<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 22, 2000
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.
Shares outstanding as of
Title of each class August 30, 2000
------------------- ---------------
Common Shares, without par value 112,935,455
<PAGE> 2
OFFICEMAX, INC.
INDEX
Part I - Financial Information Page
------------------------------ ----
Item 1. Financial Statements 3-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About
Market Risks 19
Part II - Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
------- --------------------
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
JULY 22, JANUARY 22,
2000 2000
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents $ 58,589 $ 73,087
Accounts receivable, net of allowances
of $227 and $687, respectively 84,015 111,734
Merchandise inventories 1,312,857 1,273,844
Other current assets 61,585 69,344
----------- -----------
Total current assets 1,517,046 1,528,009
Property and Equipment:
Buildings and land 19,315 19,292
Leasehold improvements 189,024 188,900
Furniture, fixtures and equipment 525,546 505,345
----------- -----------
Total property and equipment 733,885 713,537
Less: Accumulated depreciation and amortization (350,263) (311,069)
----------- -----------
Property and equipment, net 383,622 402,468
Other assets and deferred charges 33,904 34,333
Goodwill, net of accumulated amortization
of $74,966 and $70,039, respectively 305,286 310,168
----------- -----------
$ 2,239,858 $ 2,274,978
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade $ 489,251 $ 702,416
Accrued expenses and other liabilities 65,652 140,094
Accrued salaries and related expenses 41,748 50,313
Taxes other than income taxes 69,039 72,966
Revolving credit facilities 342,500 91,800
Mortgage loan, current portion - 1,300
----------- -----------
Total current liabilities 1,008,190 1,058,889
Mortgage loan - 15,125
Other long-term liabilities 75,113 70,895
----------- -----------
Total liabilities 1,083,303 1,144,909
Commitments and contingencies - -
Minority interest 15,039 14,072
Redeemable preferred shares 50,773 -
Shareholders' Equity:
Common shares, without par value; 200,000,000 shares
authorized; 124,968,155 and 124,985,364 shares issued
and outstanding, respectively 866,800 867,866
Deferred stock compensation (251) (304)
Retained earnings 331,930 358,900
Cumulative translation adjustments 104 -
Less: Treasury stock, at cost (107,840) (110,465)
----------- -----------
Total shareholders' equity 1,090,743 1,115,997
----------- -----------
$ 2,239,858 $ 2,274,978
=========== ===========
</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 22, JULY 24, JULY 22, JULY 24,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 1,078,780 $ 970,463 $ 2,422,968 $ 2,149,873
Cost of merchandise sold, including
buying and occupancy costs 820,560 732,713 1,837,256 1,633,671
------------- ------------- ------------- -------------
Gross profit 258,220 237,750 585,712 516,202
Store operating and selling expenses 242,737 196,731 526,071 403,556
Pre-opening expenses 2,468 2,327 4,773 4,497
General and administrative expenses 44,346 29,569 83,028 58,797
Goodwill amortization 2,464 2,347 4,927 4,694
------------- ------------- ------------- -------------
Total operating expenses 292,015 230,974 618,799 471,544
Operating income (loss) (33,795) 6,776 (33,087) 44,658
Interest expense, net 4,567 3,006 6,098 4,963
Other (income) expense, net (94) (233) 224 (457)
------------- ------------- ------------- -------------
Income (loss) before income taxes (38,268) 4,003 (39,409) 40,152
Income taxes (14,432) 1,576 (14,179) 15,709
Minority interest 278 - 967 -
------------- ------------- ------------- -------------
Net income (loss) $ (24,114) $ 2,427 $ (26,197) $ 24,443
============= ============= ============= =============
EARNINGS (LOSS) PER COMMON SHARE:
Basic $ (0.22) $ 0.02 $ (0.24) $ 0.21
============= ============= ============= =============
Diluted $ (0.22) $ 0.02 $ (0.24) $ 0.21
============= ============= ============= =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 112,689,668 113,270,357 112,696,504 113,854,926
============= ============= ============= =============
Diluted 112,689,668 114,658,535 112,696,504 114,906,613
============= ============= ============= =============
</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 22, JULY 24,
2000 1999
--------- ---------
<S> <C> <C>
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income (loss) $ (26,197) $ 24,443
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 48,519 40,861
Deferred income taxes 458 (1,399)
Other, net 7,085 5,105
Changes in current assets and current liabilities
(Increase) decrease in inventories (39,013) 7,696
Decrease in accounts payable (205,217) (27,504)
Decrease in accounts receivable 30,305 60,588
Decrease in accrued liabilities (63,315) (58,757)
Other, net (3,097) (5,552)
--------- ---------
Net cash (used for) provided by operations (250,472) 45,481
--------- ---------
INVESTING
Capital expenditures (46,298) (48,804)
Other, net (554) (2,244)
--------- ---------
Net cash used for investing (46,852) (51,048)
--------- ---------
FINANCING
Increase in revolving credit facilities 250,700 65,800
Payments of mortgage principal (16,425) (650)
Decrease in overdraft balances (8,448) (49,262)
Purchase of treasury stock - (29,306)
Decrease in advanced payments for leased facilities 8,573 -
Proceeds from the issuance of common stock, net 1,558 1,682
Proceeds from the issuance of preferred stock, net 50,000 -
Other, net (2,393) -
--------- ---------
Net cash provided by (used for) financing 283,565 (11,736)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents (739) -
--------- ---------
Net decrease in cash and equivalents (14,498) (17,303)
Cash and equivalents, beginning of the period 73,087 67,482
--------- ---------
Cash and equivalents, end of the period $ 58,589 $ 50,179
========= =========
SUPPLEMENTAL INFORMATION
Interest paid on debt $ 6,029 $ 5,141
========= =========
Taxes paid on income $ 1,035 $ 24,038
========= =========
</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 Cumulative
Common Stock Retained Translation Treasury
Shares Compensation Earnings Adjustment Stock Total
------------- ---------------- --------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 22, 2000 $ 867,866 $ (304) $ 358,900 $ - $ (110,465) $ 1,115,997
Comprehensive income:
Net income (loss) - - (26,197) - - (26,197)
Cumulative translation
adjustment - - - 104 - 104
-----------
Total comprehensive income (26,093)
Issuance of common shares
under director plan (8) - - - 17 9
Exercise of stock options
(including tax benefit) (435) - - - 1,009 574
Sale of shares under
management share purchase
plan (including tax benefit) (193) (75) - - 668 400
Sale of shares under employee
share purchase plan
(including tax benefit) (430) - - - 931 501
Amortization of deferred
compensation - 128 - - - 128
Preferred stock accretion - - (773) - - (773)
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT JULY 22, 2000 $ 866,800 $ (251) $ 331,930 $ 104 $ (107,840) $ 1,090,743
=========== =========== =========== =========== =========== ===========
</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 22, 2000 AND JULY 24, 1999
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 26 weeks
ended July 22, 2000 and July 24, 1999 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 22, 2000 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, 2000. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United
States 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. Fiscal year 2000 ends on January 27, 2001 and includes 53
weeks. Fiscal year 1999 ended on January 22, 2000 and included 52 weeks.
4. At July 22, 2000, OfficeMax operated a chain of 981 full-size superstores
in 49 states, Puerto Rico and the U.S. Virgin Islands. In addition to
offering office products, business machines and related items, the Company
also features CopyMax and FurnitureMax, in-store modules devoted
exclusively to print-for-pay services and office furniture. OfficeMax also
operates smaller format OfficeMax PDQ stores. Through joint venture
partnerships, OfficeMax operates 29 international locations. Additionally,
the company has 19 delivery centers located throughout the United States to
serve its catalog and direct marketing operations, including OfficeMax.com
on the Internet at http://www.officemax.com, enabling individual consumers
and businesses to buy a wide assortment of merchandise.
5. A reconciliation of the Company's net income (loss) to its comprehensive
income (loss) is as follows:
(Dollars in thousands)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------------------------------------------------
JULY 22, JULY 24, JULY 22, JULY 24,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ (24,114) $ 2,427 $ (26,197) $ 24,443
Other comprehensive income:
Cumulative translation adjustment 771 - 104 -
----------------- ----------------- ------------------ -----------------
Comprehensive income (loss) $ (23,343) $ 2,427 $ (26,093) $ 24,443
================= ================= ================== =================
</TABLE>
7
<PAGE> 8
6. Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("FAS 128"). FAS 128 requires the Company to report both basic earnings per
share, which is based on weighted average number of common shares
outstanding, and diluted earnings per share, which is based on the weighted
average number of common shares outstanding and all potentially dilutive
common stock equivalents.
A reconciliation of the basic and diluted per share computations is as
follows:
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
--------------------------------------------------------------------
JULY 22, JULY 24, JULY 22, JULY 24,
2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ (24,114) $ 2,427 $ (26,197) $ 24,443
Preferred stock accretion 773 - 773 -
------------- ------------- ------------- -------------
Net income (loss) available
to common shareholders $ (24,887) $ 2,427 $ (26,970) $ 24,443
============= ============= ============= =============
Weighted average number of common
shares outstanding 112,689,668 113,270,357 112,696,504 113,854,926
Effect of dilutive securities:
Stock options - 1,277,091 - 940,600
Restricted stock units - 111,087 - 111,087
------------- ------------- ------------- -------------
Weighted average number of common
shares outstanding and assumed
conversions 112,689,668 114,658,535 112,696,504 114,906,613
============= ============= ============= =============
Basic earnings (loss) per common share $ (0.22) $ 0.02 $ (0.24) $ 0.21
============= ============= ============= =============
Diluted earnings (loss) per common share $ (0.22) $ 0.02 $ (0.24) $ 0.21
============= ============= ============= =============
</TABLE>
Options to purchase 13,670,006 shares at a weighted average exercise price
of $9.68 and 152,899 restricted stock units were excluded from the
calculation of diluted earnings per share for the 13 and 26 weeks ended
July 22, 2000, because their effect would have been anti-dilutive due to
the net loss recognized in those periods. Options to purchase 6,300,196 and
6,459,209 shares at a weighted average exercise price of $13.57 and $13.49,
respectively, were excluded from the calculation of diluted earnings per
share for the 13 and 26 weeks ended July 24, 1999, because the exercise
prices of the options were greater than the average market price.
7. In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," ("FAS
133") which, as amended, is required to be adopted in fiscal years
beginning after June 15, 2000. Due to the Company's minimal use of
derivatives, management anticipates that the adoption of FAS 133 will not
have a significant effect on the earnings or the financial position of the
Company.
8
<PAGE> 9
8. The Company has three reportable business segments: the Core Business
Segment, the Computer Business Segment and the OfficeMax.com Segment. The
operating results of the Company's retail stores and its catalog and direct
marketing operations are included in either the Core Business Segment or
the Computer Business Segment. The Core Business Segment includes office
supplies, business machines, peripherals, print-for-pay services and office
furniture. The Computer Business Segment includes desktop and laptop
personal computers and computer monitors. The OfficeMax.com Segment
represents the operations of the Company's Internet site. In Quarterly
Reports on Form 10-Q, prior to fiscal year 2000, the OfficeMax.com Segment
was reported in the Core Business Segment. All prior year amounts have been
restated to reflect the separate presentation of the OfficeMax.com Segment.
The Company evaluates performance and allocates resources based on the
operations of these segments. The accounting policies of the reportable
business segments are the same as those described in the Summary of
Significant Accounting Policies (Note 1) included in the Company's Annual
Report on Form 10-K for the year ended January 22, 2000. The combined
results of operations and assets of the three reportable business segments
are equal to the Company's consolidated results of operations and assets.
Certain centrally incurred costs are allocated to the business segments
based on each segment's estimated usage and/or benefit. There is no profit
on intersegment transactions or allocations.
The following tables summarize the results of operations for the Company's
reportable business segments:
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------------- ----------------------
JULY 22, JULY 24, JULY 22, JULY 24,
CORE BUSINESS SEGMENT 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 1,022,095 $ 917,853 $ 2,271,385 $ 2,025,000
Cost of merchandise sold, including
buying and occupancy costs 764,162 681,118 1,696,729 1,509,034
----------- ----------- ----------- -----------
Gross profit 257,933 236,735 574,656 515,966
Operating income (loss) (16,479) 16,842 (711) 66,940
----------- ----------- ----------- -----------
Net income (loss) $ (13,160) $ 8,975 $ (5,961) $ 38,791
=========== =========== =========== ===========
</TABLE>
Goodwill and the related amortization are included in the Core Business
Segment. Also included in net income of the Core Business Segment is net
interest expense of $3,625,000 and $2,320,000 for the 13 weeks ended July
22, 2000 and July 24, 1999, respectively. During the 26 weeks ended July
22, 2000 and July 24, 1999, this segment had net interest expense of
$4,745,000 and $3,686,000, respectively. The Core Business Segment
recognized income tax benefit of $7,128,000 for the 13 weeks ended July 22,
2000 and income tax expense of $5,780,000 for the 13 weeks ended July 24,
1999. During the 26 weeks ended July 22, 2000 and July 24, 1999, this
segment recognized income tax benefit of $686,000 and income tax expense of
$24,920,000, respectively.
Through joint venture partnerships, the Company operates 29 international
locations. The joint ventures operate OfficeMax superstores similar to
those in the United States. Due to a majority interest in its joint venture
in Mexico, OfficeMax de Mexico, which was purchased as of the end of fiscal
year 1999, the Company consolidates the net assets, results of operations
and cash flows of OfficeMax de Mexico within the Core Business Segment.
Sales for OfficeMax de Mexico were $23,593,000 and $47,687,000 during the
13 and 26 weeks ended July 22, 2000, respectively. The net assets of
OfficeMax de Mexico included long-lived assets, primarily fixed assets,
of $17,384,000 and $14,084,000 as of July 22, 2000 and January 22, 2000.
Minority interest in the net income of subsidiaries was $278,000 and
$967,000 for the 13 and 26 weeks ended July 22, 2000, respectively. The
Company's other investments in joint ventures are accounted for under the
cost method and are also reported within the Core Business Segment. Other
than its investments in joint venture partnerships, the Company has no
international sales or assets.
9
<PAGE> 10
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
------------------------------------------------------
JULY 22, JULY 24, JULY 22, JULY 24,
COMPUTER BUSINESS SEGMENT 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 30,512 $ 47,298 $ 99,282 $ 115,131
Cost of merchandise sold, including
buying and occupancy costs 37,410 47,816 102,395 117,407
--------- --------- --------- ---------
Gross profit (loss) (6,898) (518) (3,113) (2,276)
Operating income (loss) (12,623) (8,512) (15,739) (19,922)
--------- --------- --------- ---------
Net income (loss) $ (7,648) $ (5,585) $ (9,568) $ (12,888)
========= ========= ========= =========
</TABLE>
Included in the net loss of the Computer Business Segment is net interest
expense of $124,000 and $659,000 for the 13 weeks ended July 22, 2000 and
July 24, 1999, respectively. During the 26 weeks ended July 22, 2000 and
July 24, 1999, this segment had net interest expense of $208,000 and
$1,240,000, respectively. The Computer Business Segment recognized income
tax benefit of $5,099,000 and $3,586,000 for the 13 weeks ended July 22,
2000 and July 24, 1999, respectively, and $6,379,000 and $8,274,000 for the
26 weeks ended July 22, 2000 and July 24, 1999, respectively. The Company
does not allocate fixed assets or depreciation to the Computer Business
Segment.
In accordance with a strategic alliance with Gateway Companies, Inc.
("Gateway"), Gateway will operate a licensed "store-within-a-store"
computer department in all OfficeMax retail superstores in the United
States. The store-within-a-store rollout began during the first quarter of
fiscal year 2000 and is expected to be complete by the end of the first
quarter of fiscal year 2001. As of July 23, 2000, an interim Gateway
display was installed in all OfficeMax superstores that had yet to receive
a full-size store-within-a-store installation. The full-size
store-within-a-store installations and interim displays have replaced the
Company's Computer Business Segment. As of July 22, 2000, the Company had
completed its phase-out of the Computer Business Segment. Accordingly, the
Computer Business Segment had no assets or liabilities as of that date. As
of January 22, 2000, the total assets of this segment, primarily inventory
and accounts receivable, were approximately $65,850,000. This segment also
had accounts payable of $3,605,000 as of January 22, 2000. The strategic
alliance with Gateway is described in greater detail in "Item 2 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Strategic Alliance with Gateway Companies, Inc."
10
<PAGE> 11
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
------------------------ ------------------------
JULY 22, JULY 24, JULY 22, JULY 24,
OfficeMax.com SEGMENT 2000 1999 2000 1999
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 26,173 $ 5,312 $ 52,301 $ 9,742
Cost of merchandise sold, including
buying and occupancy costs 18,988 3,779 38,132 7,230
-------- -------- -------- --------
Gross profit 7,185 1,533 14,169 2,512
Operating income (loss) (4,693) (1,554) (16,637) (2,360)
-------- -------- -------- --------
Net income (loss) $ (3,306) $ (963) $(10,668) $ (1,460)
======== ======== ======== ========
</TABLE>
Included in net income of the OfficeMax.com Segment is net interest expense
of $818,000 and $27,000 for the 13 weeks ended July 22, 2000 and July 24,
1999, respectively. During the 26 weeks ended July 22, 2000 and July 24,
1999, this segment had net interest expense of $1,145,000 and $37,000,
respectively. The OfficeMax.com Segment recognized income tax benefit of
$2,205,000 and $618,000 for the 13 weeks ended July 22, 2000 and July 24,
1999, respectively, and $7,114,000 and $937,000 for the 26 weeks ended July
22, 2000 and July 24, 1999, respectively. The total assets of the
OfficeMax.com Segment were approximately $9,698,000 and $1,695,000 as of
July 22, 2000 and January 22, 2000, respectively. This segment also had
accrued expenses and other liabilities of $4,341,000 and $5,645,000 as of
July 22, 2000 and January 22, 2000, respectively. Depreciation expense for
the OfficeMax.com Segment was $185,000 and $326,000 for the 13 and 26 weeks
ended July 22, 2000, respectively, as compared to $29,000 and $58,000 for
the comparable periods last year.
During August 2000, the Company consolidated its OfficeMax.com Segment and
its catalog and direct marketing operations into one business segment. The
Company is evaluating the impact of this decision on future segment
reporting. Currently, the catalog and direct marketing operations are
reported in the Core Business Segment for management and segment reporting
purposes.
9. During the second quarter of fiscal year 2000, the Company repaid the
outstanding balance of its mortgage loan in the amount of $16,100,000. The
mortgage loan was secured by the Company's international corporate
headquarters and had an original maturity of January 2007.
10. During the second quarter of fiscal year 2000, in accordance with the
strategic alliance with Gateway, Gateway invested $50,000,000 in two newly
created series of convertible preferred shares of the Company. The
strategic alliance with Gateway and the convertible preferred shares are
described in greater detail in "Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Strategic
Alliance with Gateway Companies, Inc."
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
RESULTS OF OPERATIONS
---------------------
Consolidated Results
Consolidated sales for the 13 and 26 weeks ended July 22, 2000 increased 11% and
13% to $1,078,780,000 and $2,422,968,000, respectively, from $970,463,000 and
$2,149,873,000 for the comparable periods last year. The current quarter sales
increase was attributable to a comparable store sales increase of 3%,
excluding the effects of the phase-out of the Company's Computer Business
Segment, as well as a full period of sales from the 115 superstores opened
during fiscal year 1999 and additional sales from the 35 (net) new superstores
opened at various points during the current fiscal year. Consolidated
comparable store sales increased 1% and 3% for the 13 and 26 weeks ended
July 22, 2000, respectively. Additionally, $23,593,000 and $47,687,000 of sales
for the Company's joint venture in Mexico, OfficeMax de Mexico, are included in
consolidated sales for the 13 and 26 weeks ended July 22, 2000, respectively,
due to the Company's majority interest in the joint venture which was purchased
as of the end of fiscal year 1999. During the 26 weeks ended July 24, 1999, the
Company accounted for the joint venture under the equity method and,
accordingly did not consolidate OfficeMax de Mexico's sales. A shift in the
timing of the Easter holiday from the first quarter to second quarter of fiscal
year 2000 reduced the consolidated second quarter comparable store sales
increase by approximately one percent.
Consolidated cost of merchandise sold, including buying and occupancy costs,
increased as a percentage of sales to 76.1% for the 13 weeks ended July 22,
2000, from 75.5% for the comparable period last year. For the 26 weeks ended
July 22, 2000, however, consolidated cost of merchandise sold, including buying
and occupancy costs, decreased as a percentage of sales to 75.8% from 76.0% for
the comparable period last year. Consolidated gross profit decreased to 23.9% of
sales for the 13 weeks ended July 22, 2000, as compared to 24.5% for the
comparable period a year earlier. For the 26 weeks ended July 22, 2000,
consolidated gross profit increased as a percentage of sales to 24.2% from 24.0%
for the comparable period last year. The current quarter decrease in
consolidated gross profit as a percent of sales was due primarily to increased
freight expense associated with the acceleration of the Company's PowerMax
supply chain network and a temporary increase in the cost of merchandise sold as
a result of vendor rationalization programs. Additionally, consolidated gross
profit was impacted by reduced margins in the Company's Computer Business
Segment as a result of the markdown and liquidation of remaining computer
inventory as the Company completed its phase-out of that segment. The
year-to-date consolidated gross profit increase was due primarily to gross
profit increase in the Company's OfficeMax.com Segment.
Consolidated store operating and selling expenses, which consist primarily of
store payroll, operating and advertising expenses, increased as a percentage of
sales to 22.5% and 21.7% for the 13 and 26 weeks ended July 22, 2000 from 20.3%
and 18.8% for the comparable periods a year earlier. The increases were
primarily due to costs associated with the Company's operating improvement
initiatives. These costs include reduced vendor income from vendor support
programs eliminated as part of the Company's program of merchandise and vendor
rationalization along with investments in store payroll to enhance customer
service levels through increased associate training for product knowledge and
selling skills along with increased employee coverage within the stores.
Pre-opening expenses were $2,468,000 and $4,773,000 for the 13 and 26 weeks
ended July 22, 2000, reflecting the opening of 14 and 38 full-size superstores,
respectively. Also during the second quarter of fiscal year 2000, the Company
opened its third PowerMax distribution center located in Jefferson County,
Alabama for which the Company incurred pre-opening expenses of $1 million.
Pre-opening expenses were $2,327,000 and $4,497,000 for the 13 and 26 weeks
ended July 24, 1999, reflecting the opening of 28 and 52 full-size superstores,
respectively, and one smaller format OfficeMax PDQ store. Pre-opening expenses,
which consist primarily of store payroll, supplies and grand opening
advertising, averaged approximately $90,000 and $85,000 per full-size superstore
in the 26 weeks ended July 22, 2000 and July 24, 1999, respectively. Pre-opening
expenses increase approximately $30,000 per unit when certain enhanced CopyMax
or FurnitureMax features are included in a superstore.
General and administrative expenses were 4.1% and 3.4% of sales for the 13 and
26 weeks ended July 22, 2000, as compared to 3.1% and 2.7% of sales for the same
periods last year. This increase reflects costs for consulting services
supporting the Company's supply-chain management and operating improvement
initiatives, continued
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<PAGE> 13
investment in the Company's organizational structure and increased depreciation
expense as a result of the Company's information technology initiatives. During
July, the Company completed its conversion to SAP AG's Retail Enterprise
Resource Planning platform that is expected to automate and integrate various
business processes of the Company. Over the past 18 months, the Company has
successfully installed the SAP Human Resources, Finance, Merchandising,
Warehouse Management, and Business Information Warehouse modules.
Goodwill amortization was $2,464,000 and $4,927,000 for the 13 and 26 weeks
ended July 22, 2000, as compared to $2,347,000 and $4,694,000 for the 13 and 26
weeks ended July 24, 1999. Goodwill is capitalized and amortized over 10 - 40
years using the straight-line method.
As a result of the foregoing factors, the Company incurred an operating loss of
$33,795,000 and $33,087,000 for the 13 and 26 weeks ended July 22, 2000,
respectively, as compared to operating income of $6,776,000 and $44,658,000 for
the comparable periods a year earlier.
Interest expense, net, was $4,567,000 and $6,098,000 for the 13 and 26 weeks
ended July 22, 2000, respectively, as compared to $3,006,000 and $4,963,000 for
the comparable periods a year earlier. The increase in interest expense during
the first half of fiscal year 2000 was primarily due to higher average
outstanding borrowings during the second quarter of the current fiscal year.
The Company recognized income tax benefit of $14,432,000 and $14,179,000 for the
13 and 26 weeks ended July 22, 2000, respectively, as compared to income tax
expense of $1,576,000 and $15,709,000 for the same periods a year ago. The
effective tax rates for all periods presented are different from the federal
statutory income tax rate primarily as a result of goodwill amortization, tax
exempt interest, and state and local taxes.
As a result of the foregoing factors, the Company had a net loss of $24,114,000
and $26,197,000 for the 13 and 26 weeks ended July 22, 2000, as compared to net
income of $2,427,000 and $24,443,000 for the comparable periods a year earlier.
BUSINESS SEGMENTS
-----------------
Core Business Segment
Sales for the Core Business Segment increased 11% to $1,022,095,000 for the 13
weeks ended July 22, 2000 from $917,853,000 for the comparable period last year.
The increase in the second quarter of fiscal year 2000 was due to new store
openings since the end of the second quarter of fiscal year 1999 and a
comparable-store sales increase of 1%. Sales for the Core Business Segment
increased 12% to $2,271,385,000 for the 26 weeks ended July 22, 2000 from
$2,025,000,000 for the comparable prior year period, primarily as a result of
new store openings and a comparable-store sales increase of 1%.
Cost of merchandise sold, including buying and occupancy costs for the Core
Business Segment increased as a percentage of sales to 74.8% and 74.7% for the
13 and 26 weeks ended July 22, 2000, respectively, from 74.2% and 74.5 % for the
comparable prior year periods. The increase in cost of merchandise sold,
including buying and occupancy costs as a percentage of sales for the Core
Business Segment was due to increased freight expense associated with
acceleration of the Company's PowerMax supply chain network and a temporary
increase in the cost of merchandise sold as a result of vendor rationalization
programs. Gross profit for the Core Business Segment increased to $257,933,000
and $574,656,000 for the 13 and 26 weeks ended July 22, 2000, respectively, from
$236,735,000 and $515,966,000 for the comparable periods a year earlier.
The Core Business Segment incurred a loss from operations of $16,479,000 and
$711,000 for the 13 and 26 weeks ended July 22, 2000, respectively, as compared
to operating income of $16,842,000 and $66,940,000 for comparable prior year
periods. The decrease in operating income in the second quarter and first half
of fiscal year 2000 was primarily due to increased cost of merchandise sold and
increased store operating and selling expenses related to the Company's
supply-chain management and operating improvement initiatives.
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<PAGE> 14
Net loss for the Core Business Segment was $13,160,000 and $5,961,000 for the 13
and 26 weeks ended July 22, 2000, respectively, as compared to net income of
$8,975,000 and $38,791,000 for the comparable periods last year.
Computer Business Segment
Sales for the Computer Business Segment decreased 35% to $30,512,000 for the 13
weeks ended July 22, 2000 from $47,298,000 for the comparable period last year.
The sales decrease was due to the conversion of Company owned computer
departments to Gateway store-within-a-store computer departments or temporary
modules during the phase-out operations of this segment. Sales for the Computer
Business Segment decreased 14% to $99,282,000 for the 26 weeks ended July 22,
2000 from $115,131,000 for the comparable prior year period.
Cost of merchandise sold, including buying and occupancy costs for the Computer
Business Segment increased as a percentage of sales to 122.6% and 103.1% for the
13 and 26 weeks ended July 22, 2000, respectively, from 101.1% and 102.0% of
sales for the same periods last year. The increase was the result of the
markdown and liquidation of remaining computer inventory during the phase-out
operations of this segment. Gross profit for the Computer Business Segment was a
loss of $6,898,000 for the 13 weeks ended July 22, 2000 as compared to a loss of
$518,000 for the comparable prior year period. For the 26 weeks ended July 22,
2000, gross profit for the Computer Business Segment was a loss of $3,113,000 as
compared to a loss of $2,276,000 in the comparable prior year period.
Operating loss for the Computer Business Segment was $12,623,000 for the 13
weeks ended July 22, 2000, as compared to an operating loss of $8,512,000 for
the like period a year earlier. Operating loss for the Computer Business Segment
was $15,739,000 for the 26 weeks ended July 22, 2000, versus a loss of
$19,922,000 for the comparable period last year. The decrease in operating loss
during the first half of fiscal year 2000 was primarily due to reduced
advertising expenses compared to a year ago.
Net loss for the Computer Business Segment was $7,648,000 and $9,568,000 for the
13 and 26 weeks ended July 22, 2000, respectively, as compared to a loss of
$5,585,000 and $12,888,000 for the comparable periods last year.
In accordance with a strategic alliance with Gateway, Gateway will operate a
licensed "store-within-a-store" computer department in all OfficeMax retail
superstores in the United States. The store-within-a-store rollout began during
the first quarter of fiscal year 2000 and is expected to be complete by the end
of the first quarter of fiscal year 2001. As of July 23, 2000, an interim
Gateway display was installed in all OfficeMax superstores that had yet to
receive a full-size store-within-a-store installation. The full-size
store-within-a-store installations and interim displays have replaced the
Company's Computer Business Segment. As of July 22, 2000, the Company had
completed its phase-out of the Computer Business Segment. The strategic alliance
with Gateway is described in greater detail in "Strategic Alliance with Gateway
Companies, Inc." below.
OfficeMax.com Segment
Sales for the OfficeMax.com Segment increased 393% to $26,173,000 for the 13
weeks ended July 22, 2000 from $5,312,000 in the same period last year. Sales
for the OfficeMax.com Segment increased 437% to $52,301,000 for the 26 weeks
ended July 22, 2000 from $9,742,000 for the comparable prior year period. This
sales growth in the first half of fiscal year 2000 reflected the Company's
continued aggressive offline marketing program aimed at capturing a larger share
of the online small-business market, new online partnerships launched affecting
the periods presented, an overall national increase in online
business-to-business e-commerce and an increase in repeat-customer purchases.
Cost of merchandise sold, including buying costs, for the OfficeMax.com Segment
was 72.5% and 72.9% of sales for the 13 and 26 weeks ended July 22, 2000,
respectively, compared to 71.1% and 74.2% of sales for the comparable prior year
periods. Gross profit for the OfficeMax.com Segment was $7,185,000 or 27.5% of
sales in second quarter of fiscal year 2000 and $1,533,000 or 28.9% of sales in
the same period last year. For the 26 weeks ended July 22, 2000, gross profit
for the OfficeMax.com Segment was $14,169,000 or 27.1% of sales as compared to
$2,512,000 or 25.8% of sales for the comparable prior year period. The
improvement in gross profit as a percentage of sales for the first half of
fiscal
14
<PAGE> 15
year 2000 compared to the first half of fiscal year 1999 was due primarily to a
more disciplined pricing strategy and continued emphasis on selling core office
supplies to small business customers.
The OfficeMax.com Segment incurred an operating loss of $4,693,000 for the 13
weeks ended July 22, 2000 and $1,554,000 in the comparable prior year period.
Operating loss for the OfficeMax.com Segment was $16,637,000 for the 26 weeks
ended July 22, 2000, versus a loss of $2,360,000 for the comparable period last
year. The net operating losses were primarily due to the segment's aggressive
advertising and marketing programs focused on customer acquisition in the small
business market space.
Net income for the OfficeMax.com Segment was a loss of $3,306,000 in second
quarter of fiscal year 2000 and a loss of $963,000 in second quarter of fiscal
year 1999. For the 26 weeks ended July 22, 2000, Net income for the
OfficeMax.com Segment was a loss of $10,668,000 as compared to a loss of
$1,460,000 for the comparable period last year.
STRATEGIC ALLIANCE WITH GATEWAY COMPANIES, INC.
-----------------------------------------------
During the first quarter of fiscal year 2000, the Company entered into a
five-year multi-channel alliance with Gateway. The strategic alliance consists
of three elements: sales of products and services through physical retail
channels, sales of products and services through e-Commerce channels and an
investment in OfficeMax by Gateway.
Under the terms of a master license agreement ("Master License Agreement"),
Gateway will operate a licensed "store-within-a-store" computer department in
all OfficeMax retail superstores in the United States. The department will offer
products consistent with the Company's Computer Business Segment, including
computers, monitors and related products and services. In accordance with the
alliance, Gateway will staff the store-within-a-store modules and own all of the
inventory and recognize all of the sales within the store-within-a-store
modules. OfficeMax will receive a fixed monthly rent from Gateway. The
store-within-a-store rollout began during the first quarter of fiscal year 2000
and is expected to be complete by the end of the first quarter of fiscal year
2001. As of July 23, 2000, an interim Gateway display was installed in all
OfficeMax superstores that have yet to receive a full-size store-within-a-store
installation. The interim displays will be in place until a full-size Gateway
store-within-a-store department is installed. These departments have replaced
the Company's Computer Business Segment. The Company completed phase-out
operations of the Computer Business Segment as of July 22, 2000.
Additionally, a reciprocal Internet relationship between OfficeMax and Gateway
provides for significant cross marketing and promotional opportunities.
OfficeMax will be the exclusive office supply partner on Gateway's Internet
site, Gateway.com, and will have its icon and hot link featured on the computer
desktop of virtually all Gateway systems sold to small businesses and consumers
in the United States over the next five years. In exchange, OfficeMax will pay
Gateway a commission on sales to customers acquired from Gateway properties or
promotional efforts, including certain guaranteed minimum annual payments.
Gateway will have the exclusive right to market and sell computers and related
products on OfficeMax.com, and will pay the Company a commission on sales to
customers acquired from OfficeMax properties or promotional efforts. The
Internet relationship, including the linking of OfficeMax.com and Gateway.com,
commenced during the second quarter of fiscal year 2000.
In accordance with the alliance, Gateway has invested $50,000,000 in OfficeMax
convertible preferred stock -- $30,000,000 designated for OfficeMax and
$20,000,000 designated for OfficeMax.com.
Gateway's investment in OfficeMax is in the form of a newly created series of
convertible preferred shares of the Company, the Series A Voting Preference
Shares (the "Series A Shares"), at a purchase price of $9.75 per share. The
Series A Shares vote on an as-converted to Common Shares basis (one vote per
share) and do not bear any interest or coupon. After two years, the Series A
Shares are convertible into Common Shares of the Company on a 1:1 basis provided
that Gateway store-within-a-store modules are opened in accordance with the
terms of the Master License Agreement and the fair value of the Company's Common
Shares is at least $12.50 per share. If after two years Gateway
store-within-a-store modules are not opened in accordance with the terms of the
Master License Agreement, the Series A Shares are redeemable by Gateway at face
value. If at the end of the alliance, Gateway store-within-a-store modules are
opened in accordance with the terms of the Master License Agreement, each Series
A Share is convertible into $12.50 of the Company's Common Shares. In addition,
the Company can elect to
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<PAGE> 16
convert the Series A Shares into Common Shares on a 1:1 basis at any time if the
fair value of the Company's Common Stock is at least $12.50 per share, subject
to certain "make-whole" or fair value guarantees. The increase in fair value of
the Series A Shares, from $9.75 per share to $12.50 per share, is being
recognized on a straight-line basis by the Company over the term of the alliance
by a charge directly to Retained Earnings for Preferred Stock Accretion.
Gateway's investment in OfficeMax.com is also in the form of a newly created
series of convertible preferred shares of the Company, the Series B Serial
Preferred Shares (the "Series B Shares"), at a purchase price of $10 per share.
The Series B Shares bear a coupon rate of 7% per annum and have no voting
rights. The 7% per annum coupon rate is being recognized by the Company by a
charge directly to Retained Earnings for Preferred Stock Accretion. The Series B
Shares are convertible into a tracking stock that tracks the performance of
OfficeMax.com (the "Tracking Stock") at a 30% discount to the initial price of
the Tracking Stock determined by a public market. The Series B Shares are
redeemable at Gateway's option at face value plus dividends, if no such Tracking
Stock is registered under the Securities Act of 1933 and the Securities Exchange
Act of 1934 and listed for trading on a national securities exchange by June 30,
2001, or Gateway elects not to convert the Series B Shares into a Tracking
Stock. The June 30, 2001 conversion or redemption deadline can be extended to
June 30, 2002, if Gateway elects to extend certain dates in the Master License
Agreement.
During the second quarter of fiscal year 2000, Gateway paid the Company
$50,000,000 in cash in satisfaction of the investment requirements of the
strategic alliance. Accordingly, the Company issued Gateway 3,076,923 Series A
Shares and 2,000,000 Series B Shares.
The Master License Agreement also contains various change in control provisions
which provide for the termination of the agreement by either OfficeMax or
Gateway upon a change in control of the other party, as defined in the
agreement. Further, if a change in control of Gateway results in Gateway being
controlled by a person or entity whose primary business is the owning or
operating of office supply superstores, the Company is entitled to a payment of
$100,000,000. If a change in control of the Company results in the Company being
controlled by a person or entity who is a major retailer of personal computers
and Internet goods and services, Gateway will be entitled to a payment of
$100,000,000.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's operating activities used $250,472,000 of cash during the 26 weeks
ended July 22, 2000, primarily for accounts payable, accrued expenses and
inventory. The Company's operating activities generated $45,481,000 of cash
during the 26 weeks ended July 24, 1999. As of July 22, 2000, accounts payable
and accrued expenses decreased $205,217,000 and $63,315,000, respectively, while
inventory increased $39,013,000 since the end of the prior fiscal year. These
cash outflows were partially offset by a decrease in accounts receivable of
$30,305,000 during the first half of fiscal year 2000. Accounts payable leverage
as a percentage of inventory decreased to 37% at July 22, 2000 from 55% at
January 22, 2000. The decrease in accounts payable leverage was the result of a
precaution taken during the final phase of the SAP Enterprise Resource Planning
system implementation, for which the Company deliberately accelerated receipt of
back-to-school merchandise to ensure that any potential conversion problems
would not impact in-stock merchandise levels. As a result, back-to-school
merchandise was paid for during the second quarter of fiscal year 2000, whereas
historically the majority of such merchandise was financed through vendor
accounts payable as of the end of the second fiscal quarter. Consolidated
inventory decreased 13% year-over-year on a per store basis primarily as a
result of the Company's continued implementation of its supply-chain management
initiatives.
Net cash used for investing activities was $46,852,000 for the 26 weeks ended
July 22, 2000 versus $51,048,000 in the comparable prior year period. Capital
expenditures, primarily for new and remodeled stores and the Company's
information technology initiatives, were $46,298,000 during the 26 weeks ended
July 22, 2000 and $48,804,000 during the comparable period in the prior year.
Net cash provided by financing activities was $283,565,000 for the 26 weeks
ended July 22, 2000. Current year financing activities primarily represent
borrowings under the Company's revolving credit facilities. Net cash used by
financing activities in the comparable prior year period primarily represented
borrowings on the Company's
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<PAGE> 17
revolving credit facilities, a decrease in overdraft balances and the payment of
$29,306,000 for treasury stock purchases.
During the second half of fiscal year 2000, the Company plans to open 12 - 37
new OfficeMax superstores. Management estimates that the Company's cash
requirements for opening a superstore, exclusive of pre-opening expenses, will
be approximately $1,025,000. For an OfficeMax superstore, the requirements
include an average of approximately $425,000 for leasehold improvements,
fixtures, point-of-sale 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
$90,000 per full-size OfficeMax superstore during the remainder of fiscal year
2000. In select cases, that average is expected to increase by approximately
$30,000 when certain enhanced CopyMax or FurnitureMax features are included.
The Company expects its funds generated from operations as well as its current
cash reserves, and, when necessary, seasonal short-term borrowings will be
sufficient to finance its retail operations and capital requirements, including
its expansion strategy.
The Company has $400,000,000 of revolving credit facilities available through
June 2002. As of July 22, 2000, the Company had outstanding borrowings of
$342,500,000 under its revolving credit facilities at a weighted average
interest rate of 7.81%
During the second quarter of fiscal year 2000, the Company repaid the
outstanding balance of its mortgage loan in the amount of $16,100,000. The
mortgage loan was secured by the Company's international corporate headquarters
and had an original maturity of January 2007.
On August 13, 1998, the Company's Board of Directors authorized the Company to
repurchase up to $200,000,000 of its common stock on the open market. At July
22, 2000, the Company had purchased a total of 12,702,100 shares at a cost of
$113,619,000. This included systematic purchases to cover potential dilution
from the issuance of shares under the Company's equity-based incentive plans.
Future purchases of common shares are limited, by financial covenants related to
the Company's revolving credit facility, to purchases to satisfy the Company's
obligation under its equity-based award plans.
The Company's business is seasonal, with sales and operating income higher in
the third and fourth fiscal 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 fiscal
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 a party to litigation it initiated in October 1997 in the United
States District Court for the Northern District of Ohio against Ryder Integrated
Logistics, Inc. ("Ryder") 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 continues 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
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.
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<PAGE> 18
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.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
----------------------------------------------------------
Portions of this Quarterly Report on Form 10-Q include "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The words "believe," "expect," "anticipate," "plan," "intend,"
"forecast," and similar expressions, among others, identify "forward-looking
statements," which speak only as of the date the statement was made. Such
forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to materially differ from those made, projected
or implied in such statements. The most significant of such risks, uncertainties
and other factors are described in Exhibit 99.1 to the Company's Annual Report
on Form 10-K for the year ended January 22, 2000 as 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 publicly update or revise any forward-looking statements, whether as a result
of new information, future events, or otherwise.
18
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
The Company is exposed to market risk, principally interest rate risk and
foreign exchange risk.
Interest earned on the Company's cash equivalents and short-term investments, as
well as interest paid on its debt and lease obligations, are sensitive to
changes in interest rates. The interest rate for the Company's revolving credit
facilities is variable, while the interest component of its operating leases is
generally fixed. The Company manages its interest rate risk by maintaining a
combination of fixed and variable rate debt. The Company believes its potential
exposure to interest rate risk is not material to the Company's financial
position or the results of its operations.
The Company is exposed to foreign exchange risk through its joint venture
partnerships in Brazil, Japan and Mexico. The Company has not entered into any
derivative financial instruments to hedge this exposure, and believes its
potential exposure is not material to the Company's financial position or the
results of its operations.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
A. The 2000 Annual Meeting of Shareholders of OfficeMax, Inc. was held
on June 23, 2000. Holders of Common Shares of record at the close of business on
May 23, 2000, 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 or until their successors
are elected: Burnett Donoho, James McCann, Sydell Miller, and Ivan Winfield. The
voting results for each nominee were as follows:
Name For Withheld
---- --- --------
Burnett Donoho 108,499,876 2,763,652
James McCann 108,511,876 2,751,652
Sydell Miller 108,503,241 2,760,287
Ivan Winfield 108,509,776 2,753,752
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27.0 Financial Data Schedule for the period ended
July 22, 2000 (for SEC use only)
(b) Reports on Form 8-K: None
20
<PAGE> 21
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, 2000 By: /s/ Jeffrey L. Rutherford
-------------------------
Jeffrey L. Rutherford
Senior Executive Vice President, Chief Financial
Officer (Principal Financial and Accounting
Officer)
21
