First Quarter 2019
Highlights
- Reported Sales of $2.8 Billion, down 2%
from Prior Year Period
- BSD Division Revenue up 1%
- Retail Division Same Store Sales down
4%
- CompuCom Revenue down 4%
- Services Revenue Growth in BSD and
Retail Divisions up 13% and up 16%, Respectively
- Operating Income of $24 Million and Net
Income from Continuing Operations of $8 Million
- Adjusted Operating Income of $67
Million Primarily Driven by Lower Performance at CompuCom
- Announces Business Acceleration Program
to Improve Profitability and Enable Growth Investments
- Updates 2019 Guidance
Office Depot, Inc. (“Office Depot,” or the “Company”) (NASDAQ:
ODP), a leading integrated business-to-business (“B2B”)
distribution platform of business services and supplies
announced today results for the first quarter ended March 30,
2019.
Consolidated (in millions, except per share amounts)
1Q19 1Q18 Selected
GAAP measures:
Sales
$2,769
$2,830 Sales change from prior year period
(2)% Operating
income
$24
$77 Operating income margin
0.9%
2.7% Net income from continuing
operations
$8
$33 Diluted earnings per share from continuing operations
$0.01 $0.06
Operating Cash Flow (1)
$60
$207 Selected Non-GAAP measures: (2)
Adjusted EBITDA
$118 $141
Adjusted operating income
$67
$93 Adjusted operating income margin
2.4% 3.3% Adjusted
net income from continuing operations
$39 $45 Adjusted net earnings
per share from continuing operations (most dilutive)
$0.07 $0.08 Free Cash
Flow (1) (3)
$14
$170
(1) Both Operating Cash Flow and Free Cash Flow are from
continuing operations.
(2) Adjusted results represent non-GAAP measures and exclude
charges or credits not indicative of core operations and the tax
effect of these items, which may include but not be limited to
merger integration, restructuring, acquisition costs, asset
impairments, and executive transition costs. Reconciliations from
GAAP to non-GAAP financial measures can be found in this release as
well as on the Investor Relations website at
investor.officedepot.com.
(3) As used throughout this release, Free Cash Flow is defined
as cash flows from operating activities of continuing operations
less capital expenditures. Free Cash Flow is a non-GAAP measure and
reconciliations from GAAP financial measures can be found in this
release.
“Our first quarter results were disappointing driven primarily
by poor performance at our CompuCom division,” said Gerry Smith,
chief executive officer of Office Depot. “We are taking decisive
actions and making numerous improvements in our sales and
operational processes to place this business back on-target with
its long-term expectations. That said, our strategy remains
compelling and we are steadfast in our plan to transform Office
Depot into a leading provider of business products and services
through our world-class integrated distribution platform. We
delivered top-line results in our core BSD and Retail divisions
in-line with expectations, supported by strong service revenue
growth of 13% and 16%, respectively, in these divisions. We also
continued to make progress on additional transformation
initiatives, including expanding the use of our supply chain with
third parties and enhancing our retail footprint to include
store-within-a store, co-working and expanded product offering
pilots, as well as advancing our collaboration efforts with
Alibaba.com,” Smith continued.
“As a means to accelerate our transformation, enhance our
profitability and fund future growth initiatives, our Board of
Directors formally approved earlier this week our Business
Acceleration Program. This is a company-wide, cost reduction and
business improvement program that was developed to create a leaner
and more competitive enterprise, driving down costs, improving
service delivery, and providing additional means to fund
reinvestment for future growth. The program initiatives are
enterprise-wide and include implementing organizational
realignments, leveraging the use of technology and automation in
our facilities and offices, all while reducing discretionary
spending. We expect these actions will have a positive impact to
our operations beginning in the second half of 2019, generating at
least $40 million in savings this year and more than $100 million
in annual savings at full run-rate,” he added.
Consolidated Results
Reported (GAAP) Results
Total reported sales for the first quarter 2019 were
$2.8 billion, a decrease of 2% compared to the first quarter
of 2018. The decrease in sales was the result of lower sales in its
CompuCom and Retail divisions. Product sales in the first quarter
were down 3%, while service revenues were flat, driven by a 13% and
16% year-over-year increase in service revenue in the Company’s BSD
and Retail divisions, respectively, effectively offset by lower
service related revenue at its CompuCom division. On a consolidated
basis, service revenue represented approximately 15% of total
Company sales in the first quarter of 2019, compared to 14% in the
same period in 2018.
Sales Breakdown (in millions)
1Q19 1Q18 Product sales
$2,361 $2,423
Product sales change from prior year
(3)% Service revenues
$408 $407 Service
revenues change from prior year
0%
Total sales
$2,769 $2,830
In the first quarter of 2019, Office Depot reported operating
income of $24 million, compared to $77 million in the prior
year period. A primary driver in the reduction of operating income
in the quarter was related to weaker performance at the Company’s
CompuCom division. In addition, increases in paper and
paper-related costs coupled with investments in the business
platform to support future growth negatively impacted margins in
its BSD division. Office Depot recognized asset impairment charges
of $29 million associated with continuing operations in the first
quarter of 2019, $25 million of which related to impairment of
operating lease right-of-use (ROU) assets recognized under the new
lease accounting standard. Net income from continuing operations
was $8 million, or $0.01 per share, compared to
$33 million and $0.06 per share in the first quarter of
2018.
Adjusted (non-GAAP) Results (4)
Adjusted results for the first quarter of 2019 exclude charges
and credits totaling $43 million, comprised of $29 million in asset
impairments, $8 million in merger, acquisition and
integration-related expenses, and $6 million in restructuring and
other charges, as well as the after-tax impact of these items.
- First quarter 2019 adjusted EBITDA was
$118 million compared to $141 million in the prior year period.
This included adjusted depreciation and amortization(5) of $48
million and $47 million in the first quarter of 2019 and 2018,
respectively.
- First quarter 2019 adjusted operating
income was $67 million compared to an adjusted operating
income of $93 million in the first quarter of 2018. As
mentioned above, the primary driver of the reduction in the first
quarter 2019 was lower results at the Company’s CompuCom
division.
- First quarter 2019 adjusted net income
from continuing operations was $39 million, or $0.07 per
diluted share, compared to an adjusted net income from continuing
operations of $45 million, or $0.08 per diluted share, in the
first quarter of 2018.
(4) Adjusted results represent non-GAAP measures and exclude
charges or credits not indicative of core operations and the tax
effect of these items, which may include but not be limited to
merger integration, restructuring, acquisition costs, asset
impairments and executive transition costs. Reconciliations from
GAAP to non-GAAP financial measures can be found in this release as
well as on the Investor Relations website at
investor.officedepot.com.
(5) Adjusted depreciation and amortization represents a non-GAAP
measure and excludes accelerated depreciation caused by updating
the salvage value and shortening the useful life of depreciable
fixed assets to coincide with the planned store closures under an
approved restructuring plan, but only if impairment is not
present.
First Quarter Division Results
Business Solutions Division
The Business Solutions Division reported sales were
$1.3 billion in the first quarter of 2019, up 1% compared to
the first quarter of 2018. The year-over-year increase reflects the
impact of acquisitions, without which sales were down 2% versus the
prior year. Organic sales performance was primarily driven by
continued growth in adjacency categories and services more than
offset by declines in the more traditional office product
categories. Including acquisitions, product sales in the first
quarter of 2019 increased 1%, while service revenue increased 13%
compared to the prior year period.
Business Solutions Division (in millions)
1Q19 1Q18 Sales
$1,344 $1,328
Sales change from prior year
1%
Division operating income
$46 $55 Division operating
income margin
3.4%
4.1%
Business Solutions Division operating income was
$46 million in the first quarter of 2019 compared to
$55 million in the first quarter of 2018. The decrease in
operating income versus the prior year was driven primarily by
paper-related costs increases that could not be completely passed
through to customers due to the timing of contractual limitations.
Paper production costs have increased over 20% during the past 12
months industry-wide, and the Company is pursuing several
initiatives to mitigate the impact of such cost increases going
forward. In addition, lower on-line sales coupled with investments
in demand generation and eCommerce capabilities adversely impacted
results in the quarter.
Retail Division
The Retail Division reported sales were $1.2 billion in the
first quarter of 2019, down 6% versus the prior year period.
Planned closures of underperforming stores contributed to the
reported decline as there were 17 fewer retail outlets at the end
of the first quarter 2019 as compared to the prior year. Comparable
store sales were down by 4% driven by lower store traffic,
partially offset by higher conversion rates and a 16% growth
year-over-year in buy on-line, pick up in store sales. Product
sales in the quarter declined 8% compared to the prior period,
primarily due to lower sales volume, while service revenue
increased 16% compared to the prior year period.
Retail Division (in millions)
1Q19 1Q18 Sales
$1,175 $1,244 Comparable
store sales change from prior year
(4)%
Division operating income
$67 $72 Division
operating income margin
5.7%
5.8%
Retail Division operating income was $67 million in the
first quarter of 2019, compared to $72 million in the first
quarter of 2018 on relatively consistent performance as a
percentage of sales as compared to the first quarter of 2018. The
decrease in operating income versus the prior year was due to flow
through impact of lower sales and deleveraging related to store
closures, partially offset by higher gross margins stemming from
improvements in distribution and inventory management costs, as
well as lower operating lease costs recognized as a result of the
new lease accounting standard. Additionally, the Retail division’s
operating income results include the impact of investments in
additional service delivery capabilities, including targeted
advertising, sales training, and other customer-oriented
initiatives.
During the first quarter of 2019, the Company closed 2 stores
and ended the quarter with a total of 1,359 stores in the Retail
Division.
CompuCom Division
The CompuCom Division reported sales were $247 million in the
first quarter of 2018, down 4% compared to the first quarter of
2018. The year-over-year decrease is due in part to lower
project-related revenue within existing accounts, whereby some
projects were delayed, reduced in scope or failed to materialize as
expected.
CompuCom Division (in millions)
1Q19 1Q18 Sales
$247 $257 Sales change
from prior year
(4)%
Division operating income (loss)
$(15) $5 Division operating
income (loss) margin
(6.1)%
2.0%
CompuCom Division operating loss was $15 million in the
first quarter of 2019, compared to operating income of
$5 million in the first quarter of 2018. Operating
profitability was down versus the prior year primarily driven by
the flow through effect of lower than expected project-related
revenue from existing customer accounts compounded by less than
commensurate reductions in associated expenses. Profitability was
further pressured by ongoing expenditures to develop and market
additional service offerings. The Company is taking several actions
to improve its future operating performance. These include
streamlining its operational structure to improve service velocity
and efficiency, reorganizing its customer-facing organization to
better align with customer needs, and realigning the sales team
under new leadership to more effectively identify new opportunities
to increase penetration of existing customers and accelerate
cross-selling opportunities. The Company expects that these and
other actions will place CompuCom on a path back to long-term
expectations for the business, delivering improved growth and
profitability in the future.
Business Acceleration Program
The Company’s Board of Directors formally approved on May 6,
2019, the Business Acceleration Program to benefit the Company’s
strategic transformation. This program is a company-wide,
multi-year, cost reduction and business improvement process to
systematically drive down costs, improve operational efficiencies
and enable future growth investments. Under the Program, the
Company will make numerous organizational realignments emanating
from process improvements, increased leverage of technology and
accelerated use of automation. This will result in the elimination
of certain positions and leveraging the use of technology in its
facilities and offices. In addition, the Company adopted a
zero-based budgeting approach to reduce discretionary spending. As
a result, the Company expects to realize cost savings of at least
$40 million in the second half of 2019 and to achieve at least $100
million in annual run-rate costs savings thereafter. Total costs to
implement the plan are estimated to be approximately $110 million,
of which approximately $100 million will be cash expenditures
through 2021. For the remainder of fiscal 2019, the Company expects
to incur costs of approximately $85 million, of which approximately
$70 million will be cash, for severance and related employee costs,
recruitment and relocation, and third-party costs including legal
and consulting fees.
Corporate and Other
Corporate expenses include support staff services and certain
other expenses that are not allocated to the Company’s operating
divisions. Unallocated expenses were $31 million in the first
quarter of 2019 compared to $38 million in the first quarter
of 2018.
The Company’s “Other” segment, which contains the global
sourcing and trading operations in Asia and the elimination of
intersegment revenues, had no material contribution to sales or
operating income in the first quarter of 2019.
Balance Sheet and Cash Flow
As of March 30, 2019, Office Depot had total available
liquidity of approximately $1.5 billion consisting of $604
million in cash and cash equivalents and $943 million of
available credit under the Amended and Restated Credit Agreement.
Total debt was $725 million, excluding $748 million of
non-recourse debt supported by the associated Timber Notes
receivable. As a result of our adoption of the new lease accounting
standard, the Company recognized right-of-use assets and lease
liabilities for operating leases on the Condensed Consolidated
Balance Sheet, while the accounting for finance leases remained
substantially unchanged. The Company also recognized cumulative
effect of $15 million adoption date adjustments, net of tax, to its
accumulated deficit.
For the first quarter of 2019, cash provided by operating
activities of continuing operations was $60 million, including $7
million in acquisition and integration-related costs and $6 million
in restructuring costs, compared to $207 million in the first
quarter of the prior year.
Capital expenditures in the quarter were $46 million versus
$37 million in the prior year, reflecting increased investments in
our service platform, distribution network, retail experience, and
eCommerce capabilities. Accordingly, Free Cash Flow from continuing
operations was $14 million in the first quarter of 2019.
During the first quarter of 2019, the Company paid a quarterly
cash dividend of $0.025 per share on March 15, 2019 for
approximately $14 million and made a $19 million
scheduled debt repayment on the 2022 term loan. In addition, Office
Depot repurchased approximately 4 million shares at a total
cost of $11 million in the first quarter of 2019. The Company
also invested $5 million net of cash acquired in the quarter to
expand its BSD distribution network and its customer base through
acquisitions.
Revised 2019 Guidance(6)
“We believe the actions underway to drive top-line revenue
growth coupled with the initiatives we’re pursuing to enhance our
competitiveness, improve profitability and create the wherewithal
to invest in future growth capabilities will generate greater value
for all of our stakeholders,” said Smith. “We expect profitability
to improve at CompuCom over the course of the year as a result of
the actions already underway. These actions, coupled with the
expected benefits from our Business Acceleration Program, are
expected to have a positive impact to our profitability in 2019 and
beyond,” he added.
Considering the Company’s first quarter performance and expected
benefits from its initiatives including the Business Acceleration
Program, the Company is updating its 2019 guidance as follows:
Previous FY 2019 Guidance
Revised FY 2019 Guidance Sales
~$11.1 billion $10.8 - $10.9 billion
Adjusted EBITDA ~$575 million
$525 - $550 million Adjusted Operating Income
~$375 million $325 - $350 million Free
Cash Flow(1)(3)(7) ~$350 million
$300 - $325 million
(6) The Company’s outlook for 2019 included in this release is
for continuing operations only and includes non-GAAP measures, such
as adjusted EBITDA, adjusted operating income, and free cash flow.
These measures exclude charges or credits not indicative of core
operations, which may include but not be limited to merger
integration expenses, restructuring charges, acquisition-related
costs, executive transition costs, asset impairments and other
significant items that currently cannot be predicted without
unreasonable efforts. The exact amount of these charges or credits
are not currently determinable but may be significant. Accordingly,
the Company is unable to provide equivalent GAAP measures or
reconciliations from GAAP to non-GAAP for these financial
measures.
(7) Excludes Federal Trade Commission cash settlement and cash
charges associated with the Company’s Business Acceleration
Program.
About Office Depot, Inc.
Office Depot, Inc. (NASDAQ:ODP) is a leading provider of
business services and supplies, products and technology solutions
through its fully integrated B2B distribution platform of
approximately 1,350 stores, online presence, and dedicated sales
professionals and technicians to small, medium and enterprise
businesses. Through its banner brands Office Depot®, OfficeMax®,
CompuCom® and Grand&Toy®, as well as others, the Company offers
its customers the tools and resources they need to focus on their
passion of starting, growing and running their business. For more
information, visit news.officedepot.com and follow @officedepot on
Facebook, Twitter and Instagram.
Office Depot is a trademark of The Office Club, Inc. OfficeMax
is a trademark of OMX, Inc. CompuCom is a trademark of CompuCom
Systems, Inc. Grand&Toy is a trademark of Grand & Toy,
LLC in Canada. ©2019 Office Depot, Inc. All rights reserved. Any
other product or company names mentioned herein are the trademarks
of their respective owners.
FORWARD LOOKING STATEMENTS
This communication may contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements or disclosures may discuss goals, intentions
and expectations as to future trends, plans, events, results of
operations, cash flow or financial condition, or state other
information relating to, among other things, Office Depot, based on
current beliefs and assumptions made by, and information currently
available to, management. Forward-looking statements generally will
be accompanied by words such as “anticipate,” “believe,” “plan,”
“could,” “estimate,” “expect,” “forecast,” “guidance,” “outlook,”
“intend,” “may,” “possible,” “potential,” “predict,” “project,”
“propose” or other similar words, phrases or expressions, or other
variations of such words. These forward-looking statements are
subject to various risks and uncertainties, many of which are
outside of Office Depot’s control. There can be no assurances that
Office Depot will realize these expectations or that these beliefs
will prove correct, and therefore investors and stockholders should
not place undue reliance on such statements.
Factors that could cause actual results to differ materially
from those in the forward-looking statements include, among other
things, highly competitive office products market and failure to
differentiate Office Depot from other office supply resellers or
respond to decline in general office supplies sales or to shifting
consumer demands; competitive pressures on Office Depot’s sales and
pricing; the risk that Office Depot may not be able to realize the
anticipated benefits of acquisitions due to unforeseen liabilities,
future capital expenditures, expenses, indebtedness and the
unanticipated loss of key customers or the inability to achieve
expected revenues, synergies, cost savings or financial
performance; the risk that Office Depot is unable to transform the
business into a service-driven company or that such a strategy will
result in the benefits anticipated; failure to execute effective
advertising efforts; the risk that Office Depot is unable to
successfully maintain a relevant omni-channel experience for its
customers; the risk that Office Depot is unable to execute the
Business Acceleration Program successfully or that such program
will result in the benefits anticipated; failure to attract and
retain key personnel, including qualified employees in stores,
service centers, distribution centers, field and corporate offices
and executive management; disruptions in Office Depot computer
systems; breach of Office Depot information technology systems
affecting reputation, business partner and customer relationships
and operations and resulting in high costs; loss of business with
government entities, purchasing consortiums, and sole- or limited-
source distribution arrangements; product safety and quality
concerns of manufacturers’ branded products and services and Office
Depot private branded products; increases in fuel and other
commodity prices; increases in the cost of material, energy and
other production costs, or unexpected costs that cannot be recouped
in product pricing; unanticipated downturns in business
relationships with customers or terms with the suppliers,
third-party vendors and business partners; disruption of global
sourcing activities, evolving foreign trade policy (including new
tariffs on certain foreign made goods); a downgrade in Office Depot
credit ratings or a general disruption in the credit markets;
covenants in the credit facility and term loan; incurrence of
significant impairment charges; fluctuation in quarterly operating
results due to seasonality of Office Depot business; changes in tax
laws in jurisdictions where Office Depot operates; unexpected
claims, charges, litigation, dispute resolutions or settlement
expenses; the inability to realize expected benefits from the
disposition of the international operations; fluctuations in
currency exchange rates; changes in the regulatory environment,
legal compliance risks and violations of the U.S. Foreign Corrupt
Practices Act; increases in wage and benefit costs and changes in
labor regulations; catastrophic events, including the impact of
weather events on Office Depot’s business; failure to effectively
manage Office Depot real estate portfolio; volatility in Office
Depot common stock price, and unanticipated changes in the markets
for Office Depot’s business segments. The foregoing list of factors
is not exhaustive. Investors and shareholders should carefully
consider the foregoing factors and the other risks and
uncertainties described in Office Depot’s Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form
8-K filed with the U.S. Securities and Exchange Commission. Office
Depot does not assume any obligation to update or revise any
forward-looking statements.
OFFICE DEPOT, INC. CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In millions, except per share amounts)
(Unaudited) 13 Weeks Ended March
30, March 31, 2019 2018 Sales:
Products $ 2,361 $ 2,423 Services 408 407 Total sales
2,769 2,830 Cost of goods sold and occupancy costs: Products 1,841
1,891 Services 287 272 Total cost of goods sold and
occupancy costs 2,128 2,163 Gross profit 641 667
Selling, general and administrative expenses 574 573 Asset
impairments 29 — Merger and restructuring expenses, net 14
17 Operating income 24 77 Other income (expense): Interest
income 6 6 Interest expense (23 ) (29 ) Other income, net 2
1 Income from continuing operations before income taxes 9 55
Income tax expense 1 22 Net income from continuing
operations 8 33 Discontinued operations, net of tax —
8 Net income $ 8 $ 41 Basic earnings per common share Continuing
operations $ 0.01 $ 0.06 Discontinued operations —
0.01 Net basic earnings per common share $ 0.01 $ 0.07 Diluted
earnings per common share Continuing operations $ 0.01 $ 0.06
Discontinued operations — 0.01 Net diluted earnings
per common share $ 0.01 $ 0.07 Dividends per common share $ 0.025 $
0.025
OFFICE DEPOT, INC. CONDENSED CONSOLIDATED BALANCE
SHEETS (In millions, except shares and par value)
(Unaudited) March 30,
December 29, 2019 2018 (Unaudited)
ASSETS Current assets: Cash and cash equivalents $ 604 $ 658
Receivables, net 944 885 Inventories 1,034 1,065 Prepaid expenses
and other current assets 84 75 Timber notes receivable, current
maturities 836 — Total current assets 3,502 2,683
Property and equipment, net 730 763 Operating lease right-of-use
assets 1,398 — Goodwill 922 914 Other intangible assets, net 409
422 Timber notes receivable — 842 Deferred income taxes 244 284
Other assets 266 258 Total assets $ 7,471 $ 6,166
LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities:
Trade accounts payable $ 1,098 $ 1,110 Accrued expenses and other
current liabilities 1,294 978 Income taxes payable — 2 Short-term
borrowings and current maturities of long-term debt 93 95
Non-recourse debt, current maturities 748 — Total
current liabilities 3,233 2,185 Deferred income taxes and other
long-term liabilities 181 300 Pension and postretirement
obligations, net 111 111 Long-term debt, net of current maturities
632 690 Operating lease liabilities 1,208 — Non-recourse debt
— 754 Total liabilities 5,365 4,040
Commitments and contingencies Stockholders’ equity:
Common stock — authorized 800,000,000
shares of $0.01 par value; issued shares — 620,103,134 at March 30,
2019 and 614,170,704 at December 29, 2018; outstanding shares —
546,192,558 at March 30, 2019 and 543,833,428 at December 29,
2018
6 6 Additional paid-in capital 2,664 2,677 Accumulated other
comprehensive loss (88 ) (99 ) Accumulated deficit (180 ) (173 )
Treasury stock, at cost — 73,910,576
shares at March 30, 2019 and 70,337,276 shares at December 29,
2018
(296 ) (285 ) Total stockholders’ equity 2,106
2,126 Total liabilities and stockholders’ equity $ 7,471 $
6,166
OFFICE DEPOT, INC. CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS (In millions)
(Unaudited) 13 Weeks Ended March
30, March 31, 2019 2018 Cash
flows from operating activities of continuing operations: Net
income $ 8 $ 41 Income from discontinued operations, net of tax
— 8 Net income from continuing operations 8
33 Adjustments to reconcile net income to net cash provided
by operating
activities:
Depreciation and amortization 49 47 Amortization of debt discount
and issuance costs 2 2 Charges for losses on receivables and
inventories 14 14 Asset impairments 29 — Compensation expense for
share-based payments 8 4 Deferred income taxes and deferred tax
asset valuation allowances — 19 Contingent consideration payments
in excess of acquisition-date liability (11 ) — Changes in working
capital and other (39 ) 88 Net cash provided by
operating activities of continuing
operations
60 207
Cash flows from investing activities of
continuing operations: Capital expenditures (46 ) (37 )
Businesses acquired, net of cash acquired (5 ) (30 ) Other
investing activities (1 ) 1 Net cash used in
investing activities of continuing operations (52 )
(66 )
Cash flows from financing activities of continuing
operations: Net payments on long and short-term borrowings (24
) (25 ) Cash dividends on common stock (14 ) (14 ) Share purchases
for taxes, net of proceeds from employee share-based
transactions
(4 ) (3 ) Repurchase of common stock for treasury (11 ) —
Contingent consideration payments up to amount of acquisition-date
liability (12 ) (2 ) Other financing activities 1 3
Net cash used in financing activities of continuing operations
(64 ) (41 )
Cash flows from discontinued
operations: Operating activities of discontinued operations —
10 Investing activities of discontinued operations —
30 Net cash provided by discontinued operations — 40
Effect of
exchange rate changes on cash and cash equivalents 2 (2 )
Net increase (decrease) in cash, cash equivalents and restricted
cash (54 ) 138 Cash, cash equivalents and restricted cash at
beginning of period 660 639 Cash, cash equivalents
and restricted cash at end of period 606 777 Cash and cash
equivalents of discontinued operations — (37 ) Cash,
cash equivalents and restricted cash at end of period — continuing
operations $ 606 $ 740
OFFICE DEPOT, INC.GAAP to Non-GAAP
Reconciliations(Unaudited)
We report our results in accordance with accounting principles
generally accepted in the United States (“GAAP”). We also review
certain financial measures excluding impacts of transactions that
are not related to our core operations (“non-GAAP”). Management
believes that the presentation of these non-GAAP financial measures
enhances the ability of its investors to analyze trends in its
business and provides a means to compare periods that may be
affected by various items that might obscure trends or developments
in its business. Management uses both GAAP and non-GAAP measures to
assist in making business decisions and assessing overall
performance. Non-GAAP measures help to evaluate programs and
activities that are intended to attract and satisfy customers,
separate from expenses and credits directly associated with Merger,
restructuring, and certain similar items. Certain non-GAAP measures
are also used for short and long-term incentive programs.
Our measurement of these non-GAAP financial measures may be
different from similarly titled financial measures used by others
and therefore may not be comparable. These non-GAAP financial
measures should not be considered superior to the GAAP measures,
but only to clarify some information and assist the reader. We have
included reconciliations of this information to the most comparable
GAAP measures in the tables included within this material.
The Company’s outlook for 2019 includes adjusted EBITDA,
adjusted operating income, and free cash flow. These measures
exclude charges or credits not indicative of our core operations,
which may include but not be limited to merger integration
expenses, restructuring charges, asset impairments, and other
significant items that currently cannot be predicted without
unreasonable effort. The exact amount of these charges or credits
are not currently determinable, but may be significant.
Accordingly, the company is unable to provide a reconciliation to
an equivalent net income, operating income or operating cash flow
outlook for 2019.
Free cash flow is a non-GAAP measure, which we define as cash
flows from operating activities of continuing operations less
capital expenditures. We believe that free cash flow is an
important indicator that provides additional perspective on our
ability to generate cash to fund our strategy and expand our
distribution network.
(In millions, except per share amounts)
Q1 2019 Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative expenses $ 574 20.7 % $
— $ 574 20.7 % Merger and restructuring expenses, net $ 14
0.5 % $ 14 $ — — % Operating income $ 24 0.9 % $ (43 ) $ 67 (8) 2.4
% Income tax expense $ 1 0.0 % $ (12 ) $ 13 (9) 0.5 % Net income
from continuing operations $ 8 0.3 % $ (31 ) $ 39 (10) 1.4 %
Earnings per share continuing operations (most dilutive) $ 0.01 $
(0.06 ) $ 0.07 (10) Depreciation and amortization $ 49 1.8 % $ 1 $
48 (11) 1.7 %
Q1 2018 Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative expenses $ 573 20.2 % $
— $ 573 20.2 % Merger and restructuring expenses, net $ 17
0.6 % $ 17 $ — — % Operating income $ 77 2.7 % $ (17 ) $ 93 (8) 3.3
% Income tax expense $ 22 0.8 % $ (4 ) $ 26 (9) 0.9 % Net income
from continuing operations $ 33 1.2 % $ (13 ) $ 45 (10) 1.6 %
Earnings per share continuing operations (most dilutive) $ 0.06 $
(0.02 ) $ 0.08 (10) Depreciation and amortization $ 47 1.7 % $ — $
47 (11) 1.7 %
OFFICE DEPOT, INC. GAAP to
Non-GAAP Reconciliations (Unaudited)
13 Weeks Ended March 30,
March 31,
Adjusted
EBITDA:
2019 2018 Net income $ 8 $ 41 Discontinued
operations, net of tax — 8 Net income from continuing
operations 8 33 Income tax expense 1 22 Income from
continuing operations before income taxes 9 55 Add (subtract)
Interest income (6 ) (6 ) Interest expense 23 29 Adjusted
depreciation and amortization (11) 48 47 Charges and credits,
pretax (12) 43 17 Adjusted EBITDA $ 118 $ 141
Amounts may not foot due to rounding
(8) Adjusted operating income for all periods presented herein
excludes merger and restructuring expenses, net, asset impairments
(if any) and executive transition costs (if any).
(9) Adjusted income tax expense for all periods presented herein
exclude the tax effect of the charges or credits not indicative of
core operations as described in the preceding notes.
(10) Adjusted net income from continuing operations and adjusted
earnings per share from continuing operations (most dilutive) for
all periods presented exclude merger and restructuring expenses,
net, asset impairments (if any), executive transition costs (if
any), loss on modification of debt (if any), and exclude the tax
effect of the charges or credits not indicative of core
operations.
(11) Adjusted depreciation and amortization for all periods
presented herein excludes accelerated depreciation caused by
updating the salvage value and shortening the useful life of
depreciable fixed assets to coincide with the planned store
closures under an approved restructuring plan, but only if
impairment is not present.
(12) Charges and credits, pretax for all periods presented
include merger and restructuring expenses, net, asset impairments
(if any), and executive transition costs (if any).
13 Weeks Ended March 30,
March 31,
Free cash
flow
2019 2018 Net cash provided by operating activities
of continuing operations $ 60 $ 207 Capital expenditures (46
) (37 ) Free cash flow $ 14 $ 170
Amounts may not foot due to rounding
OFFICE DEPOT, INC. Store Statistics
(Unaudited) Q1
2019 Retail Division: Stores opened — Stores
closed 2 Total retail stores (U.S.) 1,359 Total square footage (in
millions) 30.3 Average square footage per store (in thousands) 22.3
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190508005216/en/
Tim PerrottInvestor
Relations561-438-4629Tim.Perrott@officedepot.com
Danny JovicMedia
Relations561-438-1594Danny.Jovic@officedepot.com
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