OfficeMax CEO resigns

profits were overstated

Two other executives have left this year

February 15, 2005|By Becky Yerak | Becky Yerak,CHICAGO TRIBUNE

OfficeMax Inc. announced the resignation yesterday of its CEO - its third high-level departure this year - and sacked two more employees amid an internal investigation into billing and accounting problems that include falsified documents.

The resignation of Christopher Milliken as chief executive, president and board member of OfficeMax coincided with the company's announcement that it overstated earnings last year by $4 million to $6 million by failing to record certain payments to vendors.

As a result, the nation's No. 3 office-supplies retailer said, it will have to redo its financial reports for most of last year.

The company's stock closed down $1.73, or 5.5 percent, yesterday at $30.02.

George J. Harad, who in November was named executive chairman of OfficeMax's board, will become interim CEO until a permanent replacement is named. As chairman and chief executive of Boise Cascade Corp., Harad engineered the purchase of OfficeMax by Boise Cascade in 2003.

OfficeMax, which has nearly 950 stores and about 40,000 workers, is the latest high-profile company to be beset by accounting problems. WorldCom Inc., Enron Corp. and Adelphia Communications Corp. stumbled in recent years over questionable accounting. HealthSouth Corp. executives are on trial charged with overstating profits. Krispy Kreme Doughnuts Inc. is correcting its numbers. Fannie Mae has been on the hot seat, with the Securities and Exchange Commission forcing it to restate years of earnings.

Milliken resigned because of his "overall performance to date," OfficeMax spokesman Bill Bonner said. It's "impossible" to say that the accounting problems didn't play a role, but they weren't the only reason, Bonner said.

"It's inevitable that this guy would take the heat," said Ivan Feinseth, analyst at Matrix USA LLC in New York who has a "strong buy" recommendation on OfficeMax stock. "If you're the CEO and there's impropriety in your company, you're either part of it and get booted or you have no idea and you're incompetent and get booted. Fish always stinks from the head."

On Dec. 21, the retailer warned that its 2004 operating income would be lower than previously forecast, noting weaker-than-expected sales and deteriorating gross margins during the holiday season.

On Jan. 12, OfficeMax confirmed allegations by a supplier that workers falsified documents for about $3.3 million in billing to the vendor by OfficeMax in 2003 and 2004.

As a result of information unearthed in that investigation, OfficeMax expanded its investigation to review its method of recording payments from vendors in those two years. At that time, four OfficeMax workers had been fired over the irregularities and the company's chief financial officer had quit after two months in the job.

On Jan. 5, OfficeMax announced the immediate resignation of Gary Peterson, president of its retail division. The company said Peterson's departure was not related to the accounting investigation.

Yesterday, OfficeMax divulged that those vendor payments weren't recorded in the appropriate accounting periods, meaning that operating income in the fiscal first quarter of 2004 was overstated and the second and third quarters were understated. It also noted that it had dismissed two more workers, for a total of six.

The investigation into OfficeMax's accounting practices is expected to end this month.

OfficeMax estimates that the amount of overstated operating income in the first quarter of last year was $5 million to $10 million. The net overstatement is expected to be $4 million to $6 million.

OfficeMax expects to restate income for this year's first three quarters. It is to report year-end results March 14.

In November, Milliken, formerly division president and chief executive officer of Boise Office Solutions, was elected president, CEO and a director of OfficeMax.

The company said it intends to proceed with its previously announced share repurchases after last year's results have been reported.

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