NAPERVILLE, Ill., Oct. 29 /PRNewswire-FirstCall/ -- OfficeMax(R)
Incorporated (NYSE: OMX), today announced select operating results for the
third quarter of 2008 and delayed the release of its full 2008 third quarter
earnings results so that the company can complete its analysis of the non-cash
impairment charge caused by the bankruptcy of Lehman Brothers Holdings Inc.
("Lehman"). OfficeMax continues to expect no adverse impact on its operations
or liquidity as a result of the Lehman bankruptcy based on additional review
completed since issuing its September 19, 2008 press release. The company
expects to finalize its impairment and accounting analysis and release its
full 2008 third quarter financial results no later than November 6, 2008.
Timber Notes Update
As a result of the Lehman bankruptcy, OfficeMax expects to make a cash
payment in an amount not to exceed approximately $50 million representing the
accelerated tax liability on one-half of the gain on the 2004 timberlands sale
transaction and to experience a reduction in net annual interest income of
approximately $1 million. On October 27, 2008, OfficeMax determined that the
Lehman guaranteed installment note should be impaired in the third quarter of
2008, resulting in a non-cash charge to earnings of at least $82.5 million,
the difference between the principal amount of the installment note guaranteed
by Lehman and the aggregate principal amount of the securitization notes. The
cash and non-cash items are described in more detail below.
OfficeMax continues to believe that the estimated $50 million tax payment
will be funded using available excess cash and, if necessary, funds available
under its committed credit facility. The timing of the tax payment is
anticipated to be no later than the first quarter of 2009. As of September
27, 2008, OfficeMax had $171 million in available cash and cash equivalents
and $602 million in available (unused) borrowing capacity under its $700
million revolving credit facility. The company's unused borrowing capacity
reflects an available borrowing base of $669 million, no outstanding
borrowings, and $67 million of letters of credit issued under the revolving
credit facility as of September 27, 2008.
On September 18, 2008, OfficeMax filed a Current Report on Form 8-K with
the Securities and Exchange Commission containing information related to an
event of default under a portion of the timber installment notes received in
connection with the sale of the timberlands in 2004. The timber installment
notes were held by bankruptcy remote special purpose entities formed by
OfficeMax (the "OMX SPEs"). One timber installment note, in the original
principal amount of $817.5 million, was guaranteed by Lehman. This
installment note was monetized through the issuance of securitization notes by
the OMX SPE. Lehman filed a petition on September 15, 2008 in the United
States Bankruptcy Court for the Southern District of New York seeking relief
under chapter 11 of the United States Bankruptcy Code. As a result of
Lehman's bankruptcy filing, an event of default occurred under the Lehman
guaranteed installment note. As described in our current report filed on
September 18, 2008, the OMX SPE has taken steps to reserve the rights
available to it as a result of the Lehman bankruptcy. On October 29, 2008, as
a result of an anticipated payment default under the Lehman guaranteed
installment note, OfficeMax expects the OMX SPE will not make the full payment
due on the same date to the holders of the securitization notes.
As a result of the above events, and additional analysis by OfficeMax with
its legal and financial advisors, the company expects the following:
-- Recourse on any securitization notes in default is limited to the
Lehman guaranty and pledged installment note, and OfficeMax Incorporated has
no obligation with respect to these securitization notes.
-- At the time of the 2004 timberlands sale, the company generated a tax
gain and the resulting tax liability of $543 million was deferred until 2019,
the maturity date for the installment notes. OfficeMax now expects
approximately half of this tax gain will be accelerated and the related taxes
will become due and payable no later than the first quarter of 2009. The
company has available alternative minimum tax credits, a portion of which
resulted from prior tax payments related to the 2004 timberlands sale, which
will be used to reduce the ultimate cash tax payment. As a result, OfficeMax
believes the cash tax exposure related to the portion of the tax gain
triggered by the Lehman default will not exceed approximately $50 million.
-- Currently, the OMX SPE receives approximately $41 million in interest
annually under the Lehman guaranteed installment note. This interest income
funds approximately $40 million in interest payable annually to holders of the
related securitization notes, which results in net interest income to
OfficeMax of approximately $1 million. Nonpayment under the installment note
guaranteed by Lehman or the related Lehman guaranty is likely to result in a
loss of this $1 million of annual net interest income.
-- The company is required for accounting purposes to assess the carrying
value of assets whenever circumstances indicate that a decline in value may
have occurred. Due to the uncertainty of collection of the Lehman guaranteed
installment note as a result of the Lehman bankruptcy, OfficeMax has deemed
the carrying value of the Lehman guaranteed installment note impaired and
intends to record a non-cash impairment charge of at least $82.5 million in
the third quarter of 2008. The $82.5 million is equal to the difference
between the principal amount of the installment note guaranteed by Lehman and
the aggregate principal amount of the securitization notes. OfficeMax is
currently completing the accounting and impairment analyses to determine if
the charge taken in the third quarter will exceed $82.5 million.
Select Third Quarter 2008 Operating Results
Total sales in the third quarter of 2008 decreased approximately 9.5% to
approximately $2.1 billion compared to the third quarter of 2007.
OfficeMax Contract segment sales were approximately $1.05 billion in the
third quarter of 2008, reflecting a U.S. Contract operations sales decline of
about 14.6%, and an International Contract operations sales decline of about
3.1% in U.S. dollars. U.S. Contract sales declined compared to the prior year
period primarily due to weaker sales from existing corporate customer
accounts, our continued discipline in large corporate account acquisition and
retention, and lower sales from small market customers. Contract segment
operating income for the third quarter of 2008 was approximately $35.5
million, or about 3.4% of sales, compared to operating income of $55.0
million, or 4.6% of sales, in the third quarter of 2007.
OfficeMax Retail segment sales were approximately $1.05 billion in the
third quarter of 2008, reflecting a same-store sales decrease of about 11.1%
partly offset by sales from new stores. Retail same-store sales for the third
quarter of 2008 declined across all major product categories due to weaker
U.S. consumer and small business spending. Retail segment operating income
for the third quarter of 2008 was approximately $29.1 million, or about 2.8%
of sales, compared to operating income of $45.3 million, or 4.0% of sales, in
the third quarter of 2007.
Sam Duncan, Chairman and CEO of OfficeMax, said "Results in both our
Contract and Retail segments reflect the weaker global economic environment.
While we were successful in lowering expenses, reduced sales volumes
deleveraged fixed costs in both Contract and Retail, resulting in lower
profitability. As to the impact of the recent Lehman bankruptcy on our timber
notes, while we are completing our assessment of the non-cash impairment
charge, we do not believe there will be any adverse impact on our operations.
Looking forward, we anticipate negative sales trends and increasing
deleveraging of expenses to continue through the remainder of the year. Our
cash flow from operations and access to capital both remain solid and, we
believe, they will provide us with the resources we need to continue the
turnaround initiatives that are strengthening our business."
About OfficeMax
OfficeMax Incorporated (NYSE: OMX) is a leader in both
business-to-business office products solutions and retail office products.
The OfficeMax mission is simple. We help our customers do their best work.
The company provides office supplies and paper, in-store print and document
services through OfficeMax ImPress(TM), technology products and solutions, and
furniture to consumers and to large, medium and small businesses. OfficeMax
customers are served by approximately 32,000 associates through direct sales,
catalogs, e-commerce and approximately 1,000 stores. To find the nearest
OfficeMax, call 1-877-OFFICEMAX. For more information, visit
http://www.officemax.com.
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 impact of the
Lehman bankruptcy on the company will be limited to the amounts described in
the release, that future events will not impact the company's available cash
or the funds available under its revolving credit facility, 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.
