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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 25, 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
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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
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(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
-------------- November 25, 1997
Common Shares -----------------
(without par value) 124,101,418
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OFFICEMAX, INC.
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements 3-8
Item 2. Management's Discussion and Analysis of Financial 9-10
Condition and Results of Operations
Part II - Other Information
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
- ------- - --------------------
OFFICEMAX, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
October 25, January 25,
ASSETS 1997 1997
--------------- ---------------
Current assets:
Cash and equivalents $ 80,585 $ 258,111
Accounts receivable, net of allowances
of $845 and $861, respectively 82,278 24,072
Merchandise inventories 1,097,583 894,407
Other current assets 25,634 28,691
--------------- ---------------
Total current assets 1,286,080 1,205,281
Property and equipment:
Buildings and land 19,203 16,843
Leasehold improvements 172,035 167,527
Furniture and fixtures 270,997 224,582
--------------- ---------------
Total property and equipment 462,235 408,952
Less: Accumulated depreciation and amortization (157,480) (116,084)
--------------- ---------------
Property and equipment, net 304,755 292,868
Other assets and deferred charges 43,161 35,377
Goodwill, net of accumulated amortization
of $48,884 and $41,842, respectively 326,702 333,744
=============== ===============
$ 1,960,698 $ 1,867,270
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 561,822 $ 490,417
Accrued expenses and other liabilities 116,389 161,815
Accrued salaries and related expenses 39,796 32,504
Taxes other than income taxes 51,928 45,865
Revolving credit facility - -
Mortgage loan, current portion 1,300 1,300
--------------- ---------------
Total current liabilities 771,235 731,901
Mortgage loan 18,050 18,700
Other long-term liabilities 54,899 53,105
--------------- ---------------
Total liabilities 844,184 803,706
--------------- ---------------
Commitments and contingencies -- --
Shareholders' equity:
Common shares, without par value; 200,000,000 shares
authorized; 124,037,068 and 123,766,614 shares issued 856,730 854,094
and outstanding, respectively
Deferred stock compensation (450) (1,149)
Retained earnings 260,234 210,619
--------------- ---------------
Total shareholders' equity 1,116,514 1,063,564
=============== ===============
$ 1,960,698 $ 1,867,270
=============== ===============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these balance sheets.
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OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
13 Weeks Ended 39 Weeks Ended
------------------------------------ --------------------------------------
October 25, October 26, October 25, October 26,
1997 1996 1997 1996
---------------- ----------------- ----------------- -----------------
Sales $ 992,365 $ 859,781 $ 2,657,149 $ 2,212,508
Cost of merchandise sold, including
buying and occupancy costs 756,952 669,794 2,050,206 1,727,046
---------------- ----------------- ----------------- -----------------
Gross profit 235,413 189,987 606,943 485,462
Store operating and selling expenses 156,107 131,488 448,081 369,495
Pre-opening expenses 4,054 2,410 10,211 4,811
General and administrative expenses 21,980 16,641 62,048 46,741
Goodwill amortization 2,347 2,346 7,042 7,041
---------------- ----------------- ----------------- ------------------
Total operating expenses 184,488 152,885 527,382 428,088
Operating income 50,925 37,102 79,561 57,374
Interest income, net 438 1,635 1,507 6,060
---------------- ----------------- ----------------- ------------------
Income before income taxes 51,363 38,737 81,068 63,434
Income taxes 19,928 15,018 31,453 24,803
---------------- ----------------- ----------------- -----------------
Net income $ 31,435 $ 23,719 $ 49,615 $ 38,631
================ ================= ================= =================
EARNINGS PER COMMON SHARE DATA:
Earnings per common share $ 0.25 $ 0.19 $ 0.40 $ 0.31
================ ================= ================= =================
Weighted average number of
common shares outstanding 125,874,000 125,191,000 125,320,000 125,447,000
================ ================= ================= =================
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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OFFICEMAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
39 Weeks Ended
----------------------------------------
October 25, October 26,
1997 1996
----------------- ----------------
CASH PROVIDED BY (USED FOR):
OPERATIONS
Net income $ 49,615 $ 38,631
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 49,201 37,173
Increase (decrease) in deferred income taxes 891 (575)
Increase in other long-term liabilities 1,794 1,843
Other, net (3,282) 744
Change in current assets and current liabilities:
(Increase) in inventories (203,176) (218,982)
Increase in accounts payable 71,405 103,684
(Increase) in accounts receivable (58,206) (36,009)
Increase (decrease) in accrued liabilities 8,372 (42,192)
---------------- --------------
Net cash (used for) operations (83,386) (115,683)
---------------- --------------
INVESTING
Capital expenditures (92,314) (54,253)
Other, net (3,813) (1,332)
---------------- --------------
Net cash (used for) investing (96,127) (55,585)
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FINANCING
Reduction in long term debt and capital lease obligations -- (16)
Payments of mortgage principal (650) --
Proceeds from issuance of common stock 2,637 2,687
---------------- --------------
Net cash provided by financing 1,987 2,671
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CASH AND CASH EQUIVALENTS
Net (decrease) for the period (177,526) (168,597)
Balance, beginning of period 258,111 365,863
---------------- --------------
Balance, end of period $ 80,585 $ 197,266
================ ==============
SUPPLEMENTAL INFORMATION
Interest paid $ 1,120 $ --
================ ==============
Income taxes paid $ 35,789 $ 15,054
================ ==============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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OFFICEMAX, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands)
(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 1,396 18 (18) -- --
Exercise of stock options 224,473 1,267 -- -- 1,267
Sale/(forfeiture) of shares
under management share (13,085) (88) -- -- (88)
purchase plan
Sale of shares under employee 57,670 1,439 -- -- 1,439
share purchase plan
Amortization of deferred -- -- 717 -- 717
compensation
Net income -- -- -- 49,615 49,615
---------------- -------------- ----------------- -------------- -------------
Balance at October 25, 1997 124,037,068 $ 856,730 $ (450) $ 260,234 $1,116,514
================ ============== ================= ============== =============
The accompanying Notes to Consolidated Financial Statements are an integral part
of these statements.
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OFFICEMAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE 13 AND 39 WEEKS ENDED
OCTOBER 25, 1997 AND OCTOBER 26, 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 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 25, 1997 and October 26, 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 and 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 October 25, 1997, the Company operated a chain of 659 office products
superstores, two call centers and 17 catalog delivery centers in over 260
markets, 48 states and Puerto Rico.
5. The Company's policy is to expense pre-opening expenses during the first
month of each new store's operation. Consequently, pre-opening expense in
each period is generally a function of the number of new stores opened
during that period.
6. The average common and common equivalent shares utilized in computing
earnings per share for the 13 and 39 weeks ended October 25, 1997 include
1,850,092 and 1,362,410 shares, respectively, resulting from the
application of the treasury stock method to outstanding stock options.
7. On July 3, 1997, the Company entered into a five year, $500,000,000
revolving credit facility with a group of 23 banks, including The Bank of
New York as the administrative agent and KeyBank National Association as
the documentation agent. The revolving credit facility provides for
borrowings bearing an interest rate at the bank's prime or Eurodollar rate
plus .1450% to .3125% (fixed at .16% for the first year). In addition, the
Company must also pay quarterly fees on the full amount of the revolving
credit facility, fixed for the first year at .09% per annum, and varying
between .08% and .1875% per annum for years two through five. This credit
facility replaced the Company's $100,000,000 agreement.
8. A receivable, valued at $19,000,000 and $15,000,000 on October 25, 1997 and
January 25, 1997, respectively, has been recorded in other assets. The
Company has recorded this receivable based on management's and outside
legal counsel's interpretation of the terms and conditions of a terminated
service contract.
9. 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
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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.
10. In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131) was issued. The statement is effective for fiscal years beginning
after December 15, 1997. SFAS 131 establishes standards for reporting
information about operating segments in annual reports and selected
information in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Operating segments are defined as enterprises for which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. The Company has not determined the impact, if any,
that SFAS 131 will have on its consolidated financial statements and
disclosures.
11. On November 12, 1997, the Company's Board of Directors authorized the
Company to purchase up to $100,000,000 of its common shares in open market
transactions.
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ITEM 2. MANAGEMENT'S DISSCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
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RESULTS OF OPERATIONS
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SALES for the 13 and 39 weeks ended October 25, 1997 increased 15% and 20% to
$992,365,000 and $2,657,149,000, respectively, from $859,781,000 and
$2,212,508,000 for the comparable periods a year earlier. These sales increases
were primarily attributable to a full period of sales from the 96 stores opened
during fiscal 1996, the additional sales from 96 new superstores opened at
various points during the 39-week period and a comparable store sales increase
of 2% for the 39-week period. Same-store sales for the 13 weeks, excluding
computers, increased 3% over last year's third quarter. Comparable store sales
for the 13 weeks, including computers, which were adversely affected by
declining retail prices and the Company's deliberate decision to drastically
curtail "giveaway" price promotions this year versus last year, resulted in a
same-store sales decline of 2%.
COST OF MERCHANDISE SOLD, INCLUDING BUYING AND OCCUPANCY COSTS, decreased as a
percentage of sales to 76.3% and 77.2% for the 13 and 39 weeks ended October 25,
1997, respectively, from 77.9% and 78.1% of sales for the same periods a year
earlier. Correspondingly, gross profit for the 13 and 39 week periods ended
October 25, 1997, was 23.7% and 22.8%, respectively, as compared to 22.1% and
21.9% for the same periods a year earlier. The increase in gross profit was
primarily attributable to reductions in the number of giveaway computer
promotions this year versus last year and the enhanced marketing of higher
margin office supply items and furniture.
STORE OPERATING AND SELLING EXPENSES, which consist primarily of store payroll,
operating and advertising expenses, increased as a percentage of sales to 15.7%
and 16.9% for the 13 and 39 weeks ended October 25, 1997, respectively, from
15.3% and 16.7% of sales for the same periods a year earlier. The Company
experienced a decrease in leverage of these items primarily due to the greater
number of immature stores as the percentage of stores opened less than one year
increased from 17% to 22%. New stores typically begin to leverage the fixed cost
components in their second year of operations. This increase in costs was
partially offset by improved leveraging of advertising expenses as the Company
opened additional stores in existing markets.
PRE-OPENING EXPENSE was $4,054,000 and $10,211,000 for the 13 and 39 weeks ended
October 25, 1997, respectively, as compared to $2,410,000 and $4,811,000 for the
same periods a year earlier, reflecting the opening of 39 and 96 superstores
during the 13 and 39 weeks ended October 25, 1997, respectively, compared to 24
and 49 for the same periods a year earlier. Pre-opening expenses increased to an
average of approximately $85,000 per store for the current year from the $75,000
incurred in the prior year. This increase is due to the Company's business
decision to accelerate certain training and other costs to facilitate higher
levels of customer service when the store opens. Pre-opening expenses consist
primarily of store payroll, supplies and grand opening advertising. For the 39
weeks ended October 25, 1997, the Company also opened 36 FurnitureMax hubs and
43 CopyMax hubs, for which pre-opening expenses averaged approximately $25,000
and $35,000, respectively, per store.
GENERAL AND ADMINISTRATIVE EXPENSES were 2.2% and 2.3% of sales for the 13 and
39 weeks ended October 25, 1997, respectively, as compared to 1.9% and 2.1% of
sales for the same periods a year earlier, as a result of the Company continuing
to enhance its management team and infrastructure to support the planned growth
both in the United States and internationally.
GOODWILL AMORTIZATION was $2,347,000 and $7,042,000 for the 13 and 39 weeks
ended October 25, 1997, respectively, as compared to $2,346,000 and $7,041,000
for the same periods a year earlier. Goodwill is capitalized and amortized over
40 years using the straight-line method.
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OPERATING INCOME increased to $50,925,000 and $79,561,000 or 5.1% and 3.0% of
sales, for the 13 and 39 weeks ended October 25, 1997, respectively, as compared
to operating income of $37,102,000 and $57,374,000, or 4.3% and 2.6% of sales,
for the same periods a year earlier.
INTEREST INCOME, NET was $438,000 and $1,507,000 for the 13 and 39 weeks ended
October 25, 1997, respectively, as compared to $1,635,000 and $6,060,000 for the
same periods a year earlier. Interest income decreased due to the Company's use
of cash and equivalents to fund the aggressive expansion plans and seasonal
inventory requirements.
INCOME TAXES were $19,928,000 and $31,453,000 for the 13 and 39 weeks ended
October 25, 1997, respectively, as compared to $15,018,000 and $24,803,000 for
the same periods a year ago. The effective tax rates are different from the
federal statutory income tax rate primarily as a result of goodwill
amortization, tax exempt interest, and state and local taxes.
NET INCOME as a result of the foregoing factors, was $31,435,000 and $49,615,000
for the 13 and 39 weeks ended October 25, 1997, respectively, as compared to
$23,719,000 and $38,631,000 for the same periods a year earlier.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash used for operations for the 39 weeks ended October 25, 1997 was
$83,386,000. Major uses of working capital included increases in inventory and
an increase in the accounts receivable balance. The inventory increase was
attributable to seasonal inventory buys and new store openings while the
increase in accounts receivable was due to additional funding from vendors as a
result of higher merchandise purchase volumes and the fact that most funding is
collected at year end. Net cash used for investing activities was $96,127,000,
principally due to capital expenditures for new and remodeled stores as well as
the Company's continued investment in systems. Net cash received from financing
was $1,987,000, primarily representing net proceeds received from the sale of
shares under the Company's share purchase plans.
During the 13 weeks ending January 24, 1998, the Company plans to open
approximately 54 new OfficeMax superstores, 14 new FurnitureMax stores, 13 new
CopyMax stores and remodel 8 existing superstores. Management estimates that the
Company's cash requirements for these openings and remodels, exclusive of
pre-opening expenses, will be approximately $1,200,000, $215,000, $430,000, and
$196,000, respectively, for each additional OfficeMax, FurnitureMax, CopyMax,
and store remodel. For an OfficeMax superstore, the requirements include an
average of approximately $450,000 for leasehold improvements, fixtures,
point-of-sales terminals and other equipment, and approximately $750,000 for the
portion of store inventory that is not financed by accounts payable to vendors.
Pre-opening expenses are expected to average approximately $85,000 for an
OfficeMax superstore, $25,000 for a FurnitureMax store and $35,000 for a CopyMax
store.
On November 12, 1997, the Company's Board of Directors authorized the Company to
purchase up to $100,000,000 of its common shares in open market transactions. As
of November 25, 1997, the Company had not purchased any common shares. The
Company will reissue the acquired shares to satisfy its obligations under
certain of its equity-based employee plans. Future purchases of common shares
will depend on the Company's cash position and market conditions.
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 25, 1997, the Company had
no outstanding debt associated with the revolving credit facility.
The Company's business is seasonal to a certain extent, with the fourth quarter
of each year accounting for approximately 30% of sales and 40% of earnings for
the full year. Sales are the slowest during the May through July second quarter,
primarily because of lower consumption of office supplies during the summer
vacation period.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibits:
(a) Exhibits:
10.1 Credit agreement dated as of July 3, 1997, by and
among OfficeMax, Inc., the lenders party thereto,
the co-agents party thereto, KeyBank National
Association, as documentation agent, and The Bank
of New York, as administrative agent and as swing
line lender
27.0 Financial Data Schedule for the period ended
October 25, 1997
(b) Reports on Form 8-K: None
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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 4, 1997 By: /s/ Jeffrey L. Rutherford
---------------------------------------
Jeffrey L. Rutherford
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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