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OfficeMax Inc. Reports Operating Results (10-Q)

August 03, 2010 | About:
10qk

10qk

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OfficeMax Inc. (OMX) filed Quarterly Report for the period ended 2010-06-26.

Officemax Inc. has a market cap of $1.26 billion; its shares were traded at around $14.85 with a P/E ratio of 37.1 and P/S ratio of 0.2. OMX is in the portfolios of David Tepper of APPALOOSA MANAGEMENT LP, George Soros of Soros Fund Management LLC, Jim Simons of Renaissance Technologies LLC, Steven Cohen of SAC Capital Advisors, Stanley Druckenmiller of Duquesne Capital Management, LLC, Jeremy Grantham of GMO LLC, Charles Brandes of Brandes Investment.
This is the annual revenues and earnings per share of OMX over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of OMX.


Highlight of Business Operations:

Sales for the second quarter of 2010 decreased 0.3% year-over-year to $1,653.2 million, while sales of $3,570.4 million for the first six months of 2010 were nearly equivalent to the first six months of 2009. In local currency, sales for the second quarter of 2010 declined 2.5% compared to the second quarter of 2009 and sales for the first six months of 2010 declined 3.1% compared to the first six months of 2009. The sales declines primarily reflected the continued weaker economic environment and negatively impacted both our Contract and Retail segments. Gross profit margin increased 2.1% of sales (210 basis points) to 25.9% of sales in the second quarter of 2010 and 2.0% of sales (200 basis points) to 26.1% of sales in the first six months of 2010, related to improved product margins, including the reversal of inventory shrinkage reserves due to favorable results from our annual physical inventory counts ($14.6 million in the second quarter and $16.9 million in the first six months of 2010) and reduced occupancy and delivery costs in both our Contract and Retail segments. Operating expenses were negatively impacted by higher compensation expense of $15.5 million for the second quarter of 2010 and $28.0 million for the first six months of 2010, compared to the same periods of 2009 when we had minimal incentive compensation expense. This increase was primarily due to timing, as we did not accrue at normalized levels in the first half of last year. At that time, we did not anticipate achieving the performance targets under our incentive plans for the full year of 2009. Operating expenses were also negatively impacted by increased expenses related to long-term growth initiatives. We reported operating income of $28.1 million and $77.5 million in the second quarter and first six months of 2010, respectively, compared to a loss of $27.5 million and income of $0.1 million for the second quarter of 2009 and the first six months of 2009, respectively. The reported net income (loss) available to OfficeMax common shareholders was income of $11.8 million, or $0.14 per diluted share, in the second quarter of 2010 compared to a loss of $17.7 million, or $(0.23) per diluted share, in the second quarter 2009. The reported net income (loss) available to OfficeMax common shareholders was $36.5 million, or $0.43 per diluted share, in the first six months of 2010 compared to a loss of $4.6 million, or $(0.06) per diluted share, in the first six months of 2009.

As noted in the discussion and analysis that follows, our operating results were impacted by significant items in both years. These items included charges for store closures and severance, and favorable adjustments to legacy reserves as well as gains from non-operating legacy activities. Excluding the impact of these items, our adjusted operating income was $25.3 million and $88.8 million for the second quarter and first six months of 2010, respectively, and was $0.8 million and $38.3 million for the second quarter and first six months of 2009, respectively. Excluding the impact of these items our adjusted net income (loss) available to OfficeMax common shareholders was income of $10.0 million, or $0.12 per diluted share, and $43.5 million, or $0.51 per diluted share, for the second quarter and first six months of 2010, respectively, and a loss of $3.1 million, or $(0.04) per diluted share, and income of $14.3 million, or $0.19 per diluted share, for the second quarter and first six months of 2009, respectively.

At the end of the second quarter of 2010, we had $521.2 million in cash and cash equivalents and $568.9 million in available (unused) borrowing capacity under our credit facilities. The combination of cash and cash equivalents and estimated available borrowing capacity yields $1,090.1 million of overall liquidity. We had outstanding recourse debt of $295.6 million (both current and long-term) and non-recourse obligations of $1,470.0 million related to the timber securitization notes. There is no recourse against OfficeMax on the securitized timber notes payable as recourse is limited to proceeds from the applicable pledged installment notes receivable and underlying guarantees. There were no borrowings on our credit facilities during the first six months of 2010.

Interest income was $10.6 million and $15.1 million for the second quarters of 2010 and 2009, respectively. For the first six months of 2010 and 2009, interest income was $21.2 and $25.6 million, respectively. The decrease was due primarily to the $4.4 million of interest income recorded in 2009 related to the tax escrow balance discussed above. As a result of the September 2008 bankruptcy filing by Lehman Brothers Holdings Inc. (“Lehman”), we recorded no interest income on the Lehman portion of the timber notes receivable in 2010 or 2009. Interest expense decreased to $18.4 million in the second quarter of 2010 from $19.3 million in the second quarter of 2009 and to $36.7 million in the first six months of 2010 from $38.7 million in the first six months of 2009. The decrease in interest expense was due primarily to reduced debt resulting from debt repayments made in 2009.

For the second quarter of 2010, we recognized income tax expense of $7.3 million on pre-tax income of $20.2 million (effective tax expense rate of 36.0%) compared to income tax benefit of $13.8 million on a pre-tax loss of $31.5 million (effective tax benefit rate of 43.6%) for the second quarter of 2009. For the first six months of 2010, we recognized income tax expense of $22.7 million on pre-tax income of $61.9 million (effective tax expense rate of 36.6%) compared to income tax benefit of $5.5 million on a pre-tax loss of $10.2 million (effective tax benefit rate of 54.0%) for the first six months of 2009. The effective tax rate in both years was impacted by the effects of state income taxes, income items not subject to tax, non-deductible expenses, the mix of domestic and foreign sources of income and the low levels of profitability.

We reported net income attributable to OfficeMax and noncontrolling interest of $12.9 million and $39.2 million for the second quarter and first six months of 2010, respectively. After adjusting for joint venture earnings attributable to noncontrolling interest and preferred dividends, we reported net income available to OfficeMax common shareholders of $11.8 million, or $0.14 per diluted share, and $36.5 million, or $0.43 per diluted share, for the second quarter and first six months of 2010, respectively. Adjusted net income (loss) available to OfficeMax common shareholders, as discussed above, was income of $10.0 million, or $0.12 per diluted share, for the second quarter of 2010 compared to a loss of $3.1 million, or $(0.04) per diluted share, for the second quarter of 2009. For the first six months of 2010 and 2009, adjusted net income (loss) available to OfficeMax common shareholders was income of $43.5 million, or $0.51 per diluted share, for 2010 compared to income of $14.3 million, or $0.19 per diluted share, for 2009.

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