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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 (Fee required)
For the fiscal year ended December 30, 1995
[ ] 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
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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
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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 25, 1996 was approximately $2,993,014,582.
As of March 25, 1996, the Registrant had 156,575,931 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 30, 1995, are incorporated by reference in Part II
and the Proxy Statement to be mailed to stockholders on or about April 23, 1996
for the Annual Meeting to be held on May 23, 1996, are incorporated by reference
in Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Office Depot, Inc. (the "Company") operates the largest chain of
high-volume retail office supply stores in North America, provides delivery
service to small- and medium-size businesses and is a full-service contract
stationer serving medium- and large-size businesses throughout the United
States. The Company sells high-quality, brand-name office products at
significant discounts at its office supply stores and through its delivery
business.
The Company began its operations in 1986 with its first retail store.
Currently, it operates 476 office supply stores in 37 states and the District
of Columbia and 29 stores in five Canadian provinces. Through its 23 customer
service centers and certain retail stores, the Company delivers office products
to businesses of all sizes and provides value-added services to medium- and
large-size businesses.
The Company's office supply stores carry a wide selection of merchandise,
including general office supplies, business machines and computers, office
furniture and other business-related products for sale primarily to small- and
medium-size businesses. The stores utilize a "warehouse" format. The
Company also operates three Images(TM) stores and one Furniture At Work(TM)
store. The Company's business strategy for its office supply stores is to
enhance the sales and profitability of its existing stores and to add new
stores in locations where the Company can establish a significant market
presence. During 1995, the Company opened 82 new office supply stores and
closed 1 store. The Company intends to open approximately 80 stores during
1996.
The Company's delivery business provides delivery services of office
products to small- and medium-size businesses and full service contract
stationer service for medium- and large-size businesses (generally,
organizations with over 75 white-collar employees), schools and other
educational institutions and governmental agencies. The Company's delivery
sales exceeded $1.65 billion in 1995. The Company provides its delivery
customers access to a broad selection of office supplies and office furniture,
including the approximately 6,000 items available at the Company's office
supply stores and approximately 5,000 additional items which are only stocked
at the Company's customer service centers. In addition, the Company provides
its contract stationer customers with specialized resources and services
designed to aid them in achieving improved efficiencies and significant
reduction in their overall office supply and office furniture costs. These
efficiencies include electronic ordering, stockless office procurement and
business forms management services (which reduce customer need for office
supplies storage facilities), desktop delivery programs (which reduce customer
personnel requirements) and comprehensive product utilization reports. The
Company's nationwide full service contract stationer business was built
primarily through the acquisition of eight contract stationers in 1993 and
1994. The Company's strategy for its delivery business is to build an
integrated national operation to provide delivery service to small- and
medium-size businesses and to increase the Company's penetration into new and
existing markets for its full service contract stationer business. The
Company also seeks to enhance its operating margins through the conversion of
businesses acquired by the Company into a national network of facilities
providing a consistent high-level of customer service. The Company is in the
process of combining the operations of its 23 contract stationer warehouses
and delivery centers, as well as the delivery functions at the retail stores.
During 1995, the Company replaced eight of its customer service centers with
larger, more efficient facilities, closed three customer service centers, and
added two new customer service centers. During 1996, the Company plans to
replace three of its customer service centers.
Through expansion of both its office supply stores and delivery business,
the Company seeks to increase efficiencies in operations, purchasing, marketing
and management. The Company's merchandising strategy is to offer customers a
wide selection of brand-name office products at everyday low prices. The
Company is able to maintain its competitive price policy primarily as a result
of the significant cost efficiencies achieved through its operating format and
purchasing power. The Company buys substantially all of its inventory directly
from manufacturers in large quantities. It does not utilize a central
warehouse and maintains most of its inventory on the sales floors of its
stores, its crossdocks and at its customer service centers. The Company
operates in a highly
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competitive environment and no assurance can be given that
increased competition will not have an adverse effect on the Company.
Following is a brief description of the eight contract stationer
acquisitions noted above:
- In May 1993, the Company acquired the office supply
business of Wilson Stationery & Printing Company ("Wilson"), a
full service contract stationer with operations in Texas and
North Carolina.
- In September 1993, the Company acquired Eastman Office
Products Corporation ("Eastman"), a full service contract
stationer and office furniture dealer headquartered in
California that operates primarily in the western United
States.
- In February 1994, the Company acquired L.E. Muran Co.,
Inc., based in Boston, and Yorkship Press, Inc. servicing
customers in Philadelphia and southern New Jersey.
- In May 1994, the Company acquired Midwest Carbon Company,
based in Minneapolis, and Silvers, Inc. based in Detroit.
- In August 1994, the Company acquired J.A. Kindel Company,
based in Cincinnati, and Allstate Office Products, Inc., based
in Tampa.
Each of the 1994 acquisitions was accounted for on a "pooling of
interests" basis. Accordingly, the financial data, statistical data,
financial statements and discussions of financial and other information
included in or incorporated by reference herein for periods prior to the
acquisitions have been restated to reflect the financial position, results of
operations, and other information relating to these companies for all periods
presented. No affiliations existed between the Company and any of the acquired
companies prior to the acquisitions. The 1993 acquisitions were accounted for
as purchases. Therefore, all information and data included or incorporated by
reference herein include the results of those businesses from the respective
dates of acquisition.
Since 1994, the Company has entered into licensing arrangements for the
operation of office supply stores under the Office Depot(R) name in Colombia,
Israel and Poland and a joint venture agreement to operate stores in Mexico.
In June 1995, the Company entered into a joint venture agreement with Carrefour
S.A. ("Carrefour") to own and operate office supply stores in France using a
format similar to that utilized by the Company in its U.S. stores. Carrefour,
through Fourcar B.V., an indirect, wholly-owned subsidiary, owns approximately
6% of the Company's issued and outstanding shares of common stock. The joint
venture is owned 50% by Carrefour and 50% by the Company. The joint venture
currently plans to open its first store in France in mid-1996. The Company
also has entered into a licensing agreement with Central Department Store Co.,
Ltd., one of the largest retail conglomerates in Southeast Asia, to open stores
in Thailand beginning in late-1996.
OFFICE PRODUCTS INDUSTRY
The office products industry is comprised of three broad categories of
merchandise: office supplies, office machines and microcomputers, and office
furniture. These products are distributed through different and sometimes
overlapping channels of distribution, including manufacturers, distributors,
dealers, retailers and catalog companies.
Sales of office products in the United States have historically been made
primarily through office product dealers and contract stationers, which
generally operate one or more retail stores and utilize a central warehouse
facility. Smaller businesses have traditionally purchased office products from
retail office products dealers, and there have been few regional or national
chains. This portion of the industry is still typified by small stores
operated by dealers that do not stock a full range of office products.
Dealers purchase a significant portion of their merchandise from national or
regional office supply distributors who, in turn, purchase merchandise from
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manufacturers. Dealers often employ a commissioned sales force that utilizes
the distributor's catalog, showing products at retail list prices, for
selection and price negotiation with the customer. The Company believes that
small- and medium-size businesses typically have been able to obtain discounts
on manufacturers' suggested retail list prices of only 20% or less. In
addition, those businesses whose volume usage does not justify a dealer's one-
to-one selling effort generally have been treated as retail customers and
charged prices close to full retail list prices.
Over the past decade, high-volume office supply superstores have emerged
throughout the United States. These stores offer selection, service and low
prices and target the smaller businesses that traditionally purchased from
dealers. The superstores' price advantages result primarily from direct,
high-volume purchasing from manufacturers and warehouse retailing, thereby
avoiding the distributor's mark-up and eliminating the need for a commissioned
sales force and a central distribution facility. High-volume office products
retailers typically offer substantial price savings to individuals and small-
and medium-size businesses, which traditionally have had limited opportunities
to buy at significant discounts from retail list prices.
Larger customers have been, and continue to be, served primarily by full
service contract stationers which offer contract bids to larger businesses at
discounts equivalent to or greater than those offered by the Company. These
stationers traditionally serve larger businesses through commissioned sales
forces, purchase in large quantities primarily from manufacturers and offer
competitive pricing and customized services to their customers. The Company
entered the full-service contract stationer portion of the office supply
industry by acquiring eight contract stationers during 1993 and 1994 and
opening new facilities in 1995.
MERCHANDISING AND PRODUCT STRATEGY
The Company's merchandising strategy is to offer a broad selection of
brand-name office products at everyday low prices. The Company offers a
comprehensive selection of paper and paper products, filing supplies, computer
hardware and software, calculators, copiers, typewriters, telephones, facsimile
and other business machines, office furniture, art and engineering supplies and
virtually every other type of office supply. Each of the Company's office
supply stores stocks approximately 6,000 stock-keeping units (including
variations in color and size) and each customer service center stocks
approximately 11,000 stock-keeping units, including the 6,000 stock-keeping
units stocked at the stores.
The table below shows sales of each major product group as a percentage of
total merchandise sales for the 1995, 1994, and 1993 fiscal years:
Caption
1995 1994 1993
Fiscal Fiscal Fiscal
Year Year Year
------ ------ ------
General office supplies(1)..................... 47.2% 48.1% 50.9%
Business machines and related supplies,
computers and computer accessories(2)........ 41.3% 39.0 36.2
Office furniture(3)............................ 11.5% 12.9 12.9
====== ====== ======
100.0% 100.0% 100.0%
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(1) Includes paper, filing supplies, organizers, writing instruments, mailing
supplies, desktop accessories, calendars, business forms, binders, tape,
art supplies, books, engineering and janitorial supplies and revenues from
the business services center located in each store.
(2) Includes calculators, adding machines, typewriters, telephones, cash
registers, copiers, facsimile machines, safes, tape recorders, computers,
computer diskettes, computer paper and related accessories.
(3) Includes chairs, desks, tables, partitions and filing and storage
cabinets.
The Company buys substantially all of its merchandise directly from
manufacturers and other primary source suppliers. Products are generally
delivered from manufacturers directly to the stores or customer
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service centers. The Company operates nine cross-dock operations that receive
bulk deliveries from certain vendors and sort and deliver merchandise to the
Company's stores and customer service centers. The cross-dock operations
enable the Company to maintain better in-stock positions. No single customer
accounts for more than one percent of the Company's sales. The Company has no
material long-term contracts or commitments with any vendor or customer. The
Company has not experienced any difficulty in obtaining desired quantities of
merchandise for sale and does not foresee any significant difficulties in the
future.
Initial purchasing decisions are generally made at the corporate
headquarters level by buyers who are responsible for selecting and pricing
merchandise. Inventory levels are monitored, and reorders for products are
prepared by central replenishment buyers or "rebuyers" with the assistance of a
computerized automatic replenishment system. This system allows buyers to
devote more time to selecting products, developing new product lines, analyzing
competitive developments and negotiating with vendors in order to obtain more
favorable prices and product availability. Purchase orders to approximately
400 vendors are currently transmitted by electronic data interchange (EDI),
which expedites orders and promotes accuracy and efficiency. The Company
receives Advance Ship Notices (ASN) and invoicing via EDI from selected vendors
and continues to expand this program to other vendors.
MARKETING AND SALES
Marketing. The Company's marketing programs are designed to attract new
customers and to provide information to existing customers. The Company places
advertisements with the major local newspapers in each of its markets. These
newspaper advertisements are supplemented with local radio and television
advertising and direct marketing efforts. During 1992, the Company launched a
major national television advertising campaign utilizing the "Taking Care of
Business" theme. The current series of television commercials is running on
three national television networks and on twelve national cable stations. All
print advertisements, as well as catalog layouts, are created by the Company's
in-house graphics department. The Company periodically issues catalogs
featuring merchandise offered in its stores. The catalogs compare the
manufacturer's suggested retail list price and the Company's price to
illustrate the savings offered. The catalogs are distributed through direct
mail programs and are available in each store. Upon entering a new market, the
Company purchases a list of businesses for an initial mailing of catalogs.
This list is continually refined and updated by incorporating the names of
private label credit card holders and guarantee card holders and forms the
basis of a highly targeted proprietary mailing list for updated catalogs and
other promotional mailings.
The Company has a low price guarantee policy. Under this policy, the
Company will match any competitor's lower price and give the customer 55% (up
to $55) of the difference toward the customer's purchase. This program assures
customers of always receiving the lowest price from the Company even during
periodic sales promotions by 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.
Sales. In addition to the sales associates at each of its stores, the
Company has a direct sales force serving its contract stationer customers. The
sales force operates out of the Company's 23 customer service centers and
additional satellite sales offices. All members of the Company's sales force
are employees of the Company.
SERVICES
Each Office Depot store contains a multipurpose business center for
printing, copying and a wide assortment of other services. These business
centers offer shoppers a range of printing and reproduction capabilities,
including business cards, letterhead stationery and envelopes, personalized
checks and business forms, full- or self-service copies, color copies, custom
stamps and labels, signs and banners. Each of the Company's office supply
stores also has business machine specialists, specially-trained associates who
are available to answer customer questions on a wide variety of technically
sophisticated products.
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The Company currently operates 23 regional customer service centers in 17
states. Delivery orders received from customers in these areas, whether
through the Company's telephone centers, contract customer orders or at its
stores, are substantially handled through these facilities. The Company
believes that these facilities enable it to provide improved delivery services
on a more cost effective basis.
The Company's small- to medium-size customers nationwide can place orders
by telephone or facsimile using toll-free telephone numbers through the
Company's order departments in South Florida and the San Francisco area.
Orders received by the order departments are transmitted electronically to the
store or delivery center nearest the customer for pick-up or delivery at a
nominal delivery fee or free delivery with a minimum order size. Orders are
packaged, invoiced and shipped for next-day delivery.
The Company provides the office supplies purchasing departments of its
medium-to large-size business customers with a wide range of services designed
to improve efficiencies and reduce costs, including electronic ordering,
stockless office procurement and business forms management services, desktop
delivery programs and comprehensive product utilization reports. For contract
customers, the Company will typically sell on credit through an open account,
although all credit options provided at the retail stores are also available to
all delivery customers.
The Company offers revolving credit terms to its customers through the use
of private label credit cards. Every customer can apply for one of these
credit cards, which are issued without charge. Sales transactions using the
private label credit cards are transmitted by computer to financial services
companies, which credit the Company's bank account with the net proceeds within
two days.
EXPANSION PROGRAM
Office Supply Stores. The Company's business strategy for its office
supply stores is to enhance the sales and profitability of its existing stores,
and to add new stores in locations where the Company can achieve a significant
market presence. The Company opened 82 new stores and closed one store in
1995, and plans to open approximately 80 stores during 1996.
Stores
-----------------------------------------------
Open Open
Beginning End
Year of Period Opened/Acquired Closed of Period
- ---- --------- --------------- ------ ---------
1991. . . . . . . . . 173 57 2 228
1992. . . . . . . . . 228 58(1) 2 284
1993. . . . . . . . . 284 68 1 351
1994. . . . . . . . . 351 71 2 420
1995. . . . . . . . . 420 82 1 501(2)
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(1) Includes the acquisition of five stores in Canada.
(2) Does not include two Images(TM) stores and one Furniture At Work(TM)
store.
Prior to selecting a new store site, the Company obtains detailed
demographic information indicating business concentrations, traffic counts,
population, income levels and future growth prospects. The Company's existing
and scheduled new stores are located primarily in suburban strip shopping
centers on major commercial
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thoroughfares where the cost of space is generally lower than at urban
locations. Suburban locations are generally more accessible to the Company's
primary customers, have convenient parking and facilitate delivery to customers
and receipt of inventory from manufacturers. The Company expands by leasing
existing space and renovating it according to its specifications or by
constructing new space according to its specifications.
Accomplishing the Company's expansion goals will depend on a number of
factors, including the Company's ability to locate and obtain acceptable sites,
open new stores in a timely manner, hire and train competent managers,
integrate new stores into its operations, generate funds from operations and
continue to access external sources of capital.
Delivery Services. The Company's strategy for delivery services is to
build an integrated national operation which will provide delivery services to
small- and medium-size businesses and enable it to increase the penetration in
new and existing markets by the Company's full service contract stationer
business. The Company is in the process of combining the operations of its
contract stationer warehouses and delivery centers, as well as the delivery
functions at the retail stores. During 1995, the Company replaced eight of its
existing customer service centers with larger, more efficient facilities,
closed three customer service centers, and added two additional customer
service centers. During 1996, the Company plans to replace three customer
service centers.
New Opportunities. In addition to the Company's core business focus and
expansion opportunities, the Company is also developing and testing new growth
concepts including the following:
- International - Retail office supply stores operated under
the Office Depot(R) name abroad, either through joint
ventures or licensing arrangements. Since 1994, a total of 12
such stores and delivery centers have been opened in Colombia,
Israel, Mexico and Poland and the Company expects additional
stores to be opened in these countries as well as in France
and Thailand during 1996.
- Images(TM) - Retail facilities which provide a range of
business services including graphic design, printing, copying,
shipping and fulfillment services. Three Images(TM) units are
currently open in South Florida with additional openings
planned during 1996.
- Office Depot(R) "Megastores" - 45,000-50,000 square foot
Office Depot(R) retail stores with expanded assortments of
furniture, computer software and accessories and general
office supplies. The first megastore opened in August in Las
Vegas. Three additional megastores opened during December
1995, when the Company entered the New York metropolitan
market.
- Furniture At Work(TM) - Approximately 20,000 square foot
office furniture stores, which offer a broad line of office
furniture, office accessories and design services. The
Company opened its first store in Texas in the fourth quarter
of 1995 and will open an additional store in California at the
beginning of the second quarter of 1996.
- Uptime Services(SM) - Providers, primarily through outside
service companies, of a variety of technology support services
which complement the Company's computer and business machine
offerings, including on-site installation (at home or office),
computer rentals and training, software support and product
protection. The Company began offering these services to both
United States and Canadian customers in July 1995.
STORE DESIGN AND OPERATIONS
Office Supply Stores. The Company's office supply stores average
approximately 25,000-30,000 square feet of space (other than its Megastores,
which average 45,000-50,000 square feet) and 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 of its inventory on the
sales floor according to a plan-o-gram that designates the location of each
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item in the store. The plan-o-gram is intended to ensure that merchandise is
effectively displayed and to promote economy and efficiency in the use of
merchandising space. On the sales floor, merchandise is displayed on various
types of fixtures including low-profile fixtures, on pallets or in bins on ten
to twelve foot high industrial steel shelving that permits the bulk stacking of
inventory and quick and efficient restocking. The shelving is positioned to
form aisles large enough to comfortably accommodate customer traffic and
merchandise movement. Additional efficiencies are gained by selling merchandise
in multiple quantity packaging, which significantly reduces duplicate handling
and stocking costs.
In all of the Company's stores, inventory that has not been bar coded by
the manufacturer is bar coded in the receiving area and moved directly to the
sales floor. Sales are processed through centralized check-out facilities,
which transmit sales and inventory information on a stock-keeping unit basis to
the Company's central computer system where this information is updated daily.
Rather than individually price marking each product, merchandise is identified
by its stock-keeping unit number with a master sign for each product displaying
the product's price. As price changes occur, a new master sign is
automatically generated for the product display and the new price is reflected
in the check-out register, allowing the Company to avoid labor costs associated
with price remarking.
Delivery Services. The Company's customer service centers range from
38,000 to 325,000 square feet, with its more recently opened customer service
centers averaging 150,000 square feet. Inventory is received and stocked in
each center using an automated inventory tracking system. The Company is in
the process of converting its customer service centers to an integrated system.
Customer orders, placed via phone, fax or electronically, are filled by the
appropriate customer service center for next day delivery. The appropriate
customer service center is determined by the Company's automated routing
systems and the order is filled by using both in-stock and wholesaler
inventory.
MANAGEMENT INFORMATION SYSTEMS
The Company employs IBM ES9000 mainframes and IBM System AS/400
computers and client/server technologies to aid in controlling its
merchandising and operations. The systems include advanced software packages
that have been customized for the Company's specific business operations. By
integrating these environments, the Company improved its ability to manage
stock status, order processing, inventory replenishment and advertising
maintenance. The Company is continuing its implementation of a multi-year
strategy to upgrade and convert its systems to operate in an "open system"
mainframe environment.
Inventory data is entered into the computer system upon its receipt by the
store, and sales data is entered through the use of a point-of-sale or
telemarketing system. The point-of-sale system permits the entry of sales data
through the use of bar code laser scanning and also has a price "look-up"
capability that permits immediate price checking and efficient movement of
customers through the check-out process. Information is centrally processed at
the end of each day, permitting a perpetual daily inventory and the calculation
of average unit cost by stock-keeping unit for each store or warehouse. Daily
compilation of sales and margin data permits the monitoring of sales, gross
margin and inventory by item and product line, as well as the results of sales
promotions. For all stock-keeping units, management has immediate access to
on-hand daily unit inventory, units on order, current and past rates of sale,
the number of weeks' sales for which quantities are on-hand and a recommended
unit purchase reorder. Data from all of the Company's stores is transmitted to
the Company's headquarters on a daily basis.
The Company is in the process of integrating the acquired contract
stationer businesses and its commercial delivery business into a national
delivery network. This integration encompasses many systems, including order
entry, warehouse management and routing. This integrated system will allow a
customer to place an order via phone, fax or electronically. When the order is
placed, the system will determine the appropriate customer service center for
delivery, look up the stock status of each item ordered and will automatically
reserve the item for the customer or place it on order from the wholesaler.
The wholesaler order will be delivered to the customer service center the same
day, enabling the Company to deliver the most complete order possible the next
day. The Company believes that the complete implementation of these systems
will enable it to aggressively grow its delivery business.
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EMPLOYEES, STORE MANAGEMENT AND TRAINING
As of March 18, 1996, the Company employed approximately 31,000
persons. Additional personnel will be added as needed to implement the
Company's expansion program. The Company's goal is to promote as many existing
employees into management positions as possible. Due to the rate of its
expansion, however, for the foreseeable future the Company will continue to
hire a portion of its management personnel from outside the Company.
The Company's policy is to hire and train additional personnel in advance
of new store and customer service center openings. In general, store managers
have extensive experience in retailing, particularly with warehouse store
chains or discount stores that generate high sales volumes. Each new store
manager usually spends two to four months in an apprenticeship position at an
existing store prior to being assigned to a new store. The Company's retail
sales associates are required to view product knowledge videos and complete
written training programs relating to certain products. The Company creates
some of these videos and training programs while the remainder are supplied by
manufacturers. Typically, customer service center managers have extensive
experience in distribution operations. The Company grants stock options to
certain of its employees as an incentive to attract and retain such employees.
The Company has never experienced a strike or any other work stoppages and
management believes that its relations with its employees are good. There are
no collective bargaining agreements covering any of the Company's employees.
COMPETITION
The Company operates in a highly competitive environment. Its markets are
presently served by traditional office products dealers that typically operate
a central warehouse and one or more retail stores. The Company believes it
competes favorably against these dealers, who purchase their products from
distributors and generally sell their products at prices higher than those
offered by the Company, because they generally offer small- and medium-size
businesses discounts on manufacturers' suggested retail list prices of only 20%
or less as compared to the Company's 30% to 60% discount to customers. The
Company also competes with wholesale clubs selling general merchandise,
discount stores, mass merchandisers, conventional retail stores, catalog
showrooms and direct mail companies. While these competitors generally charge
small business customers lower prices than traditional office products dealers,
they typically have a more limited in-stock product selection than the
Company's retail stores and do not provide many of the services provided by the
Company.
Several high-volume office supply chains that are similar in concept to
the Company in terms of store format, pricing strategy and product selection
and availability also operate in the United States. The Company competes with
these chains and wholesale club chains in substantially all of its current
markets. The Company believes that in the future it will face increased
competition from these chains as the Company and these chains expand their
operations.
In the delivery and contract stationer portions of the industry, principal
competitors are national and regional full service contract stationers,
national and regional office furniture dealers, independent office product
distributors, discount superstores and, to a lesser extent, direct mail order
houses and stationery retail outlets. Certain office supply superstores are
also developing a presence in the contract stationer portion of the business.
The Company competes with these businesses in substantially all of its current
markets.
Some of the entities against which the Company competes, or may compete,
may have greater financial resources than the Company. No assurance can be
given that increased competition will not have an adverse effect on the
Company. The Company believes it competes based on product price, selection,
availability and service.
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ITEM 2. PROPERTIES.
As of March 25, 1996, the Company operated 476 office supply stores in 37
states and the District of Columbia and 29 stores in five Canadian provinces.
The Company also operates 23 customer service centers. The following table
sets forth the locations of these Company facilities.
Number of
Number Number Customer Service
State of Stores State of Stores State Delivery Centers
- ---- --------- ---- --------- ----- ----------------
Alabama 9 Nevada 5 Arizona 1
Arizona 2 New Jersey 2 California 5
Arkansas 4 New Mexico 3 Colorado 1
California 94 New York 1 Florida 2
Colorado 15 North Carolina 18 Georgia 1
District of Columbia 2 Ohio 11 Illinois 1
Florida 62 Oklahoma 5 Louisiana 1
Georgia 24 Oregon 11 Maryland 1
Hawaii 3 Pennsylvania 5 Massachusetts 1
Idaho 1 South Carolina 8 Michigan 1
Illinois 21 Tennessee 6 Minnesota 1
Indiana 9 Texas 52 New Jersey 1
Iowa 1 Virginia 7 North Carolina 1
Kansas 5 Washington 15 Ohio 1
Kentucky 3 West Virginia 1 Texas 2
Louisiana 13 Wisconsin 7 Utah 1
Maryland 11 Washington 1
Michigan 15 Canada
Minnesota 6 ------
Mississippi 4 Alberta 7
Missouri 12 British Columbia 7
Nebraska 3 Manitoba 2
Ontario 11
Saskatchewan 2
Most of the Company's facilities are leased or subleased by the Company
with lease terms (excluding renewal options exercisable by the Company at
escalated rents) expiring between 1996 and 2020, except for 30 stores that are
owned by the Company. The owned retail facilities are located in eleven
states, primarily Florida and Texas, and three Canadian provinces. The Company
operates its retail stores under the names Office Depot and The Office Place
(in Ontario, Canada). The Company operates its contract stationer businesses
under the name Office Depot.
The Company's corporate offices in Delray Beach, Florida, containing
approximately 350,000 square feet in two adjacent buildings, were purchased in
February 1994.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in litigation arising in the normal course
of its business. The Company believes that these matters will not materially
affect its financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
-9-
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
The Common Stock of the Company is listed on the New York Stock
Exchange ("NYSE") under the symbol "ODP." At March 25, 1996, there were
3,745 holders of record of Common Stock. The last reported sales price of the
Common Stock on the NYSE on March 25, 1996 was $19.25.
The following table sets forth, for the periods indicated, the high and
low sale prices of the Common Stock quoted on the NYSE Composite Tape. These
prices do not include retail mark-ups, mark-downs or commission, and have been
adjusted to reflect a three-for-two stock split in June 1994.
High Low
---- ---
1994
First Quarter..................... $26.500 $22.000
Second Quarter.................... 25.750 20.500
Third Quarter..................... 26.500 18.875
Fourth Quarter.................... 27.000 21.625
1995
First Quarter..................... $26.500 $22.750
Second Quarter.................... 29.500 20.875
Third Quarter..................... 32.125 27.000
Fourth Quarter.................... 31.750 19.000
The Company has never declared or paid cash dividends on its
Common Stock and does not currently intend to pay cash dividends in the
foreseeable future. Earnings and other cash resources of the Company will be
used to continue the expansion of the Company's business.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data as of and for the fiscal years ended
December 30, 1995, December 31, 1994 and December 25, 1993 set forth in the
Company's Annual Report to Stockholders for the fiscal year ended December 30,
1995 (on the inside front cover) is incorporated herein by reference and made
a part of this report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Management's Discussion and Analysis of Financial Condition and
Results of Operations set forth in the Company's Annual Report to Stockholders
for the fiscal year ended December 30, 1995 (on pages 21-25) is incorporated
herein by reference and made a part of this report.
ITEM 8. FINANCIAL STATEMENTS.
The financial statements of the Company for the fiscal years ended
December 30, 1995, December 31, 1994 and December 25, 1993 set forth in the
Company's Annual Report to Stockholders for the fiscal year ended December 30,
1995 (on pages 26-41) are incorporated herein by reference and made a part of
this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
-10-
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and executive officers of the
Company is incorporated herein by reference to the information under the
caption "Management--Directors and Executive Officers" in the Company's Proxy
Statement for the 1996 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 "Management--Compensation" in
the Company's Proxy Statement for the 1996 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 tabulation
under the caption "Security Ownership" in the Company's Proxy Statement for the
1996 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 Transactions" in the Company's Proxy Statement for the 1996
Annual Meeting of Stockholders.
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.
The Company did not file any Reports on Form 8-K during the fourth
quarter of fiscal 1995.
-11-
13
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 March 28, 1996.
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 28, 1996.
Signature Capacity
--------- --------
/S/ DAVID I. FUENTE
- -----------------------------
David I. Fuente Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
/S/ BARRY J. GOLDSTEIN
- -----------------------------
Barry J. Goldstein Executive Vice President -- Finance,
Chief Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
/S/ MARK D. BEGELMAN
- -----------------------------
Mark D. Begelman Director
/S/ CYNTHIA COHEN TURK
- -----------------------------
Cynthia Cohen Turk Director
/S/ DENIS DEFFOREY
- -----------------------------
Denis Defforey Director
/S/ W. SCOTT HEDRICK
- -----------------------------
W. Scott Hedrick Director
/S/ JOHN B. MUMFORD
- -----------------------------
John B. Mumford Director
/S/ MICHAEL J. MYERS
- -----------------------------
Michael J. Myers Director
/S/ PETER J. SOLOMON
- -----------------------------
Peter J. Solomon Director
/S/ ALAN L. WURTZEL
- -----------------------------
Alan L. Wurtzel Director
14
INDEX TO FINANCIAL STATEMENTS
Page
----
Consolidated Balance Sheets................................................. *
Consolidated Statements of Earnings......................................... *
Consolidated Statements of Stockholders' Equity............................. *
Consolidated Statements of Cash Flows....................................... *
Notes to Consolidated Financial Statements.................................. *
Report of Deloitte & Touche LLP on Consolidated Financial Statements........ *
Report of Deloitte & Touche LLP on Financial Statement Schedule............. F-2
- --------------------
* Incorporated herein by reference to the respective information in the
Company's Annual Report to Stockholders for the fiscal year ended December
30, 1995.
F - 1
15
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 30, 1995 and December 31, 1994 and for each of the
three years in the period ended December 30, 1995, and have issued our report
thereon dated February 12, 1996; such consolidated financial statements and
report are included in your 1995 Annual Report to Stockholders 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.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
February 12, 1996
F - 2
16
INDEX TO FINANCIAL STATEMENT SCHEDULE
Page
Schedule II - Valuation and Qualifying Accounts and Reserves............ F-4
All other schedules have been omitted because they are inapplicable, not
required or the information is included elsewhere herein.
F - 3
17
SCHEDULE II
OFFICE DEPOT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D
- ---------------------- ----------- -------------------------------------------------- --------
Additions
------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other Deductions - End of
Description of Period Expenses Accounts Write-offs Period
- ---------------------- ---------- ---------- ---------- ------------ ---------
Allowance for Doubtful
Accounts:
1995 . . . . . . . . . $3,426 $1,869 $ -- $1,487 $3,808
1994 . . . . . . . . . 3,251 1,167 -- 992 3,426
1993 . . . . . . . . . 659 1,024 1,909(1) 341 3,251
(1) Allowance for doubtful accounts of Eastman and Wilson at the respective
dates of acquisition.
F - 4
18
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 (2)
4.2 Form of Indenture (including form of LYON) between the Company and (3)
The Bank of New York, as Trustee
4.3 Form of Indenture (including form of LYON) between the Company and (4)
Bankers Trust Company, as Trustee
10.1 Stock Purchase Agreement, dated as of June 21, 1989, between the (2)
Company and Carrefour S.A.
10.2 Agreement and Plan of Reorganization, dated December 19, 1990, (2)
among the Company, The Office Club, Inc. and OD Sub Corp.
10.3 Stock Purchase Agreement, dated as of April 24, 1991, between the (5)
Company, Carrefour S.A. and Carrefour Nederland B. V.
10.4 Revolving Credit and Line of Credit Agreement dated as of (6)
September 30, 1993 by and among the Company and Sun Bank, National
Association, individually and as Agent, NationsBank of Florida,
N.A., PNC Bank, Kentucky, Inc., Bank of America National Trust and
Savings Association and Royal Bank of Canada
10.5 Office Depot, Inc. Omnibus Equity Plan* (1)
10.6 Directors' Stock Option Plan* (7)
10.7 Amended and Restated Agreement and Plan of Merger dated as of July (8)
12, 1993 and amended and restated as of August 30, 1993 by and
among the Company, Eastman Office Products Corporation, EOPC
Acquisition Corp. and certain investors
10.8 1994-1998 Office Depot, Inc. Designated Executive Incentive Plan* (1)
10.9 Partnership Agreement, dated as of June 10, 1995, between the
Company and Carrefour, a joint stock company incorporated under
French law.
13.1 Annual Report to Stockholders
21.1 List of the Company's subsidiaries
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule (for SEC use only)
- ---------------
+ 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 Company's
Proxy Statement for its 1995 Annual Meeting of Stockholders.
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-39473.
(3) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-54574.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-70378.
(5) Incorporated by reference to the respective exhibit to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended June 29,
1991.
(6) Incorporated by reference to the respective exhibit to the Company's
Current Report on Form 8-K filed October 14, 1993.
(7) Incorporated by reference to the respective exhibit to the Company's
Annual Report on Form 10-K for the year ended December 26, 1992.
(8) Incorporated by reference to the respective exhibit to the Company's
Registration Statement No. 33-51409.
Upon request, the Company will furnish a copy of any exhibit to this
report upon the payment of reasonable copying and mailing expenses.