OfficeMax Reports Third Quarter 2010 Financial Results

Oct 28, 2010, 07:00 ET from OfficeMax Incorporated

NAPERVILLE, Ill., Oct. 28 /PRNewswire-FirstCall/ -- OfficeMax® Incorporated (NYSE: OMX) today announced the results for its fiscal third quarter ended September 25, 2010.  Total sales were $1,813.4 million in the third quarter of 2010, a decrease of 1.0% from the third quarter of 2009.  For the third quarter of 2010, OfficeMax reported net income available to OfficeMax common shareholders of $20.0 million, or $0.23 per diluted share.

Sam Duncan, Chairman and CEO of OfficeMax, said, "I am very pleased with our third quarter results.  During the quarter, we drove strong margin increases over the prior year period, reflecting improved customer acquisition and retention costs as we maintained our disciplined approach to serving both new and existing business customers.  Additionally, we successfully managed through the very important back-to-school season, rolling out a staggered advertising campaign which proved effective, despite a challenging environment.  Overall, the improvements we achieved in the third quarter reflect our continued focus on key initiatives and the successful execution of our five-year plan."

Consolidated Results

(in millions, except per-share amounts)

3Q10

3Q09

Sales

$1,813.4

$1,831.9

Sales decline (from prior year period)

-1.0%

-12.6%

Operating income

$40.9

$25.2

Adjusted operating income*

$40.9

$26.7

Adjusted operating income margin*

2.3%

1.5%

Adjusted diluted income per common share*

$0.23

$0.08

* There are no adjustments for 3Q10

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.

Adjusted operating income in the third quarter of 2010 was $40.9 million, or 2.3% of sales, compared to $26.7 million, or 1.5% of sales in the third quarter of 2009.  Adjusted operating income for both the third quarters of 2010 and 2009 include approximately equivalent amounts of favorable tax settlements.  Adjusted net income available to OfficeMax common shareholders in the third quarter of 2010 was $20.0 million, or $0.23 per diluted share, compared to $6.6 million, or $0.08 per diluted share, in the third quarter of 2009.  

Contract Segment Results

(in millions)

3Q10

3Q09

Sales

$877.3

$899.6

Sales decline (from prior year period)

-2.5%

-14.3%

Gross profit margin

22.8%

20.0%

Segment income margin

2.2%

1.1%

OfficeMax Contract segment sales decreased 2.5% compared to the prior year period to $877.3 million in the third quarter of 2010 (a decrease of 4.3% in local currency).  This decline reflected a U.S. Contract operations sales decrease of 2.9% and an International Contract operations sales decrease of 1.4% in U.S. dollars (a sales decrease of 7.4% in local currencies).

Contract segment gross profit margin increased to 22.8% in the third quarter of 2010 from 20.0% in the third quarter of 2009, reflecting improved gross profit margin at both the U.S. and International businesses primarily due to OfficeMax's profitability initiatives and lower customer acquisition and retention costs.  Contract segment operating, selling & administrative expense as a percentage of sales increased to 20.6% in the third quarter of 2010 from 18.9% in the third quarter of 2009.  The increase was a result of higher incentive compensation expense and costs associated with growth and profitability initiatives, partially offset by favorable sales/use tax settlements.  Contract segment income was $19.5 million, or 2.2% of sales, in the third quarter of 2010 compared to $10.1 million, or 1.1% of sales, in the third quarter of 2009.

Retail Segment Results

(in millions)

3Q10

3Q09

Sales

$936.1

$932.3

Same-store sales increase (from prior year period)

0.4%

-11.5%

Gross profit margin

28.9%

27.4%

Segment income margin

3.5%

3.0%

OfficeMax Retail segment sales increased 0.4% to $936.1 million in the third quarter of 2010 compared to the third quarter of 2009, reflecting a same-store sales increase of 0.4%.  A slight decline in same-store sales in the U.S. was more than offset by stronger sales in Mexico compared to weak sales in the third quarter of 2009 during the influenza epidemic.

Retail segment gross profit margin increased to 28.9% in the third quarter of 2010 from 27.4% in the third quarter of 2009, primarily due to OfficeMax's profitability initiatives, reduced freight and occupancy costs, and reduced inventory shrinkage expense.  Retail segment operating, selling & administrative expense as a percentage of sales increased to 25.4% in the third quarter of 2010 compared to 24.4% in the third quarter of 2009 primarily due to higher incentive compensation expense, costs related to growth initiatives. Additionally, favorable property tax settlements in the third quarter of 2009 were partially offset by favorable sales/use tax settlements in the third quarter of 2010.  Retail segment income was $32.4 million, or 3.5% of sales, in the third quarter of 2010 compared to $28.4 million, or 3.0% of sales, in the third quarter of 2009.

OfficeMax ended the third quarter of 2010 with a total of 998 retail stores, consisting of 920 retail stores in the U.S. and 78 retail stores in Mexico.  During the third quarter of 2010, OfficeMax closed three 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 $11.0 million in the third quarter of 2010 compared to $11.8 million in the third quarter of 2009.

Balance Sheet and Cash Flow

As of September 25, 2010, OfficeMax had total debt of $294.0 million, excluding $1,470 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 third quarter 2010, OfficeMax had $570.0 million in available borrowing capacity under its revolving credit facilities.

During the first nine months of 2010, OfficeMax generated $156.0 million of cash provided by operations.  OfficeMax invested $21.6 million for capital expenditures in the third quarter of 2010 compared to $5.4 million in the third quarter of 2009.

Outlook

Mr. Duncan added, "Looking forward through the balance of 2010, we expect the macroeconomic environment to remain muted.  Consequently, in the fourth quarter, we will continue to take a disciplined approach to generating sales and investing in the business.  As we complete the first year of our five-year plan, we will work with our incoming CEO, Ravi Saligram, to ensure a seamless transition."

Bruce Besanko, EVP, Chief Financial Officer and Chief Administrative Officer of OfficeMax, said, "We are very pleased with our performance through the first nine months of 2010.  To date in the fourth quarter, the company's domestic sales are lower than the comparable prior year period.  As a result of our disciplined cash flow management and strong financial foundation, we are confident that we are in an excellent position to achieve our 2010 objectives."

Based on these assumptions, OfficeMax anticipates that for the fourth quarter, total company sales will be slightly lower than the prior year's fourth quarter, including the favorable impact of foreign currency translation, and the adjusted operating income margin rate will be significantly higher than the prior year's fourth quarter, primarily due to an unusually large amount of incentive compensation expense recorded in the fourth quarter of 2009.  For the full year 2010, OfficeMax anticipates that total company sales will be slightly lower than 2009, including the favorable impact of foreign currency translation, and the year-over-year adjusted operating income margin rate improvement will be in line with, to slightly greater than, the 120-basis point year-over-year margin improvement in the first nine months of 2010.

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 $80-90 million, primarily related to technology and infrastructure investments and upgrades
  • Depreciation & amortization of approximately $100-105 million
  • Interest expense of approximately $73-75 million and interest income of approximately $41-43 million
  • Effective tax rate approximately in line with the effective tax rate in the first nine months of 2010
  • Cash flow from operations exceeding capital expenditures
  • 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 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 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 third 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 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 over 30,000 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 www.officemax.com.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(unaudited)

(thousands)

September 25,

December 26,

2010

2009

ASSETS

Current assets:

 Cash and cash equivalents

$         587,936

$        486,570

 Receivables, net

540,842

539,350

 Inventories

764,047

805,646

 Deferred income taxes and receivables

106,299

133,836

 Other current assets

55,459

55,934

   Total current assets

2,054,583

2,021,336

Property and equipment:

 Property and equipment

1,330,276

1,316,855

 Accumulated depreciation

(934,586)

(894,707)

   Property and equipment, net

395,690

422,148

Intangible assets, net

82,942

83,806

Timber notes receivable

899,250

899,250

Deferred income taxes

299,374

300,900

Other non-current assets

347,469

342,091

   Total assets

$      4,079,308

$     4,069,531

LIABILITIES AND EQUITY

Current liabilities:

 Current portion of debt

$           22,638

$          22,430

 Accounts payable

639,479

687,340

 Income taxes payable

6,094

3,389

 Accrued liabilities and other

387,926

378,533

   Total current liabilities

1,056,137

1,091,692

 Long-term debt, less current portion

271,337

274,622

 Non-recourse debt

1,470,000

1,470,000

Other long-term obligations:

 Compensation and benefits

267,074

277,247

 Other long-term liabilities

404,233

424,715

   Total other long-term liabilities

671,307

701,962

Noncontrolling interest in joint venture

38,075

28,059

Shareholders' equity:

 Preferred stock

32,615

36,479

 Common stock

212,565

211,562

 Additional paid-in capital

992,024

989,912

 Accumulated deficit

(546,286)

(602,242)

 Accumulated other comprehensive loss

(118,466)

(132,515)

Total shareholders' equity

572,452

503,196

Total liabilities and equity

$      4,079,308

$     4,069,531

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)

Quarter Ended

September 25,

September 26,

2010

2009

Sales

$      1,813,366

$      1,831,947

Cost of goods sold and occupancy costs

1,342,944

1,397,215

   Gross profit

470,422

434,732

Operating expenses:

 Operating and selling expenses

341,748

339,043

 General and administrative expenses

87,750

69,019

 Other operating expenses (a)

-

1,473

Total operating expenses

429,498

409,535

   Operating income

40,924

25,197

Other income (expense):

 Interest expense

(18,444)

(19,289)

 Interest income

10,646

10,873

 Other expense, net

(23)

(3)

(7,821)

(8,419)

Income before income taxes

33,103

16,778

Income tax expense

(11,678)

(9,942)

Net income attributable to OfficeMax and noncontrolling interest

21,425

6,836

Joint venture results attributable to noncontrolling interest

(886)

(558)

Net income attributable to OfficeMax

20,539

6,278

Preferred dividends

(573)

(622)

Net income available to OfficeMax common shareholders

$           19,966

$             5,656

Basic income per common share:

$               0.23

$               0.07

Diluted income per common share:

$               0.23

$               0.07

Weighted Average Shares

 Basic

85,014

76,285

 Diluted

86,543

77,152

(a) The third quarter of 2009 includes a $1.5 million charge in our Contract segment related to the reorganization of our customer service centers. This charge reduced net income by $0.9 million, or $0.01 per diluted share.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(thousands, except per-share amounts)

Nine Months Ended

September 25,

September 26,

2010

2009

Sales

$      5,383,794

$      5,401,549

Cost of goods sold and occupancy costs

3,980,171

4,106,346

   Gross profit

1,403,623

1,295,203

Operating expenses:

 Operating and selling expenses

1,026,667

1,021,343

 General and administrative expenses

247,219

208,917

 Other operating expenses (a)

11,348

39,710

Total operating expenses

1,285,234

1,269,970

   Operating income

118,389

25,233

Other income (expense):

 Interest expense

(55,132)

(57,956)

 Interest income (b)

31,850

36,449

 Other income (expense), net (c)

(57)

2,837

(23,339)

(18,670)

Income before income taxes

95,050

6,563

Income tax expense

(34,374)

(4,425)

Net income attributable to OfficeMax and noncontrolling interest

60,676

2,138

Joint venture results attributable to noncontrolling interest

(2,249)

1,111

Net income attributable to OfficeMax

58,427

3,249

Preferred dividends

(1,921)

(2,159)

Net income available to OfficeMax common shareholders

$           56,506

$             1,090

Basic income per common share:

$               0.67

$               0.01

Diluted income per common share:

$               0.65

$               0.01

Weighted Average Shares

 Basic

84,865

76,233

 Diluted

86,442

76,846

(a) The first nine months of 2010 and 2009 include charges recorded in our Retail segment of $14.4 million and $31.2 million, respectively, related to store closures in the U.S. and Mexico (2009 only). The cumulative effect of these items reduced net income by $8.9 million and $18.8 million, or $0.10 and $0.25 per diluted share for 2010 and 2009, respectively. The first nine months of 2010 and 2009 also include severance charges recorded in our Contract segment consisting of $0.8 million in 2010 and $8.4 million in 2009. The effect of these items reduced net income by $0.5 million and $5.3 million, or $0.01 and $0.07 per diluted share for the first nine months of 2010 and 2009, respectively. Finally, the first nine 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 nine months of 2010.

(b) The first nine months of 2009 include $4.4 million of interest income related to a tax escrow balance established in a prior period in connection with our legacy Voyager Panel business sold in 2004. This item increased net income by $2.7 million, or $0.04 per diluted share.

(c) Other income (expense), net for the first nine months of 2009 includes $2.6 million of income for tax distributions related to our investment in Boise Cascade Holdings, L.L.C.  This item increased net income $1.6 million, or $0.02 per diluted share.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(thousands)

Nine Months Ended

September 25,

September 26,

2010

2009

Cash provided by operations:

Net income attributable to OfficeMax and noncontrolling interest

$           60,676

$             2,138

Items in net income not using cash:

 Depreciation and amortization

76,586

88,693

 Other

7,044

10,002

Changes in operating assets and liabilities:

 Receivables and inventory

52,229

255,219

 Accounts payable and accrued liabilities

(50,850)

(94,038)

 Income taxes and other

10,293

107,122

   Cash provided by operations

155,978

369,136

Cash provided by (used for) investment:

Expenditures for property and equipment

(50,153)

(23,946)

Other

1,607

40,816

   Cash provided by (used for) investment

(48,546)

16,870

Cash used for financing:

Cash dividends paid

(2,575)

(3,052)

Changes in debt, net

(3,341)

(21,810)

Other

(1,756)

1,453

   Cash used for financing

(7,672)

(23,409)

Effect of exchange rates on cash and cash equivalents

1,606

13,570

Increase in cash and cash equivalents

101,366

376,167

Cash and cash equivalents at beginning of period

486,570

170,779

Cash and cash equivalents at end of period

$         587,936

$         546,946

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NON-GAAP RECONCILIATION

(unaudited)

(millions, except per-share amounts)

Quarter Ended

September 25, 2010

September 26, 2009

As

As

As

As

Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted

Sales

$ 1,813.4

$             -

$ 1,813.4

$ 1,831.9

$             -

$ 1,831.9

Cost of goods sold and occupancy costs

1,343.0

-

1,343.0

1,397.2

-

1,397.2

   Gross profit

470.4

-

470.4

434.7

-

434.7

Operating expenses:

 Operating and selling expenses

341.7

-

341.7

339.0

-

339.0

 General and administrative expenses

87.8

-

87.8

69.0

-

69.0

 Other operating expenses (a)

-

-

-

1.5

(1.5)

-

Total operating expenses

429.5

-

429.5

409.5

(1.5)

408.0

   Operating income

40.9

-

40.9

25.2

1.5

26.7

Other income (expense):

 Interest expense

(18.4)

-

(18.4)

(19.3)

-

(19.3)

 Interest income

10.6

-

10.6

10.9

-

10.9

(7.8)

-

(7.8)

(8.4)

-

(8.4)

Income before income taxes

33.1

-

33.1

16.8

1.5

18.3

Income tax expense

(11.7)

(11.7)

(9.9)

(0.6)

(10.5)

Net income attributable to OfficeMax and noncontrolling interest

21.4

-

21.4

6.9

0.9

7.8

Joint venture results attributable to noncontrolling interest

(0.9)

-

(0.9)

(0.6)

-

(0.6)

Net income attributable to OfficeMax

20.5

-

20.5

6.3

0.9

7.2

Preferred dividends

(0.5)

-

(0.5)

(0.6)

-

(0.6)

Net income available to OfficeMax common shareholders

$      20.0

$             -

$      20.0

$        5.7

$           0.9

$        6.6

Basic income per common share:

$      0.23

$             -

$      0.23

$      0.07

$         0.01

$      0.08

Diluted income per common share:

$      0.23

$             -

$      0.23

$      0.07

$         0.01

$      0.08

Weighted Average Shares

 Basic

85,014

85,014

76,285

76,285

 Diluted

86,543

86,543

77,152

77,152

(a) The third quarter of 2009 includes a $1.5 million charge in our Contract segment related to the reorganization of our customer service centers. This charge reduced net income by $0.9 million, or $0.01 per diluted share.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

NON-GAAP RECONCILIATION

(unaudited)

(millions, except per-share amounts)

Nine Months Ended

September 25, 2010

September 26, 2009

As

As

As

As

Reported

Adjustments

Adjusted

Reported

Adjustments

Adjusted

Sales

$ 5,383.8

$             -

$  5,383.8

$ 5,401.5

$             -

$ 5,401.5

Cost of goods sold and occupancy costs

3,980.2

-

3,980.2

$ 4,106.3

-

4,106.3

   Gross profit

1,403.6

-

1,403.6

1,295.2

-

1,295.2

Operating expenses:

 Operating and selling expenses

1,026.7

-

1,026.7

1,021.4

-

1,021.4

 General and administrative expenses

247.2

-

247.2

208.9

-

208.9

 Other operating expenses (a)

11.3

(11.3)

-

39.7

(39.7)

-

Total operating expenses

1,285.2

(11.3)

1,273.9

1,270.0

(39.7)

1,230.3

   Operating income

118.4

11.3

129.7

25.2

39.7

64.9

Other income (expense):

 Interest expense

(55.1)

-

(55.1)

(57.9)

-

(57.9)

 Interest income (b)

31.9

31.9

36.5

(4.4)

32.1

 Other income (expense), net (c)

(0.1)

-

(0.1)

2.8

(2.6)

0.2

(23.3)

-

(23.3)

(18.6)

(7.0)

(25.6)

Income before income taxes

95.1

11.3

106.4

6.6

32.7

39.3

Income tax expense

(34.4)

(4.3)

(38.7)

(4.4)

(12.4)

(16.8)

Net income attributable to OfficeMax and noncontrolling interest

60.7

7.0

67.7

2.2

20.3

22.5

Joint venture results attributable to noncontrolling interest

(2.3)

-

(2.3)

1.1

(0.5)

0.6

Net income attributable to OfficeMax

58.4

7.0

65.4

3.3

19.8

23.1

Preferred dividends

(1.9)

-

(1.9)

(2.2)

-

(2.2)

Net income available to OfficeMax common shareholders

$      56.5

$           7.0

$       63.5

$        1.1

$         19.8

$      20.9

Basic income per common share

$      0.67

$         0.08

$       0.75

$      0.01

$         0.26

$      0.27

Diluted income per common share

$      0.65

$         0.08

$       0.73

$      0.01

$         0.26

$      0.27

Weighted Average Shares

 Basic

84,865

84,865

76,233

76,233

 Diluted

86,442

86,442

76,846

76,846

(a) The first nine months of 2010 and 2009 include charges recorded in our Retail segment of $14.4 million and $31.2 million, respectively, related to store closures in the U.S. and Mexico (2009 only). The cumulative effect of these items reduced net income by $8.9 million and $18.8 million, or $0.10 and $0.25 per diluted share for 2010 and 2009, respectively. The first nine months of 2010 and 2009 also include severance charges recorded in our Contract segment consisting of $0.8 million in 2010 and $8.4 million in 2009. The effect of these items reduced net income by $0.5 million and $5.3 million, or $0.01 and $0.07 per diluted share for the first nine months of 2010 and 2009, respectively. Finally, the first nine 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 nine months of 2010.

(b) The first nine months of 2009 include $4.4 million of interest income related to a tax escrow balance established in a prior period in connection with our legacy Voyager Panel business sold in 2004. This item increased net income by $2.7 million, or $0.04 per diluted share.

(c)  Other income (expense), net for the first nine months of 2009 includes $2.6 million of income for tax distributions related to our investment in Boise Cascade Holdings, L.L.C.  This item increased net income $1.6 million, or $0.02 per diluted share.

OFFICEMAX INCORPORATED AND SUBSIDIARIES

CONTRACT SEGMENT STATEMENTS OF OPERATIONS

(unaudited)

(millions, except per-share amounts)

Quarter Ended

September 25,

September 26,

2010

2009

Sales

$             877.3

$             899.6

Gross profit

199.9

22.8%

179.7

20.0%

Operating, selling and general and administrative expenses

180.4

20.6%

169.6

18.9%

Segment income

$               19.5

2.2%

$               10.1

1.1%

Other operating expenses

-

0.0%

1.5

0.1%

Operating income

$               19.5

2.2%

$                 8.6

1.0%

Nine Months Ended

September 25,

September 26,

2010

2009

Sales

$          2,720.8

$          2,708.8

Gross profit

618.3

22.7%

555.8

20.5%

Operating, selling and general and administrative expenses

545.7

20.0%

511.8

18.9%

Segment income

$               72.6

2.7%

$               44.0

1.6%

Other operating expenses

0.8

0.1%

8.4

0.3%

Operating income

$               71.8

2.6%

$               35.6

1.3%

Note: Management evaluates the segments' performances based on operating income after eliminating the effect of certain operating matters such as severances, facility closures, and asset impairments, that are not indicative of our core operations ("segment income".)

OFFICEMAX INCORPORATED AND SUBSIDIARIES

RETAIL SEGMENT STATEMENTS OF OPERATIONS

(unaudited)

(millions, except per-share amounts)

Quarter Ended

September 25,

September 26,

2010

2009

Sales

$             936.1

$             932.3

Gross profit

270.5

28.9%

255.1

27.4%

Operating, selling and general and administrative expenses

238.1

25.4%

226.7

24.4%

Segment income

$               32.4

3.5%

$               28.4

3.0%

Other operating expenses

-

0.0%

-

0.0%

Operating income

$               32.4

3.5%

$               28.4

3.0%

Nine Months Ended

September 25,

September 26,

2010

2009

Sales

$          2,663.0

$          2,692.7

Gross profit

785.3

29.5%

739.4

27.5%

Operating, selling and general and administrative expenses

700.2

26.3%

687.7

25.6%

Segment income

$               85.1

3.2%

$               51.7

1.9%

Other operating expenses

14.4

0.5%

31.2

1.1%

Operating income

$               70.7

2.7%

$               20.5

0.8%

Note: Management evaluates the segments' performances based on operating income after eliminating the effect of certain operating matters such as severances, facility closures, and asset impairments, that are not indicative of our core operations ("segment income".)

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 (including adjustments to legacy reserves), 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 third quarter and first nine months 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.

Media Contact

Investor Contacts

Bill Bonner

Mike Steele

Tony Giuliano

630 864 6066

630 864 6826

630 864 6820

SOURCE OfficeMax Incorporated



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