<PAGE> 1
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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 31, 1994
/ / 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 Identification No.)
incorporation or organization)
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:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- -----------------------------
<S> <C>
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
</TABLE>
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 24, 1995 was approximately $3,112,575,494.
As of March 24, 1994, the Registrant had 149,699,874 shares of Common
Stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant's Annual Report to Stockholders for the
fiscal year ended December 31, 1994, are incorporated by reference in Part II
and the Proxy Statement to be mailed to stockholders on or about April 20, 1995
for the Annual Meeting to be held on May 18, 1995, are incorporated by
reference in Part III.
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<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Office Depot, Inc. (the "Company") operates the largest chain
of high-volume retail office supply stores in the United States. Through its
Business Services Division, the Company delivers to small- and medium-size
businesses and is a full-service contract stationer for medium- and large-size
businesses throughout the United States.
The Company began its operations in 1986 with its first retail
store. Currently, it operates 411 stores in 35 states and the District of
Columbia and 21 stores in 5 Canadian provinces. The Company sells
high-quality, brand-name office products at significant discounts primarily to
small- and medium-sized businesses. The Company's stores utilize a "warehouse"
format and carry a wide selection of merchandise, including general office
supplies, business machines and computers, office furniture and other
business-related products. The Company's business strategy for its retail
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. Through expansion, the Company seeks to increase efficiencies in
operations, purchasing, marketing and management. During 1994, the Company
opened 71 new stores and closed 2 stores. The Company intends to open
approximately 70 to 80 stores during 1995. The Company's retail merchandising
strategy is to offer customers a wide selection of brand-name office products
at everyday low prices. The Company believes that its prices are significantly
lower than those typically offered to small- and medium-sized businesses by
their traditional sources of supply. The Company is able to maintain its low
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 its
inventory on the sales floors of its "no frills" stores. The Company operates
in a highly competitive environment and the Company believes that in the future
it will face increased competition from other high-volume office supply and
wholesale club chains as the Company and these chains expand their operations.
The Business Services Division of the Company consists of
delivery services to small- and medium-size businesses and is a full-service
contract stationer to medium- and large-size businesses. The delivery services
are provided through customer service delivery centers and certain retail
stores. The Company expanded into the full-service contract stationer portion
of the office supply industry in 1993 and 1994 through the acquisitions of
eight contract stationer and office furniture dealers in the United States.
Through its contract stationer business, the Company sells its products
primarily to medium- and large-size businesses (generally, organizations with
over 75 white-collar employees), schools and other educational institutions
and governmental agencies. The Company provides its customers access to a
broad selection of office supplies and office furniture, as well as specialized
resources and services designed to aid its customers in achieving improved
efficiencies and significant reduction in their overall office supplies and
office furniture costs, including electronic ordering, stockless office
procurement and business forms management services (which reduce customer needs
for office supplies storage facilities), desktop delivery programs (which
reduce customer personnel requirements) and comprehensive product utilization
reports.
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, and plans to open approximately 5 to 6 delivery
centers in 1995. The integration of these operations is expected to be
completed by late 1995.
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") from Steelcase Inc. The Company and
Steelcase Inc. were not, at the time of the
acquisition, and are not currently, affiliated.
Wilson is a full service contract stationer with
operations in Texas and North Carolina.
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<PAGE> 3
- 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. No
affiliation existed between the Company and Eastman
prior to this transaction.
- In February 1994, the Company issued an aggregate of
2,335,746 shares of its Common Stock in connection
with the acquisition of L.E. Muran Co., Inc.
("Muran") based in Boston and Yorkship Press, Inc.
("Yorkship") servicing customers in Philadelphia and
southern New Jersey.
- In May 1994, the Company issued an aggregate of
1,448,591 shares of its Common Stock in connection
with the acquisition of Midwest Carbon Company
("Midwest"), based in Minneapolis, and Silvers, Inc.
("Silvers"), based in Detroit.
- In August 1994, the Company issued an aggregate of
1,916,009 shares of its Common Stock in connection
with the acquisition of J.A. Kindel Company
("Kindel"), based in Cincinnati, and Allstate Office
Products, Inc. ("Allstate"), based in Tampa.
Each of the 1994 acquisitions was accounted for on a "pooling
of interests" basis and, accordingly, the accompanying financial data,
statistical data, financial statements and discussions of financial and other
information included 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 the acquired companies prior to the acquisitions.
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.
The retail office products industry, through which smaller
businesses have traditionally purchased office products, continues to be highly
fragmented with few regional or national chains and is typified by stores that
do not stock a full range of office products. Retail sales of office products
in the United States are made primarily through office product dealers, which
generally operate one or more retail stores and utilize a central warehouse
facility. 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 utilizes the distributor's catalog, showing products at retail list
prices, for selection and price negotiation with the customer. Contract bids
are typically available to large businesses that are offered discounts
equivalent to or greater than those offered by the Company. The Company
believes that small- and medium-size businesses, however, have typically been
able to obtain from dealers 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.
High-volume office supply superstores have emerged throughout
the United States targeting the smaller businesses that traditionally purchased
from dealers by offering selection, service and low prices. These 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 off the retail list prices.
Larger customers have been, and continue to be, serviced
primarily by full service contract stationers. These stationers traditionally
serve larger businesses through commissioned sales forces, purchase in large
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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 through acquisitions
of contract stationers in 1993 and 1994.
MERCHANDISING AND PRODUCT STRATEGY
The Company's retail merchandising strategy is to offer a
broad selection of brand-name office products at everyday low prices. Each of
the Company's stores 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 stores carry approximately 5,600
stock-keeping units (including variations in color and size). In the Business
Services Division, each customer service delivery center will carry the base
store merchandise assortment plus approximately 5,000 additional items which
the Company believes is required to meet the needs of its larger customers.
The table below shows sales of each major product group as a
percentage of total merchandise sales for the 1994, 1993 and 1992 fiscal years:
<TABLE>
<CAPTION>
1994 1993 1992
Fiscal Fiscal Fiscal
Year Year Year
------ ------ ------
<S> <C> <C> <C>
General office supplies(1) . . . . . . . . . . . . . 48.1% 50.9% 53.4%
Business machines and related supplies,
computers and computer accessories(2) . . . . . . . 39.0 36.2 33.8
Office furniture(3) . . . . . . . . . . . . . . . . . 12.9 12.9 12.8
----- ----- -----
100.0% 100.0% 100.0%
</TABLE>
-------------------------
(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 approximately 95% of its merchandise directly
from manufacturers and other primary source suppliers. Products are generally
delivered from manufacturers directly to the stores or warehouses. The Company
is refining its cross-dock operations that receive bulk deliveries from vendors
and sort and deliver merchandise to the Company's stores. The cross-dock
operations, when fully implemented, should enable the Company to realize
savings from freight and handling charges and reduce store inventory levels.
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 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
350 vendors are currently transmitted by electronic data interchange (EDI),
which expedites orders and promotes accuracy and efficiency. During 1993 and
1994, the Company started to receive Advance Ship Notices (ASN) and invoicing
via EDI from selected vendors. The Company plans to continue to expand this
program in 1995.
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MARKETING AND SALES
Retail. The Company's marketing programs are designed to
attract new customers to visit its stores for the first time 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 12 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, guarantee card holders and check paying
customers and forms the basis of a highly targeted proprietary mailing list for
updated catalogs and other promotional mailings.
The Company's stores have a low price guarantee policy. Under
this policy, the Company will match any competitor's lower price and give the
customer 50% (up to $50) of the difference towards the customer's purchase.
This program assures customers of always receiving the lowest price from the
Company's stores 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.
Delivery. The marketing program for the retail division
provides the customer base for the delivery business to small- and medium-size
businesses. For the contract stationer businesses, the Company acquires and
maintains its customers primarily through its direct sales force. The
Company's sales force is divided between its office supplies and contract
furniture divisions. All members of the Company's sales force are employees of
the Company.
SERVICES
Retail. The Company offers revolving credit terms to its
customers through the use of private label credit cards. Every business
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 the following day.
The Company's stores each have a business services center,
which offers self-service and high-volume photocopying as well as facsimile,
printing, binding, typesetting and other business services.
Delivery. 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 stationer customers, the Company will typically sell on
credit through an open account.
The Company currently operates 24 regional customer service
delivery warehouses in 17 states. All delivery orders received from customers
in these areas, whether through the Company's telephone centers, contract
customer orders or at its stores, are handled through these facilities. The
Company believes that these
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facilities enable it to provide improved delivery services on a more cost
effective basis and intends to consolidate its contract warehouse operations
and delivery centers and open five to six new delivery centers in 1995.
STORE DESIGN AND OPERATIONS
The Company's stores average approximately 25,000 square feet
of space and conform to a model designed to achieve cost efficiency by
minimizing rent and eliminating the need for a central warehouse. In 1994 the
Company began operating larger stores of approximately 30,000 square feet. The
larger stores will accommodate additional merchandising of furniture, business
machines, computers, software and accessories. Each store displays virtually
all of its inventory on the sales floor according to a plan-o-gram that
designates the location of each 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 pallets or in bins on 10 to 12 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 stock 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.
MANAGEMENT INFORMATION SYSTEMS
The Company employs an IBM ES9000 mainframe and multiple 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 during 1994, 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 scanning laser guns 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
the Company's stores (other than those in Florida) are transmitted by satellite
to the Company's headquarters, which provides faster response and is more cost
efficient than traditional telephonic transmission.
EXPANSION PROGRAM
The Company's business strategy for its retail 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.
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The Company opened 71 new stores and closed 2 stores in 1994, and plans to open
approximately 70 to 80 stores and 5 to 6 additional delivery centers during
1995.
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 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.
Through its acquisitions in 1993 and 1994, the Company
expanded its presence in the contract stationer portion of the office products
industry by acquiring existing contract stationer business in selected markets.
The Company's business strategy includes continued expansion in this portion of
the industry, although no assurances can be given that it will be able to do
so.
EMPLOYEES, STORE MANAGEMENT AND TRAINING
As of March 24, 1995, the Company employed approximately
26,000 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 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 sales employees 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. 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 work
stoppage 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 manufacturer's suggested retail list
prices of only 20% or less as compared to the Company's 30% to 60% discount to
all 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 stores and do not provide many of the services provided by the
Company.
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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. Some of the entities against which the Company competes, or
may compete, are larger and have substantially 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.
In the contract stationer portion 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.
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ITEM 2. PROPERTIES.
As of March 24, 1995, the Company operated 411 stores in 35
states and the District of Columbia and 21 stores in 5 Canadian provinces. The
Company also operates 24 customer service delivery centers. The following
table sets forth the locations of the Company's facilities.
<TABLE>
<CAPTION>
Number Number
State of Stores State of Stores
----- --------- ----- ---------
<S> <C> <C> <C>
Alabama 8 Nevada 4
Arizona 2 New Mexico 2
Arkansas 2 North Carolina 15
California 82 Ohio 10
Colorado 12 Oklahoma 5
District of Columbia 2 Oregon 9
Florida 60 Pennsylvania 5
Georgia 20 South Carolina 5
Hawaii 2 Tennessee 6
Idaho 1 Texas 47
Illinois 19 Virginia 4
Indiana 8 Washington 12
Iowa 1 West Virginia 1
Kansas 4 Wisconsin 6
Kentucky 3
Louisiana 10 CANADA
Maryland 10 ------
Michigan 13 Alberta 6
Minnesota 4 British Columbia 4
Mississippi 2 Manitoba 2
Missouri 12 Ontario 7
Nebraska 3 Saskatchewan 2
<CAPTION>
CUSTOMER SERVICE
DELIVERY CENTERS
----------------
<S> <C>
Arizona 1
California 5
Colorado 1
Florida 3
Georgia 1
Iowa 1
Maryland 1
Massachusetts 1
Michigan 1
Minnesota 1
Nebraska 1
New Jersey 1
North Carolina 1
Ohio 1
Texas 2
Utah 1
Washington 1
</TABLE>
All 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 1995 and 2015, except for 18 stores and
four customer service delivery centers that are owned by the Company. The
owned facilities are located in eleven states, primarily Florida and Texas.
The Company operates its stores under the names Office Depot and The Office
Place in Ontario, Canada. The Company operates its contract stationer
warehouses under the names Eastman Office Products, Wilson Business Products,
L.E. Muran, Yorkship Business Supply, Silvers, Inc., J.A. Kindel Co., Midwest
Business Products and Allstate Office Products.
The Company's corporate offices in Delray Beach, Florida,
containing approximately 350,000 square feet in two adjacent buildings, were
purchased in February 1994.
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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 operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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 24, 1995, there were
3,989 holders of record of Common Stock. The last reported sales price of the
Common Stock on the NYSE on March 24, 1995 was $24.75.
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 commissions, and
have been adjusted to reflect a three-for-two stock split in May 1993 and a
three-for-two stock split in June 1994.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
1993
First Quarter . . . . . . . . . . . . . . . . . . . $ 16.781 $ 11.885
Second Quarter . . . . . . . . . . . . . . . . . . . 18.500 13.781
Third Quarter . . . . . . . . . . . . . . . . . . . 22.583 16.917
Fourth Quarter . . . . . . . . . . . . . . . . . . . 23.917 21.083
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
</TABLE>
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. In addition, the
Company is limited in the amount of cash dividends it can pay under the terms
of its credit facility.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data as of and for the fiscal years
ended December 31, 1994, December 25, 1993 and December 26, 1992 set forth in
the Company's Annual Report to Stockholders for the fiscal year ended December
31, 1994 (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 31, 1994 (on pages 15-18) is
incorporated herein by reference and made a part of this report.
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ITEM 8. FINANCIAL STATEMENTS.
The financial statements of the Company for the fiscal years
ended December 31, 1994, December 25, 1993 and December 26, 1992 set forth in
the Company's Annual Report to Stockholders for the fiscal year ended December
31, 1994 (on pages 20-36) 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.
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 1995 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 1995 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 1995 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 1995
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 Schedules."
3. The exhibits listed in the "Index to Exhibits."
- 10 -
<PAGE> 12
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on January 19,
1995 containing a restatement of the financial statements included in its
Annual Report on Form 10-K dated December 25, 1993 to reflect the effects of
the acquisitions of six contract stationers in 1994.
- 11 -
<PAGE> 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 30, 1995.
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 30, 1995.
<TABLE>
<CAPTION>
Signature Capacity
--------- --------
<S> <C>
/s/ DAVID I. FUENTE Chairman of the Board and Chief Executive Officer
------------------------------------ (Principal Executive Officer)
David I. Fuente
/s/ MARK D. BEGELMAN Director, President and Chief Operating Officer
------------------------------------
Mark D. Begelman
/s/ BARRY J. GOLDSTEIN Executive Vice President -- Finance, Chief
------------------------------------ Financial Officer and Secretary (Principal
Barry J. Goldstein Financial and Accounting Officer)
/s/ CYNTHIA COHEN TURK Director
------------------------------------
Cynthia Cohen Turk
/s/ DENIS DEFFOREY Director
------------------------------------
Denis Defforey
/s/ W. SCOTT HEDRICK Director
------------------------------------
W. Scott Hedrick
/s/ JOHN B. MUMFORD Director
------------------------------------
John B. Mumford
/s/ MICHAEL J. MYERS Director
------------------------------------
Michael J. Myers
/s/ PETER J. SOLOMON Director
------------------------------------
Peter J. Solomon
/s/ ALAN L. WURTZEL Director
------------------------------------
Alan L. Wurtzel
</TABLE>
<PAGE> 14
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
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
</TABLE>
All other statements have been omitted because they are inapplicable,
not required or the information is included elsewhere herein.
______________________________
* Incorporated herein by reference to the respective information in the
Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1994.
F - 1
<PAGE> 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 31, 1994 and December 25, 1993 and for each of the
three years in the period ended December 31, 1994, and have issued our report
thereon dated February 14, 1995; such consolidated financial statements and
report are included in your 1994 Annual Report to Stockholders and are
incorporated herein by reference. Our audits also included the financial
statement schedule of Office Depot, Inc. and Subsidiaries referred to in the
Index to Financial Statement Schedules. 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
Fort Lauderdale, Florida
February 14, 1995
F - 2
<PAGE> 16
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
Schedule V - Valuation and Qualifying Accounts and Reserves . . . . . . . . . . . . F-4
</TABLE>
F - 3
<PAGE> 17
SCHEDULE V
OFFICE DEPOT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
----------------------- ------------ -------------------------------------------------- -------------
Additions
---------------------------------
Balance at
Beginning of Charged to Costs Charged to Deductions - Balance at
Description Period and Expenses Other Accounts Write-offs End of Period
----------------------- ------------ ---------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Allowances for Doubtful
Accounts:
1994 . . . . . $3,251 $1,167 -- $992 $3,426
1993 . . . . . 659 1,024 $1,909(1) 341 3,251
1992 . . . . . 513 555 -- 409 659
</TABLE>
(1) Allowance for doubtful accounts of Eastman and Wilson at the respective
dates of acquisition.
F - 4
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Exhibit Page +
------ ------- --------
<S> <C> <C>
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 Form of Subscription Agreement entered into between the Company and (2)
each of the purchasers of units of the Company's Class A Preferred
Stock and Common Stock
10.2 Registration Agreement, dated as of July 24, 1987, among the Company (2)
and certain purchasers of the Company's Convertible Preferred Stock
10.3 Stock Purchase Agreement, dated as of June 21, 1989, between the (2)
Company and Carrefour S.A.
10.4 Agreement and Plan of Reorganization, dated December 19, 1990, among (2)
the Company, The Office Club, Inc. and OD Sub Corp.
10.5 Stock Purchase Agreement, dated as of April 24, 1991, between the (5)
Company, Carrefour S.A. and Carrefour Nederland B. V.
10.6 Revolving Credit and Line of Credit Agreement dated as of September (6)
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
10.7 Office Depot, Inc. Stock Option and Stock Appreciation Rights Plan* (7)
10.8 Directors' Stock Option Plan* (8)
10.9 Amended and Restated Agreement and Plan of Merger dated as of (9)
July 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
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
</TABLE>
----------------
+ 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
Registration Statement No. 33-66642.
(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
Proxy Statement for the 1993 Annual Meeting of Stockholders
<PAGE> 19
(8) Incorporated by reference to the respective exhibit to the Company's
Annual Report on Form 10-K for the year ended December 26, 1992.
(9) 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.
<PAGE> 1
EXHIBIT 13
Office Depot Inc. And Subsidiaries
FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts and statistical data)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
December December December December December
31, 1994 25, 1993 26, 1992 28, 1991 29, 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA:
Sales . . . . . . . . . . . . . . . . . . . $4,266,199 $ 2,836,787 $ 1,962,953 $ 1,497,882 $1,087,455
Cost of goods sold and occupancy costs . . 3,283,498 2,185,145 1,512,304 1,152,766 836,714
--------- --------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . 982,701 651,642 450,649 345,116 250,741
Store and warehouse
operating and selling expenses . . . . . 642,572 423,272 301,743 240,572 174,369
Pre-opening expenses . . . . . . . . . . . 11,990 9,073 7,453 7,774 8,838
General and administrative expenses . . . . 129,825 95,034 69,549 52,076 41,286
Amortization of goodwill . . . . . . . . . 5,288 1,617 49 -- --
--------- --------- --------- --------- ---------
Operating profit . . . . . . . . . . . . 193,026 122,646 71,855 44,694 26,248
Interest income . . . . . . . . . . . . . . 4,000 4,626 1,393 280 871
Interest expense . . . . . . . . . . . . . (18,096) (11,322) (2,658) (3,992) (2,698)
Merger costs . . . . . . . . . . . . . . . -- -- -- (8,950) --
--------- --------- --------- --------- ---------
Earnings before income taxes
and extraordinary credit (1) . . . . . . 178,930 115,950 70,590 32,032 24,421
Income taxes . . . . . . . . . . . . . . . 73,973 45,118 25,345 13,246 8,035
--------- --------- --------- --------- ---------
Earnings before extraordinary credit (1) . 104,957 70,832 45,245 18,786 16,386
Extraordinary credit (2) . . . . . . . . . -- -- 1,396 614 1,063
--------- --------- --------- --------- ---------
Net earnings (1) . . . . . . . . . . . . . $ 104,957 $ 70,832 $ 46,641 $ 19,400 $ 17,449
========= ========= ========= ========== =========
PER COMMON SHARE:
Earnings before extraordinary credit (1) $ .69 $ .48 $ .32 $ .15 $ .14
Extraordinary credit (2) . . . . . . . . -- -- .01 -- .01
--------- --------- --------- --------- ---------
Net earnings (1) . . . . . . . . . . . . $ .69 $ .48 $ .33 $ .15 $ .15
========= ========= ========= ========= =========
Dividends . . . . . . . . . . . . . . . . -- -- -- -- --
STATISTICAL DATA:
Facilities open at end of period:
Stores . . . . . . . . . . . . . . . . . 420 351 284 228 173
Contract stationer/delivery warehouses . 24 23 13 10 10
</TABLE>
<TABLE>
<CAPTION>
December December December December December
31, 1994 25, 1993 26, 1992 28, 1991 29, 1990
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . $ 487,333 $ 471,114 $ 386,426 $ 203,326 $ 95,817
Total assets . . . . . . . . . . . . . . . 1,903,983 1,531,092 908,585 607,938 401,135
Long-term debt (3) . . . . . . . . . . . . 393,800 367,602 158,313 9,259 24,889
Common stockholders' equity . . . . . . . . 715,271 590,284 413,907 331,699 167,301
</TABLE>
(1) Includes effect of $8,950,000 of merger costs in 1991.
(2) The extraordinary credit represents the benefit derived from the
utilization of a net operating loss carryforward. See Note E to
Consolidated Financial Statements.
(3) Excludes current maturities.
<PAGE> 2
Office Depot Inc. And Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
General
Office Depot began operations by opening its first retail store in Florida
in October 1986. The Company implemented an expansion program to establish
itself as a leader in targeted market areas with high concentrations of small-
and medium-size businesses. This program included opening new stores and
acquiring stores in strategic markets. At the end of 1994, the Company operated
420 stores in 34 states, the District of Columbia and Canada. Store opening
activity for the last five years is summarized as follows:
<TABLE>
<CAPTION>
Open Open
Beginning Opened/ End
of Period Acquired Closed of Period
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1990 99 75 1 173
1991 173 57 2 228
1992 228 58(1) 2 284
1993 284 68 1 351
1994 351 71 2 420
</TABLE>
(1) Includes the acquisition of five stores in Canada.
In 1993, the Company expanded into the full service contract stationer
portion of the office supply industry by acquiring two contract stationers with
ten warehouses through the acquisitions of Wilson Stationery and Printing
Company ("Wilson") in May and Eastman Office Products Corporation ("Eastman") in
September, both of which were accounted for as purchases. During 1994, the
Company acquired the outstanding stock of six contract stationers with eight
warehouses; L. E. Muran Co., Inc. and Yorkship Press, Inc. in February, Midwest
Carbon Company and Silver's, Inc. in May, and J. A. Kindel Company and Allstate
Office Products, Inc. in August. Each of these 1994 acquisitions was accounted
for on a "pooling of interests" basis and, accordingly, the accompanying
financial data, statistical data, financial statements and discussions of
financial and other information included 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. The
Company operated 24 delivery and contract stationer warehouses throughout the
United States at the end of 1994.
The Company's results are impacted by the costs incurred in connection with
its aggressive new store opening schedule. Pre-opening expenses are charged to
earnings as incurred. Corporate general and administrative expenses are also
incurred in anticipation of store openings. As the Company's store base and
sales volume continue to grow, the Company expects that the adverse impact on
profitability from new store openings will decrease as expenses incurred prior
to store openings continue to represent a declining percentage of total sales.
The Company operates on a 52 or 53 week fiscal year ending on the last
Saturday in December. The fiscal years for the financial statements presented
were comprised of the 53 weeks ended December 31, 1994 and the 52 weeks ended
December 25, 1993 and December 26, 1992.
RESULTS OF OPERATIONS FOR THE YEARS 1994, 1993 AND 1992
Sales. Sales increased to $4,266,199,000 in 1994 from $2,836,787,000 in 1993
and $1,962,953,000 in 1992. Sales in 1994 increased 50% from 1993 sales, of
which 3% was applicable to the additional week in 1994. The increases in sales
were due primarily to the 69 additional stores in 1994 and the acquisitions of
Eastman and Wilson in 1993 and the 67 additional stores in 1993. Sales in
business machines and related supplies have risen as a percentage of total
sales over 1992 and 1993 sales in this category. The increases also were
attributable to same store sales growth. Comparable store sales in 1994 for the
349 stores open for more than one year at December 31, 1994 increased 27% from
1993. Comparable store sales in 1993 for the 283 stores open for more than one
year at December 25, 1993 increased 26% from 1992. Comparable store sales in
the future may be affected by competition from other stores, the opening of
additional stores in existing markets and economic conditions.
15
<PAGE> 3
Office Depot Inc. And Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
--------------------------------------------------------------------------------
Gross Profit. Gross profit as a percentage of sales of 23.0% was
consistent during 1994, 1993 and 1992. Purchasing efficiencies gained through
vendor volume discount programs, improved inventory loss experience and
leveraging occupancy costs through higher average sales per store were offset
by somewhat lower gross margins resulting from an increase in sales of lower
margin business machines and computers. The Company's management believes that
gross profit as a percentage of sales may fluctuate as a result of the
expansion of its contract stationer base, the result of competitive pricing in
more market areas, continued change in sales product mix and increased
occupancy costs in certain new markets and in existing markets where the
Company desires to add stores and warehouses in particular locations to
complete its market plan, and purchasing efficiencies realized as total
merchandise purchases increase.
Store and Warehouse Operating and Selling Expenses. Store and warehouse
operating and selling expenses as a percentage of sales were 15.1% in 1994,
14.9% in 1993 and 15.4% in 1992. Store and warehouse operating and selling
expenses, consisting primarily of payroll and advertising expenses, have
increased in the aggregate due to the Company's expansion program. While the
majority of these expenses vary proportionately with sales, there is a fixed
cost component to these expenses that, as sales increase within each store and
within a cluster of stores in a given market area, should decrease as a
percentage of sales. This benefit may not be fully realized, however, during
periods when a large number of new stores and delivery centers are being
opened, as new facilities typically generate lower sales than the average
mature location, resulting in higher operating and selling expenses as a
percentage of sales for new facilities. This percentage is also affected when
the Company enters large metropolitan market areas where the advertising costs
for the full market must be absorbed by the small number of stores initially
opened. As additional stores in these large markets are opened, advertising
costs, which are substantially a fixed expense for a market area, will be
reduced as a percentage of sales. The Company has also continued a strategy of
opening stores in existing markets. While increasing the number of stores
increases operating results in absolute dollars, this also has the effect of
increasing expenses as a percentage of sales since the sales of certain
existing stores in the market may initially be adversely affected.
Pre-opening Expenses. As a result of continued store openings, pre-opening
expenses incurred were $11,990,000 in 1994, $9,073,000 in 1993 and $7,453,000
in 1992. Pre-opening expenses currently are approximately $125,000 per store
and are predominantly incurred during a six-week period prior to the store
opening. Warehouse pre-opening expenses approximate $100,000, however, these
expenses may increase as the Company opens larger warehouses to service the
delivery customers. These expenses consist principally of amounts paid for
salaries and supplies. Since the Company's policy is to expense these items
during the period in which they occur, the amount of pre-opening expenses in
each quarter is generally proportional to the number of new stores and delivery
centers opening.
General and Administrative Expenses. General and administrative expenses
as a percentage of sales were 3.0% in 1994, 3.4% in 1993 and 3.5% in 1992.
General and administrative expenses include, among other costs, site selection
expenses and store management training expenses, and therefore vary with the
number of new store openings. General and administrative expenses have
decreased as a percentage of sales, primarily as a result of the Company's
ability to increase sales without a proportionate increase in corporate
expenditures. The decrease is partially offset by the Company's increased
commitment during 1993 and 1994 to improving the efficiency of its systems and
significantly increasing its information systems' programming staff. While this
increases general and administrative expenses in current periods, the Company
believes the systems investment will provide benefits in the future.
Additionally, general and administrative expenses have historically been higher
in the contract stationers' business than in the retail stores. The 1992
general and administrative expenses included expenses incurred in connection
with the newly acquired Canadian operation, expenses related to Hurricane
Andrew disaster relief efforts and the beginning of the significant investment
in the ongoing program to upgrade the Company's information systems.
Other Income and Expenses. During 1994, 1993 and 1992, interest expense
was $18,096,000, $11,322,000 and $2,658,000, respectively. The increase in
interest expense is primarily due to the subordinated debt issued in 1992 and
1993. In December 1992 and November 1993, the Company completed public
offerings of zero coupon, convertible, subordinated debt raising net proceeds
of approximately $146,000,000 and $185,000,000, respectively. As the Company
has utilized the funds raised in its public offerings to fund its expansion,
interest income has fluctuated. Interest income during 1994, 1993, and 1992
was $4,000,000, $4,626,000 and $1,393,000, respectively.
16
<PAGE> 4
Office Depot Inc. And Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
--------------------------------------------------------------------------------
Net Earnings. The Company recorded amortization of goodwill of $5,288,000,
$1,617,000 and $49,000 in 1994, 1993 and 1992, respectively. The increase in
1993 was attributable to goodwill arising from the acquisitions of Wilson and
Eastman, respectively. Goodwill was higher in 1994, reflecting a full year of
amortization arising from the Wilson and Eastman acquisitions.
Earnings before income taxes and extraordinary credit were $178,930,000 in
1994, $115,950,000 in 1993 and $70,590,000 in 1992.
The effective income tax rate for 1994 and 1993 was negatively impacted by
nondeductible goodwill amortization. Additionally, the effective income tax
rate for 1993 was negatively impacted by the increase in the Federal statutory
rate. The effective income tax rate for all years was also impacted by the
combining of certain acquired companies which had no provision for income taxes
because they were organized as S corporations (as defined under income tax
laws).
Net earnings were $104,957,000 in 1994, $70,832,000 in 1993 and
$46,641,000 in 1992. Net earnings for 1992 includes $1,396,000 of extraordinary
credits from the utilization of net operating loss carryforwards. The increases
in net earnings were attributable to the significant increases in sales without
commensurate increases in expenses.
LIQUIDITY AND CAPITAL RESOURCES
Since the Company's inception in March 1986, the Company has relied upon
equity capital and convertible debt as the primary source of its funds. The
Company completed public offerings of zero coupon, convertible, subordinated
debt in 1992 and 1993 raising net proceeds of approximately $146,000,000 and
$185,000,000, respectively. In the first half of 1994, the Company registered
approximately 10.5 million shares of common stock to be used for acquisitions
of which approximately 5.7 million shares were issued in 1994.
Since the Company's store sales are substantially on a cash and carry
basis, cash flow generated from operating stores provides a source of liquidity
to the Company. Working capital requirements are reduced by vendor credit terms
that allow the Company to finance a portion of its inventory. The Company
utilizes private label credit card programs administered and financed by
financial services companies, which allow the Company to expand store sales
without the burden of additional receivables. All credit card receivables sold
to the financial service company under one program were sold on a recourse
basis. Proceeds to the Company for such receivables sold with recourse were
approximately $253,000,000, $185,000,000 and $138,000,000 in 1994, 1993 and
1992, respectively. The outstanding balance of such receivables at December
31, 1994 was approximately $50,000,000. The Company has also utilized capital
equipment financings to fund capital requirements.
Sales made from the contract stationer warehouses are made under regular
commercial credit terms whereby the Company carries its own receivables. As the
Company expands into servicing additional large companies in the contract
stationer portion of its business, it is expected that a greater portion of the
Company's receivables will be carried.
The Company added (net of closures) 69 stores in 1994, 67 stores in 1993,
and 56 stores in 1992. Net cash provided (used) in operating activities was
$46,107,000, $86,226,000 and $(10,291,000) for 1994, 1993 and 1992,
respectively. As stores mature and become more profitable, and as the number of
new stores opened in a year becomes a smaller percentage of the existing store
base, cash generated from operations will provide a greater portion of funds
required for new store inventories and other working capital requirements. Cash
generated from operations will continue to be affected by an increase in
receivables carried without outside financing and increases in inventory at the
stores as the Company continues to expand its efforts in computers and business
machines. The Company's increase in inventory balances in 1994 over 1993 was
primarily a result of new store and warehouse openings, as well as expanded
efforts in computers and business machines. Capital expenditures are also
affected by the number of stores and warehouses opened or acquired each year
and the increase in computer and other equipment at the corporate office
required to support such expansion. Cash utilized for capital expenditures
(including $22,000,000 for the corporate headquarters in 1994) was $171,810,000
in 1994, $104,568,000 in 1993 and $62,899,000 in 1992.
17
<PAGE> 5
Office Depot Inc. And Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
--------------------------------------------------------------------------------
The Company plans to open approximately 70 to 80 stores and 5 to 6
delivery warehouses during 1995. Management estimates that the Company's cash
requirements, exclusive of pre-opening expenses, will be approximately
$1,700,000 for each additional store, which includes an average of
approximately $900,000 for leasehold improvements, fixtures, point-of-sale
terminals and other equipment in the stores, as well as approximately $800,000
for the portion of the store inventory that is not financed by vendors. The
cash requirements, exclusive of pre-opening expenses, for a delivery warehouse
will be approximately $5,300,000, which includes an average of $3,100,000 for
leasehold improvements, fixtures and other equipment and $2,200,000 for the
portion of inventory not financed by vendors. In addition, management estimates
that each new store and warehouse requires pre-opening expenses of
approximately $125,000 and $100,000, respectively.
The Company's management continually reviews its financing options and,
although it is currently anticipated that the 1995 expansion will be financed
through cash on hand, funds generated from operations, equipment leased under
the Company's lease facility and funds borrowed under the Company's revolving
credit facility, alternative financing will be considered if market conditions
make it financially attractive. The Company's financing requirements beyond
1995 will be affected by the number of new stores or warehouses opened or
acquired and additional receivables carried by the Company.
During 1994, the Company's cash balance decreased by $110,065,000 and
long- and short-term debt increased by $4,882,000. The cash balance at the end
of 1993 was primarily attributable to the cash provided in the public debt
offering at the end of 1993 which, together with cash from operations, was used
during 1994 to primarily pay for fixed assets and inventories for the new
stores.
The Company has a credit agreement with its principal bank and a syndicate
of commercial banks to provide for a working capital line of $200,000,000. The
credit agreement provides that funds borrowed will bear interest, at the
Company's option, at either 3/4% over the LIBOR rate or at a base rate linked
to the prime rate. The Company must also pay a fee of 1/4% per annum on the
available and unused portion of the credit facility. The credit facility
currently expires in September 1996. As of December 31, 1994, the Company had
borrowed $15,000,000 under the credit facility. In addition to the credit
facility, the bank has provided a lease facility to the Company under which the
bank has agreed to purchase up to $15,000,000 of equipment from the Company and
lease such equipment back to the Company. As of December 31, 1994, the Company
has utilized approximately $4,127,000 of this lease facility.
INFLATION AND SEASONALITY
Although the Company cannot accurately determine the precise effects of
inflation, it does not believe inflation has a material effect on sales or
results of operations. The Company considers its business to be somewhat
seasonal with sales generally slightly higher during the first and fourth
quarters of each year.
18
<PAGE> 6
Office Depot Inc. And Subsidiaries
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
To the Board of Directors of Office Depot, Inc.
We have audited the consolidated balance sheets of Office Depot, Inc. and
Subsidiaries as of December 31, 1994 and December 25, 1993, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Office Depot, Inc. and Subsidiaries as of December 31, 1994 and December 25,
1993 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
February 14, 1995
19
<PAGE> 7
Office Depot Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 31, December 25, December 26,
1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . $4,266,199 $2,836,787 $1,962,953
Cost of goods sold and occupancy costs . . . . . . . 3,283,498 2,185,145 1,512,304
--------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . 982,701 651,642 450,649
Store and warehouse
operating and selling expenses . . . . . . . . . . 642,572 423,272 301,743
Pre-opening expenses . . . . . . . . . . . . . . . . 11,990 9,073 7,453
General and administrative expenses . . . . . . . . . 129,825 95,034 69,549
Amortization of goodwill . . . . . . . . . . . . . . 5,288 1,617 49
--------- --------- ---------
789,675 528,996 378,794
--------- --------- ---------
Operating profit . . . . . . . . . . . . . . . . . . 193,026 122,646 71,855
Other income (expense)
Interest income . . . . . . . . . . . . . . . . . . 4,000 4,626 1,393
Interest expense . . . . . . . . . . . . . . . . . (18,096) (11,322) (2,658)
--------- --------- ---------
Earnings before income taxes and
extraordinary credit . . . . . . . . . . . . . . . 178,930 115,950 70,590
Income taxes . . . . . . . . . . . . . . . . . . . . 73,973 45,118 25,345
--------- --------- ---------
Earnings before extraordinary credit . . . . . . . . 104,957 70,832 45,245
Extraordinary credit . . . . . . . . . . . . . . . . -- -- 1,396
--------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 104,957 $ 70,832 $ 46,641
========= ========= =========
Earnings per common and
common equivalent share
Earnings before extraordinary credit . . . . . . . $ .69 $ .48 $ .32
Extraordinary credit . . . . . . . . . . . . . . . -- -- .01
--------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . $ .69 $ .48 $ .33
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
20
<PAGE> 8
Office Depot Inc. And Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 25,
1994 1993
------------ -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,406 $ 142,471
Receivables, net of allowances of $3,426 in 1994 and $3,251 in 1993 . . . . 266,629 201,989
Merchandise inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . 936,048 663,147
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,093 26,166
Prepaid expenses and refundable income taxes . . . . . . . . . . . . . . . . 7,046 5,069
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,274,222 1,038,842
Property and Equipment, at Cost . . . . . . . . . . . . . . . . . . . . . . . . 524,350 354,943
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . 127,121 86,777
--------- ---------
397,229 268,166
Goodwill, net of amortization . . . . . . . . . . . . . . . . . . . . . . . . . 200,449 200,714
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,083 23,370
--------- ---------
$1,903,983 $1,531,092
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 609,914 $ 412,491
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,894 132,691
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,051 13,242
Current maturities of long-term debt . . . . . . . . . . . . . . . . . . . . 4,030 9,304
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 786,889 567,728
Long-Term Debt, less current maturities . . . . . . . . . . . . . . . . . . . . 27,460 17,304
Deferred Taxes and Other Credits . . . . . . . . . . . . . . . . . . . . . . . 8,023 5,478
Zero Coupon, Convertible, Subordinated Notes . . . . . . . . . . . . . . . . . 366,340 350,298
Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . -- --
Common Stockholders' Equity
Common stock - authorized 200,000,000 shares of $.01
par value; issued 151,536,781 in 1994 and 149,114,196 in 1993 . . . . 1,515 1,491
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . 453,117 428,891
Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . (3,295) 383
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,684 161,269
Less: 2,163,447 shares of treasury stock, at cost . . . . . . . . . . . . . . (1,750) (1,750)
--------- ---------
715,271 590,284
--------- ---------
$1,903,983 $1,531,092
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
21
<PAGE> 9
Office Depot Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Period from December 29, 1991 to December 31, 1994 (in thousands, except for
number of shares)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN
COMMON COMMON ADDITIONAL CURRENCY
STOCK STOCK PAID-IN TRANSLATION RETAINED TREASURY
SHARES AMOUNT CAPITAL ADJUSTMENT EARNINGS STOCK
---------- ------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1991. . . . . . . 136,391,127 $1,364 $282,760 $ -- $ 49,325 $ (1,750)
Exercise of stock options
(including tax benefits) . . . . . . . . 5,581,980 57 36,513 -- -- --
Sale of stock under employee purchase plan 59,898 -- 705 -- -- --
401k plan matching contributions . . . . . 55,177 -- 443 -- -- --
S corporation distribution to stockholders -- -- -- -- (2,249) --
Foreign currency translation adjustment . . -- -- -- 98 -- --
Net earnings for the period . . . . . . . . -- -- -- -- 46,641 --
---------- ------ -------- ------- -------- -------
Balance at December 26, 1992 . . . . . . . 142,088,182 1,421 320,421 98 93,717 (1,750)
Issuance of common stock for acquisitions . 5,035,401 50 94,647 -- -- --
Exercise of stock options
(including tax benefits) . . . . . . . . 1,841,505 18 11,272 -- -- --
Sale of stock under employee purchase plan 89,489 1 1,604 -- -- --
401k plan matching contributions . . . . . 59,619 1 947 -- -- --
S corporation distribution to stockholders -- -- -- -- (3,280) --
Foreign currency translation adjustment . . -- -- -- 285 -- --
Net earnings for the period . . . . . . . . -- -- -- -- 70,832 --
---------- ------ -------- ------- -------- -------
Balance at December 25, 1993 . . . . . . . 149,114,196 1,491 428,891 383 161,269 (1,750)
Exercise of stock options
(including tax benefits) . . . . . . . . 2,137,696 21 17,526 -- -- --
Sale of stock under employee purchase plan 199,974 2 4,651 -- -- --
401k plan matching contributions . . . . . 84,915 1 2,049 -- -- --
S corporation distribution to stockholders -- -- -- -- (542) --
Foreign currency translation adjustment . . -- -- -- (3,678) -- --
Net earnings for period . . . . . . . . . . -- -- -- -- 104,957 --
----------- ------ -------- ------- -------- -------
BALANCE AT DECEMBER 31, 1994 . . . . . . . 151,536,781 $1,515 $453,117 $ (3,295) $265,684 $ (1,750)
=========== ====== ======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 10
Office Depot Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase in Cash and Cash Equivalents (in thousands)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 31, December 25, December 26,
1994 1993 1992
------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Cash received from customers . . . . . . . . . . . . . $4,208,675 $2,805,053 $1,909,402
Cash paid for inventory . . . . . . . . . . . . . . . . (3,239,438) (2,130,771) (1,500,727)
Cash paid for store and warehouse operating,
selling and general and administrative expenses . . . (860,354) (559,440) (408,528)
Interest received . . . . . . . . . . . . . . . . . . . 4,296 4,654 1,373
Interest paid . . . . . . . . . . . . . . . . . . . . . (2,078) (2,595) (2,637)
Taxes paid . . . . . . . . . . . . . . . . . . . . . . (64,994) (30,675) (9,174)
--------- --------- ---------
Net cash provided (used) in operating activities . . 46,107 86,226 (10,291)
--------- --------- ---------
Cash flows from investing activities
Capital expenditures - net . . . . . . . . . . . . . . (171,810) (104,568) (62,899)
Purchase of Eastman common stock . . . . . . . . . . . -- (20,001) --
Acquisition cash overdraft assumed, net . . . . . . . . -- (4,106) --
--------- --------- ---------
Net cash used in investing activities . . . . . . . . (171,810) (128,675) (62,899)
--------- --------- ---------
Cash flows from financing activities
Proceeds from exercise of stock options . . . . . . . 14,976 10,308 15,836
Foreign currency translation adjustment . . . . . . . . (3,678) 285 98
Proceeds from long- and short-term borrowings . . . . . 30,466 192,559 152,170
Payments on long- and short-term debt . . . . . . . . . (25,584) (149,922) (3,192)
S corporation distribution to stockholders . . . . . . (542) (3,280) (2,249)
--------- --------- ---------
Net cash provided by financing activities . . . . . . 15,638 49,950 162,663
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (110,065) 7,501 89,473
Cash and cash equivalents at beginning of period . . . . 142,471 134,970 45,497
--------- --------- ---------
Cash and cash equivalents at end of period . . . . . . . $ 32,406 $ 142,471 $ 134,970
========= ========= =========
Reconciliation of net earnings to net cash
provided (used) in operating activities
Net earnings . . . . . . . . . . . . . . . . . . . . $ 104,957 $ 70,832 $ 46,641
Adjustments to reconcile net earnings to net cash
provided (used) in operating activities
Depreciation and amortization . . . . . . . . . . . . . 49,585 31,762 20,722
Accreted interest on subordinated notes . . . . . . . . 16,042 8,754 --
Changes in assets and liabilities (net of effect of the
Eastman and Wilson acquisitions)
Increase in receivables . . . . . . . . . . . . . . . . (64,640) (50,200) (33,129)
Increase in merchandise inventories . . . . . . . . . . (272,901) (151,991) (122,429)
Increase in prepaid expenses, deferred income
taxes and other assets . . . . . . . . . . . . . . . (18,337) (15,646) (16,920)
Increase in accounts payable, accrued
expenses and deferred credits . . . . . . . . . . . . 231,401 192,715 94,824
--------- --------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . (58,850) 15,394 (56,932)
--------- --------- ---------
Net cash provided (used) in operating activities . . . . $ 46,107 $ 86,226 $ (10,291)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 11
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Office Depot, Inc. and subsidiaries (the "Company") operates a chain of
high-volume office supply stores and contract stationer/delivery warehouses
throughout the United States and Canada. The Company was incorporated in March
1986 and opened its first store in October 1986.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
All common stock share and per share amounts for all periods presented
have been adjusted for two three-for-two stock splits, one in June 1994 and one
in June 1993, and a two-for-one stock split in May 1992 effected in the form of
stock dividends.
Certain reclassifications were made to prior year statements to conform to
current year presentations.
Acquisitions of Contract Stationers
During 1994, the Company acquired six contract stationer companies. These
acquisitions were accounted for on a "pooling of interests" basis for
accounting and financial reporting purposes, therefore, the financial
statements for the periods prior to the acquisitions have been restated to
include the financial position, results of operations and cash flows of these
companies as if they had been acquired as of the beginning of the earliest
period presented. (See Note J)
Cash and Cash Equivalents
The Company considers any highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Receivables
Receivables are comprised of trade receivables not financed through
outside programs as well as amounts due from vendors under rebate and
cooperative advertising programs. An allowance for doubtful accounts is
provided for accounts considered to be uncollectible. The credit risk related
to these trade receivables is limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographies.
Merchandise Inventories
Inventories are stated at the lower of weighted average cost or market
value.
Income Taxes
The Company provides for Federal and state income taxes currently payable
as well as deferred taxes resulting from temporary differences between
reporting assets and liabilities for tax purposes and for financial statement
purposes using the provisions of Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes." Under this standard, deferred tax
assets and liabilities represent the tax effects, based on current tax law, of
future deductible or taxable amounts attributable to events that have been
recognized in the financial statements. Prior to 1993, the Company had provided
for income taxes using the provisions of APB No. 11.
Property and Equipment
Depreciation and amortization are provided in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated service lives
on a straight line basis. Estimated useful lives are 30 years for buildings, 3
to 10 years for furniture, fixtures and equipment, and 4 years for automotive
equipment. Leasehold improvements are amortized over the terms of the
respective leases or the service lives of the improvements. The Company
capitalized interest costs of approximately $1 million in 1994 as part of the
cost of major construction projects. Since there were no major construction
projects in 1993 or 1992, no interest costs were capitalized in those years.
24
<PAGE> 12
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Goodwill
Goodwill represents the excess of purchase price and related costs over
the value assigned to the net tangible assets of businesses acquired. Goodwill
is amortized on a straight-line basis over 40 years. Accumulated amortization
of goodwill was $6,946,000 and $1,666,000 as of December 31, 1994 and December
25, 1993, respectively. Management periodically evaluates the recoverability of
goodwill, which would be adjusted for a permanent decline in value, if any, as
measured by the recoverability from projected future cash flows from the
acquired businesses.
Pre-opening Expenses
Pre-opening expenses related to new store openings are expensed as
incurred.
Earnings Per Common and Common Equivalent Shares
Net earnings per common and common equivalent share is based upon the
weighted average number of shares and equivalents outstanding during each
period. The weighted average number of common and common equivalent shares
outstanding for the years ended December 31, 1994, December 25, 1993 and
December 26, 1992 were 152,570,000, 147,640,000 and 143,263,000, respectively.
Stock options and warrants are considered common stock equivalents. The zero
coupon, convertible, subordinated notes are not common stock equivalents.
Fiscal Year
The Company is on a 52 or 53 week fiscal year ending on the last Saturday
in December. The fiscal years presented in the financial statements include 53
weeks in 1994 and 52 weeks in 1993 and 1992.
Postretirement Benefits
The Company does not currently provide postretirement benefits for its
employees.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about
Fair Value of Financial Instruments", requires disclosure of the fair value of
financial instruments, both assets and liabilities, recognized and not
recognized in the Consolidated Balance Sheet of the Company, for which it is
practicable to estimate fair value. The estimated fair values of financial
instruments which are presented herein have been determined by the Company
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of amounts the Company could realize in a
current market exchange.
The following methods and assumptions were used to estimate fair value:
- the carrying amounts of cash and cash equivalents, receivables
and accounts payable approximate fair value due to their short
term nature;
- discounted cash flows using current interest rates for financial
instruments with similar characteristics and maturity were used
to determine the fair value of short-term and long-term debt;
and,
- market prices were used to determine the fair value of the zero
coupon, convertible, subordinated notes.
There were no significant differences as of December 31, 1994 and December
25, 1993 in the carrying value and fair market value of financial instruments
except for the zero coupon, convertible, subordinated notes which had a
carrying value of $366,340,000 and $350,298,000 and a fair value of
$407,675,000 and $419,750,000 at the end of 1994 and 1993, respectively.
25
<PAGE> 13
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
December 31, December 25,
1994 1993
------------ -----------
(in thousands)
<S> <C> <C>
Land and buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 69,677 $ 38,217
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . 200,491 139,842
Automotive equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,998 15,837
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,503 144,769
Equipment under capital leases . . . . . . . . . . . . . . . . . . . . . . . . 15,681 16,278
-------- --------
524,350 354,943
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 127,121 86,777
-------- --------
$397,229 $268,166
======== ========
</TABLE>
Equipment under capital leases included above consists of:
<TABLE>
<CAPTION>
December 31, December 25,
1994 1993
----------- ----------
(in thousands)
<S> <C> <C>
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,681 $ 16,278
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,258 11,105
-------- --------
$ 3,423 $ 5,173
======== ========
</TABLE>
NOTE C - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, December 25,
1994 1993
------------ -----------
(in thousands)
<S> <C> <C>
Capital lease obligations collateralized by certain equipment and fixtures . . $ 3,417 $ 5,496
13% senior subordinated notes, unsecured and due 2002 . . . . . . . . . . . . . 10,126 10,368
Notes payable, interest rates ranging from 7% to 12%, payable on demand -- 2,274
Bank borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 3,099
Installment notes, interest rates ranging from 5.9% to 18.7%,
payable in monthly installments through April 1998,
collateralized by certain telephone equipment and vehicles . . . . . . . . . 2,947 5,371
-------- --------
31,490 26,608
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,030 9,304
-------- --------
$ 27,460 $ 17,304
======== ========
</TABLE>
26
<PAGE> 14
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
--------------------------------------------------------------------------------
NOTE C - LONG-TERM DEBT (Continued)
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
1994
------------
(in thousands)
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,030
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,654
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 570
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 494
1999 and after . . . . . . . . . . . . . . . . . . . . . . 10,742
-------
$31,490
=======
</TABLE>
Future minimum lease payments under capital leases together with the present
value of the net minimum lease payments as of December 31, 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
1994
------------
(in thousands)
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,271
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 543
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 437
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
1999 and after . . . . . . . . . . . . . . . . . . . . . . 1,584
-------
Minimum lease payments. . . . . . . . . . . . . . . . . . . 4,174
Less: amount representing interest at 9.5% to 15.0%. . . . 757
-------
Present value of net minimum lease payments . . . . . . . . 3,417
Less: current portion . . . . . . . . . . . . . . . . . . . 1,068
-------
Non-current portion . . . . . . . . . . . . . . . . . . . . $ 2,349
=======
</TABLE>
The Company has a credit agreement with its principal bank and a
syndicate of commercial banks to provide for a working capital line of
$200,000,000. The agreement provides that funds borrowed will bear interest,
at the Company's option, at either 3/4% over the LIBOR rate or at a base
rate linked to the prime rate. The effective rate was 7.75% as of December 31,
1994. The Company must also pay a fee of 1/4% per annum on the available and
unused portion of the credit facility. The credit facility currently expires in
September 1996. In addition to the credit facility, the bank has provided a
lease facility to the Company under which the bank has agreed to purchase up to
$15,000,000 of equipment from the Company and lease such equipment back to the
Company. As of December 31, 1994, the Company had $15,000,000 of outstanding
borrowings under the revolving credit facility and had utilized approximately
$4,127,000 of the lease facility. The credit agreement contains covenants
relating to various financial statement ratios and provides for a limitation on
the payment of cash dividends on common stock, not to exceed 25% of net
earnings, without the bank's consent.
27
<PAGE> 15
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE D - ZERO COUPON, CONVERTIBLE, SUBORDINATED NOTES
On December 11, 1992, the Company issued $316,250,000 principal amount of
Liquid Yield Option Notes (LYONs) with a price to the public of $150,769,000.
The issue price of each such LYON was $476.74 and there will be no periodic
payments of interest. The LYONs will mature on December 11, 2007 at $1,000 per
LYON representing a yield to maturity of 5% (computed on a semi-annual bond
equivalent basis).
On November 1, 1993, the Company issued $345,000,000 principal amount of
LYONs with a price to the public of $190,464,000. The issue price of each such
LYON was $552.07 and there will be no periodic payments of interest. These
LYONs will mature on November 1, 2008 at $1,000 per LYON, representing a yield
to maturity of 4% (computed on a semi-annual bond equivalent basis).
All LYONs are subordinated to all existing and future senior indebtedness
of the Company.
Each LYON is convertible at the option of the holder at any time on or
prior to maturity, unless previously redeemed or otherwise purchased by the
Company, into common stock of the Company at a conversion rate of 29.263 shares
per 1992 LYON and 21.234 shares per 1993 LYON. The LYONs may be required to be
purchased by the Company, at the option of the holder, as of December 11, 1997
and December 11, 2002 for the 1992 LYONs and as of November 1, 2000 for the
1993 LYONs, at the issue price plus accrued original issue discount. The
Company, at its option, may elect to pay such purchase price on any particular
purchase date in cash or common stock, or any combination thereof.
In addition, prior to December 11, 1997 for the 1992 LYONs and prior to
November 1, 2000 for the 1993 LYONs, the LYONs will be purchased for cash by
the Company, at the option of the holder, in the event of a change in control
of the Company. Beginning on December 11, 1996, for the 1992 LYONs and on
November 1, 2000 for the 1993 LYONs, the LYONs are redeemable for cash at any
time at the option of the Company in whole or in part at the issue price plus
accrued original issue discount through the date of redemption.
NOTE E - INCOME TAXES
Effective December 27, 1992, the Company adopted the provisions of
Statement No. 109, "Accounting for Income Taxes." The Company's adoption in
1993 of Statement No. 109 did not result in a material adjustment and was
recognized in the results of operations. The Company chose not to restate prior
years' results or disclosures as permitted by the Statement.
The Office Club, Inc., a wholly owned subsidiary of the Company, commenced
operations in 1986 and incurred losses through 1989. The resulting net
operating loss carryforward for Federal tax purposes was fully utilized by the
end of 1992. The remaining net operating loss carryforward for state tax
purposes, $3,761,000, expires in 1996.
Four of the contract stationers acquired in 1994 were organized as S
corporations and therefore did not provide for income taxes prior to their
respective acquisitions.
28
<PAGE> 16
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
The income tax provision consists of the following:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 31, December 25, December 26,
1994 1993 1992
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Current
Federal . . . . . . . . . . . . . . . . . . . . . . $62,211 $40,068 $24,152
State . . . . . . . . . . . . . . . . . . . . . . . 14,616 9,449 3,392
Deferred (benefit) . . . . . . . . . . . . . . . . . (2,854) (4,399) (2,199)
------- ------- -------
Total provision for income taxes . . . . . . . . . . $73,973 $45,118 $25,345
======= ======= =======
</TABLE>
The tax effected components of deferred income tax accounts consists of the
following:
<TABLE>
<CAPTION>
As Of As of
December 31, December 25,
1994 1993
----------- -----------
(in thousands)
<S> <C> <C>
Interest premium on notes redeemed . . . . . . . . . $ 4,944 $ 7,832
Self-insurance accruals . . . . . . . . . . . . . . . 8,302 6,466
Inventory costs capitalized for tax purposes . . . . 4,483 3,215
Other items, net . . . . . . . . . . . . . . . . . . 20,563 14,435
------- -------
Deferred tax assets . . . . . . . . . . . . . . . . 38,292 31,948
Excess of tax over book depreciation . . . . . . . . 3,524 $3,208
Capitalized leases . . . . . . . . . . . . . . . . . 4,509 3,160
Other items, net . . . . . . . . . . . . . . . . . . 5,043 3,218
------- -------
Deferred tax liabilities . . . . . . . . . . . . . 13,076 9,586
------- -------
Net deferred tax assets . . . . . . . . . . . . . . . $25,216 $22,362
======= =======
</TABLE>
The tax effected components of deferred income tax (benefit) are as follows:
<TABLE>
<CAPTION>
52 Weeks
Ended
December 26,
1992
-----------
(in thousands)
<S> <C> <C>
Excess of tax over book depreciation . . . . . $ 438
Inventory costs capitalized for tax purposes . (535)
Vacation pay . . . . . . . . . . . . . . . . . (380)
Self-insurance costs . . . . . . . . . . . . . (3,032)
Capitalized leases . . . . . . . . . . . . . . 720
Deferred book loss benefit recognized . . . . . 888
Other items, net . . . . . . . . . . . . . . . (298)
-------
Total deferred benefit . . . . . . . . . . . . $ (2,199)
=======
</TABLE>
29
<PAGE> 17
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
The following schedule is a reconciliation of income taxes at the Federal
statutory rate to the provision for income taxes:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
December 31, December 25, December 26,
1994 1993 1992
----------- ----------- -----------
(in thousands)
<S> <C> <C> <C>
Tax computed at the statutory rate . . . . . . $62,626 $40,583 $24,000
State taxes net of federal benefit . . . . . . 8,944 5,748 3,539
Effect of S corporation income
prior to acquisitions . . . . . . . . . . . (1,161) (1,709) (1,888)
Nondeductible goodwill amortization . . . . . . 1,955 483 --
Other items, net . . . . . . . . . . . . . . . 1,609 13 (306)
------- ------- -------
Provision for income taxes . . . . . . . . . . $73,973 $45,118 $25,345
======= ======= =======
</TABLE>
NOTE F - COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts its operations in various leased facilities under
leases that are classified as operating leases for financial statement
purposes. The leases provide for the Company to pay real estate taxes, common
area maintenance, and certain other expenses, including, in some instances,
contingent rentals based on sales. Lease terms, excluding renewal option
periods exercisable by the Company at escalated rents, expire between 1995 and
2015. In addition to the base lease term, the Company has various renewal
option periods. Also, certain equipment used in the Company's operations is
leased under operating leases. A schedule of fixed operating lease commitments
follows:
<TABLE>
<CAPTION>
December 31,
1994
-----------
(in thousands)
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . $ 124,549
1996 . . . . . . . . . . . . . . . . . . . . . 121,243
1997 . . . . . . . . . . . . . . . . . . . . . 109,719
1998 . . . . . . . . . . . . . . . . . . . . . 103,374
1999 . . . . . . . . . . . . . . . . . . . . . 94,716
Thereafter . . . . . . . . . . . . . . . . . . 451,844
---------
$1,005,445
=========
</TABLE>
The above amounts include 42 stores leased but not yet opened as of
December 31, 1994. The Company is in the process of opening new stores in the
ordinary course of business and leases signed subsequent to December 31, 1994
are not included in the above described commitment amount. Rent expense,
including equipment rental, was approximately $124,693,000, $94,017,000 and
$74,738,000, during 1994, 1993 and 1992, respectively.
30
<PAGE> 18
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
Other
Certain holders of the Company's common stock have limited demand
registration rights. The costs of such registration will generally be borne by
the Company.
The Company is involved in litigation arising in the normal course of its
business. In the opinion of management, these matters will not materially
affect the financial position or results of operations of the Company.
As of December 31, 1994, the Company has reserved 16,580,313 shares of
unissued common stock for conversion of the subordinated notes (see Note D).
NOTE G - EMPLOYEE BENEFIT PLANS
Stock Option Plans
As of December 31, 1994, the Company had reserved 13,387,084 shares of
common stock for issuance to officers and key employees under its 1986 and 1987
Incentive Stock Option Plans, its 1988 and 1989 Employees Stock Option Plans,
its Directors Stock Option Plan and the Club Incentive Stock Option Plan. Under
these plans, the option price must be equal to or in excess of the market price
of the stock on the date of the grant or, in the case of employees who own 10%
or more of common stock, the minimum price must be 110% of the market price.
Options granted to date become exercisable from one to four years after
the date of grant, provided that the individual is continuously employed by the
Company. All options expire no more than ten years after the date of grant.
Options to purchase 4,742,134 shares and 3,835,272 shares were exercisable at
December 31, 1994 and December 25, 1993, respectively. No amounts have been
charged to income under the plans.
<TABLE>
<CAPTION>
Number Of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Outstanding at December 28, 1991 . . . . . . . . . . 10,857,321 $ .02 - 8.72
Granted . . . . . . . . . . . . . . . . . . . . . . . 2,558,363 $ 8.88 - 15.28
Canceled . . . . . . . . . . . . . . . . . . . . . . 764,532 $ .42 - 12.94
Exercised . . . . . . . . . . . . . . . . . . . . . . 3,914,957 $ .02 - 8.72
---------
Outstanding at December 26, 1992 . . . . . . . . . . 8,736,195 $ .02 - 15.28
Granted . . . . . . . . . . . . . . . . . . . . . . . 2,214,702 $13.22 - 23.84
Canceled . . . . . . . . . . . . . . . . . . . . . . 449,628 $ 1.76 - 17.92
Exercised . . . . . . . . . . . . . . . . . . . . . . 1,785,528 $ .30 - 15.00
---------
Outstanding at December 25, 1993 . . . . . . . . . . 8,715,741 $ .02 - 23.84
Granted . . . . . . . . . . . . . . . . . . . . . . . 1,944,002 $20.00 - 26.50
Canceled . . . . . . . . . . . . . . . . . . . . . . 342,094 $ 2.09 - 25.13
Exercised . . . . . . . . . . . . . . . . . . . . . . 1,948,270 $ .02 - 21.92
---------
Outstanding at December 31, 1994 . . . . . . . . . . 8,369,379 $ .02 - 26.50
=========
</TABLE>
Other Stock Options
On December 28, 1987, a nonqualified option to purchase 3,149,996 shares
of common stock was issued to the Company's chief executive officer. The option
with respect to 449,996 shares was exercisable upon issuance, with the balance
exercisable one-third each year commencing one year from the date of issue.
Options to purchase an aggregate of 337,496 shares were also issued to two of
the Company's principal officers.
31
<PAGE> 19
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
The exercise price on the above described nonqualified options was $.42
per share. Options for 449,996 shares were exercised in February 1988. In 1990,
options for 224,996 shares were exercised and options for 112,500 shares were
canceled. In 1991, options for 900,000 shares were exercised. In 1992, options
for the remaining 1,800,000 shares were exercised.
Employee Stock Purchase Plan
In October 1989, the Board of Directors approved an Employee Stock
Purchase Plan, which permits eligible employees to purchase common stock from
the Company at 90% of its fair market value through regular payroll deductions.
The maximum number of shares eligible for purchase under the plan is 1,125,000.
Retirement Savings Plan
In February 1990, the Board of Directors approved a Retirement Savings
Plan, which permits eligible employees to make contributions to the plan on a
pretax salary reduction basis in accordance with the provisions of Section
401(k) of the Internal Revenue Code. The Company makes a matching stock
contribution of 50% of the employee's pretax contribution up to a maximum of 3%
of the employee's compensation in any calendar year. The Office Club Plan
provided a cash match up to certain limits. The Office Club Plan was terminated
in early 1993 and all employees were given the opportunity to join the Office
Depot Retirement Savings Plan. Retirement savings plans of three of the
acquired companies were merged into the Office Depot Plan in 1994 with the
remaining to be merged in 1995.
NOTE H - CAPITAL STOCK
As of December 31, 1994, there were 1,000,000 shares of $.01 par value
preferred stock authorized of which none are issued or outstanding.
NOTE I - PURCHASE OF EASTMAN AND WILSON
On May 17, 1993, the Company acquired substantially all of the assets and
assumed certain of the liabilities of the office supply business of Wilson
Stationery and Printing Company ("Wilson"), a contract stationer based in
Houston, Texas. The Company issued 995,821 shares of common stock, representing
$15,000,000 at market value at date of issuance, in exchange for the acquired
net assets of Wilson. This acquisition was accounted for as a purchase.
On September 13, 1993, the Company acquired the common stock of Eastman
Office Products Corporation ("Eastman"), a contract stationer and office
furniture dealer headquartered in California that operates primarily in the
western United States. In connection with the acquisition, the Company issued
4,039,580 shares of common stock with a market value of approximately
$79,707,000 and paid $20,001,000 in cash. This acquisition was accounted for as
a purchase. The Company initially allocated the purchase price in 1993 to the
assets acquired and the liabilities assumed based on the then available
information. The allocation was finalized in 1994 when all necessary
information regarding the fair values of the assets and liabilities was
obtained, resulting in an additional $5,202,000 adjustment to recorded asset
and liability amounts including goodwill. The Company also acquired the
outstanding preferred stock of Eastman for $13,158,000. Additionally, the
Company offered to purchase for cash pursuant to a tender offer of $90,000,000
principal amount of Eastman, Inc.'s 13% Series B Subordinated Notes due 2002
(the "Notes"). Pursuant to the tender offer, in October 1993 the Company
purchased $81,750,000 principal amount of the Notes for $103,414,000 in cash.
The excess of the cost over the fair value of net assets acquired for the
above acquisitions is being amortized over 40 years on a straight-line method.
The Company's Consolidated Statements of Earnings includes the operating
results of acquisitions from the respective dates of the purchases. The
unaudited consolidated results of operations on a pro forma basis, as though
the Company had acquired Eastman and Wilson as of the beginning of 1993, would
have reflected sales of $3,085,923,000, net earnings and net earnings per share
before extraordinary credit of $69,935,000 and $.46, respectively. This pro
forma information is not necessarily indicative of the actual results of
operations that would have occurred had the acquisitions been made as of
December 27, 1992, or of results which may occur in the future.
32
<PAGE> 20
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE J - OTHER ACQUISITIONS
During 1994, the Company acquired six contract stationers; L. E. Muran Co.
("Muran") and Yorkship Press, Inc. ("Yorkship") in February, Midwest Carbon
Company ("Midwest") and Silver's Inc. ("Silver's") in May, and J. A. Kindel
Company, Inc. ("Kindel") and Allstate Office Products, Inc. ("Allstate") in
August. The Company issued 5,700,346 shares of common stock for these
acquisitions which were accounted for on a "pooling of interests" basis and,
accordingly, the financial statements prior to the acquisitions were restated
to include the accounts and operations of these companies for all periods
presented.
Included in the results of operations for the fiscal year ended December
31, 1994 are the results of operations of the acquired companies before the
acquisitions were completed, including revenues of $101,017,000 and net income
of $3,015,000. Following is a summary of the effect of the restatement of the
"pooling of interests" basis for previously issued financial statements as of
December 25, 1993 and for the fiscal years ended December 25, 1993 and December
26, 1992.
OFFICE DEPOT, INC. AND SUBSIDIARIES
COMBINED RESTATED BALANCE SHEET
December 25, 1993
(in thousands)
<TABLE>
<CAPTION>
Pooling
Office Depot Adjustments
(as previously for Acquired Combined
reported) Companies Restated
----------- ----------- ---------
<S> <C> <C> <C>
Accounts receivable, net of allowances . . . . . $ 165,182 $36,807 $ 201,989
Merchandise inventories . . . . . . . . . . . . . 643,773 19,374 663,147
Other current assets . . . . . . . . . . . . . . 169,207 4,499 173,706
--------- ------- ---------
Total current assets . . . . . . . . . . . . . . 978,162 60,680 1,038,842
Property and equipment, net of . . . . . . . . .
accumulated depreciation and amortization . . 262,144 6,022 268,166
Goodwill, net of accumulated amortization . . . . 200,462 252 200,714
Other assets . . . . . . . . . . . . . . . . . . 23,131 239 23,370
--------- ------- ---------
Total assets . . . . . . . . . . . . . . . . . . $1,463,899 $67,193 $1,531,092
========= ======= =========
Accounts payable . . . . . . . . . . . . . . . . $ 393,185 $19,306 $ 412,491
Other current liabilities . . . . . . . . . . . . 144,020 11,217 155,237
--------- ------- ---------
Total current liabilities . . . . . . . . . . . . 537,205 30,523 567,728
Long-term debt . . . . . . . . . . . . . . . . . 366,527 1,075 367,602
Other non-current liabilities . . . . . . . . . . 5,478 -- 5,478
Common stockholders' equity . . . . . . . . . . . 554,689 35,595 590,284
--------- ------- ---------
Total liabilities and stockholders' equity . . . $1,463,899 $67,193 $1,531,092
========= ======= =========
</TABLE>
33
<PAGE> 21
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE J - OTHER ACQUISITIONS (Continued)
OFFICE DEPOT, INC. AND SUBSIDIARIES
COMBINED RESTATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
52 Weeks Ended December 25, 1993 52 Weeks Ended December 26, 1992
Pooling Pooling
Adjustment Adjustment
Office for Acquired Combined Office for Acquired Combined
Depot (1) Companies Restated Depot (1) Companies Restated
-------- ---------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Sales $2,579,494 $257,293 $2,836,787 $1,732,965 $ 229,988 $1,962,953
Cost of goods sold and
occupancy costs 1,996,462 188,683 2,185,145 1,345,295 167,009 1,512,304
--------- -------- --------- --------- -------- ---------
Gross profit 583,032 68,610 651,642 387,670 62,979 450,649
Operating expenses 470,470 58,526 528,996 325,461 53,333 378,794
--------- -------- --------- --------- -------- ---------
Operating profit 112,562 10,084 122,646 62,209 9,646 71,855
Other income (expense) (6,042) (654) (6,696) (156) (1,109) (1,265)
--------- -------- --------- --------- -------- ---------
Earnings before income taxes
and extraordinary credit 106,520 9,430 115,950 62,053 8,537 70,590
Income taxes 43,103 2,015 45,118 24,261 1,084 25,345
--------- -------- --------- --------- -------- ---------
Earnings before
extraordinary credit 63,417 7,415 70,832 37,792 7,453 45,245
Extraordinary credit -- -- -- 1,396 -- 1,396
--------- -------- --------- --------- -------- ---------
Net earnings $ 63,417 $ 7,415 $ 70,832 $ 39,188 $ 7,453 $ 46,641
========= ======== ========= ========= ======== =========
Net earnings per common and
common equivalent share $ .45 $ .48 $ .28 $ .33
========= ========= ========= =========
Average common and common
equivalent shares 141,941 147,640 137,564 143,263
========= ========= ========= =========
</TABLE>
(1) As previously reported with certain reclassifications.
34
<PAGE> 22
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE K - SUPPLEMENTAL INFORMATION OF NONCASH INVESTING AND FINANCING ACTIVITIES
The Consolidated Statements of Cash Flows for 1994, 1993 and 1992 do not
include noncash financing transactions of $6,816,000, $3,525,000 and
$21,882,000, respectively, relating to additional paid-in capital associated
with tax benefits of stock options exercised and $2,458,000, $1,107,000 and
$506,000, respectively, relating to common stock and additional paid-in capital
associated with stock issued to the Office Depot Retirement Savings Plan and
related to the employee stock purchase program. In addition, the Consolidated
Statements of Cash Flows do not include noncash financing transactions of
$16,042,000 and $8,754,000 for 1994 and 1993, respectively, associated with
accreted interest on convertible, subordinated notes.
The Consolidated Statements of Cash Flows does not include noncash
investing and financing transactions associated with common stock issued for
the acquisition of net assets of Wilson and of Eastman. The components of the
transactions are as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Fair value of assets acquired (including goodwill) . . . $ 333,805
Liabilities assumed . . . . . . . . . . . . . . . . . . . (219,097)
--------
Net assets acquired . . . . . . . . . . . . . . . . . . . 114,708
Total issuance of common stock . . . . . . . . . . . . . 94,707
--------
Cash used to purchase Eastman common stock . . . . . . . $ 20,001
========
</TABLE>
NOTE L - RECEIVABLES SOLD WITH RECOURSE
The Company has two private label credit card programs which are managed
by financial services companies. All credit card receivables related to one of
these programs were sold on a recourse basis. Proceeds to the Company for such
receivables sold with recourse were approximately $253,000,000, $185,000,000
and $138,000,000 in 1994, 1993 and 1992, respectively. The Company's maximum
exposure to off-balance sheet credit risk is represented by the outstanding
balance of private label credit card receivables with recourse, which totaled
approximately $50,000,000 at December 31, 1994. The financial services company
periodically estimates the percentage to be withheld from proceeds for
receivables sold to achieve the necessary reserve for potential uncollectible
amounts. The Company expenses such withheld amounts at the time of sale to the
financial services company.
35
<PAGE> 23
Office Depot Inc. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
--------------------------------------------------------------------------------
NOTE M - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Fiscal Year Ended December 31, 1994
Net sales $1,041,396 $924,676 $1,044,815 $1,255,312
Gross profit (a) 236,937 215,600 243,538 286,626
Net earnings 24,546 20,809 27,411 32,191
========= ======= ========= =========
Net earnings per common share $ .16 $ .14 $ .18 $ .21
========= ======= ========= =========
Fiscal Year Ended December 25, 1993
Net sales $ 643,501 $587,817 $ 727,018 $ 878,451
Gross profit (a) 146,669 134,866 164,510 205,597
Net earnings 15,675 12,181 19,314 23,662
========= ======= ========= =========
Net earnings per common share $ .11 $ .08 $ .13 $ .16
========= ======= ========= =========
</TABLE>
The first and second quarters of 1994 were restated during the third quarter of
1994 to reflect, on a "pooling of interests" basis, the acquisitions in the
second and third quarters of 1994. The effect of the restatements, including
certain reclassifications, was to increase net sales, gross profit and net
earnings by $46,551,000, $4,817,000 and $1,624,000, respectively, for the first
quarter, and $19,499,000, $6,371,000 and $783,000, respectively, for the second
quarter of 1994. Net earnings per common share increased by $0.01 in the first
and the second quarter as a result of the restatements, after affecting the
first quarter for the three-for-two stock split in June of 1994.
---------------------
(a) Gross profit is net of occupancy costs.
36
<PAGE> 1
EXHIBIT 21.1
LIST OF THE COMPANY'S SUBSIDIARIES
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
---- -----------------------------
<S> <C>
Eastman, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Delaware
Eastman Office Products Corporation . . . . . . . . . . . . . Delaware
Nevada O.C., Inc. . . . . . . . . . . . . . . . . . . . . . . California
ODI, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Delaware
OD International, Inc. . . . . . . . . . . . . . . . . . . . . Delaware
Office Depot of Texas, Inc. . . . . . . . . . . . . . . . . . Texas
Office Town, Inc. . . . . . . . . . . . . . . . . . . . . . . Puerto Rico
Texas O.C., Inc. . . . . . . . . . . . . . . . . . . . . . . . Texas
The Canadian Office Depot, Inc. . . . . . . . . . . . . . . . British Columbia, Canada
The Office Club, Inc. . . . . . . . . . . . . . . . . . . . . California
Southern Terminals, Inc. . . . . . . . . . . . . . . . . . . . North Carolina
Carolina Rail Service, Inc. . . . . . . . . . . . . . . . . . North Carolina
Con Eng Coal, Inc. . . . . . . . . . . . . . . . . . . . . . . Pennsylvania
OD Commercial, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware
OD Wilson, Inc. . . . . . . . . . . . . . . . . . . . . . . . Delaware
ODO, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . Florida
L.E. Muran Co. . . . . . . . . . . . . . . . . . . . . . . . . Massachusetts
Yorkship Press Inc. . . . . . . . . . . . . . . . . . . . . . New Jersey
Silvers, Inc. . . . . . . . . . . . . . . . . . . . . . . . . Michigan
Midwest Carbon Company . . . . . . . . . . . . . . . . . . . . Minnesota
J.A. Kindel Company, Inc. . . . . . . . . . . . . . . . . . . Ohio
Allstate Office Products, Inc. . . . . . . . . . . . . . . . . Florida
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-26972, No. 33-31743, No. 33-40057, No. 33-40058, and No. 33-40059 of Office
Depot, Inc. on Forms S-8 of our reports dated February 14, 1995 appearing in
and incorporated by reference in the Annual Report on Form 10-K of Office
Depot, Inc. for the year ended December 31, 1994.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 28, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF OFFICE DEPOT, INC. FOR THE YEAR ENDED DECEMBER 31, 1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> DEC-26-1993
<PERIOD-END> DEC-31-1994
<CASH> 32,406
<SECURITIES> 0
<RECEIVABLES> 270,055
<ALLOWANCES> 3,426
<INVENTORY> 936,048
<CURRENT-ASSETS> 1,274,222
<PP&E> 524,350
<DEPRECIATION> 127,121
<TOTAL-ASSETS> 1,903,983
<CURRENT-LIABILITIES> 786,889
<BONDS> 393,800
<COMMON> 1,515
0
0
<OTHER-SE> 713,756
<TOTAL-LIABILITY-AND-EQUITY> 1,903,983
<SALES> 4,266,199
<TOTAL-REVENUES> 4,266,199
<CGS> 3,283,498
<TOTAL-COSTS> 3,938,060
<OTHER-EXPENSES> 135,113
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,096
<INCOME-PRETAX> 178,930
<INCOME-TAX> 73,973
<INCOME-CONTINUING> 104,957
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 104,957
<EPS-PRIMARY> .69
<EPS-DILUTED> 0
</TABLE>
