- Contract Segment Gross Margin Improves
- Retail Segment Implements Reorganization of Store Management
- Net Income Includes Non-Cash Impairment Charge
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.
SOURCE OfficeMax Incorporated
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Related links:
http://www.officemax.com
CONTACT:
Media, Bill Bonner, +1-630-864-6066, or
Investor Relations, John Jennings, +1-630-864-6820, both of
OfficeMax Incorporated
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