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 October 16, 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 October 16, 2002, Office Depot, Inc. issued a press release, with earnings
information for its fiscal third 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 October 16, 2002, announcing financial results for the
Company's fiscal third 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: October 16, 2002 By: /S/ DAVID C. FANNIN
David C. Fannin
Executive Vice President and
General Counsel
OFFICE
DEPOT
NEWS RELEASE
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CONTACT: Eileen H. Dunn
Vice President, Investor Relations/Public Relations
561/438-4930
edunn@officedepot.com
---------------------
OFFICE DEPOT ANNOUNCES THIRD QUARTER 2002 RESULTS
o Earnings Per Share Rose 40% to $0.28, EPS Exceeds Consensus
Estimates
o Accelerating Growth Trends in North American Delivery
o European Sales Grew 9% in Local Currencies
o Free Cash Flow on Track to Exceed $400 Million for Full Year
(Delray Beach, FL) October 16, 2002 - OFFICE DEPOT, INC. (NYSE: ODP), the
world's largest seller of office products, today announced third quarter results
for the fiscal period ended September 28, 2002.
Total Company sales for the third quarter grew 4% to $2.9 billion compared to
the third quarter of 2001. For the first nine months of 2002, sales grew 3% to
$8.5 billion compared to the same period of 2001. Worldwide comparable sales in
the 864 stores and 39 delivery centers that have been open for more than one
year improved 1% for the third quarter and were flat for the first nine months
of 2002. Worldwide e-commerce sales grew 35% to $542.9 million during the
quarter and by 36% to $1.5 billion for the first nine months of 2002. The
Company remains on track to exceed $2 billion of worldwide e-commerce revenue in
2002.
Operating income for the third quarter increased 41% to $142.1 million compared
to the same period in 2001. Earnings per share rose 40% to $0.28 for the third
quarter from $0.20 in the comparable period last year. Results for the period
include approximately $3 million of costs related to legal reserves for the
anticipated settlement of class action litigation in the state of California.
For the first nine months of 2002, operating income increased 44% to $397.8
million compared to the same period in 2001. Earnings per share rose 47% to
$0.78 during the first nine months of 2002 compared to the same period in 2001.
Results for the period now include approximately $15 million ($0.03 per share)
of costs related to legal reserves for the anticipated settlement of class
action litigation in the state of California.
Bruce Nelson, Office Depot's Chairman & CEO, commented, "Our performance in the
third quarter reflects the continued strength in operating performance across
all segments of our business. We believe these results, along with our outlook
for continued strong cash flow, are further evidence of our ability to generate
solid earnings growth despite a challenging sales environment. Our conservative
balance sheet remains the strongest in the industry and as a result of our
strong free cash flow, our cash position once again approaches the $1 billion
mark, despite the over $240 million redemption of outstanding LYONS(R) during
the third quarter.
"While our North American retail sales results have not met our expectations,
the business continues to perform exceedingly well. Gross margins continued the
positive trends of the past four quarters, and our new store payroll model is
generating the level of benefits we were expecting. Our North American Retail
business is well positioned to benefit from any incremental lift in the current
economic climate.
"We saw a meaningful acceleration in sales and profit growth in our North
American Business Services Group during the quarter. Our quality and customer
service metrics have continued to outperform our expectations.
"International operating margins remained strong in spite of our significant
growth investments in both new countries and new channels. Results from our
start-up contract operations in five European countries remain very encouraging,
and during the quarter we saw accelerating growth in our two newest countries:
Switzerland and Spain.
"We continue to see strength across all of our businesses in virtually all of
our key operating, quality, customer service and employee retention metrics. Our
supply chain remains best in class, with industry-leading inventory turns and
customer service levels. We are on track to significantly improve our RONA in
2002 to low double-digit levels.
"One of the most important goals we have set for ourselves is to be recognized
as one of the 100 best companies to work for in the United States. We have made
significant strides in making Office Depot a more "Compelling Place to Work,
Shop and Invest" as evidenced by our ability to continue to generate strong
operating results in a difficult economic environment."
FOURTH QUARTER OUTLOOK
When commenting on the Company's outlook for the fourth quarter, Mr. Nelson
noted, "We remain comfortable at this time with the fourth quarter consensus
earnings expectations. Our assumptions for the quarter look for gradual revenue
acceleration in our North American delivery business, somewhat softer growth
rates in our International business than in the third quarter, and flat to
slightly positive comps in our North American Retail business. While we
experienced strong growth in operating income in the third quarter, we do expect
some pressure on fourth quarter operating margins, as we increase the mix of
technology sales in retail and 4Sure.com, activate additional sales force hiring
deferred from the third quarter and manage the ongoing pressure on sales and
margins in our Viking domestic mail order operations. Our balance sheet has
never been stronger, and we remain poised to accelerate our sales and earnings
growth when the economy regains momentum, as it eventually will."
Additional third quarter Company highlights:
o Named David D'Arezzo as Executive Vice President of
Merchandising. Mr. D'Arezzo is responsible for all merchandising
across the Company's North American retail, contract, catalog and
e-commerce businesses. He will also direct Office Depot's
strategic merchandising initiatives and lead the development of
new merchandising initiatives to improve sales and profitability
across all channels.
o Redeemed the 1992 Liquid Yield Option Notes (LYONs(R)), due
December 2007, at 100% of the principal amount, plus accrued
interest through the redemption date in August. The redemption
reduced the Company's indebtedness by approximately $241 million
and affected diluted earnings per share by an amount
approximately equivalent to the repurchase of 13.8 million
shares.
o Launched an office products store on Amazon.com. This new
e-commerce alliance reaches out to personal-use shoppers and
offers more than 50,000 products, including basic office
supplies, technology products and home office furniture. The
Amazon.com office products store reaches an important and large
customer segment that does not traditionally purchase their
office product needs from office supply superstores.
o Launched two new Viking e-commerce Web sites in Belgium to
accommodate our Dutch-speaking and French-speaking customers in
that country. As of the end of the third quarter, Office Depot
has 20 international Web sites under the Office Depot and Viking
brand names. Included in this list is www.school.com in the
United States designed exclusively for teachers and students to
purchase school supplies.
o Furthered our worldwide industry leading position in global
e-commerce sales. No one sells more office supplies to more
customers in more countries online than Office Depot. We remain
on track to exceed $2 billion in total worldwide e-commerce sales
this year and expect to reach approximately $2.5 billion in 2003.
o Announced the decision to sell our Australian business. After
exploring various opportunities to grow and expand our market
position in Australia, it became evident that reaching the
"critical mass" necessary to generate long-term sustainable
growth and profitability was unlikely. A search is currently in
process to locate a buyer for the business. As a result of our
decision, we account for our results in Australia as
"discontinued operations" for all periods presented in this press
release.
SEGMENT RESULTS
North American Retail Division
Third Quarter Year-to-Date
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(In millions of dollars) 2002 2001 2002 2001
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Sales $1,460.2 $1,469.5 $4,375.2 $4,364.9
COGS and Occupancy Costs 1,084.8 1,110.7 3,274.8 3,360.0
------- ------- ------- -------
Gross Profit 375.4 358.8 1,100.4 1,004.9
Operating and Selling Expenses 255.3 278.7 764.9 780.7
----- ----- ----- -----
Segment Operating Profit $120.1 $80.1 $335.5 $224.2
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North American Retail sales declined by 1% for the third quarter and remained
relatively flat for the first nine months of 2002 compared to the same periods
last year. Comparable sales in the 832 stores open for more than one year
declined 2%, both in the third quarter and the first nine months of 2002.
North American retail comparable sales results were primarily impacted by a
disappointing back-to-school season and continued negative comparable sales
results in furniture and technology. Traffic was flat in spite of the negative
back-to-school impact, and the average transaction size was down slightly over
last year, reflecting continued weakness in furniture and technology sales.
Technology sales improved sequentially from the second quarter, although still
down from last year. Core office supplies and paper and filing had a mixed
performance, with softer back-to-school sales offsetting some strengthening in
these categories.
Gross margins improved by 129 basis points for the third quarter and 213 basis
points for the nine months. This increase for the quarter reflects further
improvements from better buying, globally sourced back-to-school products and
the sustainable benefits generated through sku/category management and
re-merchandising efforts.
Operating and selling expenses include the accrual of an additional $3 million
($15 million for the nine months) during the third quarter for the anticipated
settlement of potential class action litigation in the state of California.
Results for the third quarter of 2001 and year-to-date periods included
approximately $26 million relating to store closures and asset impairments.
During the third quarter, we opened eight new office supply superstores and
relocated three existing retail stores. At the end of the quarter, Office Depot
operated a total of 861 office product superstores throughout the United States
and Canada.
BUSINESS SERVICES GROUP
Third Quarter Year-to-Date
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(In millions of dollars) 2002 2001 2002 2001
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Sales $1,004.1 $947.2 $2,950.3 $2,841.9
COGS and Occupancy Costs 689.0 643.8 2,032.2 1,951.0
----- ----- ------- -------
Gross Profit 315.1 303.4 918.1 890.9
Operating and Selling Expenses 213.8 214.5 641.4 674.2
----- ----- ----- -----
Segment Operating Profit $101.3 $88.9 $276.7 $216.7
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Sales in our Business Services Group grew 6% during the third quarter and 4% for
the first nine months of 2002 compared to the same periods last year. While
catalog sales growth was slightly negative, the contract business grew almost 7%
during the quarter. This growth is primarily attributable to market share gains,
as the economy continues to be sluggish in most parts of the country.
Improvements were shown in all contract regions, with particular strength in our
Eastern region. Our West Coast sales were essentially flat for the quarter, a
significant improvement from the first half of the year. Domestic e-commerce
sales grew by 34% during the quarter, continuing our leadership position in the
industry.
Segment operating profit improved 70 basis points during the period and 176
basis points for the first nine months of 2002 compared to the same periods last
year. Gross margins were 66 basis points lower for the third quarter and 23
basis points lower for the nine months, reflecting the impact of adding the
lower-margin business of 4Sure.com and overall merchandise mix changes.
Operating costs decreased by 136 basis points during the third quarter, and
reflect continued improvements in productivity and efficiency in our North
American warehouses. We do expect some pressure on fourth quarter operating
margins, as we increase the mix of technology sales at 4Sure.com, activate
additional sales force hiring deferred from the third quarter and manage the
ongoing pressure on sales and margins in our Viking domestic mail order
operations.
Our North American warehouses continue to make progress in driving costs down
and increasing productivity and efficiency. Virtually all of our key operating
and customer service metrics showed continued improvement and customer
complaints remain at historical lows.
INTERNATIONAL DIVISION
Third Quarter Year-to-Date
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(In millions of dollars) 2002 2001 2002 2001
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Sales $407.4 $347.5 $1,191.7 $1,095.1
COGS and Occupancy Costs 246.9 208.2 719.0 657.6
----- ----- ----- -----
Gross Profit 160.5 139.3 472.7 437.5
Operating and Selling Expenses 108.5 81.9 314.9 271.5
----- ---- ----- -----
Segment Operating Profit $52.0 $57.4 $157.8 $166.0
- ----------------------------------------------------------------------------------------------------
Our International Division grew 8% in local currencies and 17% in U.S. dollars
during the third quarter, primarily as a result of the continued strong results
in our European operations. For the first nine months of 2002, our International
growth was 6% in local currencies and 9% in U.S. dollars. In early September, we
launched our new European Business Services Division in Italy, and we are on
track to launch a German sales force in early 2003. Sales results for our two
newest countries, Switzerland and Spain, are ramping up nicely and showing
accelerating growth trends.
International sales were positively impacted by foreign exchange rates in the
third quarter by $32.7 million, but only by $26.7 million for the first nine
months of 2002. International Division operating profit also benefited from
foreign exchange rates by $4.2 million during the third quarter, but only by
$4.0 million in the first nine months of 2002.
Segment gross margins declined during the third quarter by 71 basis points,
primarily attributable to prospecting efforts in new countries, and an increase
in the proportion of slightly lower margin contract business. Operating costs
for 2001 included the $10.2 million gain on the sale of our London warehouse.
Excluding this gain, operating costs increased by 18% as compared to the third
quarter last year. This increase is primarily payroll costs associated with
adding new contract sales representatives in four countries and the cost of our
start-up operations in Spain and Switzerland. This segment continues to generate
significant profitability and free cash flow in spite of the enormous
investments we are making in new countries, new channels and a rapidly growing
retail presence in France.
As announced earlier this quarter, the Company has initiated a process to
identify potential buyers for the business in Australia. Accordingly, the
current and prior period results are excluded from the table above and are
presented as a single line of discontinued operations in the attached financial
information.
Office Depot retail stores operate in the following countries, through a
combination of wholly owned operations, joint ventures and international
licensing agreements:
Third Quarter Open at Quarter End
Activity
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Number of Stores Opened Closed 2002 2001
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Mexico (Joint Venture) 3 - 68 57
France * 1 1 32 28
Israel (Joint Venture & License) 1 - 25 23
Poland (License) - - 15 16
Japan * - - 12 7
Hungary (License) - - 3 3
Thailand (License) - - 2 2
Guatemala (Joint Venture) 1 - 2 -
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Total 6 1 159 136
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* Office Depot wholly owned stores
Along with its retail stores, the Company also has delivery and catalog
operations in 17 countries outside of the United States and Canada.
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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/companyinfo under Investor
Relations. Interested parties may contact Investor Relations at 561-438-1680 for
further information on the conference call.
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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), Viking Office
Products(R), Viking Direct(R) and 4Sure.com(R) brand names. As of September 28,
2002, Office Depot operated 861 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
19 countries outside of the United States and Canada, including 32 office supply
stores in France and 12 in Japan that are owned and operated by the Company; and
115 additional office supply stores under joint venture and licensing agreements
operating under the Office Depot name in six 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, as well as a new Web site
that targets the school supply market at www.school.com. The Company also
operates eighteen additional Web sites, under the Office Depot and Viking Office
Products names, in the U.S., Canada and ten international countries including:
Austria, Australia, Belgium, 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.
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 and subsequent filings on Forms 10-Q and 8K. 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.
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks 13 Weeks 39 Weeks 39 Weeks
Ended Ended Ended Ended
September 28, September 29, September 28, September 29,
2002 2001 2002 2001
------------------ ------------------ ------------------ ------------------
Sales $2,870,781 $2,763,318 $8,514,913 $8,299,703
Cost of goods sold and occupancy costs 2,020,352 1,962,239 6,024,991 5,967,489
------------------ ------------------ ------------------ ------------------
Gross profit 850,429 801,079 2,489,922 2,332,214
Store and warehouse operating
and selling expenses 577,156 574,909 1,720,307 1,725,598
General and administrative expenses 128,729 120,927 366,565 325,576
Other operating expenses 2,473 4,444 5,236 4,894
------------------ ------------------ ------------------ ------------------
708,358 700,280 2,092,108 2,056,068
Operating profit 142,071 100,799 397,814 276,146
Other income (expense):
Interest income 5,550 4,146 13,920 7,970
Interest expense (13,840) (11,916) (36,598) (30,310)
Miscellaneous income (expense), net (637) 2,564 3,416 (3,862)
------------------ ------------------ ------------------ ------------------
Earnings from continuing operations
before income taxes 133,144 95,593 378,552 249,944
Income taxes 46,013 33,480 132,489 90,782
------------------ ------------------ ------------------ ------------------
Earnings from continuing operations 87,131 62,113 246,063 159,162
Discontinued operations 1,041 347 1,763 1,601
------------------ ------------------ ------------------ ------------------
Net earnings $ 88,172 $ 62,460 $ 247,826 $ 160,763
================== ================== ================== ==================
Earnings per common share from continuing operations:
Basic $ 0.28 $ 0.21 $ 0.80 $ 0.54
Diluted 0.27 0.20 0.77 0.52
Net earnings per common share:
Basic $ 0.29 $ 0.21 $ 0.81 $ 0.54
Diluted 0.28 0.20 0.78 0.53
Weighted average number of common shares outstanding:
Basic 308,282 298,375 306,484 297,185
Diluted 320,701 317,594 325,605 314,538
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
As of As of
September 28, December 29,
2002 2001
------------------- -------------------
Assets
Current assets:
Cash and cash equivalents $ 940,187 $ 565,388
Receivables, net 792,508 774,175
Merchandise inventories, net 1,090,705 1,253,420
Deferred income taxes 141,562 148,490
Prepaid expenses and other assets 110,444 81,908
------------------- -------------------
Total current assets 3,075,406 2,823,381
Property and equipment, net 1,093,869 1,099,618
Goodwill, net 256,555 242,762
Other assets 167,436 165,882
------------------- -------------------
$ 4,593,266 $ 4,331,643
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,105,208 $ 1,058,436
Accrued expenses and other liabilities 630,714 617,210
Income taxes payable 150,318 107,347
Current maturities of long-term debt 17,540 318,521
------------------- -------------------
Total current liabilities 1,903,780 2,101,514
Deferred income taxes and other credits 67,673 64,139
Long-term debt, net of current maturities 412,533 315,331
Zero coupon, convertible subordinated notes --- 2,221
Commitments and Contingencies
Stockholders' Equity
Common stock - authorized 800,000,000 shares
of $.01 par value; issued 393,238,506 in
2002 and 385,538,340 in 2001 3,932 3,855
Additional paid-in capital 1,112,660 1,007,088
Unamortized value of long-term incentive stock grant (1,683) (2,578)
Accumulated other comprehensive income (28,304) (71,273)
Retained earnings 1,965,560 1,717,734
Treasury stock, at cost - 84,676,859 shares in 2002
and 82,443,170 shares in 2001 (842,885) (806,388)
------------------- -------------------
2,209,280 1,848,438
------------------- -------------------
$ 4,593,266 $ 4,331,643
=================== ===================
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
39 Weeks 39 Weeks
Ended Ended
September 28, September 29,
2002 2001
-------------------- -------------------
Cash flows from operating activities:
Net earnings $ 247,826 $ 160,763
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Discontinued operations (1,763) (1,601)
Depreciation and amortization 149,324 145,948
Provision for losses on inventories and receivables 76,565 88,125
Changes in working capital 259,819 213,246
Other operating activities, net 19,439 62,394
-------------------- -------------------
Net cash provided by operating activities 751,210 668,875
--------------------
Cash flows from investing activities:
Purchases of investments and other assets -- (45,961)
Capital expenditures, net of proceeds from sales (131,040) (119,670)
-------------------- -------------------
Net cash (used in) investing activities (131,040) (165,631)
-------------------- -------------------
Cash flows from financing activities:
Proceeds from exercise of stock options and sale of stock
Under employee stock purchase plans 83,484 20,681
Acquisition of treasury stock (36,380) --
Proceeds from issuance of long-term debt -- 255,094
Payments on long- and short-term borrowings, net (324,906) (373,700)
-------------------- -------------------
Net cash provided by (used in) financing activities (277,802) (97,925)
-------------------- -------------------
Effect of exchange rate changes on cash and cash equivalents 32,431 (9,655)
-------------------- -------------------
Net increase in cash and cash equivalents 374,799 395,664
Cash and cash equivalents at beginning of period 565,388 146,458
-------------------- -------------------
Cash and cash equivalents at end of period $ 940,187 $ 542,122
==================== ===================