<PAGE> 1
FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 26, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to________.
Commission file number 1-13380
-------
OFFICEMAX, INC.
---------------
(Exact name of registrant as specified in its charter)
OHIO 34-1573735
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3605 Warrensville Center Road, Shaker Heights, Ohio 44122
---------------------------------------------------------
(Address of principal executive offices)
(zip code)
(216) 921-6900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No .
---- ----
Title of Class Shares Outstanding As Of
-------------- October 26, 1996
Common Shares ----------------
(without par value) 123,739,534
<PAGE> 2
OFFICEMAX, INC.
INDEX
Part I - Financial Information Page
------------------------------
Item 1. Financial Statements 3-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
Part II - Other Information
---------------------------
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
<TABLE>
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
October 26, January 27,
ASSETS 1996 1996
--------------- ---------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 197,266 $ 365,863
Accounts receivable, net of allowances
of $766 and $659, respectively 64,924 27,039
Merchandise inventories 855,193 636,211
Other current assets 24,824 20,009
----------- -----------
1,142,207 1,049,122
Property and equipment:
Buildings and land 13,673 5,966
Leasehold improvements 110,499 101,624
Furniture and fixtures 185,600 148,581
----------- -----------
309,772 256,171
Less accumulated depreciation and amortization (105,540) (75,795)
----------- -----------
204,232 180,376
Other assets and deferred charges 19,222 15,236
Goodwill, net of accumulated amortization
of $39,494 and $32,452, respectively 336,092 343,134
----------- -----------
$ 1,701,753 $ 1,587,868
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 452,289 $ 348,605
Accrued expenses and other liabilities 72,200 81,602
Accrued salaries and related expenses 32,805 33,482
Advertising payable 17,757 44,802
Taxes other than income taxes 44,651 41,222
----------- -----------
619,702 549,713
Other long-term liabilities 49,109 47,266
----------- -----------
Total liabilities 668,811 596,979
----------- -----------
Commitments and contingencies -- --
Shareholders' equity:
Common shares, without par value; 200,000,000 shares
authorized; 123,739,534 and 123,496,170 shares issued 853,299 850,557
and outstanding, respectively
Deferred stock compensation (802) (1,482)
Retained earnings 180,445 141,814
----------- -----------
1,032,942 990,889
----------- -----------
$ 1,701,753 $ 1,587,868
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
<PAGE> 4
<TABLE>
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------------------------------- ------------------------------------
October 26, 1996 October 21, 1995 October 26, 1996 October 21, 1995
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Sales $ 859,781 $ 679,017 $ 2,212,508 $ 1,719,350
Cost of merchandise sold, including
buying and occupancy costs 669,794 526,493 1,727,046 1,336,429
------------- ------------- ------------- -------------
Gross Profit 189,987 152,524 485,462 382,921
Store operating and selling expenses 131,488 108,300 369,495 295,428
Pre-opening expenses 2,410 1,700 4,811 3,206
General and administrative expenses 16,641 12,943 46,741 36,299
Goodwill amortization 2,346 2,354 7,041 7,060
------------- ------------- ------------- -------------
Total operating expenses 152,885 125,297 428,088 341,993
Operating income 37,102 27,227 57,374 40,928
Interest income, net 1,635 2,403 6,060 3,664
------------- ------------- ------------- -------------
Income before income taxes and
equity income from affiliate 38,737 29,630 63,434 44,592
Equity income from affiliate -- 1,162 -- 2,178
Gain on sale of affiliate -- 118,014 -- 118,014
------------- ------------- ------------- -------------
Income before income taxes 38,737 148,806 63,434 164,784
Income taxes 15,018 61,098 24,803 67,857
------------- ------------- ------------- -------------
Net income $ 23,719 $ 87,708 $ 38,631 $ 96,927
============= ============= ============= =============
EARNINGS PER COMMON SHARE DATA:
(RESTATED FOR 3:2 SPLIT ON JULY 9, 1996)
Earnings per common share $ 0.19 $ 0.70 $ 0.31 $ 0.81
============= ============= ============== =============
Weighted average number of
common shares outstanding 125,191,000 125,366,000 125,447,000 119,145,000
============= ============= ============== =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE> 5
<TABLE>
OFFICEMAX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
<CAPTION>
Common Shares Deferred
------------------------------- Stock Retained
Shares Amount Compensation Earnings Total
---------------- -------------- ----------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at January 27, 1996 123,496,170 $850,557 $(1,482) $141,814 $ 990,889
Issuance of common shares
under director plan 3,660 55 (55) -- --
Exercise of stock options 142,238 784 -- -- 784
Sale of shares under employee
share purchase plan 97,466 1,903 -- -- 1,903
Amortization of deferred
compensation -- -- 735 -- 735
Net income -- -- -- 38,631 38,631
----------- -------- -------- -------- ----------
Balance at October 26, 1996 123,739,534 $853,299 $ (802) $180,445 $1,032,942
=========== ======== ======== ======== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<PAGE> 6
<TABLE>
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
39 Weeks Ended
----------------------------------------
October 26, 1996 October 21, 1995
---------------- -----------------
CASH PROVIDED BY (USED FOR):
<S> <C> <C>
OPERATIONS
Net income $ 38,631 $ 96,927
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 37,173 29,863
Deferred income taxes (575) 1,031
Increase in other long-term liabilities 1,843 3,489
Gain on sale of affiliate -- (118,014)
Increase (decrease) in other, net 744 (1,412)
Change in current assets and current liabilities:
Increase in inventories (218,982) (180,861)
Increase in accounts payable 103,684 54,661
Decrease (increase) in other, net (78,201) 31,877
--------- ---------
Net cash used for operations (115,683) (82,439)
--------- ---------
INVESTING
Capital expenditures (54,253) (31,841)
Proceeds from the sale of affiliate -- 195,831
Decrease in cash on deposit with related party -- 141,017
Other, net (1,332) 195
--------- ---------
Net cash (used for) provided by investing (55,585) 305,202
--------- ---------
FINANCING
Reduction in capital lease obligations (16) (293)
Proceeds from issuance of common stock 2,687 114,798
--------- ---------
Net cash provided by financing 2,671 114,505
--------- ---------
CASH AND CASH EQUIVALENTS
Net (decrease) increase for the period (168,597) 337,268
Balance, beginning of period 365,863 33,233
--------- ---------
Balance, end of period $ 197,266 $ 370,501
========= =========
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ 217
========= =========
Income taxes paid $ 15,054 $ 20,485
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
<PAGE> 7
OFFICEMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 AND 39 WEEKS ENDED
OCTOBER 26, 1996 AND OCTOBER 21, 1995
Significant Accounting and Reporting Policies
- - ---------------------------------------------
1. The accompanying consolidated financial statements have been prepared from
the financial records of OfficeMax, Inc. (the "Company" or "OfficeMax")
without audit and reflect all adjustments which are, in the opinion of
management, necessary to fairly present the results of the interim periods
covered in this report. The results for any interim period are not
indicative of the results to be expected for the full fiscal year. The
Company's business is somewhat seasonal, with sales generally higher in the
third and fourth quarters of each year and lowest during the second
quarter, primarily because of lower office supplies consumption during the
summer vacation period.
2. The Company's consolidated financial statements for the 13 weeks ended
October 26, 1996 and October 21, 1995 included in this Quarterly Report on
Form 10-Q, have been prepared in accordance with the accounting policies
described in the Notes to Consolidated Financial Statements for the fiscal
year ended January 27, 1996 which were included in the Company's Annual
Report on Form 10-K filed with the Securities Exchange Commission (File No.
1-13380) on April 18, 1996. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Form 10-K
referred to above. Certain reclassifications have been made to prior year
amounts to conform to the current presentation.
3. The Company's fiscal year ends on the Saturday prior to the last Wednesday
in January.
4. At October 26, 1996, the Company operated a chain of 517 office products
superstores in 201 markets, 44 states and Puerto Rico.
5. The Company's policy is to expense pre-opening expenses during the first
month of each new store's operation. Consequently pre-opening expense in
each period is generally a function of the number of new stores opened
during that period.
6. On May 22, 1996, the Board of Directors declared a three-for-two share
split in the form of a 50% share dividend payable July 9, 1996 to
shareholders of record as of June 3, 1996. Average shares outstanding and
all per share amounts included in the accompanying consolidated financial
statements and notes thereto give retroactive effect to the share dividend.
7. The average common and common equivalent shares utilized in computing
earnings per share for the 13 and 39 weeks ended October 26, 1996 include
1,513,763 and 1,806,523 shares, respectively, resulting from the
application of the treasury stock method to outstanding stock options.
8. On September 11, 1995, the Company sold its approximate 20% ownership
interest in the contract stationer Corporate Express, Inc. for
$195,831,000, which resulted in a net after-tax gain of $69,124,000, or
$0.55 per share, in the third quarter of fiscal 1995.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- - ---------------------
SALES for the 13 and 39 weeks ended October 26, 1996 increased 26.6% and 28.7%
to $859,781,000 and $2,212,508,000, respectively, from $679,017,000 and
$1,719,350,000 for the comparable periods a year earlier. These sales increases
were primarily attributable to a full period of sales from the 80 stores opened
during fiscal 1995, a comparable store sales increase of 10% and 13% for the 13
weeks and 39 weeks, respectively, and, to a lesser extent, the additional sales
from 24 and 49 new superstores and two and five new delivery centers opened
during the respective periods.
COST OF MERCHANDISE SOLD, INCLUDING BUYING AND OCCUPANCY COSTS, increased as a
percentage of sales to 77.9% and 78.1% for the 13 and 39 weeks ended October 26,
1996, respectively, from 77.5% and 77.7% of sales for the same periods a year
earlier. Correspondingly, gross profit for the 13 and 39 weeks ended October 26,
1996, was 22.1% and 21.9%, respectively, compared to 22.5% and 22.3% for the
same periods a year earlier. These decreases in gross profit were primarily
attributable to increased lower margin computer sales as a percentage of the
total merchandise mix offset by continued leveraging of occupancy costs over
higher sales volume.
STORE OPERATING AND SELLING EXPENSES, which consist primarily of store payroll,
operating and advertising expenses, decreased to 15.3% and 16.7% for the 13 and
39 weeks ended October 26, 1996, respectively, from 16.0% and 17.2% of sales for
the same periods a year earlier. These decreases were primarily as a result of
leveraging of advertising and payroll expense over higher sales volumes and
continued expense control offset by increased noncapitalizable remodeling
expense.
PRE-OPENING EXPENSE was $2,410,000 and $4,811,000 for the 13 and 39 weeks ended
October 26, 1996, respectively, increasing from $1,700,000 and $3,206,000 for
the same periods a year earlier, reflecting the opening of 24 and 49 super
stores during the 13 and 39 weeks ended October 26, 1996, compared to 20 and 40
for the same periods a year earlier. Pre-opening expenses averaged approximately
$75,000 per store for both the current and prior year, consisting primarily of
store payroll, supplies and grand opening advertising. During the third quarter
the Company also opened 11 FurnitureMaxes and 10 CopyMaxes, which pre-opening
expenses average approximately $25,000 and $35,000, respectively, per store.
GENERAL AND ADMINISTRATIVE EXPENSES were 1.9% and 2.1% for the 13 and 39 weeks
ended October 26, 1996, respectively, unchanged compared to the same periods a
year earlier.
GOODWILL AMORTIZATION was $2,346,000 and $7,041,000 for the 13 and 39 weeks
ended October 26, 1996, respectively, as compared to $2,354,000 and $7,060,000
for the comparable periods a year earlier. Goodwill is capitalized and amortized
over 40 years using the straight line method.
OPERATING INCOME increased to $37,102,000 and $57,374,000 or 4.3% and 2.6% of
sales, for the 13 and 39 weeks ended October 26, 1996, respectively, as compared
to operating income of $27,227,000 and $40,928,000, or 4.0% and 2.4% of sales,
for the same periods a year earlier.
INTEREST INCOME, NET was $1,635,000 and $6,060,000 for the 13 and 39 weeks ended
October 26, 1996, respectively, compared to $2,403,000 and $3,664,000 for the
same periods a year earlier. Interest income for the 13 and 39 week periods was
primarily attributable to interest earned on cash received from both the
Company's July 1995 public offering and the sale of its approximate 20% interest
in Corporate Express, Inc. ("Corporate Express") in September 1995.
EQUITY INCOME FROM AFFILIATE for the prior year 13 and 39 week periods was
$1,162,000 and $2,178,000, respectively, and represents the Company's
proportionate share of income reported by Corporate Express, Inc.
8
<PAGE> 9
for the three and nine months ended October 21, 1995. The Company sold its
entire interest in Corporate Express on September 10, 1995.
GAIN ON SALE OF AFFILIATE was $118,014,000 for the 13 and 39 weeks ended October
21, 1995 resulting from the Company selling its entire interest in Corporate
Express (see Note 8 to the consolidated financial statements on page 7).
INCOME TAXES were $15,018,000 and $24,803,000 for the 13 and 39 weeks ended
October 26, 1996, respectively, as compared to $61,098,000 and $67,857,000 for
same periods a year ago. The effective tax rates for both periods are different
from the federal statutory income tax rate primarily as a result of tax exempt
interest, state and local taxes and equity income from affiliate.
NET INCOME as a result of the foregoing factors, was $23,719,000 and $38,631,000
for the 13 and 39 weeks ended October 26, 1996, respectively, as compared
$87,708,000 and $96,927,000 for the same periods a year earlier, which includes
a net after-tax gain of $69,124,000, or $0.55 per share, resulting from the
Company's sale of its interest in Corporate Express (see Note 8 to the
consolidated financial statements on page 7).
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Net cash used for operations for the 39 weeks ended October 26, 1996 was
$115,683,000. Funding required for working capital increased primarily due to
additional inventory relating to seasonal factors, the 49 new superstores and
five new delivery centers opened during the period, offset by higher accounts
payable. Net cash used for investing activities was $55,585,000 for the period,
principally as a result of the purchase of fixed assets. Net cash provided by
financing was $2,671,000 for the period, primarily from net proceeds received
from the sale of shares under the Company's share purchase plans.
The Company plans to open approximately 47 new OfficeMax superstores, 51 new
FurnitureMax stores, 56 new CopyMax stores and remodel 60 existing superstores
during the current quarter ending January 25, 1997. Management estimates that
the Company's cash requirements for these openings and remodels, exclusive of
pre-opening expenses, will be approximately $1,050,000, $215,000, $335,000, and
$198,000, respectively, for each additional OfficeMax, FurnitureMax, CopyMax,
and store remodel. For an OfficeMax superstore, the requirements include an
average of approximately $450,000 for leasehold improvements, fixtures,
point-of-sales terminals and other equipment, and approximately $600,000 for the
portion of store inventory that is not financed by accounts payable to vendors.
Pre-opening expenses are expected to average approximately $75,000 for an
OfficeMax superstore, $35,000 for a CopyMax store and $25,000 for a FurnitureMax
store.
In order to finance its operations and capital requirements, including its
expansion strategy, the Company expects to use funds generated from operations
as well as its current cash reserves, and, to the extent necessary, seasonal
short-term borrowings. The Company has available through May 1999 a $100 million
revolving credit facility, of which no borrowings were outstanding as of October
26, 1996.
9
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- - --------------------------
None.
- - -----
Item 6. Exhibits and Reports on Form 8-K
- - -----------------------------------------
Exhibits:
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K: None.
10
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICEMAX, INC.
---------------
(Registrant)
Date: December 9, 1996 By: /s/ John C. Belknap
-----------------------------
John C. Belknap
Executive Vice President, Chief Financial
Officer
(Principal Financial Officer and
Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> OCT-26-1996
<CASH> 197,266
<SECURITIES> 0
<RECEIVABLES> 64,924
<ALLOWANCES> 766
<INVENTORY> 855,193
<CURRENT-ASSETS> 1,142,207
<PP&E> 309,772
<DEPRECIATION> 105,540
<TOTAL-ASSETS> 1,701,753
<CURRENT-LIABILITIES> 619,702
<BONDS> 0
<COMMON> 853,299
0
0
<OTHER-SE> 180,445
<TOTAL-LIABILITY-AND-EQUITY> 1,701,753
<SALES> 2,212,508
<TOTAL-REVENUES> 2,212,508
<CGS> 1,727,046
<TOTAL-COSTS> 1,727,046
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 63,434
<INCOME-TAX> 24,803
<INCOME-CONTINUING> 38,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,631
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
