OfficeMax Reports First Quarter 2010 Financial Results

NAPERVILLE, Ill., April 29 /PRNewswire-FirstCall/ -- OfficeMax® Incorporated (NYSE: OMX) today announced the results for its fiscal first quarter ended March 27, 2010.  Total sales were $1,917.3 million in the first quarter of 2010, an increase of 0.3% from the first quarter of 2009.  For the first quarter of 2010, OfficeMax reported net income available to OfficeMax common shareholders of $24.8 million, or $0.29 per diluted share.

Sam Duncan, Chairman and CEO of OfficeMax, said, "We are pleased with the start to 2010 and the solid performance our team delivered in the quarter.  We believe our results reflect some of the stabilization we are seeing in economic trends, but primarily are indicative of the traction we are gaining in our growth and profitability initiatives."

Summary Consolidated Results

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

Results for the first quarter of 2010 and 2009 included certain charges that are not considered indicative of core operating activities.  First quarter 2010 results included a $0.8 million pre-tax charge recorded in the Contract segment for severance related to reorganizations in U.S. Contract operations and a $13.4 million pretax charge recorded in the Retail segment related to store closures in the U.S.  First quarter 2009 results included a $9.9 million pre-tax charge related to Retail store closures in the U.S. and Mexico, and a pre-tax benefit of $2.5 million recorded as other income related to tax distributions from the company's investment in Boise Cascade Holdings, L.L.C.

Excluding the items described above, adjusted operating income in the first quarter of 2010 was $63.6 million, or 3.3% of sales, compared to adjusted operating income of $37.4 million, or 2.0% of sales in the first quarter of 2009.  Adjusted net income available to OfficeMax common shareholders in the first quarter of 2010 was $33.5 million, or $0.39 per diluted share, compared to $17.4 million, or $0.23 per diluted share, in the first quarter of 2009.  

Contract Segment Results

OfficeMax Contract segment sales increased 3.8% (a decrease of 3.5% in local currency) compared to the prior year period to $963.0 million in the first quarter of 2010, reflecting a U.S. Contract operations sales decline of 3.9%, which was more than offset by an International Contract operations sales increase of 23.8% in U.S. dollars (a sales decrease of 2.6% in local currencies).

Contract segment gross profit margin increased to 22.7% in the first quarter of 2010 from 21.0% in the first quarter of 2009, reflecting improved gross profit margin at both the International and U.S. businesses primarily as a result of OfficeMax's profitability initiatives.  Contract segment operating, selling & administrative expense as a percentage of sales increased to 19.2% in the first quarter of 2010 from 18.7% in the first quarter of 2009, due to higher incentive compensation expense, partially offset by reduced payroll expense.  Contract segment income was $33.8 million, or 3.5% of sales, in the first quarter of 2010 compared to $21.5 million, or 2.3% of sales, in the first quarter of 2009.

Retail Segment Results

OfficeMax Retail segment sales decreased 3.0% to $954.3 million in the first quarter of 2010 compared to the first quarter of 2009, reflecting a same-store sales decrease of 2.5% and fewer stores.  Retail same-store sales for the first quarter of 2010 declined primarily due to a continued weak market environment; however, the Retail segment same-store sales decrease improved from the 6.7% decrease in the fourth quarter of 2009 reflecting favorable sales trends in the U.S. and Mexico.

Retail segment gross profit margin increased to 30.1% in the first quarter of 2010 from 27.5% in the first quarter of 2009, primarily due to increased product margins as a result of promotional discipline and higher private label sales.  Retail segment operating, selling & administrative expense as a percentage of sales increased to 26.0% in the first quarter of 2010 compared to 24.9% in the first quarter of 2009 primarily due to higher incentive compensation expense.  Retail segment income was $38.8 million, or 4.1% of sales, in the first quarter of 2010 compared to $25.3 million, or 2.6% of sales, in the first quarter of 2009.

OfficeMax ended the first quarter of 2010 with a total of 1,003 retail stores, consisting of 926 retail stores in the U.S. and 77 retail stores in Mexico.  During the first quarter of 2010, OfficeMax closed seven retail stores in the U.S.

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, selling & administrative expense was $9.0 million in the first quarter of 2010 compared to $9.4 million in the first quarter of 2009.

Balance Sheet and Cash Flow

As of March 27, 2010, OfficeMax had total debt of $296.4 million, excluding $1,470.0 million of non-recourse debt which relates to timber securitization notes that have recourse limited to the timber installment notes receivable and related guarantees.  At the end of the first quarter 2010, OfficeMax had $539.7 million in cash and cash equivalents, and $564.8 million in available (unused) borrowing capacity under its U.S., Canadian and new Australasian revolving credit facilities.  The company's unused borrowing capacity reflects an available borrowing base of $625.4 million, zero outstanding borrowings, and $60.6 million of standby letters of credit.

During the first three months of 2010, OfficeMax generated $64.0 million of cash provided by operations which reflected significant reductions in inventory levels and good working capital management.  OfficeMax invested $9.2 million for capital expenditures in the first quarter of 2010 compared to $10.9 million in the first quarter of 2009.

Outlook

Mr. Duncan added, "With our five-year strategic growth plan in place, we are confident that we have the right strategy to transform into an office effectiveness and efficiency solutions company and to achieve our 2010 and long-term financial objectives.  Accordingly, our five-year growth plan has three key elements: expanding our core business, pursuing opportunities in adjacent markets and enhancing our infrastructure to support our growth. Our cash flow management is allowing us to maintain a strong financial position as we continue to invest in the business.  While we expect the road to recovery will not be smooth, we are optimistic about our future."

To date in the second quarter, the company has experienced domestic year-over-year sales declines which were unfavorable to the first quarter 2010 year-over-year domestic sales decline.  Also, the company expects to continue facing some near-term headwinds from challenging macroeconomic conditions, such as U.S. unemployment trends, with these trends beginning to work in the company's favor toward the latter part of the year.  Additionally, the company plans to invest in initiatives to drive growth, and the successful execution of these initiatives is expected to benefit operations and financial results in the long-term.

Based on these assumptions, OfficeMax anticipates that for the second quarter, total company sales will be slightly higher than the prior year second quarter primarily due to the favorable impact of foreign currency translation, and adjusted operating income margin will be higher than the prior year second quarter, but less than the first quarter 2010 year-over-year improvement.  For the full year 2010, OfficeMax anticipates that total company sales will be slightly higher than in 2009 primarily due to the favorable impact of foreign currency translation, and adjusted operating income margin will be higher than 2009, but less than the first quarter 2010 year-over-year improvement.

The company's outlook also includes the following assumptions for the full year 2010:

• Pension expense of approximately $7 million and cash contributions to the frozen pension plans of approximately $4 million
• Capital expenditures of approximately $90-110 million, primarily related to technology and infrastructure investments and upgrades
• Depreciation & amortization of approximately $105-115 million
• Interest expense of approximately $74-78 million and interest income of approximately $41-43 million
• Effective tax rate slightly less than the company's marginal tax rate of approximately 39 percent
• Cash flow from operations is expected to be positive, although lower than it was for 2009
• Liquidity position remaining strong
• Net reduction in retail store count for the year with two planned openings in Mexico and approximately 15 store closings in the U.S.

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 our projected outlook, 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 26, 2009, 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 first quarter 2010 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 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®, 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 www.officemax.com.

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 also evaluate our results of operations before non-operating legacy items and operating items that are not indicative of our core operating activities such as severances, facility closures, 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".  We reconcile all 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 quarter of 2010 and 2009.

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.

SOURCE OfficeMax Incorporated