OMX Officemax Incorporated

NAPERVILLE, Ill., August 1 /PRNewswire-FirstCall/ -- OfficeMax(R) Incorporated (NYSE:OMX) today reported net income of $27.4 million, or $.35 per diluted share, for the second quarter ended June 30, 2007 compared with net income of $27.4 million, or $.35 per diluted share, in the second quarter of 2006. Net income and diluted earnings per share increased approximately 20% in the second quarter of 2007 from net income of $23.0 million, or $.29 per diluted share in the second quarter of 2006, excluding special items. A detailed description of prior quarter special items, and a reconciliation to the company's GAAP financial results, are included in this press release. "Our results for the second quarter showed progress in many areas, but aspects of our businesses remain opportunities for improvement," said Sam Duncan, Chairman and CEO of OfficeMax. "In our Contract segment, operating margin contracted from lower-margin sales in spite of the benefit of some expense leverage. In our Retail segment, positive same store sales, expanded gross margins and cost containment delivered operating income margin improvement." Contract Segment OfficeMax Contract segment sales increased 4.4% to $1.2 billion in the second quarter of 2007 compared to the second quarter of 2006, reflecting U.S. Contract sales growth of 2.2% and international contract operations sales growth of 11.1% in U.S. dollars, or 2.9% in local currencies. Contract segment operating income decreased to $41.0 million in the second quarter of 2007 from $44.4 million in the second quarter last year. Contract segment gross margin decreased to 21.4% in the second quarter of 2007 from 22.1% in the second quarter of 2006, primarily due to the continued impact of new and renewing accounts with lower gross margin rates, the impact of higher paper prices, partially offset by improved vendor funding. Contract segment operating income margin in the second quarter of 2007 benefited from expense leverage in International Contract operations and targeted cost controls. Retail Segment OfficeMax Retail segment sales increased 4.6% to $935.3 million in the second quarter of 2007 compared to the second quarter of 2006. Retail segment same-store sales increased 1.6% in the second 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 increased by 2.7% during the second quarter of 2007. Retail segment operating income increased to $24.7 million in the second quarter of 2007 from $18.2 million, excluding special items, in the second quarter of 2006. Retail segment gross margin increased to 29.9% in the second quarter of 2007 from 29.7% in the second quarter of 2006, primarily due to improved vendor funding and more effective promotional strategies. Retail segment operating income margin in the second quarter of 2007 benefited from lower occupancy costs and reduced advertising expense, partially offset by increased allocated general and administrative expenses. During the second quarter of 2007, OfficeMax opened 9 new retail stores and closed 1 store, ending the quarter with 923 retail stores in the U.S. and Mexico compared with 874 stores at the end of the second 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. Corporate and Other segment operating expense decreased to $9.8 million in the second quarter of 2007 from $14.1 million, excluding special items, in the second quarter of 2006, primarily due to reduced legacy-related costs. OfficeMax generated $120.9 million of cash from operations in the second quarter of 2007, an increase of $41.9 million from the second quarter of 2006. OfficeMax invested $31.3 million for capital expenditures in the second quarter of 2007 compared to $23.7 million in the second quarter of 2006. As of June 30, 2007, OfficeMax reported total debt of $391.5 million excluding the timber securitization notes, and cash and cash equivalents of $220.6 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 plans to address sales margin, 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 second 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) June 30, December 30, 2007 2006 ASSETS Current assets: Cash and cash equivalents $220,615 $282,070 Receivables, net 531,689 562,528 Inventories 1,053,769 1,071,486 Other current assets 157,221 180,760 Total current assets 1,963,294 2,096,844 Property and equipment: Property and equipment 1,227,722 1,189,686 Accumulated depreciation (652,496) (610,061) Property and equipment, net 575,226 579,625 Goodwill and intangible assets, net 1,437,995 1,417,336 Timber notes receivable 1,635,000 1,635,000 Other non-current assets 413,842 487,243 Total assets $6,025,357 $6,216,048 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings $6,985 $- Current portion of long - term debt 34,886 25,634 Accounts payable 823,093 997,700 Accrued liabilities and other 458,069 505,569 Total current liabilities 1,323,033 1,528,903 Long - term debt: Long - term debt, less current portion 349,579 384,246 Timber notes securitized 1,470,000 1,470,000 Total long - term debt 1,819,579 1,854,246 Other long - term obligations: Compensation and benefits 271,243 287,122 Other long - term liabilities 480,293 530,248 Total other long - term liabilities 751,536 817,370 Minority interest 32,005 29,885 Shareholders' equity: Preferred stock 51,731 54,735 Common stock 188,411 187,226 Additional paid - in capital 905,585 893,848 Retained earnings 999,239 941,830 Accumulated other comprehensive loss (45,762) (91,995) Total shareholders' equity 2,099,204 1,985,644 Total liabilities and shareholders' equity $6,025,357 $6,216,048 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) (thousands, except per-share amounts) Quarter Ended June 30, July 1, 2007 2006 Sales $2,132,417 $2,040,951 Cost of goods sold and occupancy costs 1,596,619 1,521,954 Gross profit 535,798 518,997 Operating and other expenses: Operating and selling 392,581 385,299 General and administrative 88,719 86,671 Other operating (income) expense, net (1,447) 456 Operating income 55,945 46,571 Other income (expense): Interest expense (29,959) (30,214) Interest income 21,776 22,103 Other income (expense), net (2,232) 6,727 (10,415) (1,384) Income from continuing operations before income taxes and minority interest 45,530 45,187 Income tax expense (17,757) (17,284) Income from continuing operations before minority interest 27,773 27,903 Minority interest, net of income tax (337) (508) Income from continuing operations 27,436 27,395 Net income 27,436 27,395 Preferred dividends (1,008) (1,009) Net income applicable to common shareholders $26,428 $26,386 Basic income (loss) per common share: Continuing operations $0.35 $0.36 Discontinued operations - - Basic income (loss) per common share $0.35 $0.36 Diluted income (loss) per common share: Continuing operations $0.35 $0.35 Discontinued operations - - Diluted income (loss) per common share $0.35 $0.35 Weighted Average Shares Basic 75,344 72,877 Diluted 76,593 74,924 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (unaudited) (thousands, except per-share amounts) Six Months Ended June 30, July 1, 2007 2006 Sales $4,568,671 $4,464,488 Cost of goods sold and occupancy costs 3,409,649 3,318,737 Gross profit 1,159,022 1,145,751 Operating and other expenses: Operating and selling 813,349 818,344 General and administrative 182,656 175,904 Other operating (income) expense, net (3,023) 113,296 Operating income (loss) 166,040 38,207 Other income (expense): Interest expense (60,075) (61,717) Interest income 44,814 43,217 Other income (expense), net (5,680) 4,561 (20,941) (13,939) Income from continuing operations before income taxes and minority interest 145,099 24,268 Income tax expense (56,589) (9,290) Income from continuing operations before minority interest 88,510 14,978 Minority interest, net of income tax (2,535) (1,689) Income from continuing operations 85,975 13,289 Discontinued operations: Operating loss - (17,972) Income tax benefit - 6,991 Loss from discontinued operations - (10,981) Net income (loss) 85,975 2,308 Preferred dividends (2,015) (2,018) Net income applicable to common shareholders $83,960 $290 Basic income (loss) per common share: Continuing operations $1.12 $0.15 Discontinued operations - (0.15) Basic income (loss) per common share $1.12 $- Diluted income (loss) per common share: Continuing operations $1.10 $0.15 Discontinued operations - (0.15) Diluted income (loss) per common share $1.10 $- Weighted Average Shares Basic 75,168 71,855 Diluted 76,168 73,510 OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (thousands) Six Months Ended June 30, July 1, 2007 2006 Cash provided by (used for) operations: Net income $85,975 $2,308 Items in net income not using (providing) cash: Depreciation and amortization 65,106 60,316 Other 18,602 30,980 Changes other than from acquisitions of business: Receivables and inventory 51,245 217,532 Accounts payable and accrued liabilities (253,383) (180,825) Income taxes and other 72,998 20,669 Cash provided by operations 40,543 150,980 Cash provided by (used for) investment: Expenditures for property and equipment (59,440) (46,996) Other (1,948) 596 Cash used for investment (61,388) (46,400) Cash provided by (used for) financing: Cash dividends paid (24,453) (23,268) Changes in debt, net (18,489) (84,144) Proceeds from exercise of stock options 5,211 104,623 Other (2,879) (33) Cash used for financing (40,610) (2,822) Increase (decrease) in cash and cash equivalents (61,455) 101,758 Cash and cash equivalents at beginning of period 282,070 72,198 Cash and cash equivalents at end of period $220,615 $173,956 OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION (unaudited) (millions, except per-share data) Quarter Ended June 30, 2007 July 1, 2006 Before Before As Special Special As Special Special Reported Items Items Reported Items (a) Items (b) Segment Sales OfficeMax, Contract $1,197.2 $1,197.2 $1,146.7 $1,146.7 OfficeMax, Retail 935.3 935.3 894.2 894.2 2,132.5 2,132.5 2,040.9 2,040.9 Segment income (loss) OfficeMax, Contract $41.0 $- $41.0 $44.4 $- $44.4 OfficeMax, Retail 24.7 - 24.7 27.2 (9.0) 18.2 Corporate and Other (9.8) - (9.8) (25.0) 10.9 (14.1) Operating income (loss) 55.9 - 55.9 46.6 1.9 48.5 Operating income margin 2.6% 2.6% 2.3% 2.4% Interest expense (30.0) - (30.0) (30.2) - (30.2) Interest income and other 19.6 - 19.6 28.8 (9.2) 19.6 Income (loss) from continuing operations before income taxes and minority interest 45.5 - 45.5 45.2 (7.3) 37.9 Income taxes (17.8) - (17.8) (17.3) 2.9 (14.4) Income (loss) from continuing operations before minority interest 27.7 - 27.7 27.9 (4.4) 23.5 Minority interest, net of income tax (0.3) - (0.3) (0.5) - (0.5) Income (loss) from continuing operations 27.4 - 27.4 27.4 (4.4) 23.0 Net income (loss) $27.4 $- $27.4 $27.4 $(4.4) $23.0 Diluted income (loss) per common share Continuing operations $0.35 $- $0.35 $0.35 $(0.06) $0.29 Discontinued operations - - - - - - Diluted income (loss) per common share $0.35 $- $0.35 $0.35 $(0.06) $0.29 Totals may not foot due to rounding. (a) See Note 3 for a discussion of these special items. (b) 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) Six Months Ended June 30, 2007 July 1, 2006 Before Before As Special Special As Special Special Reported Items (a) Items Reported Items (b) Items (c) Segment Sales OfficeMax, Contract $2,461.7 $2,461.7 $2,377.5 $2,377.5 OfficeMax, Retail 2,107.0 2,107.0 2,087.0 2,087.0 4,568.7 4,568.7 4,464.5 4,464.5 Segment income (loss) OfficeMax, Contract $100.9 $- $100.9 $111.5 $- $111.5 OfficeMax, Retail 89.3 - 89.3 (10.8) 89.5 78.7 Corporate and Other (24.1) - (24.1) (62.5) 26.6 (35.9) Operating income (loss) 166.1 - 166.1 38.2 116.1 154.3 Operating income margin 3.6% 3.6% 0.9% 3.5% Interest expense (60.1) - (60.1) (61.7) - (61.7) Interest income and other 39.1 - 39.1 47.8 (9.2) 38.6 Income (loss) from continuing operations before income taxes and minority interest 145.1 - 145.1 24.3 106.9 131.2 Income taxes (56.6) - (56.6) (9.3) (41.6) (50.9) Income (loss) from continuing operations before minority interest 88.5 - 88.5 15.0 65.3 80.3 Minority interest, net of income tax (2.5) 1.1 (1.4) (1.7) - (1.7) Income (loss) from continuing operations 86.0 1.1 87.1 13.3 65.3 78.6 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) $86.0 $1.1 $87.1 $2.3 $76.3 $78.6 Diluted income (loss) per common share Continuing operations $1.10 $0.02 $1.12 $0.15 $0.89 $1.04 Discontinued operations - - - (0.15) 0.15 - Diluted income (loss) per common share $1.10 $0.02 $1.12 $- $1.04 $1.04 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 second quarter and first six months 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. 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 retail stores, and 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, income (expense) net. (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/

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