[LOGO] NEWS RELEASE
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CONTACT: Eileen H. Dunn
Vice President, Investor Relations/Public Relations
561/438-4930
[email protected]
OFFICE DEPOT ANNOUNCES SECOND QUARTER 2000 RESULTS
Company Provides Guidance on Second Half of the Year
Fundamentals in Place for Long-Term Growth
Company Increases Stock Buyback Program By $100 Million
(Delray Beach, FL) July 12, 2000 - OFFICE DEPOT, INC. (NYSE: ODP), the world's
largest seller of office products, today announced second quarter results for
the period ended June 24, 2000.
The Company recorded net income of $57.9 million (or $0.18 per share) for the
second quarter as compared to $74.1 million (or $0.19 per share) for the same
period in 1999. Included in the second quarter results were merger and
restructuring costs of $3.4 million ($2.1 million net of taxes, or $.01 per
share) for 2000 and $12.7 million ($8.0 million net of taxes, or $.02 per share)
for 1999.
On a year to date basis, the Company recorded net income of $167.0 million (or
$0.50 per share) for the first six months of 2000 as compared to $174.7 million
(or $0.44 per share) for the same period in 1999. Included in the results for
the first six months of 2000 were $4.4 million ($2.8 million net of taxes, or
$0.01 per share) of merger and restructuring charges and a gain on the sale of
an investment of $19.0 million ($11.9 million net of taxes, or $0.03 per share),
which had a net effect of increasing our diluted earnings per share by $0.03.
Included in the results for the first six months of 1999 were merger and
restructuring costs of $15.5 million ($9.7 million net of taxes, or $0.02 per
share).
David I. Fuente, Chairman and CEO of Office Depot, noted: "As indicated in our
May 26, 2000 press release regarding projected second quarter earnings as of
that date, our second quarter performance was negatively impacted by several
factors, including softer than expected comparable store sales in the months of
May and June, weaker foreign currencies in countries where we transact business,
and slower realization of planned cost improvements in our distribution and
warehousing operations."
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Total sales for the second quarter rose 12% to $2.6 billion from $2.3 billion in
the second quarter of 1999. Sales for the first six months of 2000 increased 15%
to $5.7 billion from $5.0 billion in the first half of 1999. Comparable
worldwide sales in the 773 stores and 44 delivery centers that have been open
for more than one year increased 9% for the second quarter and 10% for the first
half of 2000.
Additional second quarter key information includes the following:
o The Company added 19 new stores in the U.S., bringing the total
number of domestic stores to 855, as compared to 757 at the same
point in 1999.
o Office Depot's domestic Internet business continued to grow
significantly in the second quarter. Sales reached $183.5 million
in the second quarter of 2000, an increase of 161% over the $70.2
million realized during the same period in 1999. These sales
reflect all domestic online sales including those from its public
Web sites -- www.officedepot.com and www.vikingop.com -- and Office
Depot's contract business-to-business sites.
o International Internet expansion continued during the second
quarter with the launch of the Company's fourth Web site outside of
the U.S. The newest site, www.vikingop.it, was launched in Italy on
June 24, 2000.
o During the second quarter, the Company entered into strategic
marketing alliances with Microsoft Corp. (MSN) and America Online
(AOL). Office Depot will now be a preferred provider of office
supplies for each of these business portals.
o The Company also announced several marketing alliances with
companies focused on meeting the needs of small businesses via the
Internet. These alliances include business arrangements with
Cellmania.com, eFrenzy, Inc. and Agillion Inc. Their products and
services will be available to Office Depot's customers through all
of the Company's sales channels.
o The Company continued to benefit from various aspects of its supply
chain management initiatives during the period. Average inventory
per domestic store at the end of the second quarter declined 9% on
a year-over-year basis. The Company is on target to increase its
inventory turns to six times during fiscal year 2000.
Segment Results
Stores Division
Sales in the Stores Division rose 8% to $1.4 billion for the second quarter of
2000, as compared with $1.3 billion for the second quarter of 1999. Sales rose
12% to $3.2 billion during the first six months of 2000, as compared with $2.9
billion during the first six months of 1999. Comparable store sales in the 751
stores in the U.S. and Canada that have been open for more than one year
declined by 1% in comparison to the second quarter of 1999 and increased 2% for
the first half of 2000. Store operating profit was $103.0 million in the second
quarter and $259.9 million for the first six months of 2000, as compared with
$127.1 million in the second quarter and $275.3 million for the first six months
of 1999.
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During the second quarter, Office Depot continued to expand its store base,
adding 19 new stores, net of closures, in 14 states. At the end of the quarter,
Office Depot operated a total of 855 office product superstores throughout the
United States and Canada. The Company currently plans to increase its store base
by approximately 80 stores during 2000.
Business Services Group
Sales in the Business Services Group rose 19% to $869.7 million in the second
quarter of 2000, as compared with $730.7 million for the comparable period of
1999. For the first six months of 2000, sales increased 19% to $1.8 billion, as
compared to $1.5 billion in the first six months of 1999. Warehouse operating
profit was $71.5 million in the second quarter and $130.7 million in the first
six months of 2000, as compared with $63.6 million in the second quarter and
$123.5 million in the first six months of 1999.
During the second quarter and first six months of 2000, the Company's Internet
business, most of which is included in its Business Services Group results,
continued to grow significantly. Sales from Office Depot's domestic Internet
business increased 161% to $183.5 million in the second quarter of 2000, as
compared with $70.2 million in the comparable 1999 period. Domestic Internet
sales for the first six months of 2000 rose 195% to $355.1 million from $120.5
million in the comparable 1999 period.
International Division
Sales in the International Division increased 14% to $346.1 million in the
second quarter of 2000, as compared with $303.9 million in the comparable period
of 1999. In local currencies, sales rose 22% in the second quarter of 2000.
International sales rose 16% to $731.9 million in the first six months of 2000,
as compared with $631.4 million in the comparable 1999 period. In local
currencies, sales rose 24% in the first six months of 2000. Store and warehouse
operating profit in the International Division was $43.1 million for the second
quarter and $93.0 million for the first six months of 2000, as compared with
$34.5 million and $83.5 million for the respective comparable 1999 periods.
Although international store and warehouse operating profit was negatively
impacted by unfavorable exchange rates by approximately $4.5 million in the
second quarter and $9.1 million in the first six months of 2000, expenses
declined as a percentage of sales as a result of various cost control
initiatives.
At the end of the second quarter of 2000, Office Depot operated in 17 countries
outside of the United States and Canada. During the second quarter, the Company
opened three new international stores under the Office Depot name, one each in
France, Japan, and Mexico, and closed one store in Hungary. Through a
combination of wholly-owned operations, joint ventures and international
licensing agreements, there were 123 Office Depot stores operating at the end of
the quarter in eight countries outside of the United States and Canada, with 44
stores in Mexico, 27 stores in France, 22 in Israel, 16 in Poland, seven in
Japan, three in Hungary, and two each in Colombia and Thailand. In addition to
its international stores, the Company has delivery and catalog operations in 14
countries outside of the United States and Canada.
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Second Half Outlook
In reviewing the second quarter results, David I. Fuente, Chairman and CEO of
Office Depot, stated: "After a careful review of our plans for the second half
of the year, we have revised our financial projections for the full year. While
we do not normally provide projections for future periods, we did commit in our
press release of May 26 to update you on the outlook for the second half of
2000, and we want to do that for the benefit of the entire marketplace.
Accordingly, as a result of our current sales and expense trends, we now
anticipate earnings per share for the year 2000 to be in the range of $0.80 to
$0.82. The reasons for these anticipated results are discussed below.
Sales of lower margin technology products in our stores are expected to continue
to outpace sales of basic office supplies, and this will continue to negatively
affect gross margins. Sales in our Business Services Group and International
Division are anticipated to remain on plan. However, cost improvements in our
distribution and warehousing operations will continue to be realized more slowly
than originally expected, further increasing operating margin pressures. Other
increases in expenses expected for the balance of 2000 result from the continued
expansion of our data warehouse initiative, an increase in the number of
technology projects, the expansion of our domestic and international Internet
capabilities, the formation of new strategic marketing alliances, opportunities
to invest in additional Internet-based companies, and an increase in steps to
strengthen our international infrastructure.
One of the more significant factors impacting our second half outlook is our
revised pricing strategy for paper, ink and toner cartridges. In an effort to
better compete with non-traditional office supply retailers in these high demand
categories, we have lowered our prices, changed item packaging and increased
promotional activity of these key commodity items. These new pricing and
promotional strategies are designed to gain market share and customer loyalty
across all sales channels.
In terms of our longer-term prospects, we continue to believe that we have all
the critical pieces in place to grow both our domestic and international
businesses profitably for many years to come. Some of our challenges in the
second quarter were timing issues, such as the delay in enjoying the benefits of
our cost reduction initiatives in the warehousing and distribution area. We
fully expect to realize these benefits, just not as early as we originally
expected. Moreover, we are very encouraged at our continued dominance in the
Internet segment of our industry, and we feel that our prospects for
International growth are excellent. In short, we are highly optimistic about our
future."
Office Depot does not intend to include projections of future results in its
future press releases or communications with investors or analysts and further
disclaims any obligation to update the information in this press release. The
inclusion of this information in this press release is solely in furtherance of
our commitment in our May 26, 2000 press release regarding this issue.
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Strategic Market Agreements/Alliances
During the second quarter, Office Depot entered into numerous marketing
alliances with companies including AOL, Microsoft, Cellmania, eFrenzy and
Agillion.
Office Depot and America Online, Inc. (AOL) announced a strategic alliance under
which the companies will develop a co-branded business portal offering online
office solutions to small business customers. In addition, AOL will benefit from
a major presence across all Office Depot sales channels, including Office Depot
stores nationwide; and AOL will feature Office Depot's name-brand office
supplies and other products in key areas across all of AOL brands.
Office Depot and Microsoft Network (MSN) signed a marketing agreement under
which Office Depot will offer its products and services to small businesses
through bCentral, (www.bcentral.com), Microsoft's Web-based small business
portal. Office Depot will be the premier supplier of office products on
bCentral. Microsoft also plans to make Office Depot products and services
available through its other ventures, including MSNBC, eShop and WebTV.
During the period, Office Depot also announced the selection of Cellmania.com to
power their online wireless center for OfficeDepot.com. Cellmania.com's
proprietary XML interface allows for the customization of an end-to-end online
wireless store, allowing OfficeDepot.com customers to access Cellmania.com's
technology, features and content while leveraging Office Depot's fulfillment
capabilities. This allows customers the option of picking up products at their
local Office Depot store or having them shipped. Cellmania.com will provide
OfficeDepot.com customers greater flexibility because they can customize
wireless purchases based on their needs, location and budget.
Office Depot and eFrenzy, Inc. (www.efrenzy.com) signed an agreement that will
provide Office Depot's small business customers access to eFrenzy's reliable,
easy-to-use, online marketplace which matches buyers and sellers of virtually
any type of service from housecleaning to tax preparation. eFrenzy provides
consumers and small businesses with all the information they need in one place -
including buying tips, seller profiles and other decision-support tools - to
make confident decisions when selecting a service provider. At the same time,
service providers are able to differentiate their businesses and generate
awareness and incremental business from serious buyers. Office Depot customers
will be able to log onto eFrenzy and connect with serious buyers or service
providers, depending on their needs.
Finally, Office Depot and Agillion Inc. (www.agillion.com), a leading Web-based
customer management solution for small business, announced an alliance and joint
marketing agreement. Available through the www.officedepot.com Web site,
Agillion will enable Office Depot customers to personalize communication with
their own customers by helping them to organize information, people and
processes. Additionally, Office Depot will become the preferred office products
vendor through the Agillion service. From the dashboard of Agillion's
groundbreaking customer management solution, Office Depot's vast selection of
office supplies will be just one click away.
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Stock Repurchase Program
During the second quarter, Office Depot completed its previously announced $700
million stock repurchase program by acquiring an additional 7.0 million Office
Depot common shares. To date, under the repurchase programs authorized by the
Company's Board, Office Depot has repurchased a total of 67.0 million shares of
its common stock. The Company's Board made the initial authorization to
repurchase $500 million of stock during the last half of 1999, and it authorized
additional purchases of $200 million during the first quarter of 2000.
The Company announced today that its Board of Directors has approved another
$100 million in stock repurchases, incremental to the previous $700 million
repurchase authorization. The approved increase will, upon completion bring the
Company's total investment in its own stock to $800 million.
Office Depot will hold a conference call for investors and analysts at 4:30 p.m.
on today's date. The conference call will be available to all investors via
Webcast at www.officedepot.com/corpinfo/conferencecall.asp (Conference ID: ODP).
Interested parties may contact Investor Relations at 561-438-1680 for further
information on the conference call.
As of June 24, 2000, the Company operated 855 office supply superstores in the
United States and Canada, in addition to a national business-to-business
delivery network supported by 30 delivery centers, more than 60 local sales
offices and seven regional call centers. Furthermore, the Company owned and
operated 27 office supply stores in France and seven stores in Japan; had mail
order and delivery operations in 14 countries outside of the United States and
Canada; and under joint venture and licensing agreements, had 89 additional
stores operating under the Office Depot name in six other foreign countries. The
Company also operates an award-winning U.S. Office Depot brand Internet Web site
at www.officedepot.com where customers can access Office Depot's low competitive
prices seven days a week, twenty-four hours a day, and it operates Viking brand
Web sites at www.vikingop.com in the United States, www.viking-direct.co.uk in
the United Kingdom, www.viking.de in Germany, www.vikingdirect.nl in The
Netherlands and www.vikingop.it in Italy. Office Depot's common stock is traded
on the New York Stock Exchange under the symbol ODP and is included in the S&P
500 Index.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: Except for historical
information, the matters discussed in this press release are forward- looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, as amended. Forward-looking statements, including projections and
anticipated levels of performance, involve risks and uncertainties which may
cause actual results to differ materially from those discussed herein. These
risks and uncertainties are detailed from time to time by Office Depot in its
filings with the United States Securities and Exchange Commission, including
without limitation its most recent filing on Form 10-K, filed in March, 2000 and
subsequent 10-Q filings. You are strongly urged to review such filings for a
more detailed discussion of such risks and uncertainties. The Company's SEC
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filings are readily obtainable at no charge at www.sec.gov and at
www.freeEDGAR.com as well as on a number of other commercial Web sites.
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<TABLE>
OFFICE DEPOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
13 Weeks 13 Weeks 26 Weeks 26 Weeks
Ended Ended Ended Ended
June 24, June 26, June 24, June 26,
2000 1999 2000 1999
---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Sales $ 2,630,848 $ 2,343,036 $ 5,694,101 $ 4,965,887
Cost of goods sold and occupancy costs 1,881,337 1,664,801 4,109,348 3,558,804
---------------- ---------------- ----------------- ----------------
Gross profit 749,511 678,235 1,584,753 1,407,083
Store and warehouse operating
and selling expenses 531,953 453,210 1,101,334 924,879
Pre-opening expenses 3,157 5,239 5,807 11,702
General and administrative expenses 115,053 89,707 221,402 179,430
Merger and restructuring costs 3,352 12,718 4,381 15,479
---------------- ---------------- ----------------- ----------------
653,515 560,874 1,332,924 1,131,490
Operating profit 95,996 117,361 251,829 275,593
Other income (expense):
Interest income 3,521 8,710 6,885 18,422
Interest expense (7,070) (6,700) (14,266) (13,051)
Miscellaneous income (expense), net (483) (1,807) 20,589 (3,645)
---------------- ---------------- ----------------- ----------------
Earnings before income taxes 91,964 117,564 265,037 277,319
Income taxes 34,027 43,448 98,064 102,627
---------------- ---------------- ----------------- ----------------
Net earnings $ 57,937 $ 74,116 $ 166,973 $ 174,692
================ ================ ================= ================
Earnings per common share:
Basic $ 0.18 $ 0.20 $ 0.52 $ 0.47
Diluted 0.18 0.19 0.50 0.44
Weighted average number of common shares outstanding:
Basic 313,695 374,285 318,650 373,545
Diluted 340,567 408,890 345,956 409,082
</TABLE>
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<TABLE>
OFFICE DEPOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
<CAPTION>
As of As of
June 24, December 25,
2000 1999
----------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 213,123 $ 218,784
Receivables, net 773,089 849,478
Merchandise inventories, net 1,294,401 1,436,879
Deferred income taxes and other assets 121,786 125,911
----------------- ------------------
Total current assets 2,402,399 2,631,052
Fixed assets:
Property and equipment, at cost 1,823,263 1,723,013
Less accumulated depreciation and amortization 645,081 577,385
----------------- ------------------
Net fixed assets 1,178,182 1,145,628
Goodwill and other assets, net 445,084 499,503
----------------- ------------------
$ 4,025,665 $ 4,276,183
================= ==================
LIABILITIES
Current liabilities:
Accounts payable $ 1,079,646 $ 1,239,301
Accrued expenses and other liabilities 382,056 414,690
Income taxes payable 71,391 39,588
Current maturities of long-term debt 256,685 250,466
----------------- ------------------
Total current liabilities 1,789,778 1,944,045
Deferred income taxes and other credits 70,198 103,319
Long-term debt, net of current maturities 341,628 321,099
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - authorized 800,000,000 shares 3,774 3,762
of $.01 par value; issued 377,414,345 in
2000 and 376,212,439 in 1999
Additional paid-in capital 937,146 926,295
Unamortized value of long-term
incentive stock grant (3,579) (4,065)
Accumulated other comprehensive income (45,794) 15,730
Retained earnings 1,634,332 1,467,359
Treasury stock, at cost - 67,082,119 shares in 2000
and 46,770,272 shares in 1999 (701,818) (501,361)
----------------- ------------------
1,824,061 1,907,720
----------------- ------------------
$ 4,025,665 $ 4,276,183
================= ==================
</TABLE>
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<TABLE>
OFFICE DEPOT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
26 Weeks 26 Weeks
Ended Ended
June 24, June 26,
2000 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 166,973 $ 174,692
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 96,179 78,460
Provision for losses on inventories and receivables 47,630 44,102
Changes in assets and liabilities 18,585 (133,525)
Other operating activities, net (10,201) 18,680
----------------- -----------------
Net cash provided by operating activities 319,166 182,409
----------------- -----------------
Cash flows from investing activities:
Purchases of investment securities (21,612) (102,452)
Capital expenditures, net of proceeds from sales (126,370) (186,728)
Other investing activities, net 18,960 (16,584)
----------------- -----------------
Net cash used in investing activities (129,022) (305,764)
----------------- -----------------
Cash flows from financing activities:
Proceeds from exercise of stock options and sale of stock
under employee stock purchase plans 7,431 45,752
Acquisition of treasury stock (200,457) -
Other financing activities, net 5,100 (2,652)
----------------- -----------------
Net cash (used in) provided by financing activities (187,926) 43,100
----------------- -----------------
Effect of exchange rate changes on cash and
cash equivalents (7,879) (2,134)
----------------- -----------------
Net decrease in cash and cash equivalents (5,661) (82,389)
Cash and cash equivalents at beginning of period 218,784 704,541
----------------- -----------------
Cash and cash equivalents at end of period $ 213,123 $ 622,152
================= =================
</TABLE>
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<TABLE>
OFFICE DEPOT, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATING PROFIT BY SEGMENT
(In thousands)
(Unaudited)
<CAPTION>
Stores BSG International Other TOTAL
<S> <C> <C> <C> <C> <C>
2nd Quarter 2000
Sales $1,416,003 $ 869,730 $ 346,121 $ (1,006) $ 2,630,848
Cost of goods sold and occupancy costs 1,085,043 587,938 208,958 (602) 1,881,337
-------------- ---------------- ---------------- ----------------- ----------------
Gross profit 330,960 281,792 137,163 (404) 749,511
Store and warehouse operating
and selling expenses 227,955 210,287 94,059 (348) 531,953
-------------- ---------------- ---------------- ----------------- ----------------
Store and warehouse operating profit $ 103,005 $ 71,505 $ 43,104 $ (56) $ 217,558
============== ================ ================ ================= ================
First Half 2000
Sales $3,211,650 $ 1,752,477 $ 731,932 $ (1,958) $ 5,694,101
Cost of goods sold and occupancy costs 2,472,018 1,196,161 442,394 (1,225) 4,109,348
-------------- ---------------- ---------------- ----------------- ----------------
Gross profit 739,632 556,316 289,538 (733) 1,584,753
Store and warehouse operating
and selling expenses 479,779 425,656 196,549 (650) 1,101,334
-------------- ---------------- ---------------- ----------------- ----------------
Store and warehouse operating profit $ 259,853 $ 130,660 $ 92,989 $ (83) $ 483,419
============== ================ ================ ================= ================
2nd Quarter 19991
Sales $1,309,422 $ 730,729 $ 303,879 $ (994) $ 2,343,036
Cost of goods sold and occupancy costs 987,966 495,024 182,414 (603) 1,664,801
-------------- ---------------- ---------------- ----------------- ----------------
Gross profit 321,456 235,705 121,465 (391) 678,235
Store and warehouse operating
and selling expenses 194,394 172,146 86,990 (320) 453,210
-------------- ---------------- ---------------- ----------------- ----------------
Store and warehouse operating profit $ 127,062 $ 63,559 $ 34,475 $ (71) $ 225,025
============== ================ ================ ================= ================
First Half 19991
Sales $2,858,148 $ 1,478,479 $ 631,437 $ (2,177) $ 4,965,887
Cost of goods sold and occupancy costs 2,180,453 1,006,874 372,790 (1,313) 3,558,804
-------------- ---------------- ---------------- ----------------- ----------------
Gross profit 677,695 471,605 258,647 (864) 1,407,083
Store and warehouse operating
and selling expenses 402,418 348,073 175,158 (770) 924,879
-------------- ---------------- ---------------- ----------------- ----------------
Store and warehouse operating profit $ 275,277 $ 123,532 $ 83,489 $ (94) $ 482,204
============== ================ ================ ================= ================
1 In the first quarter of 2000, management redefined its operating and reporting segments. Accordingly, all segment results
have been restated from previously disclosed results.
</TABLE>
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