OfficeMax Reports Second Quarter 2011 Financial Results

Aug 02, 2011, 07:00 ET from OfficeMax Incorporated

NAPERVILLE, Ill., Aug. 2, 2011 /PRNewswire/ -- OfficeMax® Incorporated (NYSE: OMX) today announced the results for its fiscal second quarter ended June 25, 2011.  Total sales were $1,647.6 million in the second quarter of 2011, a decrease of 0.3% from the second quarter of 2010.  For the second quarter of 2011, OfficeMax reported a net loss available to OfficeMax common shareholders of $3.0 million, or $0.04 per diluted share.  

Ravi Saligram, President and CEO of OfficeMax, said, "We continued to experience top line softness as a result of the difficult macroeconomic environment but have made progress on gross margin initiatives. We remain focused on executing the fundamentals better, enhancing the management team and improving the operations of the business."

Consolidated Results

(in millions, except per-share amounts)

2Q11

2Q10

YTD11

YTD10

Sales

$1,647.6

$1,653.2

$3,510.6

$3,570.4

Sales decline (from prior year period)

-0.3%

-1.7%

Gross profit

$425.1

$427.7

$899.6

$933.2

Gross profit margin

25.8%

25.9%

25.6%

26.1%

Operating income

$4.0

$28.1

$32.6

$77.5

Adjusted operating income

$17.9

$25.3

$46.5

$88.8

Adjusted operating income margin

1.1%

1.5%

1.3%

2.5%

Adjusted diluted income per common share

$0.07

$0.12

$0.20

$0.51

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.

Results for the second quarter of 2011 and 2010 included certain charges and income that are not considered indicative of core operating activities.  Second quarter 2011 results included a $5.6 million pre-tax charge recorded in the Retail segment related to store closures; and pre-tax severance charges of $8.3 million ($8.0 million in Contract segment and $0.3 million in Retail segment) related to reorganizations in Canada, Australia, and the U.S. sales and supply chain organizations.  Second quarter 2010 results included a $1.1 million pre-tax charge recorded in the Retail segment related to store closures, and pre-tax 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.    

Excluding the items described above, adjusted operating income in the second quarter of 2011 was $17.9 million, or 1.1% of sales, compared to $25.3 million, or 1.5% of sales in the second quarter of 2010.  Adjusted net income available to OfficeMax common shareholders in the second quarter of 2011 was $6.0 million, or $0.07 per diluted share, compared to $10.0 million, or $0.12 per diluted share, in the second quarter of 2010.  

Contract Segment Results

(in millions)

2Q11

2Q10

YTD11

YTD10

Sales

$880.3

$880.5

$1,806.0

$1,843.5

Sales decline (from prior year period)

0.0%

-2.0%

Gross profit margin

22.3%

22.7%

22.2%

22.7%

Segment income margin

2.0%

2.2%

1.5%

2.9%

Contract segment sales of $880.3 million in the second quarter of 2011 were approximately flat (a decrease of 3.5% on a local currency basis) compared to the prior year period.  This decline reflected a U.S. Contract operations sales decrease of 2.6% and an international Contract operations sales increase of 5.7% in U.S. dollars (a sales decrease of 5.5% on a local currency basis).  The U.S. Contract sales decline in the second quarter primarily reflects weaker sales from existing corporate accounts.  Both U.S. and International Contract operations showed modest improvements in the rates of sales declines on a local currency basis compared to the prior quarter.

Contract segment gross profit margin decreased to 22.3% in the second quarter of 2011 from 22.7% in the second quarter of 2010, primarily reflecting increased delivery expense due to higher fuel costs and less favorable inventory shrinkage reserve adjustments recorded in the second quarter of 2011 when compared to the second quarter of 2010.  Contract segment operating, selling and general and administrative expenses as a percentage of sales decreased to 20.3% in the second quarter of 2011 from 20.5% in the second quarter of 2010 primarily due to lower incentive compensation expense, partially offset by unfavorable benefit-related items and costs associated with growth and profitability initiatives.  Contract segment income was $17.4 million, or 2.0% of sales, in the second quarter of 2011 compared to $19.4 million, or 2.2% of sales, in the second quarter of 2010.

Retail Segment Results

(in millions)

2Q11

2Q10

YTD11

YTD10

Sales

$767.3

$772.7

$1,704.6

$1,726.9

Same-store sales decrease (from prior year period)

-0.5%

-0.9%

Gross profit margin

29.9%

29.5%

29.2%

29.8%

Segment income margin

1.0%

1.8%

2.0%

3.0%

Retail segment sales decreased 0.7% to $767.3 million in the second quarter of 2011 compared to the second quarter of 2010, reflecting a same-store sales decrease of 0.5%.  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 29.9% in the second quarter of 2011 from 29.5% in the second quarter of 2010, primarily due to improved margins from customer sales in the U.S. and reduced occupancy costs, partially offset by less favorable inventory shrinkage reserve adjustments recorded in the second quarter of 2011 when compared to the second quarter of 2010.  Retail segment operating, selling and general and administrative expenses as a percentage of sales were 28.9% in the second quarter of 2011 compared with 27.7% in the second quarter of 2010 primarily due to a favorable legal settlement in second quarter of 2010, unfavorable benefit-related items in 2011, which were partially offset by lower incentive compensation expense.  Retail segment income was $8.0 million, or 1.0% of sales, in the second quarter of 2011 compared to $13.9 million, or 1.8% of sales, in the second quarter of 2010.

OfficeMax ended the second quarter of 2011 with a total of 983 Retail stores, consisting of 904 Retail stores in the U.S. and 79 Retail stores in Mexico.  During the second quarter of 2011, OfficeMax closed eight 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 $7.5 million in the second quarter of 2011 compared to $8.0 million in the second quarter of 2010.  

Balance Sheet and Cash Flow

As of June 25, 2011 OfficeMax had total debt of $274.1 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 six months of 2011, OfficeMax generated $26.7 million of cash provided by operations.  OfficeMax invested $11.2 million for capital expenditures in the second quarter of 2011 compared to $19.4 million in the second quarter of 2010.

Outlook

Bruce Besanko, EVP, Chief Financial Officer and Chief Administrative Officer of OfficeMax, said, "Sales trends remain soft, with the July domestic total company year-over-year sales percentage decline slightly unfavorable compared to that of the second quarter. Accordingly, we continue to tightly manage expenses in this difficult environment."

Based on these trends, OfficeMax anticipates that total company sales for the third quarter will be in line with the third quarter of 2010, including the favorable impact of foreign currency translation, and total company sales for the second half of 2011 will be slightly higher than the respective prior-year period, including the favorable impact of foreign currency translation and the benefit of the additional fiscal week in the fourth quarter.  Additionally, OfficeMax anticipates that for both the third quarter and second half of 2011, the adjusted operating income margin rate will be flat to slightly higher than the respective prior-year periods.

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

  • Capital expenditures of approximately $75 million, primarily related to technology, ecommerce, and infrastructure investments and upgrades
  • Depreciation & amortization of approximately $85-90 million
  • Pension expense of approximately $11 million and cash contributions to the frozen pension plans of approximately $4 million
  • Interest expense of approximately $72-75 million and interest income of approximately $42-44 million
  • An effective tax rate approximately in line with the effective tax rate in 2010
  • Cash flow from operations exceeding capital expenditures
  • A net reduction in Retail store count for the year with one store opening and up to 20 store closures in the U.S., and approximately 8-10 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 second 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 www.officemax.com.

Media Contact

Investor Contacts

Bill Bonner

Mike Steele

Tony Giuliano

630 864 6066

630 864 6826

630 864 6820

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(thousands)

June 25,

December 25,

2011

2010

ASSETS

Current assets:

   Cash and cash equivalents

$    458,292

$        462,326

   Receivables, net

548,923

546,885

   Inventories

789,267

846,463

   Deferred income taxes and receivables

101,828

99,613

   Other current assets

62,226

58,999

     Total current assets

1,960,536

2,014,286

Property and equipment:

   Property and equipment

1,314,977

1,346,558

   Accumulated depreciation

(925,107)

(949,269)

     Property and equipment, net

389,870

397,289

Intangible assets, net

83,429

83,231

Timber notes receivable

899,250

899,250

Deferred income taxes

274,099

284,529

Other non-current assets

407,136

400,344

     Total assets

$ 4,014,320

$     4,078,929

LIABILITIES AND EQUITY

Current liabilities:

   Current portion of debt

$      41,611

$            4,560

   Accounts payable

649,017

686,106

   Income taxes payable

4,084

11,055

   Accrued liabilities and other

302,600

342,753

     Total current liabilities

997,312

1,044,474

   Long-term debt, less current portion

232,467

270,435

   Non-recourse debt

1,470,000

1,470,000

Other long-term obligations:

   Compensation and benefits

243,026

250,756

   Other long-term liabilities

379,693

393,253

     Total other long-term liabilities

622,719

644,009

Noncontrolling interest in joint venture

40,707

49,246

Shareholders' equity:

   Preferred stock

29,352

30,901

   Common stock

215,011

212,644

   Additional paid-in capital

1,003,183

986,579

   Accumulated deficit

(525,266)

(533,606)

   Accumulated other comprehensive loss

(71,165)

(95,753)

Total shareholders' equity

651,115

600,765

Total liabilities and equity

$ 4,014,320

$     4,078,929

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)

Quarter Ended

June 25,

June 26,

2011

2010

Sales

$ 1,647,616

$ 1,653,173

Cost of goods sold and occupancy costs

1,222,553

1,225,439

     Gross profit

425,063

427,734

Operating expenses:

Operating, selling and general and administrative expenses

407,126

402,463

Other operating expenses (income), net (a)

13,916

(2,841)

Total operating expenses

421,042

399,622

     Operating income

4,021

28,112

Other income (expense):

   Interest expense

(18,128)

(18,372)

   Interest income

10,909

10,588

   Other income (expense), net

96

(86)

(7,123)

(7,870)

Pre-tax income (loss)

(3,102)

20,242

Income tax benefit (expense)

1,001

(7,293)

Net income (loss) attributable to OfficeMax and noncontrolling interest

(2,101)

12,949

Joint venture results attributable to noncontrolling interest

(357)

(509)

Net income (loss) attributable to OfficeMax

(2,458)

12,440

Preferred dividends

(563)

(679)

Net income (loss) available to OfficeMax common shareholders

$      (3,021)

$      11,761

Basic income (loss) per common share:

$        (0.04)

$          0.14

Diluted income (loss) per common share:

$        (0.04)

$          0.14

Weighted Average Shares

   Basic

85,978

84,928

   Diluted

85,978

86,101

(a)  The second quarters of 2011 and 2010 include charges recorded in our Retail segment related to store closures in the U.S. of $5.6 million and $1.1 million, respectively, which increased net loss available to OfficeMax common shareholders by $3.4 million and $0.6 million, or $0.04 and $0.01 per diluted share for 2011 and 2010, respectively. The second quarter of 2011 also included severance charges of $8.3 million ($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. The effect of this item increased net loss by $5.6 million, or $0.07 per diluted share for the second quarter of 2011. Finally, the second quarter of 2010 also included 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 second quarter of 2010.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)

Six Months Ended

June 25,

June 26,

2011

2010

Sales

$ 3,510,617

$ 3,570,428

Cost of goods sold and occupancy costs

2,611,042

2,637,227

     Gross profit

899,575

933,201

Operating expenses:

Operating, selling and general and administrative expenses

853,026

844,387

Other operating expenses, net (a)

13,916

11,348

Total operating expenses

866,942

855,735

     Operating income

32,633

77,466

Other income (expense):

   Interest expense

(36,895)

(36,688)

   Interest income

21,929

21,204

   Other income (expense), net

134

(35)

(14,832)

(15,519)

Pre-tax income

17,801

61,947

Income tax expense

(6,669)

(22,695)

Net income attributable to OfficeMax and noncontrolling interest

11,132

39,252

Joint venture results attributable to noncontrolling interest

(1,687)

(1,364)

Net income attributable to OfficeMax

9,445

37,888

Preferred dividends

(1,100)

(1,348)

Net income available to OfficeMax common shareholders

$        8,345

$      36,540

Basic income per common share:

$          0.10

$          0.43

Diluted income per common share:

$          0.10

$          0.43

Weighted Average Shares

   Basic

85,673

84,791

   Diluted

86,774

85,968

(a)  The first six 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 six 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 $0.06 and $0.01 per diluted share for the first six months of 2011 and 2010, respectively. Finally, the first six 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 six months of 2010.  

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(thousands)

Six Months Ended

June 25,

June 26,

2011

2010

Cash provided by operations:

Net income attributable to OfficeMax and noncontrolling interest

$   11,132

$   39,252

Items in net income not using cash:

   Depreciation and amortization

42,555

51,938

   Other

9,181

5,686

Changes in operating assets and liabilities:

   Receivables

6,864

32,134

   Inventory

68,337

40,949

   Accounts payable and accrued liabilities

(87,788)

(110,245)

   Income taxes and other

(23,630)

8,274

     Cash provided by operations

26,651

67,988

Cash used for investment:

Expenditures for property and equipment

(28,192)

(28,589)

Proceeds from sale of assets

138

613

     Cash used for investment

(28,054)

(27,976)

Cash used for financing:

Cash dividends paid

(1,142)

(1,348)

Changes in debt, net

(2,019)

(1,697)

Other

(3,979)

(1,379)

     Cash used for financing

(7,140)

(4,424)

Effect of exchange rates on cash and cash equivalents

4,509

(955)

Increase (decrease) in cash and cash equivalents

(4,034)

34,633

Cash and cash equivalents at beginning of period

462,326

486,570

Cash and cash equivalents at end of period

$ 458,292

$ 521,203

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NON-GAAP RECONCILIATION

(unaudited)

(millions, except per-share amounts)

Quarter Ended

June 25, 2011

June 26, 2010

As

As

As

As

Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted

Sales

$ 1,647.6

$             -

$ 1,647.6

$ 1,653.2

$             -

$ 1,653.2

Cost of goods sold and occupancy costs

1,222.5

-

1,222.5

1,225.5

-

1,225.5

     Gross profit

425.1

-

425.1

427.7

-

427.7

Operating expenses:

Operating, selling and general and administrative expenses

407.2

-

407.2

402.4

-

402.4

Other operating expenses (income), net (a)

13.9

(13.9)

-

(2.8)

2.8

-

Total operating expenses

421.1

(13.9)

407.2

399.6

2.8

402.4

     Operating income

4.0

13.9

17.9

28.1

(2.8)

25.3

Other income (expense):

   Interest expense

(18.1)

-

(18.1)

(18.4)

-

(18.4)

   Interest income

10.9

-

10.9

10.6

-

10.6

   Other income (expense), net

0.1

-

0.1

(0.1)

-

(0.1)

(7.1)

-

(7.1)

(7.9)

-

(7.9)

Pre-tax income (loss)

(3.1)

13.9

10.8

20.2

(2.8)

17.4

Income tax benefit (expense)

1.0

(4.9)

(3.9)

(7.3)

1.0

(6.3)

Net income (loss) attributable to OfficeMax and noncontrolling interest

(2.1)

9.0

6.9

12.9

(1.8)

11.1

Joint venture results attributable to noncontrolling interest

(0.3)

-

(0.3)

(0.5)

-

(0.5)

Net income (loss) attributable to OfficeMax

(2.4)

9.0

6.6

12.4

(1.8)

10.6

Preferred dividends

(0.6)

-

(0.6)

(0.6)

-

(0.6)

Net income (loss) available to OfficeMax common shareholders

$      (3.0)

$           9.0

$        6.0

$      11.8

$          (1.8)

$      10.0

Basic income (loss) per common share:

$    (0.04)

$         0.11

$      0.07

$      0.14

$        (0.02)

$      0.12

Diluted income (loss) per common share:

$    (0.04)

$         0.11

$      0.07

$      0.14

$        (0.02)

$      0.12

Weighted Average Shares

   Basic

85,978

85,978

84,928

84,928

   Diluted

85,978

86,951

86,101

86,101

(a)  The second quarters of 2011 and 2010 include charges recorded in our Retail segment related to store closures in the U.S. of $5.6 million and $1.1 million, respectively, which increased net loss available to OfficeMax common shareholders by $3.4 million and $0.6 million, or $0.04 and $0.01 per diluted share for 2011 and 2010, respectively. The second quarter of 2011 also included severance charges of $8.3 million ($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. The effect of this item increased net loss by $5.6 million, or $0.07 per diluted share for the second quarter of 2011. Finally, the second quarter of 2010 also included 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 second quarter of 2010.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NON-GAAP RECONCILIATION

(unaudited)

(millions, except per-share amounts)

Six Months Ended

June 25, 2011

June 26, 2010

As

As

As

As

Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted

Sales

$ 3,510.6

$             -

$ 3,510.6

$ 3,570.4

$             -

$ 3,570.4

Cost of goods sold and occupancy costs

2,611.0

-

2,611.0

2,637.2

-

2,637.2

     Gross profit

899.6

-

899.6

933.2

-

933.2

Operating expenses:

Operating, selling and general and administrative expenses

853.1

-

853.1

844.4

-

844.4

Other operating expenses, net (a)

13.9

(13.9)

-

11.3

(11.3)

-

Total operating expenses

867.0

(13.9)

853.1

855.7

(11.3)

844.4

     Operating income

32.6

13.9

46.5

77.5

11.3

88.8

Other income (expense):

   Interest expense

(36.9)

-

(36.9)

(36.7)

-

(36.7)

   Interest income

21.9

-

21.9

21.2

-

21.2

   Other income (expense), net

0.2

-

0.2

(0.1)

-

(0.1)

(14.8)

-

(14.8)

(15.6)

-

(15.6)

Pre-tax income

17.8

13.9

31.7

61.9

11.3

73.2

Income tax expense

(6.7)

(4.9)

(11.6)

(22.7)

(4.3)

(27.0)

Net income attributable to OfficeMax and noncontrolling interest

11.1

9.0

20.1

39.2

7.0

46.2

Joint venture results attributable to noncontrolling interest

(1.7)

-

(1.7)

(1.4)

(1.4)

Net income attributable to OfficeMax

9.4

9.0

18.4

37.8

7.0

44.8

Preferred dividends

(1.1)

-

(1.1)

(1.3)

-

(1.3)

Net income available to OfficeMax common shareholders

$        8.3

$           9.0

$      17.3

$      36.5

$           7.0

$      43.5

Basic income per common share:

$      0.10

$         0.10

$      0.20

$      0.43

$         0.08

$      0.51

Diluted income per common share:

$      0.10

$         0.10

$      0.20

$      0.43

$         0.08

$      0.51

Weighted Average Shares

   Basic

85,673

85,673

84,791

84,791

   Diluted

86,774

86,774

85,968

85,968

(a)  The first six 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 six 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 $0.06 and $0.01 per diluted share for the first six months of 2011 and 2010, respectively. Finally, the first six 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 six months of 2010.  

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONTRACT SEGMENT STATEMENTS OF OPERATIONS

(unaudited)

(millions, except per-share amounts)

Quarter Ended

June 25,

June 26,

2011

2010

Sales

$    880.3

$    880.5

Gross profit

195.9

22.3%

199.9

22.7%

Operating, selling and general and administrative expenses

178.5

20.3%

180.5

20.5%

Segment income

$      17.4

2.0%

$      19.4

2.2%

Other operating expenses

8.0

0.9%

-

0.0%

Operating income

$        9.4

1.1%

$      19.4

2.2%

Six Months Ended

June 25,

June 26,

2011

2010

Sales

$ 1,806.0

$ 1,843.5

Gross profit

401.4

22.2%

418.3

22.7%

Operating, selling and general and administrative expenses

375.0

20.7%

365.2

19.8%

Segment income

$      26.4

1.5%

$      53.1

2.9%

Other operating expenses

8.0

0.5%

0.8

0.1%

Operating income

$      18.4

1.0%

$      52.3

2.8%

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

June 25,

June 26,

2011

2010

Sales

$    767.3

$    772.7

Gross profit

229.2

29.9%

227.8

29.5%

Operating, selling and general and administrative expenses

221.2

28.9%

213.9

27.7%

Segment income

$        8.0

1.0%

$      13.9

1.8%

Other operating expenses

5.9

0.7%

1.1

0.1%

Operating income

$        2.1

0.3%

$      12.8

1.7%

Six Months Ended

June 25,

June 26,

2011

2010

Sales

$ 1,704.6

$ 1,726.9

Gross profit

498.2

29.2%

514.9

29.8%

Operating, selling and general and administrative expenses

464.6

27.2%

462.3

26.8%

Segment income

$      33.6

2.0%

$      52.6

3.0%

Other operating expenses

5.9

0.4%

14.4

0.8%

Operating income

$      27.7

1.6%

$      38.2

2.2%

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 second quarter and first six 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.

SOURCE OfficeMax Incorporated



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