UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) February 13, 2003
Commission file number 1-10948
OFFICE DEPOT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-2663954
---------------------------------- --------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Old Germantown Road, Delray Beach, Florida 33445
(Address of principal executive offices) (Zip Code)
(561) 438-4800
(Registrant's telephone number, including area code)
Former name or former address, if changed since last report: N/A
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
99.1 Press release of Office Depot, Inc. issued on
February 13, 2003.
ITEM 9. REGULATION FD DISCLOSURE
On February 13, 2003, Office Depot, Inc. issued a press release announcing its
financial performance, including earnings for the fiscal year ended December 28,
2002. A copy of the press release is attached hereto as Exhibit 99.1 and
incorporated by reference herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OFFICE DEPOT, INC.
Date: February 13, 2003 By: /S/ DAVID C. FANNIN
David C. Fannin
Executive Vice President and
General Counsel
OFFICE DEPOT
NEWS RELEASE
- --------------------------------------------------------------------------------
CONTACT: Eileen H. Dunn
Vice President, Investor Relations/Public Relations
561/438-4930
edunn@officedepot.com
---------------------
OFFICE DEPOT ANNOUNCES FOURTH QUARTER AND FY 2002 RESULTS
FOURTH QUARTER
--------------
o 4Q SALES GREW 2% TO $2.8 BILLION
o OPERATING PROFIT GREW 32%
o EPS GREW 54%
2002 FISCAL YEAR
----------------
o FY 2002 SALES ROSE 2%
o E-COMMERCE SALES REACHED $2.1 BILLION
o OPERATING PROFIT ROSE 41%; EPS INCREASES 48%
o FY 2002 FREE CASH FLOW TOTALED $500 MILLION
(DELRAY BEACH, FL) FEBRUARY 13, 2003 -- OFFICE DEPOT, INC. (NYSE: ODP), the
world's largest seller of office products, today announced fourth quarter and
year-end results for the fiscal periods ended December 28, 20021.
FOURTH QUARTER PERFORMANCE
Total Company sales for the fourth quarter grew 2% to $2.8 billion compared to
the fourth quarter of 2001. Worldwide comparable sales in the 885 stores and 39
delivery centers that have been open for more than one year were flat for the
fourth quarter of 2002. Worldwide e-commerce sales grew 28% to $553 million
during the period.
Operating profit for the fourth quarter increased 32% to $101.9 million compared
to the same period in 2001. Earnings from continuing operations include charges
of $8.4 million ($0.02 per share) in the fourth quarter of 2002 and $11.6
million ($0.02 per share) in the fourth quarter of 2001, primarily to adjust
lease termination costs for the remaining stores in the group of 70 stores
closed in early 2001. Also, the Company's Australian operations are reported as
discontinued operations for all periods. Total Company diluted earnings per
share rose 54% to $0.20 for the fourth quarter from $0.13 in the comparable
period last year. On a non-GAAP basis, diluted earnings per share excluding
discontinued operations ($0.01 per share) and lease termination adjustments
totaled $0.23 for the quarter.
- --------
1 All EPS amounts are presented on a Generally Accepted Accounting Principles
(GAAP) basis unless otherwise indicated.
FY 2002 PERFORMANCE
Total Company sales for fiscal 2002 grew 2% to $11.4 billion compared to the
same period of 2001. Worldwide comparable sales in the 885 stores and 39
delivery centers that have been open for more than one year were flat for the
full year 2002. Worldwide e-commerce sales grew 34% to $2.1 billion for fiscal
2002.
For the 2002 fiscal year, operating profit increased 41% to $499.7 million
compared to the same period in 2001. Earnings from continuing operations for
2002 include $14.4 million ($0.03 per share) of costs related to the settlement
of the potential class action litigation in the state of California and $6.7
million of cost ($0.01 per share) in net adjustments to the lease terminations
estimates referenced above. Earnings from continuing operations for 2001
included charges for the resolution of a legal claim and $8.4 million in lease
termination costs (together, $0.05 per share). Total Company diluted earnings
per share rose 48% to $0.98 for the full year compared to the same period in
2001. Diluted earnings per share excluding discontinued operations and the
charges identified above (on a non-GAAP basis) totaled $1.02 for the full year.
BRUCE NELSON, OFFICE DEPOT'S CHAIRMAN & CEO, COMMENTED, "2002 was a year of
tremendous achievement at Office Depot. We relentlessly pursued our objective of
profitably growing our business, with a keen eye on driving shareholder value
across all of our business channels. We remained focused on providing fanatical
customer service, while managing costs and investing a disproportionate amount
of our capital to growth in Europe, our fastest growing, most profitable
business segment. Our experienced senior management team made the right
decisions to manage the business this year, and we reaped the rewards in
generating a 48% increase in earnings per share following a strong performance
in 2001.
"We believe our 2002 results provide strong evidence of our ability to generate
solid earnings growth, even in spite of a challenging sales environment in our
North American retail stores. Our tremendous operating performance resulted in a
24% increase in our return on net assets (RONA), reaching 10.5% in 2002 versus
8.5% in 2001. Our strong balance sheet and free cash flow provide security and
flexibility for future growth. Our cash position reached almost $900 million at
the end of the year, despite the redemption during the third quarter of over
$240 million in long-term debt (LYONS(R).)
"Consistent execution in our North American retail stores resulted in a strong
operating performance in 2002 despite negative comparable sales. Our results
were driven by solid gross margin gains throughout the year from tight
sku/category management, increased global sourcing and private label
initiatives, as well as continued product mix shifts away from lower margin
technology. These improvements, coupled with tight cost controls and other
operational changes such as our new store payroll model have positioned us to
benefit from any incremental lift in the current economic climate.
"2002 was a year of dramatic improvement in operating performance for our
Business Services Group. Our North American warehouse operations achieved the
highest service levels in Office Depot's history, and at the same time reduced
operating and selling costs by 177 basis points. In addition, given our steady
sales growth and sustainable improvement in gross margins, this business
reported a 25% increase in segment operating profit to a record 9% of sales for
the full year, compared to 8% in 2001.
"In 2002, our rapidly growing International business posted another record year.
We successfully opened direct mail operations in three new countries
(Switzerland, Spain and Portugal), supported growth in four new contract
businesses, while adding two new sales forces in Italy and Germany. We added a
net of seven new stores in France, made several changes to our Japanese
operations, and launched nine new European Web sites for our Office Depot
contract and Viking Direct sales channels. We accomplished all of this with only
a 72 basis point reduction in our segment operating profit in 2002 (excluding a
$10.2 million gain on the sale of a warehouse in 2001). Our International
businesses now account for over 14% of consolidated worldwide revenues, and
represent 21% of consolidated segment operating profit. This business continues
to have strong growth potential across all brands and channels, and we will
continue to allocate a disproportionate share of our capital to accelerate our
growth potential outside of North America, especially in the European market.
"Throughout 2002 we believe that we consistently delivered on our promises. We
continue to see strength across all of our businesses in nearly all of our key
operating, quality, customer service and employee retention metrics. Our supply
chain remains best in class in our segment, with the highest inventory turns and
customer service levels."
FISCAL YEAR 2002 HIGHLIGHTS
o Named several key members to the Office Depot senior management team:
o Jocelyn Carter-Miller to the position of Executive Vice
President, Chief Marketing Officer; David D'Arezzo to the
position of Executive Vice President of Merchandising and
Replenishment; and Patricia B. Morrison to the position of
Executive Vice President, Chief Information Officer.
o Completed several important international growth initiatives:
o Entered Switzerland, Spain and Portugal with Viking Direct
catalog/direct mail business.
o Expanded European BSD into Italy and Germany with addition of
contract sales operations.
o Furthered our worldwide industry leading position in global e-commerce
sales. Worldwide e-commerce sales were $553 million in the fourth
quarter, an increase of 28% over the prior year, and reached $2.1
billion for the full year, an increase of 34% over 2001.
o Launched an office products store on Amazon.com. This new
e-commerce alliance reaches out to personal-use shoppers and
offers more than 50,000 products, including basic office
supplies, technology products and home office furniture.
o Launched six new Viking E-Commerce Web sites in Europe: one in
Ireland (www.vikingdirect.ie); two in Belgium - one for our
Dutch-speaking customers at www.vikingdirect.be and one for our
French-speaking customers at www.viking-direct.be; two in
Switzerland - one for German-speaking customers at
www.vikingdirekt.ch and one for French-speaking customers at
www.viking-direkt.ch; one in Luxembourg at www.viking-direct.lu.
o Launched new Web sites for contract customers in the Netherlands
(http://bsdnet.officedepot.nl), Ireland
(http://bsdnet.officedepot.ie) and France
(http://bsdnetofficedepot.fr).
o Redeemed the Series 1992 Liquid Yield Option Notes (LYONs(R)), due
December 2007, at 100% of the principal amount, plus accrued interest
through the redemption date in August. The redemption reduced the
Company's indebtedness by approximately $241 million and affected
diluted earnings per share by an amount approximately equivalent to
the repurchase of 13.8 million shares.
o Reached agreement to sell the Company's Australian operations to Coles
Myer Ltd., as we focused our attention on markets where we have the
opportunity to hold the number one or number two market position. As a
result of our decision, we accounted for our results in Australia as
"discontinued operations" for all periods presented in this press
release.
OUTLOOK FOR 2003:
- -----------------
Mr. Nelson continued, "As we look forward to 2003, we do not see many
encouraging signs that we can expect a significant improvement in the overall
economic environment during the first half of the year. As a result, based on
this very early view of 2003, we now believe that EPS growth this year will be
in the range of 5-10% over 2002 EPS of $0.98 per share. This does not reduce our
longer-term outlook for our business, but simply reflects our conservative view
of the broader economy.
"We are planning for improvement in North American retail comps in 2003, with
the second half stronger than the first half. Given current sales trends, we now
expect North American retail comps to remain negative in the first half of the
year but to turn flattish to slightly positive in the third and fourth quarters.
In our North American BSG, we are looking for solid sales growth in 2003, as we
continue to gain market share. For the full year, we believe BSG will grow in
the mid to high-single digit range. Our International business is expected to
continue to be our fastest growing business and will grow (in U.S. dollars) in
the mid to high teens range in 2003.
"Total Company gross margins are planned at current levels (with the exception
of product mix changes) and we plan to keep tight control over our cost
structure. Other key assumptions for 2003 include:
o Opening 40 new North American Retail stores
o Opening 5-10 new retail stores in France & Japan
o Launching retail in Spain
o Spending capital in the $250-300 million range
o Generating free cash flow of approximately $250-300 million
Mr. Nelson continued: "In 2003, we will build on the tremendous operating
strength we achieved in 2002. We are relentlessly focused on increasing
shareholder value by driving RONA and growing our businesses in a variety of
ways. Our disciplined capital management and strong operational cash flow in
2002 resulted in an enviable cash position of almost $900 million at the end of
2002. We plan to use this cash to grow shareholder value, including strategic
and opportunistic acquisitions, that will position us for incremental growth and
leverage our strengths and core competencies."
CONSOLIDATED OPERATING PROFIT
- -----------------------------
We use segment operating profit to manage the individual business units because
this measure captures the sales and direct activity of each segment's
operations. General and administrative expenses are not allocated to our
segments because they are considered indirect or corporate activities and the
cost of assigning these expenses to our operating units exceeds the benefits we
would receive. Segment operating profit, however, should not be considered an
alternative to operating profit or net earnings. We have provided below a
reconciliation of the total segment operating profit (a non-GAAP measure) to
consolidated operating profit. The discussions that follow show sales, cost of
sales and direct costs by segment.
TOTAL COMPANY
Fourth Quarter Fiscal Year
- -------------------------------------------------- ------------ --------------- -------------- --------------
(In millions of dollars) 2002 2001 2002 2001
- -------------------------------------------------- ------------ --------------- -------------- --------------
Sales $2,841.7 $2,782.4 $11,356.6 $11,082.1
COGS and Occupancy Costs 1,997.7 1,972.6 8,022.7 7,940.1
------- ------- ------- -------
Gross Profit 844.0 809.8 3,333.9 3,142.0
Operating and Selling Expenses 611.1 597.0 2,331.3 2,322.6
Facility Closure Costs 8.4 11.6 6.7 8.4
--- ---- --- ---
Segment Operating Profit 224.5 201.2 995.9 811.0
General and Administrative Expenses 119.7 120.0 486.3 445.5
Other Operating Expenses 2.9 4.0 9.9 12.1
--- --- --- ----
Operating Profit $101.9 $77.2 $499.7 $353.4
- -------------------------------------------------- ------------ --------------- -------------- --------------
SEGMENT RESULTS
- ---------------
NORTH AMERICAN RETAIL (See note above)
Fourth Quarter Fiscal Year
- ------------------------------------------------ -------------- --------------- -------------- --------------
(In millions of dollars) 2002 2001 2002 2001
- ------------------------------------------------ -------------- --------------- -------------- --------------
Sales $1,429.2 $1,477.7 $5,804.4 $5,842.6
COGS and Occupancy Costs 1,076.4 1,119.1 4,351.2 4,479.1
------- ------- ------- -------
Gross Profit 352.8 358.6 1,453.2 1,363.5
Operating and Selling Expenses 262.2 266.0 1,027.1 1,046.7
Facility Closure Costs 8.4 11.6 6.4 8.5
--- ---- --- ---
Segment Operating Profit $82.2 $81.0 $419.7 $308.3
- ------------------------------------------------ -------------- --------------- -------------- --------------
North American retail sales declined 3% for the fourth quarter and 1% for the
full year. During the fourth quarter, comparable store sales in the 848 stores
throughout the U.S. and Canada that have been open for more than one year
declined 4%. Comparable sales results were affected by a disappointing 2002
holiday season and continued negative comparable sales results in furniture and
technology. Traffic was down slightly, and the average transaction size was down
1% over the same period last year, reflecting continued weakness in furniture
and technology sales. Desktop and laptop sales were down 17% during the fourth
quarter while overall technology hardware was down 10% for the period. In
addition, furniture sales were down 7% over the same period last year. For the
full fiscal year, comparable sales in the 848 stores throughout the U.S. and
Canada that have been open for more than one year declined 2%.
Gross margins improved 42 basis points during the fourth quarter and 170 basis
points for fiscal year 2002. The improvement in gross margins resulted from the
continued product mix shift away from technology, as well as benefits from
disciplined sku/category management and increased sales of private label and
globally sourced products.
Although sales softness did result in some de-leveraging, operating cost
controls remained tight throughout the fourth quarter and resulted in a 6.3%
operating margin, excluding the $8.4 million increase in lease termination costs
primarily relating to the remaining stores in the group of 70 stores closed in
early 2001. For the full year, our operating profit margin reached 7.6%,
excluding the net $6.4 million in store lease termination costs and $14.4
million of legal settlement costs, and reflects the Company's solid gross margin
gains and strong cost controls, as well as benefits from re-engineering several
store operational processes rolled out during the second half of 2002.
Office Depot continued to expand its store base during the fourth quarter by
opening seven new stores, relocating one store and closing one under-performing
store, for a total of six net new stores. For the year, a total of 21 new stores
were opened in North America, most of them in existing markets, where we
continue to find desirable real estate sites that enhance our current market
position and build density. During the year, eight stores were relocated and 13
under-performing stores were closed. At the end of fiscal 2002, Office Depot
operated a total of 867 office product superstores throughout the U.S. and
Canada.
BUSINESS SERVICES GROUP (See note above)
Fourth Quarter Fiscal Year
- ------------------------------------------------ -------------- --------------- -------------- --------------
(In millions of dollars) 2002 2001 2002 2001
- ------------------------------------------------ -------------- --------------- -------------- --------------
Sales $963.6 $921.1 $3,913.9 $3,763.0
COGS and Occupancy Costs 652.5 622.9 2,684.7 2,574.0
----- ----- ------- -------
Gross Profit 311.1 298.2 1,229.2 1,189.0
Operating and Selling Expenses 222.9 223.7 864.6 897.8
----- ----- ----- -----
Segment Operating Profit $88.2 $74.5 $364.6 $291.2
- ------------------------------------------------ -------------- --------------- -------------- --------------
Sales in our Business Services Group grew 5% during the fourth quarter and 4%
for the full year. While catalog sales growth remains negative, the contract
business grew over 6% during the fourth quarter. This growth is primarily
attributable to market share gains as well as solid growth in the Company's
revitalized national accounts program. Growth rates for the quarter were on
track in essentially all markets, with particular strength in our Eastern
region. Our West Coast sales were positive, which represents a further
improvement from the first half of 2002. Domestic e-commerce sales grew by 26%
during the quarter, continuing our industry leadership position in this channel.
Segment operating profit improved 107 basis points during the fourth quarter and
158 basis points for the full year. Gross margins were 9 basis points lower for
the fourth quarter and 19 for the full year, reflecting the impact of
lower-margin 4Sure.com business, growth in the Company's national accounts
business and overall merchandise mix changes. Operating and selling expenses
decreased by 115 basis points during the fourth quarter and 177 basis points for
the full year, and reflect continued improvements in productivity and efficiency
in our North American warehouses. As a result, our North American BSG business
reported a 9% operating margin for both the fourth quarter and the full year.
These results compare with operating margins of 8% for the same periods in 2001.
Our North American warehouses continue to make progress in driving down costs
and increasing productivity and efficiency. Virtually all of our key operating
and customer service metrics showed continued improvement and customer
complaints remained at historical lows.
INTERNATIONAL DIVISION (See note above)
Fourth Quarter Fiscal Year
- ------------------------------------------------ -------------- --------------- -------------- --------------
(In millions of dollars) 2002 2001 2002 2001
- ------------------------------------------------ -------------- --------------- -------------- --------------
Sales* $449.7 $385.0 $1,641.4 $1,480.1
COGS and Occupancy Costs* 269.1 230.8 988.1 888.4
----- ----- ----- -----
Gross Profit* 180.6 154.2 653.3 591.7
Operating and Selling Expenses* 126.3 108.0 441.2 379.5
----- ----- ----- -----
Segment Operating Profit* $54.3 $46.2 $212.1 $212.2
- ------------------------------------------------ -------------- --------------- -------------- --------------
* EXCLUDES COMPANY'S RESULTS FROM DISCONTINUED AUSTRALIAN OPERATIONS
Our International Division sales grew 6% in local currencies and 17% in U.S.
dollars during the fourth quarter, primarily resulting from the continued strong
results in our European operations. For the full year, our International growth
was 6% in local currencies and 11% in U.S. dollars.
International sales were positively impacted by foreign exchange rates in the
fourth quarter by $40 million and $67 million for the full year. International
Division segment operating profit also benefited from foreign exchange rates by
$5 million during the fourth quarter and $9 million for the full year.
Segment gross margins increased during the fourth quarter by 11 basis points,
primarily attributable to better buying and increasing sales of private label
products. Gross margins declined 18 basis points for the full year, reflecting
the impact of higher levels of prospecting in new countries and the increased
sales volume of the Company's European contract business, offset by better
buying and higher globally sourced and private label products. Operating and
selling expenses increased 3 basis points in the fourth quarter and 124 basis
points for the full year. However, excluding a $10.2 million gain on the sale of
a warehouse in 2001, operating and selling expenses for the full year increased
55 basis points, reflecting the costs associated with startup operations in
Switzerland, Spain and Portugal, five new stores in France, changes to the
Company's operations in Japan, increased payroll costs related to the addition
of new contract sales representatives in Italy and Germany and nine new Web
sites for the Company's Office Depot contract and Viking Direct customers. This
segment continues to generate impressive profitability and free cash flow in
spite of the enormous investments we are making in new countries, new channels
and a rapidly growing retail presence in France.
Earlier this year, the Company announced that it had reached an agreement to
sell its Australian operations to Coles Myer Ltd., which we consummated in
January of 2003. Accordingly, the current and prior period results are excluded
from the table above and are presented as a single line of discontinued
operations in the Company's financial information.
The Company also announced earlier today, that it plans to launch its first
retail stores in Spain in April of this year. The Company has targeted Madrid
and the surrounding area for six new stores to be open by mid 2003, with
additional stores slated for the near future.
Office Depot has retail stores, through a combination of wholly owned
operations, joint ventures and international licensing agreements, in the
following countries:
OFFICE DEPOT INTERNATIONAL RETAIL ACTIVITY
Fourth Quarter Activity Open at Year End
- ------------------------------------------------ -------------- --------------- -------------- --------------
Number of Stores Opened Closed 2002 2001
- ------------------------------------------------ -------------- --------------- -------------- --------------
Mexico 6 76 61
France * 5 37 30
Israel 1 26 23
Poland 2 13 15
Japan * 1 13 9
Hungary 3 3
Thailand 1 3 2
-------------- --------------- -------------- --------------
Total 14 2 171 143
- ------------------------------------------------ -------------- --------------- -------------- --------------
* Office Depot wholly-owned stores
Along with its retail stores, the Company also sells products and services
through its delivery and catalog operations in 20 countries outside of the
United States and Canada.
- --------------------------------------------------------------------------------
CONFERENCE CALL INFORMATION
Office Depot will hold a conference call for investors and analysts at 8:00 a.m.
(Eastern Time) on today's date. The conference call will be available to all
investors via Webcast at www.officedepot.com under Company Info/Investor
Relations. Interested parties may contact Investor Relations at 561-438-1680 for
further information on the conference call.
- --------------------------------------------------------------------------------
ABOUT OFFICE DEPOT
We believe that no one sells more office products to more customers in more
countries through more channels than Office Depot. As the largest seller of
office products around the world, the Company operates under the Office
Depot(R), Viking Office Products(R), Viking Direct(R) and 4Sure.com(R) brand
names. As of December 28, 2002, Office Depot operated 867 office supply
superstores in the United States and Canada, in addition to a national
business-to-business delivery network supported by 24 delivery centers, more
than 60 local sales offices and 13 regional call centers. Furthermore, the
Company sells products and services in 20 countries outside of the United States
and Canada, including 37 office supply stores in France and 13 in Japan that are
owned and operated by the Company; and 121 additional office supply stores under
joint venture and licensing agreements operating under the Office Depot(R) name
in seven foreign countries.
The Company also operates an award-winning U.S. Office Depot brand 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. The Company also operates 32
other Web sites in the U.S. and 14 international countries including: Austria,
Belgium, Canada, France, Japan, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain, Switzerland and the United Kingdom.
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 WITHOUT LIMITATION ALL
OF THE PROJECTIONS AND ANTICIPATED LEVELS OF FUTURE 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 ("SEC"), INCLUDING WITHOUT LIMITATION ITS MOST RECENT FILING ON FORM
10-K, FILED ON MARCH 22, 2001 AND SUBSEQUENT 10-Q FILINGS, INCLUDING OUR MOST
RECENT 10-Q, FILED ON OCTOBER 29, 2002 AND IN OUR 8-K FILINGS MADE FROM TIME TO
TIME. YOU ARE STRONGLY URGED TO REVIEW ALL SUCH FILINGS FOR A MORE DETAILED
DISCUSSION OF SUCH RISKS AND UNCERTAINTIES. THE COMPANY'S SEC 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. WE WILL BE FILING OUR REPORT ON
FORM 10-K NEXT MONTH, ALONG WITH OUR ANNUAL REPORT FOR 2002 AND OUR PROXY
STATEMENT, AND WE WILL HOLD OUR ANNUAL MEETING ON MAY 1, 2003.
OFFICE DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
13 WEEKS 13 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2002 2001 2002 2001
------------------ ------------------ ------------------ ------------------
Sales $2,841,720 $2,782,409 $11,356,633 $11,082,112
Cost of goods sold and occupancy costs 1,997,672 1,972,578 8,022,663 7,940,067
------------------ ------------------ ------------------ ------------------
Gross profit 844,048 809,831 3,333,970 3,142,045
Store and warehouse operating
and selling expenses 611,078 596,977 2,331,384 2,322,577
General and administrative expenses 119,714 119,962 486,279 445,538
Facility closure costs 8,441 11,600 6,744 8,436
Other operating expenses 2,921 4,068 9,855 12,125
------------------ ------------------ ------------------ ------------------
742,154 732,607 2,834,262 2,788,676
Operating profit 101,894 77,224 499,708 353,369
Other income (expense):
Interest income 4,589 5,010 18,509 12,980
Interest expense (9,597) (13,029) (46,195) (43,339)
Miscellaneous income (expense), net 3,768 (5,196) 7,183 (9,057)
------------------ ------------------ ------------------ ------------------
Earnings from continuing
operations before income taxes 100,654 64,009 479,205 313,953
Income taxes 35,233 21,514 167,722 112,296
------------------ ------------------ ------------------ ------------------
Earnings from continuing operations 65,421 42,495 311,483 201,657
Discontinued operations (2,538) (2,215) (775) (614)
------------------ ------------------ ------------------ ------------------
Net earnings $ 62,883 $ 40,280 $ 310,708 $ 201,043
================== ================== ================== ==================
Earnings per common share from
continuing operations:
Basic $ 0.21 $ 0.14 $ 1.02 $ 0.68
Diluted 0.21 0.14 0.98 0.66
Net earnings per common share:
Basic 0.20 0.13 1.01 0.67
Diluted 0.20 0.13 0.98 0.66
Weighted average number of common
shares outstanding:
Basic 307,662 300,661 306,778 298,054
Diluted 311,984 322,081 322,200 316,424
OFFICE DEPOT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
AS OF AS OF
DECEMBER 28, DECEMBER 29,
2002 2001
------------------- -------------------
Assets
Current assets:
Cash and cash equivalents $ 877,088 $ 565,388
Short-term investments 6,435 ---
Receivables, net 771,632 774,175
Merchandise inventories, net 1,305,589 1,253,420
Deferred income taxes 143,073 148,490
Prepaid expenses and other assets 105,898 81,908
------------------- -------------------
Total current assets 3,209,715 2,823,381
Property and equipment, net 1,118,062 1,099,618
Goodwill, net 257,797 242,762
Other assets 180,238 165,882
------------------- -------------------
$ 4,765,812 $ 4,331,643
=================== ===================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,173,973 $ 1,058,436
Accrued expenses and other current liabilities 662,490 617,210
Income taxes payable 139,431 107,347
Current maturities of long-term debt 16,115 318,521
------------------- -------------------
Total current liabilities 1,992,009 2,101,514
Deferred income taxes and other credits 64,721 64,139
Long-term debt, net of current maturities 411,970 315,331
Zero coupon, convertible subordinated notes --- 2,221
Commitments and Contingencies
Stockholders' Equity
Common stock - authorized 800,000,000 shares
of $.01 par value; issued 393,905,052 in
2002 and 385,538,340 in 2001 3,939 3,855
Additional paid-in capital 1,118,028 1,007,088
Unamortized value of long-term incentive stock grant (1,295) (2,578)
Accumulated other comprehensive income (loss) 1,165 (71,273)
Retained earnings 2,028,442 1,717,734
Treasury stock, at cost - 85,389,591 shares in 2002
and 82,443,170 shares in 2001 (853,167) (806,388)
------------------- -------------------
2,297,112 1,848,438
------------------- -------------------
$ 4,765,812 $ 4,331,643
=================== ===================
OFFICE DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
52 WEEKS 52 WEEKS
ENDED ENDED
DECEMBER 28, DECEMBER 29,
2002 2001
-------------------- -------------------
Cash flows from operating activities:
Net earnings $ 310,708 $ 201,043
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Discontinued operations 775 614
Depreciation and amortization 200,747 198,222
Charges for losses on inventories and receivables 93,220 108,690
Net earnings from equity method investments (9,279) (10,892)
Accreted interest on zero coupon, convertible subordinated
notes 7,558 11,308
Employee stock benefit plans 2,616 5,001
Deferred income tax (benefit) expense (9,994) 197
Net loss on investment securities 2,998 14,100
Loss (gain) on disposal of property and equipment 1,465 (5,273)
Facility closure costs and impairment charges 12,130 43,623
Other operating activities 24,660 ---
Changes in assets and liabilities
Decrease in receivables 11,668 83,581
(Increase) decrease in merchandise inventories (99,487) 75,238
Net (increase) decrease in prepaid expenses and other
assets (18,169) 8,961
Net increase in accounts payable, accrued expenses
and deferred credits 170,281 11,528
-------------------- -------------------
Total adjustments 391,189 544,898
-------------------- -------------------
Net cash provided by operating activities 701,897 745,941
-------------------- -------------------
Cash flows from investing activities:
Purchase of short-term investments (6,435) ---
Purchase of investment securities (2,151) ---
Acquisitions --- (45,960)
Capital expenditures (202,218) (208,056)
Proceeds from sale of property and equipment 11,338 20,945
-------------------- -------------------
Net cash used in investing activities (199,466) (233,071)
-------------------- -------------------
Cash flows from financing activities:
Net proceeds from exercise of stock options and sale of stock
under employee stock purchase plans 88,898 52,962
Repurchase of common stock for treasury (45,869) (4,193)
Proceeds from issuance of long-term debt --- 266,286
Payments on long- and short-term borrowings (12,350) (400,458)
Repurchase of zero coupon, convertible subordinated notes (243,304) ---
-------------------- -------------------
Net cash used in financing activities (212,625) (85,403)
-------------------- -------------------
Effect of exchange rate changes on cash and cash equivalents 21,894 (8,537)
-------------------- -------------------
Net increase in cash and cash equivalents 311,700 418,930
Cash and cash equivalents at beginning of period 565,388 146,458
-------------------- -------------------
Cash and cash equivalents at end of period $ 877,088 $ 565,388
==================== ===================