<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 26, 1997
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
(State or other jurisdiction of
incorporation or organization)
34-1573735
(I.R.S. Employer
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
------------------ August 20, 1997
Common Shares ------------------------
(without par value) 124,044,794
<PAGE> 2
OFFICEMAX, INC.
INDEX
<TABLE>
<CAPTION>
Part I - Financial Information Page
<S> <C>
Item 1. Financial Statements 3-8
Item 2. Management's Discussion and Analysis of Financial 9-10
Condition and Results of Operations
Part II - Other Information
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 26, January 25,
ASSETS 1997 1997
-------------- --------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 48,353 $ 258,111
Accounts receivable, net of allowances
of $749 and $861, respectively 87,066 39,455
Merchandise inventories 949,116 894,407
Other current assets 27,965 28,691
----------- -----------
Total current assets 1,112,500 1,220,664
Property and equipment:
Buildings and land 19,015 16,843
Leasehold improvements 169,516 167,527
Furniture and fixtures 252,918 224,582
----------- -----------
Total property and equipment 441,449 408,952
Less: Accumulated depreciation and amortization (142,480) (116,084)
----------- -----------
Property and equipment, net 298,969 292,868
Other assets and deferred charges 22,758 19,994
Goodwill, net of accumulated amortization
of $46,536 and $41,842, respectively 329,050 333,744
----------- -----------
$ 1,763,277 $ 1,867,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 440,010 $ 490,417
Accrued expenses and other liabilities 67,242 161,815
Accrued salaries and related expenses 29,913 32,504
Taxes other than income taxes 46,286 45,865
Revolving credit facility 20,000 --
Mortgage loan, current portion 1,300 1,300
----------- -----------
Total current liabilities 604,751 731,901
Mortgage loan 18,375 18,700
Other long-term liabilities 55,828 53,105
----------- -----------
Total liabilities 678,954 803,706
----------- -----------
Commitments and contingencies -- --
Shareholders' equity:
Common shares, without par value; 200,000,000 shares
authorized; 123,987,654 and 123,766,614 shares issued 856,207 854,094
and outstanding, respectively
Deferred stock compensation (683) (1,149)
Retained earnings 228,799 210,619
----------- -----------
Total shareholders' equity 1,084,323 1,063,564
----------- -----------
$ 1,763,277 $ 1,867,270
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
<PAGE> 4
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
--------------------------------- --------------------------------
July 26, 1997 July 27, 1996 July 26, 1997 July 27, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 776,144 $ 622,132 $ 1,664,784 $ 1,352,727
Cost of merchandise sold, including
buying and occupancy costs 604,385 487,460 1,293,254 1,057,252
------------- ------------ ------------ ------------
Gross profit 171,759 134,672 371,530 295,475
Store operating and selling expenses 140,491 112,967 291,974 238,007
Pre-opening expenses 3,920 1,869 6,157 2,401
General and administrative expenses 20,767 15,215 40,068 30,100
Goodwill amortization 2,348 2,348 4,695 4,695
------------- ------------ ------------ ------------
Total operating expenses 167,526 132,399 342,894 275,203
Operating income 4,233 2,273 28,636 20,272
Interest income (expense), net (230) 1,635 1,069 4,425
------------- ------------ ------------ ------------
Income before income taxes 4,003 3,908 29,705 24,697
Income taxes 1,553 1,550 11,525 9,785
------------- ------------ ------------ ------------
Net income $ 2,450 $ 2,358 $ 18,180 $ 14,912
============= ============ ============ ============
EARNINGS PER COMMON SHARE DATA:
Earnings per common share $ 0.02 $ 0.02 $ 0.15 $ 0.12
============= ============ ============ ============
Weighted average number of
common shares outstanding 125,370,000 125,707,000 125,122,000 125,654,000
============= ============ ============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE> 5
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
--------------------------
July 26, July 27,
1997 1996
--------- ---------
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $ 18,180 $ 14,912
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 31,777 24,331
Increase (decrease) in deferred income taxes (1,520) 169
Increase in other long-term liabilities 2,723 196
Increase in other, net 479 511
Change in current assets and current liabilities:
(Increase) in inventories (54,709) (144,706)
Increase (decrease) in accounts payable (50,408) 39,832
(Decrease) in other, net (109,586) (72,574)
--------- ---------
Net cash (used for) operations (163,064) (137,329)
--------- ---------
INVESTING
Capital expenditures (65,803) (27,735)
Other, net (2,666) 288
--------- ---------
Net cash (used for) investing (68,469) (27,447)
--------- ---------
FINANCING
Reduction in long term debt and capital lease obligations -- (16)
Payments of mortgage principal (325) --
Increase in revolving credit facility 20,000 --
Proceeds from issuance of common stock 2,100 1,562
--------- ---------
Net cash provided by financing 21,775 1,546
--------- ---------
CASH AND CASH EQUIVALENTS
Net (decrease) for the period (209,758) (163,230)
Balance, beginning of period 258,111 365,863
--------- ---------
Balance, end of period $ 48,353 $ 202,633
========= =========
SUPPLEMENTAL INFORMATION
Interest paid $ 532 $ --
========= =========
Income taxes paid $ 35,276 $ 8,674
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<PAGE> 6
OFFICEMAX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Deferred
Common Shares Stock Retained
----------------------------------
Shares Amount Compensation Earnings Total
----------------- --------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 25, 1997 123,766,614 $ 854,094 $(1,149) $210,619 $ 1,063,564
Issuance of common shares
under director plan 1,071 13 (13) -- --
Exercise of stock options 192,570 1,138 -- -- 1,138
Sale/(forfeiture) of shares
under management share (13,085) (88) -- -- (88)
purchase plan
Sale of shares under employee 40,484 1,050 -- -- 1,050
share purchase plan
Amortization of deferred -- -- 479 -- 479
compensation
Net income -- -- -- 18,180 18,180
------------ --------- ------- -------- -----------
Balance at July 26, 1997 123,987,654 $ 856,207 $ (683) $228,799 $ 1,084,323
============ ========= ======= ======== ===========
</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 26 WEEKS ENDED
JULY 26, 1997 AND JULY 27, 1996
Significant Accounting and Reporting Policies
1. The accompanying consolidated financial statements have been prepared
from the financial records of OfficeMax, Inc. and its subsidiaries (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 seasonal to a
certain extent, with the third and fourth quarters of each year
accounting for approximately 60% of sales and 80% of earnings for the
full year. Sales are slowest during the May through July second
quarter, primarily because of lower office supplies consumption during
the summer vacation period.
2. The Company's consolidated financial statements for the 13 and 26 weeks
ended July 26, 1997 and July 27, 1996 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 25, 1997 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 24, 1997. 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 July 26, 1997, the Company operated a chain of 621 office products
superstores, two call centers and 17 catalog delivery centers in
approximately 250 markets, 48 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. The average common and common equivalent shares utilized in computing
earnings per share for the 13 and 26 weeks ended July 26, 1997 include
1,443,126 and 1,183,228 shares, respectively, resulting from the
application of the treasury stock method to outstanding stock options.
7. On July 3, 1997, the Company entered into a five year, $500,000,000
revolving credit facility with a group of 23 banks, including The Bank
of New York as the administrative agent and KeyBank National
Association as the documentation agent. The revolving credit facility
provides for borrowings bearing an interest rate at the bank's prime or
Eurodollar rate plus .1450% to .3125% (fixed at .16% for the first
year). In addition, the Company must also pay quarterly fees on the
full amount of the revolving credit facility, fixed for the first year
at .09% per annum, and varying between .08% and .1875% per annum for
years two through five. This credit facility replaced the Company's
$100,000,000 agreement. As of July 26, 1997, the Company had
$20,000,000 in borrowings outstanding under the new credit facility.
8. The Company is required to adopt the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), for the period
ended January 24, 1998. Earlier application is not permitted. SFAS 128
specifies the computation, presentation and disclosure requirements for
earnings per share. The Company does
7
<PAGE> 8
not believe that the adoption of SFAS 128 will have a material effect
on the Company's method of calculation or display of earnings per share
amount.
9. In June, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131) was issued. The statement is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes standards for
reporting information about operating segments in annual reports and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are defined as
enterprises for which separate financial information is available that
is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance. The
Company has not determined the impact, if any, that SFAS 131 will have
on its consolidated financial statements and disclosures.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SALES for the 13 and 26 weeks ended July 26, 1997 increased 25% and 23% to
$776,144,000 and $1,664,784, respectively, from $622,132,000 and $1,352,727 for
the comparable periods a year earlier. These sales increases were primarily
attributable to a full period of sales from the 96 stores opened during fiscal
1996, a comparable store sales increase of 5% for both the 13 week and 26 week
periods and, to a lesser extent, the additional sales from 57 new superstores
opened at various points during the 26 week period. Sales were negatively
impacted by price deflation in paper, computers, fax machines and printers. The
comparable store sales increase was negatively affected by approximately four
percentage points because of these deflationary factors and one percentage point
from the cannibalization effect of opening more than 50 new stores in existing
markets in the last 12 months.
COST OF MERCHANDISE SOLD, INCLUDING BUYING AND OCCUPANCY COSTS, decreased as a
percentage of sales to 77.9% and 77.7% for the 13 and 26 weeks ended July 26,
1997, respectively, from 78.4% and 78.2% of sales for the same periods a year
earlier. Correspondingly, gross profit for the 13 and 26 week periods ended July
26, 1997, was 22.1% and 22.3%, respectively, as compared to 21.6% and 21.8% for
the same periods a year earlier. This increase in gross profit was primarily
attributable to improved gross margins in most supply departments due to the
modification of product assortment and improved margin productivity in the
computer merchandise category as the Company elected not to match 50% of its
computer promotions conducted during the comparable periods in the prior year.
STORE OPERATING AND SELLING EXPENSES, which consist primarily of store payroll,
operating and advertising expenses, decreased as a percentage of sales to 18.1%
and 17.5% for the 13 and 26 weeks ended July 26, 1997, respectively, from 18.2%
and 17.6% of sales from the same periods a year earlier. This decrease was
primarily a result of leveraging of advertising expense and tight operating
expense control offset by higher costs due to additional store openings and
remodeling expense.
PRE-OPENING EXPENSE was $3,920,000 and $6,157,000 for the 13 and 26 weeks ended
July 26, 1997, respectively, as compared to $1,869,000 and $2,401,000 for the
same periods a year earlier, reflecting the opening of 34 and 57 superstores
during the 13 and 26 weeks ended July 26, 1997, respectively, compared to 18 and
25 for the same periods a year earlier. Pre-opening expenses increased to an
average of approximately $85,000 per store for the current year from the $75,000
incurred in the prior year. This increase is because the Company elected to
accelerate certain training and other costs in order to facilitate higher
customer service thereby improving the sales ramp up process after the store
opens. Pre-opening expenses consist primarily of store payroll, supplies and
grand opening advertising. During the first half of the year, the Company also
opened 25 FurnitureMax hubs and 30 CopyMax hubs, for which pre-opening expenses
average approximately $25,000 and $35,000, respectively, per store.
GENERAL AND ADMINISTRATIVE EXPENSES were 2.7% and 2.4% of sales for the 13 and
26 weeks ended July 26, 1997, respectively, as compared to 2.5% and 2.2% of
sales for the same periods a year earlier, a result of the Company continuing to
enhance its management team and infrastructure to support the planned growth
both in the United States and internationally.
GOODWILL AMORTIZATION was $2,348,000 and $4,695,000, respectively, for the 13
and 26 week periods for both the current and prior year. Goodwill is capitalized
and amortized over 40 years using the straight line method.
OPERATING INCOME increased to $4,233,000 and $28,636,000 or 0.6% and 1.7% of
sales, for the 13 and 26 weeks ended July 26, 1997, respectively, as compared to
operating income of $2,273,000 and $20,272,000, or 0.4% and 1.5% of sales, for
the same periods a year earlier.
9
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INTEREST INCOME (EXPENSE), NET was $(230,000) and $1,069,000 for the 13 and 26
weeks ended July 26, 1997, respectively, as compared to $1,635,000 and
$4,425,000 for the same periods a year earlier. Interest expense increased as
the Company continued to invest in store expansion and completed seasonal
inventory buys resulting in reduced cash as well as seasonal short-term
borrowings.
INCOME TAXES were $1,553,000 and $11,525,000 for the 13 and 26 weeks ended July
26, 1997, respectively, as compared to $1,550,000 and $9,785,000 for the same
periods a year ago. The effective tax rates are different from the federal
statutory income tax rate primarily as a result of goodwill amortization, tax
exempt interest, and state and local taxes.
NET INCOME as a result of the foregoing factors, was $2,450,000 and $18,180,000
for the 13 and 26 weeks ended July 26, 1997, respectively, as compared to
$2,358,000 and $14,912,000 for the same periods a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used for operations for the 26 weeks ended July 26, 1997 was
$163,064,000. Major uses of working capital included increases in inventory,
payment of accrued expenses and reduction of accounts payable attributable to
seasonal inventory buys as well as the Company's expanded importing program
which requires funding of merchandise at point of export. Net cash used for
investing activities was $68,469,000 for the second quarter, principally as a
result of the purchase of fixed assets for new and remodeled stores. Net cash
provided by financing was $21,775,000 for the period, primarily from borrowing
under the Company's revolving credit facility.
During the 13 weeks ending October 25, 1997, the Company plans to open
approximately 30 to 35 new OfficeMax superstores, 17 new FurnitureMax stores, 15
new CopyMax stores and remodel 18 existing superstores. Management estimates
that the Company's cash requirements for these openings and remodels, exclusive
of pre-opening expenses, will be approximately $1,200,000, $215,000, $430,000,
and $196,000, 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
$750,000 for the portion of store inventory that is not financed by accounts
payable to vendors. Pre-opening expenses are expected to average approximately
$85,000 for an OfficeMax superstore, $25,000 for a FurnitureMax store and
$35,000 for a CopyMax 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 June 2002 a
$500,000,000 revolving credit facility, of which $20,000,000 was outstanding as
of July 26, 1997.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A. The Annual Meeting of Shareholders of OfficeMax, Inc. was held on
May 19, 1997. Holders of Common Shares of record at the close of business on
March 28, 1997 were entitled to vote at the Annual Meeting of Shareholders.
B. The following persons were nominated to serve, and were elected as
directors of the Company to serve a term of two years and until their successors
are elected: Raymond L. Bank; Michael Feuer; and Carl D. Glickman. The voting
results for each such nominee are as follows:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Raymond L. Bank 110,269,206 153,849
Michael Feuer 110,268,023 155,032
Carl D. Glickman 110,200,689 222,366
</TABLE>
C. With respect to the ratification of the selection of Price
Waterhouse LLP as the Company's independent auditors for fiscal 1997, the voting
results were as follows:
<TABLE>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
110,228,952 89,234 104,869
</TABLE>
There were no broker non-voters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
(a) Exhibits: .
27.0 Financial Data Schedule for the period ended
July 26, 1997
(b) Reports on Form 8-K: None.
11
<PAGE> 12
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.
Date: September 5, 1997 By: /s/ Jeffrey L. Rutherford
----------------------------------------------
Jeffrey L. Rutherford
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS ANS CONSOLIDATED STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-24-1998
<PERIOD-START> JAN-26-1997
<PERIOD-END> JUL-26-1997
<CASH> 48,353
<SECURITIES> 0
<RECEIVABLES> 87,066
<ALLOWANCES> 749
<INVENTORY> 949,116
<CURRENT-ASSETS> 1,112,500
<PP&E> 298,969
<DEPRECIATION> 142,280
<TOTAL-ASSETS> 1,763,277
<CURRENT-LIABILITIES> 604,751
<BONDS> 0
0
0
<COMMON> 856,207
<OTHER-SE> 228,116
<TOTAL-LIABILITY-AND-EQUITY> 1,763,277
<SALES> 1,664,784
<TOTAL-REVENUES> 1,664,784
<CGS> 1,293,254
<TOTAL-COSTS> 1,293,254
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 29,705
<INCOME-TAX> 11,525
<INCOME-CONTINUING> 18,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,180
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
