NAPERVILLE, Ill., Feb. 18 /PRNewswire-FirstCall/ -- OfficeMax(R)
Incorporated (NYSE: OMX) today announced the results for its fourth quarter
and fiscal year ended December 27, 2008. Total sales decreased 14.3% in the
fourth quarter of 2008 to $1,883.1 million compared to the fourth quarter of
2007, while total sales decreased 9.0% for the full year 2008 to $8,267.0
million compared to the full year 2007. For the fourth quarter of 2008,
OfficeMax reported a net loss of $396.0 million, or $5.21 per diluted share,
compared to net income of $70.5 million, or $0.92 per diluted share, in the
fourth quarter of 2007. For the full year 2008, OfficeMax reported a net loss
of $1,661.6 million, or $21.90 per diluted share, compared with net income of
$203.4 million, or $2.66 per diluted share, in 2007.
Net loss in the fourth quarter of 2008 includes a pre-tax $429.1 million
($392.0 million after-tax) non-cash charge recorded among the Contract and
Retail segments related to impairment of goodwill, trade names, and store
fixed assets, with a corresponding $6.5 million of non-cash minority interest
(after-tax) impact related to our Mexico joint venture; a pre-tax $3.2 million
($1.9 million after-tax) non-cash impairment-related interest expense charge
on the securitization notes payable related to the Lehman Brothers Holdings
Inc. ("Lehman") guaranteed installment notes; and a pre-tax $16.6 million
($10.5 million after-tax) charge, which was included in Contract, Retail, and
Corporate for field/corporate reductions in force and certain store and site
leases. Net income for the fourth quarter of 2007 included a pre-tax $32.4
million ($20.4 million after-tax) benefit related to the legacy additional
consideration agreement with Boise Cascade, L.L.C.
The company has calculated adjusted income/loss and earnings/loss per
share which are non-GAAP financial measures that exclude the effect of certain
impairment items and other charges described in footnotes to the accompanying
financial statements. A reconciliation to the company's GAAP financial results
is included in this press release.
Adjusted net income in the fourth quarter of 2008 was $1.9 million, or
$0.02 per diluted share, compared to $50.1 million, or $0.65 per diluted share
in the fourth quarter of 2007. For the full year 2008, adjusted net income was
$100.1 million, or $1.30 per diluted share, down from $184.1 million, or $2.41
per diluted share, in 2007.
Sam Duncan, Chairman and CEO of OfficeMax, said, "Our fourth quarter
results reflect the deteriorating economic environment we operated in for both
our Contract and Retail segments. However, we proactively reduced costs and
focused on strong capital management. We are pleased with our improvements in
working capital and our efforts to minimize expenditures, and are confident
that our cash position and existing access to capital will carry us through
this challenging economic environment."
Non-Cash Impairment Item
As previously announced in the second quarter of 2008, OfficeMax reduced
the carrying value of goodwill and other intangible assets due to impairment
based on management's evaluation of the company's sustained low stock price
and reduced market capitalization, macroeconomic factors impacting industry
conditions, actual recent results and forecasted operating performance, as
well as other factors. Many of these same factors continued to worsen in the
fourth quarter of 2008, which required the company to assess the carrying
value of acquired goodwill and other assets for impairment. The company
determined that the carrying value of goodwill and certain other assets were
above the fair value and, as a result, recorded an additional non-cash
impairment charge. The components of the fourth quarter of 2008 pre-tax $429.1
million non-cash impairment charge consist of $351.5 million for goodwill,
$27.1 million for trade names, and $50.5 million for store fixed assets. Of
this non-cash charge, $351.5 million is reported in the Contract segment and
$77.6 million is reported in the Retail Segment. The $6.5 million minority
interest income impact reflected our venture partner's share of the portion of
fixed asset impairment charges recorded at our Mexico joint venture.
Contract Segment Results
OfficeMax Contract segment sales decreased 18.4% to $953.9 million in the
fourth quarter of 2008 compared to the fourth quarter of 2007, reflecting a
U.S. Contract operations sales decline of 15.4%, and an International Contract
operations sales decline of 25.4% in U.S. dollars (a sales decrease of 5.1% in
local currencies). U.S. Contract sales declined in the fourth quarter compared
to the prior year period primarily due to weaker sales from existing corporate
accounts, our continued discipline in large corporate account acquisition and
retention, and lower sales from small market customers. For the full year
2008, Contract segment sales decreased 10.5% to $4,310.0 million compared to
the prior year, reflecting a U.S. Contract operations sales decline of 13.8%,
and an International Contract operations sales decline of 1.7% in U.S. dollars
(a sales decrease of 2.4% in local currencies).
Contract segment gross margin was relatively constant in the fourth
quarter of 2008 at 21.6%, compared to 21.7% in the fourth quarter of 2007.
Contract segment operating expense as a percentage of sales increased to 19.3%
in the fourth quarter of 2008 from 17.3% in the fourth quarter of 2007. This
was primarily due to deleveraging of fixed operating expenses from lower
sales.
Contract segment operating loss was $335.8 million in the fourth quarter
of 2008, including $351.5 million of non-cash impairment charges and a $6.9
million charge for field/corporate reductions in force. In the fourth quarter
of 2008, Contract segment adjusted operating income decreased to $22.6
million, or 2.3% of sales, compared to operating income of $52.0 million, or
4.4% of sales, in the fourth quarter of 2007. For the full year 2008, Contract
segment operating loss was $657.5 million, including $815.5 million of non-
cash impairment charges; and other items consisting primarily of charges for
field/corporate reductions in force. Contract segment adjusted operating
income was $167.3 million, or 3.9% of sales, compared to operating income of
$207.9 million, or 4.3% of sales, in 2007.
Retail Segment Results
OfficeMax Retail segment sales decreased 9.7% to $929.2 million in the
fourth quarter of 2008 compared to the fourth quarter of 2007, reflecting a
same-store sales decrease of 13.6% partially offset by sales from new stores.
Retail same-store sales for the fourth quarter of 2008 declined across all
major product categories due to weaker small business and consumer spending.
For the full year 2008, OfficeMax Retail segment sales decreased 7.2% to
$3,957.0 million compared to 2007, reflecting a same-store sales decrease of
10.8%, partially offset by sales from new stores.
Retail segment gross margin decreased to 27.0% in the fourth quarter of
2008 from 30.0% in the fourth quarter of 2007, primarily due to deleveraging
of fixed occupancy costs from the same-store sales decrease and new stores,
and a sales mix shift to a higher percentage of lower-margin technology
category sales. Retail segment operating expense as a percentage of sales
increased to 27.0% in the fourth quarter of 2008 from 26.2% in the fourth
quarter of 2007. This was primarily due to deleveraging of expenses from the
same-store sales decrease and the addition of new stores, partially offset by
reduced payroll, store pre-opening, and advertising expenses.
Retail segment operating loss was $83.0 million in the fourth quarter of
2008. The fourth quarter operating loss includes $77.6 million of non-cash
impairment charges and a $5.4 million charge related to certain store and site
leases and field/corporate reductions in force. Retail segment adjusted
operating income was break even, compared to operating income of $39.1
million, or 3.8% of sales, in the fourth quarter of 2007. For the full year
2008, Retail segment operating loss was $505.1 million in 2008, including
$548.9 million of non-cash impairment charges and other items related
primarily to certain store and site leases and field/corporate reductions in
force. Retail segment adjusted operating income was $61.2 million, or 1.5% of
sales, in 2008, compared to operating income of $173.7 million, or 4.1% of
sales, in 2007.
OfficeMax ended 2008 with a total of 1,022 retail stores, consisting of
939 retail stores in the U.S. and 83 retail stores in Mexico. During the
fourth quarter of 2008, OfficeMax opened 8 retail stores in the U.S. and 1 in
Mexico, and closed 5 stores in the U.S. and 1 in Mexico. During 2008,
OfficeMax opened 43 retail stores in the U.S. and 17 in Mexico, and closed 12
stores in the U.S. and 2 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. Corporate and Other segment operating expense was $12.0
million in the fourth quarter of 2008, including a $4.3 million charge for
field/corporate reductions in force.
Balance Sheet and Cash Flow
As of December 27, 2008, OfficeMax had total debt of $354.4 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 December 27, 2008, OfficeMax had $170.8 million in cash and cash
equivalents, and $547 million in available (unused) borrowing capacity under
its $700 million revolving credit facility. The company's unused borrowing
capacity as of December 27, 2008 reflects an available borrowing base of $614
million, no outstanding borrowings, and $67 million of letters of credit
issued under the revolving credit facility.
For the full year 2008, OfficeMax generated $223.7 million of cash from
operations due to good working capital management. By comparison, working
capital in 2007 included several unique items that we have disclosed
previously. OfficeMax invested $144.0 million for capital expenditures in
2008. OfficeMax expects capital expenditures for full year 2009 to be in the
range of $50 million to $70 million.
In the fourth quarter of 2008, OfficeMax made accelerated tax payments of
approximately $30 million related to one-half of the gain realized on the 2004
timberlands sale transaction due to the Lehman bankruptcy. The company
anticipates that no further payments will be required on that half of the gain
as we were able to utilize tax credits and other items to offset the remainder
of the tax liability.
Outlook
Given the projected weak economic outlook, OfficeMax is cautious in its
expectations for 2009. The company expects sales to decline in 2009 on a year-
over-year basis as a result of the difficult economic environment. In
addition, the company will be cycling significant expense reductions. As a
result of these factors, and based on the current outlook, OfficeMax expects
continued deleveraging of costs and expenses in 2009.
Mr. Duncan concluded, "Total sales to-date in 2009 have declined slightly
greater than the 14.3% we experienced in our fourth quarter, and we anticipate
sales will decline on a year-over-year basis for full year 2009. Despite the
challenging economic environment, we remain committed to managing OfficeMax
for the long-term and positioning the company for growth when the economic
environment improves. We are placing a premium on maintaining positive cash
flow through tight cost controls and conservative working capital management
in the near term. We expect cash flow from operations to exceed capital
expenditures in 2009. We also believe that our needs to access our revolving
line of credit will be limited to seasonal periods, and expect to have little
or no borrowings outstanding under the facility at year end."
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 future events will not
impact the company's access to cash or the funds available under its revolving
credit facility, 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 webcast and conference call with analysts and
investors to review its fourth quarter and full year 2008 financial results
today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). The live 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. To access the conference call, dial (800) 374-0165; international
callers should dial (706) 634-0995.
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(R), technology products and solutions, and furniture
to consumers and to large, medium and small businesses. OfficeMax customers
are served by over 30,000 associates through direct sales, catalogs,
e-commerce and more than 1,000 stores. To find the nearest OfficeMax, call
1-877-OFFICEMAX. For more information, visit http://www.officemax.com.
Media Contact Investor Relations Contacts
Bill Bonner Mike Steele Tony Giuliano
630 864 6066 630 864 6826 630 864 6820
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(unaudited)
(thousands)
December 27, December 29,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $170,779 $152,637
Receivables, net 566,846 720,878
Inventories 949,401 1,088,312
Deferred income taxes and receivables 105,140 185,070
Other current assets 62,850 57,804
Total current assets 1,855,016 2,204,701
Property and equipment:
Property and equipment 1,289,279 1,279,609
Accumulated depreciation (798,551) (698,954)
Property and equipment, net 490,728 580,655
Goodwill and intangible assets, net 81,793 1,416,524
Timber notes receivable 899,250 1,635,000
Deferred income taxes 436,183 -
Other non-current assets 410,613 446,888
Total assets $4,173,583 $6,283,768
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of debt $64,452 $49,024
Income taxes payable 18,288 33,887
Accounts payable 755,797 861,285
Accrued liabilities and other 358,934 426,513
Total current liabilities 1,197,471 1,370,709
Long-term debt:
Long-term debt, less current portion 289,922 349,421
Timber notes securitized 1,470,000 1,470,000
Total long-term debt 1,759,922 1,819,421
Other long-term obligations:
Compensation and benefits 502,447 200,283
Deferred income taxes - 154,362
Other long-term liabilities 401,869 428,379
Total other long-term liabilities 904,316 783,024
Minority interest 21,871 32,042
Shareholders' equity:
Preferred stock 42,565 49,989
Common stock 189,943 188,481
Additional paid-in capital 925,328 922,414
Retained earnings (deficit) (600,095) 1,095,950
Accumulated other comprehensive
income (loss) (267,738) 21,738
Total shareholders' equity 290,003 2,278,572
Total liabilities and shareholders' equity $4,173,583 $6,283,768
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Quarter Ended
December 27, December 29,
2008 2007
Sales $1,883,108 $2,198,072
Cost of goods sold and occupancy costs 1,426,564 1,634,848
Gross profit 456,544 563,224
Operating and other expenses:
Operating and selling expenses 363,927 400,492
General and administrative expenses 77,635 74,835
Goodwill and other asset impairments (a) 429,122 -
Other operating, net (b) 16,577 -
Total operating and other expenses 887,261 475,327
Operating income (loss) (430,717) 87,897
Other income (expense):
Interest expense (c) (24,497) (29,976)
Interest income 10,664 21,313
Other, net (d) (801) 32,546
Income (loss) before income taxes and
minority interest (445,351) 111,780
Income tax (expense) benefit 41,001 (39,613)
Income (loss) before minority interest (404,350) 72,167
Minority interest, net of income tax (a) 9,178 (698)
Net income (loss) (395,172) 71,469
Preferred dividends (824) (1,014)
Net income (loss) applicable to common
shareholders $(395,996) $70,455
Basic income (loss) per common share $(5.21) $0.93
Diluted income (loss) per common share $(5.21) $0.92
Weighted Average Shares
Basic 75,954 75,385
Diluted 75,954 76,602
(a) Fourth quarter of 2008 includes non-cash impairment charges of
$351.5 million and $77.6 million recorded in our Contract and Retail
segments, respectively. The charges relate to impairment of
goodwill, trade names and fixed assets and include a $103.8 million
charge related to the finalization of the Company's estimated
impairment charge recorded in the second quarter of 2008. The
charges in the Retail segment also include a $6.5 million minority
interest impact reflecting our venture partner's share of fixed
asset impairment charges recorded at our Mexico joint venture. The
cumulative effect of these items reduced net income by $385.5
million, or $5.07 per diluted share.
(b) Fourth quarter of 2008 includes a $16.6 million charge for severance
and the termination of certain store and site leases. These charges
are recorded by segment in the following manner: Contract $6.9
million, Retail $5.4 million and Corporate $4.3 million. Together,
these items reduced net income by $10.5 million, or $0.13 per
diluted share.
(c) Fourth quarter of 2008 includes $3.2 million related to the timber
installment notes receivable due from Lehman ("installment notes").
Additional interest expense resulted when we stopped accruing
interest income on the installment notes as of the last interest
payment date (April 29, 2008), while continuing to accrue interest
expense on the Lehman guaranteed securitization notes payable until
the default date (October 29, 2008). The additional interest expense
will only be paid if the corresponding interest income is recovered
from Lehman on the installment notes, which we do not expect to
occur. This item reduced net income by $1.9 million, or $0.03 per
diluted share.
(d) Fourth quarter of 2007 includes income of $32.4 million related to
the additional consideration agreement with Boise Cascade L.L.C.,
which was terminated in the first quarter of 2008. This item
increased net income by $20.4 million, or $0.27 per diluted share.
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Year Ended
December 27, December 29,
2008 2007
Sales $8,267,008 $9,081,962
Cost of goods sold and occupancy costs 6,212,591 6,771,657
Gross profit 2,054,417 2,310,305
Operating and other expenses:
Operating and selling expenses 1,555,615 1,633,606
General and administrative expenses 306,940 332,528
Goodwill and other asset
impairments (a), (b) 2,100,212 -
Other operating, net (c) 27,851 -
Total operating and other expenses 3,990,618 1,966,134
Operating income (loss) (1,936,201) 344,171
Other income (expense):
Interest expense (b) (113,641) (121,271)
Interest income 57,564 87,940
Other, net (d), (e) 19,878 26,687
Income (loss) before income taxes and
minority interest (1,972,400) 337,527
Income tax (expense) benefit 306,481 (125,282)
Income (loss) before minority interest (1,665,919) 212,245
Minority interest, net of income
tax (a), (f) 7,987 (4,872)
Net income (loss) (1,657,932) 207,373
Preferred dividends (3,663) (3,961)
Net income (loss) applicable to common
shareholders $(1,661,595) $203,412
Basic income (loss) per common share $(21.90) $2.70
Diluted income (loss) per common share $(21.90) $2.66
Weighted Average Shares
Basic 75,862 75,274
Diluted 75,862 76,374
(a) In 2008, the Company recorded non-cash impairment charges of $815.5
million and $548.9 million in the Contract and Retail segments,
respectively. The charges relate to impairment of goodwill, trade
names and fixed assets and include a $6.5 million minority interest
impact reflecting our venture partner's share of fixed asset
impairment charges recorded at our Mexico joint venture. The
cumulative effect of these items reduced net income by $1,294.7
million, or $17.05 per diluted share.
(b) In 2008, a $735.8 million non-cash impairment-related charge was
recorded in the Corporate and Other segment related to the timber
installment notes receivable due from Lehman ("installment notes").
In addition, we stopped accruing interest income on the installment
notes as of the last interest payment date (April 29, 2008), while
continuing to accrue interest expense on the Lehman guaranteed
securitization notes payable until the default date (October 29,
2008). This resulted in $20.4 million of additional interest expense
that will only be paid if the corresponding interest income is
recovered from Lehman on the installment notes, which we do not
expect to occur. The cumulative effect of these items was a
reduction of net income by $462.0 million, or $6.08 per diluted
share.
(c) In 2008, $27.9 million of charges were recorded for severance and
the termination of certain store and site leases. These charges are
recorded by segment in the following manner: Contract $9.3 million,
Retail $17.4 million and Corporate $1.2 million. The cumulative
effect of these items was a reduction of net income by $17.5
million, or $0.23 per diluted share.
(d) Other, net 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.
(e) Fourth quarter of 2007, includes income of $32.4 million related to
the Boise Holdings additional consideration agreement terminated in
early 2008. This item increased net income by $20.4 million, or
$0.27 per diluted share.
(f) First quarter of 2007 includes $1.1 million 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)
Year Ended
December 27, December 29,
2008 2007
Cash provided by operations:
Net income (loss) $(1,657,932) $207,373
Items in net income (loss) not using
(providing) cash:
Depreciation and amortization 142,896 131,573
Non-cash impairment charges 2,114,044 -
Non-cash deferred taxes on impairment
charges (357,313) -
Other (5,502) 39,062
Changes other than from acquisitions
of business:
Receivables and inventory 218,284 (142,705)
Accounts payable and accrued liabilities (136,208) (228,269)
Income taxes and other (94,592) 63,570
Cash provided by operations 223,677 70,604
Cash used for investment:
Expenditures for property and equipment (143,968) (140,843)
Proceeds from sale of assets 11,592 3,234
Proceeds from sale of restricted investments 20,252 -
Acquisition of businesses - (1,325)
Cash used for investment (112,124) (138,934)
Cash used for financing:
Cash dividends paid (47,477) (49,103)
Changes in debt, net (39,990) (11,554)
Other 1,333 (1,968)
Cash used for financing (86,134) (62,625)
Effect of exchange rates on cash and
cash equivalents (7,277) 1,522
Increase (decrease) in cash and cash
equivalents 18,142 (129,433)
Cash and cash equivalents at beginning of
period 152,637 282,070
Cash and cash equivalents at end of period $170,779 $152,637
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Quarter Ended
December 27, 2008 December 29, 2007
As As As As
Reported Adjustments Adjusted Reported Adjustments Adjusted
Sales $1,883.1 $- $1,883.1 $2,198.0 $- $2,198.0
Cost of goods
sold and
occupancy
costs 1,426.6 - 1,426.6 1,634.8 - 1,634.8
Gross profit 456.5 - 456.5 563.2 - 563.2
Operating and
other expenses:
Operating and
selling
expenses 363.9 - 363.9 400.5 - 400.5
General and
administrative
expenses 77.6 - 77.6 74.8 - 74.8
Goodwill and
other asset
impairments (a) 429.1 (429.1) - - - -
Other operating,
net (b) 16.6 (16.6) - - - -
Total operating
and other
expenses 887.2 (445.7) 441.5 475.3 - 475.3
Operating income
(loss) (430.7) 445.7 15.0 87.9 - 87.9
Other income
(expense):
Interest
expense (c) (24.5) 3.2 (21.3) (30.0) - (30.0)
Interest income 10.6 - 10.6 21.3 - 21.3
Other, net (d) (0.8) - (0.8) 32.6 (32.4) 0.2
Income (loss)
before income
taxes and
minority
interest (445.4) 448.9 3.5 111.8 (32.4) 79.4
Income tax
(expense) benefit 41.0 (44.5) (3.5) (39.6) 12.0 (27.6)
Income (loss)
before minority
interest (404.4) 404.4 - 72.2 (20.4) 51.8
Minority interest,
net of income
tax (a) 9.2 (6.5) 2.7 (0.7) - (0.7)
Net income
(loss) (395.2) 397.9 2.7 71.5 (20.4) 51.1
Preferred
dividends (0.8) - (0.8) (1.0) - (1.0)
Net income (loss)
applicable to
common
shareholders $(396.0) $397.9 $1.9 $70.5 $(20.4) $50.1
Basic income
(loss) per
common share $(5.21) $5.23 $0.02 $0.93 $(0.27) $0.66
Diluted income
(loss) per
common share $(5.21) $5.23 $0.02 $0.92 $(0.27) $0.65
Weighted
Average Shares
Basic 75,954 75,954 75,385 75,385
Diluted 75,954 77,852 76,602 76,602
(a) Fourth quarter of 2008 includes non-cash impairment charges of
$351.5 million and $77.6 million recorded in our Contract and Retail
segments, respectively. The charges relate to impairment of
goodwill, trade names and fixed assets and include a $103.8 million
charge related to the finalization of the Company's estimated
impairment charge recorded in the second quarter of 2008. The
charges in the Retail segment also include a $6.5 million minority
interest impact reflecting our venture partner's share of fixed
asset impairment charges recorded at our Mexico joint venture. The
cumulative effect of these items reduced net income by $385.5
million, or $5.07 per diluted share.
(b) Fourth quarter of 2008 includes a $16.6 million charge for severance
and the termination of certain store and site leases. These charges
are recorded by segment in the following manner: Contract $6.9
million, Retail $5.4 million and Corporate $4.3 million. Together,
these items reduced net income by $10.5 million, or $0.13 per
diluted share.
(c) Fourth quarter of 2008 includes $3.2 million related to the timber
installment notes receivable due from Lehman ("installment notes").
Additional interest expense resulted when we stopped accruing
interest income on the installment notes as of the last interest
payment date (April 29, 2008), while continuing to accrue interest
expense on the Lehman guaranteed securitization notes payable until
the default date (October 29, 2008). The additional interest expense
will only be paid if the corresponding interest income is recovered
from Lehman on the installment notes, which we do not expect to
occur. This item reduced net income by $1.9 million, or $0.03 per
diluted share.
(d) Fourth quarter of 2007 includes income of $32.4 million related to
the additional consideration agreement with Boise Cascade L.L.C.,
which was terminated in the first quarter of 2008. This item
increased net income by $20.4 million, or $0.27 per diluted share.
OFFICEMAX INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Year Ended
December 27, 2008 December 29, 2007
As As As As
Reported Adjustments Adjusted Reported Adjustments Adjusted
Sales $8,267.0 $- $8,267.0 $9,082.0 $- $9,082.0
Cost of goods
sold and
occupancy
costs 6,212.6 - 6,212.6 6,771.7 - 6,771.7
Gross profit 2,054.4 - 2,054.4 2,310.3 - 2,310.3
Operating and
other expenses:
Operating and
selling
expenses 1,555.6 - 1,555.6 1,633.6 - 1,633.6
General and
administrative
expenses 306.9 - 306.9 332.5 - 332.5
Goodwill and
other asset
impairments
(a),(b) 2,100.2 (2,100.2) - - - -
Other operating,
net (c) 27.9 (27.9) - - - -
Total operating
and other
expenses 3,990.6 (2,128.1) 1,862.5 1,966.1 - 1,966.1
Operating
income
(loss) (1,936.2) 2,128.1 191.9 344.2 - 344.2
Other income
(expense):
Interest
expense (b) (113.6) 20.4 (93.2) (121.3) - (121.3)
Interest income 57.5 - 57.5 87.9 - 87.9
Other,
net (d), (e) 19.9 (20.5) (0.6) 26.7 (32.4) (5.7)
Income (loss)
before income
taxes and
minority
interest (1,972.4) 2,128.0 155.6 337.5 (32.4) 305.1
Income tax
(expense)
benefit 306.5 (359.8) (53.3) (125.2) 12.0 (113.2)
Income (loss)
before
minority
interest (1,665.9) 1,768.2 102.3 212.3 (20.4) 191.9
Minority
interest,
net of
income
tax (a), (f) 8.0 (6.5) 1.5 (4.9) 1.1 (3.8)
Net income
(loss) (1,657.9) 1,761.7 103.8 207.4 (19.3) 188.1
Preferred
dividends (3.7) - (3.7) (4.0) - (4.0)
Net income
(loss)
applicable
to common
shareholders $(1,661.6) $1,761.7 $100.1 $203.4 $(19.3) $184.1
Basic income
(loss) per
common share $(21.90) $23.22 $1.32 $2.70 $(0.25) $2.45
Diluted income
(loss) per
common share $(21.90) $23.20 $1.30 $2.66 $(0.25) $2.41
Weighted Average
Shares
Basic 75,862 75,862 75,274 75,274
Diluted 75,862 77,150 76,374 76,374
(a) In 2008, the Company recorded non-cash impairment charges of $815.5
million and $548.9 million in the Contract and Retail segments,
respectively. The charges relate to impairment of goodwill, trade
names and fixed assets and include a $6.5 million minority interest
impact reflecting our venture partner's share of fixed asset
impairment charges recorded at our Mexico joint venture. The
cumulative effect of these items reduced net income by $1,294.7
million, or $17.05 per diluted share.
(b) In 2008, a $735.8 million non-cash impairment-related charge was
recorded in the Corporate and Other segment related to the timber
installment notes receivable due from Lehman ("installment notes").
In addition, we stopped accruing interest income on the installment
notes as of the last interest payment date (April 29, 2008), while
continuing to accrue interest expense on the Lehman guaranteed
securitization notes payable until the default date (October 29,
2008). This resulted in $20.4 million of additional interest expense
that will only be paid if the corresponding interest income is
recovered from Lehman on the installment notes, which we do not
expect to occur. The cumulative effect of these items was a
reduction of net income by $462.0 million, or $6.08 per diluted
share.
(c) In 2008, $27.9 million of charges were recorded for severance and
the termination of certain store and site leases. These charges are
recorded by segment in the following manner: Contract $9.3 million,
Retail $17.4 million and Corporate $1.2 million. The cumulative
effect of these items was a reduction of net income by $17.5
million, or $0.23 per diluted share.
(d) Other, net 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.
(e) Fourth quarter of 2007, includes income of $32.4 million related to
the Boise Holdings additional consideration agreement terminated in
early 2008. This item increased net income by $20.4 million, or
$0.27 per diluted share.
(f) First quarter of 2007 includes $1.1 million 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
CONTRACT SEGMENT STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Quarter Ended
December 27, December 29,
2008 2007
Sales $953.9 100.0% $1,168.7 100.0%
Cost of goods sold and occupancy
costs 747.8 914.8
Gross profit 206.1 21.6% 253.9 21.7%
Operating and other expenses:
Operating expenses (a) 183.5 19.3% 201.9 17.3%
Goodwill and other asset
impairments 351.5 36.8% - 0.0%
Other operating, net 6.9 0.7% - 0.0%
Total operating and other expenses 541.9 56.8% 201.9 17.3%
Operating income (loss) $(335.8) -35.2% $52.0 4.4%
Non-GAAP Reconciliation
Operating income (loss) $(335.8) -35.2% $52.0 4.4%
Goodwill and other asset
impairments 351.5 36.8% - 0.0%
Other operating, net 6.9 0.7% - 0.0%
Adjusted operating
income (loss) $22.6 2.3% $52.0 4.4%
Year Ended
December 27, December 29,
2008 2007
Sales $4,310.0 100.0% $4,816.1 100.0%
Cost of goods sold and occupancy
costs 3,361.9 3,765.2
Gross profit 948.1 22.0% 1,050.9 21.8%
Operating and other expenses:
Operating expenses (a) 780.8 18.1% 843.0 17.5%
Goodwill and other asset
impairments 815.5 18.9% - 0.0%
Other operating, net 9.3 0.2% - 0.0%
Total operating and other
expenses 1,605.6 37.2% 843.0 17.5%
Operating income (loss) $(657.5) -15.2% $207.9 4.3%
Non-GAAP Reconciliation
Operating income (loss) $(657.5) -15.2% $207.9 4.3%
Goodwill and other asset
impairments 815.5 18.9% - 0.0%
Other operating, net 9.3 0.2% - 0.0%
Adjusted operating income (loss) $167.3 3.9% $207.9 4.3%
(a) Operating expenses includes operating and selling expenses as well as
general and administrative expenses.
OFFICEMAX INCORPORATED AND SUBSIDIARIES
RETAIL SEGMENT STATEMENTS OF INCOME (LOSS)
(unaudited)
(thousands, except per-share amounts)
Quarter Ended
December 27, December 29,
2008 2007
Sales $929.2 100.0% $1,029.3 100.0%
Cost of goods sold and occupancy
costs 678.8 720.0
Gross profit 250.4 27.0% 309.3 30.0%
Operating and other expenses:
Operating expenses (a) 250.4 27.0% 270.2 26.2%
Goodwill and other asset
impairments 77.6 8.3% - 0.0%
Other operating, net 5.4 0.6% - 0.0%
Total operating and other
expenses 333.4 35.9% 270.2 26.2%
Operating income (loss) $(83.0) -8.9% $39.1 3.8%
Non-GAAP Reconciliation
Operating income (loss) $(83.0) -8.9% $39.1 3.8%
Goodwill and other asset
impairments 77.6 8.3% - 0.0%
Other operating, net 5.4 0.6% - 0.0%
Adjusted operating
income (loss) $0.0 0.0% $39.1 3.8%
Year Ended
December 27, December 29,
2008 2007
Sales $3,957.0 100.0% $4,265.9 100.0%
Cost of goods sold and
occupancy costs 2,850.7 3,006.4
Gross profit 1,106.3 28.0% 1,259.5 29.5%
Operating and other expenses:
Operating expenses (a) 1,045.1 26.5% 1,085.8 25.4%
Goodwill and other asset
impairments 548.9 13.9% - 0.0%
Other operating, net 17.4 0.4% - 0.0%
Total operating and other
expenses 1,611.4 40.8% 1,085.8 25.4%
Operating income (loss) $(505.1) -12.8% $173.7 4.1%
Non-GAAP Reconciliation
Operating income (loss) $(505.1) -12.8% $173.7 4.1%
Goodwill and other asset
impairments 548.9 13.9% - 0.0%
Other operating, net 17.4 0.4% - 0.0%
Adjusted operating
income (loss) $61.2 1.5% $173.7 4.1%
(a) Operating expenses includes operating and selling expenses as well as
general and administrative expenses.
Reconciliation of non-GAAP Measures to GAAP Measures
We evaluate our results of operations before certain impairment items, and
other charges primarily related to field/corporate reductions in force and
certain store and site leases, as they 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 impairment items and other charges 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
certain impairment items and other charges to our reported GAAP financial
results for the fourth quarter and full year of both 2008 and 2007.
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.
