Delivered strong operating results and cash
flow generation; Improved B2B platform for profitable growth;
Strengthened balance sheet and returned capital to shareholders
Provides 2020 guidance
Full Year 2019
Highlights
- Total Reported Sales of $10.6 Billion, down 3% from Prior
Year
- Operating Income of $191 Million and Net Income from Continuing
Operations of $99 Million
- Adjusted Operating Income of $367 Million, up 2% YOY; Adjusted
EBITDA of $590 Million, up 4% YOY
- Operating Cash Flow of $366 Million and Adjusted Free Cash Flow
of $310 Million
Fourth Quarter 2019
Highlights
- Total Reported Sales of $2.5 Billion, down 6% from Prior Year
Period
- Operating Income of $74 Million and Net Income from Continuing
Operations of $55 Million
- Adjusted Operating Income of $92 Million, up 10% YOY; Adjusted
EBITDA of $156 Million, up 13% YOY
- Operating Cash Flow of $152 Million and Adjusted Free Cash Flow
of $135 Million
- EPS of $0.10, up $0.12 from Prior Year Period; Adjusted EPS of
$0.12, up $0.03 from Prior Year Period
Office Depot, Inc. (“Office Depot,” or the “Company”) (NASDAQ:
ODP), a leading provider of business services and supplies,
products and technology solutions through an integrated B2B
distribution platform of approximately 1,300 stores, online
presence, and dedicated sales professionals and technicians,
announced results for the fourth quarter and full year ended
December 28, 2019.
Consolidated (in millions, except
per share amounts)
4Q19
4Q18
FY19
FY18
Selected GAAP measures:
Sales
$2,508
$2,670
$10,647
$11,015
Sales change from prior year period
(6)%
(3)%
Operating income
$74
$24
$191
$254
Operating income margin
3.0%
0.9%
1.8%
2.3%
Net income (loss) from continuing
operations
$55
$(14)
$99
$99
Diluted earnings (loss) per share from
continuing operations
$0.10
$(0.02)
$0.18
$0.18
Operating Cash Flow (1)
$152
$61
$366
$616
Selected Non-GAAP measures: (2)
Adjusted EBITDA
$156
$138
$590
$567
Adjusted operating income
$92
$84
$367
$360
Adjusted operating income margin
3.7%
3.1%
3.4%
3.3%
Adjusted net income from continuing
operations
$68
$52
$228
$199
Adjusted earnings per share from
continuing operations (most
dilutive)
$0.12
$0.09
$0.41
$0.35
Free Cash Flow (1) (3)
$125
$(5)
$216
$429
Adjusted Free Cash Flow (4)
$135
$(5)
$310
$429
(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.
(4)
As used throughout this release, Adjusted
Free Cash Flow excludes the Federal Trade Commission cash
settlement of $25 million in year-to-date 2019 and cash charges
associated with the Company’s Business Acceleration Program of $10
million and $69 million in the fourth quarter and year-to-date
2019, respectively.
“We made tremendous progress throughout the year on our
transformation, achieving our operational and free cash flow
objectives, strengthening our balance sheet, and improving our
foundation for profitable growth,” said Gerry Smith, chief
executive officer of Office Depot. “Our Business Acceleration
Program continued to exceed expectations, streamlining our
operations and positioning us to invest in additional growth
opportunities in the coming year. Profit margins were up in all
three divisions in the quarter, driving a 10% increase in adjusted
operating income in the fourth quarter, and a 2% increase for the
year. As a B2B-focused company, we strengthened our platform and
built a more robust pipeline for profitable growth in our Business
Solutions and CompuCom divisions. Although some of these actions
have had an adverse near term impact on top-line growth, they will
significantly improve our competitive position for the future.”
“We remained focused on creating value by returning cash to
shareholders and optimizing our balance sheet. As we move forward
in 2020, we are investing in growth and remain excited about the
opportunities to continue our transformation, grow our B2B
businesses, expand our product and service offerings, and drive
value for all of our stakeholders,” he added.
Consolidated Results
Reported (GAAP) Results
Total reported sales for the fourth quarter of 2019 were $2.5
billion, a decrease of 6% compared to the fourth quarter of 2018.
The decrease in revenue over the same period last year was
primarily the result of lower sales in the Retail Division, driven
by lower same store sales and fewer retail stores, combined with
lower sales in the CompuCom Division and Business Solutions
Division (BSD). Product sales in the fourth quarter were down 6%
relative to the prior year period. Service revenue was down 6% in
the quarter related to lower comparable sales at CompuCom,
partially mitigated by a 14% year-over-year increase in service
revenue in the BSD Division. On a consolidated basis, service
revenue represented approximately 16% of total Company sales in the
fourth quarter of 2019.
Sales Breakdown (in millions)
4Q19
4Q18
FY19
FY18
Product sales
$2,113
$2,250
$9,034
$9,322
Product sales change from prior year
(6)%
(3)%
Service revenues
$395
$420
$1,613
$1,693
Service revenues change from prior
year
(6)%
(5)%
Total sales
$2,508
$2,670
$10,647
$11,015
Office Depot reported operating income of $74 million in the
fourth quarter of 2019, compared to $24 million in the prior year
period. Operating income included approximately $11 million in
merger and restructuring costs, $3 million of which is associated
with charges related to the Business Acceleration Program (BAP)
recognized in the quarter. Office Depot also recognized asset
impairment charges of $6 million in the fourth quarter of 2019, $5
million of which related to impairment of operating lease
right-of-use (ROU) assets associated with the Company’s retail
store locations, with the remainder primarily relating to
impairment of fixed assets. These impacts were offset by improved
operating results in the quarter versus the prior year period, as
the Company delivered improved margin performance across all of its
divisions. Net income from continuing operations was $55 million,
or $0.10 per diluted share in the fourth quarter of 2019, compared
to a net loss from continuing operations of $14 million, or $0.02
per diluted share in the fourth quarter of 2018.
Total reported sales for the full year 2019 period were $10.6
billion, a decrease of 3% over the same period last year, primarily
as a result of lower sales in the Retail Division, driven by lower
same store sales combined with fewer retail stores, and lower sales
in the CompuCom Division. Product sales for the year were down 3%
from the prior year. Service revenue was down 5% year over year,
due to lower revenue in the CompuCom Division, partially offset by
increases in service revenue in the BSD and Retail Divisions of 8%
and 6%, respectively. Office Depot reported full year 2019
operating income of $191 million, compared to $254 million in 2018.
Primary drivers of the comparable reduction are a $44 million
increase in merger and restructuring costs largely associated with
BAP-related charges and a $49 million increase in asset impairment
charges, $46 million of which related to impairment of operating
lease ROU assets. The drivers were partially offset by a $25
million reduction in legal expense accruals as compared to 2018.
Net income from continuing operations in 2019 was $99 million, or
$0.18 per diluted share, flat with net income from continuing
operations of $99 million, or $0.18 per diluted share, in 2018.
Adjusted (non-GAAP) Results (5)
Adjusted results for the fourth quarter of 2019 exclude charges
and credits totaling $18 million, primarily comprised of $6 million
largely in BAP-related charges, $6 million in asset impairments,
and $5 million in merger, acquisition and integration-related
expenses, and the tax impacts associated with these items.
- Fourth quarter 2019 adjusted EBITDA was $156 million compared
to $138 million in the prior year period. This included adjusted
depreciation and amortization(6) of $50 million in the fourth
quarters of both 2019 and 2018, respectively.
- Fourth quarter 2019 adjusted operating income was $92 million
compared to adjusted operating income of $84 million in the fourth
quarter of 2018. The primary driver of this improved performance
was stronger operating results in all three divisions driven by
BAP-related cost efficiency efforts.
- Fourth quarter 2019 adjusted net income from continuing
operations was $68 million, or $0.12 per diluted share, compared to
an adjusted net income from continuing operations of $52 million,
or $0.09 per diluted share, in the fourth quarter of 2018. Reduced
interest expense and fewer outstanding shares contributed to this
performance.
Full year 2019 adjusted operating income was $367 million
compared to $360 million in 2018. Full year adjusted EBITDA was
$590 million, up 4% versus 2018. Adjusted net income from
continuing operations in 2019 was $228 million, or $0.41 per
diluted share, compared to $199 million, or $0.35 per diluted
share, in 2018. The year-over-year comparable performance included
the impact of retail store closures in year-to-date 2019, largely
offset by stronger operating performance in the BSD and the Retail
Divisions.
(5)
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.
(6)
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.
Fourth Quarter Division Results
Business Solutions Division
BSD reported sales were $1.3 billion in the fourth quarter of
2019, down 3% compared to the fourth quarter of 2018. Full year
2019 reported sales were $5.3 billion, flat compared to 2018
results. The year-over-year comparable sales performance reflects
the positive impact of customer acquisitions and growth in certain
adjacency categories, primarily cleaning and breakroom supplies.
Adjacency categories, which include cleaning and breakroom
supplies, technology, furniture, and copy and print services, were
37% of total BSD revenue for the quarter. These positive sales
drivers were offset by the Company’s targeted actions to reduce
certain unprofitable sales activities to improve profitability and
enhance its foundation to drive future growth. Product sales in the
fourth quarter of 2019 decreased 4%, while service revenue
increased 14% compared to the prior year period.
Business Solutions Division (in
millions)
4Q19
4Q18
FY19
FY18
Sales
$1,257
$1,293
$5,279
$5,282
Sales change from prior year
(3)%
—%
Division operating income
$69
$54
$271
$243
Division operating income margin
5.5%
4.2%
5.1%
4.6%
BSD operating income was $69 million in the fourth quarter of
2019, compared to $54 million in the fourth quarter of 2018, an
increase of 28% and an approximate 130-basis point margin
improvement as a percentage of revenue. The increase in operating
income versus last year was related to BAP cost efficiency
initiatives, more efficient distribution costs, and other targeted
actions to improve profitability.
Retail Division
The Retail Division reported sales were $1.0 billion in the
fourth quarter of 2019, down 7% versus the prior year period.
Planned closures of underperforming retail stores contributed to
the reported decline with 54 fewer retail outlets at the end of the
fourth 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, higher sales per customer, and
increased loyalty program membership. Product sales in the quarter
declined 8% compared to the prior period, while service revenue was
down 3% compared to the prior year period.
Retail Division (in millions)
4Q19
4Q18
FY19
FY18
Sales
$1,011
$1,090
$4,363
$4,641
Comparable store sales change from prior
year
(4)%
(4)%
Division operating income
$34
$28
$194
$193
Division operating income margin
3.4%
2.6%
4.4%
4.2%
Retail Division operating income was $34 million in the fourth
quarter of 2019, up 21% over the same period last year. As a
percentage of sales, this performance reflects an approximate 80
basis points margin improvement. The increase in operating income
versus the prior year was largely related to lower SG&A from
cost savings initiatives, improved gross margin, improvements in
distribution and inventory management costs, and lower operating
lease costs recognized as a result of the new lease accounting
standard. The Retail Division’s operating income results also
include the impact of investments in additional service delivery
capabilities, sales training, and other customer-oriented
initiatives.
During the fourth quarter of 2019, the Company closed 10 stores
and ended the quarter with a total of 1,307 stores in the Retail
Division.
CompuCom Division
The CompuCom Division reported sales were $237 million in the
fourth quarter of 2019, down 16% compared to the fourth quarter of
2018. The year-over-year decrease is due in part to lower product
sales in the quarter and lower services volume, as well as targeted
actions to reduce certain unprofitable sales activities to improve
profitability.
CompuCom Division (in millions)
4Q19
4Q18
FY19
FY18
Sales
$237
$283
$994
$1,086
Sales change from prior year
(16)%
(8)%
Division operating income (loss)
$9
$5
$(2)
$17
Division operating income (loss)
margin
3.8%
1.8%
(0.2)%
1.6%
CompuCom Division operating income was $9 million in the fourth
quarter of 2019, up 80% compared to $5 million in operating income
in the fourth quarter of 2018, and a sequential improvement of
approximately $6 million relative to the third quarter of 2019. BAP
cost efficiency measures and other cost reduction efforts helped to
drive the year-over-year increase. Under its new leadership,
CompuCom has refined its strategy to pursue higher growth and
improve margins by refocusing efforts on its core strengths aligned
with customer needs. The Company continues to take actions to
improve future operating performance, including increased use of
automation and technology to improve service efficiency,
simplifying operational structures to improve service velocity, and
aligning sales efforts to better serve customers and accelerate
cross-selling opportunities.
“CompuCom’s success is a key component of our transformation and
we are very encouraged by the early signs of progress,” said Gerry
Smith. “We’ve improved profitability and are gaining traction as
evidenced by new customer wins in the quarter. CompuCom’s refocused
strategy of connecting people, technology, and the edge, places
greater emphasis on its core offerings and expands its value
proposition. Although we have much more work to accomplish,
CompuCom is on the right path to capture profitable growth in the
expanding digital workforce arena,” he added.
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 $19 million in the fourth
quarter of 2019 compared to $3 million in the fourth quarter of
2018. The year-over-year comparison reflects higher incentive
expenses, partially offset by savings associated with BAP cost
efficiency initiatives.
The Company’s “Other” segment, which contains the global
sourcing and trading operations in the Asia/Pacific region and the
elimination of intersegment revenues, had no material contribution
to sales or operating income in the fourth quarter of 2019.
Balance Sheet and Cash Flow
As of December 28, 2019, Office Depot had total available
liquidity of approximately $1.6 billion, consisting of $698 million
in cash and cash equivalents and $920 million of available credit
under the Amended and Restated Credit Agreement. Total debt was
$681 million, excluding $735 million of non-recourse debt which is
supported by the associated Timber notes receivable.
Subsequent to the quarter, on January 29, 2020, the Company
received a net cash payment of $82.5 million, plus approximately $5
million in accrued interest income, upon the maturity of the $735
million of non-recourse debt and the associated $817.5 million
Timber note receivable. Taxes on the transaction are expected to be
negligible based on the utilization of existing tax assets. The
positive effect of the maturity, including the elimination of the
non-recourse debt and Timber note receivable, along with the net
cash inflow to the Company, are not reflected in the year-end
financial results.
For the fourth quarter of 2019, cash provided by operating
activities of continuing operations was $152 million, which
included $4 million in acquisition and integration-related costs
and $11 million in restructuring costs, compared to $61 million in
the fourth quarter of the prior year.
Capital expenditures in the quarter were $27 million versus $66
million in the prior year, reflecting lower investment in retail
operations, while continuing growth investments in the Company’s
service platform, distribution network, and eCommerce capabilities.
The cash charges associated with the Company’s Business
Acceleration Program in the quarter were $10 million. Accordingly,
Adjusted Free Cash Flow from continuing operations was $135 million
in the fourth quarter of 2019. The Company also invested
approximately $2 million in the quarter to expand its BSD
distribution network and its business customer base through
acquisitions.
During the fourth quarter of 2019, the Company paid a quarterly
cash dividend of $0.025 per share on December 13, 2019 for
approximately $14 million and made a $19 million scheduled debt
repayment on the 2022 term loan. In addition, Office Depot
repurchased approximately 11 million shares at a total cost of $29
million in the fourth quarter of 2019.
2020 Guidance (7)
“We made significant progress in 2019 and our team is committed
to unlocking the value of our asset base and building upon our B2B
platform for the benefit of all of our stakeholders. In the year
ahead, we are investing to drive profitable top-line growth in our
BSD and CompuCom divisions, expanding our product and services
offerings, and continuing to rationalize our retail footprint,”
said Smith. The Company is issuing the following guidance for full
year 2020.
FY 2020 Guidance
Sales
~$10.5 billion
Adjusted EBITDA
~$550 million
Adjusted Operating Income
~$350 million
Free Cash Flow(1)(3)(8)
~$300 million
Underlying assumptions
include:
Net interest expense
~$60 million
Non-GAAP effective tax rate
~30%
Capital expenditures
Up to $150 million
Cash tax rate
~10%
This guidance considers additional growth investments, improving
sales trends in its BSD and CompuCom Divisions, planned retail
store closures, a stable global sourcing environment, and continued
execution of the Company’s Business Acceleration Program.
The Company also anticipates completing its previously announced
feasibility review of a potential holding company reorganization by
the end of the first quarter 2020.
(7)
The Company’s outlook for 2020 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.
(8)
Excludes 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
to small, medium and enterprise businesses, through a fully
integrated B2B distribution platform of approximately 1,300 stores,
online presence, and dedicated sales professionals and technicians.
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. ©2020 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 stakeholders 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 is unable to transform the
business into a service-driven company or that such a strategy will
not result in the benefits anticipated; 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 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 not result in the benefits anticipated; failure to effectively
manage Office Depot real estate portfolio; loss of business with
government entities, purchasing consortiums, and sole- or limited-
source distribution arrangements; failure to attract and retain
qualified personnel, including employees in stores, service
centers, distribution centers, field and corporate offices and
executive management, and the inability to keep supply of skills
and resources in balance with customer demand; failure to execute
effective advertising efforts and maintain the Office Depot
reputation and brand at a high level; disruptions in Office Depot
computer systems, including delivery of technology services; breach
of Office Depot information technology systems affecting
reputation, business partner and customer relationships and
operations and resulting in high costs; 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
tariffs imposed on certain foreign made goods); exclusive Office
Depot branded products are subject to additional product, supply
chain and legal risks; product safety and quality concerns of
manufacturers’ branded products and services and Office Depot
private branded products; covenants in the credit facility and term
loan; a downgrade in Office Depot credit ratings or a general
disruption in the credit markets; incurrence of significant
impairment charges; retained responsibility for liabilities of
acquired companies; fluctuation in quarterly operating results due
to seasonality of Office Depot business; changes in tax laws in
jurisdictions where Office Depot operates; increases in wage and
benefit costs and changes in labor regulations; changes in the
regulatory environment, legal compliance risks and violations of
the U.S. Foreign Corrupt Practices Act and other worldwide
anti-bribery laws; volatility in Office Depot common stock price;
changes in or the elimination of the payment of cash dividends on
Office Depot common stock; macroeconomic conditions such as future
declines in business or consumer spending; increases in fuel and
other commodity prices and the cost of material, energy and other
production costs, or unexpected costs that cannot be recouped in
product pricing; unexpected claims, charges, litigation, dispute
resolutions or settlement expenses; and catastrophic events,
including the impact of weather events on Office Depot’s business;
and the discouragement of lawsuits by shareholders against Office
Depot and its directors and officers as a result of the exclusive
forum selection of the Court of Chancery, the federal district
court for the District of Delaware or other Delaware state courts
by Office Depot as the sole and exclusive forum for such lawsuits.
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.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In millions, except per share
amounts)
13 Weeks Ended
52 Weeks Ended
December 28,
December 29,
December 28,
December 29,
2019
2018
2019
2018
(Unaudited)
Sales:
Products
$
2,113
$
2,250
$
9,034
$
9,322
Services
395
420
1,613
1,693
Total sales
2,508
2,670
10,647
11,015
Cost of goods sold and occupancy
costs:
Products
1,676
1,779
7,088
7,313
Services
261
289
1,095
1,151
Total cost of goods sold and occupancy
costs
1,937
2,068
8,183
8,464
Gross profit
571
602
2,464
2,551
Selling, general and administrative
expenses
480
519
2,101
2,193
Asset impairments
6
7
56
7
Merger and restructuring expenses, net
11
27
116
72
Legal expense accrual
—
25
—
25
Operating income
74
24
191
254
Other income (expense):
Interest income
6
6
23
25
Interest expense
(21
)
(30
)
(89
)
(121
)
Loss on modification of debt
—
(15
)
—
(15
)
Other income, net
14
4
21
15
Income (loss) from continuing operations
before income taxes
73
(11
)
146
158
Income tax expense
18
3
47
59
Net income (loss) from continuing
operations
55
(14
)
99
99
Discontinued operations, net of tax
—
—
—
5
Net income (loss)
$
55
$
(14
)
$
99
$
104
Basic earnings (loss) per common share
Continuing operations
$
0.10
$
(0.02
)
$
0.18
$
0.18
Discontinued operations
—
—
—
0.01
Net basic earnings (loss) per common
share
$
0.10
$
(0.02
)
$
0.18
$
0.19
Diluted earnings (loss) per common
share
Continuing operations
$
0.10
$
(0.02
)
$
0.18
$
0.18
Discontinued operations
—
—
—
0.01
Net diluted earnings (loss) per common
share
$
0.10
$
(0.02
)
$
0.18
$
0.19
OFFICE DEPOT, INC.
CONSOLIDATED BALANCE
SHEETS
(In millions, except shares
and par value)
December 28,
December 29,
2019
2018
ASSETS
Current assets:
Cash and cash equivalents
$
698
$
658
Receivables, net
823
885
Inventories
1,032
1,065
Prepaid expenses and other current
assets
75
75
Timber notes receivable, current
maturities
819
—
Total current assets
3,447
2,683
Property and equipment, net
679
763
Operating lease right-of-use assets
1,413
—
Goodwill
944
914
Other intangible assets, net
388
422
Timber notes receivable
—
842
Deferred income taxes
183
284
Other assets
257
258
Total assets
$
7,311
$
6,166
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Trade accounts payable
$
1,026
$
1,110
Accrued expenses and other current
liabilities
1,219
978
Income taxes payable
8
2
Short-term borrowings and current
maturities of long-term debt
106
95
Non-recourse debt, current maturities
735
—
Total current liabilities
3,094
2,185
Deferred income taxes and other long-term
liabilities
176
300
Pension and postretirement obligations,
net
85
111
Long-term debt, net of current
maturities
575
690
Operating lease liabilities
1,208
—
Non-recourse debt
—
754
Total liabilities
5,138
4,040
Commitments and contingencies
Stockholders’ equity:
Common stock — authorized 800,000,000
shares of $0.01 par value; issued
shares — 620,424,775 at December 28, 2019
and 614,170,704 at
December 29, 2018; outstanding shares —
535,182,317 at December 28, 2019
and 543,833,428 at December 29, 2018
6
6
Additional paid-in capital
2,647
2,677
Accumulated other comprehensive loss
(66
)
(99
)
Accumulated deficit
(89
)
(173
)
Treasury stock, at cost — 85,242,458
shares at December 28, 2019 and 70,337,276
shares at December 29, 2018
(325
)
(285
)
Total stockholders’ equity
2,173
2,126
Total liabilities and stockholders’
equity
$
7,311
$
6,166
OFFICE DEPOT, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In millions)
2019
2018
Cash flows from operating activities of
continuing operations:
Net income
$
99
$
104
Income from discontinued operations, net
of tax
—
5
Net income from continuing operations
99
99
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization
204
192
Amortization of debt discount and issuance
costs
8
10
Charges for losses on receivables and
inventories
26
37
Asset impairments
56
7
Gain on disposition of assets, net
(23
)
(5
)
Loss on extinguishment and modification of
debt
—
15
Compensation expense for share-based
payments
33
27
Deferred income taxes and deferred tax
asset valuation allowances
100
40
Contingent consideration payments in
excess of acquisition-date liability
(11
)
—
Changes in assets and liabilities:
Decrease in receivables
63
43
Decrease (increase) in inventories
19
(2
)
Net decrease in prepaid expenses,
operating lease right-of-use assets,
and other assets
321
4
Net increase (decrease) in trade accounts
payable, accrued expenses,
operating lease liabilities, and other
current and other long-term liabilities
(532
)
140
Other operating activities
3
9
Total adjustments
267
517
Net cash provided by operating activities
of continuing operations
366
616
Cash flows from investing activities of
continuing operations:
Capital expenditures
(150
)
(187
)
Businesses acquired, net of cash
acquired
(22
)
(81
)
Proceeds from disposition of assets
50
15
Other investing activities
3
4
Net cash used in investing activities of
continuing operations
(119
)
(249
)
Cash flows from financing activities of
continuing operations:
Net payments on long and short-term
borrowings
(98
)
(97
)
Cash used in extinguishment and
modification of debt
—
(7
)
Debt retirement
(735
)
(194
)
Debt issuance
736
—
Cash dividends on common stock
(55
)
(55
)
Share purchases for taxes, net of proceeds
from employee share-based
transactions
(9
)
(3
)
Repurchase of common stock for
treasury
(40
)
(39
)
Contingent consideration payments up to
amount of acquisition-date liability
(12
)
—
Acquisition of non-controlling
interest
—
(18
)
Other financing activities
1
(1
)
Net cash used in financing activities of
continuing operations
(212
)
(414
)
Cash flows from discontinued
operations:
Operating activities of discontinued
operations
—
11
Investing activities of discontinued
operations
—
66
Net cash provided by discontinued
operations
—
77
Effect of exchange rate changes on cash
and cash equivalents
5
(9
)
Net increase in cash, cash equivalents
and restricted cash
40
21
Cash, cash equivalents and restricted cash
at beginning of period
660
639
Cash, cash equivalents and restricted cash
at end of period — continuing operations
$
700
$
660
Supplemental information on operating,
investing, and financing activities
Cash interest paid, net of amounts
capitalized and Timber notes/Non-recourse debt
$
61
$
93
Cash taxes refunded, net
$
(43
)
$
(5
)
Non-cash asset additions under finance
leases
$
27
$
24
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 2020 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 2020.
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)
Q4 2019
Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative
expenses
$
480
19.1
%
$
1
$
479
(9)
19.1
%
Assets impairments
$
6
0.2
%
$
6
$
—
—
%
Merger and restructuring expenses, net
$
11
0.4
%
$
11
$
—
—
%
Operating income
$
74
3.0
%
$
(18
)
$
92
(10)
3.7
%
Income tax expense
$
18
0.7
%
$
(4
)
$
22
(11)
0.9
%
Net income from continuing operations
$
55
2.2
%
$
(14
)
$
68
(12)
2.7
%
Earnings per share continuing operations
(most dilutive)
$
0.10
$
(0.02
)
$
0.12
(12)
Depreciation and amortization
$
50
2.0
%
$
—
$
50
(13)
2.0
%
Q4 2018
Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative
expenses
$
519
19.4
%
$
1
$
518
(9)
19.4
%
Assets impairments
$
7
0.3
%
$
7
$
—
—
%
Merger and restructuring expenses, net
$
27
1.0
%
$
27
$
—
—
%
Legal expense accrual
$
25
0.9
%
$
25
$
—
—
%
Operating income
$
24
0.9
%
$
(60
)
$
84
(10)
3.1
%
Loss on modification of debt
$
(15
)
(0.6
)%
$
(15
)
$
—
—
%
Income tax expense
$
3
0.1
%
$
(9
)
$
12
(11)
0.4
%
Net income (loss) from continuing
operations
$
(14
)
(0.5
)%
$
(66
)
$
52
(12)
1.9
%
Earnings (loss) per share continuing
operations (most dilutive)
$
(0.02
)
$
(0.11
)
$
0.09
(12)
Depreciation and amortization
$
50
1.9
%
$
—
$
50
(13)
1.9
%
OFFICE DEPOT, INC.
GAAP to Non-GAAP
Reconciliations
(Unaudited)
2019
Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative
expenses
$
2,101
19.7
%
$
3
$
2,097
(9)
19.7
%
Assets impairments
$
56
0.5
%
$
56
$
—
—
%
Merger and restructuring expenses, net
$
116
1.1
%
$
116
$
—
—
%
Legal expense accrual
$
—
—
%
$
—
$
—
—
%
Operating income
$
191
1.8
%
$
(175
)
$
367
(10)
3.4
%
Income tax expense
$
47
0.4
%
$
(46
)
$
93
(11)
0.9
%
Net income from continuing operations
$
99
0.9
%
$
(129
)
$
228
(12)
2.1
%
Earnings per share continuing operations
(most dilutive)
$
0.18
$
(0.23
)
$
0.41
(12)
Depreciation and amortization
$
204
1.9
%
$
2
$
202
(13)
1.9
%
2018
Reported
(GAAP)
% of
Sales
Less:
Charges &
Credits
Adjusted
(Non-GAAP)
% of
Sales
Selling, general and administrative
expenses
$
2,193
19.9
%
$
2
$
2,191
(9)
19.9
%
Assets impairments
$
7
0.1
%
$
7
$
—
—
%
Merger and restructuring expenses, net
$
72
0.7
%
$
72
$
—
—
%
Legal expense accrual
$
25
0.2
%
$
25
$
—
—
%
Operating income
$
254
2.3
%
$
(106
)
$
360
(10)
3.3
%
Loss on modification of debt
$
(15
)
(0.1
)%
$
(15
)
$
—
—
%
Income tax expense
$
59
0.5
%
$
(20
)
$
79
(11)
0.7
%
Net income from continuing operations
$
99
0.9
%
$
(101
)
$
199
(12)
1.8
%
Earnings per share continuing operations
(most dilutive)
$
0.18
$
(0.17
)
$
0.35
(12)
Depreciation and amortization
$
192
1.7
%
$
—
$
192
(13)
1.7
%
13 Weeks Ended
52 Weeks Ended
December 28,
December 29,
December 28,
December 29,
Adjusted
EBITDA:
2019
2018
2019
2018
Net income (loss)
$
55
$
(14
)
$
99
$
104
Discontinued operations, net of tax
—
—
—
5
Net income (loss) from continuing
operations
55
(14
)
99
99
Income tax expense
18
3
47
59
Income (loss) from continuing operations
before income taxes
73
(11
)
146
158
Add (subtract)
Interest income
(6
)
(6
)
(23
)
(25
)
Interest expense
21
30
89
121
Adjusted depreciation and amortization
(13)
50
50
202
192
Charges and credits, pretax (14)
18
75
175
121
Adjusted EBITDA
$
156
$
138
$
590
$
567
Amounts may not foot due to rounding
(9)
Adjusted selling, general and
administrative expenses for fourth quarter and year-to-date 2019
exclude charges for executive transition costs of $1 and $3
million, respectively. Adjusted selling, general and administrative
expenses for the fourth quarter and year-to-date 2018 exclude
charges for executive transition costs of $1 million and $2
million, respectively.
(10)
Adjusted operating income for all periods
presented herein excludes merger and restructuring expenses, net,
asset impairments (if any) and executive transition costs (if
any).
(11)
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.
(12)
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.
(13)
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.
(14)
Charges and credits, pretax for all
periods presented include merger and restructuring expenses, net,
asset impairments (if any), and executive transition costs (if
any).
OFFICE DEPOT, INC.
GAAP to Non-GAAP
Reconciliations
(Unaudited)
13 Weeks Ended
52 Weeks Ended
December 28,
December 29,
December 28,
December 29,
Free cash
flow
2019
2018
2019
2018
Net cash provided by operating activities
of continuing operations
$
152
$
61
$
366
$
616
Capital expenditures
(27
)
(66
)
(150
)
(187
)
Free cash flow (15)
$
125
$
(5
)
$
216
$
429
Amounts may not foot due to rounding
(15)
Free Cash Flow includes the impact of the
Federal Trade Commission cash settlement of $25 million in
year-to-date 2019 and cash charges associated with the Company’s
Business Acceleration Program of $10 million and $69 million in the
fourth quarter and year-to-date 2019, respectively. Accordingly,
excluding these items, Adjusted Free Cash Flow from continuing
operations was $135 million and $310 million in the fourth quarter
and year-to-date 2019, respectively.
OFFICE DEPOT, INC.
Store Statistics
(Unaudited)
Q4
Q4
Full Year
2018
2019
2019
Retail Division:
Stores opened
2
—
—
Stores closed
13
10
54
Total retail stores (U.S.)
1,361
1,307
—
Total square footage (in millions)
30.3
29.1
—
Average square footage per store (in
thousands)
22.3
22.3
—
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200226005197/en/
Tim Perrott Investor Relations 561-438-4629
Tim.Perrott@officedepot.com
Danny Jovic Media Relations 561-438-1594
Danny.Jovic@officedepot.com
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