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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10948
OFFICE DEPOT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2663954
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
2200 OLD GERMANTOWN ROAD, 33445
DELRAY BEACH, FLORIDA (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (561) 438-4800
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
Preferred Share Purchase Rights............................. 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 3, 2000 was approximately $3,651,720,818.
As of March 3, 2000, the Registrant had 321,728,565 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of our Annual Report to Stockholders for the fiscal year ended
December 25, 1999 are incorporated by reference in Part II, and the Proxy
Statement, to be mailed to stockholders on or about March 31, 2000 for the
Annual Meeting to be held on April 28, 2000, is incorporated by reference in
Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Office Depot, Inc., together with our subsidiaries, is the largest supplier
of office products and services in the world. We sell to consumers and
businesses of all sizes through our three business segments: Stores, Business
Services and International. We operate on a 52- or 53-week fiscal year ending on
the last Saturday in December.
Stock Split
On February 24, 1999, our Board of Directors ("Board") declared a
three-for-two stock split in the form of a 50% stock dividend distributed on
April 1, 1999 to stockholders of record on March 11, 1999. We have restated all
share and per share amounts in our financial statements to reflect this stock
split. The split resulted in the issuance of approximately 125 million
additional shares of our stock to existing stockholders.
Stock Repurchase
In August 1999, our Board approved a $500 million stock repurchase program
reflecting its belief that our common stock represented a significant value at
its then-current trading price. We completed this stock repurchase during the
third and fourth quarters of 1999 by purchasing 46.7 million shares of our stock
at a total cost of $500 million plus commissions. In January and March 2000, our
Board approved additional stock repurchases of up to $200 million, bringing our
total authorization to $700 million. As of March 3, 2000 we had purchased an
additional 9.2 million shares of our stock at a total cost of $100 million plus
commissions. The remaining authorization does not have an expiration date, and
we can acquire our common stock either on the open market or through negotiated
purchases.
Stores Division
We opened our first office supply store in Florida in October 1986. As of
March 3, 2000, we operated 829 retail office supply stores through our Stores
Division in 46 states, the District of Columbia and 5 Canadian provinces.
Our stores utilize a warehouse format. Using this format, merchandise is
displayed on the sales floor using low-profile fixtures, pallets, bins and
industrial steel shelving, permitting the bulk stacking of inventory and quick
and efficient restocking. Shelving is positioned to form aisles large enough to
comfortably accommodate customer traffic and merchandise movement.
Our stores carry a wide selection of merchandise, including brand name
office supplies, business machines and computers, computer software, office
furniture and other business-related products. Our stores sell primarily to
small offices/home offices and individual consumers. Each store also contains a
multipurpose copy and print center offering printing, reproduction, mailing,
shipping and other services. The sales staff in all of our stores includes
specialists who are trained to answer our customers' questions regarding a wide
variety of technology products.
We open new stores either by leasing existing retail space and renovating
it according to our specifications or by constructing new space. Prior to
selecting a new store site, we obtain detailed demographic information
indicating business concentrations, traffic counts, population, income levels
and future growth prospects. Our stores are located primarily in suburban strip
shopping centers on major commercial roadways where the cost of space is
generally lower than in urban areas. These suburban locations are generally more
accessible to our customers and provide them with convenient parking.
Additionally, they are typically situated in a manner that allows our stores to
efficiently receive inventory on a daily basis.
Our retail stores conform to a model designed to achieve cost efficiency by
minimizing rent and eliminating the need for a central warehouse. Each store
displays virtually all its inventory on the sales floor
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according to a uniform store layout plan. This plan is intended to display
merchandise effectively, use merchandising space efficiently and provide
customers with a consistent and appealing store layout. We completed
approximately 65 store remodels in 1999, compared with 200 in 1998. In 1999, we
focused on re-merchandising our stores (i.e., re-arranging product displays in a
way that is more appealing to the customer) rather than performing full-scale
remodels. This approach requires less capital and yields a better overall return
given the number of new stores in our store base. Recent changes in our store
layouts provide a more customer-friendly atmosphere, with brighter lighting and
more colorful displays.
Substantially all inventory on the sales floor is bar-coded for automatic
processing. Sales are processed through registers located at the front of the
store. Sales and inventory information for each stock-keeping unit ("SKU") are
transmitted to our central computer system daily, and pricing information is
transmitted from our central computer system back to the stores. Rather than
individually price marking each product, a master sign for each product is used
to display its price. As price changes occur, a new master sign is automatically
generated for the product display, and the new price is reflected in the
register, allowing us to avoid labor costs associated with re-pricing.
Our overall business strategy for our Stores Division is to maximize sales
and profitability in our existing stores and to add new stores in existing
markets that have the potential for further Office Depot development, in smaller
markets in regions that are still under-served by office supply retailers and,
to a lesser extent, in larger markets that are attractive because of the number
of potential customers in those markets. However, stores in larger markets often
require higher occupancy costs. Store opening activity for the last five years
is summarized as follows:
OPEN AT
BEGINNING OPEN AT END STORES
OF YEAR OPENED CLOSED OF YEAR RELOCATED
--------- ------ ------ ----------- ---------
1995...................................... 420 82 1 501 6
1996...................................... 501 60 -- 561 3
1997...................................... 561 42 1 602 2
1998...................................... 602 101 1 702 5
1999...................................... 702 130 7 825 14
The decline in the number of stores opened in 1996 and 1997 was the result
of our proposed merger with Staples, Inc. ("Staples"), which was terminated in
July 1997. During this period of uncertainty, several of our key real estate
employees left the Company. After the merger discussions with Staples were
terminated, we re-staffed our real estate department and re-launched our store
expansion program.
We currently plan to open approximately 100 new retail stores in the United
States and Canada during 2000. However, our real estate strategy will stress a
more analytical approach in the future, rather than focusing on a specific
number of new stores. Over the past year, we have conducted extensive customer
and market research that will provide us with a more precise evaluation of the
profit potential and return on investment of each new store opening.
Business Services Group ("BSG")
In 1993 and 1994, we expanded into the contract business by acquiring eight
contract stationers. Contract stationers are businesses which provide a wide
variety of office products to customers who have continuing relationships with
the seller, often through contractual agreements to purchase office supplies
from that seller. These acquisitions allowed us to enter the contract business
and broaden our commercial (primarily catalog) and retail delivery business. In
1998, we merged with Viking Office Products, Inc. ("Viking"), a global direct
marketing office products company, significantly increasing the customer base
and catalog marketing expertise of our BSG. Today, BSG sells office products and
services to contract and commercial customers through our Office Depot(R) and
Viking Office Products(R) direct mail catalogs and Internet sites, and by means
of our dedicated contract sales force.
We currently operate customer service centers ("CSCs") in 18 states. Our
CSCs, which range in size from 51,000 to 620,000 square feet, serve as warehouse
and delivery facilities, many of which also house sales
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offices, call centers and administrative offices. Our CSCs perform warehousing
and delivery services on behalf of all of our domestic segments, handling most
of our delivery business. We believe that these facilities, along with their
surrounding satellites, provide cost effective and efficient delivery services
to our customers in the 48 contiguous states.
Our contract and commercial customers have access to a broad selection of
stocked office products and office furniture, as well as special order items. In
addition, we provide our contract customers with specialized services designed
to aid them in achieving efficiencies and eliminating waste in their overall
office products and office furniture costs. These services include tailored
electronic ordering, stockless office procurement, desktop delivery, business
forms management services and comprehensive product usage reports.
Prior to our merger with Viking in August 1998, we replaced several
outdated, inefficient facilities with new CSCs and converted all of our
warehouse and order entry systems to one common technology platform. Customers
place orders by phone, fax, electronic data interchange ("EDI") and the
Internet. Orders are routed to the appropriate CSC for delivery. If an item is
not in stock, the order is automatically routed to a wholesaler. Wholesaler
orders are generally delivered to the CSC the same day, enabling us to deliver
the most complete order possible to our customers, in most cases the next
business day.
We currently operate 30 CSCs in the United States, 10 of which we added as
a result of the Viking merger. We have initiated plans to integrate our Viking
and Office Depot warehouses. We expect to accomplish this integration by either
absorbing the Viking operations into existing Office Depot warehouses or by
opening new combined warehouses, depending on the particular market
circumstances. Once our integration is complete, we will operate 21 combined
CSCs, having closed nine Viking and two Office Depot CSCs and opened two new
combined facilities. See MERGERS, ACQUISITIONS AND RESTRUCTURINGS for further
information. Although we are integrating our warehouse and delivery network, we
will continue to operate under both the Office Depot(R) and Viking(R) brands.
In January 1998, we introduced our Office Depot public Web site
(www.officedepot.com), offering our customers the convenience of shopping over
the Internet. The addition of this site expanded our domestic electronic
commerce capabilities beyond the Viking public Web site (www.vikingop.com) and
the Office Depot business-to-business ("B2B") contract Web sites. Our Web sites
provide customers with the same assortment of products offered to our catalog
customers. They also provide news articles geared toward small office/home
office businesses as well as pertinent information about Office Depot.
Our strategies for growing the BSG include continuing to build and expand
upon our integrated national network to provide efficient and effective delivery
services to customers. We plan to complete the integration of our Viking and
Office Depot CSCs by early 2001. See MERGERS, ACQUISITIONS AND RESTRUCTURINGS
for further discussion. Additionally, we plan to increase our penetration into
new and existing markets by expanding the coverage of our contract sales force,
which currently exceeds 1,100 account executives, and by increasing the use of
database marketing tools to maximize the effectiveness of our direct mail
catalogs.
International Division
Our International Division sells office products and services to retail,
contract and commercial customers in 17 countries outside the United States and
Canada. We launched our international direct marketing business in 1990 under
the Viking(R) brand with the establishment of our United Kingdom operations. In
December 1993, we initiated our international retail operations by opening our
first store in Colombia through a licensing agreement. We have expanded
internationally through licensing and joint venture agreements, acquisitions and
the merger with Viking.
In March 1999, we introduced our first international public Web site
(www.viking-direct.co.uk) for individuals and businesses in the United Kingdom;
and in the first quarter of 2000, we introduced our public Web site in Germany
(www.viking.de). We expect to introduce several new international Web sites in
2000 under both the Office Depot(R) and Viking(R) brand names. In relative
terms, sales of office products via the Internet are significantly less
prevalent internationally than in the United States. We believe that this
affords
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us a unique opportunity to achieve "first mover" advantages by aggressively
developing and introducing Internet shopping opportunities for our international
customers.
As of March 3, 2000, we have 121 office supply stores in eight countries
outside the United States and Canada operating under the Office Depot name, 32
of which are wholly owned. In addition to these retail stores, our International
Division has catalog and delivery operations in 14 countries. We operate our
catalog business under the Viking(R) brand in 11 of these countries and the
Office Depot(R) brand in five of these countries. Our International Division
currently operates in Australia, Austria, Belgium, Colombia, France, Germany,
Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, the Netherlands,
Poland, Thailand and the United Kingdom. Certain of our operations are
wholly-owned; others operate through joint venture or licensing arrangements.
CSCs in our International Division serve the same function as they do in
our BSG, but are typically smaller. They range in size from 36,000 to 240,000
square feet and may also accommodate call centers and/or administrative offices.
International store and CSC operations, including facilities operated through
licensing and joint venture agreements, for the last five years are detailed
below. All years prior to 1998 have been restated to include facilities operated
by Viking prior to our merger.
OFFICE SUPPLY STORES CUSTOMER SERVICE CENTERS
--------------------------------------- ---------------------------------------
OPEN AT OPEN AT OPEN AT OPEN AT
BEGINNING END BEGINNING END
OF PERIOD OPENED CLOSED OF PERIOD OF PERIOD OPENED CLOSED OF PERIOD
--------- ------ ------ --------- --------- ------ ------ ---------
1995.......................................... 3 6 -- 9 4 4 -- 8
1996.......................................... 9 12 -- 21 8 4 -- 12
1997.......................................... 21 18 -- 39 12 4 -- 16
1998.......................................... 39 48 -- 87 16 2 1 17
1999.......................................... 87 36 5 118 17 1 1 17
MERGERS, ACQUISITIONS AND RESTRUCTURINGS
Viking Merger
On August 26, 1998, we completed our merger with Viking. Faced with the
task of integrating our Office Depot and Viking warehouses, we formulated a plan
to close most of the Viking facilities by the end of 2000. In 1998, we recorded
merger and restructuring costs of $108.1 million that were directly related to
the Viking merger. These costs consisted of legal fees, investment banker fees,
asset write-offs associated with the closure of identified facilities, write-off
of software applications to be abandoned, personnel costs and other facility
exit and integration costs. During the fourth quarter of 1999, we modified our
integration plans after evaluating the results of integrating two test
facilities. Our modified plans incorporate a simplified approach and, as a
result, require less capital. Consequently, we reversed previously accrued
charges of $32.5 million, reducing direct merger costs to a net credit of $28.6
million in 1999. For additional information regarding the restructuring and
integration, refer to the Management's Discussion and Analysis incorporated by
reference in Item 7 of this report.
Closure of Furniture at Work(TM) and Images(TM) Stores
In addition to our core retail and delivery businesses, we have in the past
operated under the following concepts:
Images(TM) and Office Depot Express(TM) -- Retail stores providing
graphics design, printing, copying, shipping and fulfillment services, as
well as a limited assortment of office supplies.
Furniture At Work(TM) -- Stand alone office furniture stores offering a
broad line of office furniture, office accessories and design services.
In November 1998, we decided to focus our attention on the continued growth
of our core businesses and on expansion of our international operations. In
conjunction with this decision, we decided to close our five Furniture at
Work(TM)and five Images(TM)/Office Depot Express(TM) stores, and we recorded
restructuring costs of $11.0 million. These costs consisted primarily of
estimated lease commitments subsequent to the closing of
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the stores and the write-off of certain fixed assets. In 1999, we recorded a net
restructuring credit of $2.0 million as a result of adjusting our estimates of
expenses to actual as the stores closed. All ten of these stores have been
closed. For additional information regarding this restructuring, please refer to
the Management's Discussion and Analysis incorporated by reference in Item 7 of
this report.
Acquisition of Joint Venture Interests in France and Japan
In November 1998, we purchased our joint venture partner's 50% interest in
our French Office Depot retail operations for $27.7 million, recording goodwill
of $20.2 million. Following this purchase, we decided to restructure and
integrate the separate Office Depot and Viking operations in France. We do not
expect to close any facilities in France in conjunction with restructuring or
integration. Instead, we will integrate the warehousing and delivery operation
of our Office Depot(R) and Viking(R) brands in each of our existing warehouses.
In April 1999, we purchased our joint venture partner's 50% interest in our
Japanese Office Depot retail operations for $27.6 million, raising our total
ownership in those operations to 100%. In conjunction with this acquisition, we
recorded goodwill of $21.4 million and announced plans to restructure and
integrate our Japanese operations. We closed one CSC in 1999 and plan to close
another during 2000. Additionally, we have closed one store in connection with
implementing our plans.
During 1999, we recorded restructuring costs, primarily personnel-related
costs and facility exit costs, of $23.5 million for integration activities in
France and Japan. For additional information regarding the restructuring and
integration in these countries, refer to the Management's Discussion and
Analysis incorporated by reference in Item 7 of this report.
STORE CLOSURE AND RELOCATION
During 1999, we recorded a charge of $40.4 million to reflect our decision
to accelerate our store closure program for under-performing stores and our
relocation program for older stores in our Stores Division. This charge also
reflects our decision to sell our interest in our retail operations in Thailand.
On October 28, 1999, we entered into an agreement with Central Retail Group, our
joint venture partner at the time, to sell them our Thai operations for $1.4
million and license to them certain trademarks, software and operating systems.
Central Retail Group now operates the two Thai stores under a licensing
agreement. Finally, the charge also reflects our decision to write-off certain
other long-lived assets in our BSG.
OFFICE PRODUCTS BUSINESS
Businesses in our industry primarily sell three broad categories of
merchandise: general office supplies, technology products and office furniture.
Office products distributors include contract stationers (selling at significant
discounts from list prices to their contract customers), mail order companies
(selling through catalogs) and retailers (including office superstores such as
the ones we operate). Most recently, Internet-based companies have emerged as a
new force in this industry.
Although the office products business has changed in recent years, a
significant portion of the market is still served by small dealers. These
dealers purchase a significant portion of their merchandise from national or
regional office supply distributors who, in turn, purchase merchandise from
manufacturers. Dealers often employ a commissioned sales force that use the
distributor's catalog, showing products at retail list prices, for selection and
price negotiation with the customer. We believe that these dealers generally
sell their products at prices higher than those we offer to our customers.
Over the past decade, high-volume office supply superstores have emerged
throughout the United States. These stores offer a wide selection of products, a
high level of customer service and low prices. High-volume office products
retailers typically offer substantial price savings to individuals and small-to
medium-sized businesses, which traditionally have had limited opportunities to
buy at significant discounts from retail list prices. Recently, other retailers,
including mass merchandisers and warehouse clubs, have begun offering a wide
variety of similar products at low prices and have become increasingly
competitive with office supply
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superstores. Direct mail and Internet-based companies have also established a
growing presence in the office products industry.
Larger customers have been, and continue to be, served primarily by full
service contract stationers, which offer contract bids at discounts equivalent
to or greater than those offered by our retail stores and catalogs. These
stationers, including our own contract stationer business, traditionally serve
their customers through a commissioned sales force, purchase in large quantities
primarily from manufacturers, and offer competitive pricing and customized
services to their customers.
COMPETITION
We operate in a highly competitive environment. Historically, our markets
have been served by traditional office products dealers and contract stationers.
We believe that we compete favorably against dealers on the basis of price,
because these dealers typically purchase their products from distributors and
generally sell their products at prices higher than we offer. We compete with
other full service contract stationers on the basis of service and value-added
technology. We also compete with other office supply superstores, wholesale
clubs selling general merchandise, discount stores, mass merchandisers,
conventional retail stores, catalog showrooms, Internet-based companies and
direct mail companies. These companies, in varying degrees, compete with us on
both price and selection. We are the largest seller of office products and
services in the world, and we believe that our ability to buy in large
quantities directly from the manufacturers affords us a competitive advantage
over our smaller competitors, some of which must buy from distributors.
We compete with several high-volume office supply chains that are similar
to us in terms of store format, pricing strategy and product selection and
availability in markets where we operate, primarily those in the United States
and Canada. We differentiate ourselves from these other superstore chains in
terms of the convenience of our store locations, our customer service, the
extent of our product selection, and our "in stock" position (i.e., having the
products we carry on the shelves for our customers). We anticipate that in the
future we will face increased competition from these chains as each of us
expands our operations.
In the delivery and contract stationer portions of the industry, our
principal competitors are national and regional full service contract
stationers, national and regional office furniture dealers, independent office
products distributors, discount superstores and, to a lesser extent, direct mail
businesses, stationery retail outlets and Internet-based merchandisers. Other
office supply superstore chains are also developing a presence in the contract
stationer and Internet channels of the business. We compete with these
businesses in substantially all of our current markets. In the future, we may
face increased competition from Internet-based merchandisers who dedicate all of
their resources to electronic commerce.
Some of the entities we compete against may have greater financial
resources than we do. We cannot assure you that increased competition will not
have an adverse effect on us. However, we believe that we compete effectively
based on price, selection, availability, location and customer service.
MERCHANDISING AND PRODUCT STRATEGY
Our merchandising strategy is to offer a broad selection of office
products, under both our Office Depot(R) and Viking(R) brands, and to provide
our customers with a compelling combination of quality, assortment, price and
service. Our selection of office products includes general office supplies,
computers, software and computer supplies, business machines and related
supplies, and office furniture. Each of our office supply superstores stocks
approximately 8,000 SKUs, including variations in color and size, and our CSCs
stock approximately 13,000 SKUs, including 4,500 of the SKUs stocked at our
office supply stores. The number of SKUs carried in our CSCs decreased in 1999
as a result of a rationalization of our warehouse inventory assortments in
connection with the integration and consolidation of our Viking and Office Depot
CSCs. As we continue our integration, we will continue to evaluate and optimize
the number of SKUs we offer.
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The table below shows sales of each major product group as a percentage of
our total merchandise sales for 1999, 1998 and 1997:
1999 1998 1997
------ ------ ------
General office supplies(1)............................... 40.96% 42.85% 42.65%
Technology Products(2)................................... 47.55% 46.02% 45.69%
Office furniture(3)...................................... 11.49% 11.13% 11.66%
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
- ---------------
(1) Includes paper; filing supplies; organizers; business cases; writing
instruments; mailing supplies; desktop accessories; calendars; business
forms; binders; tape; post-it notes; staplers; fasteners; art supplies;
school supplies; engineering, food and janitorial supplies; and revenue from
the copy and print centers located in each store.
(2) Includes calculators; typewriters; projectors; telephones; cameras and film;
cash registers; copiers; facsimile machines; tape recorders; computers;
printers; computer diskettes; ribbons; cartridges; software and books.
(3) Includes chairs; desks; tables; partitions; bookcases; filing and storage
cabinets; and furniture accessories such as chair mats, lamps, and clocks.
We buy substantially all of our merchandise directly from manufacturers and
other primary suppliers. Our suppliers deliver the merchandise directly to our
stores or CSCs or to our ten cross-dock facilities. Our supply chain operations,
including the cross-docks, use a customized system to manage the inbound flow of
merchandise with the goal of minimizing our landed cost. This system enables us
to maintain optimal in-stock positions by permitting a shorter lead time for
reordering at the stores and CSCs, while still meeting the minimum ordering
requirements of our vendors. The use of cross-docks also reduces our freight
costs by centralizing the receiving function.
Our BSG is party to several multi-year contracts with certain of our
customers and anticipates entering into more such contracts in the future as we
grow our contract business. Nonetheless, we have not entered into any material
long-term contracts or commitments with any vendor or customer, the loss of
which would materially adversely affect our financial position or the results of
our operations. We have not experienced any difficulty in obtaining desired
quantities of merchandise for sale, and we do not foresee having any significant
difficulties in the future.
Buyers located at our corporate headquarters are responsible for selecting
and purchasing merchandise. For merchandise offered to retail, direct mail and
Internet customers, corporate buyers also determine pricing. Our contract sales
force in our BSG determines the price of products sold to our contract
customers. Replenishment buyers monitor inventory levels and initiate product
reorders with the assistance of our customized replenishment system. This system
allows buyers to devote more time to selecting products, developing new product
lines, analyzing competitive developments and negotiating with vendors to obtain
more favorable prices and product availability. We transmit purchase orders by
EDI to a significant number of our vendors, and we electronically receive
Advance Shipment Notices and invoices back from them. This method of electronic
ordering expedites orders and promotes accuracy and efficiency. We plan to
continue to expand this program to the remainder of our vendors.
We buy substantially all of our inventory directly from manufacturers in
large quantities without using a central warehouse. We maintain substantially
all of our inventory on the sales floors of our stores, at our cross-docks and
at our CSCs.
CATALOG PRODUCTION AND CIRCULATION
We use our catalogs to market directly to both existing and prospective
customers throughout the world. Separate catalog assortments promote our dual
brand (Office Depot(R) and Viking(R)) mail order strategy. We currently
circulate both Viking(R) and Office Depot(R) brand catalogs through our BSG and
International Division. Each catalog is printed in full color with pictures and
narrative descriptions that emphasize key
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product benefits and features. We have developed a distinctive style for our
catalogs, most of which are produced in-house by our designers, writers and
production artists, using a computer-based catalog creation system.
Our Viking(R) brand catalog mailings include monthly sale catalogs, which
are mailed to all active Viking customers and present our most popular items. A
complete "Buyers Guide," containing all of our products at the regular discount
prices, is delivered to our Office Depot(R) and Viking(R) brand catalog
customers every six months. The Buyers Guide, which is mailed to all of our
active customers, varies in size between countries. Prospecting catalogs with
special offers designed to attract new customers are mailed frequently. In
addition, Office Depot(R) and Viking(R) specialty catalogs are delivered to
selected customers monthly.
We currently have several different specialty catalogs, including catalogs
dedicated to office furniture, computer supplies, custom printed business forms
and stationery, paper products, shipping and warehouse supplies (including
cleaning and janitorial products) and presentation supplies (including
transparencies and overhead slides). Other specialty catalogs are being
considered and may be introduced in the future.
During 1999, we mailed approximately 296 million copies of over 180
different Office Depot(R) and Viking(R) brand catalogs. During 1998 and 1997, we
mailed approximately 248 million and 226 million copies, respectively, of over
100 different catalogs to existing and prospective customers.
SELLING AND MARKETING
We are able to maintain our competitive pricing policy primarily as a
result of the significant cost efficiencies we achieve through our operating
format and purchasing power. Our marketing programs are designed to attract new
customers and to persuade existing customers to make additional purchases. We
advertise in the major newspapers in each of our local markets. These
advertisements are supplemented with local and national radio and television
advertising and direct marketing efforts. We continuously acquire new customers
by selectively mailing specially designed catalogs to prospective customers.
Sometimes we obtain the names of prospective customers in new and existing
markets through the use of selected mailing lists from outside marketing
information services and other sources. We use a proprietary mailing list system
for our Viking(R) brand catalogs and other promotional mailings. We plan to use
this same technology to increase the effectiveness of our Office Depot(R) brand
catalogs in the future. Catalogs are also distributed through our contract sales
force and are available in each of our stores.
We have a low price guarantee policy for our Office Depot(R) brand. Under
this policy, we will match any competitor's comparable lower price. In addition,
the Office Depot(R) brand guarantee gives the customer a credit of 55% of the
price difference, up to $55. This program assures customers that they can always
receive low prices from us even during periodic sales promotions by our
competitors. Monthly competitive pricing analyses are performed to monitor each
market, and prices are adjusted as necessary to adhere to this pricing
philosophy and ensure competitive positioning.
In addition to the sales associates at each of our stores and the customer
service representatives at our call centers, we have a dedicated sales force
serving contract customers in our BSG. Our dedicated sales force operates out of
our more than 60 regional sales offices. All members of our sales force are
employees.
In early 1998, we introduced our Office Depot public Web site
(www.officedepot.com), enabling customers to order our products directly through
the Internet. In early 2000, we launched our completely renovated Viking public
Web site (www.vikingop.com), providing our Viking customers with improved
functionality, greater selection and easier direct order services. Our customers
nationwide can place orders over the Internet, by telephone or by fax using
toll-free telephone numbers that route the calls through call centers located in
Florida, Georgia, Texas, Ohio, Connecticut, Kansas, and California. We
electronically transmit any orders received at the call centers or via the
Internet to the store or CSC closest to our customer for pick-up or delivery at
a nominal delivery fee (free with a minimum order size, currently $50). Orders
are packaged, invoiced and shipped for next-day delivery or same-day delivery in
the case of Viking orders in selected markets.
8
10
Through our BSG, we provide our contract customers with specialized
services designed to aid them in achieving efficiencies and eliminating waste in
their overall office products and office furniture costs. These services include
electronic ordering, stockless office procurement, desktop delivery, business
forms management services and comprehensive product usage reports. Desktop
delivery entails delivering the merchandise to individual departments within our
customers' facilities, rather than delivering the packages to one central
receiving point. We also develop customized intranet sites in tandem with our
customers, allowing them to set rules and limitations on their employees'
electronic ordering abilities. Customer orders from these intranet sites are
transmitted to us via the Internet.
In March 1999, we introduced our first international public Web site
(www.viking-direct.co.uk) for individuals and businesses in the United Kingdom;
and in the first quarter of 2000, we introduced our public Web site in Germany
(www.viking.de). We expect to introduce several new international Web sites in
2000 under both the Office Depot(R) and Viking(R) brand names, providing our
international customers with another way to order office products from us.
In addition to the normal payment options available to all of our
customers, we offer our contract and qualified commercial customers the option
of purchasing on credit through open accounts. We also offer revolving credit
terms to Office Depot(R) brand customers through the use of private label credit
cards. These credit cards are issued without charge to credit-qualified
customers. Sales transactions using the private label credit cards are
transmitted electronically to financial services companies, which credit our
bank account with the net proceeds within two days. We offer our contract
customers a store purchasing card which allows them to purchase office supplies
at one of our retail stores, while still taking advantage of their contract
pricing. No single customer in any of our segments accounts for more than 1%
percent of our total sales.
INFORMATION SYSTEMS
Inventory is received and stocked in each facility using an automated
inventory tracking system. Prior to our merger with Viking, we replaced several
outdated, inefficient facilities with new CSCs and converted all of our
warehouse and order entry systems to one common technology platform. We have
initiated plans to integrate our Viking and Office Depot warehouses. See
MERGERS, ACQUISITIONS AND RESTRUCTURINGS. Customer orders, placed by phone, fax
or electronically, are filled by the most appropriate CSC or office supply
superstore, usually for next day delivery. The appropriate delivery location is
determined by our automated routing systems, and orders are filled using both
in-stock and wholesaler-supplied inventory.
In operating our business, we use IBM ES9000 mainframes and IBM AS/400
computers and client/server technologies that primarily run on Microsoft
Windows. Our information systems include advanced software packages that have
been customized for our specific business operations. By maximizing our
application of these technologies, we have improved our ability to manage our
inventories, order processing, replenishment and marketing efforts.
Inventory data is updated instantaneously in our systems when the
merchandise is scanned for receiving or transfer, and sales and certain
inventory data is updated in our systems each night by downloading information
from our point-of-sale and our telemarketing order entry systems. Our
point-of-sale systems permit the entry of sales data through the use of bar code
laser scanning. The systems also have a price "look-up" capability that permits
immediate price checking and the efficient movement of customers through the
check-out process. Data from all of our locations and order sources is
transmitted to our headquarters at the end of each day, permitting a perpetual
daily inventory and the calculation of average unit cost by SKU for each of our
stores and CSCs. Daily compilation of sales and gross margin data allows us to
analyze profitability and inventory by item and product line, as well as monitor
the success of our sales promotions. For all SKUs, we have immediate access to
on-hand daily unit inventory, units on order, current and past rates of sale and
other information pertinent to the management of our inventory.
All of our computer operations are managed internally in state-of-the-art
facilities that capitalize on advanced technologies. Our help desk is manned 24
hours per day, 7 days per week, and 365 days per year; and we utilize off-site
disaster recovery facilities. These operations result in industry leading system
availability and reliability.
9
11
We have invested in a state-of-the-art data warehouse that allows us to
perform trend and market basket analyses, manage our customer relationships, and
produce more effective advertising campaigns. We strive for superior customer
satisfaction, and our information systems initiatives are designed with that
goal in mind. The aim of our new data warehouse solution is to use sales
transaction and customer interaction information to market on a more personal
basis with each of our customers. Our international initiatives include
launching several electronic commerce sites throughout the world and building a
world-class network and computing infrastructure.
Our Office Depot public Web site -- www.officedepot.com -- has won a number
of honors. Our business-to-business electronic commerce sites have sophisticated
work-flow components that help our customers electronically manage their
ordering process for office supplies, with thousands of customer orders
processed each day. Internet-enabled applications allow our suppliers to
directly interact with our systems, improving order flow and supply chain
management. We use our corporate intranet to improve employee productivity and
responsiveness and reduce our administrative costs.
EMPLOYEES, STORE MANAGEMENT AND TRAINING
As of March 3, 2000, we had approximately 48,000 employees worldwide. We
anticipate that we will continue to add employees in the future as we grow and
expand our business. We try to promote as many of our existing employees into
management positions as possible. Because of the rapid rate of our expansion,
however, for the foreseeable future we will continue to recruit a portion of our
management talent from external sources.
We hire and train new employees well in advance of new store and CSC
openings, and these employees undergo a comprehensive training program prior to
the facility opening. In general, our store managers have extensive experience
in retailing, particularly with warehouse store chains or discount stores that
generate high sales volumes. Each of our new retail store managers usually
spends two to four months in an apprenticeship position at an existing Office
Depot store prior to being assigned to a new store. Typically, our CSC managers
have extensive experience in distribution operations. Our retail sales
associates view product knowledge videos and complete written training programs
relating to certain products before being allowed to assist customers. We create
some of these videos and training programs internally. New product information
is periodically transmitted to associates via satellite broadcasts. The
satellite broadcasts are also used for associate training. We grant stock
options and offer bonus programs to certain of our employees, including retail
store managers, as an incentive to attract and retain them.
We have never experienced a strike or any other work stoppage among our
domestic employees, and we believe that our relations with all of our employees
are good. There are no collective bargaining agreements covering any of our
employees. However, certain of our international employees work under various
labor arrangements.
10
12
ITEM 2. PROPERTIES.
As of March 3, 2000, we operate 791 office supply stores in 46 states and
the District of Columbia, 38 office supply stores in 5 Canadian provinces and
121 office supply stores (including those operated under licensing and joint
venture agreements) in 8 countries outside of the United States and Canada. We
also operate 30 CSCs in 18 U.S. states and 17 CSCs in 10 countries outside of
the United States. The following table sets forth the locations of these
facilities.
STORES
- --------------------------------------------------------------------------------
STATE/COUNTRY #
- ------------- ---
UNITED STATES:
Alabama 14
Alaska 2
Arizona 11
Arkansas 7
California 121
Colorado 22
Connecticut 2
Delaware 1
District of Columbia 2
Florida 79
Georgia 34
Hawaii 4
Idaho 3
Illinois 32
Indiana 14
Iowa 5
STATE/COUNTRY #
- ------------- ---
Kansas 10
Kentucky 10
Louisiana 23
Maryland 12
Massachusetts 2
Michigan 25
Minnesota 10
Mississippi 8
Missouri 18
Montana 1
Nebraska 4
Nevada 9
New Jersey 8
New Mexico 4
New York 17
North Carolina 22
STATE/COUNTRY #
- ------------- ---
North Dakota 2
Ohio 32
Oklahoma 9
Oregon 15
Pennsylvania 9
Rhode Island 1
South Carolina 11
Tennessee 17
Texas 95
Utah 6
Virginia 17
Washington 26
West Virginia 3
Wisconsin 11
Wyoming 1
---
Total United States 791
CANADA:
Alberta 8
British Columbia 8
Manitoba 4
Ontario 16
Saskatchewan 2
---
Total Canada 38
COLOMBIA 2
FRANCE 26
HUNGARY 4
ISRAEL 22
JAPAN 6
MEXICO 43
POLAND 16
THAILAND 2
---
Total Outside the United
States 121
CSC'S
- --------------------------------------------------------------------------------
STATE/COUNTRY #
- ------------- ---
UNITED STATES:
Arizona 1
California 4
Colorado 2
Connecticut 1
Florida 3
Georgia 1
Illinois 1
Louisiana 1
Maryland 2
Massachusetts 1
STATE/COUNTRY #
- ------------- ---
Michigan 1
Minnesota 2
New Jersey 1
North Carolina 1
Ohio 2
Texas 3
Utah 1
Washington 2
---
Total United States 30
STATE/COUNTRY #
- ------------- ---
AUSTRALIA 2
FRANCE 2
ISRAEL 1
GERMANY 2
THE NETHERLANDS 1
IRELAND 1
ITALY 1
JAPAN 2
MEXICO 2
UNITED KINGDOM 3
---
Total Outside the United
States 17
11
13
Most of our facilities are leased or subleased, with lease terms (excluding
renewal options) expiring in various years through 2020, except for the 66
facilities, excluding our corporate offices and systems data center, which we
own. Our owned facilities are located in 16 states, primarily in Florida, Texas
and California; two Canadian provinces; the United Kingdom; the Netherlands;
Australia; Mexico and France.
We operate our retail stores under the Office Depot(R), Office Depot
Express(R) and Office Place(R) (in Ontario, Canada) names. Our contract and
catalog businesses operate under the names Office Depot(R) and Viking Office
Products(R).
Our corporate offices in Delray Beach, Florida consist of approximately
575,000 square feet in three adjacent buildings -- two are owned and one is
leased. We also own a corporate office building in Torrance, California which is
approximately 180,000 square feet in size and a systems data center in
Charlotte, North Carolina which is approximately 53,000 square feet in size.
ITEM 3. LEGAL PROCEEDINGS.
We are involved in litigation arising in the normal course of our business.
We do not believe that any of these matters, either individually or in the
aggregate, will materially affect our financial position or the results of our
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
12
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
Our common stock is listed on the New York Stock Exchange ("NYSE") under
the symbol "ODP." As of March 3, 2000, there were 4,204 holders of record of our
common stock. The last reported sale price of the common stock on the NYSE on
March 3, 2000 was $11.6875.
The following table sets forth, for the periods indicated, the high and low
sale prices of our common stock, as quoted on the NYSE Composite Tape. These
prices do not include retail mark-ups, mark-downs or commission.
1999 HIGH(1) LOW(1)
- ---- -------- --------
First Quarter........................................ $26.0000 $20.3333
Second Quarter....................................... 25.8333 18.2500
Third Quarter........................................ 23.0000 9.8125
Fourth Quarter....................................... 13.1875 9.0000
1998
- ----
First Quarter........................................ $20.0417 $14.5000
Second Quarter....................................... 23.1667 18.7083
Third Quarter........................................ 24.8333 13.3333
Fourth Quarter....................................... 24.4167 10.5833
- ---------------
(1) Prices have been adjusted to reflect the three-for-two stock split which
occurred on April 1, 1999.
We have never declared or paid cash dividends on our common stock, and we
do not currently intend to pay cash dividends in the foreseeable future.
Earnings and other cash resources will continue to be used in the expansion of
our business.
On February 24, 1999, our Board declared a three-for-two stock split in the
form of a 50% stock dividend payable on April 1, 1999 to stockholders of record
on March 11, 1999. In conjunction with the stock split, 124,560,075 additional
shares were issued to our existing stockholders on April 1, 1999.
In August 1999, our Board approved a $500 million stock repurchase program
reflecting its belief that our common stock represented a significant value at
its then-current trading price. We purchased 46.7 million shares of our stock at
a total cost of $500 million plus commissions during the third and fourth
quarters of 1999. In January and March 2000, our Board approved additional stock
repurchases of up to $200 million, bringing our total authorization to $700
million. As of March 3, 2000, we had purchased an additional 9.2 million shares
of our stock at a total cost of $100 million plus commissions. The remaining
authorization does not have an expiration date, and we can acquire our common
stock either in the open market or through negotiated purchases.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in Exhibit 13 under the
heading "Financial Highlights" as of and for the fiscal years ended December 25,
1999, December 26, 1998, December 27, 1997, December 28, 1996 and December 30,
1995. This information is set forth in our Annual Report to Stockholders for the
fiscal year ended December 25, 1999 (on page 22) and is incorporated herein by
this reference and made a part hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is set forth in Exhibit 13 under the
headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Cautionary Statements for Purposes of the 'Safe
Harbor' Provisions of the Private Securities Litigation Reform Act of 1995."
This
13
15
information is set forth in our Annual Report to Stockholders for the fiscal
year ended December 25, 1999 (on pages 23-38) and is incorporated herein by
reference and made a part hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risks
When we invest our funds in short-term investments, which generate income
subject to variable interest rates, we are subject to interest rate risk. We did
not, however, have any funds invested in such instruments as of December 25,
1999.
Our zero coupon, convertible subordinated notes (Liquid Yield Option Notes
or LYONs(R)) offer stated yields to maturity which are not subject to interest
rate risks. Borrowings under our domestic and Japanese credit facilities are
both subject to variable interest rates. As of December 25, 1999, there were no
borrowings under our domestic credit agreement. The interest rate risk on our
Japanese bank borrowings has been partially mitigated by an interest rate swap
that fixes the interest rate on a portion of our yen borrowings for the
remaining life of the loan. With interest rates currently approximating 1% in
Japan, a 10% change in interest rates would not materially change our total
interest expense.
Foreign Exchange Rate Risks
The nature and magnitude of our foreign exchange risks have not changed
materially in the past year. We conduct business in various countries outside
the United States where the functional currency of the country is not the U.S.
dollar. This results in foreign exchange translation exposure when these foreign
currency earnings are translated into U.S. dollars in our consolidated financial
statements. As of December 25, 1999, a 10% change in the applicable foreign
exchange rates would have resulted in an increase or decrease in our after-tax
earnings of approximately $3 million on an annual basis.
We are also subject to foreign exchange transaction exposure when our
subsidiaries transact business in a currency other than their own functional
currency. This exposure arises primarily from inventory purchases in a foreign
currency. The introduction of the euro and our decision to consolidate our
European purchases has greatly reduced these exposures. During 1999, we entered
into foreign exchange forward contracts to hedge certain inventory exposures.
The maximum contract amount outstanding during the year was $13.7 million.
ITEM 8. FINANCIAL STATEMENTS.
The information required by this Item is set forth in Exhibit 13 under the
headings "Consolidated Balance Sheets," "Consolidated Statements of Earnings,"
"Consolidated Statements of Stockholders' Equity," "Consolidated Statements of
Cash Flows" and "Notes to Consolidated Financial Statements" as of December 25,
1999 and December 26, 1998 and for the fiscal years ended December 25, 1999,
December 26, 1998 and December 27, 1997. This information is set forth in our
Annual Report to Stockholders for the fiscal year ended December 25, 1999 (on
pages 40-57) and is incorporated herein by this reference and made a part
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
14
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and executive officers is
incorporated herein by reference to the information under the caption "Directors
and Executive Officers" in the Proxy Statement for our 2000 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to executive compensation is incorporated herein
by reference to the information under the caption "Executive Compensation" in
the Proxy Statement for our 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to security ownership of certain beneficial owners
and management is incorporated herein by reference to the information under the
caption "Stock Ownership Information" in the Proxy Statement for our 2000 Annual
Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to certain relationships and related transactions
is incorporated herein by reference to the information under the caption
"Certain Relationships and Related Transactions" in the Proxy Statement for our
2000 Annual Meeting of Stockholders.
15
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. The financial statements listed in the "Index to Financial
Statements."
2. The financial statement schedule listed in "Index to Financial
Statement Schedule."
3. The exhibits listed in the "Index to Exhibits."
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the year ended December 25,
1999 except those disclosed in our 1999 Quarterly Reports on Form 10-Q.
16
18
SIGNATURES
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 this 22nd day of
March, 2000.
OFFICE DEPOT, INC.
By /s/ DAVID I. FUENTE
------------------------------------
David I. Fuente, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on March 22, 2000.
SIGNATURE CAPACITY
--------- --------
/s/ DAVID I. FUENTE Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (Principal Executive Officer)
David I. Fuente
/s/ IRWIN HELFORD Vice Chairman and Director
- -----------------------------------------------------
Irwin Helford
/s/ M. BRUCE NELSON President -- Office Depot International and
- ----------------------------------------------------- Director
M. Bruce Nelson
/s/ BARRY J. GOLDSTEIN Executive Vice President -- Finance, Chief
- ----------------------------------------------------- Financial Officer, (Principal Financial
Barry J. Goldstein Officer)
/s/ CHARLES E. BROWN Senior Vice President -- Finance and
- ----------------------------------------------------- Controller (Principal Accounting Officer)
Charles E. Brown
/s/ LEE A. AULT, III Director
- -----------------------------------------------------
Lee A. Ault, III
/s/ NEIL R. AUSTRIAN Director
- -----------------------------------------------------
Neil R. Austrian
/s/ CYNTHIA R. COHEN Director
- -----------------------------------------------------
Cynthia R. Cohen
/s/ W. SCOTT HEDRICK Director
- -----------------------------------------------------
W. Scott Hedrick
/s/ JAMES L. HESKETT Director
- -----------------------------------------------------
James L. Heskett
/s/ MICHAEL J. MYERS Director
- -----------------------------------------------------
Michael J. Myers
/s/ FRANK P. SCRUGGS, JR. Director
- -----------------------------------------------------
Frank P. Scruggs, Jr.
/s/ PETER J. SOLOMON Director
- -----------------------------------------------------
Peter J. Solomon
17
19
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report of Deloitte & Touche LLP on
Consolidated Financial Statements......................... *
Consolidated Balance Sheets................................. *
Consolidated Statements of Earnings......................... *
Consolidated Statements of Stockholders' Equity............. *
Consolidated Statements of Cash Flows....................... *
Notes to Consolidated Financial Statements.................. *
Independent Auditors' Report of Deloitte & Touche LLP on
Financial Statement Schedule.............................. F-2
- ---------------
* Incorporated herein by reference to the respective information in our Annual
Report to Stockholders for the fiscal year ended December 25, 1999.
F-1
20
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Office Depot, Inc.:
We have audited the consolidated financial statements of Office Depot, Inc. and
Subsidiaries as of December 25, 1999 and December 26, 1998 and for each of the
three years in the period ended December 25, 1999, and have issued our report
thereon dated February 10, 2000 (March 3, 2000 as to Note J); such consolidated
financial statements and report are included in the Company's Annual Report to
Stockholders for the fiscal year ended December 25, 1999 and are incorporated
herein by reference. Our audits also included the financial statement schedule
of Office Depot, Inc. and Subsidiaries listed in the Index to Financial
Statement Schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 10, 1999 (March 3, 2000 as to Note J)
F-2
21
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Schedule II -- Valuation and Qualifying Accounts and
Reserves.................................................. S-1
All other schedules have been omitted because they are inapplicable, not
required or the information is included elsewhere herein.
22
SCHEDULE II
OFFICE DEPOT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------ ----------------- ----------
DEDUCTIONS --
BALANCE AT ADDITIONS -- WRITE-OFFS, BALANCE AT
BEGINNING CHARGED TO PAYMENTS AND END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ADJUSTMENTS PERIOD
----------- ---------- ------------ ----------------- ----------
Allowance for Doubtful Accounts:
1999............................................ $25,927 $22,940 $21,131 $27,736
1998............................................ 25,587 23,702 23,362 25,927
1997............................................ 17,662 25,254 17,329 25,587
Accrued Merger Costs:
1999............................................ $40,832 $26,035 $45,599 $21,268
1998............................................ 1,416 73,329 33,913 40,832
1997............................................ 1,956 13,218 13,758 1,416
S-1
23
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE+
------- ------- ------------
3.1 Restated Certificate of Incorporation, as amended to date... (1)
3.2 Bylaws...................................................... (2)
4.1 Form of Certificate representing shares of Common Stock..... (3)
4.2 Form of Indenture (including form of LYON) between the
Company and The Bank of New York, as Trustee................ (4)
4.3 Form of Indenture (including form of LYON) between the
Company and Bankers Trust Company, as Trustee............... (5)
4.4 Rights Agreement dated as of September 4, 1996 between
Office Depot, Inc. and ChaseMellon Shareholder Services,
L.L.C., as Rights Agent, including the form of Certificate
of Designation, Preferences and Rights of Junior
Participating Preferred Stock, Series A attached thereto as
Exhibit A, the form of Rights Certificate attached thereto
as Exhibit B and the Summary of Rights attached thereto as
Exhibit C................................................... (6)
10.1 Revolving Credit and Line of Credit Agreement dated as of
February 20, 1998 by and among the Company and SunTrust
Bank, Central Florida, National Association, individually
and as Administrative Agent; Bank of America National Trust
and Savings Association, individually and as Syndication
Agent; NationsBank, National Association, individually and
as Documentation Agent; Royal Bank of Canada, individually
and as Co-Agent; Citibank, N.A., individually and as
Co-Agent; The First National Bank of Chicago, individually
and as Co-Agent; CoreStates Bank, N.A.; PNC Bank, National
Association; Fifth Third Bank; and Hibernia National Bank.
(Exhibits to the Revolving Credit and Line of Credit
Agreement have been omitted, but a copy may be obtained free
of charge upon request to the Company)...................... (7)
10.2 Office Depot, Inc. Long-Term Equity Incentive Plan*......... (8)
10.3 1997-2001 Office Depot, Inc. Designated Executive Incentive
Plan*....................................................... (7)
10.4 Form of Change of Control Employment Agreement, dated as of
September 4, 1996, by and between Office Depot, Inc. and
each of Thomas Kroeger and William P. Seltzer............... (9)
10.5 Form of Change of Control Employment Agreement, dated as of
September 4, 1996, by and between Office Depot, Inc. and
each of David I. Fuente and Barry J. Goldstein.............. (9)
10.6 Form of Indemnification Agreement, dated as of September 4,
1996, by and between Office Depot, Inc. and each of David I.
Fuente, Cynthia R. Cohen, W. Scott Hedrick, James L.
Heskett, Michael J. Myers, Peter J. Solomon, Barry J.
Goldstein, William P. Seltzer, and Thomas Kroeger........... (9)
10.7 Form of Executive Employment Agreement, dated as of October
21, 1997, by and between Office Depot, Inc. and each of
Thomas Kroeger, Barry J. Goldstein and William P. Seltzer... (7)
10.8 Form of Executive Employment Agreement, dated as of January
1, 1998, by and between Office Depot, Inc. and David I.
Fuente......................................................
10.9 Executive Part-time Employment Agreement, dated as of
September 30, 1999, by and between Office Depot, Inc. and
Irwin Helford...............................................
II-1
24
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE+
------- ------- ------------
10.10 Form of Executive Employment Agreement, dated as of May 17,
1998, by and between Office Depot, Inc. and Bruce Nelson....
10.11 Form of Executive Employment Agreement, dated as of March
30, 1998, by and between Office Depot, Inc. and Shawn
McGhee......................................................
13.1 Certain portions of the Company's Annual Report to
Stockholders................................................
21.1 List of subsidiaries........................................
23.1 Consent of Deloitte & Touche LLP............................
27.1 Financial Data Schedule.....................................
- ---------------
+ This information appears only in the manually signed original copies of this
report.
* Management contract or compensatory plan or arrangement.
(1) Incorporated by reference to the respective exhibit to the Proxy Statement
for the Company's 1995 Annual Meeting of Stockholders.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q,
filed with the Commission on August 12, 1996.
(3) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-39473.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-54574.
(5) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-70378.
(6) Incorporated by reference to the Company's Current Report on Form 8-K, filed
with the Commission on September 6, 1996.
(7) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the year ended December 27, 1997.
(8) Incorporated by reference to the respective exhibit to the Proxy Statement
for the Company's 1997 Annual Meeting of Stockholders.
(9) Incorporated by reference to the respective exhibit to the Company's Annual
Report on Form 10-K for the year ended December 28, 1996.
Upon request, the Company will furnish a copy of any exhibit to this report
upon the payment of reasonable copying and mailing expenses.
II-2