Office Depot 2001 Annual Report Download

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2001 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 1 A N N UA L R E P O RT

  • Page 2
    ... Company markets its products through multiple distribution channels, including office supply retail stores, direct mail, global Internet sites, business-tobusiness e-commerce, and various sales forces. Office Depot has approximately 45,000 employees, and its common stock is traded on the New York...

  • Page 3
    1

  • Page 4
    ... Office Depot a more compelling place to work and shop. We improved opportunities across the Company for our employees, and we tied recognition and reward directly to performance. We renewed our commitment to diversity, which appropriately reflects our diverse customers, suppliers and communities...

  • Page 5
    ... to expand Office Depot's business. We are seeking new ways to drive sales, manage costs and increase shareholder value. We are undertaking new branding and advertising initiatives that will define the differences between Office Depot and our competitors. We are pursuing fanatical customer service...

  • Page 6
    ...make Office Depot a more compelling place to shop each day. • The way we recognize the value of our employees is by creating a compelling place to work. Research indicates that employees who are satisfied with their position, management and benefits provide the highest levels of customer service...

  • Page 7
    ... We value diversity across the Company. • We praise publicly and provide constructive feedback privately. • We listen; we understand and we are responsive with each other. • We treat every employee, customer and supplier with honesty, dignity and respect. • We provide a safe environment to...

  • Page 8
    ... ability to make Office Depot a more compelling place to work, shop and invest. In 2001, we introduced a six-point program to help us fulfill our commitment to fostering diver sity in our management and our workforce, as well as in our relationships with suppliers, vendors and customers. Our efforts...

  • Page 9
    7

  • Page 10
    ...' needs around the globe. We leveraged our existing profitable European infrastructure to launch our Business Services Division in Ireland, The Netherlands and France. In our direct mail business, we pioneered new strategies to address our customers in more meaningful ways while customizing Viking...

  • Page 11
    • We impress our customers (internal and external) so much that they want to buy again. • We give higher priority to people than to tasks. • We do it right the first time but "wow" our customers on recovery when we miss.

  • Page 12
    ... American Retail stores through a new program called Showtime. Showtime calls for all Office Depot store employees, from the manager to the stock clerk, to set aside other tasks-like stocking shelves and checking inventory-to focus specifically on serving customer needs during peak business hours...

  • Page 13
    11

  • Page 14
    ...commerce sales, Office Depot is also using the Internet to improve processes, reduce costs and expand service. In our finance area, we introduced on-line accounts receivable reporting to provide our sales people with information to manage their business better. We also reduced our domestic contract...

  • Page 15
    ... value. • We consistently involve employees at all levels toward the relentless improvement of our business. • We hold ourselves and our teammates accountable for results. • We strive for perfect execution every day. • We reward innovation and intelligent risk taking. • We celebrate the...

  • Page 16
    ...fleet that automates package delivery to customers, making it easier for us to manage and track shipments. The system, called the Office Depot Signature Tracking and Reporting System (OD S.T.A.R.ீ ), trims costs associated with delivery, provides our customers with real-time information about when...

  • Page 17
    15

  • Page 18
    ... at local non-profit agencies. In addition, all of our North American Retail stores participate in Code Adam, a child safety-awareness program sponsored by the National Center for Missing and Exploited Children. These are just a few of the ways in which Office Depot is taking care of kids and...

  • Page 19
    ... 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 capital Total assets Long-term debt, excluding current maturities Common stockholders...

  • Page 20
    ... to contract and commercial customers through our Office Depot௡ brand and Viking Office Products௡ brand direct mail catalogs and Internet sites, and by means of our dedicated sales force. Customer service centers ("CSCs") are warehouse and delivery facilities, some of Stores Opened Closed 42...

  • Page 21
    ... Division sells office products and services in 16 countries outside the United States and Canada through Office Depot retail stores, Office Depot௡ brand and Viking Office Products௡ brand direct mail catalogs and Internet sites, and an Office Depot contract sales force. The international direct...

  • Page 22
    Office Depot, Inc. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) In 2002, we plan to expand our International Division by opening 10 to 15 new retail stores in France and Japan, adding the European Business Service Division to two new countries ...

  • Page 23
    ...closed in 2002. Charges of $43.6 million were recorded for asset impairments relating to these stores, and to adjust estimated lease termination costs recorded in 2000 resulting from a softening in the market for retail space subleases, partially offset by a $10.2 million gain on sale of a warehouse...

  • Page 24
    ... in 2001, gross profit expressed as a percent of sales increased. Sales shifted away from lower-margin computer hardware, software and office furniture and into products such as machine and office supplies, as well as additional copy center services. Sales of computer products declined 26% in...

  • Page 25
    ... products. Paper, machine supplies, and other general office supplies, which yield higher margins than our other product groups, account for a much larger percentage of total sales in our BSG than in our stores. However, BSG's gross profit percentages are lower than in our International Division...

  • Page 26
    ... of sales in 2000 resulted from an unfavorable mix shift towards machine supplies, primarily ink and toner cartridges, which yield lower gross profit margins than other products. As with our other segments, our International Division was affected by higher costs for paper and machine supplies in...

  • Page 27
    ... expenses in those years. The primary benefits derived from this increased spending were the expansion and improvement of our e-commerce services, a new data center, improvements in our inventory in-stock positions and support for our rapidly growing International Division. Also included in...

  • Page 28
    ... average new office supply store requires pre-opening expenses of approximately 26 $0.2 million. We also plan to expand our European Business Service Division into two new countries. We have expanded our presence in the e-commerce marketplace by acquiring Internet-based companies and entering into...

  • Page 29
    ... any time on or prior to its maturity into Office Depot common stock at conversion rates of 43.895 and 31.851 shares per 1992 and 1993 LYON௡ , respectively. On November 1, 2000, the majority of the holders of our 1993 LYONs௡ required us to purchase the LYONs௡ from them at the issue price plus...

  • Page 30
    ... on pricing, product selection and services provided. Many of these retail competitors, including discounters, warehouse clubs, and even drug stores and grocery chains, have begun carrying at least limited numbers of basic office supply products, including ink jet and toner cartridges, printer paper...

  • Page 31
    ... operations. We consider our business to 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...

  • Page 32
    ... 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 stores, other contract stationers and Internet-based...

  • Page 33
    .... 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 large and small businesses, both nationally and internationally. In order to achieve and maintain expected profitability levels...

  • Page 34
    ... twelve months as a result of unanticipated cash demands, opportunities for expansion, acquisition or investment, changes in growth strategy, changes in our warehouse integration plans or adverse operating results. We could attempt to meet our financial needs through the capital markets in the form...

  • Page 35
    ... 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...

  • Page 36
    ... maturities of long-term 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...

  • Page 37
    Office Depot, Inc. Consolidated Statements of Earnings (In thousands, except per share amounts) 2001 Sales Cost of goods sold and occupancy costs Gross profit Store and warehouse operating and selling expenses General and administrative expenses Facility closure costs Other operating expenses ...

  • Page 38
    ... stock Retirement of treasury stock Grant 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 Conversion of LYONs® to common stock Payment...

  • Page 39
    ... income tax benefits) Issuance of stock under employee stock purchase plans Matching contributions under 401(k) and deferred compensation plans Direct Stock Purchase Plans Amortization of long-term incentive stock grant Balance at December 29, 2001 The accompanying notes are an integral part of...

  • Page 40
    ...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 zero coupon, convertible subordinated notes Net cash used in financing activities Effect of exchange rate changes on...

  • Page 41
    ... largest supplier of office products and services, operating in 18 countries under two product brands-Office Depot௡ and Viking Office Products௡. Products and services are offered through wholly-owned retail stores, contract business-tobusiness sales relationships, commercial catalog business and...

  • Page 42
    ... on quoted market prices. Interest Rate Swaps and Foreign Currency Contracts: The fair values of our interest rate swaps and foreign currency contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current interest and exchange rates...

  • Page 43
    ...Revenue is recorded at the time of shipment for delivery and catalog sales, and at the point of sale for essentially all retail store transactions. When revenue is recorded, an allowance for sales returns is estimated based on past experience. Revenue from sales of extended warranty service plans is...

  • Page 44
    ...-moving and obsolete inventory in our warehouses and stores by $56.1 million and recorded a $15.8 million provision for extended warranty service plans. Note C-Merger and Restructuring In 1998 Office Depot merged with Viking Office Products and in 1999 the Company acquired full ownership interests...

  • Page 45
    ... current maturities: Domestic five-year credit facility borrowings Yen facility borrowings Senior subordinated notes Capital lease obligations $ - - 245,360 69,971 The above table of property and equipment includes assets held under capital leases as follows: December 29, 2001 Buildings Furniture...

  • Page 46
    ... a zero coupon note that pays no current interest, but increases in value to provide the holder with a constant yield to maturity. Each LYON௡ is convertible into a specified amount of Office Depot common stock at the option of the holder, is callable by the Company at the original issue price plus...

  • Page 47
    ... relating to net operating loss carryforwards. The federal net operating loss is subject to Internal Revenue Code Section 382 limitations, but is expected to be substantially realized. The Company is in the process of opening new stores and CSCs in the ordinary course of business, and leases signed...

  • Page 48
    ... 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 49
    ..., "Accounting for Stock Issued to Employees," and related Interpretations in accounting for stock-based compensation plans. The compensation cost charged against income for the Long-Term Equity Incentive Plan, Long-Term Incentive Stock Plan, Employee Stock Purchase Plans and retirement savings plans...

  • Page 50
    ... of the acquirer, can be exchanged for shares of our common stock with a market value of twice the exercise price of the right. In addition, if we become involved in a merger or other business combination where (1) we are not the surviving company, (2) our common stock is changed or exchanged, or...

  • Page 51
    ...,638 12,068 $269,706 361,499 24,744 7,414 393,657 Cash paid for: Interest Taxes Supplemental non-cash information: Assets acquired under capital leases Additional paid-in capital related to tax benefit on stock options exercised (See Note H) Unrealized gain on investment securities, net of income...

  • Page 52
    ... L-Segment Information Office Depot operates in three reportable segments: North American Retail Division, Business Services Group ("BSG"), and International Division. Each of these segments is managed separately primarily because it serves different customer groups. The accounting policies of our...

  • Page 53
    We sell office products and services through either wholly-owned operations or through joint ventures or licensing arrangements, in Australia, Austria, Belgium, Canada, France, Germany, Hungary, Ireland, Israel, Italy, Japan, Luxembourg, Mexico, The Netherlands, Poland, Thailand, the United Kingdom ...

  • Page 54
    ... of record may acquire shares of Office Depot's common stock through the Company's direct stock purchase plan. Enrollment materials, including the prospectus, are available on the Company's Web site, under Company Information/Investor Relations/Stock Purchase, or call Mellon Investor Services at...

  • Page 55
    ...President, Viking Office Products, U.S. & Australia REX CIAVOLA, JR. Senior Vice President Global Marketing Production ROBERT CONKLIN Senior Vice President MIS Operations GRAHAM CUNDICK Senior Vice President European Marketing MARK HOLIFIELD Senior Vice President Supply Chain Management INGRID KLUTH...

  • Page 56
    2200 Old Germantown Road Delray Beach, FL 33445 (561) 438-4800 www.officedepot.com