- Contract Segment Gross Margin Improves NAPERVILLE, Ill., July 29
/PRNewswire/ -- OfficeMax(R) Incorporated (NYSE:OMX) today
announced the results for its second quarter ended June 28, 2008.
Total sales decreased 6.9% in the second quarter of 2008 to $1.98
billion compared to the second quarter of 2007. For the second
quarter of 2008, OfficeMax reported a net loss of $894.2 million,
or $11.79 per diluted share, compared to net income of $27.4
million, or $0.35 per diluted share, in the second quarter of 2007.
Results for the second quarter of 2008 included three items that
are not considered indicative of core operating activities, herein
referred to as unusual items, which if excluded, would increase
income before taxes by $942.4 million and net income by $913.6
million, or $12.03 per diluted share. These unusual items were a
non-cash expense of $935.3 million recorded in the Contract and
Retail segments related to impairment of goodwill and intangible
assets; an expense of $10.2 million recorded in the Retail segment
related to employee severance from the reorganization of Retail
store management; and a gain of $3.1 million recorded in the
Corporate and Other segment related to the legacy Voyageur Panel
business sold in 2004. Sam Duncan, Chairman and CEO of OfficeMax,
said "In the second quarter, sales for both our Contract and Retail
segments continued to reflect the weaker U.S. economic environment
along with our more disciplined approach to customer acquisition
and retention. While we incurred a non-cash accounting charge
related to impairment in both operating segments, we were pleased
with the performance of our Contract segment, as we improved gross
margin rates and reduced expenses, other than those related to
impairment. In our Retail segment, lower sales and gross margin
rates, together with higher expenses, resulted in lower operating
income margin for the quarter. Across our company, we continue to
address aspects of our business that are manageable as we navigate
the difficult sales environment." Non-Cash Unusual Item Related to
Impairment The company is required for accounting purposes to
assess the carrying value of goodwill and other intangible assets
annually or whenever circumstances indicate that a decline in value
may have occurred. Based on the company's sustained low stock price
and reduced market capitalization, macroeconomic factors impacting
industry business conditions, recent and forecasted segment
operating performance, the competitive environment, along with
other factors, the company determined that indicators of potential
impairment were present during the second quarter of 2008. As a
result, the company assessed the carrying value of acquired
goodwill and intangible assets with indefinite lives for
impairment. The measurement of impairment of goodwill and
indefinite life intangibles consists of two steps, which require
the company to determine the fair value of its reporting units and
to allocate reporting unit fair value to the individual assets and
liabilities, similar to a purchase price allocation. The company
has not completed the fair value allocation process necessary to
determine the final impairment of goodwill and other intangible
assets. Accordingly, in the second quarter of 2008, OfficeMax
recorded an estimate of a non-cash impairment charge associated
with goodwill and other assets that reduced income before taxes by
$935.3 million and net income by $909.3 million, or $11.98 per
diluted share. The components of the $935.3 million estimated
non-cash impairment charge consist of $850.0 million for goodwill,
$80.0 million for trade names, and $5.3 million for fixed assets.
The non-cash charge has been recorded in both the Contract and
Retail operating segments. The estimates and assumptions made in
assessing the fair value of the reporting units and the valuation
of the underlying assets and liabilities are inherently subject to
significant uncertainties. Accordingly, an adjustment to the
estimated impairment charge will be required when the company
finalizes its analysis, which is expected to be completed by the
end of 2008. Any such adjustment could be material, but will be
non-cash. Contract Segment Results OfficeMax Contract segment sales
decreased 7.1% to $1.11 billion in the second quarter of 2008
compared to the second quarter of 2007, reflecting U.S. Contract
sales decline of 12.9%, partially offset by International Contract
operations sales growth of 9.4% in U.S. dollars (a sales decrease
of 0.1% in local currencies). U.S. Contract sales declined compared
to the prior year period primarily due to weaker sales from
existing corporate customer accounts, our continued discipline in
account acquisition and retention, and lower sales from small
market customers. Contract segment gross margin increased to 21.7%
in the second quarter of 2008 from 21.4% in the second quarter of
2007, primarily due to improved account profitability, partly
offset by deleveraging of fixed delivery and occupancy costs.
Contract segment operating expense as a percent of sales increased
to 59.2% in the second quarter of 2008 from 18.0% in the second
quarter of 2007, primarily due to the $464.0 million non-cash
unusual expense item related to the impairment of goodwill and
other intangible assets, representing 41.7% of sales. The
non-impairment related Contract operating expense as a percent of
sales improved from the second quarter of 2007, primarily due to
targeted cost reductions and reduced incentive compensation
expense, partially offset by deleveraging of fixed expenses from
lower sales. For the second quarter of 2008, the Contract segment
generated an operating loss of $416.8 million, or 37.5% of sales,
with $464.0 million, or 41.7% of sales, due to the unusual expense
item, compared to operating income of $41.0 million, or 3.4% of
sales, in the second quarter of 2007. Retail Segment Results
OfficeMax Retail segment sales decreased 6.7% to $872.7 million in
the second quarter of 2008 compared to the second quarter of 2007,
reflecting a same-store sales decrease of 10.0% partly offset by
sales from new stores. Retail same-store sales for the second
quarter of 2008 declined across all major product categories due to
weaker U.S. consumer and small business spending. Retail segment
gross margin decreased to 27.7% in the second quarter of 2008 from
29.9% in the second quarter of 2007, primarily due to deleveraging
of fixed occupancy-related costs and increased inventory shrinkage,
partly offset by a sales mix shift to an increased percentage of
higher-margin office supplies category sales. Retail segment
operating expense as a percent of sales increased to 82.8% in the
second quarter of 2008 from 27.3% in the second quarter of 2007,
primarily due to the $471.3 million non-cash unusual expense item
related to the impairment of goodwill and other intangible assets
representing 54.0% of sales, and the $10.2 million unusual expense
item related to employee severance from the reorganization of
Retail store management representing 1.2% of sales. The remainder
of the increase in Retail segment operating expense as a percent of
sales from the second quarter of 2007 was primarily due to
deleveraging of expenses from the same store sales decrease and new
stores, partially offset by reduced incentive compensation expense.
For the second quarter of 2008, the Retail segment generated an
operating loss of $480.7 million, or 55.1% of sales, with $481.5
million, or 55.2% of sales, due to the two unusual expense items,
compared to operating income of $24.7 million, or 2.6% of sales, in
the second quarter of 2007. During the second quarter of 2008,
OfficeMax opened 12 retail stores in the U.S. and 5 retail stores
in Mexico. OfficeMax ended the second quarter of 2008 with a total
of 999 retail stores, consisting of 920 retail stores in the U.S.
and 79 retail stores in Mexico. Corporate and Other Segment Results
The OfficeMax Corporate and Other segment includes support staff
services and certain other expenses that are not fully allocated to
the Retail and Contract segments. During the second quarter of
2008, the Corporate and Other segment benefited from a $3.1 million
unusual item related to the legacy Voyageur Panel business sold in
2004. Including this unusual item, Corporate and Other segment
operating expense decreased to $5.1 million in the second quarter
of 2008 from $9.8 million in the second quarter of 2007, primarily
due to lower incentive compensation expense. As of June 28, 2008,
OfficeMax had total debt of $383.8 million, excluding $1.470
billion of timber securitization notes which have recourse limited
to $1.635 billion of timber installment notes receivable. During
the second quarter of 2008, OfficeMax used $7.8 million of cash
from operations, a decrease of $130.9 million from the second
quarter of 2007. OfficeMax invested $42.7 million for capital
expenditures in the second quarter of 2008 compared to $31.3
million in the second quarter of 2007. "Despite the headwinds of a
tough U.S. economy, we continued implementing our turnaround plan
and operating initiatives during the second quarter," Mr. Duncan
concluded. "We continue to build the foundation for OfficeMax to
generate long-term shareholder value." Forward-Looking Statements
Certain statements made in this press release and other written or
oral statements made by or on behalf of the company constitute
"forward-looking statements" within the meaning of the federal
securities laws, including statements regarding the company's
future performance, as well as management's expectations, beliefs,
intentions, plans, estimates or projections relating to the future.
Management believes that these forward-looking statements are
reasonable. However, the company cannot guarantee that it will
successfully execute its turnaround plans or that its actual
results will be consistent with the forward-looking statements and
you should not place undue reliance on them. These statements are
based on current expectations and speak only as of the date they
are made. The company undertakes no obligation to publicly update
or revise any forward-looking statement, whether as a result of
future events, new information or otherwise. Important factors
regarding the company which may cause results to differ from
expectations are included in the company's Annual Report on Form
10-K for the year ended December 29, 2007, under Item 1A "Risk
Factors", and in the company's other filings with the SEC.
Conference Call Information OfficeMax will host a conference call
with analysts and investors to discuss its second quarter 2008
financial results on July 30, 2008 at 11:00 a.m. Eastern Time
(10:00 a.m. Central Time). To participate in the conference call,
dial (800) 374-0165; international callers should dial (706)
634-0995. An audio webcast of the conference call can be accessed
via the Internet by visiting the Investors section of the OfficeMax
website at http://investor.officemax.com/. The webcast will be
archived and available online for one year following the call and
will be posted on the "Presentations" page located within the
Investors section of the OfficeMax website. About OfficeMax
OfficeMax Incorporated (NYSE:OMX) is a leader in both
business-to-business office products solutions and retail office
products. The OfficeMax mission is simple. We help our customers do
their best work. The company provides office supplies and paper,
in-store print and document services through OfficeMax ImPress(TM),
technology products and solutions, and furniture to consumers and
to large, medium and small businesses. OfficeMax customers are
served by approximately 32,000 associates through direct sales,
catalogs, e-commerce and nearly 1,000 stores. To find the nearest
OfficeMax, call 1-877-OFFICEMAX. For more information, visit
http://www.officemax.com/. Media Contact Investor Relations Contact
Bill Bonner John Jennings 630 864 6066 630 864 6820 OFFICEMAX
INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
(unaudited) (thousands) June 28, December 29, 2008 2007 ASSETS
Current assets: Cash and cash equivalents $155,922 $152,637
Receivables, net 667,419 720,878 Inventories 1,012,527 1,088,312
Other current assets 210,335 242,874 Total current assets 2,046,203
2,204,701 Property and equipment: Property and equipment 1,318,297
1,279,609 Accumulated depreciation (735,037) (698,954) Property and
equipment, net 583,260 580,655 Goodwill and intangible assets, net
485,901 1,416,524 Timber notes receivable 1,635,000 1,635,000 Other
non-current assets 440,936 446,888 Total assets $5,191,300
$6,283,768 LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities: Short-term borrowings $31,804 $14,197 Current portion
of long-term debt 17,716 34,827 Accounts payable 779,814 861,285
Accrued liabilities and other 394,591 460,400 Total current
liabilities 1,223,925 1,370,709 Long-term debt: Long-term debt,
less current portion 334,263 349,421 Timber notes securitized
1,470,000 1,470,000 Total long-term debt 1,804,263 1,819,421 Other
long-term obligations: Compensation and benefits 186,879 200,283
Other long-term liabilities 523,243 582,741 Total other long-term
liabilities 710,122 783,024 Minority interest 35,038 32,042
Shareholders' equity: Preferred stock 45,070 49,989 Common stock
189,825 188,481 Additional paid-in capital 911,841 922,414 Retained
earnings 240,244 1,095,950 Accumulated other comprehensive income
30,972 21,738 Total shareholders' equity 1,417,952 2,278,572 Total
liabilities and shareholders' equity $5,191,300 $6,283,768
OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
INCOME (unaudited) (thousands, except per-share amounts) Quarter
Ended June 28, June 30, 2008 2007 Sales $1,984,641 $2,132,417 Cost
of goods sold and occupancy costs 1,501,063 1,596,619 Gross profit
483,578 535,798 Operating and other expenses: Operating and selling
372,709 392,581 General and administrative 72,554 88,719 Goodwill
and Other Asset Impairments (a) 935,340 - Other operating, net (b)
& (c) 5,540 (1,447) Operating income (loss) (902,565) 55,945
Other income (expense): Interest expense (29,642) (29,959) Interest
income 21,682 21,776 Other, net 88 (2,232) (7,872) (10,415) Income
(loss) before income taxes and minority interest (910,437) 45,530
Income taxes 16,320 (17,757) Income (loss) before minority interest
(894,117) 27,773 Minority interest, net of income tax (103) (337)
Net income (loss) (894,220) 27,436 Preferred dividends (1,052)
(1,008) Net income (loss) applicable to common shareholders
$(895,272) $26,428 Basic income (loss) per common share $(11.79)
$0.35 Diluted income (loss) per common share $(11.79) $0.35
Weighted Average Shares Basic 75,916 75,344 Diluted 75,916 76,593
(a) Second quarter of 2008 includes a $935.3 million non-cash
unusual item related to impairment of goodwill, tradenames and
fixed assets. These charges are recorded by segment in the
following manner: Contract $464.0 million and Retail $471.3
million. This item reduced net income by $909.3 million, or $11.98
per diluted share. (b) Second quarter of 2008 includes a $10.2
million unusual item related to employee severance from the
reorganization of Retail store management. This item reduced net
income by $6.2 million, or $0.08 per diluted share. (c) Second
quarter of 2008 includes a $3.1 million unusual item related to the
legacy Voyageur Panel business sold in 2004. This item increased
net income by $1.9 million, or $0.02 per diluted share. OFFICEMAX
INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
(unaudited) (thousands, except per-share amounts) Six Months Ended
June 28, June 30, 2008 2007 Sales $4,287,562 $4,568,671 Cost of
goods sold and occupancy costs 3,216,156 3,409,649 Gross profit
1,071,406 1,159,022 Operating and other expenses: Operating and
selling 797,098 813,349 General and administrative 154,762 182,656
Goodwill and Other Asset Impairments (a) 935,340 - Other operating,
net (b), (c) & (d) 8,153 (3,023) Operating income (loss)
(823,947) 166,040 Other income (expense): Interest expense (59,322)
(60,075) Interest income 43,581 44,814 Other, net (e) 20,705
(5,680) 4,964 (20,941) Income (loss) before income taxes and
minority interest (818,983) 145,099 Income taxes (10,935) (56,589)
Income (loss) before minority interest (829,918) 88,510 Minority
interest, net of income tax (f) (959) (2,535) Net income (loss)
(830,877) 85,975 Preferred dividends (2,027) (2,015) Net income
(loss) applicable to common shareholders $(832,904) $83,960 Basic
income (loss) per common share $(10.99) $1.12 Diluted income (loss)
per common share $(10.99) $1.10 Weighted Average Shares Basic
75,781 75,168 Diluted 75,781 76,168 (a) Second quarter of 2008
includes a $935.3 million non-cash unusual item related to
impairment of goodwill, tradenames and fixed assets. These charges
are recorded by segment in the following manner: Contract $464.0
million and Retail $471.3 million. This item reduced net income by
$909.3 million or $12.00 per diluted share for the six month
period. (b) First quarter of 2008 includes a $2.4 million unusual
item related to the consolidation of the Contract segment's
manufacturing facilities in New Zealand, and a $1.8 million unusual
item related to reorganizing the Retail field and ImPress print and
document services management organization. The cumulative effect of
these two items was a reduction in net income of $2.7 million, or
$0.03 per diluted share. (c) Second quarter of 2008 includes a
$10.2 million unusual item related to employee severance from the
reorganization of Retail store management. This item reduced net
income by $6.2 million, or $0.08 per diluted share. (d) Second
quarter of 2008 includes a $3.1 million unusual item related to the
legacy Voyageur Panel business sold in 2004. This item increased
net income by $1.9 million, or $0.02 per diluted share. (e) First
quarter of 2008 includes a $20.5 million unusual item related to
the company's investment in Boise Cascade, L.L.C., primarily from
their sale of a majority interest in their paper and packaging and
newsprint business completed during the first quarter of 2008. This
item increased net income by $12.5 million, or $0.16 per diluted
share. (f) First quarter of 2007 includes a $1.1 million unusual
item related to the sale of OfficeMax's Contract operations in
Mexico to Grupo OfficeMax, our 51% owned joint venture. This item
reduced net income by $1.1 million, or $0.01 per diluted share.
OFFICEMAX INCORPORATED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
CASH FLOWS (unaudited) (thousands) Six Months Ended June 28, June
30, 2008 2007 Cash provided by operations: Net income (loss)
$(830,877) $85,975 Items in net income not using (providing) cash:
Depreciation and amortization 70,141 65,106 Impairment 935,340 -
Other (1,766) 18,602 Changes other than from acquisitions of
business: Receivables and inventory 134,363 51,245 Accounts payable
and accrued liabilities (103,453) (253,383) Income taxes and other
(69,114) 74,612 Cash provided by (used for) operations 134,634
42,157 Cash used for investment: Expenditures for property and
equipment (75,962) (59,440) Other 9,284 (1,948) Cash used for
investment (66,678) (61,388) Cash used for financing: Cash
dividends paid (22,884) (24,453) Changes in debt, net (30,492)
(18,489) Proceeds from exercise of stock options - 5,211 Other
(11,328) (2,879) Cash used for financing (64,704) (40,610) Effect
of exchange rates on cash and cash equivalents 33 (1,614) Increase
(decrease) in cash and cash equivalents 3,285 (61,455) Cash and
cash equivalents at beginning of period 152,637 282,070 Cash and
cash equivalents at end of period $155,922 $220,615 OFFICEMAX
INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT INFORMATION
(unaudited) (millions, except per-share data) Quarter Ended June
28, 2008 June 30, 2007 Segment Sales OfficeMax, Contract $1,111.9
$1,197.2 OfficeMax, Retail 872.7 935.3 1,984.6 2,132.5 Segment
income (loss) OfficeMax, Contract (a) $(416.8) $41.0 OfficeMax,
Retail (a) & (b) (480.7) 24.7 Corporate and Other (c) (5.1)
(9.8) Operating income (loss) $(902.6) $55.9 Operating income
margin (loss) -45.5% 2.6% (a) Second quarter of 2008 includes a
$935.3 million non-cash unusual item related to impairment of
goodwill, tradenames and fixed assets. These charges are recorded
by segment in the following manner: Contract $464.0 million and
Retail $471.3 million. This item reduced net income by $909.3
million, or $11.98 per diluted share. (b) Second quarter of 2008
includes a $10.2 million unusual item related to employee severance
from the reorganization of Retail store management. This item
reduced net income by $6.2 million, or $0.08 per diluted share. (c)
Second quarter of 2008 includes a $3.1 million unusual item related
to the legacy Voyageur Panel business sold in 2004. This item
increased net income by $1.9 million, or $0.02 per diluted share.
OFFICEMAX INCORPORATED AND SUBSIDIARIES SUPPLEMENTAL SEGMENT
INFORMATION (unaudited) (millions, except per-share data) Six
Months Ended June 28, 2008 June 30, 2007 Segment Sales OfficeMax,
Contract $2,307.0 $2,461.7 OfficeMax, Retail 1,980.6 2,107.0
4,287.6 4,568.7 Segment income (loss) OfficeMax, Contract (a) &
(b) $(357.2) $100.9 OfficeMax, Retail (a), (b) & (c) (451.2)
89.3 Corporate and Other (d) (15.5) (24.1) Operating income (loss)
$(823.9) $166.1 Operating income (loss) margin -19.2% 3.6% (a)
Second quarter of 2008 includes a $935.3 million non-cash unusual
item related to impairment of goodwill, tradenames and fixed
assets. These charges are recorded by segment in the following
manner: Contract $464.0 million and Retail $471.3 million. This
item reduced net income by $909.3 million or $12.00 per diluted
share for the six month period. (b) First quarter of 2008 includes
a $2.4 million unusual item related to the consolidation of the
Contract segment's manufacturing facilities in New Zealand, and a
$1.8 million unusual item related to reorganizing the Retail field
and ImPress print and document services management organization.
The cumulative effect of these two items was a reduction in net
income of $2.7 million, or $0.03 per diluted share. (c) Second
quarter of 2008 includes a $10.2 million unusual item related to
employee severance from the reorganization of Retail store
management. This item reduced net income by $6.2 million, or $0.08
per diluted share. (d) Second quarter of 2008 includes a $3.1
million unusual item related to the legacy Voyageur Panel business
sold in 2004. This item increased net income by $1.9 million, or
$0.02 per diluted share. DATASOURCE: OfficeMax Incorporated
CONTACT: Media, Bill Bonner, +1-630-864-6066, or Investor
Relations, John Jennings, +1-630-864-6820, both of OfficeMax
Incorporated Web site: http://www.officemax.com/
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