SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported) May 27, 1997
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STAPLES, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
0-17586 04-2896127
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(Commission File Number) (IRS Employer Identification No.)
One Research Drive, Westboro, Massachusetts 01581
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(Address of principal executive offices) (Zip Code)
(508) 370-8500
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Registrant's Telephone Number, Including Area Code
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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<PAGE>
Item 5. Other Events.
On May 27, 1997, Staples, Inc. ("Staples"), Marlin Acquisition Corp., a
wholly-owned subsidiary of Staples ("Marlin"), and Office Depot, Inc. ("Office
Depot") executed Amendment No. 2 (the "Second Amendment") to the Agreement and
Plan of Merger by and among Staples, Marlin and Office Depot dated September 4,
1996 (the "Merger Agreement"), which modified the Merger Agreement in two
respects. First, Section 8.01(b) of the Merger Agreement was amended to provide
that either Staples or Office Depot may terminate the Merger Agreement if the
Merger of Marlin with and into Office Depot (the "Merger") has not been
consummated by June 30, 1997 (provided that the right to so terminate the Merger
Agreement will not be available to any party whose failure to fulfill any
obligation under the Merger Agreement has caused the failure of the Merger to
occur on or before such date); prior to such amendment, such termination right
would have arisen if the Merger had not been consummated by May 31, 1997.
Second, the Second Amendment established an additional termination right, which
provides that (i) either Staples or Office Depot may terminate the Merger
Agreement at any time during the period commencing upon the issuance of a ruling
on the Federal Trade Commission's (the "FTC") motion for a preliminary
injunction prohibiting consummation of the Merger (the "Preliminary Injunction
Motion") and ending at 11:59 p.m. (Boston time) on the fourth business day
following the day on which a written ruling on the Preliminary Injunction Motion
is first published, and (ii) neither Staples nor Office Depot shall be obligated
to consummate the Merger prior to the expiration of the termination right set
forth in the preceding clause (i). This four business day period will provide
each of Staples and Office Depot with the opportunity to review the basis for
any denial by the United States District Court for the District of Columbia (the
"Court") of the Preliminary Injunction Motion and to determine whether it would
be in the best interests of their respective stockholders to consummate the
Merger notwithstanding an appeal by the FTC of the Court's decision with respect
to the Preliminary Injunction Motion or the institution or possible institution
by the FTC of an administrative proceeding challenging the Merger. A copy of the
Second Amendment is attached as Exhibit 99.1 to this Current Report on Form 8-K,
and the foregoing summary is qualified in its entirety by reference to such copy
of the Second Amendment.
The Unaudited Pro Forma Combined Condensed Balance Sheet as of February
1, 1997 and the Unaudited Pro Forma Combined Statement of Income for the fiscal
year ended February 1, 1997 of Staples and Office Depot are attached as Exhibit
99.2 to this Current Report on Form 8-K.
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<PAGE>
Item 7. Financial Statements and Exhibits
(c) Exhibits.
See Index to Exhibits attached hereto.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: May 29, 1997 STAPLES, INC.
(Registrant)
By: /s/ Peter M. Schwarzenbach
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Peter M. Schwarzenbach
Vice President, General Counsel
and Secretary
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
99.1 Amendment No. 2 dated as of May 27, 1997 to Agreement and Plan of
Merger dated September 4, 1996 by and among Staples, Inc., Marlin
Acquisition Corp. and Office Depot, Inc.
99.2 Unaudited Pro Forma Combined Condensed Balance Sheet as of
February 1, 1997 and Unaudited Pro Forma Combined Statement of
Income for the fiscal year ended February 1, 1997 of Staples
and Office Depot.
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EXHIBIT 99.1
Amendment No. 2 to Agreement and Plan of Merger
This Amendment No. 2 dated as of May 27, 1997 to Agreement and Plan of
Merger dated as of September 4, 1996, as amended (the "Merger Agreement"), among
Staples, Inc. ("Staples"), Marlin Acquisition Corp. ("Sub") and Office Depot,
Inc. ("Office Depot").
WHEREAS, Staples, Sub and Office Depot desire to amend the Merger
Agreement upon the terms set forth below.
NOW, THEREFORE, for valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
1. Section 8.01(b) of the Merger Agreement is hereby amended to read in
its entirety as follows:
"(b) by either Staples or Office Depot if the Merger shall not
have been consummated by June 30, 1997 (the "Outside Date"), provided
that the right to terminate this Agreement under this Section 8.01(b)
will not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in
the failure of the Merger to occur on or before such date; or"
2. The following new Section 8.06 is hereby added to the Merger
Agreement immediately after Section 8.05:
"Section 8.06. Additional Termination Right. Notwithstanding
anything to the contrary in this Agreement, (i) Staples and Office
Depot shall each have the right to terminate this Agreement, by written
notice to the other, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of Office
Depot or Staples, at any time during the period commencing upon the
issuance by the United States District Court for the District of
Columbia (the "District Court") in Civil Action No. 97-701 of its
ruling disposing of the FTC's motion for a preliminary injunction with
respect to the Merger and ending at 11:59 p.m. (Boston time) on the
fourth business day following the day on which the written ruling of
the District Court disposing of such motion is first published, and
(ii) neither Staples nor Office Depot shall be under any obligation to
effect the Merger prior to the expiration of the termination right set
forth in clause (i) of this Section 8.06."
3. Except as amended hereby, the Merger Agreement shall remain in full
force and effect in accordance with its terms.
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<PAGE>
WHEREAS, Staples, Sub and Office Depot have caused this Amendment to be
signed by the respective officers thereunto duly authorized as of the date first
above written.
STAPLES, INC.
By: /s/ Thomas G. Stemberg
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MARLIN ACQUISITION CORP.
By: /s/ Thomas G. Stemberg
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OFFICE DEPOT, INC.
By: /s/ David I. Fuente
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EXHIBIT 99.2
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<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
assume a business combination between Staples and Office Depot accounted for on
a pooling of interests basis and are based on the respective historical
financial statements and the notes thereto of Staples and Office Depot filed as
part of their respective Annual Reports on Form 10-K for the fiscal year ended
February 1, 1997 and December 28, 1996, respectively. The pro forma combined
condensed balance sheet combines Staples' February 1, 1997 consolidated balance
sheet with Office Depot's December 28, 1996 consolidated balance sheet. The pro
forma statements of income combine Staples' historical operating results for the
fiscal years ended February 1, 1997, February 3, 1996 and January 28, 1995 with
the corresponding Office Depot operating results for the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively. Fiscal
year ended January 28, 1995 consists of 53 weeks for Office Depot and 52 for
Staples. Fiscal year ended February 3, 1996 consists of 53 weeks for Staples and
52 weeks for Office Depot. All other fiscal years presented consist of 52 weeks
for both companies.
For purposes of the preparation of the unaudited pro forma combined balance
sheet, an estimate of $575 million is used for the sum of the merger-related,
consolidation and integration expenses; the deferred tax benefit of $197 million
relating to these expenses is also included.
The pro forma combined financial statements are presented for illustrative
purposes only and are not necessarily indicative of the operating results or
financial position that would have been achieved if the Merger had been
consummated as of the beginning of the periods presented, nor are they
necessarily indicative of the future operating results or financial position of
Staples/Office Depot. The pro forma combined financial information does not give
effect to any cost savings which may result from the integration of Staples' and
Office Depot's operations.
These pro forma combined financial statements are based on, and should be
read in conjunction with, the historical consolidated financial statements and
the related notes thereto of Staples and Office Depot filed as part of their
respective Annual Reports on Form 10-K for the fiscal year ended February 1,
1997 and December 28, 1996, respectively.
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<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
As of February 1, 1997
(In thousands)
<TABLE>
<CAPTION>
Pro Forma
-----------------------------------
Staples, Inc. Office Depot Adjustments Combined
------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 98,143 $ 51,398 $ 0 $ 149,541
Short-term investments............................ 7,986 0 0 7,986
Merchandise inventories........................... 813,661 1,324,506 (125,000)(2) 2,013,167
Receivables, net.................................. 167,072 401,900 0 568,972
Prepaid expenses and other current assets......... 64,486 43,792 0 108,278
------------- -------------- ---------------- --------------
Total Current Assets......................... 1,151,348 1,821,596 (125,000) 2,847,944
Net Property and Equipment............................. 442,857 671,648 (170,000)(2) 944,505
Other Assets
Goodwill, net of amortization..................... 81,306 190,052 (4,487)(3) 266,871
Other............................................. 112,241 57,021 197,000 (2) 366,262
------------- -------------- ---------------- --------------
Total Other Assets........................... 193,547 247,073 192,513 633,133
============= ============== ================ ==============
1,787,752 2,740,317 (102,487) 4,425,582
============= ============== ================ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.................................. 421,051 781,963 0 1,203,014
Accrued expenses and other current liabilities.... 174,284 203,499 0 377,783
Debt maturing within one year..................... 7,220 142,339 0 149,559
Accrued merger-related, consolidation and
integration expenses ........................ 0 0 280,000 (2) 280,000
------------- -------------- ---------------- --------------
Total Current Liabilities.................... 602,555 1,127,801 280,000 2,010,356
Long-Term Debt ........................................ 91,342 17,128 0 108,470
Other Long-Term Obligations............................ 32,169 39,814 0 71,983
Convertible Debentures................................. 300,000 399,629 0 699,629
Stockholders' Equity:
Common Stock ..................................... 98 1,594 0 1,692
Additional paid-in capital........................ 508,868 630,049 0 1,138,917
Cumulative foreign currency translation adjustments (128) (1,073) 0 (1,201)
Unrealized gain on short-term investments......... 11 0 0 11
Retained earnings ................................ 253,183 527,125 (382,487)(2) (3) 397,821
Less: treasury stock.............................. (346) (1,750) 0 (2,096)
------------- -------------- ---------------- --------------
Total Stockholders' Equity............... 761,686 1,155,945 (382,487) 1,535,144
============= ============== ================ ==============
$ 1,787,752 $ 2,740,317 $ (102,487) $ 4,425,582
============= ============== ================ ==============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
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<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Income
For the Fiscal Year Ended February 1, 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
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Staples, Inc. Office Depot Adjustments Combined
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales $ 3,967,665 $ 6,068,598 $ 0 $ 10,036,263
Cost of goods sold and occupancy costs 3,023,279 4,700,910 0 7,724,189
-------------- --------------- ------------ --------------
Gross Profit 944,386 1,367,688 0 2,312,074
Operating Expenses:
Operating and selling 594,978 951,084 0 1,546,062
Pre-opening 8,299 9,827 0 18,126
General & Administrative 134,817 162,149 0 296,966
Amortization of goodwill 2,291 5,247 (344)(3) 7,194
-------------- --------------- ------------ --------------
Total Operating Expenses 740,385 1,128,307 (344) 1,868,348
-------------- --------------- ------------ --------------
Operating Income 204,001 239,381 344 443,726
Other income (expense):
Interest Expense, net (19,887) (24,485) 0 (44,372)
Gain on sale of investment 0 0 0 0
Merger-related costs 0 0 0 0
Other 0 0 0 0
-------------- --------------- ------------ --------------
Total other income (expense) (19,887) (24,485) 0 (44,372)
-------------- --------------- ------------ --------------
Income before equity in loss of affiliates 184,114 214,896 344 399,354
and income taxes
Equity in loss of affiliates (11,073) (2,178) 0 (13,251)
-------------- --------------- ------------ --------------
Income before income taxes 173,041 212,718 344 386,103
Income tax expense 66,621 83,676 0 150,297
============== =============== ============ ==============
Net Income $ 106,420 $ 129,042 $ 344 $ 235,806
============== =============== ============ ==============
Net income per common share- primary $ 0.64 $ 0.81 $ 0.68
Net income per common share- fully diluted $ 0.64 $ 0.80 $ 0.67
Number of shares used in computing net income
per common share- primary 166,624 158,655 22,212 (1) 347,491
Number of shares used in computing net income
per common share- fully diluted 166,624 175,285 24,540 (1) 366,449
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
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<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Income
For the Fiscal Year Ended February 3, 1996
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
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Staples, Inc. Office Depot Adjustments Combined
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales $ 3,068,061 $ 5,313,192 $ 0 $ 8,381,253
Cost of goods sold and occupancy costs 2,366,183 4,110,334 0 6,476,517
-------------- --------------- ------------ --------------
Gross Profit 701,878 1,202,858 0 1,904,736
Operating Expenses:
Operating and selling 446,324 782,478 0 1,228,802
Pre-opening 5,607 17,746 0 23,353
General & Administrative 100,167 153,344 0 253,511
Amortization of goodwill 1,967 5,213 (337)(3) 6,843
-------------- --------------- ------------ --------------
Total Operating Expenses 554,065 958,781 (337) 1,512,509
-------------- --------------- ------------ --------------
Operating Income 147,813 244,077 337 392,227
Other income (expense):
Interest Expense, net (15,924) (21,194) 0 (37,118)
Gain on sale of investment 0 0 0 0
Merger-related costs 0 0 0 0
Other 109 0 0 109
-------------- --------------- ------------ --------------
Total other income (expense) (15,815) (21,194) 0 (37,009)
-------------- --------------- ------------ --------------
Income before equity in loss of affiliates 131,998 222,883 337 355,218
and income taxes
Equity in loss of affiliates (12,153) (962) 0 (13,115)
-------------- --------------- ------------ --------------
Income before income taxes 119,845 221,921 337 342,103
Income tax expense 46,140 89,522 0 135,662
============== =============== ============ ==============
Net Income $ 73,705 $ 132,399 $ 337 $ 206,441
============== =============== ============ ==============
Net income per common share- primary $ 0.46 $ 0.85 $ 0.61
Net income per common share- fully diluted $ 0.46 $ 0.83 $ 0.60
Number of shares used in computing net income
per common share- primary 162,078 155,551 21,777 (1) 339,406
Number of shares used in computing net income
per common share- fully diluted 162,078 172,242 24,114 (1) 358,434
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
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<PAGE>
Unaudited Pro Forma Combined Condensed Statements of Income
For the Fiscal Year Ended January 28, 1995
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma
-------------------------------
Staples, Inc. Office Depot Adjustments Combined
------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales $ 2,000,149 $ 4,266,199 $ 0 $ 6,266,348
Cost of goods sold and occupancy costs 1,534,360 3,283,498 0 4,817,858
-------------- --------------- ------------ --------------
Gross Profit 465,789 982,701 0 1,448,490
Operating Expenses:
Operating and selling 308,456 642,572 0 951,028
Pre-opening 4,858 11,990 0 16,848
General & Administrative 69,992 130,022 0 200,014
Amortization of goodwill 756 5,288 (344)(3) 5,700
-------------- --------------- ------------ --------------
Total Operating Expenses 384,062 789,872 (344) 1,173,590
-------------- --------------- ------------ --------------
Operating Income 81,727 192,829 344 274,900
Other income (expense):
Interest Expense, net (8,389) (14,096) 0 (22,485)
Gain on sale of investment 1,149 0 (1,149)(3) 0
Merger-related costs (2,150) 0 0 (2,150)
Other 2,736 0 0 2,736
-------------- --------------- ------------ --------------
Total other income (expense) (6,654) (14,096) (1,149) (21,899)
-------------- --------------- ------------ --------------
Income before equity in loss of affiliates 75,073 178,733 (805) 253,001
and income taxes
Equity in loss of affiliates (11,168) 197 0 (10,971)
-------------- --------------- ------------ --------------
Income before income taxes 63,905 178,930 (805) 242,030
Income tax expense 23,965 73,973 (477)(4) 97,461
============== =============== ============ ==============
Net Income $ 39,940 $ 104,957 $ (328) $ 144,569
============== =============== ============ ==============
Net income per common share- primary $ 0.28 $ 0.69 $ 0.46
Net income per common share- fully diluted $ 0.28 $ 0.68 $ 0.46
Number of shares used in computing net income
per common share- primary 140,261 152,570 21,360 (1) 314,191
Number of shares used in computing net income
per common share- fully diluted 140,261 169,234 23,693 (1) 333,188
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed
Financial Statements.
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<PAGE>
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
NOTE 1. PRO FORMA EARNINGS PER SHARE
The pro forma combined net income per share is based on the combined
weighted average numbers of common and common equivalent shares of Staples
Common Stock and Office Depot Common Stock for each period. This is based on the
Exchange Ratio of 1.14 shares of Staples Common Stock for each share of Office
Depot Common stock, as described in the Merger agreement.
The dilutive impact of the Office Depot Zero Coupon Liquid Yield Option
Notes is included in the calculation of fully diluted earnings per share (but
not primary earnings per share), as these convertible notes are not considered
common stock equivalents. The fully diluted calculation assumes conversion of
the notes into common stock as of the beginning of the periods presented
therefore the fully diluted net income has been adjusted to add back the
interest expense on the notes, net of tax.
The impact of Staples' convertible debentures is not included in the
calculation of fully diluted earnings per share as the effect of these
debentures was anti-dilutive.
NOTE 2. MERGER RELATED, CONSOLIDATION AND INTEGRATION EXPENSES
Staples and Office Depot estimate they will incur merger related costs of
approximately $45 million consisting of transaction fees for investment bankers,
attorneys, accountants, financial printing and other related charges.
In addition, it is expected that as a result of the Merger, the combined
company will incur significant consolidation and integration expenses estimated
to be $530 million. These expenses are expected to include:
[bullet] store and distribution center closures in overlapping markets;
[bullet] write-offs of store assets (including signage) as a result of
remodeling retail stores;
[bullet] costs associated with the elimination of certain products from the
combined merchandise assortment, including the sale below cost or other
disposition of products to be discontinued.
[bullet] write-off of hardware and software relating to the elimination of
duplicate management information systems;
[bullet] severance, relocation and retraining costs;
[bullet] incremental and "one-time" advertising and marketing costs; and
[bullet] other related charges.
For the purposes of the preparation of the unaudited pro forma combined
financial statements, an estimate of $575 million is used for the sum of merger
related, consolidation and integration expenses. The deferred tax benefit of
$197 million relating to these expenses has also been reflected as a pro forma
adjustment in the pro forma combined balance sheet as of February 1, 1997.
Approximately $425 million will be charged to operations in the fiscal
quarter in which the Merger is consummated. The estimated remaining charge of
$150 million will be expensed as it is incurred. The respective managements of
Staples and Office Depot anticipate that plans and decisions will be completed
and a substantial portion of the remaining $150 million charge will be recorded
during fiscal 1997. The unaudited pro forma combined condensed balance sheet
gives effect to such expenses as if they had been incurred as of February 1,
1997, but the effects of these costs have not been reflected in the unaudited
pro forma combined condensed statements of operations.
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<PAGE>
Notes To Unaudited Pro Forma Combined Condensed Financial Statements
(Continued)
NOTE 3. EASTMAN TRANSACTION
On September 13, 1993, Office Depot acquired Eastman Office Products
Corporation ("Eastman"), a contract stationer and office furniture dealer
headquartered in California. The acquisition was accounted for as a purchase.
Staples owned approximately 17% of Eastman as of the date of acquisition, and
therefore recorded a gain of $8,430,000 during the year ended January 29, 1994
and again of $1,149,000 during the year ended January 28, 1995 as a result of
the sale of this interest to Office Depot. Since the merger of Staples and
Office Depot will be accounted for as a pooling of interests, the portion of the
Eastman transaction relating to the Staples ownership interest must be
eliminated from the pro forma financial statements. Therefore, the "gain on sale
of investment" included in the Pro Forma Combined Condensed Statements of Income
for the year ended January 28, 1995 has been eliminated. In addition, since the
goodwill recorded by Office Depot will be reduced to reflect the Staples
ownership interest, amortization of goodwill has been reduced for all Pro Forma
Combined Condensed Statements of Income presented. This reduction in goodwill
has also been reflected as an adjustment to the Pro Forma Combined Condensed
Balance Sheet as of February 1, 1997.
NOTE 4. PROVISION FOR INCOME TAXES
The provision for income taxes for the year ended January 28, 1995 has
been adjusted to reflect the elimination of the gain on the sale of the Eastman
investment originally recorded by Staples, as discussed in Note 3. There was no
adjustment to the provision for income taxes to reflect the reduced amortization
of goodwill discussed in Note 3 since this amortization is not tax-deductible.
NOTE 5. CONFORMING ADJUSTMENTS
No material adjustments were required to conform the accounting policies
of Staples and Office Depot.
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