NAPERVILLE, Ill., Nov. 1 /PRNewswire-FirstCall/ -- OfficeMax(R)
Incorporated (NYSE: OMX) today announced the results for its third quarter
ended September 29, 2007. Total sales increased 3.2% to $2.3 billion in the
third quarter of 2007 compared to $2.2 billion in the third quarter of
2006. Net income increased to $49.9 million, or $.64 per diluted share, in
the third quarter of 2007 from $31.4 million, or $.41 per diluted share, in
the third quarter of 2006.
The third quarter of 2006 included items which are not expected to be
ongoing. All financial measures designated in this release as "adjusted"
are non-GAAP financial measures that exclude the effect of certain special
items. A detailed description of prior quarter special items, and a
reconciliation to the company's GAAP financial results, are included in
this press release. Net income in the third quarter of 2007 increased 16%
from adjusted net income in the third quarter of 2006 of $43.2 million, or
$.56 per diluted share.
"Our results for the third quarter showed continued progress on our
turnaround plans, even as we operated in a weaker economic environment that
has had some impact on both our Contract and Retail operating segments,"
said Sam Duncan, Chairman and CEO of OfficeMax. "We are pleased that the
actions we took earlier this year to reorganize and improve performance in
our Contract division are generating positive results. In U.S. Contract, we
reduced operating costs and expanded operating margin in the third quarter
of 2007. In our Retail segment, operating margin declined primarily due to
a category mix shift toward lower margin product sales that we could not
offset with cost controls within the quarter. We continue to adjust our
Retail promotional strategies and pursue other cost containment measures to
improve our Retail operating margin."
Contract Segment Results
OfficeMax Contract segment sales increased 2.4% to $1.2 billion in the
third quarter of 2007 compared to the third quarter of 2006, reflecting a
U.S. Contract sales decline of 1.9% offset by International Contract
operations sales growth of 16.2% in U.S. dollars, or 4.3% in local
currencies. U.S. Contract sales declined in the third quarter of 2007
compared to the prior year period, primarily due to lower sales from
existing customer accounts, and from the company's initiative to be more
disciplined in new account acquisition.
Contract segment gross margin decreased to 22.1% in the third quarter
of 2007 from 22.3% in the third quarter of 2006, primarily due to the
continued impact of new and renewing large corporate accounts with lower
gross margin rates and the impact of paper price increases. Contract
segment operating expense as a percent of sales in the third quarter of
2007 improved to 17.5% from adjusted operating expense as a percent of
sales of 18.4% in the third quarter of 2006, primarily due to effective
cost management in U.S. Contract, lower incentive compensation costs, and
expense leverage in International Contract operations. Contract segment
operating income in the third quarter of 2007 increased to $55.0 million,
or 4.6% of sales, from adjusted operating income in the third quarter of
2006 of $45.7 million, or 3.9% of sales.
Retail Segment Results
OfficeMax Retail segment sales increased 4.0% to $1.1 billion in the
third quarter of 2007 compared to the third quarter of 2006, reflecting the
impact of new stores and same-store sales increase of 0.8%. Retail same
store sales in the third quarter of 2007 were favorably impacted by same
store sales growth in technology categories and ImPress, partially offset
by same store sales declines in core office supplies and furniture
categories. Third quarter 2007 Retail sales trends reflected moderate
improvement in Back-to-School season sales and some weakness in consumer
and small business customer purchases.
Retail segment gross margin decreased to 28.9% in the third quarter of
2007 from 30.1% in the third quarter of 2006, primarily due to the impact
of a shift in the mix of sales to a higher percentage of technology
category sales at lower gross margin rates and a lower percentage of core
office supplies and furniture category sales which typically generate
higher gross margin rates. Retail segment operating expense as a percent of
sales improved to 24.9% in the third quarter of 2007 from 25.1% in the
third quarter of 2006, primarily due to lower incentive compensation costs,
partially offset by higher store labor costs. Retail segment operating
income decreased to $45.3 million, or 4.0% of sales, in the third quarter
of 2007 from $54.8 million, or 5.0% of sales, in the third quarter of 2006.
During the third quarter of 2007, OfficeMax opened 9 retail stores in
the U.S., closed 1 retail store in the U.S., and opened 3 retail stores in
Mexico. OfficeMax ended the third quarter of 2007 with 869 retail stores in
the U.S. and 65 retail stores in Mexico for 934 total retail stores,
compared with 884 total retail stores at the end of the third quarter of
2006. The company continues to expect a total of approximately 60 new
retail store openings in the U.S. for the full year 2007.
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. Corporate and Other segment operating expense
in the third quarter of 2007 decreased to $10.0 million from adjusted
operating expense of $18.8 million in the third quarter of 2006, primarily
due to lower incentive compensation costs and reduced legacy-related costs.
As of September 29, 2007, OfficeMax reported total debt of $384.4
million excluding $1.5 billion of timber securitization notes. OfficeMax
used $9.1 million of cash from operations in the third quarter of 2007, a
decrease of $197.9 million from the third quarter of 2006, primarily due to
the termination of the company's accounts receivable securitization program
in July 2007. OfficeMax invested $41.9 million for capital expenditures in
the third quarter of 2007 compared to $49.8 million in the third quarter of
2006. The company expects capital expenditures to total between $140 and
$160 million for the full year 2007.
Mr. Duncan concluded, "While we are pleased to have made progress in
our 2007 turnaround initiatives, opportunities remain across our business
for improvement. We are focused on driving profitable sales, controlling
expenses, and increasing operating margin. In our Contract segment, we
continue to instill discipline in signing on new accounts, enable cost
savings to our customers and better profitability to OfficeMax, and
position us for aggressive middle market sales growth. In our Retail
segment, we remain committed to effective category management and
promotional strategies, controlling and leveraging costs, and implementing
our real estate strategy."
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 30, 2006, 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 today
to discuss its third quarter 2007 financial results at 9:00 a.m. Eastern
Time (8:00 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 over 36,000 associates through direct
sales, catalogs, e-commerce and more than 900 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)
September 29, December 30,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $147,351 $282,070
Receivables, net 757,162 562,528
Inventories 997,613 1,071,486
Other current assets 130,293 180,760
Total current assets 2,032,419 2,096,844
Property and equipment:
Property and equipment 1,256,114 1,189,686
Accumulated depreciation (675,130) (610,061)
Property and equipment, net 580,984 579,625
Goodwill and intangible assets, net 1,442,268 1,417,336
Timber notes receivable 1,635,000 1,635,000
Other non-current assets 418,353 487,243
Total assets $6,109,024 $6,216,048
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $28 $-
Current portion of long-term debt 34,888 25,634
Accounts payable 844,442 997,700
Accrued liabilities and other 505,571 505,569
Total current liabilities 1,384,929 1,528,903
Long-term debt:
Long-term debt, less current
portion 349,517 384,246
Timber notes securitized 1,470,000 1,470,000
Total long-term debt 1,819,517 1,854,246
Other long-term obligations:
Compensation and benefits 266,139 287,122
Other long-term liabilities 450,623 530,248
Total other long-term liabilities 716,762 817,370
Minority interest 30,997 29,885
Shareholders' equity:
Preferred stock 51,249 54,735
Common stock 188,462 187,226
Additional paid-in capital 913,079 893,848
Retained earnings 1,035,937 941,830
Accumulated other comprehensive
loss (31,908) (91,995)
Total shareholders' equity 2,156,819 1,985,644
Total liabilities and shareholders'
equity $6,109,024 $6,216,048
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Quarter Ended
September 29, September 30,
2007 2006
Sales $2,315,219 $2,244,414
Cost of goods sold and occupancy
costs 1,727,161 1,659,603
Gross profit 588,058 584,811
Operating and other expenses:
Operating and selling 419,765 413,185
General and administrative 79,581 91,479
Other operating (income) expense,
net (1,521) 17,860
Operating income 90,233 62,287
Other income (expense):
Interest expense (31,220) (30,557)
Interest income 21,814 22,900
Other income (expense), net (179) (1,401)
(9,585) (9,058)
Income from continuing operations
before income taxes and minority interest 80,648 53,229
Income tax expense (29,080) (20,250)
Income from continuing operations
before minority interest 51,568 32,979
Minority interest, net of income tax (1,639) (1,604)
Income from continuing operations 49,929 31,375
Net income 49,929 31,375
Preferred dividends (931) (1,009)
Net income applicable to common
shareholders $48,998 $30,366
Basic income (loss) per common share:
Continuing operations $0.65 $0.41
Discontinued operations - -
Basic income (loss) per common share $0.65 $0.41
Diluted income (loss) per common
share:
Continuing operations $0.64 $0.41
Discontinued operations - -
Diluted income (loss) per common share $0.64 $0.41
Weighted Average Shares
Basic 75,376 74,235
Diluted 76,558 74,779
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Nine Months Ended
September 29, September 30,
2007 2006
Sales $6,883,890 $6,708,902
Cost of goods sold and occupancy
costs 5,136,809 4,978,340
Gross profit 1,747,081 1,730,562
Operating and other expenses:
Operating and selling 1,233,114 1,231,529
General and administrative 262,237 267,383
Other operating (income) expense, net (4,543) 131,156
Operating income 256,273 100,494
Other income (expense):
Interest expense (91,296) (92,274)
Interest income 66,628 66,117
Other income (expense), net (5,858) 3,160
(30,526) (22,997)
Income from continuing operations
before income taxes and minority interest 225,747 77,497
Income tax expense (85,669) (29,540)
Income from continuing operations
before minority interest 140,078 47,957
Minority interest, net of income tax (4,174) (3,293)
Income from continuing operations 135,904 44,664
Discontinued operations:
Operating loss - (17,972)
Income tax benefit - 6,991
Loss from discontinued operations - (10,981)
Net income 135,904 33,683
Preferred dividends (2,947) (3,027)
Net income applicable to common
shareholders $132,957 $30,656
Basic income (loss) per common share:
Continuing operations $1.77 $0.57
Discontinued operations - (0.15)
Basic income (loss) per common share $1.77 $0.42
Diluted income (loss) per common
share:
Continuing operations $1.74 $0.57
Discontinued operations - (0.15)
Diluted income (loss) per common
share $1.74 $0.42
Weighted Average Shares
Basic 75,237 72,648
Diluted 76,298 73,251
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(thousands)
Nine Months Ended
September 29, September 30,
2007 2006
Cash provided by (used for) operations:
Net income $135,904 $33,683
Items in net income not using
(providing) cash:
Depreciation and amortization 97,512 92,570
Other 29,174 46,821
Changes other than from acquisitions
of business:
Receivables and inventory (87,239) 254,862
Accounts payable and accrued
liabilities (205,878) (133,226)
Income taxes and other 61,980 45,062
Cash provided by operations 31,453 339,772
Cash provided by (used for) investment:
Expenditures for property and equipment (101,339) (96,775)
Proceeds from sale of assets 1,200 4,438
Acquisition of businesses (1,948) -
Cash used for investment (102,087) (92,337)
Cash provided by (used for) financing:
Cash dividends paid (35,758) (34,376)
Changes in debt, net (25,482) (84,144)
Proceeds from exercise of stock options 5,852 112,682
Other (10,022) (34)
Cash used for financing (65,410) (5,872)
Effect of exchange rates on cash and
cash equivalents 1,325 (7)
Increase (decrease) in cash and cash
equivalents (134,719) 241,556
Cash and cash equivalents at
beginning of period 282,070 72,198
Cash and cash equivalents at end of
period $147,351 $313,754
OFFICEMAX INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL SEGMENT INFORMATION
(unaudited)
(millions, except per-share data)
Quarter Ended
September 29, 2007 September 30, 2006
As
As Special As As Special Adjusted
Reported Items Adjusted Reported Items(a) (b)
Segment Sales
OfficeMax, Contract $1,185.7 $1,185.7 $1,158.3 $1,158.3
OfficeMax, Retail 1,129.5 1,129.5 1,086.1 1,086.1
2,315.2 2,315.2 2,244.4 2,244.4
Segment income (loss)
OfficeMax, Contract $55.0 $- $55.0 $37.8 $7.9 $45.7
OfficeMax, Retail 45.3 - 45.3 54.8 - 54.8
Corporate and Other (10.0) - (10.0) (30.3) 11.5 (18.8)
Operating income
(loss) 90.3 - 90.3 62.3 19.4 81.7
Operating income
margin 3.9% 3.9% 2.8% 3.6%
Interest expense (31.2) - (31.2) (30.6) - (30.6)
Interest income and
other 21.6 - 21.6 21.5 - 21.5
Income (loss) from
continuing operations
before income taxes
and minority interest 80.7 - 80.7 53.2 19.4 72.6
Income taxes (29.1) - (29.1) (20.2) (7.6) (27.8)
Income (loss) from
continuing operations
before minority
interest 51.6 - 51.6 33.0 11.8 44.8
Minority interest,
net of income tax (1.7) - (1.7) (1.6) - (1.6)
Income (loss) from
continuing
operations 49.9 - 49.9 31.4 11.8 43.2
Net income $49.9 $- $49.9 $31.4 $11.8 $43.2
Diluted income (loss)
per common share
Continuing operations $0.64 $- $0.64 $0.41 $0.15 $0.56
Discontinued
operations - - - - - -
Diluted income (loss)
per common share $0.64 $- $0.64 $0.41 $0.15 $0.56
Totals may not foot due to rounding.
(a) See Note 3 for a discussion of these special items.
(b) For the purpose of evaluating our results, net of taxes, we have
presented the results before special items using an estimated annual
tax rate. For the purpose of presenting diluted income (loss) per
common share before special items, we calculated diluted income (loss)
per common share before special items without making any adjustments
to the number of shares used in the calculation of diluted income
(loss) per common share as reported.
OFFICEMAX INCORPORATED AND SUBSIDIARIES
SUPPLEMENTAL SEGMENT INFORMATION
(unaudited)
(millions, except per-share data)
Nine Months Ended
September 29, 2007 September 30, 2006
As
As Special As As Special Adjusted
Reported Items(a) Adjusted Reported Items(b) (c)
Segment Sales
OfficeMax, Contract $3,647.3 $3,647.3 $3,535.8 $3,535.8
OfficeMax, Retail 3,236.6 3,236.6 3,173.1 3,173.1
6,883.9 6,883.9 6,708.9 6,708.9
Segment income
(loss)
OfficeMax, Contract $155.9 $- $155.9 $149.3 $7.9 $157.2
OfficeMax, Retail 134.6 - 134.6 44.0 89.5 133.5
Corporate and Other (34.2) - (34.2) (92.8) 38.1 (54.7)
Operating income
(loss) 256.3 - 256.3 100.5 135.5 236.0
Operating income
margin 3.7% 3.7% 1.5% 3.5%
Interest expense (91.3) - (91.3) (92.3) - (92.3)
Interest income and
other 60.8 - 60.8 69.3 (9.2) 60.1
Income (loss) from
continuing
operations
before income taxes
and minority
interest 225.8 - 225.8 77.5 126.3 203.8
Income taxes (85.7) - (85.7) (29.5) (49.2) (78.7)
Income (loss) from
continuing
operations
before minority
interest 140.1 - 140.1 48.0 77.1 125.1
Minority interest,
net of income tax (4.2) 1.1 (3.1) (3.3) - (3.3)
Income (loss) from
continuing
operations 135.9 1.1 137.0 44.7 77.1 121.8
Discontinued
operations
Operating loss - - - (18.0) 18.0 -
Income tax benefit - - - 7.0 (7.0) -
Loss from
discontinued
operations - - - (11.0) 11.0 -
Net income $135.9 $1.1 $137.0 $33.7 $88.1 $121.8
Diluted income
(loss) per common
share
Continuing
operations $1.74 $0.02 $1.76 $0.57 $1.05 $1.62
Discontinued
operations - - - (0.15) 0.15 -
Diluted income
(loss) per common
share $1.74 $0.02 $1.76 $0.42 $1.20 $1.62
Totals may not foot due to rounding.
(a) See Note 4 for a discussion of these special items.
(b) See Notes 3 and 5 for a discussion of these special items.
(c) For the purpose of evaluating our results, net of taxes, we have
presented the results before special items using an estimated annual
tax rate. For the purpose of presenting diluted income (loss) per
common share before special items, we calculated diluted income (loss)
per common share before special items without making any adjustments
to the number of shares used in the calculation of diluted income
(loss) per common share as reported.
(1) Financial Information
The quarterly and annual consolidated financial statements included in
this release are unaudited, and should be read in conjunction with the
audited financial statements in our 2006 Annual Report on Form 10-K. In all
periods presented, the measurement of net income (loss) involved estimates
and judgments.
(2) Reconciliation of non-GAAP Measures to GAAP Measures
We evaluate our results of operations both before and after certain
gains and losses that management believes are not indicative of our core
operating activities. We believe our presentation of financial measures
before, or excluding, these items, which are non-GAAP measures, enhances
our investors' overall understanding of our recurring operational
performance and provides useful information to both investors and
management to evaluate the ongoing operations and prospects of OfficeMax by
providing better comparisons. Whenever we use non-GAAP financial measures,
we designate these measures, which exclude the effect of certain special
items, as "adjusted" and provide a reconciliation of non-GAAP financial
measures to the most closely applicable GAAP financial measure. Investors
are encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most directly
comparable GAAP financial measure. In the preceding tables, we reconcile
our financial measures before special items to our reported GAAP financial
results for the third quarter and first nine months of both 2007 and 2006.
Although we believe the non-GAAP financial measures enhance an
investor's understanding of our performance, our management does not
itself, nor does it suggest that investors should, consider such non-GAAP
financial measures in isolation from, or as a substitute for, financial
information prepared in accordance with GAAP. The non-GAAP financial
measures we use may not be consistent with the presentation of similar
companies in our industry. However, we present such non-GAAP financial
measures in reporting our financial results to provide investors with an
additional tool to evaluate our operating results in a manner that focuses
on what we believe to be our ongoing business operations.
(3) 2006 Special Items
First Quarter 2006
During the first quarter of 2006, we closed 109 underperforming
domestic retail stores and recorded a charge of $98.6 million in our Retail
segment primarily for remaining lease obligations and we incurred $15.7
million of expenses in our Corporate and Other segment related to our
headquarters consolidation primarily for employee severance and retention.
Second Quarter 2006
During the second quarter of 2006, we recorded a $9.0 million pre-tax
benefit in our Retail segment from an adjustment to the reserve for closed
retail stores, and we incurred $10.9 million of expenses in our Corporate
and Other segment related to our headquarters consolidation, primarily for
employee severance and retention. Also during the second quarter of 2006,
we recognized a $9.2 million credit from an adjustment to the reserve for
the additional consideration agreement that was entered into in connection
with the October 2004 sale of our paper, forest products and timberland
assets. This adjustment is included in Other, income (expense) net.
Third Quarter 2006
During the third quarter of 2006, we incurred $11.5 million of expenses
in our Corporate and Other segment related to our headquarters
consolidation, and incurred $7.9 million of expenses in our Contract
segment related to our Contract reorganization primarily for severance.
(4) 2007 Special Items
First Quarter 2007
During the first quarter of 2007, we sold OfficeMax Contract's
operations in Mexico to OfficeMax de Mexico, our 51% owned joint venture,
resulting in a net loss of $1.1 million which is included in minority
interest, net of income tax in our Consolidated Statements of Income (Loss)
for 2007.
(5) Discontinued Operations
In the first quarter of 2006, we ceased operations at the Company's
wood-polymer building materials facility near Elma, Washington. The costs
and expenses related to this business are reflected as discontinued
operations in our Consolidated Statements of Income (Loss) for 2006 and are
included as special items in our Segment Information tables.
SOURCE OfficeMax Incorporated
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Related links:
http://www.officemax.com
CONTACT:
Media, Bill Bonner, +1-630-864-6066, or
investors, John Jennings, +1-630-864-6820, both of OfficeMax
Incorporated
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