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OfficeMax Reports Third Quarter 2011 Financial Results

NAPERVILLE, Ill., Oct. 27, 2011 /PRNewswire via COMTEX/ --

OfficeMax® Incorporated (NYSE: OMX), a leader in office supplies, technology and services, today announced the results for its fiscal third quarter ended September 24, 2011. Total sales were $1,774.8 million in the third quarter of 2011, a decrease of 2.1% from the third quarter of 2010. For the third quarter of 2011, OfficeMax reported net income available to OfficeMax common shareholders of $21.5 million, or $0.25 per diluted share, compared to $20.0 million, or $0.23 per diluted share, in the third quarter of 2010.

"In the quarter, we maintained our profit margins in a tough economic climate and a soft Back-to-School season," said Ravi Saligram, President and CEO of OfficeMax. "With our new senior management team largely in place, we remain focused on driving operational efficiencies as we position the company for long-term growth."

Consolidated Results

(in millions, except per-share amounts)

3Q11

3Q10

YTD11

YTD10

Sales

$1,774.8

$1,813.4

$5,285.4

$5,383.8

Sales decline (from prior year period)

-2.1%


-1.8%


Gross profit

$459.7

$470.4

$1,359.2

$1,403.6

Gross profit margin

25.9%

25.9%

25.7%

26.1%

Operating income

$41.3

$40.9

$73.9

$118.4

Adjusted operating income*

$41.3

$40.9

$87.8

$129.7

Adjusted operating income margin*

2.3%

2.3%

1.7%

2.4%

Adjusted diluted income per common share*

$0.25

$0.23

$0.45

$0.73

* There were no adjustments for 3Q11 or 3Q10.






Adjusted operating income and adjusted diluted income per share are non-GAAP financial measures that exclude the effect of certain charges and income described in the footnotes to the accompanying financial statements. A reconciliation to the company's GAAP financial results is included in this press release.

Contract Segment Results

(in millions)

3Q11

3Q10

YTD11

YTD10

Sales

$883.3

$877.3

$2,689.3

$2,720.8

Sales growth or decrease (from prior year period)

0.7%


-1.2%


Gross profit margin

22.7%

22.8%

22.4%

22.7%

Segment income margin

2.6%

2.2%

1.8%

2.7%


Contract segment sales of $883.3 million in the third quarter of 2011 increased 0.7% (a decrease of 2.6% on a local currency basis) compared to the prior year period. This increase reflected a U.S. Contract operations sales decrease of 2.4% and an international Contract operations sales increase of 7.7% in U.S. dollars (a decrease of 3.0% on a local currency basis). The U.S. Contract sales decline in the third quarter primarily reflects weaker sales to existing corporate accounts, partially offset by sales to new customers exceeding lost sales to former customers. Both U.S. and International Contract operations showed improvements in the rates of sales declines on a local currency basis compared to the prior quarter.

As a result of increased delivery expense due to higher fuel costs, Contract segment gross profit margin decreased slightly to 22.7% in the third quarter of 2011 from 22.8% in the third quarter of 2010. Contract segment operating, selling and general and administrative expenses as a percentage of sales decreased to 20.1% in the third quarter of 2011 from 20.6% in the third quarter of 2010 primarily due to lower incentive compensation expense. Contract segment income was $23.3 million, or 2.6% of sales, in the third quarter of 2011 compared to $19.5 million, or 2.2% of sales, in the third quarter of 2010.

Retail Segment Results

(in millions)

3Q11

3Q10

YTD11

YTD10

Sales

$891.5

$936.1

$2,596.1

$2,663.0

Same-store sales decrease (from prior year period)

-4.3%


-2.1%


Gross profit margin

29.0%

28.9%

29.2%

29.5%

Segment income margin

3.2%

3.5%

2.4%

3.2%


Retail segment sales decreased 4.8% to $891.5 million in the third quarter of 2011 compared to the third quarter of 2010, reflecting a same-store sales decrease of 4.3%. A decline in same-store sales in the U.S. was partially offset by stronger same-store sales in Mexico.

Retail segment gross profit margin increased to 29.0% in the third quarter of 2011 from 28.9% in the third quarter of 2010 primarily due to increased product margins, partially offset by deleveraging of occupancy costs. Retail segment operating, selling and general and administrative expenses as a percentage of sales were 25.8% in the third quarter of 2011 compared with 25.4% in the third quarter of 2010 primarily due to deleveraging of store payroll and favorable sales/use tax settlements in third quarter of 2010, which were partially offset by lower incentive compensation expense. Retail segment income was $28.5 million, or 3.2% of sales, in the third quarter of 2011 compared to $32.4 million, or 3.5% of sales, in the third quarter of 2010.

OfficeMax ended the third quarter of 2011 with a total of 983 Retail stores, consisting of 900 Retail stores in the U.S. and 83 Retail stores in Mexico. During the third quarter of 2011, OfficeMax opened four Retail stores in Mexico and closed four Retail stores in the U.S.

Corporate and Other Segment Results

The 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, selling and general and administrative expenses was $10.5 million in the third quarter of 2011 compared to $11.0 million in the third quarter of 2010.

Balance Sheet and Cash Flow

As of September 24, 2011 OfficeMax had total debt of $270.0 million, excluding $1,470.0 million of non-recourse debt related to timber securitization notes that have recourse limited to the timber installment notes receivable and related guarantees.

During the first nine months of 2011, OfficeMax generated $78.7 million of cash provided by operations. OfficeMax invested $13.4 million for capital expenditures in the third quarter of 2011 compared to $21.6 million in the third quarter of 2010.

Outlook

Bruce Besanko, EVP, Chief Financial Officer and Chief Administrative Officer of OfficeMax, said, "Sales trends remain soft, however, the domestic total company sales percentage decline in October, on a year-over-year basis, was slightly less than the percentage decline we experienced in the third quarter. We remain diligent on cost reductions and expense control as we manage through challenging sales results."

Based on the current environment, OfficeMax anticipates that total company sales for the fourth quarter will be slightly higher than the fourth quarter of 2010, including the favorable impact of foreign currency translation and the benefit of the additional fiscal week in the fourth quarter. For the full year 2011, OfficeMax anticipates that total company sales will be slightly lower than the prior year, including the favorable impact of foreign currency translation and the benefit of a 53rd week. Additionally, OfficeMax anticipates that for both the fourth quarter and full year 2011, the adjusted operating income margin rate will be in line with the 1.7% rate for the first nine months of 2011.

The company's outlook also includes the following assumptions for the full year 2011:

  • Capital expenditures of approximately $75 million, primarily related to IT, ecommerce, and infrastructure investments and upgrades
  • Depreciation & amortization of approximately $84-87 million
  • Pension expense of approximately $11 million and cash contributions to the frozen pension plans of approximately $4 million
  • Interest expense of approximately $73-74 million and interest income of approximately $44 million
  • An effective tax rate approximately in line with the effective tax rate in the first nine months of 2011
  • Cash flow from operations exceeding capital expenditures
  • A net reduction in Retail store count for the year with approximately 20 store closures in the U.S., two store closures in Mexico, and seven store openings in Mexico

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 macroeconomy will perform within the assumptions underlying its projected outlook; that its initiatives will be successfully executed and produce the results underlying its expectations, due to the uncertainties inherent in new initiatives, including customer acceptance, unexpected expenses or challenges, or slower-than-expected results from initiatives; 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 that may cause results to differ from expectations are included in the company's Annual Report on Form 10-K for the year ended December 25, 2010, under Item 1A "Risk Factors", and in the company's other filings with the SEC.

Conference Call Information

OfficeMax will host a webcast and conference call with analysts and investors to review its third quarter 2011 financial results today at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The live audio webcast of the conference call can be accessed via the Internet by visiting the OfficeMax website at investor.officemax.com. The webcast and a podcast 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®, technology products and solutions, and furniture to businesses and individual consumers. OfficeMax customers are served by approximately 30,000 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/.

All trademarks, service marks and trade names of OfficeMax Incorporated used herein are trademarks or registered trademarks of OfficeMax Incorporated. Any other product or company names mentioned herein are the trademarks of their respective owners.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(thousands)








September 24,


December 25,



2011


2010






ASSETS





Current assets:





Cash and cash equivalents


$ 485,426


$ 462,326

Receivables, net


568,055


546,885

Inventories


765,353


846,463

Deferred income taxes and receivables


74,085


99,613

Other current assets


58,077


58,999

Total current assets


1,950,996


2,014,286






Property and equipment:





Property and equipment


1,298,108


1,346,558

Accumulated depreciation


(924,341)


(949,269)

Property and equipment, net


373,767


397,289






Intangible assets, net


81,700


83,231

Timber notes receivable


899,250


899,250

Deferred income taxes


290,468


284,529

Other non-current assets


406,800


400,344






Total assets


$ 4,002,981


$ 4,078,929






LIABILITIES AND EQUITY





Current liabilities:





Current portion of debt


$ 39,195


$ 4,560

Accounts payable


627,453


686,106

Income taxes payable


1,365


11,055

Accrued liabilities and other


330,364


342,753

Total current liabilities


998,377


1,044,474






Long-term debt, less current portion


230,849


270,435

Non-recourse debt


1,470,000


1,470,000






Other long-term obligations:





Compensation and benefits


237,112


250,756

Other long-term liabilities


374,375


393,253

Total other long-term liabilities


611,487


644,009






Noncontrolling interest in joint venture


34,632


49,246






Shareholders' equity:





Preferred stock


29,264


30,901

Common stock


215,224


212,644

Additional paid-in capital


1,011,793


986,579

Accumulated deficit


(504,262)


(533,606)

Accumulated other comprehensive loss


(94,383)


(95,753)

Total shareholders' equity


657,636


600,765






Total liabilities and equity


$ 4,002,981


$ 4,078,929

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)





Quarter Ended



September 24,


September 25,



2011


2010






Sales


$ 1,774,767


$ 1,813,366

Cost of goods sold and occupancy costs


1,315,106


1,342,944

Gross profit


459,661


470,422






Operating, selling and general and administrative expenses


418,365


429,498






Operating income


41,296


40,924






Other income (expense):





Interest expense


(17,827)


(18,444)

Interest income


10,984


10,646

Other income (expense), net


173


(23)



(6,670)


(7,821)






Pre-tax income


34,626


33,103

Income tax expense


(11,167)


(11,678)











Net income attributable to OfficeMax and noncontrolling interest


23,459


21,425

Joint venture results attributable to noncontrolling interest


(1,426)


(886)






Net income attributable to OfficeMax


22,033


20,539






Preferred dividends


(515)


(573)






Net income available to OfficeMax common shareholders


$ 21,518


$ 19,966






Basic income per common share:


$ 0.25


$ 0.23






Diluted income per common share:


$ 0.25


$ 0.23






Weighted Average Shares





Basic


86,033


85,014

Diluted


87,087


86,543

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)





Nine Months Ended



September 24,


September 25,



2011


2010






Sales


$ 5,285,384


$ 5,383,794

Cost of goods sold and occupancy costs


3,926,148


3,980,171

Gross profit


1,359,236


1,403,623






Operating expenses:





Operating, selling and general and administrative expenses


1,271,391


1,273,886

Other operating expenses, net (a)


13,916


11,348

Total operating expenses


1,285,307


1,285,234






Operating income


73,929


118,389






Other income (expense):





Interest expense


(54,721)


(55,132)

Interest income


32,913


31,850

Other income (expense), net


307


(57)



(21,501)


(23,339)






Pre-tax income


52,428


95,050

Income tax expense


(17,837)


(34,374)











Net income attributable to OfficeMax and noncontrolling interest


34,591


60,676

Joint venture results attributable to noncontrolling interest


(3,113)


(2,249)






Net income attributable to OfficeMax


31,478


58,427






Preferred dividends


(1,614)


(1,921)






Net income available to OfficeMax common shareholders


$ 29,864


$ 56,506






Basic income per common share:


$ 0.35


$ 0.67






Diluted income per common share:


$ 0.34


$ 0.65






Weighted Average Shares





Basic


85,793


84,865

Diluted


86,878


86,442

(a) The first nine months of 2011 and 2010 include charges recorded in our Retail segment related to store closures in the U.S. of $5.6 million and $14.4 million, respectively, which reduced net income available to OfficeMax common shareholders by $3.4 million and $8.9 million, or $0.04 and $0.10 per diluted share for 2011 and 2010, respectively. The first nine months of 2011 and 2010 also include severance charges of $8.3 million in 2011 ($8.0 million in Contract and $0.3 million in Retail) related to reorganizations in Canada, Australia and the U.S. sales and supply chain organizations and $0.8 million in the first quarter of 2010 related to a reorganization of U.S. customer service operations. The effect of these items reduced net income by $5.6 million and $0.5 million, or $0.07 and $0.01 per diluted share, for the first nine months of 2011 and 2010, respectively. Finally, the first nine months of 2010 also include income of $3.9 million related to the adjustment of a reserve associated with our legacy building materials manufacturing facility near Elma, Washington due to an agreement with the lessor to terminate the lease. This item increased net income by $2.4 million, or $0.03 per diluted share, for the first nine months of 2010.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(thousands)







Nine Months Ended


September 24,


September 25,


2011


2010





Cash provided by operations:




Net income attributable to OfficeMax and noncontrolling interest

$ 34,591


$ 60,676

Items in net income not using cash:




Depreciation and amortization

63,759


76,586

Other

13,467


7,044

Changes in operating assets and liabilities:




Receivables

(14,707)


4,002

Inventory

77,249


48,227

Accounts payable and accrued liabilities

(76,980)


(50,850)

Income taxes and other

(18,636)


10,293

Cash provided by operations

78,743


155,978





Cash used for investment:




Expenditures for property and equipment

(41,549)


(50,153)

Proceeds from sale of assets

169


1,607

Cash used for investment

(41,380)


(48,546)





Cash used for financing:




Cash dividends paid

(2,224)


(2,575)

Changes in debt, net

(5,134)


(3,341)

Other

(3,922)


(1,756)

Cash used for financing

(11,280)


(7,672)





Effect of exchange rates on cash and cash equivalents

(2,983)


1,606

Increase in cash and cash equivalents

23,100


101,366

Cash and cash equivalents at beginning of period

462,326


486,570





Cash and cash equivalents at end of period

$ 485,426


$ 587,936

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NON-GAAP RECONCILIATION

(unaudited)

(millions, except per-share amounts)




Nine Months Ended



September 24, 2011


September 25, 2010



As




As


As




As



Reported


Adjustments


Adjusted


Reported


Adjustments


Adjusted














Sales


$ 5,285.4


$ -


$ 5,285.4


$ 5,383.8


$ -


$ 5,383.8

Cost of goods sold and occupancy costs


3,926.2


-


3,926.2


3,980.2


-


3,980.2

Gross profit


1,359.2


-


1,359.2


1,403.6


-


1,403.6














Operating expenses:













Operating, selling and general and administrative expenses


1,271.4


-


1,271.4


1,273.9


-


1,273.9

Other operating expenses, net (a)


13.9


(13.9)


-


11.3


(11.3)


-

Total operating expenses


1,285.3


(13.9)


1,271.4


1,285.2


(11.3)


1,273.9














Operating income


73.9


13.9


87.8


118.4


11.3


129.7














Other income (expense):













Interest expense


(54.7)


-


(54.7)


(55.1)


-


(55.1)

Interest income


32.9


-


32.9


31.9


-


31.9

Other income (expense), net


0.3


-


0.3


(0.1)


-


(0.1)



(21.5)


-


(21.5)


(23.3)


-


(23.3)














Pre-tax income


52.4


13.9


66.3


95.1


11.3


106.4

Income tax expense


(17.8)


(4.9)


(22.7)


(34.4)


(4.3)


(38.7)



























Net income attributable to OfficeMax and noncontrolling interest


34.6


9.0


43.6


60.7


7.0


67.7

Joint venture results attributable to noncontrolling interest


(3.1)


-


(3.1)


(2.3)




(2.3)

Net income attributable to OfficeMax


31.5


9.0


40.5


58.4


7.0


65.4














Preferred dividends


(1.6)


-


(1.6)


(1.9)


-


(1.9)














Net income available to OfficeMax common shareholders


$ 29.9


$ 9.0


$ 38.9


$ 56.5


$ 7.0


$ 63.5














Basic income per common share:


$ 0.35


$ 0.10


$ 0.45


$ 0.67


$ 0.08


$ 0.75

Diluted income per common share:


$ 0.34


$ 0.11


$ 0.45


$ 0.65


$ 0.08


$ 0.73



























Weighted Average Shares













Basic


85,793




85,793


84,865




84,865

Diluted


86,878




86,878


86,442




86,442



























(a) The first nine months of 2011 and 2010 include charges recorded in our Retail segment related to store closures in the U.S. of $5.6 million and $14.4 million, respectively, which reduced net income available to OfficeMax common shareholders by $3.4 million and $8.9 million, or $0.04 and $0.10 per diluted share for 2011 and 2010, respectively. The first nine months of 2011 and 2010 also include severance charges of $8.3 million in 2011 ($8.0 million in Contract and $0.3 million in Retail) related to reorganizations in Canada, Australia and the U.S. sales and supply chain organizations and $0.8 million in the first quarter of 2010 related to a reorganization of U.S. customer service operations. The effect of these items reduced net income by $5.6 million and $0.5 million, or $0.07 and $0.01 per diluted share, for the first nine months of 2011 and 2010, respectively. Finally, the first nine months of 2010 also include income of $3.9 million related to the adjustment of a reserve associated with our legacy building materials manufacturing facility near Elma, Washington due to an agreement with the lessor to terminate the lease. This item increased net income by $2.4 million, or $0.03 per diluted share, for the first nine months of 2010.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONTRACT SEGMENT STATEMENTS OF OPERATIONS

(unaudited)

(millions, except per-share amounts)















Quarter Ended




September 24,




September 25,






2011




2010













Sales



$ 883.3




$ 877.3













Gross profit



200.9


22.7%


199.9


22.8%

Operating, selling and general and administrative expenses


177.6


20.1%


180.4


20.6%

Segment income



$ 23.3


2.6%


$ 19.5


2.2%

































Nine Months Ended




September 24,




September 25,






2011




2010













Sales



$ 2,689.3




$ 2,720.8













Gross profit



602.3


22.4%


618.3


22.7%

Operating, selling and general and administrative expenses


552.6


20.6%


545.7


20.0%

Segment income



$ 49.7


1.8%


$ 72.6


2.7%











Other operating expenses



8.0


0.3%


0.8


0.1%

Operating income



$ 41.7


1.5%


$ 71.8


2.6%

Note: Management evaluates the segments' performances using segment income which is based on operating income after eliminating the effect of certain operating items that are not indicative of our core operations such as severances, facility closures and adjustments, and asset impairments. These certain operating items are reported on the other operating expenses line in the Consolidated Statements of Operations.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

RETAIL SEGMENT STATEMENTS OF OPERATIONS

(unaudited)

(millions, except per-share amounts)















Quarter Ended




September 24,




September 25,






2011




2010













Sales



$ 891.5




$ 936.1













Gross profit



258.8


29.0%


270.5


28.9%

Operating, selling and general and administrative expenses


230.3


25.8%


238.1


25.4%

Segment income



$ 28.5


3.2%


$ 32.4


3.5%

































Nine Months Ended




September 24,




September 25,






2011




2010













Sales



$ 2,596.1




$ 2,663.0













Gross profit



756.9


29.2%


785.3


29.5%

Operating, selling and general and administrative expenses


694.8


26.8%


700.2


26.3%

Segment income



$ 62.1


2.4%


$ 85.1


3.2%











Other operating expenses



5.9


0.2%


14.4


0.5%

Operating income



$ 56.2


2.2%


$ 70.7


2.7%

Note: Management evaluates the segments' performances using segment income which is based on operating income after eliminating the effect of certain operating items that are not indicative of our core operations such as severances, facility closures and adjustments, and asset impairments. These certain operating items are reported on the other operating expenses line in the Consolidated Statements of Operations.

Reconciliation of non-GAAP Measures to GAAP Measures

In addition to assessing our operating performance as reported under U.S. generally accepted accounting principles (GAAP), we evaluate our results of operations before non-operating legacy items and operating items that are not indicative of our core operating activities such as severance, facility closure and adjustments, and asset impairments. 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 as "adjusted" and provide a reconciliation of the 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 non-GAAP financial measures to our reported GAAP financial results for the first nine months of 2011 and 2010.

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.

OfficeMax Contacts


Mike Steele

Tony Giuliano

630 864 6826

630 864 6800

SOURCE: OfficeMax Incorporated