Business News

OfficeMax Reports Second Quarter 2009 Financial Results

Thursday 30. July 2009 - OfficeMax Incorporated (NYSE:OMX) today announced the results for its second quarter ended June 27, 2009. Total sales were $1,657.9 million in the second quarter of 2009, a decline of 16.5% from the second quarter of 2008. For the second quarter of 2009, OfficeMax reported a net loss available to OfficeMax common shareholders of $17.7 million, or $0.23 per diluted share.

Sam Duncan, Chairman and CEO of OfficeMax, said, “Our ongoing efforts to streamline the business and enhance the company’s financial position significantly helped our performance in the second quarter. While we recognize the continued decline in the macro economy is masking achievements in our core business, we remain committed to conserving capital, reducing expenses and operating efficiently. At the same time, we continue to focus on initiatives that differentiate OfficeMax and position the company for longer-term growth.”
Summary Consolidated Results

(in millions, except per-share
amounts) 2Q 09 2Q 08 YTD 09 YTD 08
—————————— —– —– —— ——

Sales $1,657.9 $1,984.6 $3,569.6 $4,287.6
—– ——– ——– ——– ——–
Sales growth (over prior year
period) -16.5% -16.7%
—————————– —– —–
Operating loss/income $(27.5) $(902.5) $0.1 $(823.9)
—————————— —— ——– —- ——–
Adjusted operating income $0.8 $39.9 $38.3 $122.7
————————- —- —– —– ——
Adjusted operating income
margin 0.1% 2.0% 1.1% 2.9%
————————- — — — —
Adjusted diluted loss/income
per common share $(0.04) $0.24 $0.19 $0.92
—————————- —— —– —– —–
Cash and cash equivalents $295.8 $155.9
————————- —— ——
Available (unused) borrowing
capacity $499.1 $614.5
—————————- —— ——

The company has calculated adjusted income and earnings per share which are non-GAAP financial measures that exclude the effect of certain charges and income described in footnotes to the accompanying financial statements. A reconciliation to the company’s GAAP financial results is included in this press release.
Results for the second quarter of 2009 and 2008 included certain charges and income that are not considered indicative of core operating activities. Second quarter 2009 results included a $21.3 million pre-tax charge primarily related to Retail store closures; a $6.9 million pre-tax severance charge recorded in the Contract segment related principally to U.S. and Canadian sales force reorganizations; and a pre-tax benefit of $4.4 million recorded as interest income related to a tax escrow balance established in a prior period in connection with our legacy Voyageur Panel business sold in 2004. Second quarter 2008 results included a $935.3 million non-cash charge (pre-tax) recorded in the Contract and Retail segments related to the impairment of goodwill and intangible assets; a $10.2 million pre-tax charge recorded in the Retail segment related to employee severance from the reorganization of Retail store management; and a $3.1 million gain recorded in the Corporate and Other segment related to the sold legacy Voyageur Panel business.
Excluding the items described above, adjusted operating income in the second quarter of 2009 was $0.8 million, or 0.1% of sales, compared to adjusted operating income of $39.9 million, or 2.0% of sales in the second quarter of 2008. Adjusted net loss available to OfficeMax common shareholders in the second quarter of 2009 was $3.1 million, or $0.04 per diluted share. This compares to adjusted net income available to OfficeMax common shareholders of $18.3 million, or $0.24 per diluted share, in the second quarter of 2008.
Contract Segment Results

(in millions) 2Q 09 2Q 08 YTD 09 YTD 08
———— —– —– —— ——

Sales $881.7 $1,111.9 $1,809.3 $2,307.0
—– —— ——– ——– ——–
Sales growth (over prior year
period) -20.7% -21.6%
—————————– —– —–
Gross profit margin 20.6% 21.7% 20.8% 22.3%
——————- —- —- —- —-
Adjusted operating income
margin 1.4% 4.2% 1.9% 4.7%
————————- — — — —

OfficeMax Contract segment sales decreased 20.7% (16.1% after adjusting for the foreign currency exchange impact) to $881.7 million in the second quarter of 2009 compared to the second quarter of 2008, reflecting a U.S. Contract operations sales decline of 18.3%, and an International Contract operations sales decline of 26.3% in U.S. dollars (a sales decrease of 11.2% in local currencies). The U.S. Contract sales decline in the second quarter primarily reflects weaker sales from existing corporate accounts.
Contract segment gross margin decreased to 20.6% in the second quarter of 2009 from 21.7% in the second quarter of 2008, primarily due to softer market conditions and a sales mix shift to a higher percentage of lower-margin, on-contract items. Contract segment operating, selling & administrative expense as a percentage of sales increased to 19.2% in the second quarter of 2009 from 17.5% in the second quarter of 2008, primarily due to deleveraging of fixed operating expenses from lower sales. Contract segment operating income was $5.5 million in the second quarter of 2009 compared to an operating loss of $416.8 million in the second quarter of 2008. Contract segment adjusted operating income decreased to $12.4 million, or 1.4% of sales, in the second quarter of 2009 compared to adjusted operating income of $47.2 million, or 4.2% of sales, in the second quarter of 2008.
Retail Segment Results


(in millions) 2Q 09 2Q 08 YTD 09 YTD 08
———— —– —– —— ——

Sales $776.2 $872.7 $1,760.3 $1,980.6
—– —— —— ——– ——–
Same-store sales growth (over
prior year period) -11.6% -12.3%
—————————– —– —–
Gross profit margin 27.5% 27.7% 27.5% 28.2%
——————- —- —- —- —-
Adjusted operating loss/income
margin -0.3% 0.1% 1.3% 1.6%
—————————— —- — — —

OfficeMax Retail segment sales decreased 11.1% to $776.2 million in the second quarter of 2009 compared to the second quarter of 2008, reflecting a same-store sales decrease of 11.6% (a same-store sales decrease of 10.3% in local currencies), partially offset by sales from new stores. Retail same-store sales for the second quarter of 2009 declined across all major product categories primarily due to weaker small business and consumer spending, unfavorable Mexican Peso exchange rates, and the Swine Influenza A/H1N1 epidemic in Mexico.
Retail segment gross margin decreased to 27.5% in the second quarter of 2009 from 27.7% in the second quarter of 2008, primarily due to deleveraging of fixed occupancy costs from the same-store sales decrease and new stores, which was partially offset by reduced inventory shrinkage and increased product margin. Retail segment operating, selling & administrative expense as a percentage of sales was 27.8% in the second quarter of 2009 compared to 27.6% in the second quarter of 2008, and reflects deleveraging of fixed operating expenses from lower sales, partially offset by targeted cost controls including reduced payroll and lower store pre-opening expenses. Retail segment operating loss was $23.3 million in the second quarter of 2009 compared to an operating loss of $480.7 million in the second quarter of 2008. In the second quarter of 2009, the Retail segment recorded an adjusted operating loss of $2.0 million. This compares to adjusted operating income of $0.8 million, or 0.1% of sales, in the second quarter of 2008.
OfficeMax ended the second quarter of 2009 with a total of 1,012 retail stores, consisting of 933 retail stores in the U.S. and 79 retail stores in Mexico. During the second quarter of 2009, OfficeMax opened 5 retail stores in the U.S., and closed 11 stores in the U.S. and 2 in Mexico. For the full year 2009, OfficeMax expects to open 12 retail stores, and to close up to 25 retail stores.
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 was $9.6 million in the second quarter of 2009.
Balance Sheet and Cash Flow
As of June 27, 2009, OfficeMax had total debt of $334.2 million, excluding $1,470.0 million of timber securitization notes, which have recourse limited to the timber installment notes receivable and related guarantees. As of June 27, 2009, OfficeMax had $295.8 million in cash and cash equivalents, and $499.1 million in available (unused) borrowing capacity under its $700 million revolving credit facility. The company’s unused borrowing capacity as of June 27, 2009 reflects an available borrowing base of $563.9 million, zero outstanding borrowings, and $64.8 million of standby letters of credit issued under the revolving credit facility.
During the first six months of 2009, OfficeMax generated $114.2 million of cash from operations which reflected good working capital management and includes $45.0 million from second quarter 2009 borrowings on company-owned life insurance policies (“COLI”).
Also during the second quarter of 2009, the company received $25.1 million in cash related to a tax escrow balance established in a prior period in connection with our legacy Voyageur Panel business sold in 2004, and $15.0 million of withdrawals from COLI. OfficeMax invested $7.7 million for capital expenditures in the second quarter of 2009 compared to $42.7 million in the second quarter of 2008. OfficeMax expects capital expenditures for full year 2009 to be in the range of $40 million to $50 million.
Outlook
July sales trends were in line with the second quarter in the Contract segment, but were lower than the second quarter in the Retail segment. Given the projected weak economic climate and our anticipation of a soft Back-to-School season, OfficeMax remains very cautious in its expectations for the second half of 2009. The company expects sales to decline in the second half of 2009 on a year-over-year basis due to the difficult economic environment. As a result, OfficeMax expects continued deleveraging of costs and expenses for the remainder of 2009.
Mr. Duncan concluded, “As we enter Back-to-School season, our teams have been working together closely to ensure that we are offering our best assortment, have coordinated strong marketing programs, and are prudently managing inventory. Looking forward, OfficeMax continues to be in a good competitive position as a leading provider of office supply products and services with a global reach in a very large, fragmented industry. Although we anticipate the second half of 2009 will remain weak, we expect to maintain our solid financial condition and to generate cash flow from operations that will comfortably exceed capital expenditures for the full year. We believe we have been successfully pursuing the right initiatives and improving our business to deliver growth and shareholder value over the long-term.”