<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 October 24, 1998
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 .
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
TITLE OF CLASS SHARES OUTSTANDING AS OF
------------------ NOVEMBER 19, 1998
Common Shares ------------------------
(without par value) 124,983,405
<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 8-12
Condition and Results of Operations
Part II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE> 3
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
Oct. 24, Jan. 24,
ASSETS 1998 1998
--------------- ---------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 47,725 $ 66,801
Accounts receivable, net of allowances
of $857 and $837, respectively 84,345 38,221
Merchandise inventories 1,232,745 1,086,228
Other current assets 47,501 37,255
--------------- ---------------
Total current assets 1,412,316 1,228,505
Property and Equipment:
Buildings and land 19,155 19,142
Leasehold improvements 180,862 172,948
Furniture and fixtures 347,052 287,728
--------------- ---------------
Total property and equipment 547,069 479,818
Less: Accumulated depreciation and amortization (213,311) (167,965)
--------------- ---------------
Property and equipment, net 333,758 311,853
Other assets and deferred charges 47,696 41,280
Goodwill, net of accumulated amortization
of $58,274 and $51,231, respectively 317,312 324,355
--------------- ---------------
$ 2,111,082 $ 1,905,993
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 583,598 $ 442,390
Accrued expenses and other liabilities 100,458 128,674
Accrued salaries and related expenses 49,122 38,669
Taxes other than income taxes 50,041 55,953
Revolving credit facility 83,700 --
Mortgage loan, current portion 1,300 1,300
--------------- ---------------
Total current liabilities 868,219 666,986
Mortgage loan 16,750 17,725
Other long-term liabilities 61,517 60,637
--------------- ---------------
Total liabilities 946,486 745,348
Commitments and contingencies -- --
Shareholders' Equity:
Common shares, without par value; 200,000,000 shares
authorized; 124,914,098 and 124,370,209 shares issued 867,627 861,991
and outstanding, respectively
Deferred stock compensation (269) (306)
Retained earnings 355,516 300,239
Less: Treasury stock (58,278) (1,279)
--------------- ---------------
Total shareholders' equity 1,164,596 1,160,645
--------------- ---------------
$ 2,111,082 $ 1,905,993
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
<PAGE> 4
<TABLE>
<CAPTION>
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
13 Weeks Ended 39 Weeks Ended
--------------------------------- ---------------------------------
October 24, October 25, October 24, October 25,
1998 1997 1998 1997
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 1,152,359 $ 992,365 $ 3,087,903 $ 2,657,149
Cost of merchandise sold, including
buying and occupancy costs 869,080 756,952 2,353,947 2,050,206
---------------- ---------------- --------------- ----------------
Gross profit 283,279 235,413 733,956 606,943
Store operating and selling expenses 194,724 156,107 548,717 448,081
Pre-opening expenses 3,382 4,054 8,018 10,211
General and administrative expenses 26,483 21,980 76,469 62,048
Goodwill amortization 2,347 2,347 7,042 7,042
---------------- ---------------- --------------- ----------------
Total operating expenses 226,936 184,488 640,246 527,382
Operating income 56,343 50,925 93,710 79,561
Interest income (expense), net (1,478) 438 (3,389) 1,507
---------------- ---------------- --------------- ----------------
Income before income taxes 54,865 51,363 90,321 81,068
Income taxes 21,287 19,928 35,044 31,453
---------------- ---------------- --------------- ----------------
Net income $ 33,578 $ 31,435 $ 55,277 $ 49,615
================ ================ =============== ================
EARNINGS PER COMMON SHARE DATA:
Basic earnings per common share $ 0.27 $ 0.26 $ 0.45 $ 0.40
================ ================ =============== ================
Diluted earnings per common share $ 0.27 $ 0.25 $ 0.45 $ 0.40
================ ================ =============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic number of
common shares outstanding 122,701,610 123,246,836 122,513,410 123,180,114
================ ================ =============== ================
Diluted number of
common shares outstanding 123,311,526 125,874,266 124,071,245 125,319,718
================ ================ =============== ================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
39 Weeks Ended
--------------------------------------
October 24, October 25,
1998 1997
--------------- ---------------
CASH PROVIDED BY (USED FOR):
<S> <C> <C>
OPERATIONS
Net income $ 55,277 $ 49,615
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 53,696 49,201
Other, net 850 (597)
Change in current assets and current liabilities:
(Increase) in accounts receivable (46,124) (58,206)
(Increase) in inventories (146,517) (203,176)
Increase in accounts payable 155,625 76,021
Other, net (19,286) 8,372
--------------- ---------------
Net cash provided by (used for) operations 53,521 (78,770)
--------------- ---------------
INVESTING
Capital expenditures (82,614) (92,314)
Other, net (6,928) (3,813)
--------------- ---------------
Net cash (used for) investing (89,542) (96,127)
--------------- ---------------
FINANCING
Payments of mortgage principal (975) (650)
Increase in revolving credit facility 83,700 --
Decrease in overdraft balances (14,417) (4,616)
Purchase of treasury stock (56,999) --
Proceeds from issuance of common stock, net 5,636 2,637
--------------- ---------------
Net cash provided by (used for) financing 16,945 (2,629)
--------------- ---------------
CASH AND CASH EQUIVALENTS
Net (decrease) for the period (19,076) (177,526)
Balance, beginning of period 66,801 258,111
--------------- ---------------
Balance, end of period $ 47,725 $ 80,585
=============== ===============
SUPPLEMENTAL INFORMATION
Interest paid on debt $ 4,208 $ 1,120
=============== ===============
Taxes paid on income $ 36,427 $ 35,789
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
<PAGE> 6
<TABLE>
<CAPTION>
OFFICEMAX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
Common Shares Deferred
-------------------------- Stock Retained Treasury
Shares Amount Compensation Earnings Stock Total
----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 24, 1998 124,370,209 $ 861,991 $ (306) $ 300,239 $ (1,279) $ 1,160,645
Issuance of common shares
under director plan 1,189 19 9 -- -- 28
Exercise of stock options
(including tax benefit) 436,016 4,267 -- -- -- 4,267
Sale of shares under
management share purchase
plan (including tax benefit) 45,572 652 (113) -- -- 539
Sale of shares under employee
share purchase plan
(including tax benefit) 61,112 698 -- -- -- 698
Amortization of deferred
compensation -- -- 141 -- -- 141
Treasury stock purchased
(6,162,000 shares) -- -- -- -- (56,999) (56,999)
Net income -- -- -- 55,277 -- 55,277
----------- ----------- ----------- ----------- ----------- -----------
Balance at October 24, 1998 124,914,098 $ 867,627 $ (269) $ 355,516 $ (58,278) $ 1,164,596
=========== =========== =========== =========== =========== ===========
</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 24, 1998 AND OCTOBER 25, 1997
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 necessarily indicative of the results to be expected for
the full fiscal year.
2. The Company's consolidated financial statements for the 13 and 39 weeks
ended October 24, 1998 and October 25, 1997 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 24, 1998 which were included in the
Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission (File No. 1-13380) on April 21, 1998. 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 24, 1998, OfficeMax operated a chain of 791 superstores in over
330 markets, 48 states and Puerto Rico, as well as two national call
centers, 17 delivery centers, one PowerMax I distribution facility and
OfficeMax retail joint ventures in Mexico and Japan.
5. The average common and common equivalent shares utilized in computing
diluted earnings per share for the 13 and 39 weeks ended October 24, 1998
include 528,841 and 1,476,759 shares, respectively, resulting from the
application of the treasury stock method to outstanding stock options. The
average common and common equivalent shares utilized in computing diluted
earnings per share for the 13 and 39 weeks ended October 25, 1997 include
1,850,092 and 1,362,410 such shares.
6. In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
("FAS 131") was issued. FAS 131 establishes standards for reporting
information about operating segments in annual reports and selected
information in interim 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 statement is effective for fiscal years
beginning after December 15, 1997, but is not required for interim
reporting in the initial year of adoption. The Company will adopt FAS 131
during the fourth quarter of fiscal 1998.
7. In April 1998, the AICPA issued Statement of Position ("SOP") 98-5,
"Reporting the Costs of Start-up Activities". SOP 98-5 is effective for
fiscal years beginning after December 15, 1998, and requires that start-up
costs capitalized prior to adoption be written off as a cumulative effect
of an accounting change and any future start-up costs be expensed as
incurred. This SOP, which will be adopted by the Company during the first
quarter of fiscal 1999, will not have a material effect on the Company's
consolidated financial statements.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISSCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
- -------------
RESULTS OF OPERATIONS
SALES for the 13 and 39 week periods ended October 24, 1998 increased 16% to
$1,152,359,000 and $3,087,903,000, respectively, from $992,365,000 and
$2,657,149,000 for the comparable periods a year earlier. The sales growth was
attributable to comparable-store sales gains, a full period of sales from the
150 superstores opened during fiscal 1997 and the additional sales from 79 new
superstores opened at various points during the 39 week period ended October 24,
1998. Comparable store sales for the 13 and 39 weeks, excluding computers and
computer monitors, increased 6% over the same periods last year. Overall,
comparable store sales increased 2% and 1% during the 13 and 39 week periods,
respectively. For the 13 week period, computer sales were adversely impacted by
an approximate 23% decrease in average selling price and the Company's decision
to further reduce computer promotions versus a year ago. Also, comparable store
sales were negatively impacted by deflationary prices in fax machines, printers
and copiers of nearly 18% and the opening of 57 new superstores during the last
12 months in markets where the Company already had a presence. Opening stores
in existing markets temporarily impacts comparable-store sales until the new
stores build their own customer bases.
GROSS PROFIT for the 13 weeks ended October 24, 1998 was 24.6% of sales as
compared to 23.7% of sales for the same period a year earlier. Gross profit for
the 39 weeks ended October 24, 1998 was 23.8% of sales versus 22.8% of sales
for the same period in the prior year. These increases in gross profit
percentage were primarily due to gross margin gains in the Company's core
office supplies, computers and electronics categories. The gross margin gain
for the core office supplies category is primarily attributable to the
Company's chain-wide space reallocation program which was initiated during the
previous 13 week period and completed during the 13 week period ended October
24, 1998. This program provided for expanding the office supply merchandise
assortment by nearly 1,000 items and moving these products to a more prominent
position within the store. The Company's decision to reduce the number and
magnitude of, at or below cost, computer promotions also contributed to gross
margin gains.
STORE OPERATING AND SELLING EXPENSES, which consist primarily of store payroll,
operating and advertising expenses, increased as a percentage of sales to 16.9%
and 17.8% for the 13 and 39 weeks ended October 24, 1998, respectively, from
15.7% and 16.9% of sales for the same periods in the prior year. The Company
experienced a decrease in leverage of store operating and selling expenses due
to an increase in the number of stores open for less than one year as the
Company entered the third quarter.
PRE-OPENING EXPENSES were $3,382,000 for the 13 weeks ended October 24, 1998, as
compared to $4,054,000 for the same period a year earlier. During the 13 weeks
ended October 24, 1998, the Company opened 38 superstores compared to 39
superstores in the prior year. During the 39 weeks ended October 24, 1998 and
October 25, 1997, pre-opening expenses were $8,018,000 and $10,211,000,
respectively. The decrease was primarily due to the opening of 79 superstores
during the current 39 weeks compared to the opening of 96 superstores during the
same period in the prior year. Also during the 39 week period, the Company
opened its PowerMax I distribution facility in Las Vegas, Nevada for which the
Company incurred pre-opening expenses of $980,000. Pre-opening expenses averaged
approximately $89,000 per superstore during the current year. Pre-opening
expenses for an OfficeMax superstore typically average approximately $85,000,
however, that average is increased when certain enhanced CopyMax or FurnitureMax
features are included. During the 39 week period ended October 24, 1998, 11
superstores were opened with enhanced CopyMax or FurnitureMax features. During
the comparable period last year, 79 superstores were opened with enhanced
CopyMax or FurnitureMax features. Pre-opening expenses consist primarily of
store payroll, supplies and grand opening advertising.
8
<PAGE> 9
GENERAL AND ADMINISTRATIVE EXPENSES were 2.3% and 2.5% of sales for the 13 and
39 weeks ended October 24, 1998, respectively, as compared to 2.2% and 2.3% of
sales for the same periods a year ago. These increases reflect the Company's
continuing efforts to enhance its infrastructure to support planned growth both
in the United States and internationally. The infrastructure enhancements
include efforts to strengthen the Company's management team and the Company's
information technology ("IT") initiatives. The Company is in the process of
implementing the SAP system. See "Year 2000 Readiness" below. The SAP system is
a fully integrated Enterprise Resource Planning platform that will more fully
automate and integrate the Company's business processes. The successful
conversion of the first module to SAP occurred on November 30, 1998.
GOODWILL AMORTIZATION of $2,347,000 and $7,042,000 for the 13 and 39 week
periods ended October 24, 1998, respectively, was consistent with the same
periods a year earlier. Goodwill is capitalized and amortized over 40 years
using the straight-line method.
OPERATING INCOME for the 13 weeks ended October 24, 1998 increased 11% to
$56,343,000 from $50,925,000 for the same period a year earlier. Operating
income for the 39 weeks ended October 24, 1998 increased 18% to $93,710,000 from
$79,561,000 for the same period in the previous year.
INTEREST INCOME (EXPENSE), NET was $1,478,000 and $3,389,000 of expense for the
13 and 39 weeks ended October 24, 1998, respectively, as compared to $438,000
and $1,507,000 of income for the same periods in the prior year. Interest
expense increased due to the Company's continued use of cash and cash
equivalents to fund its expansion plans and stock buy-back program. The Company
expects to incur net interest expense for fiscal 1998 as it utilizes its line of
credit periodically during the fiscal year to fund seasonal merchandise needs
and to repurchase shares of its common stock.
INCOME TAXES were $21,287,000 and $35,044,000 for the 13 and 39 weeks ended
October 24, 1998, respectively, as compared to $19,928,000 and $31,453,000 for
the 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
goodwill amortization, tax exempt interest, and state and local taxes.
NET INCOME as a result of the foregoing factors was $33,578,000 and $55,277,000
for the 13 and 39 weeks ended October 24, 1998, respectively, versus $31,435,000
and $49,615,000 for the same periods a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the 39 weeks ended October 24, 1998 was
$53,521,000 as compared to net cash used by operations of $78,770,000 for the
comparable period in the prior year. The increase in cash provided by operations
was primarily due to the Company's supply-chain management strategies that
resulted in improved accounts payable leverage as a percentage of inventory.
During the 39 weeks ended October 24, 1998, leverage improved 600 basis points
compared to a decrease of 400 basis points during the comparable period a year
earlier. Overall, inventory increased $146,517,000 during fiscal 1998, however,
inventory as of October 24, 1998 decreased approximately 11% year-over-year on a
per store basis. The overall inventory increase was primarily attributable to
new store openings and the build-up of merchandise for the Company's PowerMax I
distribution facility that was opened in Las Vegas, Nevada during the 39 week
period. Net cash used for investing activities during the 39 weeks ended October
24, 1998 was $89,542,000 versus $96,127,000 in the comparable period in the
prior year. Current year investing activities primarily represent capital
expenditures for new and remodeled stores, the PowerMax I distribution facility
and the Company's continued investment in systems. Net cash provided by
financing was $16,945,000 during the 39 weeks ended October 24, 1998 as compared
to net cash used by financing of $2,629,000 during the same period last year.
Current year financing activities primarily represent borrowings under the
Company's $500,000,000 revolving credit facility and $57,000,000 of treasury
stock purchases.
9
<PAGE> 10
During the 13 weeks ending January 23, 1999, the Company plans to open
approximately 41 new OfficeMax superstores and remodel seven 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 and $250,000, respectively. For an OfficeMax superstore, the
requirements include an average of approximately $450,000 for leasehold
improvements, fixtures, point-of-sale 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. In select cases, that average
is expected to increase by approximately $30,000 when certain enhanced CopyMax
or FurnitureMax features are included.
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. As of October 24, 1998, the Company had
outstanding borrowings of $83,700,000 under its revolving credit facility at a
weighted average interest rate of 5.46%.
On August 13, 1998, the Company's Board of Directors authorized the Company to
repurchase up to $200,000,000 of its common shares on the open market, doubling
the previous authorization. During the 13 weeks ended October 24, 1998, the
Company purchased 6,162,000 common shares at a cost of $57,000,000. This
included systematic purchases of shares to cover dilution from the future
issuance of shares under the Company's equity-based incentive plans.
The Company's business is somewhat seasonal, with sales and operating income
higher in the third and fourth quarters, which include the Back-to-School period
and the holiday selling season, respectively, followed by the traditional new
year office supply restocking month of January. Sales in the second quarter's
summer months are the slowest of the year primarily because of lower office
supplies consumption during the summer vacation period.
LEGAL PROCEEDINGS
The Company is party to litigation it initiated in October 1997 in United States
District Court for the Northern District of Ohio against Ryder Intergrated
Logistics, Inc. arising out of Ryder's failure to fulfill certain payment
guarantees pursuant to the terms of the Company's logistics service agreement
with Ryder. The Company terminated the logistics service agreement in June 1997
based on numerous claims against Ryder under the agreement including, among
others, Ryder's refusal to honor its cost guarantees and its failure to return
overpayments to the Company. During the course of the agreement the Company
recorded receivables from Ryder of approximately $19,000,000 representing
overpayments due from Ryder pursuant to the terms of the agreement. In January
1998, Ryder filed a counterclaim against the Company alleging damages arising
from the Company's termination of the agreement in the amount of approximately
$75,000,000. The Company believes the counterclaim is without merit and intends
to vigorously defend against such counterclaim.
Management is of the opinion that, although the ultimate resolution of the Ryder
litigation cannot be forecasted with certainty, final disposition of this matter
should not materially affect the Company's liquidity, financial position or the
results of operations. However, in the event of an unanticipated adverse final
determination in this matter, the Company's consolidated net income for the
period in which such determination occurs could be materially affected.
In addition, there are various claims, lawsuits and pending actions against the
Company incident to the Company's operations. It is the opinion of management
that the ultimate resolution of these matters will not have a material effect on
the Company's liquidity, financial position or results of operations.
10
<PAGE> 11
YEAR 2000 READINESS
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to identify the applicable year. Time-sensitive computer
programs may recognize "00" as the year 1900 rather than the year 2000, which
could result in miscalculations or system failures. The Company is engaged in a
company-wide project to address the Year 2000 Issue. The Company has assembled a
Year 2000 project team that is responsible for ensuring that there are no major
interruptions in the Company's operations relating to the Year 2000 Issue. The
scope of the Company's Year 2000 project includes (a) identifying and taking
appropriate corrective action to remedy the Company's software, hardware and
imbedded technology, (b) working with key third parties with which the Company
does business electronically to ensure that such business is not adversely
affected by the Year 2000 Issue, and (c) contacting other third parties and
requesting assurances that such parties will be Year 2000 compliant. The status
of the Year 2000 project is reported regularly to senior management and the
Board of Directors.
The Company is in the process of implementing the SAP system. Although the SAP
system is expected to resolve potential problems related to the Year 2000 Issue,
there can be no assurance that the SAP system will be implemented successfully
and on a timely basis. Accordingly, all current legacy systems scheduled to be
replaced by SAP are in the process of being upgraded to Year 2000 compliant
versions, as well. The Company has determined that it will be required to modify
or replace other portions of its software, hardware and imbedded technology,
which are not considered mission critical systems, so that they will function
properly with respect to the year 2000 and thereafter. The Company's target for
completing its compliance process for mission critical systems is the second
quarter of 1999 and for non-mission critical systems the end of calendar 1999.
The Company believes with modifications to existing systems and conversion to
new systems, the Year 2000 Issue will not pose significant operation problems.
The Company is directly working with key third parties with which the Company
does business electronically to remediate and test affected systems. The Company
is also in the process of contacting other third parties, including suppliers,
to identify other potential Year 2000 issues. The Company intends to either
resolve any issues identified or develop contingency plans.
All costs and expenses incurred relating to the Year 2000 Issue are charged
against income on a current basis. Based on the Company's most recent
evaluation, including internal expenses, the total cost of the Company's Year
2000 project is expected to be less than $5,000,000, of which approximately
$1,063,000 has been incurred through October 24, 1998.
Management's estimates regarding the expected completion dates and cost involved
in the Company Year 2000 project are based on various assumptions regarding
future events, including the availability of resources, the success of third
parties in addressing their Year 2000 issues, and other factors. While
management believes that the Company is effectively addressing the Year 2000
Issue, there is no guarantee that estimated completion dates and costs will be
achieved. If the estimated completion dates or costs differ materially from
estimated completion dates or costs, the Company's financial condition and
financial results could be materially adversely effected. Further, the Company
can not reasonably estimate the impact on the Company of key third parties not
successfully addressing the Year 2000 Issue.
11
<PAGE> 12
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this report
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These forward-looking statements are based upon management's expectations and
beliefs concerning future events and discuss, among other things, expected
growth and future business plans. Words and phrases such as "expects",
"anticipates", "believes", "intends", "estimates", "will likely result", "will
continue", "plans to" and similar expressions are intended to identify
forward-looking statements. Readers are cautioned not to place undue reliance on
any forward-looking statements. Forward-looking statements are necessarily
subject to risks, uncertainties and other factors, many of which are outside the
control of the Company, that could cause actual results to differ materially
from such statements. A discussion of these risks, uncertainties and other
factors is included in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission. Any forward-looking statement speaks only as
of the date on which such statement is made, and the Company undertakes no
obligation to update any forward-looking statement, whether as a result of new
information, future events or otherwise.
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibits:
(a) Exhibits: .
27.0 Financial Data Schedule for the period ended
October 24, 1998
(b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K
dated October 6, 1998 reporting in Item 5 that the
Company issued a press release regarding sales and
earnings for the third quarter ended October 24,
1998.
13
<PAGE> 14
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: December 8, 1998 By: /s/ Jeffrey L. Rutherford
--------------------------------.
Jeffrey L. Rutherford
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
14
<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-23-1999
<PERIOD-START> JAN-25-1998
<PERIOD-END> OCT-24-1998
<CASH> 47,725
<SECURITIES> 0
<RECEIVABLES> 84,345
<ALLOWANCES> 857
<INVENTORY> 1,232,745
<CURRENT-ASSETS> 1,412,316
<PP&E> 547,069
<DEPRECIATION> 213,311
<TOTAL-ASSETS> 2,111,082
<CURRENT-LIABILITIES> 868,219
<BONDS> 0
0
0
<COMMON> 867,627
<OTHER-SE> 296,969
<TOTAL-LIABILITY-AND-EQUITY> 2,111,082
<SALES> 3,087,903
<TOTAL-REVENUES> 3,087,903
<CGS> 2,353,947
<TOTAL-COSTS> 2,353,947
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,389
<INCOME-PRETAX> 90,321
<INCOME-TAX> 35,044
<INCOME-CONTINUING> 55,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,277
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
