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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 29, 2008
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or
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number: 1-5057
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OFFICEMAX INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
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82-0100960
(I.R.S. Employer Identification No.)
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263 Shuman Boulevard
Naperville, Illinois
(Address of principal executive offices)
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60563
(Zip Code)
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(630) 438-7800
(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes
ý
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of "accelerated filer", "large accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.) Yes
o
No
ý
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
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Shares Outstanding
as of May 2, 2008
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Common Stock, $2.50 par value
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75,916,438
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TABLE OF CONTENTS
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PART IFINANCIAL INFORMATION
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|
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Item 1.
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Financial Statements
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2
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Item 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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22
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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31
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Item 4.
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Controls and Procedures
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31
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PART IIOTHER INFORMATION
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Item 1.
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Legal Proceedings
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32
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Item 1A.
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Risk Factors
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32
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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36
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Item 3.
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Defaults Upon Senior Securities
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36
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Item 4.
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Submission of Matters to a Vote of Security Holders
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36
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Item 5.
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Other Information
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36
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Item 6.
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Exhibits
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36
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1
PART IFINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OfficeMax Incorporated and Subsidiaries
Consolidated Statements of Income
(thousands, except per-share amounts)
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Three Months Ended
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March 29, 2008
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March 31, 2007
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(unaudited)
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Sales
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$
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2,302,921
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$
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2,436,253
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Cost of goods sold and occupancy costs
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1,715,092
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1,813,029
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Gross profit
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587,829
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623,224
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Operating expenses:
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Operating and selling
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424,389
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420,768
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General and administrative
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82,208
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93,937
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Other operating (income) expense, net
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2,614
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(1,576
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)
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Operating income
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78,618
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110,095
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Interest expense
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(29,680
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)
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(30,116
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)
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Interest income
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21,899
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23,037
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Other income (expense), net
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20,617
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(3,447
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)
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Income before income taxes and minority interest
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91,454
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99,569
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Income tax expense
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(27,254
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)
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(38,832
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)
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Income before minority interest
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64,200
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60,737
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Minority interest, net of income tax
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(857
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)
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(2,198
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)
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Net income
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63,343
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58,539
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Preferred dividends
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(975
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)
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(1,008
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)
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Net income applicable to common shareholders
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$
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62,368
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$
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57,531
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Income per common share:
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Basic
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$
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0.82
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$
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0.77
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Diluted
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$
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0.81
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$
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0.76
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See
accompanying notes to quarterly consolidated financial statements
2
OfficeMax Incorporated and Subsidiaries
Consolidated Balance Sheets
(thousands, except share and per-share amounts)
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March 29, 2008
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December 29, 2007
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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211,359
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$
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152,637
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Receivables, net
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675,069
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714,951
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Related party receivables
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8,451
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5,927
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Inventories
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984,372
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1,088,312
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Deferred income taxes
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132,716
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185,070
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Other current assets
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68,697
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57,804
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Total current assets
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2,080,664
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2,204,701
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Property and equipment:
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Land and land improvements
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37,846
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38,230
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Buildings and improvements
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394,218
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394,031
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Machinery and equipment
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872,142
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847,348
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Total property and equipment
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1,304,206
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1,279,609
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Accumulated depreciation
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(721,902
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)
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(698,954
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)
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Net property and equipment
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582,304
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580,655
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Goodwill
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1,216,339
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1,216,804
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Intangible assets, net
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198,451
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199,720
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Investments in affiliates
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175,000
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175,000
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Timber notes receivable
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1,635,000
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1,635,000
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Restricted investments
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22,377
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22,377
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Deferred charges
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55,166
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58,949
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Other non-current assets
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190,804
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190,562
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Total assets
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$
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6,156,105
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$
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6,283,768
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See accompanying notes to quarterly consolidated financial statements
3
OfficeMax Incorporated and Subsidiaries
Consolidated Balance Sheets
(thousands, except share and per-share amounts)
|
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March 29, 2008
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December 29, 2007
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(unaudited)
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current liabilities:
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Short-term borrowings
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$
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16,281
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$
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14,197
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Current portion of long-term debt
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7,698
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34,827
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Accounts payable:
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Trade
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729,706
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831,101
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Related parties
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41,712
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30,184
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Accrued expenses and other current liabilities:
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Compensation and benefits
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118,193
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125,983
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Other
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328,013
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334,417
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Total current liabilities
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1,241,603
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1,370,709
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Long-term debt:
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Long-term debt, less current portion
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344,315
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349,421
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Timber notes securitized
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1,470,000
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1,470,000
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Total long-term debt
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1,814,315
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1,819,421
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Other long-term obligations:
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Compensation and benefits
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191,759
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200,283
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Deferred gain on sale of assets
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179,757
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179,757
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Other long-term obligations
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372,819
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402,984
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Total other long-term obligations
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744,335
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783,024
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Minority interest (Note 16)
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33,414
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32,042
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Commitments and contingent liabilities
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Shareholders' equity:
|
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Preferred stockno par value; 10,000,000 shares authorized; Series D ESOP: $.01 stated value; 1,061,161 and 1,110,867 shares outstanding
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47,752
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49,989
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Common stock$2.50 par value; 200,000,000 shares authorized; 75,905,846 and 75,397,094 shares outstanding
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189,751
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188,481
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Additional paid-in capital
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|
916,645
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|
922,414
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Retained earnings
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1,145,943
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1,095,950
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Accumulated other comprehensive income
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22,347
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21,738
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Total shareholders' equity
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2,322,438
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2,278,572
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|
|
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Total liabilities and shareholders' equity
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$
|
6,156,105
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$
|
6,283,768
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|
|
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|
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See accompanying notes to quarterly consolidated financial statements
4
OfficeMax Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
(thousands)
|
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Three Months Ended
|
|
|
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March 29, 2008
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March 31, 2007
|
|
|
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(unaudited)
|
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Cash provided by (used for) operations:
|
|
|
|
|
|
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|
Net income
|
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$
|
63,343
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|
$
|
58,539
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|
Items in net income not using (providing) cash:
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|
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Earnings from affiliates
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(1,560
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)
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(1,576
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)
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Depreciation and amortization
|
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35,254
|
|
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32,083
|
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Minority interest, net of income tax
|
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|
857
|
|
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2,198
|
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Discontinued operations
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|
377
|
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Other
|
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2,350
|
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9,833
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Changes other than from acquisition of business:
|
|
|
|
|
|
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Receivables
|
|
|
39,431
|
|
|
9,016
|
|
|
Inventories
|
|
|
104,738
|
|
|
53,451
|
|
|
Accounts payable and accrued liabilities
|
|
|
(91,160
|
)
|
|
(251,026
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)
|
|
Current and deferred income taxes
|
|
|
2,313
|
|
|
41,067
|
|
|
Other
|
|
|
(13,140
|
)
|
|
(34,877
|
)
|
|
|
|
|
|
|
|
Cash provided by (used for) operations
|
|
|
142,426
|
|
|
(80,915
|
)
|
Cash provided by (used for) investment:
|
|
|
|
|
|
|
|
Expenditures for property and equipment
|
|
|
(33,278
|
)
|
|
(28,124
|
)
|
Other
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used for) investment
|
|
|
(32,975
|
)
|
|
(28,124
|
)
|
Cash provided by (used for) financing:
|
|
|
|
|
|
|
|
Cash dividends paid
|
|
|
(11,499
|
)
|
|
(11,235
|
)
|
Short-term borrowings, net
|
|
|
4,276
|
|
|
|
|
Payments of long-term debt
|
|
|
(34,727
|
)
|
|
(25,681
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
3,903
|
|
Other
|
|
|
(8,380
|
)
|
|
(895
|
)
|
|
|
|
|
|
|
|
Cash provided by (used for) financing
|
|
|
(50,330
|
)
|
|
(33,908
|
)
|
Effect of exchange rates on cash and cash equivalents
|
|
|
(399
|
)
|
|
522
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
58,722
|
|
|
(142,425
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
152,637
|
|
|
282,070
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
211,359
|
|
$
|
139,645
|
|
|
|
|
|
|
|
See
accompanying notes to quarterly consolidated financial statements
5
Notes to Quarterly Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
OfficeMax Incorporated ("OfficeMax," the "Company" or "we") is a leader in both business-to-business and retail office products
distribution. The Company provides office supplies and paper, print and document services, technology products and solutions and furniture to large, medium and small businesses, government offices,
and consumers. OfficeMax customers are serviced by approximately 36,000 associates through direct sales, catalogs, the Internet and a network of retail stores located throughout the United States,
Canada, Australia, New Zealand and Mexico.
The
accompanying quarterly consolidated financial statements include the accounts of OfficeMax and all majority-owned subsidiaries as well as those of variable interest entities in which
the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements are for the thirteen-week
period ended on March 29, 2008 (also referred to as the "first quarter of 2008") and the thirteen-week period ended on March 31, 2007 (also referred to as the "first quarter
of 2007"). The Company's fiscal year ends on the last Saturday in December. Due primarily to statutory audit requirements, the Company's international businesses maintain
December 31 year-ends.
The
Company has prepared the quarterly consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Some
information and note disclosures, which would normally be included in comprehensive annual financial statements prepared in accordance with accounting principles generally accepted in the United
States, have been condensed or omitted pursuant to those rules and regulations. These quarterly consolidated financial statements should be read together with the consolidated financial statements and
the accompanying notes included in the Company's Annual Report on Form 10-K for the year ended December 29, 2007.
The
quarterly consolidated financial statements included herein have not been audited by an independent registered public accounting firm, but in the opinion of management, include all
adjustments necessary to present fairly the results for the periods. Except as may be disclosed within these "Notes to Quarterly Consolidated Financial Statements," the adjustments made were of a
normal, recurring nature. Quarterly results are not necessarily indicative of results which may be expected for a full year.
In
June 2006, the Financial Accounting Standards Board ("FASB") issued Interpretation ("FIN") No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of
FASB Statement No. 109." This Interpretation clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, "Accounting for Income Taxes." The
Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It
also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Interpretation was effective for fiscal years beginning
after December 15, 2006. The Company adopted FIN 48 effective at the beginning of fiscal year 2007. (See Note 7, Income Taxes)
In
2006, the Emerging Issues Task Force ("EITF") reached a consensus on Issue No. 06-03, "How Sales Tax Collected from Customers and Remitted to Governmental
Authorities Should be Presented in the Income Statement (That is, Gross versus Net Presentation)." This EITF Issue clarifies that the presentation of taxes collected from customers and remitted to
governmental authorities on a gross (included in revenues and costs) or net (excluded from revenues) basis is an accounting policy decision that should be disclosed pursuant to Accounting Principles
Board (APB) Opinion No. 22, "Disclosure of Accounting Policies." The EITF Issue was effective for the Company beginning in fiscal year 2007.
6
We
collect such taxes from customers and account for them on a net (excluded from revenues) basis. The adoption of EITF Issue No. 06-03 did not impact the consolidated financial
statements.
In
September 2006, the FASB issued SFAS 157, "Fair Value Measurements," which defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles ("GAAP") and expands disclosure about fair value measurements. In February 2008, the FASB issued FASB Staff Position No. SFAS 157-2, "Effective Date of FASB Statement
No. 157," which deferred the effective date of SFAS No. 157 until the first quarter of 2009 for non-financial assets and liabilities required to be measured at fair value on
a periodic basis. In accordance with this interpretation, effective at the beginning of fiscal year 2008, the Company adopted the provisions of SFAS 157 with respect to financial assets and
liabilities, which did not affect the Consolidated Financial Statements. The Company will adopt the provisions of SFAS No. 157 for non-financial assets and liabilities in the first
quarter of 2009 and is currently evaluating the impact of the provisions of the standard.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilitiesincluding an amendment of SFAS 115,"
("SFAS 159"). SFAS 159 which was effective at the beginning of fiscal year 2008, allows entities to choose, at specific election dates, to measure eligible financial assets and
liabilities at fair value that are not otherwise required to be measured at fair value. The Company did not elect to adopt the fair value option provided under SFAS 159.
In
December 2007, the FASB issued SFAS No. 141R, "Business Combinations." This statement amends SFAS No. 141 and provides revised guidance for recognizing and measuring
assets acquired and liabilities assumed in a business combination. This statement also requires that transaction costs in a business combination be expensed as incurred. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS
No. 141R will impact the accounting for business combinations completed beginning January 1, 2009.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements." SFAS 160 requires noncontrolling interests (previously
referred to as minority interests) to be treated as a separate component of equity, not as a liability or other item outside of permanent equity. SFAS 160 applies to the accounting for
noncontrolling interests and transactions with noncontrolling interest holders in consolidated financial statements and is effective for periods beginning on or after December 15, 2008. Earlier
application is prohibited. SFAS No. 160 will be applied prospectively to all noncontrolling interests, including those that arose before the effective date, except that comparative prior period
information must be recast to classify noncontrolling interests in equity and provide other disclosures required by SFAS No. 160. The Company is currently evaluating the impact of the
provisions of SFAS 160.
Certain
amounts included in the prior year's financial statements have been revised to conform with the current year's presentation. In the first quarter of 2008, the Company separately
presented the effect of exchange rate changes on cash in the Consolidated Statements of Cash Flows. In the first quarter of 2007, these amounts were included in other operating activities. The effect
of this revision on the amounts reported for 2007 was not material.
2. Discontinued Operations
In December 2004, the Company's board of directors authorized management to pursue the divestiture of a facility near Elma, Washington that manufactured
integrated wood-polymer building materials. The board of directors and management concluded that the operations of the facility were no longer consistent with the Company's strategic
direction. As a result of that decision, the Company recorded the facility's assets as held for sale on its Consolidated Balance Sheets and reported the results of its operations as discontinued
operations.
7
During
2005, the Company experienced unexpected difficulties in achieving anticipated levels of production at the facility. These issues delayed the process of identifying and qualifying
a buyer for the business. While management made substantial progress in addressing the manufacturing issues that caused production to fall below plan, during the fourth quarter of 2005, the Company
concluded that it was unable to attract a buyer in the near term and elected to cease operations at the facility during the first quarter of 2006. As of March 29, 2008, the Company had not
identified a buyer for the facility.
The
liabilities of the facility are included in accrued expenses and other current liabilities in the Consolidated Balance Sheets ($14.8 million at March 29, 2008 and
$15.4 million at December 29, 2007, respectively). There were no assets related to this facility included in the Consolidated Balance Sheets at March 29, 2008 or
December 29, 2007.
See
Note 2, Discontinued Operations, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in the Company's Annual
Report on Form 10-K for the year ended December 29, 2007 for additional information related to the discontinued operations.
3. Integration Activities and Facility Closures
The Company conducts regular reviews of its real estate portfolio to identify underperforming facilities, and closes those facilities that are no longer
strategically or economically viable. The Company records a liability for the cost associated with a facility closure at its fair value in the period in which the liability is incurred, which is
either the date the lease termination is communicated to the lessor or the location's cease-use date. Upon closure, unrecoverable costs are included in integration and facility closure
reserves on the Consolidated Balance Sheets and include provisions for the present value of future lease obligations, less contractual or estimated sublease income. Accretion expense is recognized
over the life of the lease payments.
Integration
and facility closure reserve account activity during the first quarter of 2008 and 2007 was as follows:
|
|
Lease
Contract
Terminations
|
|
Severance
Retention
|
|
Other
|
|
Total
|
|
|
|
(thousands)
|
|
Balance at December 29, 2007
|
|
$
|
73,231
|
|
$
|
2,414
|
|
$
|
1,417
|
|
$
|
77,062
|
|
|
Changes to estimated costs included in income
|
|
|
478
|
|
|
|
|
|
|
|
|
478
|
|
|
Cash payments
|
|
|
(7,462
|
)
|
|
(418
|
)
|
|
(449
|
)
|
|
(8,329
|
)
|
|
Accretion
|
|
|
755
|
|
|
|
|
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2008
|
|
$
|
67,002
|
|
$
|
1,996
|
|
$
|
968
|
|
$
|
69,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
Contract
Terminations
|
|
Severance
Retention
|
|
Other
|
|
Total
|
|
|
|
(thousands)
|
|
Balance at December 30, 2006
|
|
$
|
107,824
|
|
$
|
10,838
|
|
$
|
3,142
|
|
$
|
121,804
|
|
|
Changes to estimated costs included in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(15,125
|
)
|
|
(3,019
|
)
|
|
(351
|
)
|
|
(18,495
|
)
|
|
Accretion
|
|
|
1,044
|
|
|
|
|
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
93,743
|
|
$
|
7,819
|
|
$
|
2,791
|
|
$
|
104,353
|
|
|
|
|
|
|
|
|
|
|
|
At March 29, 2008, approximately $18.3 million of the reserve for integration and facility closures was included in accrued expenses and other
current liabilities and $51.7 million was included in other
8
long-term
obligations in the Consolidated Balance Sheets. At March 29, 2008, the integration and facility closure reserve included $67.0 million for estimated future lease
obligations, which represents the estimated net present value of the lease obligations and is net of anticipated sublease income of $68.3 million.
4. Net Income Per Common Share
The computation of basic and diluted income per common share for the first quarter of 2008 and 2007 is as follows:
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
|
(thousands, except per-share amounts)
|
|
Net income
|
|
$
|
63,343
|
|
$
|
58,539
|
|
Preferred dividends
|
|
|
(975
|
)
|
|
(1,008
|
)
|
|
|
|
|
|
|
Income
|
|
$
|
62,368
|
|
$
|
57,531
|
|
Average shares basic
|
|
|
75,646
|
|
|
74,992
|
|
Restricted stock, stock options and other
|
|
|
907
|
|
|
752
|
|
|
|
|
|
|
|
Average shares diluted(a)(b)
|
|
|
76,553
|
|
|
75,744
|
|
Income per common share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.82
|
|
$
|
0.77
|
|
|
Diluted
|
|
$
|
0.81
|
|
$
|
0.76
|
|
-
(a)
-
The
assumed conversion of outstanding preferred stock was anti-dilutive in both periods presented, and therefore no adjustment was required to determine diluted income or
average shares diluted.
-
(b)
-
Options
to purchase 1.6 million shares of common stock were outstanding during 2008, but were not included in the computation of diluted income per common share because the
impact would have been anti-dilutive as the option price was higher than the average market price during the quarter.
5. Other Operating (Income) Expense, Net
The components of "Other operating (income) expense, net" in the Consolidated Statements of Income are as follows:
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
|
(thousands)
|
|
Severance, reorganization and other related activities(a)
|
|
$
|
4,174
|
|
$
|
|
|
Earnings from affiliates (see Note 10)
|
|
|
(1,560
|
)
|
|
(1,576
|
)
|
|
|
|
|
|
|
|
|
$
|
2,614
|
|
$
|
(1,576
|
)
|
|
|
|
|
|
|
-
(a)
-
During
the first quarter of 2008, the Company recorded pre-tax charges of $2.4 million related to the consolidation of the OfficeMax, Contract segment's
manufacturing facilities in New Zealand, and $1.8 million related to employee severance costs for reorganization of the OfficeMax, Retail segment's field and ImPress print and document services
management organization.
9
6. Other Income (Expense), Net (Non-Operating)
The components of Other income (expense), net (non-operating) in the Consolidated Statements of Income are as follows:
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
|
(thousands)
|
|
Receivable securitization program costs
|
|
|
|
|
|
(2,637
|
)
|
Distributions from affiliates (see Note 10)
|
|
|
20,480
|
|
|
2,147
|
|
Other
|
|
|
137
|
|
|
(2,957
|
)
|
|
|
|
|
|
|
|
|
$
|
20,617
|
|
$
|
(3,447
|
)
|
|
|
|
|
|
|
7. Income Taxes
The Company adopted FASB Interpretation (FIN) No. 48, "Accounting for Uncertainty in Income Taxesan interpretation of FASB Statement
No. 109" effective at the beginning of fiscal
year 2007. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in accordance with SFAS No. 109, "Accounting for Income Taxes." The Interpretation prescribes
a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of March 29, 2008, the Company had $18.7 million of total gross
unrecognized tax benefits. The reconciliation of the beginning and ending gross unrecognized tax benefits is as follows:
|
|
Amount
|
|
|
|
(thousands)
|
|
Balance at December 29, 2007
|
|
$
|
33,128
|
|
Increase related to prior year tax positions
|
|
|
978
|
|
Decrease related to prior year tax positions
|
|
|
(3,128
|
)
|
Increase related to current year tax positions
|
|
|
538
|
|
Settlements
|
|
|
(12,779
|
)
|
|
|
|
|
Balance at March 29, 2008
|
|
$
|
18,737
|
|
|
|
|
|
Of the total gross unrecognized tax benefits at March 29, 2008, approximately $15.5 million (net of the federal benefit on state issues) represents
the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. The remaining balance of approximately $3.2 million, if
recognized, would be recorded as an adjustment to goodwill and would not affect the effective tax rate. It is possible that the Company's liability for uncertain tax positions will be reduced by as
much as $1.6 million by the end of 2008. Approximately $1.3 million of this amount would impact the Company's effective tax rate, and the remaining $0.3 million would affect
goodwill. Such reductions would result from the effective settlement of tax positions with various tax authorities. The effective tax rate for the first quarter of 2008 benefited from the recognition
of $8.7 million in previously unrecognized tax benefits due to the settlement of a federal income tax audit through the 2005 tax year.
The
Company or its subsidiaries file income tax returns in the U.S. Federal jurisdiction, and multiple state and foreign jurisdictions. The Company has substantially concluded all U.S.
Federal income tax matters for 2005 and prior years. Years prior to 2006 are no longer subject to U.S. Federal income tax examination. The Company is no longer subject to state income tax examinations
by tax authorities in its major state jurisdictions for years before 2002.
10
The
Company recognizes accrued interest and penalties associated with uncertain tax positions as part of income tax expense. As of March 29, 2008, the Company had
$2.0 million of accrued interest and penalties associated with uncertain tax positions. Income tax expense for first three months of 2008 includes a benefit of $1.4 million related to
interest and penalties, reflecting interest accrued less the effect of adjustments on settlement.
During
the first quarter of 2008 and 2007, the Company paid income taxes, net of refunds received, of $29.2 million and $6.4 million, respectively.
8. Comprehensive Income
Comprehensive income includes the following:
|
|
Quarter Ended
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
(thousands)
|
Net income
|
|
$
|
63,343
|
|
$
|
58,539
|
Other comprehensive income:
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(620
|
)
|
|
4,942
|
|
Amortization of unrecognized retirement and benefit costs, net of tax
|
|
|
1,230
|
|
|
2,622
|
|
|
|
|
|
Comprehensive income
|
|
$
|
63,953
|
|
$
|
66,103
|
|
|
|
|
|
9. Sales of Accounts Receivable
Prior to July 2007, the Company sold, on a revolving basis, an undivided interest in a defined pool of receivables while retaining a subordinated interest in a
portion of the receivables. The receivables were sold without legal recourse to third party conduits through a wholly owned bankruptcy-remote special purpose entity that was consolidated for financial
reporting purposes. The Company continued servicing the sold receivables and charged the third party conduits a monthly servicing fee at market rates. The program qualified for sale treatment under
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." Expenses associated with the securitization program totaled $2.6 million for
the first quarter of 2007. These expenses related primarily to the loss on sale of receivables and discount on retained interests, facility fees and professional fees associated with the program, and
were included in the Consolidated Statements of Income.
On
July 12, 2007, the Company entered into a new loan agreement that amended the Company's existing revolving credit facility and replaced the Company's accounts receivable
securitization program. The transferred accounts receivable under the accounts receivable securitization program at that date were refinanced with borrowings under the new loan agreement and excess
cash. The Company no longer sells any of its accounts receivable. For additional information on the new loan agreement, see Note 13, Debt.
10. Investments in Affiliates
In connection with the sale of the paper, forest products and timberland assets in 2004 (the "Sale"), the Company invested $175 million in the equity units
of affiliates of the buyer, Boise Cascade, L.L.C. A portion (approximately $66 million) of the equity units received in exchange for the Company's investment carries no voting rights. This
investment is accounted for under the cost method as Boise Cascade, L.L.C. does not maintain separate ownership accounts for its members, and the Company does not have the ability to significantly
influence its operating and financial policies. This
11
investment
is included in investments in affiliates in the Consolidated Balance Sheets. The Company has determined that it is not practicable to estimate the fair value of this investment. However,
the Company did not observe any events or changes in circumstances that would have had a significant adverse effect on the fair value of the investment during the first quarter of 2008.
The
Boise Cascade, L.L.C. non-voting equity units accrue dividends daily at the rate of 8% per annum on the liquidation value plus accumulated dividends. Dividends accumulate
semiannually to the extent not paid in cash on the last day of June and December. The Company recognized dividend income on this investment of $1.6 million in each of the quarters ended
March 29, 2008 and March 31, 2007. These amounts were recorded as other operating (income) expense, net in the Consolidated Statements of Income.
The
Company receives distributions from affiliates of Boise Cascade, L.L.C. for the income tax liability associated with allocated earnings of Boise Cascade, L.L.C. The portion of the
tax distributions received related to non-voting equity units is recorded in the Consolidated Balance Sheets as a reduction in dividends receivable. The portion associated with voting
equity units is recorded as income in other income (expense), net (non-operating) in the Consolidated Statements of Income. During the first quarter of 2008 and 2007, the Company received
distributions of $23.0 million and $2.8 million, respectively. The distribution received in 2008 included an amount related to the income tax liability associated with the allocated gain
on the sale by Boise Cascade, L.L.C. of a majority interest in its paper and packaging and newsprint businesses during the first quarter of 2008.
11. Goodwill and Intangible Assets
Goodwill
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible and intangible assets of businesses acquired. In
accordance with the provisions of SFAS 142, "Goodwill and Other Intangible Assets," we assess our acquired goodwill and intangible assets with indefinite lives for impairment at least annually
in the absence of an indicator of possible impairment, and immediately upon an indicator of possible impairment. We completed our annual assessment in accordance with the provisions of the standard
during the first quarters of 2008 and 2007, and concluded there was no impairment. During the first quarters of 2008 and 2007, we also evaluated the remaining useful lives of our finite-lived
purchased intangible assets to determine if any adjustments to the useful lives were necessary or if any of these assets had indefinite lives. We determined that no adjustments to the useful lives of
our finite-lived purchased intangible assets were necessary.
Changes
in the carrying amount of goodwill by segment are as follows:
|
|
OfficeMax, Contract
|
|
OfficeMax, Retail
|
|
Total
|
|
|
|
(thousands)
|
|
Balance at December 29, 2007
|
|
$
|
556,885
|
|
$
|
659,919
|
|
$
|
1,216,804
|
|
Effect of foreign currency translation
|
|
|
(465
|
)
|
|
|
|
|
(465
|
)
|
|
|
|
|
|
|
|
|
Balance at March 29, 2008
|
|
$
|
556,420
|
|
$
|
659,919
|
|
$
|
1,216,339
|
|
|
|
|
|
|
|
|
|
12
Acquired Intangible Assets
Intangible assets represent the values assigned to trade names, customer lists and relationships, noncompete agreements and exclusive distribution rights of
businesses acquired. The trade name assets have an indefinite life and are not amortized. All other intangible assets are amortized on a straight-line basis over their expected useful
lives. Customer lists and relationships are amortized over three to 20 years, noncompete agreements over their terms, which are generally three to five years, and exclusive distribution rights
over ten years. Intangible assets consisted of the following:
|
|
March 29, 2008
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(thousands)
|
Trade names
|
|
$
|
173,150
|
|
$
|
|
|
$
|
173,150
|
Customer lists and relationships
|
|
|
43,821
|
|
|
(24,236
|
)
|
|
19,585
|
Noncompete agreements
|
|
|
12,876
|
|
|
(11,381
|
)
|
|
1,495
|
Exclusive distribution rights
|
|
|
7,137
|
|
|
(2,916
|
)
|
|
4,221
|
|
|
|
|
|
|
|
|
|
$
|
236,984
|
|
$
|
(38,533
|
)
|
$
|
198,451
|
|
|
|
|
|
|
|
|
|
December 29, 2007
|
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
|
(thousands)
|
Trade names
|
|
$
|
173,150
|
|
$
|
|
|
$
|
173,150
|
Customer lists and relationships
|
|
|
43,381
|
|
|
(23,072
|
)
|
|
20,309
|
Noncompete agreements
|
|
|
12,884
|
|
|
(10,842
|
)
|
|
2,042
|
Exclusive distribution rights
|
|
|
6,977
|
|
|
(2,758
|
)
|
|
4,219
|
|
|
|
|
|
|
|
|
|
$
|
236,392
|
|
$
|
(36,672
|
)
|
$
|
199,720
|
|
|
|
|
|
|
|
Intangible asset amortization expense totaled $1.5 million and $1.8 million for the quarters ended March 29, 2008 and March 31, 2007,
respectively.
12. Timber Notes Receivable
In October 2004, OfficeMax sold its timberlands as part of the Sale. In exchange for the timberlands, the Company received timber installment notes receivable in
the amount of $1,635 million, which were credit enhanced with guarantees. The guarantees were issued by highly-rated financial institutions and were secured by the pledge of underlying
collateral notes issued by the credit enhancement banks. The timber installment notes receivable are 15-year non-amortizing. There are two notes that total
$817.5 million bearing interest at 4.982% and a third note in the amount of $817.5 million bearing interest at 5.112%. Interest earned on all of the notes is received semiannually. See
the sub-caption "Timber Notes" in Note 13, Debt, for additional information concerning a securitization transaction involving the timber installment notes receivable.
13. Debt
Credit Agreements
On July 12, 2007, the Company entered into an Amended and Restated Loan and Security Agreement (the "Loan Agreement") with a group of banks. The Loan
Agreement amended the Company's existing revolving credit facility and replaced the Company's accounts receivable securitization program. The Loan Agreement permits the Company to borrow up to a
maximum of
13
$700 million
subject to a borrowing base calculation that limits availability to a percentage of eligible accounts receivable plus a percentage of the value of eligible inventory less certain
reserves. The revolving credit facility may be increased (up to a maximum of $800 million) at the Company's request or reduced from time to time, in each case according to terms detailed in the
Loan Agreement. There were no borrowings outstanding under the Company's revolving credit facilities as of March 29, 2008 or December 29, 2007. There were no borrowings outstanding
during the first quarter of 2008 or 2007. Letters of credit, which may be issued under the revolving credit facility up to a maximum of $250 million, reduce available borrowing capacity under
the revolving credit facility. Letters of credit issued under the revolving credit facility totaled $70.5 million as of March 29, 2008 and $85.5 million as of December 29,
2007. As of March 29, 2008, the maximum aggregate borrowing amount available under the revolving credit facility was $652.6 million and excess availability under the revolving credit
facility totaled $582.1 million. The Loan Agreement allows the payment of dividends subject to availability restrictions and so long as no default has occurred. At March 29, 2008, the
Company was in compliance with all covenants under the Loan Agreement. The Loan Agreement expires on July 12, 2012.
Borrowings
under the revolving credit facility bear interest at rates based on either the prime rate or the London Interbank Offered Rate ("LIBOR"). Margins are applied to the applicable
borrowing rates and letter of credit fees under the revolving credit facility depending on the level of average excess availability. Fees on letters of credit issued under the revolving credit
facility were charged at a weighted average rate of 0.875% during the first quarter of 2008. The Company is also charged an unused line fee of 0.25% on the amount by which the maximum available credit
exceeds the average daily outstanding borrowings and letters of credit.
As
of March 29, 2008, Grupo OfficeMax, our 51% owned joint venture in Mexico, had short term borrowings of $16.3 million consisting of three loans with balances of
$6.8 million, $4.8 million and $4.7 million, respectively. Two of these loans are promissory notes payable in the second quarter of 2008. The third loan is a simple revolving
loan. As of December 29, 2007, Grupo OfficeMax had short term borrowings of $14.2 million consisting of three loans with balances of $4.6 million, $4.6 million and
$5.0 million, respectively. Two of these loans were promissory notes that were refinanced in the first quarter of 2008. The third loan was a simple revolving loan. The financing for Grupo
OfficeMax is unsecured with no recourse against the Company.
Timber Notes
In October 2004, the Company sold its timberlands as part of the Sale and received credit-enhanced timber installment notes receivable in the amount of
$1,635 million. In December 2004, the Company completed a securitization transaction in which its interests in the timber installment notes receivable and related guarantees were transferred to
wholly-owned bankruptcy remote subsidiaries that were designated to be qualifying special purpose entities (the "OMXQ's"). The OMXQ's pledged the timber installment notes receivable and related
guarantees and issued securitization notes in the amount of $1,470 million. Recourse on the securitization notes is limited to the pledged timber installment notes receivable. The
securitization notes are 15-year non-amortizing, and were issued in two equal $735 million tranches paying interest of 5.42% and 5.54%, respectively.
As
a result of these transactions, OfficeMax received $1,470 million in cash from the OMXQ's, and over 15 years will earn approximately $82.5 million per year in
interest income on the timber installment notes receivable and incur annual interest expense of approximately $80.5 million on the securitization notes. The pledged timber installment notes
receivable and nonrecourse securitization notes will mature in 2020 and 2019, respectively. The securitization notes have an initial term that is approximately three months shorter than the
installment notes. The Company expects to refinance its ownership of the installment notes in 2019 with a short-term secured borrowing to bridge the period from initial maturity of the
securitization notes to the maturity of the installment notes.
14
The
original entities issuing the credit enhanced timber installment notes are variable-interest entities (the "VIE's") under FASB Interpretation 46R, "Consolidation of Variable Interest
Entities." The OMXQ's are considered to be the primary beneficiary, and therefore, the VIE's are required to be consolidated with the OMXQ's, which are also the issuers of the securitization notes. As
a result, the accounts of the OMXQ's have been consolidated into those of their ultimate parent, OfficeMax. The effect of the Company's consolidation of the OMXQ's is that the securitization
transaction is treated as a financing, and both the timber notes receivable and the securitization notes payable are reflected in the Consolidated Balance Sheets.
Note Agreements
In October 2003, the Company issued 6.50% senior notes due in 2010 and 7.00% senior notes due in 2013. At the time of issuance, the senior note indentures
contained a number of restrictive covenants, substantially all of which have since been eliminated through the execution of supplemental indentures as described below. On November 5, 2004, the
Company repurchased substantially all of the outstanding 6.50% senior notes and received the requisite consents to adopt amendments to the indenture pursuant to a tender offer for these securities. As
a result, the Company and the trustee executed a supplemental indenture that eliminated substantially all of the restrictive covenants, certain events of default and related provisions, and replaced
them with the covenants contained in the Company's other public debt. Those covenants include a limitation on mergers and similar transactions, a restriction on secured transactions involving
Principal Properties, as defined, and a restriction on sale and leaseback transactions involving Principal Properties.
In
December 2004, both Moody's Investors Service, Inc. and Standard & Poor's Rating Services upgraded the credit rating on the Company's 7.00% senior notes to investment
grade as a result of actions the Company took to collateralize the notes by granting the note holders a security interest in certain investments maturing in 2008 (the "Pledged Instruments"). These
Pledged Instruments are reflected as restricted investments in the Consolidated Balance Sheets. As a result of these ratings upgrades, the original 7.00% senior note covenants have been replaced with
the covenants found in the Company's other public debt. The remaining Pledged Instruments continue to be subject to the security interest, and are reflected as restricted investments in the
Consolidated Balance Sheets. Upon the maturity of the Pledged Instruments in the fourth quarter of 2008, the Company intends to reinvest the proceeds for a five year term.
Other
Cash payments for interest, net of interest capitalized, were $4.9 million and $9.4 million for the quarters ended March 29, 2008 and
March 31, 2007, respectively.
15
14. Retirement and Benefit Plans
The following represents the components of net periodic pension and other postretirement benefit costs (income):
|
|
Pension Benefits
|
|
Other Benefits
|
|
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
|
(thousands)
|
|
Service cost
|
|
$
|
533
|
|
$
|
419
|
|
$
|
73
|
|
$
|
226
|
|
Interest cost
|
|
|
19,517
|
|
|
19,271
|
|
|
324
|
|
|
400
|
|
Expected return on plan assets
|
|
|
(22,520
|
)
|
|
(22,254
|
)
|
|
|
|
|
|
|
Recognized actuarial loss
|
|
|
2,949
|
|
|
5,055
|
|
|
65
|
|
|
129
|
|
Amortization of prior service costs and other
|
|
|
|
|
|
|
|
|
(1,002
|
)
|
|
(893
|
)
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost (income)
|
|
$
|
479
|
|
$
|
2,491
|
|
$
|
(540
|
)
|
$
|
(138
|
)
|
|
|
|
|
|
|
|
|
|
|
The minimum contribution requirement for 2008 is approximately $9.4 million, of which $0.9 million has been contributed as of March 29, 2008.
15. Segment Information
The Company manages its business using three reportable segments: OfficeMax, Contract; OfficeMax, Retail; and Corporate and Other. Management reviews the
performance of the Company based on these segments.
OfficeMax,
Contract distributes a broad line of items for the office, including office supplies and paper, technology products and solutions and office furniture. OfficeMax, Contract
sells directly to large corporate and government offices, as well as small and medium-sized offices in the United States, Canada, Australia and New Zealand. This segment markets and sells through
field salespeople, outbound telesales, catalogs, the Internet and in some markets, including Canada, Hawaii, Australia and New Zealand, through office products stores.
OfficeMax,
Retail is a retail distributor of office supplies and paper, print and document services, technology products and solutions and office furniture. OfficeMax, Retail has
operations in the United States, Puerto Rico and the U.S. Virgin Islands. OfficeMax, Retail office supply stores feature OfficeMax ImPress, an in-store module devoted to
print-for-pay and related services. The retail segment also operates office supply stores in Mexico through a 51% owned joint venture.
Substantially
all products sold by OfficeMax, Contract and OfficeMax, Retail are purchased from independent third-party manufacturers or industry wholesalers, except office papers. These
segments purchase office papers primarily from the paper operations of Boise Cascade, L.L.C. under a 12-year paper supply contract. (see Note 17, Commitments and Guarantees, of the
Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended
December 29, 2007 for additional information related to the paper supply contract).
Corporate
and Other includes corporate support staff services and related assets and liabilities.
Management
evaluates the segments based on operating profits before interest expense, income taxes, minority interest, extraordinary items and cumulative effect of accounting changes.
The income and expense related to certain assets and liabilities that are reported in the Corporate and Other segment have been allocated to the Contract and Retail segments. Certain expenses that
management considers unusual or non-recurring are not allocated to the Contract and Retail segments.
16
An
analysis of our operations by segment is as follows:
|
|
Sales
|
|
Income Before Taxes and Minority Interest(a)
|
|
|
|
Quarter Ended
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
March 29, 2008
|
|
March 31, 2007
|
|
|
|
(thousands)
|
|
OfficeMax, Contract
|
|
$
|
1,195,097
|
|
$
|
1,264,495
|
|
$
|
59,614
|
|
$
|
59,876
|
|
OfficeMax, Retail
|
|
|
1,107,824
|
|
|
1,171,758
|
|
|
29,414
|
|
|
64,590
|
|
Corporate and Other
|
|
|
|
|
|
|
|
|
(10,410
|
)
|
|
(14,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,302,921
|
|
$
|
2,436,253
|
|
|
78,618
|
|
|
110,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
(29,680
|
)
|
|
(30,116
|
)
|
Interest income and other
|
|
|
|
|
|
|
|
|
42,516
|
|
|
19,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
91,454
|
|
$
|
99,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(a)
-
See
Note 5, Other Operating (Income) Expense, Net and Note 6, Other Income (Expense), Net (Non-Operating) for an explanation of certain unusual items
occurring during the first quarter of 2008.
16. Commitments and Guarantees
In addition to commitments for leases and long-term debt, and purchase obligations for goods and services and capital expenditures entered into in the
normal course of business, the Company has various other commitments, guarantees and obligations that are described in Note 17, Commitments and Guarantees, of the Notes to Consolidated
Financial Statements in "Item 8. Financial Statements and Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended December 29, 2007. Except
as discussed below, at March 29, 2008, there had not been a material change to the information regarding commitments, guarantees and contractual obligations disclosed in the Company's Annual
Report on Form 10-K for the year ended December 29, 2007.
In
accordance with the terms of a joint-venture agreement between the Company and the minority owner of the Company's subsidiary in Mexico (Grupo OfficeMax), the Company can be required
to purchase the minority owner's 49% interest in the subsidiary if certain earnings targets are achieved. At March 29, 2008, Grupo OfficeMax had met these earnings targets. The earnings targets
are calculated quarterly on a rolling four-quarter basis. Accordingly, the targets can be achieved in one quarter but not in the next. If the earnings targets are achieved and the minority
owner elects to put its ownership interest to the Company, the purchase price would be equal to fair value, calculated based on the subsidiary's earnings before interest, taxes and depreciation and
amortization for the last four quarters, and the current market multiples for similar companies. The fair value purchase price at March 29, 2008 is estimated to be $50 million to
$55 million.
17. Legal Proceedings and Contingencies
We are involved in litigation and administrative proceedings arising in the normal course of our business. In the opinion of management, our recovery, if any, or
our liability, if any, under pending litigation or administrative proceedings would not materially affect our financial position or results of operations. For information concerning legal proceedings,
see "Item 3. Legal Proceedings" and Note 18, Legal Proceedings and Contingencies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended December 29, 2007. In addition, on March 26, 2008, the court entered an order
dismissing the putative derivative action, Homstrom v Harad, et. al.
17
18. Share Based Payments
The Company sponsors several share-based compensation plans, which are described below. Compensation costs associated with these plans are accounted for in
accordance with the provisions of SFAS No. 123R, "Share Based Payments." Compensation costs related to the Company's share-based plans were $1.6 million and $7.5 million for the
first quarter of 2008 and 2007, respectively. Compensation expense is generally recognized on a straight-line basis over the vesting period of grants. The total income tax benefit
recognized in the Consolidated Statements of Income for share-based compensation arrangements was $0.6 million and $2.9 million for the first quarter of 2008 and 2007, respectively.
2003 Director Stock Compensation Plan and OfficeMax Incentive and Performance Plan
In February 2003, the Company's Board of Directors adopted the 2003 Director Stock Compensation Plan (the "2003 DSCP") and the 2003 OfficeMax Incentive and
Performance Plan (the "2003 Plan"), formerly named the 2003 Boise Incentive and Performance Plan, which were approved by shareholders in April 2003.
A
total of 57,187 shares of common stock are reserved for issuance under the 2003 DSCP. Prior to December 8, 2005, the 2003 DSCP permitted non-employee
directors to elect to receive some or all of their annual retainer and meeting fees in the form of options to purchase shares of the
Company's common stock. Non-employee directors who elected to receive a portion of their compensation in the form of stock options did not receive cash for that portion of their
compensation. The difference between the $2.50-per-share exercise price of the options and the market value of the common stock on the date of grant was equal to the cash
compensation that participating directors elected to forego and was recognized as compensation expense in the Consolidated Statements of Income. On December 8, 2005, the Board of Directors
amended the 2003 DSCP to require the exercise price of any options issued to be fair market value. On February 14, 2007, the Board of Directors amended the 2003 DSCP to eliminate the choice to
receive stock options. All options granted under the 2003 DSCP expire three years after the holder ceases to be a director.
The
2003 Plan was effective January 1, 2003, and replaced the Key Executive Performance Plan for Executive Officers, Key Executive Performance Plan for Key Executives/Key
Managers, 1984 Key Executive Stock Option Plan ("KESOP"), Key Executive Performance Unit Plan ("KEPUP") and Director Stock Option Plan ("DSOP"). No grants or awards have been made under the Key
Executive Performance Plans, KESOP, KEPUP, or DSOP since 2003 and no future grants or awards will be made under these plans. A total of 4,417,544 shares of common stock are reserved for
issuance under the 2003 Plan. The Company's executive officers, key employees and nonemployee directors are eligible to receive awards under the 2003 Plan at the discretion of the Executive
Compensation Committee of the Board of Directors. Eight types of awards may be granted under the 2003 Plan, including stock options, stock appreciation rights, restricted stock, restricted stock
units, performance units, performance shares, annual incentive awards and stock bonus awards.
18
Restricted Stock and Restricted Stock Units
In the first quarter of 2008, the Company granted to employees 1,155,670 restricted stock units ("RSUs"). The weighted-average grant-date fair value
of the RSUs was $23.73. As of March 29, 2008, 1,131,450 of these RSUs remained outstanding which vest after defined service periods as follows: 277,480 in 2010 and 853,970 in 2011. Nearly half
of the RSUs granted in 2008 also require certain performance criteria to be met. The remaining compensation expense to be recognized related to this grant, net of estimated forfeitures, is
$11.5 million.
In
2007, the Company granted to employees and non-employee directors 786,282 RSUs. The weighted-average grant-date fair value of the RSUs was $50.09. As of
March 29, 2008, 651,347 of these RSUs remained outstanding which vest after defined service periods as follows: 42,434 units in 2008, 304,457 in 2009 and 304,456 in 2010. Nearly all of
the RSUs granted to employees in 2007 also require certain performance criteria to be met. The remaining compensation expense to be recognized related to these grants, net of estimated forfeitures, is
$5.3 million.
In
2006, the Company granted to employees and non-employee directors 1,621,235 RSUs. The weighted-average grant-date fair value of the RSUs was $27.36. As of
March 29, 2008, 575,019 of these RSUs remained outstanding all of which vest after defined service periods in 2009. All of the RSUs granted to employees in 2006 also require certain performance
criteria to be met. The remaining compensation expense to be recognized related to these grants, net of estimated forfeitures, is $4.6 million.
In
2005, the Company granted to employees and non-employee directors 728,123 RSUs. The weighted-average grant-date fair value of the RSUs was $33.15. As of
March 29, 2008, 51,900 of these RSUs remained outstanding, which vest after defined service periods as follows: 45,900 units in 2008 and 3,000 units in both 2009 and 2010. The
remaining compensation expense to be recognized related to these grants, net of estimated forfeitures, is $0.2 million.
In
2004, the Company granted 14,765 shares of restricted stock to non-employee directors. The restricted stock granted to directors vests six months from their termination or
retirement from board service, and 7,170 of these restricted stock shares remain outstanding at March 29, 2008.
Restricted
stock shares are restricted until they vest and cannot be sold by the recipient until the restriction has lapsed. RSUs are convertible into one common share after the
restriction has lapsed. No entries are made in the financial statements on the grant date of restricted stock and RSU awards. The Company recognizes compensation expense related to these awards over
the vesting periods based on the closing prices of the Company's common stock on the grant dates. If these awards contain performance criteria, management periodically reviews actual performance
against the criteria and adjusts compensation expense accordingly. For the first quarter of 2008 and 2007, the Company recognized $1.5 million and $7.4 million, respectively, of pretax
compensation expense and additional paid-in capital related to restricted stock and RSU awards.
Restricted
shares and RSUs are not included as shares outstanding in the calculation of basic earnings per share, but are included in the number of shares used to calculate diluted
earnings per share as long as all applicable performance criteria are met, and their effect is dilutive. When the restriction lapses on restricted stock, the par value of the stock is reclassified
from additional paid-in-capital to common stock. When the restriction lapses on RSUs, the units are converted to unrestricted common shares and the par value of the stock is
reclassified from additional paid-in-capital to common stock. Unrestricted shares are included in shares outstanding for purposes of calculating both basic and diluted earnings
per share. Depending on the terms of the applicable grant agreement, restricted stock and RSUs may be eligible to receive all dividends declared on the Company's common shares during the vesting
period; however, such dividends are not paid until the restrictions lapse.
19
Stock Units
The Company has a shareholder approved deferred compensation program for certain of its executive officers that allows them to defer a portion of their cash
compensation. Previously, these officers could allocate their deferrals to a stock unit account. Each stock unit was equal in value to one share of the Company's common stock. The Company matched
deferrals used to purchase stock units with a 25% Company allocation of stock units. The value of deferred stock unit accounts is paid in shares of the Company's common stock when an officer retires
or terminates employment. There were 8,522 and 9,377 stock units allocated to the accounts of these executive officers at March 29, 2008 and December 29, 2007, respectively. As a result
of an amendment to the plan, no additional deferrals can be allocated to the stock unit accounts.
Stock Options
In addition to the 2003 DSCP and the 2003 Plan discussed above, the Company has the following shareholder-approved stock option plans: the Key Executive Stock
Option Plan ("KESOP"), the Director Stock Option Plan ("DSOP") and the Director Stock Compensation Plan ("DSCP"). No further grants will be made under the KESOP, DSOP or DSCP.
The
KESOP provided for the grant of options to purchase shares of common stock to key employees of the Company. The exercise price of awards under the KESOP was equal to the fair market
value of the Company's common stock on the date the options were granted. Options granted under the KESOP expire, at the latest, ten years and one day following the grant date.
The
DSOP, which was available only to nonemployee directors, provided for annual grants of options. The exercise price of awards under the DSOP was equal to the fair market value of the
Company's common stock on the date the options were granted. The options granted under the DSOP expire upon the earlier of three years after the director ceases to be a director or ten years after the
grant date.
The
DSCP permitted nonemployee directors to elect to receive grants of options to purchase shares of the Company's common stock in lieu of cash compensation. The difference between the
$2.50-per-share exercise price of DSCP options and the market value of the common stock subject to the options was intended to offset the cash compensation that participating
directors elected not to receive. Options granted under the DSCP expire three years after the holder ceases to be a director.
Under
the KESOP and DSOP, options may not, except under unusual circumstances, be exercised until one year following the grant date. Under the DSCP, options may be exercised six months
after the grant date.
A
summary of stock option activity for the quarters ended March 29, 2008 and March 31, 2007 is presented in the table below:
|
|
2008
|
|
2007
|
|
|
Shares
|
|
Weighted Avg. Exercise Price
|
|
Shares
|
|
Weighted Avg. Exercise Price
|
Balance at beginning of period
|
|
1,596,295
|
|
$
|
31.84
|
|
1,753,188
|
|
$
|
31.81
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
|
|
|
|
(124,532
|
)
|
|
31.94
|
Options forfeited and expired
|
|
(3,100
|
)
|
|
35.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
1,593,195
|
|
$
|
31.83
|
|
1,628,656
|
|
$
|
31.80
|
Exercisable at end of period
|
|
1,410,129
|
|
|
|
|
1,401,191
|
|
|
|
20
The following table provides summarized information about stock options outstanding at March 29, 2008:
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of Exercise Prices
|
|
Options Outstanding
|
|
Weighted Average Contractual Life (Years)
|
|
Weighted Average Exercise Price
|
|
Options Exercisable
|
|
Weighted Average Exercise Price
|
$2.50
|
|
11,171
|
|
|
|
$
|
2.50
|
|
11,171
|
|
$
|
2.50
|
$18.00 - $28.00
|
|
569,664
|
|
2.4
|
|
|
27.65
|
|
569,664
|
|
|
27.65
|
$28.01 - $39.00
|
|
1,012,360
|
|
3.9
|
|
|
34.50
|
|
829,294
|
|
|
35.00
|
The remaining compensation expense to be recognized related to outstanding stock options, net of estimated forfeitures, is $0.5 million. At
March 29, 2008, the aggregate intrinsic value was approximately $0.2 million for outstanding stock options and exercisable stock options. The aggregate intrinsic value represents the
total pre-tax intrinsic value (i.e. the difference between the Company's closing stock price on the last trading day of the first quarter of 2008 and the exercise price, multiplied
by the number of in-the-money options at the end of the quarter).
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Summary
The following discussion contains statements about our future financial performance. These statements are only predictions. Our actual results may differ
materially from these predictions. In evaluating these statements, you should review Part II, Item 1A, "Risk Factors" of this Form 10-Q, including "Cautionary and
Forward-Looking Statements."
Financial Performance
Sales for the first quarter of 2008 decreased 5.5% to $2,302.9 million from $2,436.3 million in the first quarter of 2007. Gross profit margin
decreased by 0.1% of sales to 25.5% of sales for the first quarter of 2008 compared to 25.6% of sales for the first quarter of 2007. Net income for the first quarter of 2008 was $63.3 million,
or $0.81 per diluted share compared to $58.5 million, or $0.76 per diluted share in the same period last year.
Our
results for the first quarter of 2008 and 2007 include several items which we do not consider to be indicative of our core operating activities, herein referred to as unusual items.
These items include:
-
-
During
the first quarter of 2008, we recorded $20.5 million of pre-tax income related to a distribution received from affiliates of Boise Cascade, L.L.C.
We receive
distributions from Boise Cascade, L.L.C. for the income tax liability associated with allocated earnings of Boise Cascade, L.L.C. The distribution received was primarily related to the income tax
liability associated with the allocated gain on the sale by Boise Cascade, L.L.C. of a majority interest in its paper and packaging and newsprint businesses during the first quarter of 2008. This
income was included in other income (expense), net (non-operating) in the Consolidated Statements of Income, and resulted in an increase in after-tax income of
$12.5 million, or $0.16 per diluted share.
-
-
Also
during the first quarter of 2008, we recorded pre-tax charges of $2.4 million related to the consolidation of the Contract segment's manufacturing
facilities in New Zealand, and $1.8 million related to employee severance costs for reorganization of the Retail field and ImPress print and document services management organization. These
charges were included in other operating (income) expense, net in the Consolidated Statements of Income. The cumulative effect of these two items was a reduction in after-tax income of
$2.7 million, or $0.03 per diluted share.
-
-
Results
for the first quarter of 2007 included a $1.1 million loss, net of tax, from the sale of OfficeMax, Contract's operations in Mexico to Grupo OfficeMax, our
51% owned joint venture. This loss is reported in minority interest, net of income tax in the Consolidated Statements of Income and caused a reduction in after-tax income of
$1.1 million, or $0.01 per diluted share. Grupo OfficeMax's results of operations are included in our consolidated results of operations.
Results of Operations, Consolidated
($ in millions, except per share amounts)
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
Sales
|
|
$
|
2,302.9
|
|
$
|
2,436.3
|
|
Income before income taxes and minority interest
|
|
$
|
91.5
|
|
$
|
99.6
|
|
Net income
|
|
$
|
63.3
|
|
$
|
58.5
|
|
Diluted income per common share
|
|
$
|
0.81
|
|
$
|
0.76
|
|
22
|
|
(percentage of sales)
|
|
Gross profit margin
|
|
|
25.5
|
%
|
|
25.6
|
%
|
Operating and selling expenses
|
|
|
18.4
|
%
|
|
17.3
|
%
|
General and administrative expenses
|
|
|
3.6
|
%
|
|
3.9
|
%
|
Other operating (income) expense, net
|
|
|
0.1
|
%
|
|
(0.1
|
)%
|
Operating profit margin
|
|
|
3.4
|
%
|
|
4.5
|
%
|
Sales
for the first quarter of 2008 decreased 5.5% to $2,302.9 million from $2,436.3 million for the first quarter of 2007. The year-over-year sales
decrease reflects a 7.1% decrease in same-store sales related primarily to the weaker domestic economic environment and to our more disciplined, analysis-driven approach to sales
generation and retention.
Gross
profit margin decreased by 0.1% of sales to 25.5% of sales for the first quarter of 2008 compared to 25.6% of sales for the first quarter of 2007. The gross profit margin decrease
reflects lower gross margins in our Retail segment partially offset by improved gross margins in our Contract segment. For more information about our segment results, see the discussion of segment
results below.
Operating
and selling expenses increased by 1.1% of sales to 18.4% of sales in the first quarter of 2008 from 17.3% of sales a year earlier. The increase in operating and selling
expenses as a percent of sales was primarily the result of deleveraging fixed costs due to lower sales.
General
and administrative expenses were 3.6% of sales for the first quarter of 2008 and 3.9% of sales for the first quarter of 2007. The year-over-year decrease
in general and administrative expenses as a percentage of sales was due primarily to decreased incentive compensation expense and lower legacy costs.
Other
operating (income) expense, net for the first quarter of 2008 was an expense of $2.6 million compared to income of $1.6 million in 2007. The first quarter of 2008
included an unusual charge of $2.4 million related to the consolidation of the Contract segment's manufacturing facilities in New Zealand, and an unusual charge of $1.8 million related
to employee severance costs for reorganization of the Retail field and ImPress print and document services management organization. For more information about our segment results, see the discussion
of segment results below. Other operating (income) expense, net also included dividends earned on our investment in affiliates of Boise Cascade, L.L.C., which were $1.6 million for the first
quarter of 2008 and 2007.
Interest
expense was $29.7 million in the first quarter of 2008 compared to $30.1 million for the prior year. The year-over-year decrease in
interest expense was a result of lower average borrowings and lower interest rates. Interest expense includes interest related to the timber securitization notes of approximately $20.1 million
for the first quarter of 2008 and 2007. The interest expense associated with the timber securitization notes is offset by interest income earned on the timber notes receivable of approximately
$20.6 million for the first quarter of 2008 and 2007. The interest income on the timber notes receivable is included in interest income and is not netted against the related interest expense in
our Consolidated Statements of Income. Excluding the interest income earned on the timber notes receivable, interest income was $1.2 million and $2.4 million for the quarters ended
March 29, 2008 and March 31, 2007, respectively.
Other
income (expense), net (non-operating) was $20.6 million of income for the first quarter of 2008 compared to expense of $3.4 million in 2007. The income in
2008 was driven by a $20.5 million unusual item related to a distribution received from affiliates of Boise Cascade, L.L.C. for the income tax liability associated with the allocated gain on
the sale by Boise Cascade, L.L.C. of a majority interest in its paper and packaging and newsprint businesses during the first quarter of 2008. The first quarter of 2007 included a $2.1 million
distribution from affiliates of Boise Cascade, L.L.C. for the income tax liability associated with allocated income from Boise Cascade, L.L.C.
23
Our
effective tax rate for the first quarter of 2008 was 29.8% compared to 39.0% for the comparable period of 2007. Income taxes for both periods were affected by the impact of state
income taxes, non-deductible expenses and the mix of domestic and foreign sources of income. In addition, in the first quarter of 2008, we closed a federal income tax audit through the
2005 tax year. As a result, we were able to recognize $8.7 million in previously unrecognized tax benefits which impacted our effective tax rate for the quarter.
Minority
interest, net of income tax was $0.9 million in the first quarter of 2008 compared to $2.2 million in the first quarter of 2007. The 2007 results included a
$1.1 million unusual loss, net of tax, from the sale of OfficeMax, Contract's operations in Mexico to Grupo OfficeMax, our 51% owned joint venture in Mexico.
Net
income for the first quarter of 2008 was $63.3 million, or $0.81 per diluted share compared to $58.5 million, or $0.76 per diluted share for the first quarter of 2007.
The cumulative effect of unusual items recognized in the first quarter of 2008 was an increase in net income of $9.8 million or $0.13 per diluted share. The unusual item recognized in the first
quarter of 2007 reduced net income by $1.1 million, or $0.01 per diluted share.
OfficeMax, Contract
($ in millions)
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
Sales
|
|
$
|
1,195.1
|
|
$
|
1,264.5
|
|
Segment income
|
|
$
|
59.6
|
|
$
|
59.9
|
|
Sales by Product Line
|
|
|
|
|
|
|
|
Office supplies and paper
|
|
$
|
690.9
|
|
$
|
712.0
|
|
Technology products
|
|
$
|
367.3
|
|
$
|
408.9
|
|
Office furniture
|
|
$
|
136.9
|
|
$
|
143.6
|
|
Sales by Geography
|
|
|
|
|
|
|
|
United States
|
|
$
|
826.4
|
|
$
|
943.0
|
|
International
|
|
$
|
368.7
|
|
$
|
321.5
|
|
Sales growth
|
|
|
(5.5
|
)%
|
|
2.7
|
%
|
Same-location sales growth
|
|
|
(5.6
|
)%
|
|
2.7
|
%
|
|
|
(percentage of sales)
|
|
Gross profit margin
|
|
|
22.7
|
%
|
|
22.1
|
%
|
Operating expenses
|
|
|
17.7
|
%
|
|
17.4
|
%
|
Operating profit margin
|
|
|
5.0
|
%
|
|
4.7
|
%
|
For
the first quarter of 2008, Contract segment sales decreased 5.5% to $1,195.1 from $1,264.5 million for the first quarter of 2007, reflecting a U.S. sales decline of 12.4%,
partially offset by International Contract operations' sales growth of 14.7% in U.S. dollars (a sales decrease of 0.9% in local currencies). U.S. sales declined compared to the prior year period
primarily due to our increased discipline in account acquisition and retention, weaker U.S. business spending that impacted sales from existing customer accounts, and lower sales from small market
customers.
Contract
segment gross profit margin increased by 0.6% of sales to 22.7% of sales in the first quarter of 2008 compared to 22.1% of sales in the first quarter of 2007. The increase in
gross profit margin was primarily due to increased discipline in account acquisition and retention.
24
Operating
expenses for the Contract segment increased by 0.3% of sales to 17.7% of sales for the first quarter of 2008, compared to 17.4% of sales for the first quarter of 2007. During
the first quarter of 2008, Contract segment operating expense included a $2.4 million unusual item, which represented 0.2% of sales, related to the consolidation of manufacturing facilities in
New Zealand. The remaining operating expense increase was primarily due to deleveraging of fixed expenses from lower sales, mostly offset by targeted cost controls and reduced incentive compensation
expense.
Contract
segment income decreased to $59.6 million, however, operating income margin increased to 5.0% of sales in the first quarter of 2008, from operating income of
$59.9 million, or 4.7% of sales, in the first quarter of 2007.
OfficeMax, Retail
($ in millions)
|
|
Quarter Ended
|
|
|
|
March 29, 2008
|
|
March 31, 2007
|
|
Sales
|
|
$
|
1,107.8
|
|
$
|
1,171.8
|
|
Segment income
|
|
$
|
29.4
|
|
$
|
64.6
|
|
Sales by Product Line
|
|
|
|
|
|
|
|
Office supplies and paper
|
|
$
|
420.7
|
|
$
|
423.7
|
|
Technology products
|
|
$
|
582.1
|
|
$
|
629.1
|
|
Office furniture
|
|
$
|
105.0
|
|
$
|
119.0
|
|
Sales by Geography
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,038.9
|
|
$
|
1,113.7
|
|
International
|
|
$
|
68.9
|
|
$
|
58.1
|
|
Sales growth
|
|
|
(5.5
|
)%
|
|
(1.8
|
)%
|
Same-location sales growth
|
|
|
(8.7
|
)%
|
|
0.5
|
%
|
|
|
(percentage of sales)
|
|
Gross profit margin
|
|
|
28.5
|
%
|
|
29.3
|
%
|
Operating expenses
|
|
|
25.8
|
%
|
|
23.8
|
%
|
Operating profit margin
|
|
|
2.7
|
%
|
|
5.5
|
%
|
Retail
segment sales decreased 5.5% to $1,107.8 million for the first quarter of 2008 from $1,171.8 for the first quarter of 2007, reflecting a same-store sales
decrease of 8.7%, partially offset by sales from new stores. Retail same-store sales for the first quarter of 2008 declined across all major product categories primarily due to weaker U.S.
consumer and small business spending and the negative impact of the Easter holiday occurring in the first quarter of 2008. During the first quarter of 2008, we opened six new retail stores in the U.S.
ending the period with 914 retail stores. Grupo OfficeMax, our majority owned joint venture in Mexico, opened six new stores during the first quarter of 2008 ending the period with 74 retail stores.
Retail
segment gross profit margin decreased by 0.8% of sales to 28.5% of sales for the first quarter of 2008 compared to 29.3% of sales in the first quarter of 2007, primarily due to
deleveraging of fixed occupancy-related costs, partially offset by a sales mix shift to an increased percentage of higher-margin core office supplies category sales.
25
Retail segment operating expenses increased by 2.0% of sales to 25.8% of sales for the first quarter of 2008 compared to 23.8% of sales for the first quarter of 2007. First quarter of
2008 Retail segment operating expense included a $1.8 million unusual item, which represented 0.2% of sales, related to employee severance costs for reorganization of the Retail field and
ImPress print and document services management organization. The remaining operating expense increase was primarily due to deleveraging of expenses from the same-store sales decrease and
new stores, partially offset by reduced incentive compensation expense.
Retail
segment operating income decreased to $29.4 million, or 2.7% of sales in the first quarter of 2008, compared to $64.6 million, or 5.5% of sales, in the first quarter
of 2007.
Corporate and Other
Corporate and Other expenses decreased to $10.4 million in the first quarter of 2008 from $14.4 million in the first quarter of 2007, due primarily
to lower incentive compensation expense and reduced legacy-related costs.
Integration Activities and Facility Closures
The Company conducts regular reviews of its real estate portfolio to identify underperforming facilities, and closes those facilities that are no longer
strategically or economically viable. The Company records a liability for the cost associated with a facility closure at its fair value in the period in which the liability is incurred. At
March 29, 2008, $18.3 million of the reserve for integration and facility closures was included in accrued expenses and other liabilities, and $51.7 million was included in other
long-term obligations in the Consolidated Balance Sheets. The integration and facility closure reserve included $67.0 million for estimated future lease obligations, which
represents the estimated net present value of the lease obligations and is net of anticipated sublease income of approximately $68.3 million.
Integration
and facility closure reserve account activity during the first quarter of 2008 and 2007, was as follows:
|
|
Lease Contract Terminations
|
|
Severance Retention
|
|
Other
|
|
Total
|
|
|
|
(Thousands)
|
|
Balance at December 29, 2007
|
|
$
|
73,231
|
|
$
|
2,414
|
|
$
|
1,417
|
|
$
|
77,062
|
|
|
Changes to estimated costs included in income
|
|
|
478
|
|
|
|
|
|
|
|
|
478
|
|
|
Cash payments
|
|
|
(7,462
|
)
|
|
(418
|
)
|
|
(449
|
)
|
|
(8,329
|
)
|
|
Accretion
|
|
|
755
|
|
|
|
|
|
|
|
|
755
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 29, 2008
|
|
$
|
67,002
|
|
$
|
1,996
|
|
$
|
968
|
|
$
|
69,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Contract Terminations
|
|
Severance Retention
|
|
Other
|
|
Total
|
|
|
|
(Thousands)
|
|
Balance at December 30, 2006
|
|
$
|
107,824
|
|
$
|
10,838
|
|
$
|
3,142
|
|
$
|
121,804
|
|
|
Changes to estimated costs included in income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments
|
|
|
(15,125
|
)
|
|
(3,019
|
)
|
|
(351
|
)
|
|
(18,495
|
)
|
|
Accretion
|
|
|
1,044
|
|
|
|
|
|
|
|
|
1,044
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
$
|
93,743
|
|
$
|
7,819
|
|
$
|
2,791
|
|
$
|
104,353
|
|
|
|
|
|
|
|
|
|
|
|
26
Liquidity and Capital Resources
As of March 29, 2008, we had $211.4 million of cash and cash equivalents and $368.3 million of short-term and
long-term debt, excluding the $1.5 billion of timber securitization notes. We also had $22.4 million of restricted investments on deposit which are pledged to secure a
portion of the outstanding debt. As of December 29, 2007, we had $152.6 million of cash and cash equivalents, $398.4 million of short-term and long-term
debt, excluding the $1.5 billion of timber securitization notes, and $22.4 million of restricted investments.
During the first quarter of 2008 we decreased our net debt (total debt excluding the timber securitization notes less cash and restricted investments) by $88.9 million.
Our
ratio of current assets to current liabilities was 1.68:1 at March 29, 2008 compared with a ratio of 1.61:1 at December 29, 2007.
Our
primary ongoing cash requirements relate to working capital, expenditures for property and equipment, lease obligations and debt service. We expect to fund these requirements through
a combination of cash flow from operations and seasonal borrowings under our revolving credit facility. The sections that follow discuss in more detail our operating, investing, and financing
activities, as well as our financing arrangements.
Operating Activities
OfficeMax's operating activities generated $142.4 million of cash during the first quarter of 2008, while using $80.9 million of cash during the
first quarter of 2007. For the first quarter of 2008, items in net income provided $100.2 million of cash and included $23.0 million of distributions received from affiliates of Boise
Cascade, L.L.C. Changes in working capital in the first quarter of 2008 provided $42.2 million in cash primarily due to reduced receivables and inventories resulting from the decreased sales
and improved inventory purchasing, planning and fulfillment, which were partially offset by reduced accounts payable. In the first quarter of 2007, items in net income provided $101.5 million
of cash, and changes in working capital used $182.4 million of cash, primarily due to a reduction in accounts payable and included $2.8 million related to distributions received from
affiliates of Boise Cascade, L.L.C.
Investment Activities
Our investing activities used $33.0 million of cash during the first quarter of 2008, compared to $28.1 million during the first quarter of 2007.
Investment activities during the first quarter of 2008 consisted of expenditures for property and equipment. We expect our capital investments in 2008 to total between $200 and $220 million,
excluding acquisitions. Our capital spending in 2008 is expected to be for leasehold improvements, new stores, remodeling projects, quality and efficiency projects, replacement projects and
integration projects. In 2008, we expect to open up to 40 new domestic stores, mostly in existing markets, and to remodel approximately 60 domestic stores.
Financing Activities
Our financing activities used $50.3 million of cash during the first quarter of 2008, compared with $33.9 million during the first quarter of 2007.
Dividend payments totaled $11.5 million and $11.2 million during the first quarter of 2008 and 2007, respectively. In both years, our quarterly dividend was 15 cents per common share.
During the first quarter of 2008, we used $30.5 million of cash to reduce debt as compared to $25.7 million for the same period in 2007. Excluding the timber securitization notes, our
debt-to-equity ratio was 0.16:1 at March 29, 2008 and 0.17:1 at December 29, 2007.
27
Our
debt structure consists of credit agreements, note agreements and other borrowings. Information regarding our debt structure is included below. For additional information, see
Note 12, Debt, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" of our Annual Report on Form 10-K for the
year ended December 29, 2007.
Credit Agreements
On July 12, 2007, we entered into an Amended and Restated Loan and Security Agreement (the "Loan Agreement") with a group of banks. The Loan Agreement
amended our existing revolving credit facility and replaced our accounts receivable securitization program. The Loan Agreement permits us to borrow up to a maximum of $700 million subject to a
borrowing base calculation that limits availability to a percentage of eligible accounts receivable plus a percentage of the value of eligible inventory less certain reserves. The revolving credit
facility may be increased (up to a maximum of $800 million) at our request or reduced from time to time, in each case according to terms detailed in the Loan Agreement. There were no borrowings
outstanding under our revolving credit facilities as of March 29, 2008 or December 29, 2007. There were no borrowings outstanding during the first quarter of 2008 or 2007. Letters of
credit, which may be issued under the revolving credit facility up to a maximum of $250 million, reduce available borrowing capacity under the revolving credit facility. Letters of credit
issued under the revolving credit facility totaled $70.5 million as of March 29, 2008 and $85.5 million as of December 29, 2007. As of March 29, 2008, the maximum
aggregate borrowing amount available under the revolving credit facility was $652.6 million and excess availability under the revolving credit facility totaled $582.1 million. The Loan
Agreement allows the payment of dividends subject to availability restrictions and so long as no default has occurred. At March 29, 2008, we were in compliance with all covenants under the Loan
Agreement. The Loan Agreement expires on July 12, 2012.
Borrowings
under the revolving credit facility bear interest at rates based on either the prime rate or the London Interbank Offered Rate ("LIBOR"). Margins are applied to the applicable
borrowing rates and letter of credit fees under the revolving credit facility depending on the level of average excess availability. Fees on letters of credit issued under the revolving credit
facility were charged at a weighted average rate of 0.875% during the first quarter of 2008. We are charged an unused line fee of 0.25% on the amount by which the maximum available credit exceeds the
average daily outstanding borrowings and letters of credit.
As
of March 29, 2008, Grupo OfficeMax, our 51%-owned joint venture in Mexico, had short term borrowings of $16.3 million consisting of three loans with balances of
$6.8 million, $4.8 million and $4.7 million, respectively. Two of these loans are promissory notes payable during the second quarter of 2008. The third loan is a simple revolving
loan. As of December 29, 2007, Grupo OfficeMax had short term borrowings of $14.2 million consisting of three loans with balances of $4.6 million, $4.6 million and
$5.0 million, respectively. Two of these loans were promissory notes that were refinanced in the first quarter of 2008. The third loan was a simple revolving loan. The financing for Grupo
OfficeMax is unsecured with no recourse against the Company.
Timber Notes
In October 2004, we sold our timberlands as part of the Sale and received credit-enhanced timber installment notes receivable in the amount of
$1,635 million. In December 2004, we completed a securitization transaction in which our interests in the timber installment notes receivable and related guarantees were transferred to
wholly-owned bankruptcy remote subsidiaries that were designated to be qualifying special purpose entities (the "OMXQ's"). The OMXQ's pledged the timber installment notes receivable and related
guarantees and issued securitization notes in the amount of $1,470 million. Recourse on the securitization notes is limited to the pledged timber installment notes receivable. The
28
securitization
notes are 15-year non-amortizing, and were issued in two equal $735 million tranches paying interest of 5.42% and 5.54%, respectively.
As
a result of these transactions, we received $1,470 million in cash from the OMXQ's, and over 15 years will earn approximately $82.5 million per year in interest
income on the timber installment notes receivable and incur annual interest expense of approximately $80.5 million on the securitization notes. The pledged timber installment notes receivable
and nonrecourse securitization notes will mature in 2020 and 2019, respectively. The securitization notes have an initial term that is approximately three months shorter than the installment notes. We
expect to refinance our ownership of the installment notes in 2019 with a short-term secured borrowing to bridge the period from initial maturity of the securitization notes to the
maturity of the installment notes.
The
original entities issuing the credit enhanced timber installment notes are variable-interest entities (the "VIE's") under FASB Interpretation 46R, "Consolidation of Variable Interest
Entities." The OMXQ's are considered to be the primary beneficiary, and therefore, the VIE's are required to be consolidated with the OMXQ's, which are also the issuers of the securitization notes. As
a result, the accounts of the OMXQ's have been consolidated into those of their ultimate parent, OfficeMax. The effect of our consolidation of the OMXQ's is that the securitization transaction is
treated as a financing, and both the timber notes receivable and the securitization notes payable are reflected in the Consolidated Balance Sheets.
Note Agreements
In October 2003, we issued 6.50% senior notes due in 2010 and 7.00% senior notes due in 2013. At the time of issuance, the senior note indentures contained a
number of restrictive covenants, substantially all of which have since been eliminated through the execution of supplemental indentures as described below. On November 5, 2004, we repurchased
substantially all of the outstanding 6.50% senior notes and received the requisite consents to adopt amendments to the indenture pursuant to a tender offer for these securities. As a result, we and
the trustee executed a supplemental indenture that eliminated substantially all of the restrictive covenants, certain events of default and related provisions, and replaced them with the covenants
contained in our other public debt. Those covenants include a limitation on mergers and similar transactions, a restriction on secured transactions involving Principal Properties, as defined, and a
restriction on sale and leaseback transactions involving Principal Properties.
In
December 2004, both Moody's Investors Service, Inc. and Standard & Poor's Rating Services upgraded the credit rating on our 7.00% senior notes to investment grade as a
result of actions we took to collateralize the notes by granting the note holders a security interest in certain investments maturing in 2008 (the "Pledged Instruments"). These Pledged Instruments are
reflected as restricted investments in the Consolidated Balance Sheets. As a result of these ratings upgrades, the original 7.00% senior note covenants have been replaced with the covenants found in
our other public debt. The remaining Pledged Instruments continue to be subject to the security interest, and are reflected as restricted investments in the Consolidated Balance Sheets. Upon the
maturity of the Pledged Instruments in 2008, we intend to reinvest the proceeds for a five year term.
Other
Cash payments for interest, net of interest capitalized and including interest payments related to the timber securitization notes, were $4.9 million and
$9.4 million for the quarters ended March 29, 2008 and March 31, 2007, respectively.
29
Contractual Obligations
For information regarding contractual obligations, see the caption "Contractual Obligations" in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 29, 2007. In the first quarter of 2007, we adopted Interpretation (FIN)
No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of Financial Accounting Standards Board (FASB) Statement No. 109", see Note 7, Income Taxes, of
"Notes to Quarterly Consolidated Financial Statements (Unaudited)" in this Form 10-Q. As of March 29, 2008, we had approximately $18.7 million of total gross
unrecognized tax benefits.
In
accordance with the terms of a joint-venture agreement between the Company and the minority owner of the Company's subsidiary in Mexico (Grupo OfficeMax), the Company can be required
to purchase the minority owner's 49% interest in the subsidiary if certain earnings targets are achieved. At March 29, 2008, Grupo OfficeMax had met these earnings targets. The earnings targets
are calculated quarterly on a rolling four-quarter basis. Accordingly, the targets can be achieved in one quarter but not in the next. If the earnings targets are achieved and the minority
owner elects to put its ownership interest to the Company, the purchase price would be equal to fair value, calculated based on the subsidiary's earnings before interest, taxes and depreciation and
amortization for the last four quarters, and the current market multiples for similar companies. The fair value purchase price at March 29, 2008 is estimated to be $50 million to
$55 million.
Off-Balance-Sheet Activities and Guarantees
Prior to July 2007, we sold, on a revolving basis, an undivided interest in a defined pool of receivables while retaining a subordinated interest in a portion of
the receivables. The receivables were sold without legal recourse to third party conduits through a wholly owned bankruptcy-remote special purpose entity that was consolidated for financial reporting
purposes. We continued servicing the sold receivables and charged the third party conduits a monthly servicing fee at market rates. The program qualified for sale treatment under FASB Statement
No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities."
On
July 12, 2007, we entered into a new loan agreement (See Note 12, Debt, of the notes to Consolidated Financial Statements in "Item 8, Financial Statements and
Supplementary Data" in our Annual Report on Form 10-K for the year ended December 29, 2007.) The new loan
agreement amended our existing revolving credit facility and replaced our accounts receivable securitization program. The transferred accounts receivable under the accounts receivable securitization
program at that date were refinanced with borrowings under the new loan agreement and excess cash. We no longer sell any of our accounts receivable.
For
information regarding off-balance-sheet activities and guarantees, see Note 9, Sales of Accounts Receivable, of "Notes to Quarterly Consolidated Financial
Statements (Unaudited)" in this Form 10-Q and the caption "Off-Balance-Sheet Activities and Guarantees" in "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 29, 2007. Except as discussed below, at March 29, 2008,
there had not been a material change to the information regarding off-balance-sheet-activities and guarantees disclosed in our Annual Report on Form 10-K for the year
ended December 29, 2007.
Inflationary and Seasonal Influences
We believe that neither inflation nor deflation has had a material effect on our financial condition or results of operations; however, there can be no assurance
that we will not be affected by inflation or deflation in the future.
30
Our
business is seasonal, with OfficeMax, Retail showing a more pronounced seasonal trend than OfficeMax, Contract. Sales in the second quarter and summer months are historically the
slowest of the year. Sales are stronger during the first, third and fourth quarters that include the important new-year office supply restocking month of January, the
back-to-school period and the holiday selling season, respectively.
Environmental
For information regarding environmental issues, see the caption "Environmental" in "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Annual Report on Form 10-K for the year ended December 29, 2007.
Critical Accounting Estimates
For information regarding critical accounting estimates, see the caption "Critical Accounting Estimates" in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 29, 2007.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk see the caption "Disclosures of Financial Market Risk" in "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 29, 2007. At March 29, 2008, there had not been a material
change to the information regarding market risk disclosed in the Company's Annual Report on Form 10-K for the year ended December 29, 2007.
ITEM 4. CONTROLS AND PROCEDURES
-
(a)
-
Disclosure Controls and Procedures
The
Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on that evaluation, these officers have concluded that the Company's disclosure controls and procedures are effective for the purpose of ensuring that
material information required to be included in this quarterly report is made known to them by others on a timely basis and that information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
-
(b)
-
Changes in Internal Controls over Financial Reporting
There
was no change in the Company's internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act, during the
most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
31
PART IIOTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in litigation and administrative proceedings arising in the normal course of our business. In the opinion of management, our recovery, if any, or
our liability, if any, under pending litigation or administrative proceedings would not materially affect our financial position or results of operations. For information concerning legal proceedings,
see "Item 3. Legal Proceedings" and Note 18, Legal Proceedings and Contingencies, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and
Supplementary Data" in the Company's Annual Report on Form 10-K for the year ended December 29, 2007. In addition, on March 26, 2008, the court entered an order
dismissing the putative derivative action, Homstrom v Harad, et. al.
ITEM 1A. RISK FACTORS
Cautionary and Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Statements that are not historical or current facts, including
statements about our expectations, anticipated financial results and future business prospects, are forward-looking statements. You can identify these
statements by our use of words such as "may," "will," "expect," "believe," "should," "plan," "anticipate" and other similar expressions. You can find examples of these statements throughout this
report, including Management's Discussion and Analysis of Financial Condition and Results of Operations. We cannot guarantee that our actual results will be consistent with the forward-looking
statements we make in this report. We have listed below some of the inherent risks and uncertainties that could cause our actual results to differ materially from those we project. We do not assume an
obligation to update any forward-looking statement.
Intense competition in our markets could harm our ability to maintain profitability.
Domestic and
international office products markets are highly and increasingly competitive. Customers have many options when purchasing office supplies and paper, print and document services, technology products
and solutions and office furniture. We compete with worldwide contract stationers, office supply superstores, mass merchandisers, wholesale clubs, computer and electronics superstores, Internet
merchandisers, direct-mail distributors, discount retailers, drugstores, supermarkets and thousands of local and regional contract stationers. In addition, an increasing number of
manufacturers of computer hardware, software and peripherals, including some of our suppliers, have expanded their own direct marketing efforts. The other large office supply superstores have
increased their presence in close proximity to our stores in recent years and are expected to continue to do so in the future. In addition, many of our competitors have expanded their office products
assortment, and we expect they will continue to do so. In recent years, two package delivery companies have established retail stores that compete directly with us for copy, printing, packaging and
shipping business, and offer a limited assortment of office products and services similar to the ones we offer. We anticipate increasing competition from our two domestic office supply superstore
competitors and various other competitors, including the two package delivery companies, for print-for-pay and related services. Print and documents services, or
print-for-pay, and related services have historically been a key point of difference for OfficeMax stores and are expected to become an increasingly more important part of our
future strategies. Any or all of our competitors may become even more aggressive in the future. Increased competition in the office products markets, together with increased advertising, has
heightened price awareness among end-users. Such heightened price awareness has led to margin pressure on office products and impacted the results of both our Retail and Contract segments.
In addition to price, competition is also based on customer service, the quality and breadth of product selection, and convenient locations. Some of our competitors are larger than us and have greater
financial resources, which affords them greater purchasing power, increased financial flexibility and
32
more
capital resources for expansion and improvement, which may enable them to compete more effectively than we can.
We may be unable to open and remodel stores successfully.
Our business plans include the opening and
remodeling of a significant number of retail stores. For these plans to be successful, we must identify and lease favorable store sites, develop remodeling plans, hire and train associates and adapt
management and systems to meet the needs of these operations. These tasks are difficult to manage successfully. If we are not able to open and remodel stores as quickly as we have planned, our future
financial performance could be materially and adversely affected. Further, we cannot ensure that the new or remodeled stores will achieve the sales or profit levels that we anticipate. This is
particularly true as we introduce different store designs, formats and sizes or enter into new market areas. In particular, the "Advantage" prototype store format we intend to utilize for new and
remodeled stores
was new in 2006 and there can be no assurance as to whether or to what extent that format will be successful.
Economic conditions directly influence our operating results.
Economic conditions, both domestically
and abroad, directly influence our operating results. Current and future economic conditions, including the level of unemployment, energy costs, inflation, availability of credit, and the financial
condition and growth prospects of our customers may adversely affect our business and the results of our operations.
Our expanding international operations expose us to the unique risks inherent in foreign
operations.
During 2007, we expanded our operations in international markets, and we may also seek to expand further into other international markets. Our foreign
operations encounter risks similar to those faced by our U.S. operations, as well as risks inherent in foreign operations, such as local customs and regulatory constraints, foreign trade policies,
competitive conditions, foreign currency fluctuations and unstable political and economic conditions.
Our quarterly operating results are subject to fluctuation.
Our quarterly operating results have
fluctuated in the past and are likely to do so in the future. Factors that may contribute to these quarter-to-quarter fluctuations could include the effects of seasonality, our
level of advertising and marketing, new store openings, changes in product mix and competitors' pricing. These quarterly fluctuations could have an adverse effect on both our operating results and the
price of our common stock.
We may be unable to attract and retain qualified associates.
We attempt to attract and retain an
appropriate level of personnel in both field operations and corporate functions. As a retailer, we face the challenge of filling many positions at lower wage scales which are appropriate for our
industry and in light of competitive factors. As a result, we face many external risks and internal factors in meeting our labor needs, including competition for qualified personnel, overall
unemployment levels, prevailing wage rates, as well as rising employee benefit costs, including insurance costs and compensation programs. Changes in any of these factors, including especially a
shortage of available workforce in the areas in which we operate, could interfere with our ability to adequately provide services to customers and result in increasing our labor costs, which could
have an adverse effect on our business and results of our operations.
Our expanded offering of proprietary branded products may not improve our financial performance and may expose us to product liability
claims.
Our product offering includes many proprietary branded products. While we have focused on the quality of our proprietary branded products, we rely on
third-party manufacturers for these products. Such third party manufacturers may prove to be unreliable, or the quality of our globally sourced products may not meet our expectations. Furthermore,
economic and political conditions in areas of the world where we source such products may adversely affect the availability and cost of such products. In addition, our proprietary branded products
compete with other manufacturers' branded items that we offer. As we continue to increase the number and types of
33
proprietary
branded products that we sell, we may adversely affect our relationships with our vendors, who may decide to reduce their product offerings through OfficeMax and increase their product
offerings through our competitors. Finally, if any of our customers are harmed by our proprietary branded products, they may bring product liability and other claims against us. Any of these
circumstances could have an adverse effect on our business and financial performance.
We are more leveraged than some of our competitors, which could adversely affect our business
plans.
A relatively greater portion of our cash flow is used to service debt and other financial obligations including leases. This reduces the funds we have
available for working capital, capital expenditures, acquisitions, new stores, store remodels and other purposes. Similarly, our relatively greater leverage increases our vulnerability to, and limits
our flexibility in planning for, adverse economic and industry conditions and creates other competitive disadvantages compared with other companies with relatively less leverage.
Fluctuations in our effective tax rate may adversely affect our business and results of
operations.
We are a multi-national, multi-channel provider of office products and services. As a result, our effective tax rate is derived from a combination of
applicable tax rates in the various countries, states and other jurisdictions in which we operate. Our effective tax rate may be lower or higher than our tax rates have been in the past due to
numerous factors, including the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the tax filing positions we take in various jurisdictions. We
base our estimate of an effective tax rate at any given point in time upon a calculated mix of the tax rates applicable to our company and to estimates of the amount of business likely to be done in
any given jurisdiction. The loss of one or more agreements with taxing jurisdictions, a change in the mix of our business from year to year and from country to country, changes in rules related to
accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate or adverse outcomes from tax audits that we may be subject to in any of the jurisdictions in
which we operate could result in an unfavorable change in our effective tax rate, which change could have an adverse effect on our business and results of our operations.
Compromises of our information security may adversely affect our business.
Through our sales and
marketing activities, we collect and store certain personal information that our customers provide to purchase products or services, enroll in promotional programs, register on our website, or
otherwise communicate and interact with us. We also gather and retain information about our associates in the normal course of business. We may share information about such persons with vendors that
assist with certain aspects of our business. Despite instituted safeguards for the protection of such information, we
cannot be certain that all of our systems are entirely free from vulnerability to attack. Computer hackers may attempt to penetrate our or our vendors' network security and, if successful,
misappropriate confidential customer or business information. In addition, a Company employee, contractor or other third party with whom we do business may attempt to circumvent our security measures
in order to obtain such information or inadvertently cause a breach involving such information. Loss of customer or business information could disrupt our operations and expose us to claims from
customers, financial institutions, payment card associations and other persons, which could have a material adverse effect on our business, financial condition and results of operations.
We cannot ensure new systems and technology will be implemented successfully.
Our acquisition of
OfficeMax, Inc., in December 2003, required the integration and coordination of our existing contract stationer systems with the retail systems of the acquired company. Integrating and
coordinating these systems has been complex and still requires a number of system enhancements and conversions that, if not done properly, could divert the attention of our workforce during
development and implementation and constrain for some time our ability to provide the level of service our customers demand. Also, when implemented, the systems and technology enhancements may not
provide the benefits anticipated and could add costs and complications to our ongoing operations. A failure to effectively implement
34
changes
to these systems or to realize the intended efficiencies could have an adverse effect on our business and results of our operations.
We retained responsibility for certain liabilities of the sold paper, forest products and timberland businesses.
These obligations include liabilities related to environmental, health and safety, tax, litigation and employee benefit matters. Some of these retained liabilities could turn out to be
significant, which could have an adverse effect on our results of operations. Our exposure to these liabilities could harm our ability to compete with other office products distributors, who would not
typically be subject to similar liabilities.
Our business may be adversely affected by the actions of and risks associated with our third-party
vendors.
We are a reseller of other manufacturer's branded items and are therefore dependent on the availability and pricing of key products including ink, toner,
paper and technology products. As a reseller, we cannot control the supply, design, function or cost of many of the products we offer for sale. Disruptions in the availability of these products may
adversely affect our sales and result in customer dissatisfaction. Further, we cannot control the cost of manufacturers' products and cost increases must either be passed along to our customers or
will result in erosion of our earnings. Failure to identify desirable products and make them available to our customers when desired and at attractive prices could have an adverse effect on our
business and results of operations.
Our investment in Boise Cascade, L.L.C. subjects us to the risks associated with the paper and forest products
industry.
When we sold our paper, forest products and timberland assets, we purchased an equity interest in affiliates of Boise Cascade, L.L.C. In addition, we
have an ongoing obligation to purchase paper from an affiliate of Boise Cascade, L.L.C. These continuing interests subject us to market risks associated with the paper and forest products industry.
These industries are subject to cyclical market
pressures. Historical prices for products have been volatile, and industry participants have limited influence over the timing and extent of price changes. The relationship between supply and demand
in these industries significantly affects product pricing. Demand for building products is driven mainly by factors such as new construction and remodeling rates, interest rates and weather. The
supply of paper and building products fluctuates based on manufacturing capacity, and excess capacity, both domestically and abroad, can result in significant variations in product prices. The level
of supply and demand for forest products will affect the price we pay for paper. Our ability to realize the carrying value of our equity interest in affiliates of Boise Cascade, L.L.C. is dependent
upon many factors, including the operating performance of Boise Cascade, L.L.C. and other market factors that may not be specific to Boise Cascade, L.L.C., due in part to the fact that there is not a
liquid market for our equity interest. Our exposure to these risks could decrease our ability to compete effectively with our competitors, who typically are not subject to such risks.
We have substantial business operations in states in which the regulatory environment is particularly
challenging.
Our operations in California and other similar states expose us to many regulations relating to the conduct of our business, including, without
limitation, consumer protection laws, advertising regulations, and employment and wage and hour regulations. This regulatory environment requires the Company to maintain a heightened compliance effort
and exposes us to defense costs, possible fines and penalties, and liability to private parties for monetary recoveries and attorneys' fees, any of which could have an adverse effect on our business
and results of operations.
35
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Information concerning our stock repurchases during the three months ended March 29, 2008 is below. All stock was withheld to satisfy our tax withholding
obligations upon vesting of restricted stock awards.
Period
|
|
Total Number of Shares (or Units) Purchased
|
|
Average Price Paid Per Share (or Unit)
|
|
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
|
|
Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
|
December 29, 2007 - January 26, 2008
|
|
1,185
|
|
$
|
20.00
|
|
|
|
|
January 27 - February 23, 2008
|
|
260,263
|
|
$
|
23.73
|
|
|
|
|
February 24 - March 29, 2008
|
|
5,927
|
|
$
|
20.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
267,375
|
|
$
|
23.57
|
|
|
|
|
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
The form of 2008 Restricted Stock Unit Award Agreement pursuant to which long-term incentive grants are made, first filed by the Company as
Exhibit 99.3 to the Company's Current Report on Form 8-K dated February 26, 2008, has been amended to state that participants must be employed by the Company in order
for the restricted stock units to vest (subject to exceptions in certain circumstances including involuntary termination, death, disability or retirement, in which case a pro rata amount of units will
vest and be paid if the participant was employed with the Company for a minimum of six months during fiscal years 2008 and/or 2009). This disclosure and the amended Time Based RSU Award Agreement are
included in this Item 5 in lieu of amending the Form 8-K dated February 26, 2008. The form of the amended Time Based RSU Award Agreement is filed as
Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference. This summary does not purport to be complete and is subject to and qualified in
its entirety by reference to the text of the form of Time Based RSU Award Agreement.
ITEM 6. EXHIBITS
Required exhibits are listed in the Index to Exhibits and are incorporated by reference.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
|
|
OFFICEMAX INCORPORATED
|
|
|
/s/
DON CIVGIN
Don Civgin
Executive Vice President and Chief Financial Officer
(As Duly Authorized Officer and Principal
Financial Officer)
|
Date:
May 7, 2008
37
OFFICEMAX INCORPORATED
INDEX TO EXHIBITS
Filed With the Quarterly Report on Form 10-Q for the Quarter Ended March 29, 2008
Number
|
|
Description
|
3.1(1)
|
|
Restated Certificate of Incorporation, as amended and restated to date
|
3.2(2)
|
|
Bylaws, as amended April 23, 2008
|
10.1(3)
|
|
Form of 2008 Annual Incentive Award Agreement
|
10.2(4)
|
|
Form of 2008 Restricted Stock Unit Award Agreement (Performance Based)
|
10.3*
|
|
Form of 2008 Restricted Stock Unit Award Agreement (Time Based)
|
31.1*
|
|
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
31.2*
|
|
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
32*
|
|
Section 906 Certifications of Chief Executive Officer and Chief Financial Officer of OfficeMax Incorporated
|
-
*
-
Filed
with this Form 10-Q.
-
(1)
-
Exhibit 3.1
was filed under the same exhibit number in our Current Report on Form 8-K dated May 1, 2007, and is incorporated herein by reference.
-
(2)
-
Exhibit 3.2
was filed under exhibit number 3.2 in our Current Report on Form 8-K dated April 29, 2008, and is incorporated herein by reference.
-
(3)
-
Exhibit 10.1
was filed under exhibit number 99.1 in our Current Report on Form 8-K dated February 26, 2008, and is incorporated herein by
reference.
-
(4)
-
Exhibit 10.2
was filed under exhibit number 99.2 in our Current Report on Form 8-K dated February 26, 2008, and is incorporated herein by
reference.
38
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TABLE OF CONTENTS
PART IFINANCIAL INFORMATION
OfficeMax Incorporated and Subsidiaries Consolidated Statements of Income (thousands, except per-share amounts)
OfficeMax Incorporated and Subsidiaries Consolidated Balance Sheets (thousands, except share and per-share amounts)
OfficeMax Incorporated and Subsidiaries Consolidated Statements of Cash Flows (thousands)
Notes to Quarterly Consolidated Financial Statements (Unaudited)
PART IIOTHER INFORMATION
SIGNATURES
OFFICEMAX INCORPORATED INDEX TO EXHIBITS
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