OfficeMax 2008 Annual Report Download - page 22

As of December 27, 2008, we had total debt of $354.4 million, excluding $1,470.0 million of
timber securitization notes, which have recourse limited to the timber installment notes receivable
and related guarantees. As of December 27, 2008, we had $170.8 million in cash and cash
equivalents, and $547 million in available (unused) borrowing capacity under our $700 million
revolving credit facility, which is committed through July 12, 2012. Our unused borrowing capacity
as of December 27, 2008 reflects an available borrowing base of $614 million, no outstanding
borrowings, and $67 million of standby letters of credit issued under the revolving credit facility.
For the full year 2008, we generated $223.7 million of cash from operations reflecting our focus
on working capital management, which yielded reduced collection days outstanding for accounts
receivable, as well as a decrease in inventory per location while maintaining the same accounts
payable leverage as last year.
Outlook
Given the projected weak economic outlook, we are cautious in our expectations for 2009. We
expect sales to decline in 2009 on a year-over-year basis as a result of the difficult economic
environment. As a result, we expect the effects of deleveraging of costs and expenses as a result of
lower sales to continue in 2009.
Despite the challenging economic environment, we remain committed to managing OfficeMax
for the long-term and positioning the Company for growth when the economic environment
improves. We are placing a premium on maintaining positive operating cash flow through tight cost
controls and conservative working capital management in the near term. We expect cash flow from
operations to exceed capital expenditures in 2009. We also believe that our needs to access our
revolving line of credit will be limited to seasonal periods, and expect to have little or no borrowings
outstanding under the facility at year end.
2008 Compared with 2007
Sales for 2008 decreased 9.0% to $8,267.0 million from $9,082.0 million for 2007. The
year-over-year sales decreases were largely influenced by the weaker global economic environment
and by our more disciplined, analysis-driven approach to sales generation and retention. The
year-over-year sales decrease occurred in both our Contract and Retail segments and reflects a
10.7% decrease in comparable sales. The amount of sales percentage decline compared to the
prior year increased in each quarter of 2008. Foreign exchange rate changes late in the year had
an adverse impact on sales. For the year, sales increased $9.4 million due to the impact of foreign
exchange rates, but the trend has reversed and sales were reduced by $81.1 million due to the
effect of foreign exchange rates in the fourth quarter.
Gross profit margin decreased by 0.5% of sales to 24.9% of sales in 2008 compared to 25.4%
of sales in 2007. The gross profit margins declined in our Retail segment compared to the previous
year but improved for our Contract segment. The Retail decline was primarily due to deleveraging
of fixed costs, resulting from the lower sales, as well as new stores which have not ramped up to
mature sales volume and higher inventory shrinkage results. The decline was partially offset by a
sales-mix shift towards higher-margin office supplies category sales. The Contract segment margin
improvement was due primarily to a higher margin customer mix resulting from our more
disciplined approach to contractual sales generation and retention.
Operating and selling expenses increased by 0.8% of sales to 18.8% of sales in 2008 from
18.0% of sales a year earlier. The increases in operating and selling expenses as a percent of sales
were primarily the result of deleveraging fixed costs due to lower sales, which were partially offset
by reduced incentive compensation expense and targeted cost reductions, including reduced
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