Via https://newsapi.org online business online marketing online business opportunities Office Depot Announces First Quarter 2019 Results

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BOCA RATON, Fla.–()–Office Depot, Inc. (“Office Depot,” or the “Company”) (NASDAQ: ODP), a
leading integrated business-to-business (“B2B”) distribution platform
of business services and supplies announced today results for the first
quarter ended March 30, 2019.

Consolidated(in millions, except per share amounts)       1Q19       1Q18
Selected GAAP measures:                
Sales       $2,769       $2,830
Sales change from prior year period       (2)%        
Operating income       $24       $77
Operating income margin       0.9%       2.7%
Net income from continuing operations       $8       $33
Diluted earnings per share from continuing operations       $0.01       $0.06
Operating Cash Flow(1)       $60       $207
Selected Non-GAAP measures:(2)                
Adjusted EBITDA       $118       $141
Adjusted operating income       $67       $93
Adjusted operating income margin       2.4%       3.3%
Adjusted net income from continuing operations       $39       $45
Adjusted net earnings per share from continuing operations (most
dilutive)
      $0.07       $0.08
Free Cash Flow(1) (3)       $14       $170
           

(1)Both Operating Cash Flow and Free Cash Flow are from
continuing operations.

(2)Adjusted results represent non-GAAP measures and exclude
charges or credits not indicative of core operations and the tax effect
of these items, which may include but not be limited to merger
integration, restructuring, acquisition costs, asset impairments, and
executive transition costs. Reconciliations from GAAP to non-GAAP
financial measures can be found in this release as well as on the
Investor Relations website at investor.officedepot.com.

(3)As used throughout this release, Free Cash Flow is defined
as cash flows from operating activities of continuing operations less
capital expenditures. Free Cash Flow is a non-GAAP measure and
reconciliations from GAAP financial measures can be found in this
release.

“Our first quarter results were disappointing driven primarily by poor
performance at our CompuCom division,” said Gerry Smith, chief executive
officer of Office Depot. “We are taking decisive actions and making
numerous improvements in our sales and operational processes to place
this business back on-target with its long-term expectations. That said,
our strategy remains compelling and we are steadfast in our plan to
transform Office Depot into a leading provider of business products and
services through our world-class integrated distribution platform. We
delivered top-line results in our core BSD and Retail divisions in-line
with expectations, supported by strong service revenue growth of 13% and
16%, respectively, in these divisions. We also continued to make
progress on additional transformation initiatives, including expanding
the use of our supply chain with third parties and enhancing our retail
footprint to include store-within-a store, co-working and expanded
product offering pilots, as well as advancing our collaboration efforts
with Alibaba.com,” Smith continued.

“As a means to accelerate our transformation, enhance our profitability
and fund future growth initiatives, our Board of Directors formally
approved earlier this week our Business Acceleration Program. This is a
company-wide, cost reduction and business improvement program that was
developed to create a leaner and more competitive enterprise, driving
down costs, improving service delivery, and providing additional means
to fund reinvestment for future growth. The program initiatives are
enterprise-wide and include implementing organizational realignments,
leveraging the use of technology and automation in our facilities and
offices, all while reducing discretionary spending. We expect these
actions will have a positive impact to our operations beginning in the
second half of 2019, generating at least $40 million in savings this
year and more than $100 million in annual savings at full run-rate,” he
added.

Consolidated Results

Reported (GAAP) Results

Total reported sales for the first quarter 2019 were $2.8 billion, a
decrease of 2% compared to the first quarter of 2018. The decrease in
sales was the result of lower sales in its CompuCom and Retail
divisions. Product sales in the first quarter were down 3%, while
service revenues were flat, driven by a 13% and 16% year-over-year
increase in service revenue in the Company’s BSD and Retail divisions,
respectively, effectively offset by lower service related revenue at its
CompuCom division. On a consolidated basis, service revenue represented
approximately 15% of total Company sales in the first quarter of 2019,
compared to 14% in the same period in 2018.

Sales Breakdown(in millions)       1Q19       1Q18
Product sales       $2,361       $2,423
Product sales change from prior year       (3)%        
Service revenues       $408       $407
Service revenues change from prior year       0%        
Total sales       $2,769       $2,830
           

In the first quarter of 2019, Office Depot reported operating income of
$24 million, compared to $77 million in the prior year period. A primary
driver in the reduction of operating income in the quarter was related
to weaker performance at the Company’s CompuCom division. In addition,
increases in paper and paper-related costs coupled with investments in
the business platform to support future growth negatively impacted
margins in its BSD division. Office Depot recognized asset impairment
charges of $29 million associated with continuing operations in the
first quarter of 2019, $25 million of which related to impairment of
operating lease right-of-use (ROU) assets recognized under the new lease
accounting standard. Net income from continuing operations was
$8 million, or $0.01 per share, compared to $33 million and $0.06 per
share in the first quarter of 2018.

Adjusted (non-GAAP) Results(4)

Adjusted results for the first quarter of 2019 exclude charges and
credits totaling $43 million, comprised of $29 million in asset
impairments, $8 million in merger, acquisition and integration-related
expenses, and $6 million in restructuring and other charges, as well as
the after-tax impact of these items.

  • First quarter 2019 adjusted EBITDA was $118 million compared to $141
    million in the prior year period. This included adjusted depreciation
    and amortization(5)of $48 million and $47 million in the
    first quarter of 2019 and 2018, respectively.
  • First quarter 2019 adjusted operating income was $67 million compared
    to an adjusted operating income of $93 million in the first quarter of
    2018. As mentioned above, the primary driver of the reduction in the
    first quarter 2019 was lower results at the Company’s CompuCom
    division.
  • First quarter 2019 adjusted net income from continuing operations was
    $39 million, or $0.07 per diluted share, compared to an adjusted net
    income from continuing operations of $45 million, or $0.08 per diluted
    share, in the first quarter of 2018.

(4) Adjusted results represent non-GAAP measures and exclude charges
or credits not indicative of core operations and the tax effect of these
items, which may include but not be limited to merger integration,
restructuring, acquisition costs, asset impairments and executive
transition costs. Reconciliations from GAAP to non-GAAP financial
measures can be found in this release as well as on the Investor
Relations website at investor.officedepot.com.

(5) Adjusted depreciation and amortization represents a non-GAAP
measure and excludes accelerated depreciation caused by updating the
salvage value and shortening the useful life of depreciable fixed assets
to coincide with the planned store closures under an approved
restructuring plan, but only if impairment is not present.

First Quarter Division Results

Business Solutions Division

The Business Solutions Division reported sales were $1.3 billion in the
first quarter of 2019, up 1% compared to the first quarter of 2018. The
year-over-year increase reflects the impact of acquisitions, without
which sales were down 2% versus the prior year. Organic sales
performance was primarily driven by continued growth in adjacency
categories and services more than offset by declines in the more
traditional office product categories. Including acquisitions, product
sales in the first quarter of 2019 increased 1%, while service revenue
increased 13% compared to the prior year period.

Business Solutions Division(in millions)       1Q19       1Q18
Sales       $1,344       $1,328
Sales change from prior year       1%        
Division operating income       $46       $55
Division operating income margin       3.4%       4.1%
           

Business Solutions Division operating income was $46 million in the
first quarter of 2019 compared to $55 million in the first quarter of
2018. The decrease in operating income versus the prior year was driven
primarily by paper-related costs increases that could not be completely
passed through to customers due to the timing of contractual
limitations. Paper production costs have increased over 20% during the
past 12 months industry-wide, and the Company is pursuing several
initiatives to mitigate the impact of such cost increases going forward.
In addition, lower on-line sales coupled with investments in demand
generation and eCommerce capabilities adversely impacted results in the
quarter.

Retail Division

The Retail Division reported sales were $1.2 billion in the first
quarter of 2019, down 6% versus the prior year period. Planned closures
of underperforming stores contributed to the reported decline as there
were 17 fewer retail outlets at the end of the first quarter 2019 as
compared to the prior year. Comparable store sales were down by 4%
driven by lower store traffic, partially offset by higher conversion
rates and a 16% growth year-over-year in buy on-line, pick up in store
sales. Product sales in the quarter declined 8% compared to the prior
period, primarily due to lower sales volume, while service revenue
increased 16% compared to the prior year period.

Retail Division(in millions)       1Q19       1Q18
Sales       $1,175       $1,244
Comparable store sales change from prior year       (4)%        
Division operating income       $67       $72
Division operating income margin       5.7%       5.8%
 

Retail Division operating income was $67 million in the first quarter of
2019, compared to $72 million in the first quarter of 2018 on relatively
consistent performance as a percentage of sales as compared to the first
quarter of 2018. The decrease in operating income versus the prior year
was due to flow through impact of lower sales and deleveraging related
to store closures, partially offset by higher gross margins stemming
from improvements in distribution and inventory management costs, as
well as lower operating lease costs recognized as a result of the new
lease accounting standard. Additionally, the Retail division’s operating
income results include the impact of investments in additional service
delivery capabilities, including targeted advertising, sales training,
and other customer-oriented initiatives.

During the first quarter of 2019, the Company closed 2 stores and ended
the quarter with a total of 1,359 stores in the Retail Division.

CompuCom Division

The CompuCom Division reported sales were $247 million in the first
quarter of 2018, down 4% compared to the first quarter of 2018. The
year-over-year decrease is due in part to lower project-related revenue
within existing accounts, whereby some projects were delayed, reduced in
scope or failed to materialize as expected.

CompuCom Division(in millions)       1Q19       1Q18
Sales       $247       $257
Sales change from prior year       (4)%        
Division operating income (loss)       $(15)       $5
Division operating income (loss) margin       (6.1)%       2.0%
           

CompuCom Division operating loss was $15 million in the first quarter of
2019, compared to operating income of $5 million in the first quarter of
2018. Operating profitability was down versus the prior year primarily
driven by the flow through effect of lower than expected project-related
revenue from existing customer accounts compounded by less than
commensurate reductions in associated expenses. Profitability was
further pressured by ongoing expenditures to develop and market
additional service offerings. The Company is taking several actions to
improve its future operating performance. These include streamlining its
operational structure to improve service velocity and efficiency,
reorganizing its customer-facing organization to better align with
customer needs, and realigning the sales team under new leadership to
more effectively identify new opportunities to increase penetration of
existing customers and accelerate cross-selling opportunities. The
Company expects that these and other actions will place CompuCom on a
path back to long-term expectations for the business, delivering
improved growth and profitability in the future.

Business Acceleration Program

The Company’s Board of Directors formally approved on May 6, 2019, the
Business Acceleration Program to benefit the Company’s strategic
transformation. This program is a company-wide, multi-year, cost
reduction and business improvement process to systematically drive down
costs, improve operational efficiencies and enable future growth
investments. Under the Program, the Company will make numerous
organizational realignments emanating from process improvements,
increased leverage of technology and accelerated use of automation. This
will result in the elimination of certain positions and leveraging the
use of technology in its facilities and offices. In addition, the
Company adopted a zero-based budgeting approach to reduce discretionary
spending. As a result, the Company expects to realize cost savings of at
least $40 million in the second half of 2019 and to achieve at least
$100 million in annual run-rate costs savings thereafter. Total costs to
implement the plan are estimated to be approximately $110 million, of
which approximately $100 million will be cash expenditures through 2021.
For the remainder of fiscal 2019, the Company expects to incur costs of
approximately $85 million, of which approximately $70 million will be
cash, for severance and related employee costs, recruitment and
relocation, and third-party costs including legal and consulting fees.

Corporate and Other

Corporate expenses include support staff services and certain other
expenses that are not allocated to the Company’s operating divisions.
Unallocated expenses were $31 million in the first quarter of 2019
compared to $38 million in the first quarter of 2018.

The Company’s “Other” segment, which contains the global sourcing and
trading operations in Asia and the elimination of intersegment revenues,
had no material contribution to sales or operating income in the first
quarter of 2019.

Balance Sheet and Cash Flow

As of March 30, 2019, Office Depot had total available liquidity of
approximately $1.5 billion consisting of $604 million in cash and cash
equivalents and $943 million of available credit under the Amended and
Restated Credit Agreement. Total debt was $725 million, excluding
$748 million of non-recourse debt supported by the associated Timber
Notes receivable. As a result of our adoption of the new lease
accounting standard, the Company recognized right-of-use assets and
lease liabilities for operating leases on the Condensed Consolidated
Balance Sheet, while the accounting for finance leases remained
substantially unchanged. The Company also recognized cumulative effect
of $15 million adoption date adjustments, net of tax, to its accumulated
deficit.

For the first quarter of 2019, cash provided by operating activities of
continuing operations was $60 million, including $7 million in
acquisition and integration-related costs and $6 million in
restructuring costs, compared to $207 million in the first quarter of
the prior year.

Capital expenditures in the quarter were $46 million versus $37 million
in the prior year, reflecting increased investments in our service
platform, distribution network, retail experience, and eCommerce
capabilities. Accordingly, Free Cash Flow from continuing operations was
$14 million in the first quarter of 2019.

During the first quarter of 2019, the Company paid a quarterly cash
dividend of $0.025 per share on March 15, 2019 for approximately
$14 million and made a $19 million scheduled debt repayment on the 2022
term loan. In addition, Office Depot repurchased approximately 4 million
shares at a total cost of $11 million in the first quarter of 2019. The
Company also invested $5 million net of cash acquired in the quarter to
expand its BSD distribution network and its customer base through
acquisitions.

Revised 2019 Guidance(6)

“We believe the actions underway to drive top-line revenue growth
coupled with the initiatives we’re pursuing to enhance our
competitiveness, improve profitability and create the wherewithal to
invest in future growth capabilities will generate greater value for all
of our stakeholders,” said Smith. “We expect profitability to improve at
CompuCom over the course of the year as a result of the actions already
underway. These actions, coupled with the expected benefits from our
Business Acceleration Program, are expected to have a positive impact to
our profitability in 2019 and beyond,” he added.

Considering the Company’s first quarter performance and expected
benefits from its initiatives including the Business Acceleration
Program, the Company is updating its 2019 guidance as follows:

        Previous FY 2019 Guidance       Revised FY 2019 Guidance
Sales       ~$11.1 billion       $10.8 – $10.9 billion
Adjusted EBITDA       ~$575 million       $525 – $550 million
Adjusted Operating Income       ~$375 million       $325 – $350 million
Free Cash Flow(1)(3)(7)       ~$350 million       $300 – $325 million
           

(6)The Company’s outlook for 2019 included in this release is
for continuing operations only and includes non-GAAP measures, such as
adjusted EBITDA, adjusted operating income, and free cash flow. These
measures exclude charges or credits not indicative of core operations,
which may include but not be limited to merger integration expenses,
restructuring charges, acquisition-related costs, executive transition
costs, asset impairments and other significant items that currently
cannot be predicted without unreasonable efforts. The exact amount of
these charges or credits are not currently determinable but may be
significant. Accordingly, the Company is unable to provide equivalent
GAAP measures or reconciliations from GAAP to non-GAAP for these
financial measures.

(7)Excludes Federal Trade Commission cash settlement and cash
charges associated with the Company’s Business Acceleration Program.

About Office Depot, Inc.

Office Depot, Inc. (NASDAQ:ODP) is a leading provider of business
services and supplies, products and technology solutions through its
fully integrated B2B distribution platform of approximately 1,350
stores, online presence, and dedicated sales professionals and
technicians to small, medium and enterprise businesses. Through its
banner brands Office Depot®, OfficeMax®, CompuCom® and Grand&Toy®, as
well as others, the Company offers its customers the tools and resources
they need to focus on their passion of starting, growing and running
their business. For more information, visit news.officedepot.com and
follow @officedepot on Facebook, Twitter and Instagram.

Office Depot is a trademark of The Office Club, Inc. OfficeMax is a
trademark of OMX, Inc. CompuCom is a trademark of CompuCom Systems, Inc.
Grand&Toy is a trademark of Grand & Toy, LLC in Canada. ©2019 Office
Depot, Inc. All rights reserved. Any other product or company names
mentioned herein are the trademarks of their respective owners.

FORWARD LOOKING STATEMENTS

This communication may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements or disclosures may discuss goals, intentions and expectations
as to future trends, plans, events, results of operations, cash flow or
financial condition, or state other information relating to, among other
things, Office Depot, based on current beliefs and assumptions made by,
and information currently available to, management. Forward-looking
statements generally will be accompanied by words such as “anticipate,”
“believe,” “plan,” “could,” “estimate,” “expect,” “forecast,”
“guidance,” “outlook,” “intend,” “may,” “possible,” “potential,”
“predict,” “project,” “propose” or other similar words, phrases or
expressions, or other variations of such words. These forward-looking
statements are subject to various risks and uncertainties, many of which
are outside of Office Depot’s control. There can be no assurances that
Office Depot will realize these expectations or that these beliefs will
prove correct, and therefore investors and stockholders should not place
undue reliance on such statements.

Factors that could cause actual results to differ materially from those
in the forward-looking statements include, among other things, highly
competitive office products market and failure to differentiate Office
Depot from other office supply resellers or respond to decline in
general office supplies sales or to shifting consumer demands;
competitive pressures on Office Depot’s sales and pricing; the risk that
Office Depot may not be able to realize the anticipated benefits of
acquisitions due to unforeseen liabilities, future capital expenditures,
expenses, indebtedness and the unanticipated loss of key customers or
the inability to achieve expected revenues, synergies, cost savings or
financial performance; the risk that Office Depot is unable to transform
the business into a service-driven company or that such a strategy will
result in the benefits anticipated; failure to execute effective
advertising efforts; the risk that Office Depot is unable to
successfully maintain a relevant omni-channel experience for its
customers; the risk that Office Depot is unable to execute the Business
Acceleration Program successfully or that such program will result in
the benefits anticipated; failure to attract and retain key personnel,
including qualified employees in stores, service centers, distribution
centers, field and corporate offices and executive management;
disruptions in Office Depot computer systems; breach of Office Depot
information technology systems affecting reputation, business partner
and customer relationships and operations and resulting in high costs;
loss of business with government entities, purchasing consortiums, and
sole- or limited- source distribution arrangements; product safety and
quality concerns of manufacturers’ branded products and services and
Office Depot private branded products; increases in fuel and other
commodity prices; increases in the cost of material, energy and other
production costs, or unexpected costs that cannot be recouped in product
pricing; unanticipated downturns in business relationships with
customers or terms with the suppliers, third-party vendors and business
partners; disruption of global sourcing activities, evolving foreign
trade policy (including new tariffs on certain foreign made goods); a
downgrade in Office Depot credit ratings or a general disruption in the
credit markets; covenants in the credit facility and term loan;
incurrence of significant impairment charges; fluctuation in quarterly
operating results due to seasonality of Office Depot business; changes
in tax laws in jurisdictions where Office Depot operates; unexpected
claims, charges, litigation, dispute resolutions or settlement expenses;
the inability to realize expected benefits from the disposition of the
international operations; fluctuations in currency exchange rates;
changes in the regulatory environment, legal compliance risks and
violations of the U.S. Foreign Corrupt Practices Act; increases in wage
and benefit costs and changes in labor regulations; catastrophic events,
including the impact of weather events on Office Depot’s business;
failure to effectively manage Office Depot real estate portfolio;
volatility in Office Depot common stock price, and unanticipated changes
in the markets for Office Depot’s business segments. The foregoing list
of factors is not exhaustive. Investors and shareholders should
carefully consider the foregoing factors and the other risks and
uncertainties described in Office Depot’s Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K filed
with the U.S. Securities and Exchange Commission. Office Depot does not
assume any obligation to update or revise any forward-looking statements.

OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
 
  13 Weeks Ended
March 30,   March 31,
2019 2018
Sales:
Products $ 2,361 $ 2,423
Services   408   407
Total sales 2,769 2,830
Cost of goods sold and occupancy costs:
Products 1,841 1,891
Services   287   272
Total cost of goods sold and occupancy costs   2,128   2,163
Gross profit 641 667
Selling, general and administrative expenses 574 573
Asset impairments 29
Merger and restructuring expenses, net   14   17
Operating income 24 77
Other income (expense):
Interest income 6 6
Interest expense (23 ) (29 )
Other income, net   2   1
Income from continuing operations before income taxes 9 55
Income tax expense   1   22
Net income from continuing operations 8 33
Discontinued operations, net of tax     8
Net income $ 8 $ 41
Basic earnings per common share
Continuing operations $ 0.01 $ 0.06
Discontinued operations     0.01
Net basic earnings per common share $ 0.01 $ 0.07
Diluted earnings per common share
Continuing operations $ 0.01 $ 0.06
Discontinued operations     0.01
Net diluted earnings per common share $ 0.01 $ 0.07
Dividends per common share $ 0.025 $ 0.025
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except shares and par value)
(Unaudited)
 
  March 30,   December 29,
2019 2018
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 604 $ 658
Receivables, net 944 885
Inventories 1,034 1,065
Prepaid expenses and other current assets 84 75
Timber notes receivable, current maturities   836  
Total current assets 3,502 2,683
Property and equipment, net 730 763
Operating lease right-of-use assets 1,398
Goodwill 922 914
Other intangible assets, net 409 422
Timber notes receivable 842
Deferred income taxes 244 284
Other assets   266   258
Total assets $ 7,471 $ 6,166
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable $ 1,098 $ 1,110
Accrued expenses and other current liabilities 1,294 978
Income taxes payable 2
Short-term borrowings and current maturities of long-term debt 93 95
Non-recourse debt, current maturities   748  
Total current liabilities 3,233 2,185
Deferred income taxes and other long-term liabilities 181 300
Pension and postretirement obligations, net 111 111
Long-term debt, net of current maturities 632 690
Operating lease liabilities 1,208
Non-recourse debt     754
Total liabilities   5,365   4,040
Commitments and contingencies
Stockholders’ equity:

Common stock — authorized 800,000,000 shares of $0.01 par value;
issued shares — 620,103,134 at March 30, 2019 and 614,170,704 at
December 29, 2018; outstanding shares — 546,192,558 at March 30,
2019 and 543,833,428 at December 29, 2018

6 6
Additional paid-in capital 2,664 2,677
Accumulated other comprehensive loss (88 ) (99 )
Accumulated deficit (180 ) (173 )

Treasury stock, at cost — 73,910,576 shares at March 30, 2019 and
70,337,276 shares at December 29, 2018

  (296 )   (285 )
Total stockholders’ equity   2,106   2,126
Total liabilities and stockholders’ equity $ 7,471 $ 6,166
 
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
 
  13 Weeks Ended
March 30,   March 31,
2019 2018
Cash flows from operating activities of continuing operations:
Net income $ 8 $ 41
Income from discontinued operations, net of tax     8
Net income from continuing operations   8   33
Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation and amortization 49 47
Amortization of debt discount and issuance costs 2 2
Charges for losses on receivables and inventories 14 14
Asset impairments 29
Compensation expense for share-based payments 8 4
Deferred income taxes and deferred tax asset valuation allowances 19
Contingent consideration payments in excess of acquisition-date
liability
(11 )
Changes in working capital and other   (39 )   88
Net cash provided by operating activities of continuing

operations

  60   207
Cash flows from investing activities of continuing operations:
Capital expenditures (46 ) (37 )
Businesses acquired, net of cash acquired (5 ) (30 )
Other investing activities   (1 )   1
Net cash used in investing activities of continuing operations   (52 )   (66 )
Cash flows from financing activities of continuing operations:
Net payments on long and short-term borrowings (24 ) (25 )
Cash dividends on common stock (14 ) (14 )
Share purchases for taxes, net of proceeds from employee share-based

transactions

(4 ) (3 )
Repurchase of common stock for treasury (11 )
Contingent consideration payments up to amount of acquisition-date
liability
(12 ) (2 )
Other financing activities   1   3
Net cash used in financing activities of continuing operations   (64 )   (41 )
Cash flows from discontinued operations:
Operating activities of discontinued operations 10
Investing activities of discontinued operations     30
Net cash provided by discontinued operations 40
Effect of exchange rate changes on cash and cash equivalents 2 (2 )
Net increase (decrease) in cash, cash equivalents and restricted
cash
(54 ) 138
Cash, cash equivalents and restricted cash at beginning of period   660   639
Cash, cash equivalents and restricted cash at end of period 606 777
Cash and cash equivalents of discontinued operations     (37 )
Cash, cash equivalents and restricted cash at end of period —
continuing operations
$ 606 $ 740
 

OFFICE DEPOT, INC.
GAAP to Non-GAAP Reconciliations
(Unaudited)

We report our results in accordance with accounting principles generally
accepted in the United States (“GAAP”). We also review certain financial
measures excluding impacts of transactions that are not related to our
core operations (“non-GAAP”). Management believes that the presentation
of these non-GAAP financial measures enhances the ability of its
investors to analyze trends in its business and provides a means to
compare periods that may be affected by various items that might obscure
trends or developments in its business. Management uses both GAAP and
non-GAAP measures to assist in making business decisions and assessing
overall performance. Non-GAAP measures help to evaluate programs and
activities that are intended to attract and satisfy customers, separate
from expenses and credits directly associated with Merger,
restructuring, and certain similar items. Certain non-GAAP measures are
also used for short and long-term incentive programs.

Our measurement of these non-GAAP financial measures may be different
from similarly titled financial measures used by others and therefore
may not be comparable. These non-GAAP financial measures should not be
considered superior to the GAAP measures, but only to clarify some
information and assist the reader. We have included reconciliations of
this information to the most comparable GAAP measures in the tables
included within this material.

The Company’s outlook for 2019 includes adjusted EBITDA, adjusted
operating income, and free cash flow. These measures exclude charges or
credits not indicative of our core operations, which may include but not
be limited to merger integration expenses, restructuring charges, asset
impairments, and other significant items that currently cannot be
predicted without unreasonable effort. The exact amount of these charges
or credits are not currently determinable, but may be significant.
Accordingly, the company is unable to provide a reconciliation to an
equivalent net income, operating income or operating cash flow outlook
for 2019.

Free cash flow is a non-GAAP measure, which we define as cash flows from
operating activities of continuing operations less capital expenditures.
We believe that free cash flow is an important indicator that provides
additional perspective on our ability to generate cash to fund our
strategy and expand our distribution network.

(In millions, except per share amounts)

Q1 2019   Reported

(GAAP)

    % of

Sales

  Less:

Charges &

Credits

  Adjusted

(Non-GAAP)

  % of

Sales

Selling, general and administrative expenses $ 574   20.7 % $ $ 574   20.7 %
Merger and restructuring expenses, net $ 14 0.5 % $ 14 $ %
Operating income $ 24 0.9 % $ (43 ) $ 67 (8) 2.4 %
Income tax expense $ 1 0.0 % $ (12 ) $ 13 (9) 0.5 %
Net income from continuing operations $ 8 0.3 % $ (31 ) $ 39 (10) 1.4 %
Earnings per share continuing operations (most dilutive) $ 0.01 $ (0.06 ) $ 0.07 (10)
Depreciation and amortization $ 49 1.8 % $ 1 $ 48 (11) 1.7 %
 
Q1 2018   Reported

(GAAP)

    % of

Sales

  Less:

Charges &

Credits

  Adjusted

(Non-GAAP)

  % of

Sales

Selling, general and administrative expenses $ 573   20.2 % $ $ 573   20.2 %
Merger and restructuring expenses, net $ 17 0.6 % $ 17 $ %
Operating income $ 77 2.7 % $ (17 ) $ 93 (8) 3.3 %
Income tax expense $ 22 0.8 % $ (4 ) $ 26 (9) 0.9 %
Net income from continuing operations $ 33 1.2 % $ (13 ) $ 45 (10) 1.6 %
Earnings per share continuing operations (most dilutive) $ 0.06 $ (0.02 ) $ 0.08 (10)
Depreciation and amortization $ 47 1.7 % $ $ 47 (11) 1.7 %
 
  OFFICE DEPOT, INC.
GAAP to Non-GAAP Reconciliations
(Unaudited)
 
      13 Weeks Ended
March 30,   March 31,

Adjusted EBITDA:

2019 2018
Net income $ 8 $ 41
Discontinued operations, net of tax     8
Net income from continuing operations 8 33
Income tax expense   1   22
Income from continuing operations before income taxes 9 55
Add (subtract)
Interest income (6 ) (6 )
Interest expense 23 29
Adjusted depreciation and amortization(11) 48 47
Charges and credits, pretax(12)   43   17
Adjusted EBITDA $ 118 $ 141
 

Amounts may not foot due to rounding

(8)Adjusted operating income for all periods presented herein
excludes merger and restructuring expenses, net, asset impairments (if
any) and executive transition costs (if any).

(9)Adjusted income tax expense for all periods presented
herein exclude the tax effect of the charges or credits not indicative
of core operations as described in the preceding notes.

(10)Adjusted net income from continuing operations and
adjusted earnings per share from continuing operations (most dilutive)
for all periods presented exclude merger and restructuring expenses,
net, asset impairments (if any), executive transition costs (if any),
loss on modification of debt (if any), and exclude the tax effect of the
charges or credits not indicative of core operations.

(11)Adjusted depreciation and amortization for all periods
presented herein excludes accelerated depreciation caused by updating
the salvage value and shortening the useful life of depreciable fixed
assets to coincide with the planned store closures under an approved
restructuring plan, but only if impairment is not present.

(12)Charges and credits, pretax for all periods presented
include merger and restructuring expenses, net, asset impairments (if
any), and executive transition costs (if any).

        13 Weeks Ended
March 30,   March 31,

Free cash flow

2019 2018
Net cash provided by operating activities of continuing operations $ 60 $ 207
Capital expenditures   (46 )   (37 )
Free cash flow $ 14 $ 170
 

Amounts may not foot due to rounding

OFFICE DEPOT, INC.
Store Statistics
(Unaudited)
          Q1
2019
Retail Division:  
Stores opened
Stores closed 2
Total retail stores (U.S.) 1,359
Total square footage (in millions) 30.3
Average square footage per store (in thousands) 22.3
 

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