1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
/x/ Amendment No. 1 to Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (Fee required)
For the fiscal year ended December 25, 1993
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (No fee required)
for the transition period from to
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)
Registrant's telephone number, including area code: 407/278-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
Common Stock, par value $0.01 per share New York Stock Exchange
Liquid Yield Option Notes due 2007 convertible into Common Stock New York Stock Exchange
Liquid Yield Option Notes due 2008 convertible into Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. x
The aggregate market value of voting stock held by non-affiliates of
the registrant as of March 18, 1994 was approximately $3,150,146,243.
As of March 18, 1994, the Registrant had 96,197,738 shares of Common Stock
outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 25, 1993, are incorporated by reference in Part II
and the Proxy Statement to be mailed to stockholders on or about April 14, 1994
for the Annual Meeting to be held on May 18, 1994, are incorporated by
reference in Part III.
Exhibit Index on Sequentially Numbered Page
Page 1 of
2
The undersigned hereby amends Item 8 of its Annual Report on Form 10-K
for the fiscal Year ended December 25, 1993, including the financial
statements set forth in the registrant's Annual Report to Stockholders for the
fiscal year ended December 25, 1993 (on pages 21-36) incorporated therein by
reference, as set forth in this Amendment No. 1 to the Annual Report on Form
10-K for the fiscal year ended December 25, 1993.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements of the Company for the 52 weeks ended
December 28, 1991, December 26, 1992 and December 25, 1993 set forth in the
Company's Annual Report to Stockholders for the fiscal year ended December 25,
1993 (on pages 21- 36) are incorporated herein by reference and made a part of
this report.
- 2 -
3
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 1994.
OFFICE DEPOT, INC.
By /s/ BARRY J. GOLDSTEIN
Barry J. Goldstein
Executive Vice President-Finance,
Chief Financial Officer and Secretary
4
INDEX TO EXHIBITS
13.1 Annual Report to Stockholders
(financial statements only)
5
Office Depot Inc. And Subsidiaries
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
Exhibit 13.1
To the Board of Directors of Office Depot, Inc.
We have audited the consolidated balance sheets of Office Depot, Inc.
and Subsidiaries as of December 25, 1993 and December 26, 1992, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 25, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Office Depot, Inc. and Subsidiaries as of December 25, 1993 and December 26,
1992 and the results of their operations and their cash flows for each of the
three years in the period ended December 25, 1993 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE
Certified Public Accountants
Fort Lauderdale, Florida
February 8, 1994
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Office Depot Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
- --------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 25, December 26, December 28,
1993 1992 1991
------------ ------------ ------------
Sales ........................................ $2,579,494 $1,732,965 $1,300,847
Cost of goods sold and occupancy cost......... 1,980,429 1,334,305 1,001,484
---------- ---------- ----------
Gross profit.................................. 599,065 398,660 299,363
Store and warehouse
operating and selling expenses.............. 399,966 275,016 214,525
Pre-opening expenses.......................... 9,073 7,453 7,774
General and administrative expenses........... 75,851 53,933 39,007
Amortization of goodwill...................... 1,613 49 --
---------- ---------- -----------
486,503 336,451 261,306
---------- ---------- -----------
Operating profit.............................. 112,562 62,209 38,057
Other income (expense)
Interest income............................. 4,556 1,303 151
Interest expense............................ (10,598) (1,459) (2,386)
Merger costs................................ -- -- (8,950)
---------- ---------- -----------
Earnings before income taxes and
extraordinary credit....................... 106,520 62,053 26,872
Income taxes.................................. 43,103 24,261 12,495
---------- ---------- -----------
Earnings before extraordinary credit.......... 63,417 37,792 14,377
Extraordinary credit.......................... -- 1,396 614
---------- ---------- -----------
Net earnings.................................. $ 63,417 $ 39,188 $ 14,991
---------- ---------- -----------
---------- ---------- -----------
Earnings per common and
common equivalent share
Earnings before extraordinary credit........ $ .67 $ .41 $ .18
Extraordinary credit........................ -- .02 .01
----- ----- -----
Net earnings................................. $ .67 $ .43 $ .19
----- ----- -----
----- ----- -----
The accompanying notes are an integral part of these statements.
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Office Depot Inc. And Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
December 25, December 26,
1993 1992
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents .................................................... $ 138,498 $ 130,192
Receivables, net of allowances of $2,791 in 1993 and
$389 in 1992 ................................................................. 165,182 62,012
Merchandise inventories ...................................................... 643,773 456,252
Deferred income taxes ........................................................ 25,931 9,059
Prepaid expenses and refundable income taxes ................................. 4,778 6,497
----------- -----------
Total current assets ........................................................ 978,162 664,012
Property and Equipment, at Cost ................................................ 339,825 219,939
Less accumulated depreciation and amortization .............................. 77,681 51,471
----------- -----------
262,144 168,468
Goodwill, net of amortization ................................................. 200,462 2,224
Other Assets ................................................................... 23,131 13,669
----------- -----------
$ 1,463,899 $ 848,373
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................................ $ 393,185 $ 237,385
Accrued expenses ............................................................ 128,129 66,227
Income taxes ................................................................. 12,786 --
Current maturities of long-term debt ........................................ 3,105 2,948
----------- -----------
Total current liabilities .............................................. 537,205 306,560
Long-Term Debt, less current maturities ........................................ 16,229 3,486
Deferred Taxes and Other Credits .............................................. 5,478 4,800
Zero Coupon, Convertible, Subordinated Notes ................................... 350,298 151,080
Commitments and Contingencies .................................................. -- --
Common Stockholders' Equity
Common stock-authorized 200,000,000 shares of $.01 par value;
issued 95,609,233 in 1993 and 90,925,224 in 1992 ........................... 956 909
Additional paid-in capital ................................................... 427,326 318,833
Foreign currency translation adjustment ..................................... 383 98
Retained earnings ........................................................... 127,774 64,357
Less: 1,442,298 shares of treasury stock, at cost ........................... (1,750) (1,750)
----------- -----------
554,689 382,447
$ 1,463,899 $ 848,373
----------- -----------
----------- -----------
The accompanying notes are an integral part of these statements.
23
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Office Depot Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from December 30, 1990 to December 25, 1993 (In thousands, except for
number of shares)
- --------------------------------------------------------------------------------
Foreign
Common Common Additional Currency
Stock Stock Paid-in Translation Retained Treasury
Shares Amount Capital Adjustment Earnings Stock
------ ------ ------- ---------- -------- -----
Balance at December 30, 1990...... 73,742,931 $ 738 $ 134,896 $ - $ 10,178 $ (1,750)
Sales of common stock, net of
related costs..................... 11,190,000 112 132,314 - - -
Exercise of stock options
(including tax benefits)....... 2,129,094 21 13,359 - - -
Sale of stock under employee
purchase plan.................... 26,376 - 225 - - -
401k plan matching contributions.. 38,787 - 359 - - -
Net earnings for the period....... - - - - 14,991 -
---------- ------- --------- ---------- -------- --------
Balance at December 28, 1991...... 87,127,188 871 281,153 - 25,169 (1,750)
Exercise of stock options
(including tax benefits)....... 3,721,320 38 36,532 - - -
Sale of stock under employee
purchase plan..................... 39,932 - 705 - - -
401k plan matching contributions.. 36,784 - 443 - - -
Foreign currency translation
adjustment........................ - - - 98 - -
Net earnings for the period....... - - - - 39,188 -
---------- ------- --------- ---------- -------- --------
Balance at December 26, 1992...... 90,925,224 909 318,833 98 64,357 (1,750)
Issuance of common stock for
acquisitions...................... 3,356,934 34 94,664 - - -
Exercise of stock options
(including tax benefits)....... 1,227,670 13 11,278 - - -
Sale of stock under employee
purchase plan..................... 59,659 - 1,604 - - -
401k plan matching contributions.. 39,746 - 947 - - -
Foreign currency translation
adjustment........................ - - - 285 - -
Net earnings for the period....... - - - - 63,417 -
---------- ------- --------- ---------- -------- --------
Balance at December 25, 1993...... 95,609,233 $ 956 $ 427,326 $ 383 $127,774 $ (1,750)
---------- ------- --------- ---------- -------- --------
---------- ------- --------- ---------- -------- --------
The accompanying notes are an integral part of these statements.
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Office Depot Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents (in Thousands)
- --------------------------------------------------------------------------------
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 25, December 26, December 28,
1993 1992 1991
------------ ------------ ------------
Cash flows from operating activities
Cash received from customers......................... $ 2,553,347 $ 1,701,557 $ 1,285,534
Cash paid for inventories............................ (1,925,005) (1,335,487) (1,019,799)
Cash paid for store and warehouse operating,
selling and general and administrative expenses.... (520,203) (369,235) (296,841)
Interest received.................................... 4,557 1,303 151
Interest paid........................................ (1,845) (1,459) (2,386)
Taxes paid........................................... (28,660) (8,090) (8,376)
--------- --------- ---------
Net cash provided (used) in operating activities... 82,191 (11,411) (41,717)
Cash flows from investing activities
Capital expenditures - net........................... (102,417) (62,542) (53,877)
Purchase of Eastman common stock..................... (20,001) - -
Acquisition cash overdraft assumed, net.............. (4,106) - -
--------- --------- ---------
Net cash used in investing activities.............. (126,524) (62,542) (53,877)
--------- --------- ---------
Cash flows from financing activities
Proceeds from issuance of common stock............... - - 132,426
Proceeds from exercise of stock options.............. 10,308 15,836 7,257
Foreign currency translation adjustment.............. 285 98 -
Proceeds from long- and short-term borrowing......... 190,464 151,147 1,989
Payments on long- and short-term debt................ (148,418) (3,101) (16,452)
--------- --------- ---------
Net cash provided by financing activities.......... 52,639 163,980 125,220
--------- --------- ---------
Net increase in cash and cash equivalents........ 8,306 90,027 29,626
Cash and cash equivalents at beginning of period....... 130,192 40,165 10,539
--------- --------- ---------
Cash and cash equivalents at end of period............. $ 138,498 $ 130,192 $ 40,165
--------- --------- ---------
--------- --------- ---------
Reconciliation of net earnings to net cash
provided (used) in operating activities
Net earnings..................................... $ 63,417 $ 39,188 $ 14,991
Adjustments to reconcile net earnings to net cash
provided (used) in operating activities
Depreciation and amortization........................ 30,434 20,792 15,328
Changes in assets and liabilities (net of effect of
acquisitions)
Increase in receivables.............................. (45,006) (26,075) (19,440)
Increase in merchandise inventories................... (150,234) (118,379) (107,079)
Increase in prepaid expenses, deferred income
taxes and other assets........................... (15,862) (16,348) (7,288)
Increase in accounts payable, accrued
expenses and deferred credit..................... 199,442 89,411 61,771
--------- --------- ---------
Total adjustments................................ 18,774 (50,599) (56,708)
--------- --------- ---------
Net cash provided (used) in operating
activities....................................... $ 82,191 $ (11,411) $ (41,717)
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these statements.
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Office Depot, Inc. and subsidiaries (the "Company") operates a chain of
high-volume office supply stores and contract stationer/delivery warehouses
throughout the country. The Company was incorporated in March 1986 and opened
its first store in October 1986.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
All common stock share and per share amounts for all periods presented
have been adjusted for a three-for-two stock split in June 1993 and a
two-for-one stock split in May 1992 effected in the form of stock dividends.
Certain reclassifications were made to prior year statements to conform to
1993 presentations.
CASH AND CASH EQUIVALENTS
The Company considers any highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
RECEIVABLES
Receivables are comprised of trade receivables not financed through
outside programs as well as amounts due from vendors under rebate and
cooperative advertising programs.
MERCHANDISE INVENTORIES
Inventories are stated at the lower of weighted average cost or market
value.
INCOME TAXES
The Company currently provides for Federal and state income taxes
currently payable as well as for those deferred because of temporary
differences between reporting assets and liabilities for tax purposes and for
financial statement purposes using the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Under this
standard, deferred tax assets and liabilities represent the tax effects, based
on current tax law, of future deductible or taxable amounts attributable to
events that have been recognized in the financial statements. In prior years,
the Company had provided for income taxes using the provisions of APB No. 11.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives
on a straight line basis. Leasehold improvements are amortized over the terms
of the respective leases or the service lives of the improvements.
26
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
Goodwill
Goodwill represents the excess of purchase price and related costs
over the value assigned to the net tangible assets of businesses acquired.
Goodwill is amortized on a straight-line basis over 40 years. Accumulated
amortization of goodwill was $1,657,000 and $49,000 as of December 25, 1993 and
December 26, 1992, respectively.
Pre-opening Expenses
Pre-opening expenses related to new store openings are expensed as
incurred.
Acquisition of The Office Club, Inc.
On April 10, 1991, the Company completed its acquisition of The Office
Club, Inc. ("Club"). The merger with Club was accounted for in 1991 on a
"pooling of interests" basis for accounting and financial reporting purposes.
Financial statements for periods prior to the merger have been restated to
reflect the financial position and results of operations of the combined
companies as if they had merged as of the beginning of the earliest period
reported. Club became a wholly-owned subsidiary of the Company through the
exchange of 25,970,781 shares of the Company's common stock for all of the
outstanding stock of Club on a ratio of 1.194 shares of Depot stock for each
Club share. References to Office Depot, Inc. and to The Office Club, Inc.
before the merger will be referred to as "Depot" and "Club," respectively.
Costs of $8,950,000 associated with the merger have been reflected in the
results of operations for 1991.
Earnings Per Common and Common Equivalent Shares
Net earnings per common equivalent share is based upon the weighted
average number of shares and equivalents outstanding during each period. The
weighted average number of common and common equivalent shares outstanding for
the years ended December 25, 1993, December 26, 1992 and December 28, 1991 were
94,627,000, 91,709,000 and 80,178,000, respectively. Stock options and
warrants are considered common stock equivalents. The zero coupon,
convertible, subordinated notes are not common stock equivalents and are
anti-dilutive in the fully diluted computation.
Fiscal Year
The Company is on a 52 or 53 week fiscal year ending on the last
Saturday in December.
Postretirement Benefits
The Company does not currently provide postretirement benefits for its
employees.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments", requires disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the Consolidated Balance Sheet of the Company, for which it is
practicable to estimate fair value. The estimated fair values of financial
instruments which are presented herein have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of amounts the Company could realize in a
current market exchange.
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- ---------------------------------------------------------
The following methods and assumptions were used to estimate fair value:
* the carrying amounts of cash and cash equivalents, receivables and
accounts payable approximate fair value due to their short term nature;
* discounted cash flows using current interest rates for financial
instruments with similar characteristics and maturity were used to
determine the fair value of short-term and long-term debt; and,
* market prices were used to determine the value of the zero coupon,
convertible, subordinated notes.
There was no significant difference as of December 25, 1993 in the
carrying value and fair market value of financial instruments except for the
zero coupon, convertible, subordinated notes which had a carrying value of
$350,298,000 and a fair value of $419,750,000.
NOTE B--PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 25, December 26,
1993 1992
-------------- --------------
(in thousands)
Land and buildings................................................. $ 35,402 $ 16,442
Furniture, fixtures and equipment.................................. 130,911 82,080
Automotive equipment............................................... 14,668 8,179
Leasehold improvements............................................. 142,566 100,339
Equipment under capital lease...................................... 16,278 12,899
----------- -------------
339,825 219,939
Less accumulated depreciation and amortization..................... 77,681 51,471
----------- -------------
$ 262,144 $ 168,468
----------- -------------
----------- -------------
Equipment under capital leases consists of:
December 25, December 26,
1993 1992
-------------- --------------
(in thousands)
Equipment....................................................... $ 16,278 $ 12,899
Accumulated depreciation........................................ 11,105 8,458
----------- -------------
$ 5,173 $ 4,441
----------- -------------
----------- -------------
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
NOTE C--LONG-TERM DEBT
Long-term debt consists of the following:
December 25, December 26,
1993 1992
------------ ------------
(in thousands)
Capital lease obligations collateralized by certain
equipment and fixtures ............................................ $ 5,496 $ 4,258
13% senior subordinated notes, unsecured and due 2002 ............... 10,368 --
Installment notes payable in monthly installments
through January 1996, collateralized by certain
telephone equipment and vehicles .................................. 3,470 2,176
---------- ----------
19,334 6,434
Less current portion ................................................ 3,105 2,948
---------- ----------
$ 16,229 $ 3,486
---------- ----------
---------- ----------
Maturities of long-term debt are as follows:
December 25,
1993
------------
(in thousands)
1994................................................................ $ 3,105
1995................................................................ 1,808
1996................................................................ 610
1997................................................................ 526
1998 and after...................................................... 13,285
------------
$ 19,334
------------
------------
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of December 25, 1993 are as follows:
December 25,
1993
------------
(in thousands)
1994................................................................ $ 2,624
1995................................................................ 1,271
1996................................................................ 542
1997................................................................ 437
1998 and after...................................................... 1,927
----------
Minimum lease payments ............................................. 6,801
Less: amount representing interest at 9.5% to 15.0% ................ 1,305
----------
Present value of net minimum lease payments ........................ 5,496
Less: current portion .............................................. 2,264
----------
Noncurrent portion ................................................. $ 3,232
----------
----------
The Company has a credit agreement with its principal bank and a
syndicate of commercial banks to provide for a working capital line of
$200,000,000. The agreement provides that funds borrowed will bear interest, at
the Company's option, at either 3/4% over the LIBOR rate or at a base rate
linked to the prime rate. The Company must also pay a fee of 1/4% per annum on
the available and unused portion of the credit facility. The credit facility
expires in September 1996. In addition to the credit facility, the bank has
provided a lease facility to the Company under which the bank has agreed to
purchase up to $15,000,000 of equipment from the Company and lease such
equipment back to the Company. As of December 25, 1993, the Company had no
outstanding borrowings under the revolving credit facility and had utilized
approximately $7,711,000 of the lease facility. The loan agreement contains
covenants relating to various financial statement ratios and provides for a
limitation on the payment of cash dividends on common stock, not to exceed 25%
of net earnings, without the bank's consent.
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
NOTE D--ZERO COUPON, CONVERTIBLE, SUBORDINATED NOTES
On December 11, 1992, the Company issued $316,250,000 principal amount
of Liquid Yield Option Notes (LYONs) with a price to the public of
$150,769,000. The issue price of each such LYON was $476.74 and there will be
no periodic payments of interest. The LYONs will mature on December 11, 2007
at $1,000 per LYON representing a yield to maturity of 5% (computed on a semi-
annual bond equivalent basis).
On November 1, 1993, the Company issued $345,000,000 principal amount
of LYONs with a price to the public of $190,464,000. The issue price of each
such LYONs was $552.07 and there will be no periodic payments of interest.
These LYONs will mature on November 1, 2008 at $1,000 per LYON, representing a
yield to maturity of 4% (computed on a semi-annual bond equivalent basis).
All LYONs are subordinated to all existing and future senior
indebtedness of the Company.
Each LYON is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased by the
Company, into common stock of the Company at a conversion rate of 19.509 shares
per 1992 LYON and 14.156 shares per 1993 LYON. The LYONs may be required to be
purchased by the Company, at the option of the holder, as of December 11, 1997
and December 11, 2002 for the 1992 LYONs and as of November 1, 2000 for the
1993 LYONs, at the issue price plus accrued original issue discount. The
Company, at its option, may elect to pay the purchase price on any particular
purchase date in cash or common stock, or any combination thereof.
In addition, prior to December 11, 1997 for the 1992 LYONs and prior to
November 1, 2000 for the 1993 LYONs, the LYONs will be purchased for cash by
the Company, at the option of the holder, in the event of a change in control
of the Company. Beginning on December 11, 1996, for the 1992 LYONs and on
November 1, 2000 for the 1993 LYONs, the LYONs are redeemable for cash at any
time at the option of the Company in whole or in part at the issue price plus
accrued original issue discount through the date of redemption.
NOTE E--INCOME TAXES
Effective December 27, 1992, the Company adopted the provisions of
Statement No. 109, "Accounting for Income Taxes." The Company's adoption in
1993 of Statement No. 109 did not result in a material adjustment and was
recognized in the results of operations. The Company chose not to restate
prior years' results or disclosures as permitted by the Statement.
Club commenced operations in 1986 and incurred losses through 1989.
The resulting net operating loss carryforward was partially utilized in 1991
and fully utilized in 1992.
The income tax provision consists of the following:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 25, December 26, December 28,
1993 1992 1991
------------ ------------ ------------
(in thousands)
Current
Federal ..................................................... $ 38,410 $ 22,887 $ 12,089
State ....................................................... 9,026 3,386 2,908
Deferred (benefit) .............................................. (4,333) (2,012) (2,502)
------------ ------------ ------------
Total provision for income taxes ................................ $ 43,103 $ 24,261 $ 12,495
------------ ------------ ------------
------------ ------------ ------------
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- ----------------------------------------------------
The tax effected components of deferred income tax accounts as of December 25,
1993 are as follows:
Assets Liabilities
------- -----------
(in thousands)
Interest premium on notes redeemed.................... $ 7,832
Self-insurance costs.................................. 6,466
Inventory costs capitalized for tax purposes.......... 3,184
Excess of tax over book depreciation.................. -- $ 3,208
Capitalized leases.................................... -- 3,160
Other items........................................... 14,231 3,218
------- -------
$31,713 $ 9,586
------- -------
------- -------
The components of deferred income tax (benefit) are as follows:
52 Weeks 52 Weeks
Ended Ended
December 26, December 28,
1992 1991
----------- ------------
(in thousands)
Excess of tax over book depreciation.................. $ 470 $ 67
Inventory costs capitalized for tax purposes.......... (526) (435)
Vacation pay.......................................... (380) (305)
Self-insurance costs.................................. (3,032) (1,941)
Capitalized leases.................................... 720 368
Deferred book loss benefit recognized................. 888 148
Other items, net...................................... (152) (46)
Pre-opening costs..................................... -- (358)
------- -------
Total deferred benefit................................ $(2,012) $(2,502)
------- -------
------- -------
The following schedule is a reconciliation of income taxes at the federal
statutory rate to the provision for income taxes:
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 25, December 26, December 28,
1993 1992 1991
------------ ----------- -----------
(in thousands)
Tax computed at the statutory rate.................... $37,282 $21,098 $ 9,136
State taxes net of federal benefit.................... 5,326 3,330 1,598
Nondeductible goodwill amortization................... 483 -- --
Nondeductible merger costs............................ -- -- 1,700
Other items, net...................................... 12 (167) 61
------- ------- -------
Provision for income taxes............................ $43,103 $24,261 $12,495
------- ------- -------
------- ------- -------
31
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- ----------------------------------------------------
NOTE F--COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts its operations in various leased facilities under
leases that are classified as operating leases for financial statement
purposes. The leases provide for the Company to pay real estate taxes, common
area maintenance, and certain other expenses, including, in some instances,
contingent rentals based on sales. Lease terms, excluding renewal option
periods exercisable by the Company at escalated rents, expire between 1994 and
2015. In addition to the base lease term, the Company has various renewal
option periods. Also, certain equipment used in the Company's operations is
leased under operating leases. A schedule of fixed operating lease commitments
follows:
December 25,
1993
-----------
(in thousands)
1994 ........................................................ $ 93,960
1995 ........................................................ 92,987
1996 ........................................................ 86,246
1997 ........................................................ 80,333
1998 ........................................................ 76,658
Thereafter .................................................. 318,390
--------
$748,574
--------
--------
The above amounts include 27 stores leased but not yet opened as of
December 25, 1993. The Company is in the process of opening new stores in
the ordinary course of business and leases signed subsequent to December 25,
1993 are not included in the above described commitment amount. Rent expense,
including equipment rental, was approximately $91,005,000, $71,820,000 and
$61,656,000, during 1993, 1992 and 1991, respectively.
Other
Certain holders of the Company's common stock have limited demand
registration rights. The costs of such registration will generally be borne by
the Company.
The Company is involved in litigation arising in the normal course of
its business. In the opinion of management, these matters will not materially
affect the financial position or results of operations of the Company.
As of December 25, 1993, the Company has reserved 11,053,542 shares of
unissued common stock for conversion of the subordinated notes (see Note D).
32
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Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- -----------------------------------------------------------
NOTE G--EMPLOYEE BENEFIT PLANS
Stock Option Plans
As of December 25, 1993, the Company had reserved 11,367,136 shares of
common stock for issuance to officers and key employees under its 1986 and 1987
Incentive Stock Option Plans, its 1988 and 1989 Employees Stock Option Plans,
its Directors Stock Option Plan and the Club Incentive Stock Option Plan.
Under these plans, the option price must be equal to or in excess of the market
price of the stock on the date of the grant or, in the case of employees who own
10% or more of common stock, the minimum price must be 110% of the market price.
Options granted to date become exercisable from one to four years after
the date of grant, provided that the individual is continuously employed by the
Company. All options expire no more than ten years after the date of grant.
Options to purchase 2,556,848 shares were exercisable at December 25, 1993. No
amounts have been charged to income under the plan.
Number of Option Price
Shares Per Share
----------------- -----------------
Outstanding at December 30, 1990.................... 5,964,519 $ .03- 8.75
Granted............................................. 3,217,530 $ 3.14-13.09
Canceled............................................ 364,611 $ 2.97-12.00
Exercised........................................... 1,579,224 $ .03- 8.67
-----------------
Outstanding at December 28, 1991.................... 7,238,214 $ .03-13.09
Granted............................................. 1,705,575 $ 13.33-22.92
Canceled............................................ 509,688 $ .63-19.42
Exercised........................................... 2,609,971 $ .03-13.09
-----------------
Outstanding at December 26, 1992.................... 5,824,130 $ .03-22.92
Granted............................................. 1,476,468 $ 19.83-35.75
Canceled............................................ 299,752 $ 2.65-26.88
Exercised........................................... 1,190,352 $ .44-22.50
-----------------
Outstanding at December 25, 1993.................... 5,810,494 $ .03-35.75
-----------------
-----------------
Other Stock Options
On December 28, 1987, a nonqualified option to purchase 2,099,997
shares of common stock was issued to the Company's chief executive officer. The
option with respect to 299,997 shares was exercisable upon issuance, with the
balance exercisable one-third each year commencing one year from the date
of issue. Options to purchase an aggregate of 224,997 shares were also issued
to two of the Company's principal officers.
The exercise price on the above described nonqualified options is $.63
per share. Options for 299,997 shares were exercised in February 1988. In
1990, options for 149,997 shares were exercised and options for 75,000 shares
were canceled. In 1991, options for 600,000 shares were exercised. In 1992,
options for the remaining 1,200,000 shares were exercised.
Employee Stock Purchase Plan
In October 1989, the Board of Directors approved an Employee Stock
Purchase Plan, which permits eligible employees to purchase common stock from
the Company at 90% of its fair market value through regular payroll deductions.
The maximum number of shares eligible for purchase under the plan is 750,000.
33
18
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
Retirement Savings Plan
In February 1990, the Board of Directors approved a Retirement Savings
Plan, which permits eligible employees to make contributions to the plan on a
pretax salary reduction basis in accordance with the provisions of Section
401(k) of the Internal Revenue Code. The Company makes a matching stock
contribution of 50% of the employee's pretax contribution up to a maximum of 3%
of the employee's compensation in any calendar year. The Office Club plan
provided a cash match up to certain limits. The Office Club Plan was
terminated in early 1993 and all employees were given the opportunity to join
the Depot plan.
NOTE H--CAPITAL STOCK
In May 1993, the Board of Directors and stockholders approved an amendment
to the Company's Certificate of Incorporation, which increased the authorized
number of shares of common stock from 100,000,000 to 200,000,000 shares. As of
December 25, 1993, there were 1,000,000 shares of $.01 par value preferred
stock authorized of which none are issued or outstanding.
Common Stock
On June 7, 1991, 4,290,000 shares of common stock were sold to a
subsidiary of Carrefour, a French hypermarket retailer, at a price of $9.33 per
share.
On December 24, 1991, the Company completed a public offering of 6,900,000
shares of common stock at $14.00 per share.
NOTE I--ACQUISITIONS
On May 17, 1993, the Company acquired substantially all of the assets and
assumed certain of the liabilities of the office supply business of Wilson
Stationery & Printing Company ("Wilson"), a contract stationer based in Houston
Texas. The Company issued 663,881 shares of common stock, representing
$15,000,000 at market value at date of issuance, in exchange for the acquired
net assets of Wilson. This acquisition was accounted for as a purchase.
On September 13, 1993, the Company acquired the common stock of Eastman
Office Products Corporation ("Eastman"), a contract stationer and office
furniture dealer headquartered in California that operates primarily in the
western United States. In connection with the acquisition, the Company issued
2,693,053 shares of common stock with a market value of approximately
$79,707,000 and paid out $20,001,000 in cash. This acquisition was accounted
for as a purchase. The Company has allocated the purchase price to the assets
acquired and liabilities assumed based on information obtained to date. The
allocation will be finalized when all necessary information regarding the fair
values of the assets and liabilities is available. The Company also acquired
the outstanding preferred stock of Eastman for $13,158,000. Additionally, the
Company offered to purchase for cash pursuant to a tender offer $90,000,000
principal amount of Eastman, Inc.'s 13% Series B Subordinated Notes due 2002
(the "Notes"). Pursuant to the tender offer, in October 1993 the Company
purchased $81,750,000 principal amount of the Notes for $103,414,000 in cash.
34
19
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
The excess of the cost over the fair value of net assets acquired for
the above acquisitions is being amortized over 40 years on a straight-line
method. The Company's Consolidated Statement of Earnings includes the
operating results of acquisitions from the respective dates of the purchases.
The following represents the pro forma results of operations assuming the
acquisitions of Eastman and Wilson had taken place on December 29, 1991.
52 Weeks 52 Weeks
Ended Ended
December 25, 1993 December 26, 1992
----------------- -----------------
(in thousands, except per share amounts)
(unaudited)
Sales........................................................... $2,828,630 $2,078,504
Net Earnings Before Extraordinary Credit........................ 62,520 37,841
Net Earnings Before Extraordinary Credit Per Share.............. .65 .40
This pro forma information is not necessarily indicative of the actual
results of operations that would have occurred had the acquisitions been made as
of December 29, 1991, or of results which may occur in the future.
NOTE J - SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES
The Consolidated Statements of Cash Flows for 1993 and 1992 do not
include noncash financing transactions of $3,525,000 and $21,882,000,
respectively, relating to additional paid in capital associated with tax
benefits of stock options exercised and $8,754,000 for 1993 associated with
accreted interest on convertible, subordinated notes.
The Consolidated Statement of Cash Flows for 1993 does not include
noncash investing and financing transactions associated with common stock issued
for the acquisition of net assets of Wilson and of Eastman. The components of
the transactions are as follows:
(in thousands)
Fair value of assets acquired (including goodwill)......... $ 328,603
Liabilities assumed........................................ (213,895)
----------
Net assets acquired........................................ 114,708
Total issuance of common stock............................. 94,707
----------
Cash used to purchase Eastman common stock................. $ 20,001
----------
----------
35
20
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Continued
- --------------------------------------------------------------------------------
NOTE K - RECEIVABLES SOLD WITH RECOURSE
The Company has two private label credit card programs which are
managed by financial services companies. All credit card receivables sold to
the financial services company under one of these programs were sold on a
recourse basis. Proceeds to the Company for such receivables sold with
recourse were approximately $185,000,000, $138,000,000 and $123,000,000 in
1993, 1992 and 1991, respectively. The Company's maximum exposure to
off-balance sheet credit risk is represented by the outstanding balance of
private label credit card receivables with recourse, which totaled approximately
$39,900,000 at December 25, 1993. The financial services company periodically
estimates the percentage to be withheld from proceeds for receivables sold to
achieve the necessary reserve for potential uncollectible amounts. The Company
expenses such withheld amounts at the time of sale to the financial services
company.
NOTE L - QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- -------- --------
(in thousands, except per share data)
FISCAL YEAR ENDED DECEMBER 25, 1993
Net sales.......................................................... $582,115 $527,871 $659,925 $809,583
Gross profit(a).................................................... 133,632 122,671 151,478 191,284
-------- -------- -------- --------
Net earnings....................................................... $ 14,138 $ 10,861 $ 17,206 $ 21,212
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per common share...................................... $ .15 $ .12 $ .18 $ .22
-------- -------- -------- --------
-------- -------- -------- --------
FISCAL YEAR ENDED DECEMBER 26, 1992
Net sales.......................................................... $433,303 $386,832 $434,793 $478,037
Gross profit(a).................................................... 99,845 88,758 100,303 109,754
Earnings before extraordinary item................................. 9,351 6,451 9,758 12,232
Extraordinary item................................................. --- --- --- 1,396
-------- -------- -------- --------
Net earnings....................................................... $ 9,351 $ 6,451 $ 9,758 $ 13,628
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per common share before extraordinary item................ $ .10 $ .07 $ .11 $ .13
Extraordinary item................................................. --- --- --- .02
-------- -------- -------- --------
Net earnings per common share...................................... $ .10 $ .07 $ .11 $ .15
-------- -------- -------- --------
-------- -------- -------- --------
(a) Gross profit is net of occupancy costs.
36
