UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: February 24, 2009
Commission file number 1-10948
OFFICE DEPOT, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 59-2663954 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| 6600 North Military Trail, Boca Raton, Florida | 33496 | |
| (Address of principal executive offices) | (Zip Code) |
(561) 438-4800
(Registrant’s telephone number, including area code)
Former name or former address, if changed since last report: N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy
the filing obligation of the registrant under any of the following provisions:
| o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| ITEM 2.02. | RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
Attached hereto as Exhibit 99.1.1 and incorporated by reference herein is Office Depot, Inc.’s news
release dated February 24, 2009, announcing its financial results for its fiscal fourth quarter and
full year 2008. This release also contains forward-looking statements relating to Office Depot’s
fiscal year 2009.
This information is furnished pursuant to Item 2.02 of Form 8-K. The information in this report
shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.
| ITEM 7.01 | REGULATION FD DISCLOSURE |
The latest Investor Relations presentation that management of Office Depot, Inc. (the “Company”)
intends to cover in any meetings with shareholders during the quarter is attached to this Current
Report on Form 8-K as Exhibit 99.1.2. The presentation provides an overview of the Company,
perspective on the office supply market and the Company’s operating results for the quarter and
full year ended December 27, 2008. In addition, the presentation provides information on strategy,
action plans and outlook. The Company will also post the attached materials on its web site
( www.OfficeDepot.com) located in the Investor Relations section of that site.
| ITEM 9.01. | FINANCIAL STATEMENTS AND EXHIBITS |
| Exhibit 99.1.1 | News release of Office Depot, Inc. issued on February 24, 2009. | |
| Exhibit 99.1.2 | Presentation Materials for Investor Relations Conferences for Office Depot, Inc. |
2
SIGNATURE
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. |
||||
| Date: February 24, 2009 | By: | /S/ ELISA D. GARCIA C. | ||
| Elisa D. Garcia C. | ||||
| Executive Vice President, General Counsel and Corporate Secretary | ||||
3
Exhibit 99.1.1
CONTACTS:
Brian Turcotte
Investor Relations
561-438-3657
brian.turcotte@officedepot.com
Investor Relations
561-438-3657
brian.turcotte@officedepot.com
Brian Levine
Public Relations
561-438-2895
brian.levine@officedepot.com
Public Relations
561-438-2895
brian.levine@officedepot.com
OFFICE DEPOT ANNOUNCES FOURTH QUARTER 2008 RESULTS
Delray Beach, Fla., February 24, 2009 — Office Depot, Inc. (NYSE: ODP), a leading global provider
of office products and services, today announced results for the fiscal period ending December 27,
2008.
FOURTH QUARTER RESULTS 1
Total Company sales for the fourth quarter decreased 15% to $3.3 billion. Total Company operating
expenses, adjusted for Charges, increased by $42 million from the fourth quarter of 2007. EBIT,
adjusted for Charges, was a loss of $210 million in the fourth quarter of 2008 or a negative 6.4%
as a percentage of sales, compared to a positive $6 million or 0.2% as a percentage of sales in the
prior-year period.
The Company reported a net loss of $1.54 billion in the fourth quarter of 2008, compared to
earnings of $19 million in the same period of 2007. The loss per share on a diluted basis was
$5.64 for the quarter, versus earnings per share of $0.07 in the fourth quarter of 2007. Adjusted
for Charges, the Company reported a loss of $199 million and a loss per share on a diluted basis of
$0.73 for the fourth quarter of 2008, versus earnings of $27 million and earnings per share of
$0.10 in the same period one year ago.
The Charges are comprised of unusual items, including non-cash charges totaling $1.27 billion, or
$4.54 per share recorded for goodwill and trade name impairments, and pre-tax charges totaling $167
million, or $0.37 per share for actions taken as part of the strategic business review announced in
December 2008 and the plan announced in 2005.
Additional pre-tax charges taken in the fourth quarter related to the business downturn, primarily
the impairment of North American Retail store assets, totaled $125 million.
In the fourth quarter of 2008, the Company’s cash flow from operations was $30 million and cash
flow before financing activities was $4 million.
FOURTH QUARTER DIVISION RESULTS
North American Retail Division
Fourth quarter 2008 sales in the North American Retail Division were $1.4 billion, down 17%
compared to the same period last year. Comparable store sales in the 1,207 stores in the U.S. and
Canada that have been open for more than one year decreased 18% for the fourth quarter. Although
it appeared that the rate of sales decline experienced in California had stabilized for the first
nine months of the year, the
1 Includes non-GAAP information. Fourth quarter
results include impacts of previously announced programs (“Charges”).
Additional information is provided in our Form 10-K filing. Reconciliations
from GAAP to non-GAAP financial measures can be found in this release, as well
as on the corporate web site, www.officedepot.com, under the category
Investor Relations.
1
fourth quarter proved to be much more challenging. While Florida continues to be the Division’s
most troubled market, it has been declining at a slower rate than the rest of the country.
The North American Retail Division had an operating loss of $119 million for the fourth quarter, a
decline from the operating profit of $23 million in the same period of the prior year. The
operating profit decline was driven by a number of factors including a non-cash asset impairment
charge of $78 million; the flow through from the sales volume decline; and additional reserves for
store closures, inventory and the Company’s private label credit card. Partially offsetting this
decline was an improvement in product margins in the fourth quarter.
During the fourth quarter, Office Depot opened two new stores, closed 10, and relocated one store,
bringing the total store count to 1,267. The Company also remodeled 11 stores in the quarter.
Inventory per store was $689 thousand at the end of the fourth quarter of 2008, down approximately
28% from the prior year. This decrease is a result of the Company’s ability to align inventory
investment with sales levels in the current economic environment.
North American Business Solutions Division
Fourth quarter 2008 sales in the North American Business Solutions Division were $920 million, down
14% compared to the same period last year, driven by severe spending cuts by the Division’s
customers.
The North American Business Solutions Division reported an operating loss of $28 million for the
fourth quarter of 2008 compared to an operating profit of $1 million for the same period of the
prior year. The decrease in operating profit during the fourth quarter of 2008 primarily relates
to the flow through of the sales volume decline; increased bad debt reserves; and weaker customer
and product mix. Partially offsetting this decline were the negative adjustments for lower vendor
program support and inventory clearance reserves from the fourth quarter of 2007 that did not
recur.
International Division
The International Division reported a sales decrease of 15% in the fourth quarter of 2008 to $963
million, compared with the same period last year, while sales in local currency decreased by 4%.
Sales in the Direct channel were down 7% in local currencies as a result of small- to medium-sized
businesses reducing their discretionary expenditures and an increase in competitiveness within the
channel. The Contract channel also experienced a contraction in customer spending resulting in a
sales decline of 2% in local currencies. Retail sales were up 1% versus one year ago due to a
third quarter of 2008 acquisition in Sweden.
Division operating profit was $10 million in the fourth quarter of 2008 compared to $60 million in
the same period of the prior year. The decrease in operating profit is a result of the flow
through from the sales volume declines, intangible asset write offs in Europe and Asia, higher
costs and increased competition on key items, and unfavorable foreign exchange rates.
FULL YEAR RESULTS 1
For the full year, sales decreased 7% to $14.5 billion. The GAAP loss for fiscal 2008 was $1.48
billion, compared to earnings of $396 million in fiscal 2007. The GAAP loss per share on a diluted
basis was $5.42 in 2008, compared to diluted earnings per share of $1.43 in the prior year.
Adjusted for Charges, the diluted loss per share for fiscal 2008 was $0.41, versus diluted earnings
per share of $1.54 in 2007.
For the full year, EBIT, adjusted for Charges, was a negative $51 million, compared to a positive
$551 million in 2007.
Capital expenditures for 2008 were $330 million. Capital expenditures for 2009 are estimated to be
reduced to about $150 million, primarily reflecting a deceleration of the Company’s IT and supply
chain initiatives and a reduction in retail store growth.
2
Other Matters
The Company recognized about $165 million of pre-tax Charges related to the strategic business review announced in December of 2008. These Charges included expenses related to North American retail store and supply chain facility closures, headcount reductions, asset write downs and the rationalization of certain International businesses. The Company also recognized $2 million of pre-tax Charges related to the plan announced in 2005. During 2009, the Company expects to recognize approximately $186 million in additional Charges related to initiatives covered by this review and projects initiated under our 2005 restructuring program. The 2008 initiatives should benefit 2009 EBIT and cash flow by approximately $130 million and $105 million, respectively.
The Company recognized about $165 million of pre-tax Charges related to the strategic business review announced in December of 2008. These Charges included expenses related to North American retail store and supply chain facility closures, headcount reductions, asset write downs and the rationalization of certain International businesses. The Company also recognized $2 million of pre-tax Charges related to the plan announced in 2005. During 2009, the Company expects to recognize approximately $186 million in additional Charges related to initiatives covered by this review and projects initiated under our 2005 restructuring program. The 2008 initiatives should benefit 2009 EBIT and cash flow by approximately $130 million and $105 million, respectively.
In addition to the cash flow benefits provided by the actions taken as part of the strategic
business review, the Company is actively pursuing other internal sources of liquidity in 2009,
including sale leasebacks of owned properties in the U.S. and Europe, the sale of certain accounts
receivable in Europe, dividends from a joint venture, and tax refunds. In total, Office Depot is
targeting over $400 million in cash benefit from internal initiatives in 2009.
At the end of December 2008, the Company had drawn $139 million on its asset-based loan (ABL)
facility, and had $178 million in outstanding letters of credit against the facility, leaving it
with $712 million of availability. With $712 million of ABL availability and $156 million in cash
on hand at the end of December, Office Depot exited 2008 with $868 million in total available
liquidity.
More information on the strategic business review is available in our Form 8-K filed with the
Securities and Exchange Commission on December 10, 2008 and our Form 10-K filed on February 24,
2009.
Additional information on the Company’s full year results can also be found in our Form 10-K filed
with the Securities and Exchange Commission on February 24, 2009.
Non-GAAP Reconciliation
A reconciliation of GAAP results to non-GAAP results excluding certain items is presented in this
release and also may be accessed on the corporate website, www.officedepot.com, under the
category Company Info.
Conference Call Information
Office Depot will hold a conference call for investors and analysts at 9 a.m. (Eastern Daylight
Time) today. The conference call will be available to all investors via Web cast at
http://investor.officedepot.com. Interested parties may contact Investor Relations at 561-438-7893
for further information.
About Office Depot
Every day, Office Depot is Taking Care of Business for millions of customers around the globe. For
the local corner store as well as Fortune 500 companies, Office Depot provides products and
services to its customers through 1,713 worldwide retail stores, a dedicated sales force, top-rated
catalogs and a $4.8 billion e-commerce operation. Office Depot has annual sales of approximately
$14.5 billion, and employs about 43,000 associates around the world. The Company provides more
office products and services to more customers in more countries than any other company, and
currently sells to customers directly or through affiliates in 48 countries.
Office Depot’s common stock is listed on the New York Stock Exchange under the symbol ODP and is
included in the S&P 500 Index. Additional press information can be found at:
http://mediarelations.officedepot.com.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS: The Private Securities Litigation Reform
Act of 1995, as amended (the “Act”) provides protection from liability in private lawsuits for
“forward-looking” statements made by public companies under certain
3
circumstances, provided that the public company discloses with specificity the risk factors that
may impact its future results. We want to take advantage of the “safe harbor” provisions of the
Act. Certain statements made in this press release are ‘forward-looking’ statements under the Act.
Except for historical financial and business performance information, statements made in this press
release should be considered ‘forward-looking’ as referred to in the Act. Much of the information
that looks towards future performance of our company is based on various factors and important
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 materially and substantially from those we have
discussed in the forward-looking statements made in this press release. Certain risks and
uncertainties are detailed from time to time in our filings with the United States Securities and
Exchange Commission (“SEC”). You are strongly urged to review all such filings for a more detailed
discussion of such risks and uncertainties. The Company’s SEC filings are readily obtainable at no
charge at www.sec.gov and at www.freeEDGAR.com, as well as on a number of other
commercial web sites.
4
OFFICE DEPOT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| As of | As of | |||||||
| December 27, | December 29, | |||||||
| 2008 | 2007 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 155,745 | $ | 222,954 | ||||
Receivables, net |
1,255,735 | 1,511,681 | ||||||
Inventories |
1,331,593 | 1,717,662 | ||||||
Deferred income taxes |
196,192 | 120,162 | ||||||
Prepaid expenses and other current assets |
183,122 | 143,255 | ||||||
Total current assets |
3,122,387 | 3,715,714 | ||||||
Property and equipment, net |
1,557,301 | 1,588,958 | ||||||
Goodwill |
19,431 | 1,282,457 | ||||||
Other intangible assets |
28,311 | 107,987 | ||||||
Other assets |
540,796 | 561,424 | ||||||
Total assets |
$ | 5,268,226 | $ | 7,256,540 | ||||
Liabilities and stockholders’ equity |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 1,251,808 | $ | 1,591,154 | ||||
Accrued expenses and other current liabilities |
1,173,201 | 1,170,775 | ||||||
Income taxes payable |
8,803 | 3,491 | ||||||
Short-term borrowings and current maturities of long-term debt |
191,932 | 207,996 | ||||||
Total current liabilities |
2,625,744 | 2,973,416 | ||||||
Deferred income taxes and other long-term liabilities |
585,861 | 576,254 | ||||||
Long-term debt, net of current maturities |
688,788 | 607,462 | ||||||
Minority interest |
4,883 | 15,564 | ||||||
Commitments and contingencies |
||||||||
Stockholders’ equity: |
||||||||
Common stock — authorized 800,000,000 shares
of $.01 par value; issued and outstanding shares -
280,800,135 in 2008 and 428,777,625 in 2007 |
2,808 | 4,288 | ||||||
Additional paid-in capital |
1,194,622 | 1,784,184 | ||||||
Accumulated other comprehensive income |
217,197 | 495,916 | ||||||
Retained earnings |
6,270 | 3,783,805 | ||||||
Treasury stock, at cost — 5,938,059 shares in 2008
and 155,819,358 shares in 2007 |
(57,947 | ) | (2,984,349 | ) | ||||
Total stockholders’ equity |
1,362,950 | 3,083,844 | ||||||
Total liabilities and stockholders’ equity |
$ | 5,268,226 | $ | 7,256,540 | ||||
5
OFFICE DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||||||
| December 27, | December 29, | December 27, | December 29, | |||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
Sales |
$ | 3,270,597 | $ | 3,866,927 | $ | 14,495,544 | $ | 15,527,537 | ||||||||
Cost of goods sold and occupancy costs |
2,441,475 | 2,844,391 | 10,489,785 | 11,024,639 | ||||||||||||
Gross profit |
829,122 | 1,022,536 | 4,005,759 | 4,502,898 | ||||||||||||
Store and warehouse operating and selling
expenses |
819,832 | 851,985 | 3,322,662 | 3,381,129 | ||||||||||||
Goodwill and trade name impairments |
1,269,893 | — | 1,269,893 | — | ||||||||||||
Other asset impairments |
202,520 | — | 222,379 | — | ||||||||||||
General and administrative expenses |
193,038 | 183,546 | 743,174 | 645,661 | ||||||||||||
Amortization of deferred gain on building sale |
(1,689 | ) | (1,874 | ) | (7,308 | ) | (7,493 | ) | ||||||||
Operating profit (loss) |
(1,654,472 | ) | (11,121 | ) | (1,545,041 | ) | 483,601 | |||||||||
Other income (expense): |
||||||||||||||||
Interest income |
1,596 | 3,228 | 10,013 | 9,440 | ||||||||||||
Interest expense |
(22,655 | ) | (13,093 | ) | (68,286 | ) | (63,080 | ) | ||||||||
Miscellaneous income, net |
7,214 | 3,739 | 25,731 | 28,672 | ||||||||||||
Earnings (loss) before income taxes |
(1,668,317 | ) | (17,247 | ) | (1,577,583 | ) | 458,633 | |||||||||
Income tax expense (benefit) |
(129,306 | ) | (36,021 | ) | (98,645 | ) | 63,018 | |||||||||
Net earnings (loss) |
$ | (1,539,011 | ) | $ | 18,774 | $ | (1,478,938 | ) | $ | 395,615 | ||||||
Earnings (loss) per common share: |
||||||||||||||||
Basic |
$ | (5.64 | ) | $ | 0.07 | $ | (5.42 | ) | $ | 1.45 | ||||||
Diluted |
(5.64 | ) | 0.07 | (5.42 | ) | 1.43 | ||||||||||
Weighted average number of common shares
outstanding: |
||||||||||||||||
Basic |
272,924 | 272,204 | 272,776 | 272,899 | ||||||||||||
Diluted |
272,924 | 273,309 | 272,776 | 275,940 | ||||||||||||
6
OFFICE DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| 52 Weeks Ended | ||||||||
| December 27, | December 29, | |||||||
| 2008 | 2007 | |||||||
Cash flow from operating activities: |
||||||||
Net earnings (loss) |
$ | (1,478,938 | ) | $ | 395,615 | |||
Adjustments to reconcile net earnings (loss) to net cash |
||||||||
provided by operating activities: |
||||||||
Depreciation and amortization |
254,099 | 281,383 | ||||||
Charges for losses on inventories and receivables |
140,058 | 109,798 | ||||||
Net earnings from equity method investments |
(37,113 | ) | (34,825 | ) | ||||
Goodwill and trade name impairments |
1,269,893 | — | ||||||
Other asset impairments |
222,379 | — | ||||||
Compensation expense for share-based payments |
39,561 | 37,738 | ||||||
Deferred income tax provision |
(108,099 | ) | (1,022 | ) | ||||
Gain on disposition of assets |
(13,443 | ) | (25,190 | ) | ||||
Other operating activities |
(7,612 | ) | 2,927 | |||||
Changes in assets and liabilities: |
||||||||
Decrease in receivables |
133,162 | 25,909 | ||||||
Decrease (increase) in inventories |
249,849 | (191,685 | ) | |||||
Net increase in prepaid expenses and other assets |
(16,986 | ) | (12,342 | ) | ||||
Net decrease in accounts payable, accrued
expenses and other long-term liabilities |
(178,554 | ) | (176,921 | ) | ||||
Total adjustments |
1,947,194 | 15,770 | ||||||
Net cash provided by operating activities |
468,256 | 411,385 | ||||||
Cash flows from investing activities: |
||||||||
Acquisitions, net of cash acquired, and related payments |
(102,752 | ) | (48,036 | ) | ||||
Capital expenditures |
(330,075 | ) | (460,571 | ) | ||||
Purchase of assets held for sale and sold |
(38,537 | ) | — | |||||
Proceeds from disposition of assets and other |
120,632 | 129,182 | ||||||
Dividends received |
— | 25,000 | ||||||
Restricted cash for pending transaction |
(6,037 | ) | (18,100 | ) | ||||
Release of restricted cash |
18,100 | — | ||||||
Net cash used in investing activities |
(338,669 | ) | (372,525 | ) | ||||
Cash flows from financing activities: |
||||||||
Net proceeds from exercise of stock options and sale of stock |
||||||||
under employee stock purchase plans |
503 | 29,332 | ||||||
Tax benefit from employee share-based exercises |
89 | 18,266 | ||||||
Acquisition of treasury stock under approved repurchase plans |
— | (199,592 | ) | |||||
Treasury stock additions from employee related plans |
(944 | ) | (11,201 | ) | ||||
Debt issuance costs |
(40,793 | ) | — | |||||
Proceeds from issuance of borrowings |
139,098 | 177,413 | ||||||
Payments on long- and short-term borrowings |
(284,204 | ) | (6,292 | ) | ||||
Net cash provided by (used in) financing activities |
(186,251 | ) | 7,926 | |||||
Effect of exchange rate changes on cash and cash equivalents |
(10,545 | ) | 2,616 | |||||
Net increase (decrease) in cash and cash equivalents |
(67,209 | ) | 49,402 | |||||
Cash and cash equivalents at beginning of period |
222,954 | 173,552 | ||||||
Cash and cash equivalents at end of period |
$ | 155,745 | $ | 222,954 | ||||
7
OFFICE DEPOT, INC.
GAAP to Non-GAAP Reconciliations
GAAP to Non-GAAP Reconciliations
A reconciliation of GAAP financial measures to non-GAAP financial measures and the limitations on
their use may be accessed on the corporate website, www.officedepot.com, under the category
Company Info. Certain portions of those reconciliations are provided in the following tables. ($
in millions, except per share amounts)
| Q4 2008 | GAAP | % of Sales | Charges | Non-GAAP | % of Sales | |||||||||||||||
Gross Profit |
$ | 829.1 | 25.4% | $ | 15.8 | $ | 844.9 | 25.9% | ||||||||||||
Operating Expenses |
$ | 2,483.6 | 76.0% | $ | (1,421.3 | ) | $ | 1,062.3 | 32.5% | |||||||||||
Operating Loss |
$ | (1,654.5 | ) | (50.6)% | $ | 1,437.1 | $ | (217.4 | ) | (6.6)% | ||||||||||
Net Loss |
$ | (1,539.0 | ) | (47.1)% | $ | 1,340.1 | $ | (198.9 | ) | (6.1)% | ||||||||||
Diluted Loss Per Share |
$ | (5.64 | ) | $ | 4.91 | $ | (0.73 | ) | ||||||||||||
| Q4 2007 | GAAP | % of Sales | Charges | Non-GAAP | % of Sales | |||||||||||||||
Gross Profit |
$ | 1,022.5 | 26.4% | $ | 0.1 | $ | 1,022.6 | 26.4% | ||||||||||||
Operating Expenses |
$ | 1,033.6 | 26.7% | $ | (13.6 | ) | $ | 1,020.0 | 26.3% | |||||||||||
Operating Profit (Loss) |
$ | (11.1 | ) | -0.3% | $ | 13.7 | $ | 2.6 | 0.1% | |||||||||||
Net Earnings |
$ | 18.8 | 0.5% | $ | 7.8 | $ | 26.6 | 0.7% | ||||||||||||
Diluted Earnings Per Share |
$ | 0.07 | $ | 0.03 | $ | 0.10 | ||||||||||||||
| YTD 2008 | GAAP | % of Sales | Charges | Non-GAAP | % of Sales | |||||||||||||||
Gross Profit |
$ | 4,005.7 | 27.6% | $ | 15.9 | $ | 4,021.6 | 27.7% | ||||||||||||
Operating Expenses |
$ | 5,550.7 | 38.3% | $ | (1,452.8 | ) | $ | 4,097.9 | 28.2% | |||||||||||
Operating Loss |
$ | (1,545.0 | ) | (10.7)% | $ | 1,468.7 | $ | (76.3 | ) | (0.5)% | ||||||||||
Net Loss |
$ | (1,478.9 | ) | (10.2)% | $ | 1,366.2 | $ | (112.7 | ) | (0.8)% | ||||||||||
Diluted Loss Per Share |
$ | (5.42 | ) | $ | 5.01 | $ | (0.41 | ) | ||||||||||||
| YTD 2007 | GAAP | % of Sales | Charges | Non-GAAP | % of Sales | |||||||||||||||
Gross Profit |
$ | 4,502.9 | 29.0% | $ | 0.3 | $ | 4,503.2 | 29.0% | ||||||||||||
Operating Expenses |
$ | 4,019.3 | 25.9% | $ | (38.2 | ) | $ | 3,981.1 | 25.6% | |||||||||||
Operating Profit |
$ | 483.6 | 3.1% | $ | 38.5 | $ | 522.1 | 3.4% | ||||||||||||
Net Earnings |
$ | 395.6 | 2.5% | $ | 28.2 | $ | 423.8 | 2.7% | ||||||||||||
Diluted Earnings Per Share |
$ | 1.43 | $ | 0.11 | $ | 1.54 | ||||||||||||||
8
OFFICE DEPOT, INC.
GAAP to Non-GAAP Reconciliations (Continued)
GAAP to Non-GAAP Reconciliations (Continued)
| Q4 2008* | Q4 2007 | |||||||
Cash Flow Summary |
||||||||
Net cash provided by (used in) operating activities |
$ | 30.5 | $ | (43.4 | ) | |||
Net cash provided by (used in) investing activities |
(22.7 | ) | (98.4 | ) | ||||
Net cash provided by (used in) financing activities |
(242.8 | ) | 179.7 | |||||
Effect of exchange rate changes on cash and cash equivalents |
(3.8 | ) | (2.0 | ) | ||||
Net increase (decrease) in cash and cash equivalents |
$ | (238.8 | ) | $ | 35.9 | |||
Free Cash Flow |
||||||||
Net cash provided by (used in) operating activities |
$ | 30.5 | $ | (43.4 | ) | |||
Less: Capital expenditures |
52.3 | 126.6 | ||||||
Free Cash Flow |
$ | (21.8 | ) | $ | (170.0 | ) | ||
Cash Flow Before Financing Activities |
||||||||
Net increase (decrease) in cash and cash equivalents |
$ | (238.8 | ) | $ | 35.9 | |||
Less: Net cash provided by (used in) financing activities |
(242.8 | ) | 179.7 | |||||
Cash Flow Before Financing Activities |
$ | 4.0 | $ | (143.8 | ) | |||
| FY 2008 | FY 2007 | |||||||
Cash Flow Summary |
||||||||
Net cash provided by (used in) operating activities |
$ | 468.3 | $ | 411.4 | ||||
Net cash provided by (used in) investing activities |
(338.7 | ) | (372.5 | ) | ||||
Net cash provided by (used in) financing activities |
(186.3 | ) | 7.9 | |||||
Effect of exchange rate changes on cash and cash equivalents |
(10.5 | ) | 2.6 | |||||
Net increase (decrease) in cash and cash equivalents |
$ | (67.2 | ) | $ | 49.4 | |||
Free Cash Flow |
||||||||
Net cash provided by (used in) operating activities |
$ | 468.3 | $ | 411.4 | ||||
Less: Capital expenditures |
330.1 | 460.6 | ||||||
Free Cash Flow |
$ | 138.2 | $ | (49.2 | ) | |||
Cash Flow Before Financing Activities |
||||||||
Net increase (decrease) in cash and cash equivalents |
$ | (67.2 | ) | $ | 49.4 | |||
Less: Net cash provided by (used in) financing activities |
(186.3 | ) | 7.9 | |||||
Cash Flow Before Financing Activities |
$ | 119.1 | $ | 41.5 | ||||
Free cash flow is calculated as net cash provided by (used in) operating activities less capital
expenditures.
Cash flow before financing activities is calculated as the net increase (decrease) in cash and cash
equivalents less net cash provided by (used in) financing
activities.
*Quarterly
amounts have been conformed to full year presentation.
9
Office Depot, Inc.
DIVISION INFORMATION
(Unaudited)
DIVISION INFORMATION
(Unaudited)
North American Retail Division
| Fourth Quarter | Year-to-Date | |||||||||||||||
| (Dollars in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Sales |
$ | 1,387.3 | $ | 1,667.7 | $ | 6,112.3 | $ | 6,813.6 | ||||||||
% change |
(17)% | (3)% | (10)% | —% | ||||||||||||
Division operating profit (loss) |
$ | (119.3) | $ | 23.5 | $ | (29.2) | $ | 354.5 | ||||||||
% of sales |
(8.6)% | 1.4% | (0.5)% | 5.2% | ||||||||||||
North American Business Solutions Division
| Fourth Quarter | Year-to-Date | |||||||||||||||
| (Dollars in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Sales |
$ | 919.8 | $ | 1,064.7 | $ | 4,142.1 | $ | 4,518.4 | ||||||||
% change |
(14)% | (4)% | (8)% | (1)% | ||||||||||||
Division operating profit (loss) |
$ | (28.2 | ) | $ | 0.8 | $ | 119.8 | $ | 220.1 | |||||||
% of sales |
(3.1)% | 0.1% | 2.9% | 4.9% | ||||||||||||
International Division
| Fourth Quarter | Year-to-Date | |||||||||||||||
| (Dollars in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Sales |
$ | 963.5 | $ | 1,134.6 | $ | 4,241.1 | $ | 4,195.6 | ||||||||
% change |
(15)% | 12% | 1% | 15% | ||||||||||||
% change in local currency sales |
(4)% | 2% | (2)% | 6% | ||||||||||||
Division operating profit |
$ | 10.0 | $ | 59.6 | $ | 157.2 | $ | 231.1 | ||||||||
% of sales |
1.0% | 5.3% | 3.7% | 5.5% | ||||||||||||
Division operating profit excludes Charges from the Division performance, as those Charges are
evaluated at a corporate level.
Office Depot, Inc.
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
Other Selected Financial Information
(In thousands, except operational data)
(In thousands, except operational data)
| 52 Weeks Ended | 52 Weeks Ended | |||||||
| December 27, 2008 | December 29, 2007 | |||||||
Cumulative share repurchases under approved
repurchase plans ($): |
$ | — | $ | 199,592 | ||||
Cumulative share repurchases under approved
repurchase plans (shares): |
— | 5,702 | ||||||
Shares outstanding, end of quarter |
274,862 | 272,958 | ||||||
Amount authorized for future share
repurchases, end of quarter ($): |
$ | 500,000 | ||||||
Selected Operating Highlights
| 13 Weeks Ended | 52 Weeks Ended | |||||||||||||||
| December 27, 2008 | December 29, 2007 | December 27, 2008 | December 29, 2007 | |||||||||||||
Store Statistics |
||||||||||||||||
United States and Canada: |
||||||||||||||||
Store count: |
||||||||||||||||
Stores opened |
2 | 12 | 59 | 71 | ||||||||||||
Stores closed |
10 | 2 | 14 | 7 | ||||||||||||
Stores relocated |
1 | 2 | 7 | 3 | ||||||||||||
Total U.S. and Canada stores |
1,267 | 1,222 | 1,267 | 1,222 | ||||||||||||
North American Retail Division
square footage: |
30,672,862 | 29,790,082 | ||||||||||||||
Average square footage per NAR
store |
24,209 | 24,378 | ||||||||||||||
Inventory per store (end of
period) |
$ | 689,000 | $ | 960,000 | ||||||||||||
International Division
company-owned: |
||||||||||||||||
Store count: |
||||||||||||||||
Stores opened |
— | 5 | 2 | 26 | ||||||||||||
Stores closed |
— | 1 | 1 | 3 | ||||||||||||
Stores acquired |
— | — | 13 | — | ||||||||||||
Total International
company-owned stores |
162 | 148 | 162 | 148 | ||||||||||||
Exhibit 99.1.2
| Investor Presentation February 2009 |
| Safe Harbor Statement The Private Securities Litigation Reform Act of 1995 (the "Act") provides protection from liability in private lawsuits for "forward-looking" statements made by public companies under certain circumstances, provided that the public company discloses with specificity the risk factors that may impact its future results. We want to take advantage of the "safe harbor" provisions of the Act. Certain statements made during this presentation are 'forward-looking' statements under the Act. Except for historical financial and business performance information, statements made during this presentation should be considered 'forward-looking' as referred to in the Act. Much of the information that looks towards future performance of our company is based on various factors and important 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 materially and substantially from those we have discussed in the forward-looking statements made during this presentation. Certain risks and uncertainties are detailed from time to time in our filings with the United States Securities and Exchange Commission ("SEC"). You are strongly urged to review all such filings for a more detailed discussion of such risks and uncertainties. During portions of today's presentation, we may refer to results which are not GAAP numbers. A reconciliation of non-GAAP numbers to GAAP results is available on our web site at www.investor.officedepot.com. |
| Industry Perspective |
| U.S. Office Products Industry CAGR '02-'07 2.8% 3.1% 2.6% Source: School and Office Products Network - State of the Industry Report 2008 / Office Depot Estimates 2002 2003 2004 2005 2006 2007 Retail 189 194 199 206 211 215 Delivery 105 108 112 117 120 122 Retail $189B Retail $194B Retail $199B Delivery $105B Delivery $108B Delivery $113B $294B $302B $312B Retail $206B Delivery $117B Retail $211B Delivery $120B $323B $331B We began to see some cyclicality from a weakening macroeconomic environment beginning in early 2007. Delivery $122B Retail $215B $337B Billions |
| U.S. Office Products Industry Source: School and Office Products Network - State of the Industry Report 2008 / Office Depot Estimates Note: Figures may not add to 100% due to rounding Retail Specialty Retailers 0.2 Office Superstores 0.1 Mass Retailers 0.18 Food/Drug Stores 0.02 College/Bookstores 0.04 Copy/Printing Services 0.03 Stationery/Gift Stores 0.01 Institutional/School Firms 0.02 Internet/Direct Sales 0.03 Independent Dealers 0.06 Contract Specialists 0.21 Contract Stationers 0.01 Other 0.09 O.S.S. Independent Dealers Specialty Stores Food/Drug Stores Other Contract Stationers Mass Retailers ODP 3.4% SPLS 4.3% OMX 2.3% 2007 OSS Market Share Contract Specialists College/Bookstores Copy/Printing Services Internet/Direct Sales OSS comprise a small portion of the overall U.S. office supply industry Stationery/Gift Stores Institutional/School Firms |
| Office Depot Overview |
| Office Depot is a leading global provider of office products and services 2008 sales of $14.5 billion Supplies: 61% of sales Technology: 25% of sales Furniture and Other: 14% of Sales Multi-channel - stores, catalog, Internet and contract serve business customers of any size, from small home office to Fortune 500 accounts 58% of 2008 sales were not in North American Retail One of the world's largest e-commerce retailers - $4.8 billion in sales in 2008 Office Depot - Business Overview Artistree N.A. Business Solutions (29% of 2008 Sales) Artistree International (29% of 2008 Sales) Artistree North American Retail (42% of 2008 Sales) Over 1,200 stores in U.S. and Canada Largest concentration of stores in California, Florida and Texas Catalog, contract and e-commerce Dedicated sales force works with medium sized to Fortune 100 customers Orders serviced through 20 distribution centers Catalog, contract, e-commerce and retail Sells to customer directly and through affiliates in 45 countries outside of North America 35+ websites and over 400 stores |
| Office Depot Timeline 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 Entered the contract stationer business via the acquisition of two industry leaders: Wilson Stationery & Printing Company and Eastman Office Products Corporation Founded in Florida with the first store opening in Fort Lauderdale, FL Listed on the NASDAQ under the symbol "ODEP" Listed on the NYSE under the symbol "ODP" Acquired The Great Canadian Office Supplies warehouse chain Acquired six additional contract stationers in North America Opened licensed Office Depot stores in Colombia and Israel. Announced retail joint venture agreement in Mexico and licensing agreement in Poland Staples / Office Depot merger blocked by FTC Merged with Viking Office Products, the leading direct marketer of office products in Europe and Australia Office Depot added to S&P 500 Acquired Guilbert S.A., a leading European contract stationer, doubling the size of the Company's European business Acquired Allied Office Products, Best Office Co., Ltd., Papirius, and AsiaEC Acquired Axidata, a Canada-based office products delivery company Completed merger with Office Club Inc. Acquired eOfficePlanet India in joint venture with Reliance Retail Acquired controlling interest in AGE Kontor & Data AB in Sweden |
| Issues Facing The Company Entering 2005 Functionally-aligned organization with no divisional leadership Non-integrated acquisitions Duplicate overhead Cost and complexity of multiple systems Information technology systems impeding growth Duplicate supply chain Operating margin gap versus largest competitor and no plan to close gap Declining market share Inconsistency in shopping experience and service, and lack of differentiation Aging store portfolio with no proven new store format 700 different store sets and at least five different retail formats |
| Successful Turnaround Begins North American Retail North American Business Solutions International Improve profitability while continuing store build out program Finalize new format (M2) for the remodeled stores Improve service in stores Grow market share organically and through acquisitions Expand large contract sales, add sales force Complete integration of Viking acquisition Expand product / service portfolio Improve profitability by growing European contract business, tightening cost control Use telephone account managers to acquire new customers in Europe Integrate various operations around the globe Expand geographic reach into developing areas New Management talent was added across the organization |
| 2004 2005 2006 First Half 2007 Sales $ 13,565 $ 14,279 $ 15,011 $ 7,725 EBIT1 $ 576 $ 654 $ 802 $ 416 EPS1 $ 1.18 $ 1.41 $ 1.90 $ 1.00 EBIT Margin1 4.2% 4.6% 5.3% 5.4% EPS Growth1 19.2% 19.5% 34.8% 8.7% Positive Impact From Turnaround (Dollars in millions, except per share data) Stock Performance January 2004 - June 2007 $16.71 $30.30 +81% Company announces Steve Odland hired as new CEO 1 Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com Nine strong consecutive quarters under new Management team, with improving performance and increased shareholder value, including record sales and earnings in Q1 2007 Approximately $2 billion of capital returned to stockholders through share repurchases from 2005 through 2007 (represented approximately 20% of outstanding shares, 140% of adjusted after-tax earnings and 106% of operating cash flow) |
| 2007 2007 2007 First Half Second Half Full Year Sales $ 7,725 $ 7,802 $15,528 EBIT1 $ 416 $ 135 $ 551 EPS1 $ 1.00 $ 0.53 $ 1.54 EBIT Margin1 5.4% 1.7% 3.5% EPS Growth1 8.7% (45.9%) (18.9%) Macroeconomic And Business Conditions Shift (Dollars in millions, except per share data) Stock Performance July 2007 - December 2007 $30.30 $13.91 (54%) Weakening housing-related economic conditions and a heavy sales concentration in Florida and California (approximately 30% of North American sales in 2007) negatively impacted results in the second half of 2007 Heavier mix of both lower margin technology product sales in North American Retail and lower margin customers in North American Business Solutions contributed to margin declines Declining vendor program support due to industry slowdown also impacted margins Weaker U.K. performance negatively affected International results 1 Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com |
| Strategic Priorities |
| North American Retail North American Business Solutions International Increasing high margin services Continuing product assortment reviews Manage inventory tightly Aggressively pursue small-to medium-sized business New Catalog / Direct Marketing team Improve telephone account management (TAM) program Introducing new products, services and solutions Focused on improving gross margin Continuing to reduce operating costs while improving customer service Strategic Priorities - Taking Care of Business Cash Management Reducing capital expenditures Inventory management Exiting businesses with negative cash flows |
| Strategic Business Review Update North American Retail closed six underperforming stores as part of the strategic review in the fourth quarter 2008 and expects to close an additional 118 stores in 2009, including two stores not included in the strategic review Closed one North American distribution facility in the fourth quarter and plan to close an additional five in the first quarter 2009 Taking restructuring charges related to the rationalization of some of our International businesses, a software write down and other North America initiatives These actions should benefit 2009 EBIT and cash flow by approximately $130 million and $105 million, respectively |
| North American Retail Increasing high-margin services critical to micro-business customers Including Design, Print & Ship and Tech Depot Services Continuing product assortment line reviews Better values and more exciting offering for customer, more profitable for ODP Continuing to manage inventory tightly Reduced end of period inventory by 28% in fourth quarter versus prior year; largely technology and furniture Maintained high "in stock" levels Reducing new store openings Approximately 15 new store openings planned for 2009 Closing 118 stores in 2009 N. A. Retail - Taking Care of Business Update |
| North American Business Solutions Continue to aggressively pursue small- to medium-sized business (SMB) Providing the right tools to sales force Improving the telephone account management (TAM) program Key performance indicators making a difference New catalog / direct marketing team refining catalog circulation Goal is to increase the customer file Revising pricing and promotional strategy Making customer-focused enhancements to website Reorganized Contract sales force Aligning with the current economic environment N.A. Business Solutions - Taking Care of Business Update |
| International Introducing new products, services and solutions Tech Depot rolled out to the U.K. and Netherlands and rolling out pilot test of Tech Services in France Focused on improving gross margin Harmonizing SKU assortment to simplify inventory management and reduce costs Increasing direct import of private brand products Committed to reducing operating costs while improving customer service U.K. providing record service level metrics Expanding into new markets with low capital Using strategic alliances, franchise arrangements and partnerships International - Taking Care of Business Update |
| Private Brand/Global Sourcing Initiative Private brand penetration percentage is currently in the high 20's Private Brand Penetration/Global Sourcing to improve margin Opened Office Depot sourcing office in Shenzhen, China in 2007 Supplemented with third-party sourcing resources Expanding categories of products sourced and countries utilized Independent audits of all factories and chain of custody of goods for environmental, social, and quality issues All Private Brand meets or exceeds industry testing requirements Private Brand/Global Sourcing |
| Private Brands TM |
| Centralization Financial Back Office Call Center North America-Utilize third parties for a number of financial functions Some in North America, some offshore Assign credit Collections and cash application International-Completed transition of financial functions to Eastern Europe Credit, collections, cash applications North America-Global Accounts, Executive Customer Service, E-Commerce handled in 2 centers in U.S. Balance of inbound calls near shore and offshore International-In the process of consolidating E.U. call centers |
| Global Supply Chain Initiative North America Two separate NA Supply Chains 12 cross docks (NA Retail) 20 distribution centers (NA Business Solutions) Environment Initiative International Convert to 12 combination facilities with about 7M square feet as leases expire Capacity for approximately 9M square feet Each facility will have pick/pack and flow through capability to optimize service for Retail and Business Solutions Improve global supply chain expense as a percent of sales by 50 basis points Global Benefits Environment Initiative Reduce supply chain network to 15 facilities in Europe Consolidate to one warehouse management system Supply chain network of 23 facilities in Europe 7 warehouse management systems |
| Global Information Technology Initiative Environment Initiative Benefits Costly and complex: Historical "home grown" legacy systems Acquired systems through past major acquisitions Multiple channels No single global integrated system - an expensive environment to operate Minimal process definition and sophistication Simplify, consolidate, globalize and standardize processes and practices, and support them with common applications and platforms Install Oracle ERP system to replace many separate platforms utilized to run the entire corporation Narrow the Company's many different warehouse management systems to one (Manhattan Associates) Reduce IT costs as a percent of sales from current level of 1.7% and, coupled with other benefits, reduce costs by 40 bps+ Enable faster and easier integration of future business expansions and acquisitions Provide a consistent customer experience across the globe Provide better business data, information and tools |
| Full Year 2008 Results |
| Full Year 2008 Summary Total company sales decreased 7% to $14.5 billion versus 2007 GAAP loss of $1.48 billion or $5.42 per share on a diluted basis versus earnings of $396 million or $1.43 per share on a diluted basis in 2007 Adjusted for Charges(1), loss of $113 million or $0.41 per share on a diluted basis versus earnings of $424 million or $1.54 per share on a diluted basis in 2007 EBIT(1) loss of $51 million and EBIT margin of -0.3% 1Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. |
| in millions, except ratios, returns and per share data FY 2008 FY 2008 FY 2007 FY 2007 Amount % Sales Amount % Sales Sales $ 14,496 -- $15,528 -- EBIT(1) $ (51) -0.3% $ 551 3.5% Net Earnings (Loss)(1) $ (113) -0.8% $ 424 2.7% Net Earnings (Loss) - GAAP $(1,479) -10.2% $ 396 2.5% Diluted Shares 272.8 -- 275.9 -- EPS - GAAP $ (5.42) -- $ 1.43 -- EPS(1) $ (0.41) -- $ 1.54 -- 1Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. 2008 Financial Summary |
| Fourth Quarter 2008 Results |
| Fourth Quarter 2008 Summary Results continued to be negatively impacted by the economy and the global liquidity crisis Total Company sales of $3.3 billion, a decline of approximately 15% versus fourth quarter of 2007 GAAP loss of $1.54 billion or $5.64 per share on a diluted basis Adjusted for Charges(1), loss of $199 million or $0.73 per share on a diluted basis. Charges include: Goodwill and trade name impairment non-cash charges of $1.27 billion or $4.54 per share; and Strategic business review pre-tax charges of $167 million or $0.37 per share Other pre-tax charges related to business downturn totaled $125 million in the fourth quarter Company had Cash Flow Before Financing Activities(1)(2) of $4 million in the fourth quarter 1Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site www.officedepot.com. 2Cash Flow Before Financing Activities equals total change in cash less cash flow from financing activities. |
| 1Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. Consolidated Financials - Fourth Quarter 2008 in millions, except ratios, returns and per share data Q4 2008 Q4 2008 Q4 2008 Q4 2008 Q4 2007 Q4 2007 Q4 2007 Q4 2007 Amount % Sales Amount Amount % Sales Sales $ 3,271 $ 3,271 -- $ 3,867 $ 3,867 -- Operating Expenses(1) $ 1,062 $ 1,062 32.5% $ 1,020 $ 1,020 26.3% EBIT(1) $ (210) $ (210) -6.4% $ 6 $ 6 0.2% Net Earnings (Loss)(1) $ (199) $ (199) -6.1% $ 27 $ 27 0.7% Net Earnings (Loss) - GAAP $ (1,539) $ (1,539) -47.1% $ 19 $ 19 0.5% Diluted Shares 272.9 272.9 -- 273.3 273.3 -- EPS - GAAP $ (5.64) $ (5.64) -- $ 0.07 $ 0.07 -- EPS(1) $ (0.73) $ (0.73) -- $ 0.10 $ 0.10 -- |
| North American Retail - Results in millions, except ratios and statistics Q4 2008 Q4 2007 Sales $ 1,387 $ 1,668 Comparable Sales -18% -7% Division Operating Profit (Loss) $ (119) $ 23 Division Operating Margin -8.6% 1.4% |
| North American Retail - Results & Variance Analysis Sales down 17%; comparable store sales 18% lower in the fourth quarter of 2008 AOV lower as customers reduced spending on discretionary items Operating loss of $119 million versus $23 million profit one year ago includes: $78 million non-cash store impairment charge, and $12 million additional reserves for previous store closures and private label credit card receivables Other key components of the operating profit change include: Higher product margins than year ago Flow through from sales volume decline Increased property costs Operating Profit (Loss) (in millions) Q4 2007 $ 23 Product margin improvement 25 Store impairment charge (78) Flow through from sales volume decline (66) Additional reserves (12) Increased property costs (11) Q4 2008 $ (119) |
| North American Business Solutions - Results in millions, except ratios and statistics Q4 2008 Q4 2007 Sales $ 920 $ 1,065 Division Operating Profit (Loss) $ (28) $ 1 Division Operating Margin -3.1% 0.1% |
| N.A. Business Solutions - Results & Variance Analysis Sales down 14% in the fourth quarter of 2008 Severe spending cuts by our customers Further deterioration in sales to small- to medium-sized customers Sales decline in large, national account customers Operating loss of $28 million versus earnings of $1 million one year ago Factors driving the operating profit change included: Flow through from sales volume decline Negative items, including bad debt reserves Weaker sales and product mix, and increased promotions Operating Profit (Loss) (in millions) Q4 2007 $ 1 Flow through from sales volume decline (20) Negative items, including reserves (6) Weaker mix and increased promotions (3) Q4 2008 $ (28) |
| International - Results In millions, except ratios and statistics Q4 2008 Q4 2007 Sales $ 963 $ 1,135 Change in Local Currency Sales -4% 2% Division Operating Profit $ 10 $ 60 Division Operating Margin 1.0% 5.3% |
| International - Results & Variance Analysis Operating Profit (in millions) Q4 2007 $ 60 Flow through from sales volume decline (23) Intangible asset write offs (11) Higher costs and increased competition (10) Foreign exchange impact (6) Q4 2008 $ 10 Sales down 15% in the fourth quarter of 2008 Local currency sales down 4% U.K. and Euro Zone in recession Operating profit was $10 million versus $60 million one year ago Factors driving the operating profit change included: Flow through from sales decline Intangible asset write offs in Europe and Asia Higher costs and increased competition Impact of foreign exchange rates, notably Pound Sterling and Euro versus U.S. dollar |
| Summary and Outlook Disappointed with fourth quarter results but cash flow was positive Given the uncertain environment, liquidity is paramount Taking conservative approach to our capital structure Over $400 million of liquidity enhancing initiatives planned in 2009 Asset-based lending facility available if economic crisis continues into 2010 Committed to managing the Company through challenging times Providing innovative products and solutions to our valued customers Managing our costs Controlling our cash flow |
| Charges 1Future amounts may be impacted by changes as plans are implemented and changes in currency exchange rates. in millions Q4 Q4 Q4 FY FY FY Projected1 2008 2007 2008 2007 FY 2009 Goodwill & Trade Name Impairment $ 1,270 $ - $ 1,270 $ - $ - N.A. Retail & Supply Chain Initiatives 101 - 101 - 100 Other Initiative & Headcount Reductions 22 - 22 - 66 Asset Write Downs 42 - - 42 - - 2005 Initiatives 2 15 34 40 20 Total Charges $ 1,437 $ 15 $ 1,469 $ 40 $ 186 Cash Flow Impact Cash $ 36 $ 12 $ 59 $ 20 $ 178 Non-Cash $ 1,401 $ 3 $ 1,410 $ 20 $ 8 |
| Charges Impact on Earnings Summary Non-GAAP loss of $199 million includes $125 million of additional pre-tax non-cash items. in millions, except per share data Q4 2008 GAAP Charges(1) Non-GAAP(2) Gross Profit $ 829 $ 16 $ 845 Operating Expenses $ 2,483 $ (1,421) $ 1,062 Operating Loss $ (1,654) $ 1,437 $ (217) EBIT(2) $ (1,647) $ 1,437 $ (210) Net Loss $ (1,539) $ 1,340 $ (199) Diluted Loss Per Share $ (5.64) $ 4.91 $ (0.73) 1Charges include goodwill and trade name impairment, and actions taken as part of the strategic business review. 2Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. |
| Cash Flow Highlights 1Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. 2Free Cash Flow equals net cash provided by operating activities less capital expenditures. 3Cash Flow Before Financing Activities equals total change in cash less cash flow from financing activities. in millions Q4 2008* YTD 2008 Net Loss $ (1,539) $ (1,479) Goodwill & Trade Name Impairment $ 1,270 $ 1,270 Other Asset Impairment $ 202 $ 222 Depreciation & Amortization $ 62 $ 254 Other Operating and Non-Cash Items $ 35 $ 201 Capital Expenditures $ (52) $ (330) Free Cash Flow(1)(2) $ (22) $ 138 Acquisitions $ (1) $ (103) Other Investing Activities & FX Impact on Cash $ 27 $ 84 Cash Flow Before Financing Activities(1)(3) $ 4 $ 119 *Quarterly amounts have been conformed to full year presentation. |
| Liquidity Update In addition to asset-based lending facility (ABL), actively pursuing internal sources of liquidity in 2009, including: Sale leaseback arrangements in the U.S. and Europe which could total up to $200 million Sale of certain accounts receivable in Europe which could total up to $100 million A $105 million cash benefit from the strategic business actions we announced in December Dividends from affiliate and tax refund could total $50 million If we assume extremely challenging business conditions in the fourth quarter continue, the $400+ million of additional liquidity should provide an adequate cash cushion without drawing further on the ABL in 2009 As of the end of December 2008, Office Depot had $868 million in total available liquidity, including: $712 million of ABL availability $156 million of cash on hand |
| Balance Sheet Highlights 1 Working Capital = (current assets - cash and short-term investments) - (current liabilities - current maturities of long-term debt) 2 Working Capital as % of Sales = ((WC Q4 current year + WC Q4 prior year) / 2) / Trailing four quarter sales in millions, except ratios and returns 2008 2007 Cash and Cash Equivalents $ 156 $ 223 NAR Inventory Per Store (end of period) $ 0.689 $ 0.960 Inventories $ 1,332 $ 1,718 Working Capital(1) $ 533 $ 727 Working Capital as a % of Sales(2) 4.3% 3.5% Net Debt (end of period) $ 725 $ 593 |
| Capital Expenditures Continue to be careful with capital spending and will make adjustments as necessary in regard to new store openings, store remodels, IT and supply chain spending for the balance of this year 2009 capital spending is targeted at $150 million, which is about 60% of projected depreciation and amortization 2005 2006 2007 2008 2009F East 261 434 461 330 150 Supply Chain & IT Other NAR Stores 25 55 20 $ millions Maintenance & Other Supply Chain & IT NAR Stores |
| Asset-Based Loan Summary Successfully closed five year, $1.25 billion asset-based loan (ABL) facility in the third quarter of 2008 ABL replaces previous $1.0 billion bank revolver ABL is designed to provide liquidity to support global operations Bank syndication includes JPMorgan, Citibank, Bank of America, Wachovia, Wells Fargo and GE Capital, among others The ABL facility is secured by the company's current assets including accounts receivable, inventory, and cash and depository accounts The ABL facility contains incurrence financial covenants Incurrence-based financial covenants provide greater operating flexibility No fixed-charge coverage ratio test as long as availability on the line is over $187 million At the end of December, we had drawn $139 million on the ABL, and had $178 million in outstanding letters of credit against the facility, leaving us with $712 million of availability |
| Macroeconomic Environment |
| U.S. GDP / The Consumer Consumer Confidence Unemployment Rate Gross Domestic Product Q1'06 Q2"06 Q3'06 Q4'06 Q1'07 Q2"07 Q3'07 Q4'07 Q1'08 Q2"08 Q3'08 Q4'08 Q1'09F GDP 0.048 0.027 8.0000000013148E-03 0.015 0.001 0.048 0.048 -0.002 9.0000000013148E-03 0.028 -0.005 -0.038 -0.025 1/15/2008 2/15/2008 3/15/2008 4/15/2008 5/15/2008 6/15/2008 7/15/2008 8/15/2008 9/15/2008 10/15/2008 11/15/2008 12/15/2008 Consumer Confidence 87.3 76.4 65.9 62.8 58.1 51 51.9 58.5 61.4 38.8 44.7 38.6 1/15/2008 2/15/2008 3/15/2008 4/15/2008 5/15/2008 6/15/2008 7/15/2008 8/15/2008 9/15/2008 10/15/2008 11/15/2008 12/15/2008 Unemployment Rate 0.049 0.048 0.051 0.05 0.055 0.056 0.058 0.062 0.062 0.066 0.068 0.072 National Bureau of Economic Research indicated that the U.S. has been in recession for four quarters U.S. economy shrank 3.8% in Q4'08, the lowest pace since the first quarter of 1982 U.S. consumer confidence falls once again after a moderate improvement in November. The index continues to track at all-time lows, as consumers remain pessimistic of current market conditions U.S. employment rose to 7.2% in December 2008, as job losses were large and widespread across most major industry sectors Source: Bureau of Economic Analysis Source: The Conference Board Source: Bureau of Labor Statistics |
| Small Business / Home Sales Real Estate Loans Delinquency Rate Residential Rate: 4 Month Lead Housing: Number of Months for Sale Mortgage Default Rates 2004 2005 2006 2007 10/15/2007 11/15/2007 12/15/2007 1/15/2008 2/15/2008 3/15/2008 4/15/2008 5/15/2008 6/15/2008 7/15/2008 8/15/2008 9/15/2008 10/1/2008 11/1/2008 12/1/2008 Existing Home Sales 4.1 4 3.9 5.7 5.9 6 6.2 6.7 7.1 7.4 7.7 8.2 8.3 8.5 8.9 9 9 9.2 9.3 The number of months leading indicator shows continued increases are expected. Delinquency rates increased significantly from 4.1 in Q2'08 to 5.1 in Q3'08 The number of months that an existing home is on the market has steadily increased over the last twelve months and is more than twice the length of time it was in 2004 The U.S. mortgage quarterly default rate has increased by 270 basis points since Q1'05 to 7% and projected to trend higher. Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 0.0431 0.0434 0.0444 0.047 0.0441 0.0439 0.0467 0.0495 0.0484 0.0512 0.0559 0.0582 0.0635 0.0641 0.0699 Residential Real Estate Loans Number of Months 1/1/2004 1.68 3.8 2/1/2004 1.93 4.4 3/1/2004 1.93 4.5 4/1/2004 1.93 4.3 5/1/2004 1.63 3.9 6/1/2004 1.63 4 7/1/2004 1.63 3.6 8/1/2004 1.52 3.7 9/1/2004 1.52 4 10/1/2004 1.52 3.8 11/1/2004 1.55 4 12/1/2004 1.55 4.1 1/1/2005 1.55 4.3 2/1/2005 1.51 4.4 3/1/2005 1.51 4.4 4/1/2005 1.51 4.4 5/1/2005 1.4 3.8 6/1/2005 1.4 4 7/1/2005 1.4 3.7 8/1/2005 1.47 3.7 9/1/2005 1.47 3.8 10/1/2005 1.47 4 11/1/2005 1.54 4 12/1/2005 1.54 4 1/1/2006 1.54 4.3 2/1/2006 1.78 4.2 3/1/2006 1.78 3.9 4/1/2006 1.78 3.9 5/1/2006 1.57 3.7 6/1/2006 1.57 3.6 7/1/2006 1.57 3.6 8/1/2006 1.53 3.5 9/1/2006 1.53 3.4 10/1/2006 1.53 3.7 11/1/2006 1.72 4.1 12/1/2006 1.72 4.3 1/1/2007 1.72 4.8 2/1/2007 2.11 5.2 3/1/2007 2.11 5.5 4/1/2007 2.11 5.8 5/1/2007 2.01 5.7 6/1/2007 2.01 5.8 7/1/2007 2.01 6 8/1/2007 2.17 5.8 9/1/2007 2.17 5.8 10/1/2007 2.17 5.9 11/1/2007 2.73 6 12/1/2007 2.73 6.2 1/1/2008 2.73 6.7 2/1/2008 3.27 7.1 3/1/2008 3.27 7.4 4/1/2008 3.27 7.7 5/1/2008 3.64 8.2 6/1/2008 3.64 8.3 7/1/2008 3.64 8.5 8/1/2008 4.11 8.9 9/1/2008 4.11 9 10/1/2008 4.11 9 11/1/2008 5.11 9.2 12/1/2008 5.11 9.3 1/1/2009 5.11 Source: Federal Reserve, US Census Source: US Census Source: Mortgage Bankers Association of America |
| Foreign Exchange Euro vs. U.S. Dollar U.S. Dollar vs. Mexican Peso The U.S. Dollar has strengthened versus the Sterling since July '08, after being fairly stable in the first half of the year Overall, the U.S. Dollar strengthened versus the Euro in the fourth quarter, however, the Euro did rebound in December The U.S. Dollar has weakened versus the Mexican Peso since July '08, after strengthening moderately over the course over the year U.K. Sterling vs. U.S. Dollar 2006 2007 1/8/2008 2/8/2008 3/8/2008 4/8/2008 5/8/2008 6/8/2008 7/8/2008 8/8/2008 9/8/2008 10/8/2008 11/8/2008 12/1/2008 Exchange Rate 1.26 1.38 1.49 1.52 1.58 1.56 1.55 1.58 1.56 1.47 1.41 1.27 1.27 1.35 2006 2007 1/8/2008 2/8/2008 3/8/2008 4/8/2008 5/8/2008 6/8/2008 7/8/2008 8/8/2008 9/8/2008 10/8/2008 11/8/2008 12/1/2008 Exchange Rate 10.9 10.92 10.83 10.71 10.64 10.49 10.33 10.31 10.04 10.29 10.94 12.83 13.46 13.43 2006 2007 1/1/2008 2/1/2008 3/1/2008 4/1/2008 5/1/2008 6/1/2008 7/1/2008 8/1/2008 9/1/2008 10/1/2008 11/1/2008 12/1/2008 Existing Home Sales 1.84 2 1.99 1.99 1.98 1.99 1.98 1.99 1.98 1.82 1.78 1.61 1.54 1.49 Source: Bloomberg - Yearly/Monthly Averages Source: Bloomberg Source: Bloomberg Source: Bloomberg |
| Investor Presentation February 2009 |