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 April 26, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission file number 1-13380
-------
OFFICEMAX, INC.
---------------
(Exact name of registrant as specified in its charter)
OHIO 34-1573735
---- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3605 Warrensville Center Road, Shaker Heights, Ohio 44122
---------------------------------------------------------
(Address of principal executive offices)
(zip code)
(216) 921-6900
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
---- ----
Title of Class Shares Outstanding as of
-------------- May 15, 1997
Common Shares ------------
(without par value) 123,913,746
2
OFFICEMAX, INC.
INDEX
Part I - Financial Information Page
- -------------------------------
Item 1. Financial Statements 3-7
Item 2. Management's Discussion and Analysis of Financial 8-9
Condition and Results of Operations
Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
2
3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
April 26, January 25,
ASSETS 1997 1997
----------- -----------
Current assets:
Cash and equivalents $ 133,203 $ 258,111
Accounts receivable, net of allowances
of $762 and $861, respectively 59,244 39,455
Merchandise inventories 891,568 894,407
Other current assets 30,742 28,691
----------- -----------
Total current assets 1,114,757 1,220,664
Property and equipment:
Buildings and land 18,722 16,843
Leasehold improvements 169,949 167,527
Furniture and fixtures 229,285 224,582
----------- -----------
Total property and equipment 417,956 408,952
Less: Accumulated depreciation and amortization (128,932) (116,084)
----------- -----------
Property and equipment, net 289,024 292,868
Other assets and deferred charges 21,571 19,994
Goodwill, net of accumulated amortization
of $44,189 and $41,842, respectively 331,397 333,744
----------- -----------
$ 1,756,749 $ 1,867,270
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 431,051 $ 490,417
Accrued expenses and other liabilities 98,307 161,815
Accrued salaries and related expenses 28,034 32,504
Taxes other than income taxes 44,612 45,865
Mortgage loan, current portion 1,300 1,300
----------- -----------
Total current liabilities 603,304 731,901
Mortgage loan 18,700 18,700
Other long-term liabilities 54,030 53,105
----------- -----------
Total liabilities 676,034 803,706
----------- -----------
Commitments and contingencies -- --
Shareholders' equity:
Common shares, without par value; 200,000,000 shares
authorized; 123,912,735 and 123,766,614 shares issued 855,237 854,094
and outstanding, respectively
Deferred stock compensation (871) (1,149)
Retained earnings 226,349 210,619
----------- -----------
Total shareholders' equity 1,080,715 1,063,564
----------- -----------
$ 1,756,749 $ 1,867,270
=========== ===========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
3
4
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
13 Weeks Ended
---------------------------------
April 26, 1997 April 27, 1996
-------------- --------------
Sales $ 888,640 $ 730,595
Cost of merchandise sold, including
buying and occupancy costs 688,869 569,792
------------ ------------
Gross profit 199,771 160,803
Store operating and selling expenses 151,483 125,040
Pre-opening expenses 2,237 532
General and administrative expenses 19,301 14,885
Goodwill amortization 2,347 2,347
------------ ------------
Total operating expenses 175,368 142,804
Operating income 24,403 17,999
Interest income, net 1,299 2,790
------------ ------------
Income before income taxes 25,702 20,789
Income taxes 9,972 8,235
------------ ------------
Net income $ 15,730 $ 12,554
============ ============
EARNINGS PER COMMON SHARE DATA:
Earnings per common share $ 0.13 $ 0.10
============ ============
Weighted average number of
common shares outstanding 124,788,000 125,447,000
============ ============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
4
5
OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
13 Weeks Ended
------------------------
April 26, April 27,
1997 1996
--------- ---------
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $ 15,730 $ 12,554
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 15,390 12,200
Deferred income taxes (501) 487
Increase in other long-term liabilities 925 905
Increase in other, net 287 275
Change in current assets and current liabilities:
(Increase) decrease in inventories 2,839 (61,415)
Increase (decrease) in accounts payable (59,366) 4,679
(Decrease) in other, net (65,757) (49,231)
--------- ---------
Net cash (used for) operations (90,453) (79,546)
--------- ---------
INVESTING
Capital expenditures (33,953) (10,481)
Other, net (1,636) 290
--------- ---------
Net cash (used for) investing (35,589) (10,191)
--------- ---------
FINANCING
Reduction in long term debt and capital lease obligations -- (16)
Proceeds from issuance of common stock 1,134 957
--------- ---------
Net cash provided by financing 1,134 941
--------- ---------
CASH AND CASH EQUIVALENTS
Net (decrease) for the period (124,908) (88,796)
Balance, beginning of period 258,111 365,863
--------- ---------
Balance, end of period $ 133,203 $ 277,067
========= =========
SUPPLEMENTAL INFORMATION
Interest paid $ -- $ --
========= =========
Income taxes paid $ 16,487 $ 820
========= =========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
5
6
OFFICEMAX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except share data)
(Unaudited)
Common Shares Deferred
--------------------------- Stock Retained
Shares Amount Compensation Earnings Total
------------ --------- ------------ --------- ----------
Balance at January 25, 1997 123,766,614 $ 854,094 $(1,149) $ 210,619 $1,063,564
Issuance of common shares
under director plan 654 9 (9) -- --
Exercise of stock options 105,480 620 -- -- 620
Sale/(forfeiture) of shares
under management share (13,103) (88) -- -- (88)
purchase plan
Sale of shares under employee 21,558 602 -- -- 602
share purchase plan
Amortization of deferred -- -- 287 -- 287
compensation
Net income -- -- -- 15,730 15,730
------------ --------- ------- --------- ----------
Balance at April 26, 1997 123,881,203 $ 855,237 $ (871) $ 226,349 $1,080,715
============ ========= ======= ========= ==========
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
6
7
OFFICEMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 WEEKS ENDED
APRIL 26, 1997 AND APRIL 27, 1996
Significant Accounting and Reporting Policies
- ---------------------------------------------
1. The accompanying consolidated financial statements have been prepared from
the financial records of OfficeMax, Inc. and its subsidiaries (the
"Company" or "OfficeMax") without audit and reflect all adjustments which
are, in the opinion of management, necessary to fairly present the results
of the interim periods covered in this report. The results for any interim
period are not indicative of the results to be expected for the full fiscal
year. The Company's business is somewhat seasonal, with sales generally
higher in the third and fourth quarters of each year and lowest during the
second quarter, primarily because of lower office supplies consumption
during the summer vacation period.
2. The Company's consolidated financial statements for the 13 weeks ended
April 26, 1997 and April 27, 1996 included in this Quarterly Report on Form
10-Q, have been prepared in accordance with the accounting policies
described in the Notes to Consolidated Financial Statements for the fiscal
year ended January 25, 1997 which were included in the Company's Annual
Report on Form 10-K filed with the Securities Exchange Commission (File No.
1-13380) on April 24, 1997. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Form 10-K
referred to above. Certain reclassifications have been made to prior year
amounts to conform to the current presentation.
3. The Company's fiscal year ends on the Saturday prior to the last Wednesday
in January.
4. At April 26, 1997, the Company operated a chain of 587 office products
superstores in 231 markets, 48 states and Puerto Rico.
5. The Company's policy is to expense pre-opening expenses during the first
month of each new store's operation. Consequently, pre-opening expense in
each period is generally a function of the number of new stores opened
during that period.
6. The average common and common equivalent shares utilized in computing
earnings per share for the 13 weeks ended April 26, 1997 and April 27, 1996
include 907,093 and 1,924,143 shares, respectively, resulting from the
application of the treasury stock method to outstanding stock options.
7. The Company is required to adopt the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128), for the period ended
January 24, 1998. Earlier application is not permitted. SFAS 128 specifies
the computation, presentation and disclosure requirements for earnings per
share. The Company does not believe that the adoption of SFAS 128 will have
a material effect on the Company's method of calculation or display of
earnings per share amount.
7
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
SALES for the 13 weeks ended April 26, 1997 increased 22% to $888,640,000 from
$730,595,000 for the comparable period a year earlier. The sales increase was
primarily attributable to a full period of sales from the 96 stores opened
during fiscal 1996, a comparable store sales increase of 5% during the 13 weeks
and, to a lesser extent, the additional sales from 23 new superstores opened at
various points during the period.
COST OF MERCHANDISE SOLD, INCLUDING BUYING AND OCCUPANCY COSTS, decreased as a
percentage of sales to 77.5% for the 13 weeks ended April 26, 1997 from 78.0% of
sales for the same period a year earlier. Correspondingly, gross profit for the
13 weeks ended April 26, 1997, was 22.5% as compared to 22.0% for the same
period a year earlier. This increase in gross profit was primarily attributable
to improved gross margins in most supply departments and improved margin
productivity in the computer merchandise category.
STORE OPERATING AND SELLING EXPENSES, which consist primarily of store payroll,
operating and advertising expenses, held at 17.1% for the 13 weeks ended April
26, 1997, compared to the same period a year earlier. This was primarily a
result of leveraging of advertising expense and tight operating expense control
offset by higher costs due to additional store openings and remodeling expense.
PRE-OPENING EXPENSE was $2,237,000 for the 13 weeks ended April 26, 1997, as
compared to $532,000 for the same period a year earlier, reflecting the opening
of 23 superstores during the 13 weeks ended April 26, 1997, compared to 7 for
the same period a year earlier. Pre-opening expenses averaged approximately
$75,000 per store for both the current and prior year, consisting primarily of
store payroll, supplies and grand opening advertising. During the first quarter,
the Company also opened 11 FurnitureMax hubs and 10 CopyMax hubs, for which
pre-opening expenses average approximately $25,000 and $35,000, respectively,
per store.
GENERAL AND ADMINISTRATIVE EXPENSES were 2.2% for the 13 weeks ended April 26,
1997, as compared to 2.0% for the same period a year earlier, a result of the
Company's continuing expansion of its management team and infrastructure to
support the planned growth both in the United States and abroad.
GOODWILL AMORTIZATION was $2,347,000 for both the 13 weeks ended April 26, 1997
and the 13 weeks ended April 27, 1996. Goodwill is capitalized and amortized
over 40 years using the straight line method.
OPERATING INCOME increased to $24,403,000 or 2.8% of sales, for the 13 weeks
ended April 26, 1997 compared to operating income of $17,999,000, or 2.5% of
sales, for the same period a year earlier.
INTEREST INCOME, NET was $1,299,000 for the 13 weeks ended April 26, 1997, as
compared to $2,790,000 for the same period a year earlier. Interest income
declined as more cash was invested in the accelerated store expansion resulting
in lower investments.
INCOME TAXES were $9,972,000 for the 13 weeks ended April 26, 1997, as compared
to $8,235,000 for the same period a year ago. The effective tax rates for both
periods are different from the federal statutory income tax rate primarily as a
result of tax exempt interest and state and local taxes.
NET INCOME as a result of the foregoing factors, was $15,730,000 for the 13
weeks ended April 26, 1997, as compared to $12,554,000 for the same period a
year earlier.
8
9
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used for operations for the 13 weeks ended April 26, 1997 was
$90,453,000. Funding required for working capital increased due to a reduction
in accounts payable, higher accounts receivable and payment of accrued expenses.
Accounts payable declined significantly this year due to the slowing of
inventory purchases towards the end of the quarter in anticipation of the
seasonally lower revenue expected in the second quarter. Conversely, in the
first quarter of 1996, the Company took advantage of buying opportunities in new
technologies to substantially increase purchases of computers and electronics
which offset the seasonal effect on accounts payable. Net cash used for
investing activities was $35,589,000 for the period, principally as a result of
the purchase of fixed assets for new and remodeled stores. Net cash provided by
financing was $1,134,000 for the period, primarily from net proceeds received
from the sale of shares under the Company's share purchase plans and the
exercise of stock options.
The Company plans to open approximately 30 to 35 new OfficeMax superstores, 18
new FurnitureMax stores, 19 new CopyMax stores and remodel 70 existing
superstores during the quarter ending July 26, 1997. Management estimates that
the Company's cash requirements for these openings and remodels, exclusive of
pre-opening expenses, will be approximately $1,200,000, $215,000, $430,000, and
$196,000, respectively, for each additional OfficeMax, FurnitureMax, CopyMax,
and store remodel. For an OfficeMax superstore, the requirements include an
average of approximately $450,000 for leasehold improvements, fixtures,
point-of-sales terminals and other equipment, and approximately $750,000 for the
portion of store inventory that is not financed by accounts payable to vendors.
Pre-opening expenses are expected to average approximately $75,000 for an
OfficeMax superstore, $25,000 for a FurnitureMax store and $35,000 for a CopyMax
store.
In order to finance its operations and capital requirements, including its
expansion strategy, the Company expects to use funds generated from operations
as well as its current cash reserves, and, to the extent necessary, seasonal
short-term borrowings. The Company has available through May 1999 a $100 million
revolving credit facility, of which no borrowings were outstanding as of April
26, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -----------------------------------------------------------------
Not Applicable.
9
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Exhibits:
(a) Exhibits:
3.1 Second Amended and Restated Articles of Incorporation
(incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended January
21, 1995).
3.2 Code of Regulations (incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal
year ended January 21, 1995).
27.0 Financial Data Schedule
(b) Reports on Form 8-K: None.
10
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICEMAX, INC.
Date: June 9, 1997 By: /s/ John C. Belknap
----------------------------
John C. Belknap
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
11