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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 2001
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or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ______________ to ______________________
Commission file number 1-10948
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OFFICE DEPOT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 59-2663954
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Old Germantown Road; Delray Beach, Florida 33445
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(Address of principal executive offices) (Zip Code)
(561) 438-4800
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No[ ]
The registrant had 298,732,047 shares of common stock outstanding as of July 28,
2001.
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
As of As of
June 30, December 30,
2001 2000
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 189,609 $ 151,482
Receivables, net 783,614 896,333
Merchandise inventories, net 1,114,054 1,420,825
Deferred income taxes and other current assets 176,274 230,449
----------- -----------
Total current assets 2,263,551 2,699,089
Property and equipment, net 1,092,862 1,119,306
Goodwill and other assets, net 372,633 377,939
----------- -----------
$ 3,729,046 $ 4,196,334
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 918,707 $ 1,136,994
Accrued expenses and other current liabilities 542,568 580,966
Income taxes payable 64,593 37,118
Current maturities of long-term debt 7,925 153,259
----------- -----------
Total current liabilities 1,533,793 1,908,337
Deferred income taxes and other credits 50,557 88,247
Long-term debt, net of current maturities 229,718 374,061
Zero coupon, convertible subordinated notes 230,023 224,438
Commitments and contingencies
Stockholders' equity:
Common stock - authorized 800,000,000 shares
of $.01 par value; issued 380,686,294 in
2001 and 378,688,359 in 2000 3,807 3,787
Additional paid-in capital 953,459 939,214
Unamortized value of long-term incentive stock grants (2,770) (2,793)
Accumulated other comprehensive loss (82,377) (53,490)
Retained earnings 1,614,994 1,516,691
Treasury stock, at cost - 82,190,548 shares in 2001
and 2000 (802,158) (802,158)
----------- -----------
1,684,955 1,601,251
----------- -----------
$ 3,729,046 $ 4,196,334
=========== ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
--------------------------------- ---------------------------------
June 30, June 24, June 30, June 24,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Sales $ 2,553,503 $ 2,632,850 $ 5,571,417 $ 5,698,507
Cost of goods sold and occupancy costs 1,814,850 1,881,337 4,025,848 4,109,348
----------- ----------- ----------- -----------
Gross profit 738,653 751,513 1,545,569 1,589,159
Store and warehouse operating
and selling expenses 539,957 533,955 1,138,784 1,105,740
General and administrative expenses 119,303 115,053 228,905 221,402
Other operating expenses, net (1,120) 6,509 449 10,188
----------- ----------- ----------- -----------
658,140 655,517 1,368,138 1,337,330
Operating profit 80,513 95,996 177,431 251,829
Other income (expense):
Interest income 2,217 3,521 3,824 6,885
Interest expense (8,515) (7,070) (18,796) (14,266)
Miscellaneous (expense) income, net (7,589) (483) (6,426) 20,589
----------- ----------- ----------- -----------
Earnings before income taxes 66,626 91,964 156,033 265,037
Income taxes 24,652 34,027 57,730 98,064
----------- ----------- ----------- -----------
Net earnings $ 41,974 $ 57,937 $ 98,303 $ 166,973
=========== =========== =========== ===========
Earnings per common share:
Basic $ 0.14 $ 0.18 $ 0.33 $ 0.52
Diluted 0.14 0.18 0.33 0.50
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
26 Weeks Ended
-----------------------------
June 30, June 24,
2001 2000
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CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 98,303 $ 166,973
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 97,744 96,179
Provision for losses on inventories and receivables 61,085 47,630
Changes in working capital 135,532 18,585
Loss (gain) on investment securities 8,500 (18,960)
Other operating activities, net 22,028 8,759
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Net cash provided by operating activities 423,192 319,166
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities or sales of investment securities -- 18,960
Purchases of investments and other assets (6,842) (21,612)
Capital expenditures, net of proceeds from sales (71,546) (126,370)
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Net cash used in investing activities (78,388) (129,022)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and sale
of stock under employee stock purchase plans 8,851 7,431
Acquisition of treasury stock -- (200,457)
Payments on long- and short-term borrowings (297,416) (3,321)
Other financing activities, net 4,851 8,421
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Net cash used in financing activities (283,714) (187,926)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (22,963) (7,879)
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Net increase (decrease) in cash and cash equivalents 38,127 (5,661)
Cash and cash equivalents at beginning of period 151,482 218,784
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Cash and cash equivalents at end of period $ 189,609 $ 213,123
========= =========
SUPPLEMENTAL DISCLOSURE OF OTHER CASH FLOW ACTIVITIES:
Interest received $ 3,825 $ 6,473
Interest paid 13,080 4,253
Income taxes paid 12,483 72,669
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Additional paid-in capital related to income tax
benefits on stock options exercised $ 1,933 $ 539
Assets acquired under capital leases 535 12,569
Unrealized loss on investment securities,
net of income taxes -- 45,682
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
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OFFICE DEPOT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Tabular amounts in thousands)
NOTE A - BASIS OF PRESENTATION
Office Depot, Inc. (the Company or Office Depot) is the world's largest seller
of office products and services. The consolidated financial statements include
the accounts of Office Depot and its subsidiaries after elimination of
intercompany accounts and transactions. The Company operates on a 52- or 53-week
fiscal year ending on the last Saturday of December. The balance sheet at
December 30, 2000 has been derived from audited financial statements at that
date. The condensed interim financial statements as of June 30, 2001 and for the
13- and 26-week periods ending June 30, 2001 (also referred to as "the second
quarter of 2001" and "the first half of 2001," respectively) and June 24, 2000
(also referred to as "the second quarter of 2000" and "the first half of 2000,"
respectively) are unaudited. However, in our opinion, these financial statements
reflect all adjustments (consisting only of normal, recurring items) necessary
to provide a fair presentation of our financial position, results of operations
and cash flows for the periods presented. Also, we have made certain
reclassifications to our historical financial statements to conform to the
current year's presentation.
These interim results are not necessarily indicative of the results you should
expect for the full year. For a better understanding of the Company and our
financial statements, we recommend that you read these condensed interim
financial statements in conjunction with our audited financial statements for
the year ended December 30, 2000, which are included in our 2000 Annual Report
on Form 10-K, filed on March 27, 2001.
NOTE B - COMPREHENSIVE INCOME
Comprehensive income (loss) represents all non-owner changes in stockholders'
equity and consists of the following:
Second Quarter First Half
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2001 2000 2001 2000
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Net earnings $ 41,974 $ 57,937 $ 98,303 $ 166,973
Other comprehensive income, net of tax:
Foreign currency translation adjustments (6,542) (23,331) (28,887) (15,842)
Unrealized loss on investment securities -- (36,013) -- (45,682)
--------- --------- --------- ---------
Total comprehensive income (loss) $ 35,432 $ (1,407) $ 69,416 $ 105,449
========= ========= ========= =========
NOTE C - INVESTMENT TRANSACTIONS
We have investments in companies that provide business-to-business e-commerce
solutions for small- and medium-sized businesses. The carrying value of these
investments as of June 30, 2001 and June 24, 2000 totaled $21.4 million and
$98.2 million, respectively. The decline in carrying value resulted primarily
from investment sales throughout 2000 and other than temporary impairments
recorded in late 2000, with an additional $8.5 million ($5.4 million net of tax)
impairment charge recorded in the second quarter of 2001.
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NOTE D - LONG-TERM DEBT
On May 10, 2001, we renewed our 364-day credit agreement with a syndicate of
banks. This agreement provides us with a working capital line of credit of $255
million. Our five-year credit agreement entered into in February 1998 provides a
$300 million line of credit. Both credit agreements contain similar restrictive
covenants. As of June 30, 2001, we had $95.5 million in outstanding borrowings
under our five-year credit agreement with an average effective interest rate of
5.4%; and we had $49.4 million in outstanding letters of credit.
In July 1999, we entered into term loan and revolving credit agreements with
several Japanese banks (the "yen facilities") to provide financing for our
operating and expansion activities in Japan. As of June 30, 2001, the equivalent
of $58.7 million was outstanding under these yen facilities. We entered into a
yen interest rate swap (for a principal amount equivalent to $19.0 million as of
June 30, 2001) in order to hedge against the volatility of the interest payments
on a portion of our yen borrowings. The swap will mature in July 2002.
See Note H - Subsequent Events.
NOTE E - EARNINGS PER SHARE ("EPS")
The information required to compute basic and diluted EPS is as follows:
Second Quarter First Half
-------------------------- --------------------------
2001 2000 2001 2000
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Basic:
Weighted average number of
common shares outstanding 297,085 313,696 296,590 318,651
======== ======== ======== ========
Diluted:
Net earnings $ 41,974 $ 57,937 $ 98,303 $166,973
Interest expense related to
convertible notes, net of income taxes 1,764 3,190 3,528 6,357
-------- -------- -------- --------
Adjusted net earnings $ 43,738 $ 61,127 $101,831 $173,330
======== ======== ======== ========
Weighted average number of
common shares outstanding 297,085 313,696 296,590 318,651
Shares issued upon assumed
conversion of convertible notes 13,845 24,741 13,845 24,741
Shares issued upon assumed
exercise of dilutive stock options 2,550 2,130 2,575 2,564
-------- -------- -------- --------
Shares used in computing diluted EPS 313,480 340,567 313,010 345,956
======== ======== ======== ========
Options to purchase 26.7 million shares of common stock were not included in our
computation of diluted earnings per share for the second quarter of 2001 because
their weighted average effect would have been antidilutive.
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NOTE F - SEGMENT INFORMATION
The following is a summary of our significant accounts and balances by segment,
reconciled to consolidated totals.
Sales
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Second Quarter First Half
--------------------------------- ---------------------------------
2001 2000 2001 2000
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North American Retail Division $ 1,284,304 $ 1,416,041 $ 2,895,466 $ 3,211,753
Business Services Group 913,779 870,781 1,894,758 1,754,642
International Division 356,045 347,033 782,669 734,069
----------- ----------- ----------- -----------
Total reportable segments 2,554,128 2,633,855 5,572,893 5,700,464
Eliminations (625) (1,005) (1,476) (1,957)
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Total $ 2,553,503 $ 2,632,850 $ 5,571,417 $ 5,698,507
=========== =========== =========== ===========
Earnings Before Income Taxes
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Second Quarter First Half
----------------------------- -----------------------------
2001 2000 2001 2000
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North American Retail Division $ 73,867 $ 100,012 $ 157,258 $ 254,239
Business Services Group 72,654 70,207 131,770 128,064
International Division 51,644 43,722 117,311 96,988
--------- --------- --------- ---------
Total reportable segments 198,165 213,941 406,339 479,291
Eliminations and other (131,539) (121,977) (250,306) (214,254)
--------- --------- --------- ---------
Total $ 66,626 $ 91,964 $ 156,033 $ 265,037
========= ========= ========= =========
Assets
----------------------------------------
June 30, December 30,
2001 2000
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North American Retail Division $1,734,377 $2,184,976
Business Services Group 1,036,301 1,105,936
International Division 747,176 736,229
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Total reportable segments 3,517,854 4,027,141
Other 211,192 169,193
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Total $3,729,046 $4,196,334
========== ==========
A reconciliation of our earnings before income taxes from our reportable
segments to earnings before income taxes in our condensed consolidated financial
statements is as follows:
Second Quarter First Half
----------------------------- -----------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Total from reportable segments $ 198,165 $ 213,941 $ 406,339 $ 479,291
General and administrative expenses (119,303) (115,053) (228,905) (221,402)
Gain (loss) on investment securities (8,500) 33 (8,500) 18,993
Interest (expense) income, net (6,298) (3,549) (14,972) (7,381)
Other (expense) income, net 2,584 (3,352) 2,151 (4,381)
Inter-segment transactions (22) (56) (80) (83)
--------- --------- --------- ---------
Total $ 66,626 $ 91,964 $ 156,033 $ 265,037
========= ========= ========= =========
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NOTE G - NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
ACCOUNTING FOR BUSINESS COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. These Statements modify accounting for business combinations
after June 30, 2001 and will affect the Company's treatment of goodwill and
other intangible assets at the start of fiscal year 2002. The Statements require
that goodwill existing at the date of adoption be reviewed for possible
impairment and that impairment tests be periodically repeated, with impaired
assets written-down to fair value. Additionally, existing goodwill and
intangible assets must be assessed and classified consistent with the
Statements' criteria. Intangible assets with estimated useful lives will
continue to be amortized over those periods. Amortization of goodwill and
intangible assets with indeterminate lives will cease. At this time, the Company
has not determined the complete impact of these Statements. However, for the six
months ended June 30, 2001, the Company has recognized $3.6 million of goodwill
amortization.
NOTE H - SUBSEQUENT EVENTS
In July 2001, the Company issued $250 million of 10.00% Senior Subordinated
Notes due July 15, 2008. The Notes contain provisions that, in certain
circumstances, limit the financial flexibility of the Company. A portion of the
proceeds from the issuance of these Notes was used to repay all amounts
outstanding under domestic credit facilities, and the balance will be used for
general corporate purposes.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Office Depot, Inc. is the largest seller of office products and services in the
world. Sales to consumers and businesses of all sizes are conducted through our
three business segments: North American Retail Division, Business Services Group
("BSG") and International Division.
Management's Discussion and Analysis ("MD&A") is intended to provide information
to assist you in better understanding and evaluating our financial condition and
results of operations. We recommend that you read this MD&A in conjunction with
our condensed consolidated financial statements in Item 1 of this Quarterly
Report on Form 10-Q, as well as our 2000 Annual Report on Form 10-K. This MD&A
contains significant amounts of forward-looking information. Without limitation,
when we use the words "believe," "estimate," "plan," "expect," "intend,"
"anticipate," "continue," "project," "probably," "should" and similar
expressions in this Quarterly Report on Form 10-Q, we are identifying
forward-looking statements. Our Cautionary Statements, which you will find
immediately following this MD&A and the MD&A in our 2000 Annual Report on Form
10-K, apply to these forward-looking statements.
In the following discussion, all comparisons are with the corresponding items in
the prior year unless stated otherwise.
RESULTS OF OPERATIONS
Net earnings of $42 million for the second quarter of 2001 and $98 million for
the six months ended June 30, 2001 were 27% and 41% lower than the comparable
periods of the prior year. The decline in earnings reflects lower sales volume
in the North American Retail Division, influenced by a soft economy, and the
adverse effect of a strong U.S. dollar when translating international sales that
increased in local currencies. Also during the second quarter of this year, the
Company completed a domestic chain-wide re-merchandising program designed to
enhance the customers' shopping experience. Operating expenses reflect the
incremental period costs of completing this program.
OVERALL
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($ in millions)
Second Quarter First Half
------------------------------------------------ ------------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ---------------------- -----------------------
Sales $ 2,553.5 100.0% $ 2,632.8 100.0% $ 5,571.4 100.0% $ 5,698.5 100.0%
Cost of goods sold
and occupancy costs 1,814.9 71.1% 1,881.3 71.5% 4,025.8 72.3% 4,109.3 72.1%
---------- ---------- ---------- ----------
Gross profit 738.6 28.9% 751.5 28.5% 1,545.6 27.7% 1,589.2 27.9%
Store and warehouse
operating and
selling expenses 540.0 21.1% 534.0 20.3% 1,138.8 20.4% 1,105.7 19.4%
---------- ---------- ---------- ----------
Store and warehouse
operating profit $ 198.6 7.8% $ 217.5 8.2% $ 406.8 7.3% $ 483.5 8.5%
========== ========== ========== ==========
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Overall sales for the second quarter and first half of 2001 decreased 3% and 2%,
respectively. Comparable worldwide sales in the 814 stores and 41 delivery
centers that have been open for more than one year decreased 2% for the second
quarter and 1% for the first half of 2001. Sales of technology hardware and
software products, primarily in the North American Retail Division, declined in
both periods.
While overall sales decreased, sales through our e-commerce channels increased
significantly. Worldwide e-commerce sales grew 64% to $360.2 million during the
quarter and grew 74% to $719.6 million for the first half of 2001. These
e-commerce sales are comprised of all worldwide online sales, including those
from our domestic public Web sites - WWW.OFFICEDEPOT.COM and WWW.VIKINGOP.COM -
and Office Depot's contract business-to-business sites, as well as the Company's
nine international Web sites. For business segment reporting purposes, these
sales are captured within the appropriate business segment.
Gross profit as a percent of sales increased for the second quarter, primarily
from the shift in the sales mix away from lower margin technology products in
the North American Retail Division.
Store and warehouse operating and selling expenses as a percent of sales
increased for both the quarter and first half, reflecting the benefits of
improved cost control that were more than offset by the declining sales base.
NORTH AMERICAN RETAIL DIVISION
- ------------------------------
($ in millions)
Second Quarter First Half
------------------------------------------------ ------------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ---------------------- -----------------------
Sales $ 1,284.3 100.0% $ 1,416.0 100.0% $ 2,895.5 100.0% $ 3,211.7 100.0%
Cost of goods sold
and occupancy costs 978.7 76.2% 1,085.0 76.6% 2,249.2 77.7% 2,472.0 77.0%
---------- ---------- ---------- ----------
Gross profit 305.6 23.8% 331.0 23.4% 646.3 22.3% 739.7 23.0%
Store and warehouse
operating and
selling expenses 230.5 17.9% 228.0 16.1% 486.7 16.8% 479.9 14.9%
---------- ---------- ---------- ----------
Store and warehouse
operating profit $ 75.1 5.9% $ 103.0 7.3% $ 159.6 5.5% $ 259.8 8.1%
========== ========== ========== ==========
Sales in the North American Retail Division declined 9% for the second quarter
of 2001 and declined 10% during the first six months of 2001. Comparable store
sales in the 781 stores in the U.S. and Canada that have been open for more than
one year also decreased 9% and 10% for the second quarter and first half of
2001, respectively. The slowing of the U.S. economy has had an adverse effect on
sales and could continue to affect sales over the second half of the year. Sales
of technology hardware and software products collectively declined 27% in both
the second quarter and first half of 2001.
While sales have declined, gross profit as a percent of sales increased as our
product mix shifted away from lower margin technology products, and other
merchandising initiatives were launched. Additionally, gross margins for the
year-to-date period were adversely affected by promotional
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pricing used during the first quarter of 2001 to complete targeted inventory
reductions. During the second quarter, a chain-wide re-merchandising program was
completed. This program included improvements in product adjacencies; more
informative signage; increased availability of private label merchandise; and
customer-friendly reference charts on technology products. The incremental
period costs of completing this program are included in the quarter and
year-to-date operating expenses.
During the second quarter, five new retail stores were opened in four states. At
the end of the quarter, Office Depot operated a total of 829 retail stores
throughout the United States and Canada.
BUSINESS SERVICES GROUP
- -----------------------
($ in millions)
Second Quarter First Half
------------------------------------------------ ------------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ---------------------- -----------------------
Sales $ 913.8 100.0% $ 870.7 100.0% $ 1,894.8 100.0% $ 1,754.6 100.0%
Cost of goods sold
and occupancy costs 623.1 68.2% 587.9 67.5% 1,307.3 69.0% 1,196.1 68.2%
-------- -------- ---------- ----------
Gross profit 290.7 31.8% 282.8 32.5% 587.5 31.0% 558.5 31.8%
Store and warehouse
operating and selling
expenses 216.7 23.7% 211.3 24.3% 453.1 23.9% 427.8 24.4%
-------- -------- ---------- ----------
Store and warehouse
operating profit $ 74.0 8.1% $ 71.5 8.2% $ 134.4 7.1% $ 130.7 7.4%
======== ======== ========== ==========
BSG sales increased 5% in the second quarter of 2001 and increased 8% in the
first half of 2001 and included strong growth in e-commerce activity. While BSG
experienced some declines in furniture and technology product sales during the
quarter, they were more than offset by increases in office supplies, paper and
business machines.
The decline in gross profit as a percent of sales reflects weakness in the
catalog business that offset margin improvement in our contract business.
Several initiatives in our warehouses allowed us to better control costs while
improving customer service through increased order-fill rates and better on-time
delivery performance. Store and warehouse operating and selling expenses as a
percent of sales declined, reflecting better payroll cost control, partially
offset by additional advertising expenses.
INTERNATIONAL DIVISION
- ----------------------
($ in millions)
Second Quarter First Half
------------------------------------------------ ------------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ---------------------- -----------------------
Sales $ 356.0 100.0% $ 347.0 100.0% $ 782.7 100.0% $ 734.0 100.0%
Cost of goods sold
and occupancy costs 213.4 59.9% 208.9 60.2% 470.2 60.1% 442.3 60.3%
-------- -------- -------- --------
Gross profit 142.6 40.1% 138.1 39.8% 312.5 39.9% 291.7 39.7%
Store and warehouse
operating and selling
expenses 93.0 26.0% 95.0 27.4% 199.6 25.5% 198.7 27.1%
-------- -------- -------- --------
Store and warehouse
operating profit $ 49.6 13.9% $ 43.1 12.4% $ 112.9 14.4% $ 93.0 12.6%
======== ======== ======== ========
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Sales in the International Division increased 3% (11% in local currencies) in
the second quarter of 2001 and increased 7% (16% in local currencies) in the
first six months of 2001. Virtually all countries reported increased sales in
local currencies for the quarter and first half of 2001. However, the change in
exchange rates from the corresponding periods of the prior year reduced sales
reported in U.S. dollars by $30.2 million for the quarter and $68.6 million for
the first six months of the year. In U.S. dollar terms, the sales increases in
Europe more than offset the decline reported in Japan for the quarter.
Gross profit as a percent of sales benefited from shifts in product mix away
from lower margin technology products, as well as from certain pricing
initiatives, primarily in the catalog business, implemented during the first six
months.
Store and warehouse operating profit in the International Division improved 15%
(23% in local currencies) for the second quarter and improved 21% (31% in local
currencies) for the first six months of 2001. The positive effect on operating
margins from cost control and higher sales were slightly offset by the early
start-up costs of our contract business in the U.K., Ireland and The
Netherlands, and the integration of an acquired contract business in Australia.
Operating profits were negatively impacted by unfavorable exchange rates by $3.6
million in the second quarter and $9.3 million in the first six months of 2001.
CORPORATE AND OTHER
Income and expenses not allocated to the store and warehouse operating profit of
our segments consist of pre-opening expenses, general and administrative
expenses, corporately-directed activities such as facility closures, our share
of the earnings (losses) of our joint ventures, amortization of goodwill,
interest income and expense, income taxes, and inter-segment transactions.
GENERAL AND ADMINISTRATIVE EXPENSES: As a percentage of sales, general and
administrative expenses increased in the second quarter and first half of 2001
to 4.7% and 4.4%, respectively. This increase resulted mainly from lost leverage
because of decreased sales.
OTHER OPERATING EXPENSES, NET: During the second quarter of 2001, certain
sub-lease and lease termination arrangements for closed facilities were
completed on terms better than expected. Accordingly, $3.2 million of facility
closure costs accrued in the fourth quarter of 2000 were reversed in this
period. Additionally, pre-opening expenses and other costs included in this
caption decreased from prior periods.
INTEREST INCOME AND EXPENSE: Interest income decreased in the second quarter and
first six months of 2001 because of lower average cash balances and lower
interest rates. Interest expense increased in the second quarter and first half
of 2001 because of increased borrowings on our bank credit facility compared to
the prior year.
MISCELLANEOUS EXPENSE: Miscellaneous expense, net for the second quarter and
first half of 2001, primarily reflects a write-down of investments in certain
Internet investment partners totaling $8.5 million ($5.4 million net of tax).
Miscellaneous income, net for the first half of 2000 included a $19.0 million
gain ($12.0 million net of tax) on the sale of Internet-related investments.
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LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows for the first six months of 2001 were 33% higher than the
same period in 2000. A net reduction in working capital more than offset the
reduction in net income for the period. Total inventory levels decreased $306.8
million, reflecting increased inventory turnover and our SKU reduction program.
Additionally, lower inventory purchases contributed to a decrease in accounts
payable and improved collections led to a decrease in accounts receivable.
During the first half of 2001, capital expenditures decreased $54.8 million or
43%, primarily from fewer store openings. We have also been more closely
scrutinizing capital expenditures with an emphasis on improving our return on
assets. Eleven stores were opened during the first half of 2001, compared to 30
during the same period of 2000. We anticipate higher capital expenditures in the
second half of 2001 compared to the first six months. We currently project
opening approximately 45 stores during 2001.
During the first six months of 2001, we made payments of $297.4 million on our
short- and long-term domestic bank borrowings. As a result, total borrowings as
of June 30, 2001 consisted of $95.5 million under our long-term domestic credit
facility and $49.4 million in outstanding letters of credit. In addition, the
equivalent of $58.7 million was outstanding under our term loan and revolving
credit agreements with several Japanese banks. (See Note D of the Notes to the
Condensed Consolidated Financial Statements for more information regarding our
credit facilities.) During the first half of 2000, we repurchased $200.5 million
of our stock under a stock repurchase program authorized by our Board of
Directors. This stock repurchase program was completed in the latter half of
2000.
In May 2001, the Company completed renewal of its 364-day unsecured revolving
credit facility in the principal amount of $255 million. In July 2001, the
Company completed the issuance of $250 million of senior subordinated Notes, due
July 15, 2008. A portion of the proceeds of this issuance was used to repay
amounts outstanding under domestic credit facilities, and the remainder will be
used for general corporate purposes.
NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued Statement No. 141,
ACCOUNTING FOR BUSINESS COMBINATIONS, and Statement No. 142, GOODWILL AND OTHER
INTANGIBLE ASSETS. These Statements modify accounting for business combinations
after June 30, 2001 and will affect the Company's treatment of goodwill and
other intangible assets at the start of fiscal year 2002. The Statements require
that goodwill existing at the date of adoption be reviewed for possible
impairment and that impairment tests be periodically repeated, with impaired
assets written-down to fair value. Additionally, existing goodwill and
intangible assets must be assessed and classified consistent with the
Statements' criteria. Intangible assets with estimated useful lives will
continue to be amortized over those periods. Amortization of goodwill and
intangible assets with indeterminate lives will cease. At this time, the Company
has not determined the complete impact of these Statements. However, for the six
months ended June 30, 2001, the Company has recognized $3.6 million of goodwill
amortization.
13
14
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In December 1995, the Private Securities Litigation Reform Act of 1995 (the
"Act") was enacted by the United States Congress. The Act, as amended, contains
certain amendments to the Securities Act of 1933 and the Securities Exchange Act
of 1934. These amendments provide protection from liability in private lawsuits
for "forward-looking" statements made by public companies. We want to take
advantage of the "safe harbor" provisions of the Act. In doing so, we have
disclosed these forward-looking statements by informing you in specific
cautionary statements of the circumstances which may cause the information in
these statements not to transpire as expected.
This Quarterly Report on Form 10-Q contains both historical information and
other information that you may use to infer future performance. Examples of
historical information include our quarterly financial statements and the
commentary on past performance contained in our MD&A. While we have specifically
identified certain information as being forward-looking in the context of its
presentation, we caution you that, with the exception of information that is
clearly historical, all the information contained in this Quarterly Report on
Form 10-Q should be considered to be "forward-looking statements" as referred to
in the Act. Without limitation, when we use the words "believe," "estimate,"
"plan," "expect," "intend," "anticipate," "continue," "project," "probably,"
"should" and similar expressions, we intend to clearly express that the
information deals with possible future events and is forward-looking in nature.
Forward-looking information involves risks and uncertainties, including certain
matters that we discuss in more detail below and in our 2000 Annual Report on
Form 10-K. This information is based on various factors and assumptions about
future events that may or may not actually come true. As a result, our
operations and financial results in the future could differ substantially from
those we have discussed in the forward-looking statements in this Quarterly
Report. In particular, the factors we discuss below and in our 2000 Annual
Report on Form 10-K could affect our actual results and could cause our actual
results during the remainder of 2001 and in future years to differ materially
from those expressed in any forward-looking statement made by us in this
Quarterly Report on Form 10-Q. Those Cautionary Statements contained in our 2000
Annual Report on Form 10-K are incorporated herein by this reference to them;
and, in addition, we urge you to also consider the following cautionary
statements:
ECONOMIC DOWNTURN
In the past decade, the favorable United States economy has contributed to the
expansion and growth of retailers. Since the third quarter of 2000, the U.S.
economy has shown signs of a downturn. The retail industry, in general, is
displaying signs of a slowdown, with several specialty retailers, both in and
outside our industry segment, reporting earnings shortfalls compared to market
expectations over the last several months. This general economic slowdown
negatively
14
15
impacted our results during the second half of 2000 and the first half of 2001,
and may continue to adversely impact our business and the results of our
operations.
COMPETITION
We compete with a variety of retailers, dealers and distributors in a highly
competitive marketplace that includes high-volume office supply chains,
warehouse clubs, computer stores, contract stationers, Internet-based
merchandisers and well-established mass merchant retailers. In order to achieve
and maintain expected profitability levels, we must continue to grow our
business while maintaining the service levels and aggressive pricing necessary
to retain existing customers in each of our business segments. Our failure to
adequately address these challenges could put us at a competitive disadvantage
relative to these competitors.
EXECUTIVE MANAGEMENT
Our success depends largely on the efforts and abilities of our current senior
management team. Their experience and industry contacts significantly benefit
us. Our management team has undergone changes in the last year with the
appointment of a new Chief Executive Officer and presidents to each of our
operating business segments. We are currently searching for a Chief Financial
Officer. If we were to lose the benefit of their experience and contacts or if
the changes in management do not generate the benefits we seek, our business
could be adversely affected.
INTERNATIONAL ACTIVITY
We operate in a number of international markets and intend to continue to enter
into additional international markets as attractive opportunities arise. In
addition to the risks described above, we face such international risks as:
foreign currency fluctuations; unstable political, economic, financial and
market conditions; compromised operating control of some of our foreign
operations that are not wholly owned; system changes and harmonization of prices
to accommodate the adoption of the euro; and lack of adequate management
resources. All of these risks have in the past and could have in the future a
material adverse effect on our business and operating results.
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16
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISKS
See the disclosure in our 2000 Annual Report on Form 10-K. We do not believe
that the risk we face related to interest rate changes is materially different
than it was at the date of such Report.
FOREIGN EXCHANGE RATE RISKS
See the disclosure in our 2000 Annual Report on Form 10-K. While we realize that
foreign currency exchange rates have fluctuated in the past year, we do not
believe that the risk we face related to foreign currencies is materially
different than it was at the date of such Report.
PART II. OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
We are involved in litigation arising in the normal course of our business.
While from time to time claims are asserted that make demands for large sums of
money (including from time to time, actions which are asserted to be
maintainable as class action suits), we do not believe that any of these
matters, either individually or in the aggregate, will materially affect our
financial position or the results of our operations.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a. A Current Report on Form 8-K was filed on May 30, 2001 regarding
mid-quarter performance update.
b. A Current Report on Form 8-K was filed on June 18, 2001 regarding
renewal of a credit facility.
c. A Current Report on Form 8-K was filed on June 21, 2001 regarding the
private placement of Senior Subordinated Notes.
d. A Current Report on Form 8-K was filed on July 10, 2001 regarding the
acquisition of 4Sure.com.
e. A Current Report on Form 8-K was filed on July 19, 2001 regarding
earnings for the second quarter of 2001.
16
17
SIGNATURES
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.
(Registrant)
Date: August 3, 2001 By: /s/ M. Bruce Nelson
------------------------------------
M. Bruce Nelson
Chief Executive Officer
Date: August 3, 2001 By: /s/ Charles E. Brown
------------------------------------
Charles E. Brown
Senior Vice President, Finance
and Controller (Principal
Financial and Accounting Officer)
17
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INDEX TO EXHIBITS
Exhibit No. Description
- ----------- -----------
10.1 Revolving Credit Agreement dated as of May 10, 2001 by and
among Office Depot, Inc. and Suntrust Bank, individually
and as Administrative Agent; Solomon Smith Barney, Inc.
(SSBI) and Bank One, NA, as joint lead arrangers, SSBI as
sole bookrunner; Citibank, N.A.., individually and as sole
Syndication Agent; Bank One, NA, individually and as
Documentation Agent; and BNP Paribas and Wells Fargo Bank,
N.A. individually and as Co-Documententation Agents and
First Union National Bank, Fleet National Bank and The
Royal Bank of Scotland. (Exhibits to the Revolving Credit
Agreement have been omitted, but a copy may be obtained
free of charge upon request to the Company)
18
1
Exhibit 10.1
AMENDED AND RESTATED 364-DAY CREDIT AGREEMENT
DATED AS OF MAY 10, 2001
OFFICE DEPOT, INC., a Delaware corporation (the "BORROWER"),
the banks, financial institutions and other institutional lenders (collectively,
the "INITIAL LENDERS") party hereto, SUNTRUST BANK, as paying agent (together
with any successor thereto appointed pursuant to Article VII of the Existing
Credit Agreement referred to below, the "ADMINISTRATIVE AGENT") for the Lenders
(as defined in the Existing Credit Agreement referred to below), SALOMON SMITH
BARNEY INC. ("SSBI") and BANK ONE, NA ("BANK ONE"), as joint lead arrangers,
SSBI, as sole bookrunner, CITIBANK, N.A., as sole Syndication Agent, and Bank
One, as Co-Documentation Agent, hereby agree as follows:
PRELIMINARY STATEMENTS
(1) The Borrower is party to a 364 Day Revolving Credit
Agreement dated as of June 2, 2000 (as amended, supplemented or otherwise
modified from time to time to (but not including) the date of this Amendment and
Restatement, the "EXISTING CREDIT AGREEMENT") with the banks, financial
institutions and other institutional lenders party thereto and SunTrust Bank, as
Administrative Agent for the Lenders and such other lenders, Bank of America,
N.A., as Syndication Agent, Bank One, NA, as Documentation Agent and Citibank,
N.A., as Managing Agent. Capitalized terms not otherwise defined in this
Amendment and Restatement shall have the same meanings as specified in the
Existing Credit Agreement.
(2) The parties to this Amendment and Restatement desire to
amend the Existing Credit Agreement as set forth herein and to restate the
Existing Credit Agreement in its entirety to read as set forth in the Existing
Credit Agreement with the following amendments.
(3) The Borrower has requested that the Lenders agree to
extend credit to it from time to time in an aggregate principal amount of up to
$250,000,000 for general corporate purposes of the Borrower and its Subsidiaries
not otherwise prohibited under the terms of this Agreement. The Lenders have
indicated their willingness to agree to extend credit to the Borrower from time
to time in such amount on the terms and conditions of this Amendment and
Restatement.
SECTION 1. AMENDMENTS TO THE EXISTING CREDIT AGREEMENT. The
Existing Credit Agreement is, effective as of the date of this Amendment and
Restatement and subject to the satisfaction of the conditions precedent set
forth in Section 2, hereby amended as follows:
(a) The recital of parties is amended in full to read as set
forth in the recital of parties to this Amendment and Restatement.
(b) Section 1.1 is amended by deleting the definitions of
"Commitment" and "Lenders" set forth therein and replacing them, respectively,
with the following new definitions thereof:
"COMMITMENT" or "REVOLVING LOAN COMMITMENT" shall mean, at any
time for any Lender, the amount of such commitment set forth opposite
such Lender's name on Schedule I hereto, as the same may be decreased
from time to time as a result of any reduction thereof pursuant to
Section 2.3, any assignment thereof pursuant to Section 10.6, or any
amendment
2
2
thereof pursuant to Section 10.2, or as the same may be increased from
time to time pursuant to Section 3.22, which amount shall include such
Lender's Revolving Loans.
"LENDERS" means, collectively, each Initial Lender and each
other Person that shall become a party hereto pursuant to Sections 3.22
or 10.6.
(c) The definition of "Applicable Margin" in Section 1.1 is
amended by deleting the table included therein and substituting therefor the
following:
Eurodollar
Rating: Margin/Letter of
Level S&P/Moody's Facility Fee Credit Fee Utilization Fee
----- ----------- ------------ ---------------- ---------------
I Less than A-/A3 10.0 bp 40.0 bp 12.5 bp
II BBB+/Baa1 12.5 bp 50.0 bp 12.5 bp
III BBB/Baa2 15.0 bp 72.5 bp 12.5 bp
IV BBB-/Baa3 17.5 bp 95.0 bp 25.0 bp
V Greater than BBB-/Baa3 30.0 bp 95.0 bp 50.0 bp
(d) The definition of "Pro Rata Share" in Section 1.1 is
amended by deleting the phrase "set forth under the name of such Lender on the
respective signature page for such Lender" and substituting therefor the phrase
"set opposite the name of such Lender on Schedule I hereto".
(e) Section 3.5(b) is amended by deleting therefrom the phrase
"a Utilization Fee equal to 0.125% times such aggregate outstanding principal
amount" and substituting therefor the phrase "a Utilization Fee computed at the
rate of the Utilization Fee Applicable Margin times such aggregate outstanding
principal amount".
(f) Section 3.20 is amended (i) by deleting the date "June 1,
2001" in subsection (a) thereof and substituting therefor the date "May 3,
2002", (ii) by deleting the figures "30" and "59" from subsection (a) thereof
and substituting therefor the figures "45" and "60", respectively, (iii) by
deleting the figure "15" from subsection (b) thereof and substituting therefor
the figure "20" and (iv) deleting from subsection (b) thereof the proviso at the
end of the second sentence.
(g) A new Section 3.22 is added to read as follows:
SECTION 3.22. INCREASE IN THE AGGREGATE COMMITMENTS. (a) The
Borrower may, at any time but in any event not more than once in any
calendar year prior to the Termination Date, by notice to the
Administrative Agent, request that the aggregate amount of the
Commitments be increased by integral multiples of $10,000,000 (each a
"COMMITMENT INCREASE") to be effective as of a date that is at least 90
days prior to the scheduled Termination Date then in effect (the
"INCREASE DATE") as specified in the related notice to the
Administrative Agent; PROVIDED, HOWEVER
3
3
that (i) in no event shall the aggregate amount of the Commitments at
any time exceed $300,000,000 and (ii) on the date of any request by the
Borrower for a Commitment Increase and on the related Increase Date,
(x) the Borrower's senior unsecured long-term debt shall be rated
better than or equal to Baa3 from Moody's and BBB- from S&P and (y) the
applicable conditions set forth in Section 4.2 shall be satisfied.
(b) The Administrative Agent shall promptly notify the Lenders
of a request by the Borrower for a Commitment Increase, which notice
shall include (i) the proposed amount of such requested Commitment
Increase, (ii) the proposed Increase Date and (iii) the date by which
Lenders wishing to participate in the Commitment Increase must commit
to an increase in the amount of their respective Commitments (the
"COMMITMENT DATE"). Each Lender that is willing to participate in such
requested Commitment Increase (each an "INCREASING LENDER") shall, in
its sole discretion, give written notice to the Administrative Agent on
or prior to the Commitment Date of the amount by which it is willing to
increase its Commitment. If the Lenders notify the Administrative Agent
that they are willing to increase the amount of their respective
Commitments by an aggregate amount that exceeds the amount of the
requested Commitment Increase, the requested Commitment Increase shall
be allocated among the Lenders willing to participate therein based on
the ratio of each existing Lender's proposed Commitment increase to the
aggregate of the proposed Commitment increases of all Lenders.
(c) Promptly following each Commitment Date, the
Administrative Agent shall notify the Borrower as to the amount, if
any, by which the Lenders are willing to participate in the requested
Commitment Increase. If the aggregate amount by which the Lenders are
willing to participate in any requested Commitment Increase on any such
Commitment Date is less than the requested Commitment Increase, then
the Borrower may extend offers to one or more Eligible Assignees to
participate in any portion of the requested Commitment Increase that
has not been committed to by the Lenders as of the applicable
Commitment Date; PROVIDED, however, that the Commitment of each such
Eligible Assignee shall be in a minimum amount of $5,000,000.
(d) On each Increase Date, each Eligible Assignee that accepts
an offer to participate in a requested Commitment Increase in
accordance with Section 3.22(b) (each such Eligible Assignee, an
"ASSUMING LENDER") shall become a Lender party to this Agreement as of
such Increase Date and the Commitment of each Increasing Lender for
such requested Commitment Increase shall be so increased by such amount
(or by the amount allocated to such Lender pursuant to the last
sentence of Section 3.22(b)) as of such Increase Date; PROVIDED,
HOWEVER, that the Administrative Agent shall have received on or before
such Increase Date the following, each dated such date:
(i) (A) certified copies of resolutions of the Board
of Directors of the Borrower or the Executive Committee of
such Board approving the Commitment Increase and the
corresponding modifications to this Agreement (B) a duly
executed consent to such Commitment Increase from each
Guarantor, (C) duly executed Revolving Notes to each Assuming
Lender and each Increasing Lender evidencing their respective
Revolving Loan Commitments and (D) an opinion of counsel for
the Borrower (which may be in-house counsel), in form and
substance satisfactory to the Administrative Agent, each
Assuming Lender and each Increasing Lender;
(ii) an assumption agreement from each Assuming
Lender, if any, in form and substance satisfactory to the
Borrower and the Administrative Agent (each an "ASSUMPTION
AGREEMENT"), duly executed by such Assuming Lender, the
Administrative Agent and the Borrower; and
4
4
(iii) confirmation from each Increasing Lender of the
increase in the amount of its Commitment in a writing
satisfactory to the Borrower and the Administrative Agent.
On each Increase Date, upon fulfillment of the conditions set forth in
the immediately preceding sentence of this Section 3.22(d), the
Administrative Agent shall notify the Lenders (including, without
limitation, each Assuming Lender) and the Borrower, on or before 1:00
P.M. (Florida time), by telecopier or telex, of the occurrence of the
Commitment Increase to be effected on such Increase Date and shall
record in the Register the relevant information with respect to each
Increasing Lender and each Assuming Lender on such date.
(h) Section 4.2(c) is amended by deleting the date "December
25, 1999" and substituting therefor the date "December 30, 2000" and (ii) by
deleting the phrase "1999 fiscal year" and substituting therefor the phrase
"2000 fiscal year".
(i) Section 5.3 is amended (i) by deleting the phrase
"December 1999" and substituting therefor the phrase "December 2000", (ii) by
deleting the phrase "March, June and September 1999 and of March 2000" and
substituting therefor the phrase "March, June and September 2000" and (iii) by
deleting the date "December 25, 1999" and substituting therefor the date
"December 30, 2000".
(j) Section 5.7 is amended by deleting the date "December 25,
1999" and substituting therefor the date "December 30, 2000".
(k) Section 10.7 is amended (i) by deleting the phrase "State
of Illinois" in subsection (a) thereof and substituting therefor the phrase
"State of New York", (ii) by deleting the phrase "Cook County, Illinois" in
subsection (b) thereof and substituting therefor the phrase "New York County,
New York" and (iii) by deleting the phrase "the Northern District of Illinois"
in subsection (b) thereof and substituting therefor the phrase "the Southern
District of New York".
(l) A new Schedule I is added to read as set forth on Schedule
I to this Amendment and Restatement.
SECTION 2. CONDITIONS OF EFFECTIVENESS OF THIS AMENDMENT AND
RESTATEMENT. This Amendment and Restatement shall become effective as of the
date first above written (the "RESTATEMENT EFFECTIVE DATE") when and only if:
(a) The Administrative Agent shall have received counterparts
of this Amendment and Restatement executed by the Borrower and all of
the Initial Lenders or, as to any of the Initial Lenders, advice
satisfactory to the Administrative Agent that such Initial Lender has
executed this Amendment and Restatement.
(b) The Administrative Agent shall have received on or before
the Restatement Effective Date the following, each dated such date and
(unless otherwise specified below) in form and substance satisfactory
to the Administrative Agent and in sufficient copies for each Initial
Lender:
(i) The duly executed Revolving Notes evidencing the
Revolving Loan Commitments.
(ii) The duly executed Consent of each Guarantor in
the form attached to this Amendment and Restatement.
5
5
(iii) A certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names and true
signatures of the officers of the Borrower authorized to sign
this Amendment and Restatement and the Revolving Notes and the
other documents to be delivered hereunder by the Borrower.
(iv) A certificate of the Secretary or Assistant
Secretary of the Borrower, attaching and certifying copies of
the resolutions of the board of directors of the Borrower,
authorizing the execution, delivery and performance of this
Amendment and Restatement.
(v) A favorable opinion of independent counsel of the
Borrower acceptable to the Administrative Agent, addressed to,
and in form and substance satisfactory to, the Administrative
Agent and each of the Initial Lenders.
(c) The representations and warranties contained in Article V
of the Existing Credit Agreement shall be correct on and as of the
Restatement Effective Date, before and after giving effect to the
Restatement Effective Date, as though made on and as of such date.
(d) No event shall have occurred and be continuing, or shall
occur as a result of the occurrence of the Restatement Effective Date,
that constitutes a Default.
SECTION 3. REFERENCE TO AND EFFECT ON THE EXISTING CREDIT
AGREEMENT AND THE NOTES. (a) On and after the effectiveness of this Amendment
and Restatement, each reference in the Existing Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Existing Credit Agreement, and each reference in the Notes and each other Credit
Document to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Existing Credit Agreement, shall mean and be a reference
to the Existing Credit Agreement, as amended by this Amendment and Restatement.
(b) The Existing Credit Agreement and the Notes, as
specifically amended by this Amendment and Restatement, are and shall continue
to be in full force and effect and are hereby in all respects ratified and
confirmed.
(c) Without limiting any of the other provisions of the
Existing Credit Agreement, as amended by this Amendment and Restatement, any
references in the Existing Credit Agreement to the phrases "Closing Date", "on
the date hereof", "on the date of this Agreement" or words of similar import
shall mean and be a reference to the date of the Existing Credit Agreement
(which is June 2, 2000).
SECTION 4. COSTS AND EXPENSES. The Borrower agrees to pay on
demand all reasonable out-of-pocket costs and expenses of the Administrative
Agent in connection with the preparation, execution, delivery and
administration, modification and amendment of this Amendment and Restatement,
the Notes and the other documents to be delivered hereunder (including, without
limitation, the reasonable and documented fees and expenses of counsel for the
Administrative Agent with respect hereto and thereto) in accordance with the
terms of Section 10.4 of the Existing Credit Agreement.
SECTION 5. EXECUTION IN COUNTERPARTS. This Amendment and
Restatement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement. Delivery of an executed counterpart of a signature page
to this Amendment and Restatement by telecopier shall be effective as delivery
of a manually executed counterpart of this Amendment and Restatement.
6
6
SECTION 6. GOVERNING LAW. This Amendment and Restatement shall
be governed by, and construed in accordance with, the laws of the State of New
York.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment and Restatement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
THE BORROWER
OFFICE DEPOT, INC.
By
---------------------------------
Name:
Title:
THE AGENT
SUNTRUST BANK,
as Administrative Agent
By
---------------------------------
Name:
Title:
THE INITIAL LENDERS
Joint Lead Arrangers
CITIBANK, N.A.
By
---------------------------------
Name:
Title:
BANK ONE, NA
By_______________________________
Name:
Title:
CO-DOCUMENTATION AGENTS
BNP PARIBAS
By
---------------------------------
Name:
Title:
By
---------------------------------
Name:
Title:
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7
WELLS FARGO BANK, N.A.
By
---------------------------------
Name:
Title:
MANAGING AGENTS
FIRST UNION NATIONAL BANK
By
---------------------------------
Name:
Title:
FLEET NATIONAL BANK
By
---------------------------------
Name:
Title:
THE ROYAL BANK OF SCOTLAND
By
---------------------------------
Name:
Title:
Lender
SUNTRUST BANK
By
---------------------------------
Name:
Title:
8
8
SCHEDULE I TO THE AMENDMENT AND RESTATEMENT
COMMITMENTS AND PRO RATA SHARES
Name of Lender Commitment Pro Rata Share
- -------------- ---------- --------------
Bank One, NA $ 40,000,000 15.69%
BNP Paribas $ 40,000,000 15.69%
Citibank, N.A. $ 40,000,000 15.69%
First Union National Bank $ 25,000,000 9.80%
Fleet National Bank $ 25,000,000 9.80%
The Royal Bank of Scotland $ 30,000,000 11.76%
Suntrust Bank $ 20,000,000 7.84%
Wells Fargo Bank, N.A. $ 35,000,000 13.73%
Total of Commitments $255,000,000 100.00%
9
CONSENT
Dated as of May 4, 2001
The undersigned, each a Guarantor under the Subsidiary
Guaranty and the Contribution Agreement, each dated _______________, 2000
(collectively, the "GUARANTY AGREEMENTS") in favor of the Administrative Agent[,
for its benefit and the benefit of] the Lenders parties to the Existing Credit
Agreement referred to in the foregoing Amendment and Restatement, hereby
consents to such Amendment and Restatement and hereby confirms and agrees that
notwithstanding the effectiveness of such Amendment and Restatement, each
Guaranty Agreement is, and shall continue to be, in full force and effect and is
hereby ratified and confirmed in all respects.
EASTMAN INC.
By
--------------------------------------
Name:
Title:
EASTMAN OFFICE PRODUCTS CORPORATION
By
--------------------------------------
Name:
Title:
OD INTERNATIONAL, INC.
By
--------------------------------------
Name:
Title:
ODNV, INC.
By
--------------------------------------
Name:
Title:
THE OFFICE CLUB, INC.
By
--------------------------------------
Name:
Title:
OFFICE DEPOT OF TEXAS, L.P.
By
--------------------------------------
Name:
Title:
VIKING OFFICE PRODUCTS, INC.
By
--------------------------------------
Name:
Title:
