Oct. 29, 2009 (PR Newswire) --
NAPERVILLE, Ill., Oct. 29 /PRNewswire/ -- OfficeMax Incorporated (NYSE: OMX) today announced the results for its third quarter ended September 26, 2009. Total sales were $1,831.9 million in the third quarter of 2009, a decline of 12.6% from the third quarter of 2008. For the third quarter of 2009, OfficeMax reported net income available to OfficeMax common shareholders of $5.7 million, or $0.07 per diluted share.
Sam Duncan, Chairman and CEO of OfficeMax, said, "We are proud of the progress we are making with our business in this tough economy. While continued lower sales levels strained our profitability this quarter, we managed to mitigate the impact by reducing costs and improving our operations. Our relentless focus on implementing disciplined growth initiatives, differentiating our business, and increasing our productivity continue to significantly benefit our performance."
Summary Consolidated Results
(in millions, except
per-share
amounts) 3Q 09 3Q 08 YTD 09 YTD 08
---------------------- ----- ------ ------ ------
Sales $1,831.9 $2,096.3 $5,401.5 $6,383.9
----- -------- -------- -------- --------
Sales growth (over prior year
period) -12.6% -15.4%
----------------------------- ----- -----
Operating income (loss) $25.2 $(681.5) $25.2 $(1,505.5)
---------------------- ----- ------- ----- ----------
Adjusted operating income $26.7 $54.3 $64.9 176.9
------------------------- ----- ----- ----- -----
Adjusted operating income margin 1.5% 2.6% 1.2% 2.8%
-------------------------------- --- --- --- ---
Adjusted diluted income per
common share $0.08 $0.36 $0.27 $1.29
--------------------------- ----- ----- ----- -----
Cash and cash equivalents $546.9 $234.5
------------------------- ------ ------
Available (unused) borrowing
capacity $504.9 $602.0
---------------------------- ------ ------
The company has calculated adjusted income and adjusted diluted income per share which are non-GAAP financial measures that exclude the effect of certain charges and items 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 third quarter of 2009 and 2008 included certain charges and other items that are not considered indicative of core operating activities. Third quarter 2009 results included $1.5 million of pre-tax severance and other charges recorded in the Contract segment related to a reorganization of our customer service centers. Third quarter 2008 results included a $735.8 million non-cash impairment charge (pre-tax) related to the timber installment notes receivable from Lehman recorded in the Corporate and Other segment and $18.2 million of additional net interest expense related to the timber installment notes receivable and related securitization notes.
Excluding the items described above, adjusted operating income in the third quarter of 2009 was $26.7 million, or 1.5% of sales, compared to adjusted operating income of $54.3 million, or 2.6% of sales in the third quarter of 2008. Adjusted net income available to OfficeMax common shareholders in the third quarter of 2009 was $6.6 million, or $0.08 per diluted share, compared to adjusted net income available to OfficeMax common shareholders of $28.0 million, or $0.36 per diluted share, in the third quarter of 2008.
Contract Segment Results
(in millions) 3Q 09 3Q 08 YTD 09 YTD 08
------------ ----- ------ ------ ------
Sales $899.6 $1,049.1 $2,708.8 $3,356.1
----- ------ -------- -------- --------
Sales growth (over prior
year period) -14.3% -19.3%
---------------------- ----- -----
Gross profit margin 20.0% 21.8% 20.5% 22.1%
------------------- ---- ---- ---- ----
Adjusted operating income margin 1.1% 3.4% 1.6% 4.3%
-------------------------------- --- --- --- ---
OfficeMax Contract segment sales decreased 14.3% (12.8% after adjusting for the foreign currency exchange rate impact) to $899.6 million in the third quarter of 2009 compared to the third quarter of 2008, reflecting a U.S. Contract operations sales decline of 15.4%, and an International Contract operations sales decline of 11.6% in U.S. dollars (a sales decrease of 6.5% in local currencies). The U.S. Contract sales decline in the third 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 compared to the two previous quarters.
Contract segment gross margin decreased to 20.0% in the third quarter of 2009 from 21.8% in the third quarter of 2008, primarily due to softer market conditions, a sales mix shift to a higher percentage of lower-margin consumable items, lower sales of off-contract items, and higher customer acquisition and retention expense. Contract segment operating, selling & administrative expense as a percentage of sales increased to 18.9% in the third quarter of 2009 from 18.4% in the third quarter of 2008, primarily due to deleveraging of fixed operating expenses from lower sales and higher incentive compensation expense. Contract segment operating income was $8.6 million in the third quarter of 2009. Contract segment adjusted operating income was $10.1 million, or 1.1% of sales, in the third quarter of 2009 compared to operating income of $35.5 million, or 3.4% of sales, in the third quarter of 2008.
Retail Segment Results
(in millions) 3Q 09 3Q 08 YTD 09 YTD 08
------------ ----- ----- ------ ------
Sales $932.3 $1,047.2 $2,692.7 $3,027.8
----- ------ -------- -------- --------
Same-store sales growth (over
prior year period) -11.5% -12.2%
----------------------------- ----- -----
Gross profit margin 27.4% 28.5% 27.5% 28.3%
------------------- ---- ---- ---- ----
Adjusted operating income margin 3.0% 2.8% 1.9% 2.0%
-------------------------------- --- --- --- ---
OfficeMax Retail segment sales decreased 11.0% to $932.3 million in the third quarter of 2009 compared to the third quarter of 2008, reflecting a same-store sales decrease of 11.5% (a same-store sales decrease of 10.0% in local currencies), partially offset by sales from new stores. Retail same-store sales for the third quarter of 2009 declined across all major product categories primarily due to weaker small business and consumer spending, unfavorable Mexican Peso exchange rates, and the influenza epidemic in Mexico.
Retail segment gross margin decreased to 27.4% in the third quarter of 2009 from 28.5% in the third quarter of 2008, primarily due to deleveraging of fixed occupancy costs from the same-store sales decrease. Retail segment operating, selling & administrative expense as a percentage of sales decreased to 24.4% in the third quarter of 2009 compared to 25.7% in the third quarter of 2008 primarily due to targeted cost controls, property tax settlements in the third quarter of 2009, and lower store pre-opening expenses, partially offset by deleveraging of payroll expenses due to lower sales and higher incentive compensation expense. Retail segment operating income was $28.4 million, or 3.0% of sales, in the third quarter of 2009 compared to operating income of $29.1 million, or 2.8% of sales in the third quarter of 2008.
OfficeMax ended the third quarter of 2009 with a total of 1,010 retail stores, consisting of 932 retail stores in the U.S. and 78 retail stores in Mexico. During the third quarter of 2009, OfficeMax closed one retail store in the U.S. and one in Mexico. For the full year 2009, OfficeMax expects to open 12 retail stores, and to close up to 25 retail stores, of which, 11 have opened and 23 have closed during the first nine months of 2009.
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 $11.7 million in the third quarter of 2009 compared to adjusted operating income of $10.3 million in the third quarter of 2008. The increase was primarily due to higher pension expense and incentive compensation expense.
Balance Sheet and Cash Flow
As of September 26, 2009, OfficeMax had total debt of $332.5 million, excluding $1,470.0 million of timber securitization notes, which have recourse limited to the timber installment notes receivable and related guarantees. At the end of the third quarter of 2009, OfficeMax had $546.9 million in cash and cash equivalents, and $504.9 million in available (unused) borrowing capacity. The company's $504.9 million of unused borrowing capacity under both its primary revolving credit facility and its new Canadian revolving credit facility reflects a combined available borrowing base of $569.9 million, zero outstanding borrowings, and $65.0 million of standby letters of credit.
During the first nine months of 2009, OfficeMax generated $369.1 million of cash from operations which reflected significant reductions in inventory levels and good working capital management and included $72 million of federal tax refunds and $46 million from 2009 borrowings on accumulated earnings held in company-owned life insurance policies.
OfficeMax invested $5.4 million for capital expenditures in the third quarter of 2009 compared to $36.1 million in the third quarter of 2008. OfficeMax expects capital expenditures for full year 2009 to be in the range of $30 million to $40 million.
Voluntary Excess Contribution to Pension Plan
OfficeMax also announced its intent to make a voluntary excess contribution of approximately $100 million in OfficeMax common stock to its qualified pension plans by the end of this year. The net effect of the contribution on earnings per share, including the impact of increased shares outstanding, is expected to be minimal in 2009 and accretive in 2010. Based on actuarial assumptions, this excess 2009 contribution is expected to reduce required pension contributions over the next five years by approximately $100 million.
As of December 27, 2008, the pension plan was underfunded by $435 million. According to a current estimate of plan assets (including the impact of the voluntary contribution of stock) and projected discounted obligations, the underfunding would be reduced to approximately $300 million.
Outlook
Given the projected weak economic climate, OfficeMax reaffirms that its expectations remain very cautious for the fourth quarter of 2009. The company expects sales in the fourth quarter of 2009 will decline on a year-over-year basis, but improve sequentially compared to the third quarter. The company expects a greater gross margin rate decline on a year-over-year basis in the fourth quarter of 2009 than it experienced in the third quarter, along with additional incentive compensation expense accruals similar to the level accrued in the third quarter. As a result, OfficeMax expects a fourth quarter of 2009 operating loss.
Mr. Duncan concluded, "Given that we continue to anticipate macro employment trends will not turn positive until well into 2010, we are maintaining our prudent approach to managing our business and building upon our strong capital position. We are confident that we are pursuing the right strategy and initiatives to ensure we achieve sustainable benefits and competitive advantages. The goal of our current actions and plans is to position our business to return to recent peak profitability levels. We expect to share these longer term plans during the first part of 2010."
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 return on the company stock contributed to the pension plan and affect the future funding obligations we predict, 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 27, 2008, 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 2009 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.
