OfficeMax Reports Select Third Quarter Operating Results and Delays Third Quarter Earnings Release
October 29 2008 - 5:01PM
PR Newswire (US)
Provides Update On Cash and Non-Cash Items Related To Lehman
Brothers Holdings Inc. Bankruptcy NAPERVILLE, Ill., Oct. 29
/PRNewswire-FirstCall/ -- OfficeMax(R) Incorporated (NYSE:OMX),
today announced select operating results for the third quarter of
2008 and delayed the release of its full 2008 third quarter
earnings results so that the company can complete its analysis of
the non-cash impairment charge caused by the bankruptcy of Lehman
Brothers Holdings Inc. ("Lehman"). OfficeMax continues to expect no
adverse impact on its operations or liquidity as a result of the
Lehman bankruptcy based on additional review completed since
issuing its September 19, 2008 press release. The company expects
to finalize its impairment and accounting analysis and release its
full 2008 third quarter financial results no later than November 6,
2008. Timber Notes Update As a result of the Lehman bankruptcy,
OfficeMax expects to make a cash payment in an amount not to exceed
approximately $50 million representing the accelerated tax
liability on one-half of the gain on the 2004 timberlands sale
transaction and to experience a reduction in net annual interest
income of approximately $1 million. On October 27, 2008, OfficeMax
determined that the Lehman guaranteed installment note should be
impaired in the third quarter of 2008, resulting in a non-cash
charge to earnings of at least $82.5 million, the difference
between the principal amount of the installment note guaranteed by
Lehman and the aggregate principal amount of the securitization
notes. The cash and non-cash items are described in more detail
below. OfficeMax continues to believe that the estimated $50
million tax payment will be funded using available excess cash and,
if necessary, funds available under its committed credit facility.
The timing of the tax payment is anticipated to be no later than
the first quarter of 2009. As of September 27, 2008, OfficeMax had
$171 million in available cash and cash equivalents and $602
million in available (unused) borrowing capacity under its $700
million revolving credit facility. The company's unused borrowing
capacity reflects an available borrowing base of $669 million, no
outstanding borrowings, and $67 million of letters of credit issued
under the revolving credit facility as of September 27, 2008. On
September 18, 2008, OfficeMax filed a Current Report on Form 8-K
with the Securities and Exchange Commission containing information
related to an event of default under a portion of the timber
installment notes received in connection with the sale of the
timberlands in 2004. The timber installment notes were held by
bankruptcy remote special purpose entities formed by OfficeMax (the
"OMX SPEs"). One timber installment note, in the original principal
amount of $817.5 million, was guaranteed by Lehman. This
installment note was monetized through the issuance of
securitization notes by the OMX SPE. Lehman filed a petition on
September 15, 2008 in the United States Bankruptcy Court for the
Southern District of New York seeking relief under chapter 11 of
the United States Bankruptcy Code. As a result of Lehman's
bankruptcy filing, an event of default occurred under the Lehman
guaranteed installment note. As described in our current report
filed on September 18, 2008, the OMX SPE has taken steps to reserve
the rights available to it as a result of the Lehman bankruptcy. On
October 29, 2008, as a result of an anticipated payment default
under the Lehman guaranteed installment note, OfficeMax expects the
OMX SPE will not make the full payment due on the same date to the
holders of the securitization notes. As a result of the above
events, and additional analysis by OfficeMax with its legal and
financial advisors, the company expects the following: -- Recourse
on any securitization notes in default is limited to the Lehman
guaranty and pledged installment note, and OfficeMax Incorporated
has no obligation with respect to these securitization notes. -- At
the time of the 2004 timberlands sale, the company generated a tax
gain and the resulting tax liability of $543 million was deferred
until 2019, the maturity date for the installment notes. OfficeMax
now expects approximately half of this tax gain will be accelerated
and the related taxes will become due and payable no later than the
first quarter of 2009. The company has available alternative
minimum tax credits, a portion of which resulted from prior tax
payments related to the 2004 timberlands sale, which will be used
to reduce the ultimate cash tax payment. As a result, OfficeMax
believes the cash tax exposure related to the portion of the tax
gain triggered by the Lehman default will not exceed approximately
$50 million. -- Currently, the OMX SPE receives approximately $41
million in interest annually under the Lehman guaranteed
installment note. This interest income funds approximately $40
million in interest payable annually to holders of the related
securitization notes, which results in net interest income to
OfficeMax of approximately $1 million. Nonpayment under the
installment note guaranteed by Lehman or the related Lehman
guaranty is likely to result in a loss of this $1 million of annual
net interest income. -- The company is required for accounting
purposes to assess the carrying value of assets whenever
circumstances indicate that a decline in value may have occurred.
Due to the uncertainty of collection of the Lehman guaranteed
installment note as a result of the Lehman bankruptcy, OfficeMax
has deemed the carrying value of the Lehman guaranteed installment
note impaired and intends to record a non-cash impairment charge of
at least $82.5 million in the third quarter of 2008. The $82.5
million is equal to the difference between the principal amount of
the installment note guaranteed by Lehman and the aggregate
principal amount of the securitization notes. OfficeMax is
currently completing the accounting and impairment analyses to
determine if the charge taken in the third quarter will exceed
$82.5 million. Select Third Quarter 2008 Operating Results Total
sales in the third quarter of 2008 decreased approximately 9.5% to
approximately $2.1 billion compared to the third quarter of 2007.
OfficeMax Contract segment sales were approximately $1.05 billion
in the third quarter of 2008, reflecting a U.S. Contract operations
sales decline of about 14.6%, and an International Contract
operations sales decline of about 3.1% in U.S. dollars. 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 large corporate account acquisition and
retention, and lower sales from small market customers. Contract
segment operating income for the third quarter of 2008 was
approximately $35.5 million, or about 3.4% of sales, compared to
operating income of $55.0 million, or 4.6% of sales, in the third
quarter of 2007. OfficeMax Retail segment sales were approximately
$1.05 billion in the third quarter of 2008, reflecting a same-store
sales decrease of about 11.1% partly offset by sales from new
stores. Retail same-store sales for the third quarter of 2008
declined across all major product categories due to weaker U.S.
consumer and small business spending. Retail segment operating
income for the third quarter of 2008 was approximately $29.1
million, or about 2.8% of sales, compared to operating income of
$45.3 million, or 4.0% of sales, in the third quarter of 2007. Sam
Duncan, Chairman and CEO of OfficeMax, said "Results in both our
Contract and Retail segments reflect the weaker global economic
environment. While we were successful in lowering expenses, reduced
sales volumes deleveraged fixed costs in both Contract and Retail,
resulting in lower profitability. As to the impact of the recent
Lehman bankruptcy on our timber notes, while we are completing our
assessment of the non-cash impairment charge, we do not believe
there will be any adverse impact on our operations. Looking
forward, we anticipate negative sales trends and increasing
deleveraging of expenses to continue through the remainder of the
year. Our cash flow from operations and access to capital both
remain solid and, we believe, they will provide us with the
resources we need to continue the turnaround initiatives that are
strengthening our business." 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
approximately 1,000 stores. To find the nearest OfficeMax, call
1-877-OFFICEMAX. For more information, visit
http://www.officemax.com/. 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 the impact
of the Lehman bankruptcy on the company will be limited to the
amounts described in the release, that future events will not
impact the company's available cash or the funds available under
its revolving credit facility, 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. DATASOURCE: OfficeMax
Incorporated CONTACT: media, Bill Bonner, +1-630-864-6066, or
Jennifer Rook, +1-630-864-6057, or investor relations, Mike Steele,
+1-630-864-6826, all of OfficeMax Incorporated Web site:
http://www.officemax.com/
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