OMX Officemax Incorporated

NAPERVILLE, Ill., May 3 /PRNewswire-FirstCall/ -- OfficeMax(R) Incorporated (NYSE:OMX) today reported results for the first quarter ended March 31, 2007, including net income of $58.6 million, or $.76 per diluted share, compared with a net loss of $25.1 million, or $.37 per diluted share, in the first quarter of 2006. The first quarter of 2007 included a $1.1 million loss on the sale of our OfficeMax Contract operations in Mexico to our 51% owned Mexico joint venture. A detailed description of special items for this quarter and the same quarter last year and a reconciliation to the company's GAAP financial results are included in this press release. Excluding special items, net income for the first quarter of 2007 increased 7.2% to $59.7 million from $55.7 million in the first quarter of 2006. Excluding special items, diluted earnings per share were $.77 in both of the first quarters of 2007 and 2006. "Our results for the first quarter showed moderate improvement," said Sam Duncan, Chairman and CEO of OfficeMax. "In our Contract segment, we are addressing lower-margin sales which contributed to operating income margin contraction. In our Retail segment, we are pleased with continued gross margin expansion which delivered operating income margin improvement. Overall, we believe that our strategic initiatives support our turnaround plans and our pursuit of generating long-term shareholder value." Contract Segment OfficeMax Contract segment sales increased 2.7% to $1.3 billion in the first quarter of 2007 compared to the first quarter of 2006, reflecting sales growth in both our U.S. and international contract operations. Contract segment operating income decreased to $59.9 million in the first quarter of 2007 from $67.0 million in the first quarter last year. Contract segment gross margin decreased to 22.1% in the first quarter of 2007 from 23.2% in the first quarter of 2006, primarily due to the impact of new and renewing accounts with lower gross margin rates. Contract segment operating income in the first quarter of 2007 benefited from targeted expense controls partially offset by increased sales compensation. Retail Segment OfficeMax Retail segment sales decreased 1.8% to $1.2 billion in the first quarter of 2007 compared to the first quarter of 2006, primarily due to the impact of 109 strategic store closings completed during the first quarter of 2006. Retail segment same-store sales increased 0.5% in the first quarter of 2007. 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 2% during the first quarter of 2007. Retail segment operating income increased to $64.6 million in the first quarter of 2007 from $60.6 million, excluding special items, in the first quarter of 2006. Retail segment gross margin increased to 29.3% in the first quarter of 2007 from 28.6% in the first quarter of 2006, primarily due to more effective promotional and marketing strategies and improved vendor funding. Retail segment operating income in the first quarter of 2007 benefited from reduced payroll-related and occupancy costs, offset by increased advertising expense and allocated general and administrative expenses. During the first quarter of 2007, OfficeMax opened 9 new retail stores, ending the quarter with 915 retail stores compared with 867 stores at the end of the first quarter of 2006. 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, Corporate and Other segment operating expense decreased by $7.3 million to $14.4 million in the first quarter of 2007 from the first quarter of 2006, primarily due to reduced legacy company costs. OfficeMax used $80.4 million of cash for operations in the first quarter of 2007, a decrease of $152.3 million from the first quarter of 2006, reflecting changes in working capital and the impact of new stores and prior year strategic store closures. OfficeMax invested $28.1 million for capital expenditures in the first quarter of 2007 compared to $23.3 million in the first quarter of 2006. At March 31, 2007, OfficeMax reported total debt of $384.5 million excluding the timber securitization notes, and cash and cash equivalents of $139.6 million. 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 the company's turnaround plans, 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 it will successfully execute its turnaround plans or that its actual results will be consistent with the forward-looking 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, 2006, 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 first quarter 2007 results at 9:00 a.m. Eastern Daylight Time (8:00 a.m. Central Daylight Time) today. 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 audio 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 Incorporated is a leader in both business-to-business and retail office products distribution. The OfficeMax mission is simple: to help our customers do their best work. The company provides office supplies, print and document services through OfficeMax Impress(TM), 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, e-commerce and more than 900 stores. For more information, visit: http://www.officemax.com/. OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (unaudited) (thousands) March 31, December 30, 2007 2006 ASSETS Current assets: Cash and cash equivalents $139,645 $282,070 Receivables, net 559,708 562,528 Inventories 1,018,035 1,071,486 Other current assets 165,227 180,760 Total current assets 1,882,615 2,096,844 Property and equipment: Property and equipment 1,204,982 1,189,686 Accumulated depreciation (629,562) (610,061) Property and equipment, net 575,420 579,625 Goodwill and intangible assets, net 1,419,038 1,417,336 Timber notes receivable 1,635,000 1,635,000 Other non-current assets 488,508 487,243 Total assets $6,000,581 $6,216,048 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt 34,885 25,634 Accounts payable 781,030 997,700 Accrued liabilities and other 519,343 505,569 Total current liabilities 1,335,258 1,528,903 Long-term debt: Long-term debt, less current portion 349,622 384,246 Timber notes securitized 1,470,000 1,470,000 Total long-term debt 1,819,622 1,854,246 Other long-term obligations: Compensation and benefits 276,471 287,122 Other long-term liabilities 500,630 530,248 Total other long-term liabilities 777,101 817,370 Minority interest 30,309 29,885 Shareholders' equity: Preferred stock 53,715 54,735 Common stock 188,272 187,226 Additional paid-in capital 897,640 893,848 Retained earnings 983,094 941,830 Accumulated other comprehensive loss (84,430) (91,995) Total shareholders' equity 2,038,291 1,985,644 Total liabilities and shareholders' equity $6,000,581 $6,216,048 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) (thousands, except per--share amounts) Quarter Ended March 31, April 1, 2007 2006 Sales $2,436,253 $2,423,537 Cost of goods sold and occupancy costs 1,813,029 1,796,783 Gross profit 623,224 626,754 Operating and other expenses: Operating and selling 420,768 433,045 General and administrative 93,937 89,233 Other operating (income) expense, net (1,576) 112,840 Operating income (loss) 110,095 (8,364) Other income (expense): Interest expense (30,116) (31,503) Interest income 23,037 21,114 Other expense, net (3,447) (2,166) (10,526) (12,555) Income (loss) from continuing operations before income taxes and minority interest 99,569 (20,919) Income tax expense (38,832) 7,994 Income (loss) from continuing operations before minority interest 60,737 (12,925) Minority interest, net of income tax (2,198) (1,181) Income (loss) from continuing operations 58,539 (14,106) Discontinued operations: Operating loss -- (17,972) Income tax benefit -- 6,991 Loss from discontinued operations -- (10,981) Net income (loss) 58,539 (25,087) Preferred dividends (1,008) (1,009) Net income (loss) applicable to common shareholders $57,531 $(26,096) Basic income (loss) per common share: Continuing operations $0.77 $(0.21) Discontinued operations -- (0.16) Basic income (loss) per common share $0.77 $(0.37) Diluted income (loss) per common share: Continuing operations $0.76 $(0.21) Discontinued operations -- (0.16) Diluted income (loss) per common share $0.76 $(0.37) Weighted Average Shares Basic 74,992 70,833 Diluted 75,744 70,833 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) Quarter Ended March 31, April 1, 2007 2006 Cash provided by (used for) operations: Net income (loss) $58,539 $(25,087) Items in net income (loss) not using (providing) cash: Depreciation and amortization 32,083 31,114 Other 10,832 23,800 Changes other than from acquisitions of business: Receivables and inventory 62,467 250,307 Accounts payable and accrued liabilities (251,026) (214,362) Income taxes and other 6,712 6,173 Cash provided by (used for) operations (80,393) 71,945 Cash provided by (used for) investment: Expenditures for property and equipment (28,124) (23,321) Other -- 596 Cash used for investment (28,124) (22,725) Cash provided by (used for) financing: Cash dividends paid (11,235) (10,620) Changes in debt, net (25,681) (34,454) Proceeds from exercise of stock options 3,903 -- Other (895) 300 Cash provided used for financing (33,908) (44,774) Increase (decrease) in cash and cash equivalents (142,425) 4,446 Cash and cash equivalents at beginning of period 282,070 72,198 Cash and cash equivalents at end of period $139,645 $76,644 OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION (unaudited) (millions, except per-share data) Quarter Ended March 31, 2007 April 1, 2006 Special Before Special Before As Items Special As Items Special Reported (a) Items Reported (b) Items (c) Segment Sales OfficeMax, Contract $1,264.5 $1,264.5 $1,230.7 $1,230.7 OfficeMax, Retail 1,171.8 1,171.8 1,192.8 1,192.8 2,436.3 2,436.3 2,423.5 2,423.5 Segment income(loss) OfficeMax, Contract $59.9 $-- $59.9 $67.0 $-- $67.0 OfficeMax, Retail 64.6 -- 64.6 (38.0) 98.6 60.6 Corporate and Other (14.4) -- (14.4) (37.4) 15.7 (21.7) Operating income (loss) 110.1 -- 110.1 (8.4) 114.3 105.9 Operating income margin 4.5% 4.5% -0.3% 4.4% Interest expense (30.1) -- (30.1) (31.5) -- (31.5) Interest income and other 19.6 -- 19.6 19.0 -- 19.0 Income (loss) from continuing operations before income taxes and minority interest 99.6 -- 99.6 (20.9) 114.3 93.4 Income taxes (38.8) -- (38.8) 8.0 (44.5) (36.5) Income (loss) from continuing operations before minority interest 60.8 -- 60.8 (12.9) 69.8 56.9 Minority interest, net of income tax (2.2) 1.1 (1.1) (1.2) -- (1.2) Income (loss) from continuing operations 58.6 1.1 59.7 (14.1) 69.8 55.7 Discontinued operations Operating loss -- -- -- (18.0) 18.0 -- Income tax benefit -- -- -- 7.0 (7.0) -- Loss from discontinued operations -- -- -- (11.0) 11.0 -- Net income (loss) $58.6 $1.1 $59.7 $(25.1) $80.8 $55.7 Diluted income (loss) per common share Continuing operations $0.76 $0.01 $0.77 $(0.21) $0.98 $0.77 Discontinued operations -- -- -- (0.16) 0.16 -- Diluted income (loss) per common share $0.76 $0.01 $0.77 $(0.37) $1.14 $0.77 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. (1) Financial Information The quarterly and annual consolidated financial statements included in this release are unaudited, and should be read in conjunction with the audited financial statements in our 2006 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 first quarter of both 2007 and 2006. (3) 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 and we incurred $15.7 million of expenses in our Corporate and Other segment related to our headquarters consolidation primarily for employee severance and retention. (4) 2007 Special Items First Quarter 2007 During the first quarter of 2007, we sold OfficeMax Contract's operations in Mexico to OfficeMax de Mexico, our 51% owned joint venture, resulting in a net loss of $1.1 million which is included in minority interest, net of income tax in our Consolidated Statements of Income (Loss) for 2007. (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 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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