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 AUGUST 30 , 1999
COMMISSION FILE NUMBER 1-10948
OFFICE DEPOT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-2663954
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(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 August 30, 1999, Office Depot, Inc. issued a press release
commenting on earnings in the second half of 1999, and announced a stock
repurchase plan which was adopted by Office Depot's Board of Directors. A copy
of the press release is attached as Exhibit 99.1 and incorporated by reference
herein.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
99.1 Press Release dated August 30, 1999
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: August 30, 1999 By: /S/ DAVID C. FANNIN
--
David C. Fannin
Senior Vice President and
General Counsel
Investor Contact: Eileen Dunn
VP, Investor Relations
(561) 438-4930
Media Contact: Gary Schweikhart
VP, Public Relations
(561) 438-4399
OFFICE DEPOT COMMENTS ON EARNINGS IN SECOND HALF OF 1999
QUARTERLY AND FULL YEAR EARNINGS TO BE BELOW EXPECTATIONS
Q3 CHARGE FOR ACCELERATED STORE RELOCATIONS AND INVENTORY WRITE-DOWN
BOARD OF DIRECTORS APPROVES $500 MILLION STOCK REPURCHASE PROGRAM
DELRAY BEACH, FL (August 30, 1999) - Office Depot, Inc. (NYSE:ODP) announced
today that based on sales and margin trends during the Company's back-to-school
season and a revised forecast of results for the second half of 1999, it
anticipates that earnings per share in the second half of 1999 will be in the
range of $0.38 to $0.40 versus investment community consensus expectations of
$0.50 - $0.52 per share. These estimates exclude the one time charge being
announced today and any merger and restructuring costs relating to the Viking
acquisition.
Secondly, in addition to announcing the expected earnings shortfall, the Company
also announced that it expects to take a $ 28.3 million charge, net of income
taxes, in the third quarter of 1999 to reflect the Company's decision to
accelerate its store relocation and closing program for older and
underperforming stores and a write-down of certain fixed assets. The Company
also plans to take a $34.2 million writedown, net of income taxes, of slow
moving inventories in its warehouses and stores. The inventory write-downs are
primarily related to slow moving technology related products that have been
adversely affected by accelerated rates of change in new technology, and a
rationalization of the warehouse inventory assortments in conjunction with the
Viking warehouse consolidation. The total anticipated size of the charge against
third quarter 1999 earnings in these categories is $62.5 million, net of income
taxes, or approximately $0.16 per share.
Finally, the Company announced that its Board of Directors today voted to
approve a $500 million repurchase of the Company's stock. The stock repurchase
program will include open market purchases as well as negotiated block
transactions.
EARNINGS SHORTFALL
Commenting on the shortfall in earnings per share, David I. Fuente, Chairman and
CEO of Office Depot, stated: "As we indicated in our quarterly release and
conference call at the end of the second quarter, we needed to generate a
significant improvement in sales momentum in the second half of the year in
order to meet our financial objectives for the full year. We have not seen the
level of improvement we need to reach our earnings target. In our stores, sales
of lower margin technology related products continue to outpace sales of basic
office supplies, negatively affecting gross margins. In the Business Services
Group, sales are slightly short of expectations. However, contract sales are
growing more rapidly than commercial sales, which also negatively affects
margins. In all our divisions, paper costs are rising without a corresponding
lift in retail prices, further increasing margin pressures. We will also incur
increased expenses related to a higher number of new store openings and
consolidation of warehouse operations in the balance of the year. On the
positive side, we now anticipate that we will open approximately 140 new stores
in 1999, while closing 15 older stores. Other increases in expenses for the
balance of 1999 include the commencement of a major data warehouse initiative,
expanded technology projects, expansion of our Internet capabilities, both
domestically and internationally, increased Internet advertising and steps to
strengthen our international infrastructure. As a result of these sales and
expense trends, we will not meet earnings expectations for the year."
$62.5 MILLION CHARGE, NET OF INCOME TAXES, TO THIRD QUARTER 1999 EARNINGS
Commenting on the one time charge, Mr. Fuente stated, "Our management has
targeted approximately 41 older or underperforming stores to be relocated or
closed. As a result of our aggressive new store expansion program, we feel that
this is also the appropriate time to take a hard look at our real estate
portfolio, and in particular underperforming stores. In an increasingly
competitive retail environment, we have taken action to close or relocate
out-dated and underperforming stores. Our stores need to be in the best possible
locations and reflect our most up to date store models."
INVENTORY WRITE-DOWN
Because of rapid changes in office technologies and management's decision to
consolidate warehouses and to accelerate relocations and closings of
underperforming stores, the Company has identified $34.2 million, net of tax
benefits, of slow moving products to be liquidated. This inventory, which is
currently occupying existing store and warehouse space, has been identified as
merchandise that will not be replenished, either because of newer, more
innovative technology products or the rationalization of the merchandise
assortment in the combined Viking and Office Depot warehouses. The inventory
write-down will be included in cost of goods sold for financial reporting
purposes.
ODP BOARD OF DIRECTORS APPROVES STOCK BUYBACK
Earlier today, Office Depot's Board of Directors authorized a $500 million stock
repurchase program, effective immediately. Commenting on the repurchase program,
Mr. Fuente stated, "Despite the fact that our second half results will not meet
our expectations or the expectations of the investment community, we remain very
confident in our longer term prospects and our ability to grow earnings and
shareholder value. As a result, notwithstanding today's disappointing news, we
feel our current stock price represents a significant value. Our Board of
Directors today authorized management to implement a $500 million stock
repurchase program. This authorization is open-ended, and we will be
opportunistic purchasers of Office Depot stock either in the open market or
through negotiated purchases."
He continued, "As a result of our strong balance sheet and cash flow, our
position as an industry leader and the growth opportunities that lie ahead, our
Board of Directors felt the best return on our excess cash at this point in time
is the purchase of our stock. And while the investment of $500 million is
substantial, Office Depot will continue to maintain a very strong balance
sheet."
As of August 30, 1999, the Company operated 768 office supply superstores in the
United States and Canada, in addition to a national business-to-business
delivery network supported by 30 delivery centers, more than 60 local sales
offices and seven regional call centers. Furthermore, the Company owned and
operated 22 office supply stores in France and five stores in Japan; had mail
order and delivery operations in 10 countries outside of the United States and
Canada; and under joint venture and licensing agreements, had 74 additional
stores under the Office Depot name in six foreign countries. The Company also
operates an award-winning U.S. Internet business at www.officedepot.com where
customers can access Office Depot's low competitive prices seven days a week,
twenty-four hours a day. Office Depot's common stock is traded on the New York
Stock Exchange under the symbol ODP and is in the S&P 500 Index .
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION: Except for
historical information, the matters discussed in this press release are, and
should be considered to be, forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. Forward-looking
statements, including any and all projections and anticipated levels of
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, Inc. in its filings with the United
States Securities and Exchange Commission ("SEC"). You are urged to review such
filings - including without limitation our Annual Report on Form 10-K, filed
March 22, 1999 - for a more detailed discussion of the risks and uncertainties
which are specific to the businesses conducted by Office Depot, Inc.
IN ADDITION TO THE CAUTIONARY STATEMENTS CONTAINED IN OUR PRIOR FILINGS WITH THE
SEC, Office Depot notes the following additional risks and uncertainties
associated with the information contained in this press release: (1) The
expenditures to be incurred by the Company and the effect of the charge to
earnings referred to in this Press Release may not have the intended effects of
making the Company more competitive in the marketplaces in which it competes,
and the anticipated benefits of these steps may not be fully realized or
realized at all. (2) Remodeling and relocation of certain of the Company's
retail stores may not be sufficient to improve top line performance as the
competitive environment may change in ways not anticipated by the Company or in
other ways that limit the effectiveness of these steps aimed at improving
performance. (3) Statements that the Company considers its stock to be a good
value at current levels may not be realized, as the price of the Company's stock
may decline in the near term, or over time, rather than increasing.
PRE-RECORDED MESSAGE: Office Depot's management will make available a
pre-recorded message, which can be accessed at approximately 4:30 p.m. today at
1-800-633-8284.