Request-Q2 2011 Office Depot Earnings Call Presentation

8/6/2019 Request-Q2 2011 Office Depot Earnings Call Presentation

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Earnings WebcastSecond Quarter 2011

July 26, 2011


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Safe Harbor Statement

The Private Securities Litigation Reform Act of 1995, as amended, (the Act) providesprotection from liability in private lawsuits for forward-looking statements made bypublic companies under certain circumstances, provided that the public companydiscloses with specificity the risk factors that may impact its future results. We want totake advantage of the safe harbor provisions of the Act. Certain statements madeduring this presentation are forward-looking statements under the Act. Except forhistorical financial and business performance information, statements made during thispresentation should be considered forward-looking as referred to in the Act. Much ofthe information that looks towards future performance of our company is based onvarious factors and important assumptions about future events that may or may notactually 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-lookingstatements made during this presentation. Certain risks and uncertainties are detailedfrom time to time in our filings with the United States Securities and ExchangeCommission (SEC). You are strongly urged to review all such filings for a moredetailed discussion of such risks and uncertainties. You are strongly urged to review all

such filings for a more detailed discussion of such risks and uncertainties. TheCompanys SEC filings are readily obtainable at no charge at www.sec.gov and atwww.freeEDGAR.com, as well as on a number of other commercial web sites. Duringportions of todays presentation, we may refer to results which are not GAAPnumbers. A reconciliation of non-GAAP numbers to GAAP results is available in the

investor relations section of our web site at www.officedepot.com.
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Summary - Second Quarter 2011

Total Company sales of $2.7 billion, essentially flat compared tothe second quarter 2010 results

Excluding sales related to asset dispositions and a deconsolidation inthe fourth quarter 2010, and an acquisition in the first quarter 2011,

total Company sales decreased 2% versus prior year

Company reported a loss, after preferred stock dividends, of $29million or $0.11 per share versus a loss of $25 million or $0.09 pershare in the second quarter 2010

Excluding charges totaling $20 million before tax, the Companyreported a net loss, after preferred stock dividends, of $17 millionor $0.06 per share

Operating expenses, adjusted for charges, decreased by $4 millioncompared to the prior year

EBIT(1), adjusted for charges, was $11 million, compared to an

EBIT(1) loss of $23 million in the prior year period1 Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com


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North American Retail Q2 2011 Sales

Sales of $1.1 billion, a 2% decreaseversus prior year

Same store sales decreased 1%versus prior year

Average order value rose over 1%versus prior year while customertransactions declined about 2%

Furniture comp sales were positive

again as seating remained strong Storage items, printers, writing

instruments, cleaning and break roomsupplies continued to show year-over-year improvement

Tech Depot Services reported double-digit sales gains

Copy and Print Depot reportedpositive sales growth for the sixth

consecutive quarter

$1,101 $1,080

$0

$250

$500

$750

$1,000

$1,250

$1,500

Q2 2010 Q2 2011

(in millions) Sales

-2%


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North American Retail Q2 2011 Operating Profit

Reported operating profit* of $3million versus $9 million in Q2 2010

Adjusted operating profit of $15million, excluding charges of $12

million Increase in adjusted operating

profit driven by:

Gross margin improvement of 80

basis points, including lowerproperty costs

Reduced advertising expenses

Benefit from changes to private

label credit card program Partially offset by negative flow-

through effect of lower sales andadditional expenses associatedwith investment in key initiatives

$3

$9

$0

$5

$10

$15

$20

Q2 2010 Q2 2011

(in millions) Adjusted Operating Profit

*

$15

* Reported operating profit in Q2 2011 includes negative impact of $12 million of charges related to storeclosures in Canada, including accrued lease costs as well as severance and other closure costs.

$12


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North American Retail Initiatives Update

Improving the in-store customer shopping experience

Expanded the pilot to 28 stores in June 2011 using two different transformationmodels; could begin rolling out to 300 stores in the fourth quarter 2011

Investing in Copy and Print Depot and Tech Depot Services

In Copy and Print, added incremental in-store and outside sales expertise aswell as increased marketing spend

To drive Technology Services, piloting a redesigned technology area with anoptimized assortment and dedicated selling resources in two markets

Improving the productivity of our stores

Plan to remodel about 50 traditional stores into M2 format in 2011

Reduced average store size of remodels and relocations by 20% to 30% over

past three quarters Continuing to test new smaller concept store

Continuing to pursue margin improvement opportunities

Increasing direct import penetration, harmonizing and rationalizing SKUs, and

taking a more disciplined approach to promotions and measuring effectiveness


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North American Retail 2011 Back-to-School

During Back-to-School, we are offeringour customers the best value possiblewith new lower prices on over 75 topBack- to-School supplies.

We will bring this savings message to lifein store, online and in media highlighting

new and exciting fashion products andpopular national brands.

Were committed to giving our WorklifeRewards members and our Star Teachersspecial treatment for Back-to-School andthroughout the year.


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North American Retail New Tablet Offerings

Offering eight tablets in time for Back-to-School


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North American Business Solutions Q2 2011 Sales

Sales of $803 million, 2% decreaseversus prior year

Seating and cleaning and breakroom supplies continued to show

year-over-year improvement Average order value and transaction

counts were down to last year

Direct channel sales declined 1%

versus prior year primarily driven by: Increased competition in paid

internet search

Concerted efforts to reducepromotional support to manage

bottom line results Contract channel sales declined 2%

versus prior year driven primarily bypublic sector customers not retainedduring buying consortiums transition

$820 $803

$0

$250

$500

$750

$1,000

Q2 2010 Q2 2011

(in millions) Sales

-2%


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North American Business Solutions Q2 2011 Operating Profit

Operating profit of $45 millionversus $14 million in Q2 2010

Increase in operating profitprimarily driven by:

Gross margin improvement of150 basis points

Decrease in distribution,advertising and payroll expense

achieved as part of initiative toimprove cost structure

Discrete non-recurring items ofapproximately $10 million relatedto benefits from changes toprivate label credit card programand adjustments relating tocustomer incentive programs

$14

$45

$0

$10

$20

$30

$40

$50

Q2 2010 Q2 2011

(in millions) Operating Profit


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North American Business Solutions Initiatives Update

Increasing customer mix of small- to medium-sized business(SMB) customers

Continues to be a key priority

Gaining traction as evidenced by positive SMB sales growth inthe second quarter 2011

Continuing to grow Copy and Print business

Contract customer sales recorded in the Retail channel continueto show strong growth

Successfully expanded this service using capabilities in bothRetail stores and nine regional print facilities in the U.S.

Driving margin improving initiatives

Reducing overhead and supply chain expenses

Taking a more disciplined approach to promotions and

measuring their effectiveness


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$19

$13

$6

$0

$5

$10

$15

$20

$25

Q2 2010 Q2 2011

International Q2 2011 Operating Profit

Reported operating profit* of $13million versus $19 million in Q22010

Adjusted operating profit of $19million, excluding charges of $6million

Adjusted operating profit was flatto prior year as negative flow-

through impact of lower saleswas offset by improvement inoperating expenses

Restructuring benefits allowing

business reinvestment withoutincreasing cost base

(in millions) Adjusted Operating Profit

*

* Reported operating profit in Q2 2011 includes negative impact of $6 million of charges primarily related tobusiness restructuring actions and process improvement activities.

$19


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International Initiatives Update

Executing portfolio optimization strategy to increase shareholderreturns

Portfolio optimization is producing the results expected in 2011 andachieved $8 million in benefits year-to-date

Reviewing additional opportunities to strengthen portfolio

Making progress on business restructuring and continuousprocess improvement initiative

Reduced general and administrative costs in second quarter 2011 by$10 million

Continuing to find opportunities to further reduce overall cost structure

Winning new small- to medium-sized business (SMB) customersin Europe

Launched the rebranding of Viking in May 2011 in the U.K. andGermany to drive SMB growth and improve competitive positioning

within the Direct channel


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Reported $20 million of restructuring charges in second quarter2011

$12 million for retail store closures in Canada

$6 million for restructuring actions relating to European processimprovements

$2 million related to business process improvements at corporate

Anticipate an additional $30 million of charges for the balance of2011

Projecting charges of approximately $15 million in both third quarter2011 and fourth quarter 2011

Charges primarily related to global process improvements andcost reduction efforts

Full-year 2011 charges total approximately $60 million and

negative cash impact of $50 million to $60 million

Restructuring Actions Update


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Company realized about $20 million in gross benefits in secondquarter 2011, mostly from International Division restructuringactivities

After business reinvestment, net P&L benefits were approximately$8 million in second quarter 2011

Anticipate reinvesting about $40 million to $50 million of theprojected $80 million to $90 million in gross benefits back into the

business in 2011

Anticipate full-year 2011 net benefits to be more second-halfweighted and in the neighborhood of $40 million to $50 million

Business reinvestment benefits not included in total

Projecting net benefits of approximately $15 million in third quarter2011 and $20 million in fourth quarter 2011

Restructuring & BPI* Program Benefits Summary

*BPI = Business Process Improvement


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Financial Highlights - Second Quarter 2011

Free Cash Flow(1)(2) use of $85 million primarily reflects changes inworking capital

Capital expenditures of $32 million; full-year 2011 estimated spend of

$150 million to $160 million

Cash dividends paid on preferred stock of $9.2 million

1 Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com2 Free Cash Flow equals net cash provided by operating activities less capital expenditures.

Ended June 2011 with $374 million of cash and liquidity of $1.1 billion

Balance SheetBalance Sheet

Cash FlowCash Flow

Effective tax rate on reported basis of 27%

Effective tax rate, adjusted for charges, of 4%. Rate lower than reportedbecause it removes charges without tax benefits in GAAP calculation

Estimate full-year 2011 book and cash taxes of $15 million to $20 million,excluding discrete items

Third quarter 2011 effective tax rate may be impacted by non-cash benefits

Tax RateTax Rate
http://www.officedepot.com/http://www.officedepot.com/


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Summary

We continue to make the changes needed to createopportunities for improved financial performance


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Office Depot Foundations Backpack Program

Since 2001, the Office Depot Foundation has helpedover 2.5 million children start school with confidence


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Q & A


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Taking Care of Business


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Appendix


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Cash Flow Highlights Second Quarter

1 Before noncontrolling interest and preferred stock dividends.2 Non-GAAP numbers. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com3 Free Cash Flow equals net cash provided by operating activities less capital expenditures.4 Cash Flow Before Financing Activities equals total change in cash less cash flow from financing activities.

in millions Q2 2011 Q2 2010

Net Earnings (Loss)(1) (20)$ (16)$

Depreciation & Amortization 53$ 51$

Other Operating and Non-Cash Items (86)$ (53)$

Capital Expenditures (32)$ (42)$

Free Cash Flow(2)(3) (85)$ (60)$

Other Investing Activities & FX Impact on Cash 5$ (15)$

Cash Flow Before Financing Activities (2)(4) (80)$ (75)$


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Balance Sheet Highlights Second Quarter

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 Q2 current year + WC Q2 prior year) / 2) / Trailing four quarter sales

in millions, except ratios Q2 2011 Q2 2010

Cash & Cash Equivalents 374$ 578$

Inventories 1,253$ 1,176$

Working Capital (1) 380$ 166$

Working Capital as a % of Sales(2) 2.4% 2.8%

Net Debt (end of period)(3) 359$ 145$

Request-Q2 2011 Office Depot Earnings Call Presentation

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Transcript of Request-Q2 2011 Office Depot Earnings Call Presentation