UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

          (Mark One)

For the quarterly period ended June 26, 2004

or

For the transition period from            to            

Commission file number 1-10948

Office Depot, Inc.

(561) 438-4800
(Registrant’s telephone number, including area code)

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x            No o

The registrant had 313,278,423 shares of common stock outstanding as of July 15, 2004.

PART I. FINANCIAL INFORMATION

Item 1 FINANCIAL STATEMENTS

OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (“Notes”) herein and the Notes to Consolidated Financial Statements in the Office Depot, Inc. Form 10-K filed February 26, 2004 (the “2003 Form 10-K”).

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OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements in the 2003 Form 10-K.

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OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements in the 2003 Form 10-K.

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OFFICE DEPOT, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note A – Basis of Presentation

Office Depot, Inc., including consolidated subsidiaries (the “Company”), is a global supplier of office products and services. Fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. The condensed consolidated balance sheet at December 27, 2003 has been derived from audited financial statements at that date. The condensed interim financial statements as of June 26, 2004 and for the 13- and 26-week periods ending June 26, 2004 (also referred to as “the second quarter of 2004” and “the first half of 2004,” respectively) and June 28, 2003 (also referred to as “the second quarter of 2003” and “the first half of 2003,” 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. Certain prior year amounts have been reclassified to conform to the current year’s presentation.

These interim results are not necessarily indicative of the results that should be expected for the full year. For a better understanding of the Company and its financial statements, we recommend reading these condensed interim financial statements in conjunction with the Company’s audited financial statements for the year ended December 27, 2003, which are included in our 2003 Annual Report on Form 10-K, filed on February 26, 2004.

In January 2003, the Company sold its Australian business and reported the after-tax gain of $1.2 million as discontinued operations. This gain was subsequently reduced to $0.2 million during 2003 based upon resolution of sale-date estimates.

At the start of fiscal year 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. This accounting change resulted in a $25.9 million after-tax charge, or $0.08 per share, reflecting the cumulative effect of adoption.

On June 2, 2003, the Company acquired all of the common stock of Guilbert S.A. (“Guilbert”), a corporate group that represented one of the largest contract stationers in Europe. The activities of Guilbert have been reflected in the financial statements since the date of acquisition.

Note B – Accounting for Stock-Based Compensation

The Company accounts for its stock-based compensation plans under Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Had costs for these plans been determined using the fair value accounting method as prescribed in Statement of Financial Accounting Standard (“FAS”) No. 123, Accounting for Stock-Based Compensation, as amended, the Company would have recognized additional compensation expense as indicated in the pro forma information below.

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Note C – Comprehensive Income

Comprehensive income represents all non-owner changes in stockholders’ equity and consists of the following:

Note D – Asset Group Purchase

In March 2004, the Company announced it had reached an agreement with Toys “R” Us, Inc. to acquire 124 of their former Kids “R” Us stores for $197 million in cash plus the assumption of lease obligations. Also in March, the Company reached an agreement with PETCO Animal Supplies, Inc. under which PETCO agreed to acquire from the Company 20 of the former Kids “R” Us stores for approximately $45 million in cash plus the assumption of related lease obligations. Through the end of the second quarter, the Company has closed on the purchase of 25 stores and 15 stores have been removed from the transaction through price adjustments and mutual agreement. Of the total stores to be acquired (currently 109, after the agreed upon removals), the Company plans to convert 45 to 50 of these stores to Office Depot retail stores and intends to sell or sublet the remaining stores. The remaining portions of this transaction are expected to close in phases over the second half of 2004.

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Note E – Earnings Per Share (“EPS”)

The information required to compute basic and diluted EPS is as follows:

Options to purchase approximately 12.5 million shares of common stock were not included in our computation of diluted earnings per share for the second quarter of 2004 because their weighted average effect would have been anti-dilutive.

Note F – Segment Information

The following is a summary of our significant accounts and balances by segment, reconciled to consolidated totals. The International Group referred to below was formerly referred to as the International Division; no changes have been made to operations or balances.

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A reconciliation of the measure of segment operating profit to consolidated earnings from continuing operations before income taxes and cumulative effect of accounting change is as follows:

The Company has been reviewing the costs and benefits of additional allocations of general and administrative and other expenses to the operating segments but has not yet concluded this analysis.

Total assets and goodwill by segment are as follows:

The reduction in goodwill assigned to the International Group reflects a net decrease in Guilbert-related integration balances, primarily from completion or adjustments to plans and values estimated in initial purchase accounting balances. Changes in currency exchange rates also affected the balances assigned to the International Group and North American Retail Division.

Note G – Pension Disclosures

The Company assumed two defined benefit pension plans in connection with the acquisition of Guilbert in June 2003. Actuarial information for these plans was not available until the fourth quarter of 2003. Pension-related disclosures for 2004 are as follows:

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Item 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Office Depot, Inc., together with our subsidiaries (collectively, the “Company”), is a global supplier of office products and services. We sell to consumers and businesses of all sizes through our three business segments: International Group, Business Services Group (“BSG”), and North American Retail Division. In prior periods, our International Group was referred to as the International Division; no changes have been made to operations or balances.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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 included in Item 1 of this Quarterly Report on Form 10-Q, as well as our 2003 Annual Report on Form 10-K.

This MD&A contains a significant amount of forward-looking information. Without limitation, when we use the words “estimate,” “plan,” “probably,” “should,” “may,” “project,” “intend,” “expect,” “believe,” “anticipate,” “continue,” and similar expressions in this Quarterly Report on Form 10-Q, we are identifying forward-looking statements. Our Cautionary Statements, which you will find following this MD&A and following the MD&A in our 2003 Annual Report on Form 10-K, apply to these forward-looking statements.

RESULTS OF OPERATIONS

OVERVIEW

Diluted earnings per share increased to $0.25 for the second quarter of 2004 and $0.62 for the six months ended in June 2004, compared to $0.19 and $0.45 for the same periods in 2003. The increase in earnings reflects growth in the International Group with the addition of Guilbert S.A. (“Guilbert”) in June 2003 and positive foreign currency effects, as well as lower operating costs in BSG, and continued positive comparable store (“comp”) sales in North American Retail Division. GAAP earnings of $0.25 per share for the second quarter of 2004 include a one-time gain of $0.02 per share from the settlement of certain claims related to our distribution network in Europe. The Company expects to incur expenses (including capital expenditures) in future fiscal periods related to this facility, and those costs may equal or exceed the gain realized from this recovery.

During the second quarter of 2003, the Company recognized a foreign currency gain of $0.03 per share from holding foreign currency in advance of the acquisition of Guilbert. Additional information about the Company’s performance for the quarter and year-to-date is provided in the discussion of segment results below.

At the start of fiscal year 2003, the Company adopted Emerging Issues Task Force (“EITF”) Issue No. 02-16, Accounting by a Reseller for Cash Consideration Received from a Vendor. This accounting change resulted in a $25.9 million after-tax charge, or $0.08 per share, reflecting the cumulative effect of adoption.

The operations of Guilbert have been included in our financial statements since June 2, 2003, the date of acquisition. Accordingly, the second quarter and first half of 2003 include only one month of Guilbert operations, compared to three and six months of Guilbert operations in 2004.

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