of 2006. Retail segment total sales decreased 5% in the third quarter of 2006 compared to the third quarter of 2005, due primarily to the impact of 109 strategic store closings completed during the first quarter of 2006. Retail segment operating income for the third quarter of 2006 increased to $54.8 million from $16.1 million in the third quarter of 2005. Retail segment gross margin increased to 30.1% for the third quarter of 2006 from 26.7% last year due primarily to more effective promotional activity. Retail segment operating income in the third quarter of 2006 benefited from targeted cost reduction programs, including reduced store labor and advertising expense, partially offset by higher allocated general and administrative expense. During the third quarter of 2006, OfficeMax opened 10 new retail stores, ending the quarter with 884 retail stores compared with 955 stores at the end of the third quarter of 2005. Corporate and Other Segment The OfficeMax Corporate and Other segment includes support staff services and certain other expenses that are not fully allocated to the Retail and Contract segments. Excluding special items in both periods, Corporate and Other segment operating expense increased by $1.6 million to $18.8 million in the third quarter of 2006 from the third quarter of 2005, primarily due to increased incentive compensation expense, partially offset by reduced legacy company costs. During the third quarter of 2006, OfficeMax generated $188.8 million in cash from operations and used $49.8 million for capital expenditures. For the first nine months of 2006, OfficeMax generated $339.8 million in cash from operations and used $96.8 million for capital expenditures. At September 30, 2006, net debt, or total debt excluding the timber securitization notes less cash and cash equivalents and restricted investments, was $74.0 million. Financial Outlook OfficeMax currently expects full year 2006 operating income margin to be in the middle of the previously-announced range of 3.0% to 3.5%, excluding special items. Special items, including charges for retail store closures, the Contract segment reorganization and the company's headquarters consolidation, are expected to reduce operating income margin by approximately 1.5% for the full year 2006. Forward-Looking Statements Some statements made in this press release and other written or oral statements made by or on behalf of the company constitute "forward-looking statements" within the meaning of the federal securities laws, including statements regarding future events and developments and the company's future performance, as well as management's expectations, beliefs, intentions, plans, estimates or projections relating to the future. Management believes that these forward-looking statements are reasonable. However, the company cannot guarantee that its actual results will be consistent with such statements and you should not place undue reliance on them. These statements are based on current expectations and speak only as of the date they are made. The company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. Important factors regarding the company which may cause results to differ from expectations are included in the company's Annual Report on Form 10-K for the year ended December 31, 2005, including under the caption "Cautionary and Forward-Looking Statements," in Item 1A of that form, and in the company's other filings with the SEC. Conference Call Information OfficeMax will host a conference call with investors and analysts to discuss the third quarter 2006 results on Thursday, October 26, 2006, at 10:00 am. Eastern Time (9:00 a.m. Central Time). An audio webcast of the conference call can be accessed via the Internet by visiting the Investors section of the OfficeMax website at http://investor.officemax.com/ . To participate in the conference call, dial (800) 374-0165; international callers should dial (706) 634-0995. The webcast will be archived and available online for one year following the call and will be posted on the "Presentations" page located within the Investors section of the OfficeMax website. About OfficeMax OfficeMax is a leader in both business-to-business and retail office products distribution. OfficeMax delivers an unparalleled customer experience -- in service, in product, in time savings, and in value -- through a relentless focus on its customers. The company provides office supplies and paper, print and document services, technology products and solutions, and furniture to large, medium and small businesses and consumers. OfficeMax customers are served by approximately 35,000 associates through direct sales, catalogs, Internet and approximately 880 superstores. OfficeMax trades on the New York Stock Exchange under the symbol OMX. More information can be found at http://www.officemax.com/ . OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (thousands) September 30, December 31, 2006 2005 ASSETS Current assets: Cash and cash equivalents $313,754 $72,198 Receivables, net 536,808 600,244 Merchandise inventories 908,680 1,114,570 Other current assets 134,167 155,037 Total current assets 1,893,409 1,942,049 Property and equipment: Property and equipment 1,131,586 1,083,563 Accumulated depreciation (595,916) (548,118) Property and equipment, net 535,670 535,445 Goodwill and intangible assets, net 1,407,126 1,423,432 Timber notes receivable 1,635,000 1,635,000 Other long-term assets 712,543 736,216 Total assets $6,183,748 $6,272,142 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $- 18,666 Current portion of long-term debt 25,573 68,648 Accounts payable 836,843 991,453 Accrued liabilities and other 526,039 509,559 Total current liabilities 1,388,455 1,588,326 Long-term debt: Long-term debt, less current portion 384,439 407,242 Timber securitization notes 1,470,000 1,470,000 Total long-term debt 1,854,439 1,877,242 Other long-term liabilities: Compensation and benefits 528,748 538,830 Other long-term liabilities 519,285 504,610 Total other long-term liabilities 1,048,033 1,043,440 Minority interest 27,602 27,455 Shareholders' equity: Preferred stock 54,735 54,735 Common stock 185,807 176,977 Additional paid-in capital 872,024 747,805 Retained earnings 895,053 898,283 Accumulated other comprehensive loss (142,400) (142,121) Total shareholders' equity 1,865,219 1,735,679 Total liabilities and shareholders' equity $6,183,748 $6,272,142 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) (thousands, except per-share amounts) For the Quarter Ended September 30, September 24, 2006 2005 Sales $2,244,414 $2,287,695 Cost of goods sold and occupancy costs 1,659,603 1,734,459 Gross profit 584,811 553,236 Operating expenses: Operating and selling 413,185 439,264 General and administrative 91,479 86,299 Other expense, net 17,860 11,627 Operating income 62,287 16,046 Other income (expense): Interest expense (30,557) (31,658) Interest income 22,900 20,737 Other, net (1,401) 2,326 (9,058) (8,595) Income from continuing operations before income taxes and minority interest 53,229 7,451 Income taxes (20,250) (6,653) Income from continuing operations before minority interest 32,979 798 Minority interest, net of income taxes (1,604) (1,178) Income (loss) from continuing operations 31,375 (380) Discontinued operations Operating loss - (5,717) Income tax benefit - 2,224 Loss from discontinued operations - (3,493) Net income (loss) 31,375 (3,873) Preferred dividends (1,009) (1,093) Net income (loss) applicable to common shareholders $30,366 $(4,966) Basic income (loss) per common share Continuing operations $0.41 $(0.02) Discontinued operations - (0.05) Basic income (loss) per common share $0.41 $(0.07) Diluted income (loss) per common share Continuing operations $0.41 $(0.02) Discontinued operations - (0.05) Diluted income (loss) per common share $0.41 $(0.07) Weighted Average Shares Basic 74,235 70,711 Diluted 74,779 70,711 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (unaudited) (thousands, except per-share amounts) Nine Months Ended September 30, September 24, 2006 2005 Sales $6,708,902 $6,702,299 Cost of goods sold and occupancy costs 4,978,340 5,088,881 Gross profit 1,730,562 1,613,418 Operating and other expenses: Operating and selling 1,231,529 1,306,218 General and administrative 267,383 274,552 Other expense, net 131,156 22,295 Operating income 100,494 10,353 Other income (expense): Debt retirement expense - (14,391) Interest expense (92,274) (96,330) Interest income 66,117 76,090 Other, net 3,160 3,083 (22,997) (31,548) Income (loss) from continuing operations before income taxes and minority interest 77,497 (21,195) Income taxes (29,540) 5,097 Income (loss) from continuing operations before minority interest 47,957 (16,098) Minority interest, net of income taxes (3,293) (2,541) Income (loss) from continuing operations 44,664 (18,639) Discontinued operations Operating loss (17,972) (19,745) Income tax benefit 6,991 7,681 Loss from discontinued operations (10,981) (12,064) Net income (loss) 33,683 (30,703) Preferred dividends (3,027) (3,354) Net income (loss) applicable to common shareholders $30,656 $(34,057) Basic income (loss) per common share Continuing operations $0.57 $(0.27) Discontinued operations (0.15) (0.15) Basic income (loss) per common share $0.42 $(0.42) Diluted income (loss) per common share Continuing operations $0.57 $(0.27) Discontinued operations (0.15) (0.15) Diluted income (loss) per common share $0.42 $(0.42) Weighted Average Shares Basic 72,648 81,667 Diluted 73,251 81,667 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) For the Nine Months Ended September 30, September 24, 2006 2005 Cash provided by (used for)operations: Net income (loss) $33,683 $(30,703) Items in net income (loss) not using (providing) cash Depreciation and amortization of intangibles 92,570 111,170 Other 46,821 40,529 Changes other than from acquisitions of businesses Receivables and inventory 254,862 216,218 Accounts payable and accrued liabilities (133,226) (224,145) Income taxes and other 45,055 (214,098) Cash provided by (used for) for operations 339,765 (101,029) Cash provided by (used for)investment: Expenditures for property and equipment (96,775) (109,269) Proceeds from sale of assets - 93,119 Acquisition of businesses - (33,028) Other 4,438 1,503 Cash provided by (used for) investment (92,337) (47,675) Cash provided by (used for) financing: Cash dividends paid (34,376) (40,893) Changes in debt, net (84,144) (212,931) Purchase of common stock (34) (780,407) Proceeds from exercise of stock options 112,682 23,811 Other - (4,978) Cash provided by (used for) financing (5,872) (1,015,398) Increase (decrease) in cash and cash equivalents 241,556 (1,164,102) Cash and equivalents at beginning of period 72,198 1,242,542 Cash and equivalents at end of period $313,754 $78,440 OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION (unaudited) (millions, except per-share data) For the Quarter Ended September 30, 2006 September 24, 2005 Special Before Special Before As Items Special As Items Special Reported (a) Items (c) Reported (b) Items (c) Segment Sales OfficeMax, Contract $1,158.3 $1,158.3 $1,144.5 $1,144.5 OfficeMax, Retail 1,086.1 1,086.1 1,143.2 1,143.2 2,244.4 2,244.4 2,287.7 2,287.7 Segment income (loss) OfficeMax, Contract $37.8 $7.9 $45.7 $34.0 $- $34.0 OfficeMax, Retail 54.8 - 54.8 16.1 - 16.1 Corporate and Other (30.3) 11.5 (18.8) (34.0) 16.8 (17.2) Operating income 62.3 19.4 81.7 16.1 16.8 32.9 Operating income margin 2.8% 3.6% 0.7% 1.4% Interest expense (30.6) - (30.6) (31.7) - (31.7) Interest income and other 21.5 - 21.5 23.1 - 23.1 Income from continuing operations before income taxes and minority interest 53.2 19.4 72.6 7.5 16.8 24.3 Income taxes (20.2) (7.6) (27.8) (6.7) (6.5) (13.2) Income from continuing operations before minority interest 33.0 11.8 44.8 0.8 10.3 11.1 Minority interest, net of income tax (1.6) - (1.6) (1.2) - (1.2) Income (loss) from continuing operations 31.4 11.8 43.2 (0.4) 10.3 9.9 Discontinued operations Operating loss - - - (5.7) 5.7 - Income tax benefit - - - 2.2 (2.2) - Loss from discontinued operations - - - (3.5) 3.5 - Net income (loss) $31.4 $11.8 $43.2 $(3.9) $13.8 $9.9 Diluted income (loss) per common share Continuing operations $0.41 $0.15 $0.56 $(0.02) $0.14 $0.12 Discontinued operations - - - (0.05) 0.05 - Diluted income (loss) per common share $0.41 $0.15 $0.56 $(0.07) $0.19 $0.12 Totals may not foot due to rounding. (a) See Note 4 for a discussion of these special items. (b) See Notes 3 and 5 for a discussion of these special items. (c) For the purpose of evaluating our results, net of taxes, we have presented the results before special items using an estimated annual tax rate. For the purpose of presenting diluted income (loss) per common share before special items, we calculated diluted income (loss) per common share before special items without making any adjustments to the number of shares used in the calculation of diluted income (loss) per common share as reported. OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION (unaudited) (millions, except per-share data) Nine Months Ended September 30 , 2006 September 24, 2005 Special Before Special Before As Items Special As Items Special Reported (a) Items (c) Reported (b) Items (c) Segment Sales OfficeMax, Contract $3,535.8 $3,535.8 $3,407.1 $3,407.1 OfficeMax, Retail 3,173.1 3,173.1 3,295.2 3,295.2 6,708.9 6,708.9 6,702.3 6,702.3 Segment income (loss) OfficeMax, Contract $149.3 $7.9 $157.2 $76.0 $9.8 $85.8 OfficeMax, Retail 44.0 89.5 133.5 23.4 - 23.4 Corporate and Other (92.8) 38.1 (54.7) (89.1) 37.6 (51.5) Operating income 100.5 135.5 236.0 10.4 47.4 57.7 Operating income margin 1.5% 3.5% 0.2% 0.9% Debt retirement expenses - - - (14.4) 14.4 - Interest expense (92.3) - (92.3) (96.3) - (96.3) Interest income and other 69.3 (9.2) 60.0 79.2 (2.6) 76.6 Income (loss) from continuing operations before income taxes and minority interest 77.5 126.3 203.8 (21.2) 59.2 38.0 Income taxes (29.5) (49.1) (78.7) 5.1 (23.0) (17.9) Income (loss) from continuing operations before minority interest 48.0 77.2 125.1 (16.1) 36.1 20.0 Minority interest, net of income tax (3.3) - (3.3) (2.5) - (2.5) Income (loss) from continuing operations 44.7 77.2 121.8 (18.6) 36.1 17.5 Discontinued operations Operating loss (18.0) 18.0 - (19.7) 19.7 - Income tax benefit 7.0 (7.0) - 7.7 (7.7) - Loss from discontinued operations (11.0) 11.0 - (12.1) 12.1 - Net income (loss) $33.7 $88.1 $121.8 $(30.7) $48.2 $17.5 Diluted income (loss) per common share Continuing operations $0.57 $1.05 $1.62 $(0.27) $0.44 $0.17 Discontinued operations (0.15) 0.15 - (0.15) 0.15 - Diluted income (loss) per common share $0.42 $1.20 $1.62 $(0.42) $0.59 $0.17 Totals may not foot due to rounding. (a) See Notes 4 and 5 for a discussion of these special items. (b) See Notes 3 and 5 for a discussion of these special items. (c) For the purpose of evaluating our results, net of taxes, we have presented the results before special items using an estimated annual tax rate. For the purpose of presenting diluted income (loss) per common share before special items, we calculated diluted income (loss) per common share before special items without making any adjustments to the number of shares used in the calculation of diluted income (loss) per common share as reported. If adjustments for potential dilution are included, outstanding shares would have increased by approximately 2.4 million shares for 2005. (1) Financial Information The quarterly consolidated financial statements included in this release are unaudited, and should be read in conjunction with the audited financial statements in our 2005 Annual Report on Form 10-K. In all periods presented, the measurement of net income (loss) involved estimates and judgments. (2) Reconciliation of non-GAAP Measures to GAAP Measures We evaluate our results of operations both before and after special gains and losses. We believe our presentation of financial measures before special items, which are non-GAAP measures, enhances our investors' overall understanding of our recurring operational performance. Specifically, we believe presenting results before special items provides useful information to both investors and management by excluding gains, losses and expenses that are not indicative of our core operating activities. In the preceding tables, we reconcile our financial measures before special items to our reported GAAP financial results for the third quarter and first nine months of both 2006 and 2005. (3) 2005 Special Items First Quarter 2005 During the first quarter of 2005, we recorded expenses of $11.3 million in our Corporate and Other segment primarily for severance. We also recorded a $9.8 million charge in our Contract segment related to a legal settlement with the Department of Justice. During the first quarter of 2005, we also incurred costs related to the early retirement of debt of $12.2 million and realized a $2.6 million settlement gain from a previous asset sale. Second Quarter 2005 During the second quarter of 2005, we incurred $9.4 million of expenses in the Corporate and Other segment for severance and other expenses, primarily professional service fees, which are not expected to be ongoing. During the second quarter ended of 2005, we also incurred costs related to the early retirement of debt of $2.2 million. Third Quarter 2005 During the third quarter of 2005, we incurred $10.4 million of expenses in our Corporate and Other segment related to our headquarters consolidation, primarily for employee severance and retention. Also during the third quarter of 2005, we incurred other expenses for severance, unrelated to the headquarters consolidation, and asset write-offs of approximately $6.4 million in our Corporate and Other segment. (4) 2006 Special Items First Quarter 2006 During the first quarter of 2006, we closed 109 underperforming domestic retail stores and recorded a charge of $98.6 million in our Retail segment, primarily for remaining lease obligations. Also during the first quarter of 2006, we incurred $15.7 million of expenses in our Corporate and Other segment related to our headquarters consolidation, primarily for employee severance and retention. Second Quarter 2006 During the second quarter of 2006, we recorded a $9.0 million pre-tax benefit in our Retail segment from an adjustment to the reserve for closed stores. During the second quarter of 2006, we incurred $10.9 million of expenses in our Corporate and Other segment related to our headquarters consolidation, primarily for employee severance and retention. Also during the second quarter of 2006, we recognized a $9.2 million credit from an adjustment to the reserve for the additional consideration agreement that was entered into in connection with the October 2004 sale of our paper, forest products and timberland assets. This adjustment is included in Other, net (non-operating) in our Consolidated Statements of Income. Third Quarter 2006 During the third quarter of 2006, we incurred $11.5 million of expenses in our Corporate and Other segment related to our headquarters consolidation. Also, during the third quarter of 2006, we incurred $7.9 million of expenses in our Contract segment related to our Contract reorganization, primarily for severance. (5) Discontinued Operations In the first quarter of 2006, we ceased operations at the Company's wood-polymer building materials facility near Elma, Washington. The costs and expenses related to this business are reflected as discontinued operations in our Consolidated Statements of Income (Loss) for 2006 and 2005 and are included as special items in our Segment Information tables. Media Contact Investor Relations Contact Bill Bonner John Jennings 630 864 6066 630 864 6820 DATASOURCE: OfficeMax Incorporated Contact: Media, Bill Bonner, +1-630-864-6066, or Investor Relations, John Jennings, +1-630-864-6820, both of OfficeMax Incorporated Web site: http://www.officemax.com/ http://investor.officemax.com/

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