Office Depot 2000 Annual Report Download

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2000 ANNUAL REPORT

Table of contents

  • Page 1
    2000 ANNUAL REPORT

  • Page 2
    ...Depot and Viking, global Internet sites, business-to-business e-commerce and sales forces that call on medium and large businesses. With its worldwide corporate headquarters in Delray Beach, Florida and its European headquarters in Venlo, the Netherlands, Office Depot has more than 48,000 employees...

  • Page 3
    A COMPELLING PLACE TO WORK, SHOP AND INVEST 1

  • Page 4
    ... eight new international websites in six countries; and • We established the Office Depot Business Services Division in the U. K., which will serve as a platform for continued expansion throughout Europe. We also won several important awards in 2000, which recognized Office Depot's dedication...

  • Page 5
    ... employer of choice. Whether our employees work in our retail stores, warehouses, customer service centers, corporate offices, or in one of the 18 countries in which we do business, we want to provide a rewarding experience that enables them to enjoy a high level of job satisfaction and communicate...

  • Page 6
    ...retail stores, warehouses, customer service centers or corporate offices, we want to provide a rewarding experience that enables them to enjoy job satisfaction and to transmit that level of job satisfaction to our customers at every possible touch point. "Whether our employees compensation package...

  • Page 7
    ...takes to get the job done." Kathy Fajardo Sr. Manager, Training SSD Associate for 12 years "I feel fortunate to work for a company that recognizes loyalty and hard work. Office Depot demonstrates integrity, respect and concern for all its employees- and it gives back to the community, too." Bonita...

  • Page 8
    ... forming strategic marketing alliances with Internet partners who can give us access to new customers, and provide valuable products and services to our existing customers. In addition, we are increasing our international Internet presence, steadily launching more Office Depot and Viking Web sites...

  • Page 9
    7

  • Page 10
    ... metropolitan markets, close 70 under-performing retail stores in the U.S. and Canada and close six Office Depot Express stores in France. We have decided to remodel a number of existing stores, scale back the number of planned new store openings and trim the average square footage of our new North...

  • Page 11
    9

  • Page 12
    ...of consolidating 24 Office Depot call centers into seven upgraded and technologically advanced customer service centers. The Netherlands We have also carefully reviewed the value of our holdings in a number of Internet companies, most of which are strategic marketing partners with Office Depot. In...

  • Page 13
    11

  • Page 14
    ...Right Michael J. Myers President First Century Partners Management Company Director since July 1987 Neil Austrian Chairman ...Office Depot, Inc. since August 1998 Chairman Emeritus-Viking Office Products since September 1999 Bruce Nelson Chief Executive Officer Office Depot, Inc. since July 17, 2000...

  • Page 15
    ... taxes Net earnings Earnings per share(2): Basic Diluted Statistical Data: Facilities open at end of period: United States and Canada: Office supply stores Customer service centers Call centers International(3): Office supply stores Customer service centers Call centers Balance Sheet Data: Working...

  • Page 16
    ... 1998, we expanded our direct mail business through our merger with Viking Office Products ("Viking"). Today, BSG sells office products and services to contract and commercial customers through our Office Depotா brand and Viking Office Productsா brand direct mail catalogs and Internet sites, and...

  • Page 17
    ... Division Our International Division sells office products and services in 16 countries outside the United States and Canada through Office Depot retail stores, Office Depotா brand and Viking Office Productsா brand direct mail catalogs and Internet sites, and an Office Depot contract sales force...

  • Page 18
    ... such as furniture are expected to improve. All of our customers should benefit from better service levels as a 2000 1999 $519.1 1998 $507.8 Earnings before taxes, excluding non-recurring items $353.0 One-time charges and credits Gross profit: SKU rationalization 25.6 Establish sales returns and...

  • Page 19
    ... of the goodwill related to our Japanese retail operations ($11.1 million). This write-off does not include the goodwill allocated to our Viking Japan catalog operations, which was not deemed to be impaired. Other One-time Items We allow our customers to return or exchange merchandise within certain...

  • Page 20
    ... selling prices on these items during 2000. In 1999, low priced computers and aggressive promotional programs offering discounts on certain hardware and software when customers signed up for Internet service drove the increase in our sales of technology products over 1998. Our overall gross profit...

  • Page 21
    ...not offer an Internet service provider instant rebate program. Also in 2000, we saw a decline in the overall market demand for these computer products in comparison to 1999. Lower margins realized on paper and machine supplies contributed most notably to the decrease in gross profit in 2000 compared...

  • Page 22
    ...negotiate with our contract customers. Contributing to the decrease in our BSG's gross profit from 1999 to 2000 was an increase in paper costs, coupled with reduced prices for paper products, ink, and toner necessitated by competitive pressures. International Division (Dollars in thousands) Further...

  • Page 23
    ... our sales mix towards machine supplies, primarily ink and toner cartridges, which yield lower gross profit margins than other office products. As with our other segments, our International Division was impacted by the higher costs for paper and machine supplies in 2000. However, unlike our domestic...

  • Page 24
    ... store sales are generated on a cash and carry basis. Furthermore, we use private label credit card programs, administered and financed by financial services companies, to expand our sales without the burden of carrying additional receivables. Our cash requirements are also reduced by vendor credit...

  • Page 25
    ... type and location of the facility. Also in 2001, we plan on spending approximately $40 million in capital investments related to re-merchandising and remodeling our store locations and consolidating and upgrading our call centers. We have expanded our presence in the electronic commerce marketplace...

  • Page 26
    ... selection and services provided. We have also seen growth in new and innovative competitors that offer office products over the Internet, featuring special purchase incentives and one-time deals (such as close-outs). Through our own successful Internet and business-to-business Web sites, we believe...

  • Page 27
    ... be somewhat seasonal, with sales in our North American Retail Division and Business Services Group slightly higher during the first and fourth quarters of each year, and sales in our International Division slightly higher in the third quarter. New Accounting Pronouncements In June 1998, the...

  • Page 28
    ..." advantage. Our comparable sales are affected by a number of factors, including the opening of additional Office Depot stores; the expansion of our contract stationer business in new and existing markets; competition from other office supply chains, mass merchandisers, warehouse clubs, computer 26

  • Page 29
    ... from our customers or from paying our vendors. This could have an adverse impact on our business and our future operating results. Contract and Commercial: We compete with a number of contract stationers, mail order and Internet operators, and retailers who supply office products and services to...

  • Page 30
    ... of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 (continued) the service levels and aggressive pricing necessary to retain existing customers. There can be no assurance we will be able to continue to expand our contract and commercial business while retaining...

  • Page 31
    ... of Directors of Office Depot, Inc. We have audited the consolidated balance sheets of Office Depot, Inc. and Subsidiaries as of December 30, 2000 and December 25, 1999, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period...

  • Page 32
    ... debt Total current liabilities Deferred income taxes and other credits Long-term debt, net of current maturities Zero coupon, convertible subordinated notes Commitments and contingencies Stockholders' equity: Common stock-authorized 800,000,000 shares of $.01 par value; issued 378,688,359 in 2000...

  • Page 33
    ... of Earnings (In thousands, except per share amounts) Office Depot, Inc. and Subsidiaries 2000 Sales Cost of goods sold and occupancy costs Gross profit Store and warehouse operating and selling expenses Pre-opening expenses General and administrative expenses Merger and restructuring costs...

  • Page 34
    ... Cancellation of long-term incentive stock Exercise of stock options (including income tax benefits) Issuance of stock under employee stock purchase plans Matching contributions under 401(k) and deferred compensation plans Amortization of long-term incentive stock grant Balance at December 30, 2000...

  • Page 35
    ... stock options and sale of stock under employee stock purchase plans Repurchase of common stock for treasury Proceeds from issuance of long-term debt Payments on long- and short-term borrowings Repurchase of LYONsா Net cash (used in) provided by financing activities Effect of exchange rate changes...

  • Page 36
    ... of highvolume office supply stores located in nine countries; a contract sales network; 11 Internet sites, serving both our domestic and international customers; and catalog, mail order and delivery operations in 16 countries. After merging with Viking Office Products, Inc. ("Viking") in August...

  • Page 37
    ... represents the excess of purchase price and related costs over the value assigned to the net tangible and identifiable intangible assets of businesses we have acquired under the purchase method of accounting. We amortize our goodwill on a straight-line basis, generally over 40 years, which is the...

  • Page 38
    ...-opening Expenses: Pre-opening expenses related to opening new stores and warehouses or relocating existing stores and warehouses are expensed as incurred. Self-Insurance: We are primarily self-insured for workers' compensation, auto and general liability and our employee medical insurance programs...

  • Page 39
    ... fees, were recorded as merger and restructuring costs in 1998. Subsequent to the merger, we immediately began the process of integrating our Office Depot and Viking businesses. Our plans initially included the closing of 15 domestic Customer Service Centers ("CSCs") and the opening of five new...

  • Page 40
    ... following charges (credits): 2000 Viking Merger: Costs directly attributable to the merger transactions Asset write-offs associated with closing identified facilities and the write-off of software applications to be abandoned Other facility exit costs, principally estimated lease costs subsequent...

  • Page 41
    ...The Office Depot Japan retail operations have not performed to expectations. A new operating model and significant additional investments will be necessary to enable the current stores to achieve profitability, which may never occur even with the model changes and capital infusion. • Sales returns...

  • Page 42
    ... 146,000 - $153,259 In June 2000, we entered into a domestic credit agreement with a 364-day term and current borrowing rate of 0.500% over the London Interbank Offered Rate ("LIBOR"). This agreement provides us with a working capital line totaling $300.0 million and contains restrictive covenants...

  • Page 43
    ... to the issue price plus accrued original issue discount through the date of redemption. As of December 30, 2000, we have reserved 13,844,869 shares of unissued common stock for conversion of the zero coupon, convertible subordinated notes. Note H-Income Taxes Our income tax provision consisted of...

  • Page 44
    ... management to award up to 2,400,000 restricted shares of common stock to key Viking employees. Under this plan, 1,845,000 shares were issued at no cost to employees, 1,200,000 of which have been canceled. Pursuant to the merger agreement, shares issued under this plan were converted to Office Depot...

  • Page 45
    .... In April 2000, Viking's profit sharing plan was dissolved, and all plan funds were transferred into Office Depot's 401(k) retirement savings plan. Participants of the old Viking plan, as well as all eligible Viking employees, may now contribute to the Office Depot current 401(k) plan, which is...

  • Page 46
    ... thousands except share and per share amounts) A summary of the status of and changes in our stock option plans for the last three years is presented below. 2000 Weighted Average Exercise Price $15.31 8.73 16.45 6.18 $12.81 1999 Weighted Average Exercise Price $13.75 18.85 15.91 10.31 $15.31 1998...

  • Page 47
    ... an exercise price of $63.33, subject to adjustment, for each outstanding share of Office Depot common stock they own. These rights are only exercisable if a single person or company were to acquire 20% or more of our outstanding common stock or if we announced a tender or exchange offer that would...

  • Page 48
    ... noncash investing and financing transactions: 2000 Assets acquired under capital leases Common stock issued upon conversion of debt Additional paid-in capital related to tax benefit on stock options exercised See Note J Unrealized gain on investment securities, net of income taxes Shares received...

  • Page 49
    ... arrangements, in Australia, Austria, United States International Total $ 3,391,678 804,656 $ 4,196,334 Note O-Quarterly Financial Data (Unaudited) First Quarter Fiscal Year Ended December 30, 2000(a) Net sales Gross profit(b) Net earnings (loss) Net earnings (loss) per common share: Basic...

  • Page 50
    ... Partner InterWest Partners IRWIN HELFORD Vice Chairman-Office Depot, Inc. Chairman Emeritus-Viking Office Products JAMES L. HESKETT 1,3 Professor Emeritus Harvard Business School MICHAEL J. MYERS1 President First Century Partners Management Company BRUCE NELSON Chief Executive Officer Office Depot...

  • Page 51
    ... Relations Office Depot, Inc. 2200 Old Germantown Road Delray Beach, FL 33445 Quarterly Stockholder Reports Office Depot's quarterly stockholders' information is provided online at www.officedepot.com under Company Info/Investor Relations/SEC Filings. Quarterly Stock Price Range The following table...

  • Page 52
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