Office Depot Announces Fourth Quarter and Full Year 2012 Results
Office Depot Announces Fourth Quarter and Full Year 2012 Results
BOCA RATON, Fla.--(BUSINESS WIRE)-- Office Depot, Inc. (NYS: ODP) , a leading global provider of office supplies and services, today announced results for the fiscal quarter and full year ended December 29, 2012.
FOURTH QUARTER RESULTS1
Total Company sales for the fourth quarter of 2012 were approximately $2.6 billion, down 12% compared to the fourth quarter of 2011. Sales for the fourth quarter of 2012, on a constant currency basis, were down approximately 11% versus prior year. The 53rd week added approximately $140 million of sales in the fourth quarter of 2011. Excluding the benefit of the additional selling week in 2011, fourth quarter of 2012 constant currency sales would have been down 7%.
The Company reported a net loss, after preferred stock dividends, of $17 million or $0.06 per diluted share in the fourth quarter of 2012, compared to net earnings, after preferred stock dividends, of $12 million or $0.04 per share in the fourth quarter of 2011.
Fourth quarter of 2012 results included approximately $12 million of pre-tax charges primarily related to restructuring activities and actions to improve future operating performance, and approximately $9 million related to non-cash asset impairment charges in the North American Retail Division.
Excluding the restructuring and impairment charges (after tax), fourth quarter of 2012 net earnings, after preferred stock dividends, would have been approximately $1 million or zero cents per share.
Fourth quarter of 2011 results included approximately $23 million of pre-tax charges primarily related to restructuring activities and actions to improve future operating performance. Fourth quarter of 2011 results also included a $24 million tax benefit related to the reversal of an uncertain tax position accrual and the release of a valuation allowance. Excluding charges and tax benefits, net earnings, after preferred stock dividends, would have been $8 million or $0.03 per share in the fourth quarter of 2011.
"We delivered the financial results we had projected for the fourth quarter of 2012," said Neil Austrian, Chairman and Chief Executive Officer of Office Depot. "Despite continued revenue pressure in North American Retail and International, we successfully executed our key initiatives."
Total Company gross profit margin decreased approximately 40 basis points in the fourth quarter of 2012 compared to the prior year period. This decline was due primarily to the benefit of the 53rd week in 2011 from rent costs being amortized over previous periods in North American Retail and lower sales volume in International.
Total Company operating expenses decreased by $108 million in the fourth quarter of 2012, compared to the prior year period, including the benefit from one fewer week of operating expenses in the fourth quarter of 2012.
Earnings, before interest and taxes (EBIT), adjusted for charges, were $34 million in the fourth quarter of 2012, compared to EBIT, adjusted for charges, of $47 million in the prior year period.
The effective tax rate for the fourth quarter of 2012 was negative 23%, compared to negative 111% for the same period in 2011. The effective tax rate for the fourth quarter of 2011 includes tax benefits of $24 million from the reversal of an uncertain tax position and the release of a valuation allowance.
The Company ended the fourth quarter of 2012 with free cash flow of $64 million, compared with free cash flow of $139 million reported in the prior year period.
FOURTH QUARTER DIVISION RESULTS
North American Retail Division
The North American Retail Division reported fourth quarter of 2012 sales of approximately $1.1 billion, a decrease of 13% compared to the prior year. Excluding the $78 million sales impact from the additional selling week in the fourth quarter of 2011, the year-over-year sales decrease would have been less than 8%.
Comparable store sales in the 1,079 stores that have been open for more than one year, and aligned to match the same selling weeks, decreased 6% for the fourth quarter of 2012. Sales of notebook computers and software decreased in the fourth quarter versus prior year, while sales of tablets, e-readers and desktop computers increased. Copy and Print, and cleaning and breakroom supplies sales also increased, while sales of office supplies and furniture declined versus prior year. Average order value was relatively flat in the fourth quarter and customer transaction counts declined approximately 5% compared to the same period last year.
The North American Retail Division reported operating income of $11 million in the fourth quarter of 2012, compared to operating profit of $32 million in the same period last year. Included in the fourth quarter 2012 operating profit are approximately $9 million of charges, primarily related to store asset impairment. Excluding the charges and $11 million benefit of the additional week for the fourth quarter of 2011, the slight year-over-year operating profit decline was driven primarily by the negative flow-through impact of lower sales, partially offset by operational improvements.
At the end of 2012, Office Depot operated 1,112 stores in the U.S. and Puerto Rico. The North American Retail Division opened two new stores and closed four during the fourth quarter of 2012.
North American Business Solutions Division
The North American Business Solutions Division reported fourth quarter of 2012 sales of approximately $763 million, an 8% decrease compared to the prior year on a fiscal basis. Excluding the $34 million sales impact from the additional selling week in the fourth quarter of 2011, the year-over-year sales decrease would have been 4%. On a comparable sales basis aligned to match the same selling weeks, fourth quarter of 2012 sales would have been relatively flat versus prior year.
Contract channel fourth quarter of 2012 sales were down versus last year as reported on a fiscal basis. Comparable sales in the fourth quarter of 2012, aligned to match the same selling weeks in 2011, were relatively flat. On the same basis, sales growth occurred across the contract channel's small- and medium-sized business customers, driven by both acquisition and improved retention for customers managed by the new inside sales organization. Similarly, sales to enterprise-level accounts and public sector customers also improved year-over-year as well, with the latter being driven by sales to educational and federal government customers. Sales weakness continued among state and local government accounts as these customers experience ongoing budgetary pressures. Direct channel fourth quarter of 2012 sales were down versus last year as reported on a fiscal basis. Comparable sales in the fourth quarter of 2012, aligned to match the same selling weeks in 2011, were relatively flat. While online sales were up year-over-year due to an increase in traffic and higher average order value, the direct channel experienced lower purchases from customers who shop using catalogs and place orders through inbound call centers.
The North American Business Solutions Division reported operating income of approximately $55 million in the fourth quarter of 2012 compared to $45 million in the fourth quarter of 2011. The favorable comparison to the prior year includes approximately 60 basis points of higher gross margin driven by sales and margin initiatives, as well as lower supply chain, advertising and payroll costs.
International Division
The International Division reported fourth quarter of 2012 sales of $789 million, a decrease of 13% in U.S. dollars and a decrease of 11% in constant currency sales compared to the prior year. On a comparable sales basis aligned to match the same selling weeks and excluding the $28 million sales impact from the additional week in the fourth quarter of 2011, fourth quarter of 2012 sales would have been down mid-single digits versus prior year.
Total European contract sales decreased mid-single digits in the fourth quarter versus the prior year as growth in Germany and relatively flat sales in the U.K. were more than offset by weakness in other countries. In Asia, the contract channel reported relatively flat sales compared with one year ago. The rate of year-over-year sales decline improved again sequentially, on a comparable sales basis, in the European direct channel. European retail channel sales in the fourth quarter decreased compared to prior year as weakness in Sweden and Hungary more than offset a slight sales increase in France. In Asia, South Korean retail reported a slight sales increase in the fourth quarter versus prior year.
The International Division reported operating income for the fourth quarter of 2012 of approximately $23 million, compared to $33 million in the same period of 2011. Included in these measures of Division operating profit are approximately $9 million of charges related to restructuring actions in 2012, and $15 million of restructuring charges in the same period in 2011. Excluding the charges in both periods, the remaining decrease in Division fourth quarter of 2012 operating profit reflects the negative flow-through impact of lower sales, partially offset by a decrease in operating expenses, driven by continuous process improvement initiatives, as well as lower advertising and payroll expenses.
The movement in exchange rates had a minimal impact on International Division operating profit in the fourth quarter of 2012 compared to the same period in 2011.
Office Depot de Mexico
Office Depot's Latin American joint venture, Office Depot de Mexico, reported fourth quarter of 2012 sales of $286 million, an increase of 2% in U.S. dollars and a decrease of 3% in constant currency versus the prior year. The joint venture added four stores during the fourth quarter for a total of 257 stores and distribution facilities in Mexico, Central America and Colombia at quarter end.
Office Depot de Mexico reported fourth quarter of 2012 net income of approximately $17 million, versus $16 million one year ago. Office Depot accounts for this investment using the equity method and the 50% share of Office Depot de Mexico's net income is presented in the Company's Miscellaneous income, net in the Consolidated Statement of Operations.
FULL YEAR RESULTS1
Full year of 2012 sales were $10.7 billion, a decrease of 7% from the prior year. Excluding the impact of a 53rd week in fiscal 2011, constant currency sales for 2012 decreased 4% compared to the same period in the prior year.
The Company reported a net loss, after preferred stock dividends,of $110 million or $0.39 per share for the full year of 2012, compared to net earnings, after preferred stock dividends,of $60 million or $0.22 per share for full year of 2011. Adjusted for charges, net earnings, after preferred stock dividends, would have been $9 million or $0.03 per share for 2012. Adjusted for charges and certain tax benefits, the 2011 net loss and the loss per share, after preferred stock dividends, were $8 million and $0.03 per share, respectively.
Total Company operating expenses decreased $114 million for full year of 2012, when compared with the prior year period including the benefit from one fewer week of operating expenses in 2012. Total Company operating expenses for 2012, when adjusted for charges, would have decreased by $185 million compared with the prior year period including the benefit from one fewer week of operating expenses in 2012.
EBIT, adjusted for charges, was $131 million for full year 2012, compared to $122 million the prior year.
Capital expenditures for 2012 were $120 million and are estimated to be about $200 million in 2013 to fund ongoing capital maintenance, North American Retail store downsizes and other investments needed to drive the Company's strategic plan.
The Company generated free cash flow of $59 million for the full year of 2012, including a negative $58 million impact to Free Cash Flow from a first quarter of 2012 pension settlement that was offset by a positive impact to cash flow from investing activities of the same amount, with the net result of having no total cash flow impact on Office Depot.
Other Matters
On February 19, 2013, the Company entered into a definitive merger agreement with OfficeMax Incorporated, pursuant to which the Company and OfficeMax would combine in a tax-free, all-stock merger transaction. At the effective time of the merger, the Company would issue 2.69 new shares of common stock for each outstanding share of OfficeMax common stock. In addition, at the effective time of the merger, the Company's board of directors will be reconstituted to include an equal number of directors designated by the Company and OfficeMax. The parties' obligations to complete the merger are subject to several conditions, including, among others, approval by the shareholders of each of the two companies, the receipt of certain regulatory approvals and other customary closing conditions.
At the end of the fourth quarter of 2012, the Company had $671 million in cash and cash equivalents on hand and $699 million in availability under the Amended and Restated Credit Agreement, for a total of approximately $1.4 billion in available liquidity.
Additional information on the Company's full year results can be found in our Form 10-K filed with the Securities and Exchange Commission on February 20, 2013. Additional information on the Company's fourth quarter and full year results can also be found in the Investor Relations section of our corporate website, www.officedepot.com, under the category Financial Information.
Non-GAAP Reconciliation
A reconciliation of GAAP results to non-GAAP results excluding certain items is presented in this release and also may be found in the Investor Relations section of our corporate website, www.officedepot.com, under the category Financial Information.
About Office Depot
Office Depot provides office supplies and services through 1,629 worldwide retail stores, a field sales force, top-rated catalogs and global e-commerce operations. Office Depot has annual sales of approximately $10.7 billion, employs about 38,000 associates and serves customers in 59 countries around the world.
Office Depot's common stock is listed on the New York Stock Exchange under the symbol ODP. Additional press information can be found at: http://mediarelations.officedepot.com and http://socialpress.officedepot.com/.
Additional Information and Where to Find It
The Company plans to file with the Securities and Exchange Commission (the "SEC"), and mail to its stockholders, a Proxy Statement soliciting proxies for the meeting of its stockholders to be called with respect to the proposed transaction. The Proxy Statement will contain important information about the Company, OfficeMax, the transaction and related matters. Stockholders are urged to read the Proxy Statement carefully when it is available, as well as today's press release regarding the proposed transaction. Stockholders will be able to obtain free copies of the Proxy Statement and other documents filed with the SEC by the Company through the web site maintained by the SEC at www.sec.gov and by contacting the Company's Department of Investor Relations at 6600 North Military Trail, Boca Raton, FL 33496. In addition, stockholders can obtain free copies of the documents filed with the SEC on the Company's website at www.officedepot.com.
Participants in the Solicitation
The Company, OfficeMax and their directors and executive officers may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction. Information regarding the Company's executive officers and directors is included in the Company's definitive proxy statement, which was filed with the SEC on March 15, 2012, and information regarding OfficeMax's executive officers and directors is included in OfficeMax's definitive proxy statement, which was filed with the SEC on March 20, 2012. The Proxy Statement regarding the proposed transaction will provide more information about participants in the solicitation of proxies from the Company's stockholders, which participants may have interests different from the Company's stockholders generally. You can obtain free copies of these documents from the Company using the contact information above.
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 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 ofsuch risks and uncertainties. The Company's SEC filings are readily obtainable at no charge atwww.sec.govand atwww.freeEDGAR.com, as well as on a number of other commercial web sites.
1 Includes non-GAAP information. Fourth quarter and full year 2011 and 2012 results include charges for restructuring actions and activities to improve future operating performance. Fourth quarter and full year 2012 results also include non-cash asset impairment charges while fourth quarter of 2011 results also include a benefit from the reversal of tax and interest accruals for uncertain tax positions. Additional information is provided in our Form 10-K for the fiscal year ended December 29, 2012. Reconciliations from GAAP to non-GAAP financial measures can be found in this release, as well as in the Investor Relations section of our corporate web site, www.officedepot.com, under the category Financial Information.
OFFICE DEPOT, INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
(In thousands, except share and per share amounts) | ||||||||
December 29, | December 31, | |||||||
2012 | 2011 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 670,811 | $ | 570,681 | ||||
Receivables, net of allowances of $22,755 in 2012 and $19,671 in 2011 | 803,944 | 862,831 | ||||||
Inventories | 1,050,625 | 1,146,974 | ||||||
Prepaid expenses and other current assets | 170,810 | 163,646 | ||||||
Total current assets | 2,696,190 | 2,744,132 | ||||||
Property and equipment, net | 856,341 | 1,067,040 | ||||||
Goodwill | 64,312 | 61,899 | ||||||
Other intangible assets, net | 16,789 | 35,223 | ||||||
Deferred income taxes | 33,421 | 47,791 | ||||||
Other assets | 343,726 | 294,899 | ||||||
Total assets | $ | 4,010,779 | $ | 4,250,984 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Trade accounts payable | $ | 934,892 | $ | 993,636 | ||||
Accrued expenses and other current liabilities | 931,618 | 1,010,011 | ||||||
Income taxes payable | 5,310 | 7,389 | ||||||
Short-term borrowings and current maturities of long-term debt | 174,148 | 36,401 | ||||||
Total current liabilities | 2,045,968 | 2,047,437 | ||||||
Deferred income taxes and other long-term liabilities | 431,531 | 452,313 | ||||||
Long-term debt, net of current maturities | 485,331 | 648,313 | ||||||
Total liabilities | 2,962,830 | 3,148,063 | ||||||
Commitments and contingencies | ||||||||
Redeemable preferred stock, net (liquidation preference - $406,773 in 2012 and $377,729 in 2011) | 386,401 | 363,636 | ||||||
Stockholders' equity: | ||||||||
Office Depot, Inc. stockholders' equity: | ||||||||
Common stock - authorized 800,000,000 shares of $.01 par value; issued shares - 291,734,027 in 2012 and 286,430,567 in 2011 | 2,917 | 2,864 | ||||||
Additional paid-in capital | 1,119,775 | 1,138,542 | ||||||
Accumulated other comprehensive income | 212,717 | 194,522 | ||||||
Accumulated deficit | (616,235 | ) | (539,124 | ) | ||||
Treasury stock, at cost - 5,915,268 shares in 2012 and 2011 | (57,733 | ) | (57,733 | ) | ||||
Total Office Depot, Inc. stockholders' equity | 661,441 | 739,071 | ||||||
Noncontrolling interests | 107 | 214 | ||||||
Total equity | 661,548 | 739,285 | ||||||
Total liabilities and equity | $ | 4,010,779 | $ | 4,250,984 | ||||
OFFICE DEPOT, INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
13 Weeks Ended | 14 Weeks Ended | 52 Weeks Ended | 53 Weeks Ended | |||||||||||||
December 29, | December 31, | December 29, | December 31, | |||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||
Sales | $ | 2,622,760 | $ | 2,969,695 | $ | 10,695,652 | $ | 11,489,533 | ||||||||
Cost of goods and occupancy costs | 1,839,137 | 2,070,509 | 7,448,067 | 8,063,087 | ||||||||||||
Gross profit | 783,623 | 899,186 | 3,247,585 | 3,426,446 | ||||||||||||
Store and warehouse operating and selling expenses | 607,065 | 684,673 | 2,535,373 | 2,692,646 | ||||||||||||
Recovery of purchase price | - | - | (68,314 | ) | - | |||||||||||
Asset impairments | 8,787 | 6,230 | 138,540 | 11,427 | ||||||||||||
General and administrative expenses | 162,555 | 196,011 | 672,827 | 688,619 | ||||||||||||
Operating income (loss) | 5,216 | 12,272 | (30,841 | ) | 33,754 | |||||||||||
Other income (expense): | ||||||||||||||||
Interest income | 436 | 73 | 2,240 | 1,231 | ||||||||||||
Interest expense | (19,809 | ) | (13,711 | ) | (68,937 | ) | (33,223 | ) | ||||||||
Loss on extinguishment of debt | - | - | (12,110 | ) | - | |||||||||||
Miscellaneous income, net | 8,206 | 10,988 | 34,225 | 30,857 | ||||||||||||
Earnings (loss) before income taxes | (5,951 | ) | 9,622 | (75,423 | ) | 32,619 | ||||||||||
Income tax expense (benefit) | 1,356 | (10,726 | ) | 1,697 | (63,072 | ) | ||||||||||
Net earnings (loss) | (7,307 | ) | 20,348 | (77,120 | ) | 95,691 | ||||||||||
Less: Net earnings (loss) attributable to the noncontrolling interest | 9 | |||||||||||||||
