UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report April 17, 2002
Commission file number 1-10948
OFFICE DEPOT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2663954
--------------------------------- --------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Old Germantown Road, Delray Beach, Florida 33445
(Address of principal executive offices) (Zip Code)
(561) 438-4800
(Registrant's telephone number, including area code)
Former name or former address, if changed since last report: N/A
ITEM 5. OTHER EVENTS
On April 17, 2002, Office Depot, Inc. issued a press release, with earnings
information for its fiscal first quarter of 2002. A copy of the press release is
attached hereto as Exhibit 99.1 and incorporated by reference herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
99.1 Press release dated April 17, 2002, announcing financial results for the
Company's fiscal first quarter for its fiscal year 2002.
SIGNATURE
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.
OFFICE DEPOT, INC.
Date: April 17, 2002 By: /S/ DAVID C. FANNIN
David C. Fannin
Executive Vice President and
General Counsel
OFFICE
DEPOT (R)
NEWS RELEASE
- --------------------------------------------------------------------------------
Eileen H. Dunn
Vice President, Investor Relations/Public Relations
(561) 438-4930
edunn@officedepot.com
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OFFICE DEPOT ANNOUNCES FIRST QUARTER 2002 RESULTS
o Operating Income and EPS Up Over 68%
o Strong Operating Results in North America
o Company Anticipates 30% EPS Growth For 2002
(DELRAY BEACH, FL) APRIL 17, 2002 -- OFFICE DEPOT, INC. (NYSE: ODP), the world's
largest seller of office products, today announced results for its first quarter
ended March 30, 2002.
Total sales for the first quarter of 2002 increased 1% to $3.0 billion compared
to the same period in 2001. Worldwide comparable sales in the 853 stores and 39
delivery centers open for more than one year declined 1% for the quarter.
The Company reported operating income of $163.9 million for the first quarter,
an increase of 69% compared to operating income of $96.9 million reported for
the same period in 2001. Earnings per share rose 68% from $0.19 in the first
quarter 2001 to $0.32 in the first quarter 2002. The increase was primarily
driven by higher gross margins in the Company`s North American retail and
delivery businesses and lower operating costs in the Business Services Group.
In reviewing the Company's results for the first quarter of 2002, Bruce Nelson,
Chairman and CEO, commented: "In spite of continued softness in sales, our
results this quarter reflect strong operating performance across all of our
business units and continued progress with our initiatives to improve efficiency
and relentlessly pursue market share and new growth strategies.
"First quarter 2002 marks the fifth consecutive quarter of North American Retail
comparable store sales improvement. North American Retail comparable sales
declined 1.7% for the first quarter 2002. Retail gross margin percentages in
this quarter improved dramatically, reflecting the strong performance in the
last three quarters of 2001 and the anniversary of the almost 2,000 item SKU
reductions and markdowns we took in the first quarter of last year in
preparation for our chain-wide re-merchandising program. Our retail customer
service levels reached all time highs as we continue to focus on making Office
Depot the most compelling place to shop. Comparable sales in desktop and laptop
computers dropped 18%, while overall technology products declined 13% in the
first quarter, continuing to overshadow growth in some core office supply
categories.
"Our Business Services Group had its best first quarter performance ever, with
operating profit reaching 9.9% of sales. This was achieved in spite of the
continued impact of a weak domestic economy that resulted in negative 2.6%
comparable sales growth. Our relentless focus on quality and efficiency
improvement has resulted in dramatic increases in all of our customer service
and quality metrics and at the same time, we have lowered operating costs. As
the domestic economy begins to improve, we are poised to accelerate our sales
growth and believe we can gain market share and at the same time deliver
consistent earnings growth.
"International operating margins reached almost 14% of sales in the period,
despite the impact of sales softness across most of our European Viking catalog
operations and the strength of the U.S. dollar against foreign currencies.
Currency translation negatively impacted sales growth reported in U.S. dollars
by approximately $19.5 million. Continued weakness in the Japanese economy
negatively impacted sales growth, but operating losses declined from the
previous year. Consistent with our strategy to invest for growth in our
international businesses, two new countries are in full start-up catalog
operations mode, Switzerland and Spain. We have planned for operating losses in
both these countries throughout 2002. We now anticipate some slowing of
historical comp growth rates in our European catalog operations for the next few
quarters, somewhat offset by strong sales growth in French retail and in the
four countries where we have launched new Office Depot Business Service
Operations. Strong gross margins and continued improvements in leverage and
efficiency should offset most of the impact of a softening European economy.
"As we look toward the balance of the year, we believe the profit improvements
we have made are sustainable and will ensure solid earnings growth for 2002 even
without a dramatic improvement in the economy. While we are aggressively
focusing on driving efficiency and productivity throughout our businesses, we
are highly focused on finding new ways to grow. So at this point in time, we are
confident that our earnings per share can grow in excess of 30% this year
without any significant improvement in the domestic economy."
Highlights during the first quarter included:
o Worldwide e-commerce sales grew 36% to $488.3 million during the
quarter, compared to $359.4 million in the comparable period in
2001. Domestic e-commerce sales rose 35% in the period, followed
by International e-commerce sales up 56% for the period. We are
on track to exceed $2 billion in worldwide e-commerce sales this
year.
o At the end of the quarter, our cash balance reached $845 million,
an over $280 million increase from year-end 2001, and we
successfully negotiated commitments for a new $600 million,
three-year revolving credit facility.
o We launched two more International Web sites,
BSDnet.officedepot.nl and vikingdirect.ie. We now operate 16
unique public and corporate Web sites in 10 countries around the
world.
o Jocelyn Carter-Miller joined our executive management team as
Chief Marketing Officer. Ms. Carter-Miller will have the
responsibility for the Company's marketing efforts across all of
our businesses, including multi-channel marketing programs,
direct mail and special marketing initiatives.
o Patricia B. Morrison joined our executive management team as
Chief Information Officer. Ms. Morrison has responsibility for
the Company's global information systems, including its highly
successful global e-commerce platform.
2
o Samuel E. Mathis, Jr. joined our team as the Vice President of
Diversity. Mr. Mathis will oversee and direct all of the
Company's strategic diversity programs as well as the development
and enhancement of other initiatives including
corporate diversity training and minority recruitment.
o Office Depot Mexico, a 50% joint venture partnership with Grupo
Gigante, one of the largest retailers in Mexico, announced plans
for expansion into Central America. Two Office Depot stores are
planned to open in late summer 2002 in Guatemala, and two
additional retail stores are planned to open in Costa Rica by
year-end. All of this expansion is funded from our highly
successful and profitable Mexican joint venture.
SEGMENT RESULTS
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NORTH AMERICAN RETAIL DIVISION
First Quarter
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(In millions of dollars) 2002 2001
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Sales $1,621.9 $1,611.2
COGS and Occupancy Costs 1,228.5 1,270.6
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Gross Profit 393.4 340.6
Operating and Selling Expenses 269.8 264.4
----- -----
Segment Operating Profit $123.6 $ 76.2
- -----------------------------------------------------------------
While sales improved over the first quarter of 2001, the North American Retail
Division continued to be negatively impacted by weakness in the U.S. economy and
weak sales of technology products and the related market basket of other
products. Comparable sales in the 820 stores open for more than one year
decreased 1.7% for the first quarter, but it was the fifth consecutive quarter
of sequential improvement. North American Retail average ticket size improved
slightly, while transaction counts were down slightly compared to the prior
year.
Comparable sales of technology products declined 13% in the quarter, compared to
a 25% comp decline in the fourth quarter of 2001. Comparable furniture sales
declined 4% during the first quarter, compared to an 11% decline in the fourth
quarter. A number of core office supply categories comps were positive in the
quarter.
Gross margins significantly improved, up 312 basis points on a year-over-year
basis, reflecting the positive performance of the last three quarters of 2001
and the year-over-year gross margin comparison benefits from the SKU
rationalization program implemented during the first quarter of 2001. Store
operating costs were 23 basis points higher than last year, but were lower than
expected as the Company was able to flex its payroll hours in response to softer
sales.
During the first three months of 2002, the Company closed two office supply
superstores and relocated two others. At the end of the quarter, Office Depot
operated a total of 857 office product superstores throughout the United States
and Canada.
3
BUSINESS SERVICES GROUP
First Quarter
- -----------------------------------------------------------------
(In millions of dollars) 2002 2001
- -----------------------------------------------------------------
Sales $992.7 $981.0
COGS and Occupancy Costs 674.6 684.1
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Gross Profit 318.1 296.9
Operating and Selling Expenses 220.3 239.7
----- -----
Segment Operating Profit $ 97.8 $ 57.2
- -----------------------------------------------------------------
Business Services Group sales grew 1% over the same period last year, but
comparable sales declined 2.6% during the first quarter. Sales were soft across
all customer size segments reflecting the continuing softness in the domestic
economy. The Company's contract business showed strong growth in its Northeast
and Southeast regions with continued softness in the Central and Western
regions. The Western region, particularly Northern California, has been the most
negatively impacted as a result of softness in the technology industry. We are
anticipating some improvement in this region during the second half of 2002 as
we anniversary last year's downturn. We have added sales resources in the large
account segment and we have been successful in acquiring major new customers.
Despite the sales decline during the quarter, segment operating profit improved
by 402 basis points on a year-over-year basis. Gross margins improved by 178
basis points mirroring the trends of last year and operating costs declined by
another 224 basis points reflecting the benefits of call center consolidations
and the continued improvement in efficiency in our North American warehouses.
Our customer quality indices in this segment have never been higher and coupled
with five consecutive quarters of improvement in our cost structure, we are well
positioned to take advantage of an improving domestic economy.
4
INTERNATIONAL DIVISION
First Quarter
- -----------------------------------------------------------------
(In millions of dollars) 2002 2001
- -----------------------------------------------------------------
Sales $426.8 $426.6
COGS and Occupancy Costs 254.7 256.7
----- -----
Gross Profit 172.1 169.9
Operating and Selling Expenses 112.2 106.6
----- -----
Segment Operating Profit $ 59.9 $ 63.3
- -----------------------------------------------------------------
First quarter comparable sales growth in the International Division were down
1%, in U.S. dollars, and were positive 4% in local currencies, excluding the
foreign exchange impact. International Division sales were negatively impacted
from foreign exchange rates by approximately $19.5 million during the quarter.
Unfavorable exchange rates negatively impacted the International Division's
operating profit by approximately $2.2 million for the quarter.
Softness in European Viking catalog sales was the main contributor to the slower
sales growth during the quarter. We also experienced continued sales softness in
Japan, although our operating losses improved by more than $800 thousand during
the period. As we indicated earlier, we are now anticipating some continued
sales softness in our European catalog operations for the next few quarters, as
Europe is feeling the impact of a soft global economy.
The European Business Services Division is now successfully operating in four
European countries - the United Kingdom, France, the Netherlands and Ireland.
The U.K. is the only country with prior year comparisons, which reflected strong
comparable sales growth over the past year. We are encouraged by our early
progress in this Division and we see it as an opportunity to accelerate our
international growth and gain market share. These businesses leverage our
existing logistics infrastructure, so start-up costs are primarily related to
the costs associated with new sales organizations in each country. In early
April, we began catalog operations in Spain with new logistic and call center
facilities.
Gross margins improved during the quarter by 51 basis points compared to the
prior year, primarily from the shift in mix in our European catalogs, as well as
an improvement in vendor rebates. Our selling and operating expenses increased
by 131 basis points due to the costs of opening three new contract divisions in
mid-to-late 2001 and new country openings in Switzerland and Spain. Costs will
continue to be slightly higher during the second quarter as Spain and
Switzerland become fully operational.
5
Office Depot has retail stores, through a combination of wholly owned
operations, joint ventures and international licensing agreements, in the
following countries:
First Quarter Activity Open at Quarter End
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Number of Stores Opened Closed 2002 2001
- --------------------------------------------------------------------------------
Mexico 1 - 62 54
France * - - 30 28
Israel - - 23 22
Poland - - 15 16
Japan * 2 - 11 7
Hungary - - 3 3
Thailand - - 2 2
------------------------------------------------
Total 3 - 146 132
- --------------------------------------------------------------------------------
* Office Depot wholly owned stores
Along with its retail stores, the Company also has delivery and catalog
operations in 15 countries outside of the United States and Canada.
- --------------------------------------------------------------------------------
CONFERENCE CALL INFORMATION
Office Depot will hold a conference call for investors and analysts at 8:00 a.m.
(Eastern Time) on today's date. The conference call will be available to all
investors via Webcast at www.officedepot.com under Company Info/Investor
Relations. Interested parties may contact Investor Relations at 561-438-1680 for
further information on the conference call.
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ABOUT OFFICE DEPOT
No one sells more office products to more customers in more countries through
more channels than Office Depot. As the largest seller of office products around
the world, the Company operates under the Office Depot(R), Office Place(R),
Viking Office Products(R), Viking Direct(R) and 4Sure.com(R) brand names. As of
March 30, 2002, Office Depot operated 857 office supply superstores in the
United States and Canada, in addition to a national business-to-business
delivery network supported by 24 delivery centers, more than 60 local sales
offices and 13 regional call centers. Furthermore, the Company sells products
and services in 17 countries outside of the United States and Canada, including
30 office supply stores in France and 11 in Japan that are owned and operated by
the Company; and 105 additional office supply stores under joint venture and
licensing agreements operating under the Office Depot name in five foreign
countries.
The Company operates an award-winning U.S. Office Depot brand Web site at
www.officedepot.com where customers can access Office Depot's low competitive
prices seven days a week, twenty-four hours a day. The Company also operates
fifteen additional Web sites, under the Office Depot and Viking Office Products
names, in the U.S. and nine international countries including: Austria,
Australia, France, Japan, Germany, Ireland, Italy, the Netherlands and the
United Kingdom.
Office Depot's common stock is traded on the New York Stock Exchange under the
symbol ODP and is included in the S&P 500 Index.
6
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: Except for historical
information, the matters discussed in this press release are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, as amended. Forward-looking statements, including without limitation all
of the projections and anticipated levels of future performance, involve risks
and uncertainties which may cause actual results to differ materially from those
discussed herein. These risks and uncertainties are detailed from time to time
by Office Depot in its filings with the United States Securities and Exchange
Commission ("SEC"), including without limitation its most recent filing on Form
10-K, filed on March 19, 2002. You are strongly urged to review all such filings
for a more detailed discussion of such risks and uncertainties. The Company's
SEC filings are readily obtainable at no charge at www.sec.gov and at
www.freeEDGAR.com, as well as on a number of other commercial Web sites.
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OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 13 Weeks Ended
March 30, 2002 March 31, 2001
-------------------- --------------------
Sales $ 3,040,615 $ 3,017,914
Cost of goods sold and occupancy costs 2,157,424 2,211,063
-------------------- --------------------
Gross profit 883,191 806,851
Store and warehouse operating
and selling expenses 602,056 610,302
General and administrative expenses 116,111 98,061
Other operating expenses 1,116 1,570
-------------------- --------------------
719,283 709,933
Operating profit 163,908 96,918
Other income (expense):
Interest income 2,896 1,607
Interest expense (11,267) (10,281)
Miscellaneous income, net 2,477 1,163
-------------------- --------------------
Earnings before income taxes 158,014 89,407
Income taxes 55,305 33,078
-------------------- --------------------
Net earnings $ 102,709 $ 56,329
==================== ====================
Earnings per common share:
Basic $ 0.34 $ 0.19
Diluted 0.32 0.19
Weighted average number of common Shares outstanding:
Basic 303,504 296,095
Diluted 326,227 312,539
8
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
As of As of
March 30, 2002 December 29, 2001
--------------------- ----------------------
ASSETS
Current assets:
Cash and cash equivalents $ 844,628 $ 563,410
Receivables, net 763,953 781,476
Merchandise inventories, net 1,025,793 1,259,522
Deferred income taxes 152,330 148,490
Prepaid expenses 59,887 53,292
--------------------- -------------------
Total current assets 2,846,591 2,806,190
Fixed assets:
Property and equipment, at cost 1,935,801 1,911,774
Less accumulated depreciation and amortization 832,922 801,763
--------------------- -------------------
Net fixed assets 1,102,879 1,110,011
Goodwill, net 249,389 249,560
Other assets 165,134 165,882
--------------------- -------------------
$ 4,363,993 $ 4,331,643
===================== ===================
LIABILITIES
Current liabilities:
Accounts payable $ 992,799 $ 1,060,968
Accrued expenses and other liabilities 561,779 612,999
Income taxes payable 115,484 109,026
Current maturities of long-term debt 324,795 318,521
--------------------- -------------------
Total current liabilities 1,994,857 2,101,514
Deferred income taxes and other credits 68,686 64,139
Long-term debt, net of current maturities 313,469 315,331
Zero coupon, convertible subordinated notes 2,243 2,221
COMMITMENTS AND CONTINGENCIES
- -----------------------------
STOCKHOLDERS' EQUITY
Common stock - authorized 800,000,000 shares
of $.01 par value; issued 389,410,454 in
2002 and 385,538,340 in 2001 3,894 3,855
Additional paid-in capital 1,057,501 1,007,088
Unamortized value of long-term incentive stock grant (2,532) (2,578)
Accumulated other comprehensive loss (76,033) (71,273)
Retained earnings 1,820,443 1,717,734
Treasury stock, at cost - 83,121,610 shares in 2002
and 82,443,170 in 2001 (818,535) (806,388)
--------------------- -------------------
1,984,738 1,848,438
--------------------- -------------------
$ 4,363,993 $ 4,331,643
===================== ===================
9
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
13 Weeks Ended March 13 Weeks Ended March
30, 2002 31, 2001
---------------------- ----------------------
Cash flows from operating activities:
Net earnings $ 102,709 $ 56,329
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 49,127 48,280
Provision for losses on inventories and receivables 27,867 35,565
Changes in working capital 112,670 206,240
Other operating activities, net 4,051 16,580
---------------------- ----------------------
Net cash provided by operating activities 296,424 362,994
---------------------- ----------------------
Cash flows from investing activities:
Capital expenditures, net of proceeds from sales (35,818) (27,495)
---------------------- ----------------------
Net cash used in investing activities (35,818) (27,495)
---------------------- ----------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and sale of stock under
employee stock purchase plans 42,987 3,400
Acquisition of treasury stock (12,166) -
Payments on long- and short-term borrowings (5,029) (336,146)
---------------------- ----------------------
Net cash provided by (used in) financing activities 25,792 (332,746)
---------------------- ----------------------
Effect of exchange rate changes on cash and cash equivalents (5,180) (19,849)
----------------------
----------------------
Net increase (decrease) in cash and cash equivalents 281,218 (17,096)
Cash and cash equivalents at beginning of period 563,410 151,482
---------------------- ----------------------
Cash and cash equivalents at end of period $ 844,628 $ 134,386
====================== ======================
10
