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
Date of Report: April 28, 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 April 28, 2009, announcing its financial results for its fiscal first quarter 2009.
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 ended
April 28, 2009. 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 April 28, 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: April 28, 2009 | By: | /s/ ELISA D. GARCIA C. | ||
| Elisa D. Garcia C. | ||||
| Executive Vice President, General Counsel and Corporate Secretary |
||||
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Exhibit 99.1
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 FIRST QUARTER 2009 RESULTS
Boca Raton, Fla., April 28, 2009 — Office Depot, Inc. (NYSE: ODP), a leading global provider of
office products and services, today announced results for the fiscal quarter ending March 28, 2009.
FIRST QUARTER RESULTS 1
Total Company sales for the first quarter decreased 19% to $3.2 billion. Total Company operating
expenses, adjusted for Charges, decreased by $192 million from the first quarter of 2008. EBIT,
adjusted for Charges, was $57 million in the first quarter of 2009 or 1.8% as a percentage of
sales, compared to $124 million or 3.1% as a percentage of sales in the prior-year period.
The Company reported a net loss of $55 million in the first quarter of 2009, compared to earnings
of $69 million in the same period of 2008. The loss per share on a diluted basis was $0.20 for the
quarter, versus earnings per share of $0.25 in the first quarter of 2008. Adjusted for Charges,
the Company reported earnings of $27 million and earnings per share on a diluted basis of $0.10 for
the first quarter of 2009, versus earnings of $78 million and earnings per share of $0.29 in the
same period one year ago.
In the first quarter of 2009, the Company’s cash flow from operations was $98 million and cash flow
before financing activities was $160 million.
FIRST QUARTER DIVISION RESULTS
North American Retail Division
First quarter 2009 sales in the North American Retail Division were $1.4 billion, down 16% compared to the same period last year. Comparable store sales in the 1,138 stores in the U.S. and Canada that have been open for more than one year decreased 17% for the first quarter. While most of the decline can be attributed to macroeconomic factors as consumers and small business customers reduced their spending, especially on large ticket items like furniture and computers, the decision to be less aggressive with advertising promotions in certain categories also contributed to the sales decrease.
First quarter 2009 sales in the North American Retail Division were $1.4 billion, down 16% compared to the same period last year. Comparable store sales in the 1,138 stores in the U.S. and Canada that have been open for more than one year decreased 17% for the first quarter. While most of the decline can be attributed to macroeconomic factors as consumers and small business customers reduced their spending, especially on large ticket items like furniture and computers, the decision to be less aggressive with advertising promotions in certain categories also contributed to the sales decrease.
The North American Retail Division had an operating profit of $81 million for the first quarter,
basically flat with the operating profit of $82 million reported in the same period of the prior
year. The benefit to operating profit from higher product margins, lower charges for shrink and
inventory valuation, unprofitable store closures and expense reduction, was offset by the flow
through impact from the sales volume decline in the first quarter.
| 1 | Includes non-GAAP information. First quarter results include impacts of previously announced programs (“Charges”). Additional information is provided in our Form 10-Q 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
During the first quarter, Office Depot closed 107 stores and relocated one store, bringing the
total store count to 1,160 as of March 28, 2009.
Inventory per store was approximately $635 thousand at the end of the first quarter of 2009, down
about 27% from the prior year. This decrease is primarily due to improved inventory management and
reduced exposure to big ticket inventory items.
North American Business Solutions Division
First quarter 2009 sales in the North American Business Solutions Division were $914 million, down 17% compared to the same period last year, driven by continued significant spending cuts by the Division’s customers in all segments.
First quarter 2009 sales in the North American Business Solutions Division were $914 million, down 17% compared to the same period last year, driven by continued significant spending cuts by the Division’s customers in all segments.
The North American Business Solutions Division reported an operating profit of $33 million for the
first quarter of 2009 compared to $60 million for the same period of the prior year. The decrease
in operating profit during the first quarter of 2009 primarily
relates to the flow through impact from the sales volume decline, the negative impact of product margins, including a less profitable
mix, cost increases that were not fully passed on to customers and increased promotional activity
in the Direct channel. These impacts more than offset reduced selling
expenses, lowered general and administrative costs, and
increased vendor program funds.
International Division
The International Division reported sales of $875 million in the first quarter of 2009, a decrease of 24% compared with the same period last year, while sales in local currency decreased by 9%.
The International Division reported sales of $875 million in the first quarter of 2009, a decrease of 24% compared with the same period last year, while sales in local currency decreased by 9%.
Division operating profit was $19 million in the first quarter of 2009 compared to $60 million in
the same period of the prior year. The decrease in operating profit
was driven by the flow through impact
from the sales volume declines, an increase in promotional activity, cost increases that could not
fully be passed on to the customer and unfavorable foreign exchange rates that more than offset an
improvement in operating expenses.
Other Matters
The Company recognized about $120 million of pre-tax Charges related to the strategic business review actions taken in the first quarter of 2009. The Charges related primarily to lease accruals, severance expenses and inventory write downs related to facilities that closed during the period. During the balance of 2009, the Company expects to recognize approximately $110 million in additional Charges related to actions covered by both the strategic review and legacy 2005 initiatives. The actions taken as part of the strategic business review should benefit full year 2009 EBIT and cash flow by approximately $130 million and $85 million, respectively.
The Company recognized about $120 million of pre-tax Charges related to the strategic business review actions taken in the first quarter of 2009. The Charges related primarily to lease accruals, severance expenses and inventory write downs related to facilities that closed during the period. During the balance of 2009, the Company expects to recognize approximately $110 million in additional Charges related to actions covered by both the strategic review and legacy 2005 initiatives. The actions taken as part of the strategic business review should benefit full year 2009 EBIT and cash flow by approximately $130 million and $85 million, respectively.
In addition to the cash flow benefits provided by the actions taken as part of the strategic
business review, the Company continues to pursue other internal sources of liquidity. In the first
quarter of 2009, Office Depot realized approximately $160 million in cash from these initiatives,
including sale leasebacks of owned properties in the U.S. and Europe, dividends received from a
joint venture, tax refunds and the benefit from reduced capital spending.
At the end of March 2009, the Company had nothing drawn on its asset-based loan (ABL) facility, and
had $160 million in outstanding letters of credit against the facility, leaving it with $630
million of availability. With $630 million of ABL availability and $176 million in cash on hand at
the end of March, Office Depot exited the first quarter of 2009 with $806 million in total
available liquidity. The Company expects the ABL availability to increase by $100 million to $150
million in the second quarter as inventories ramp up to support the third quarter Back to School
season.
More information on the strategic business review is available in our Form 8-K’s filed with the
Securities and Exchange Commission on December 10, 2008 and March 10, 2009, and our Form 10-K filed
with the Securities and Exchange Commission on February 24, 2009.
2
Additional information on the Company’s strategic business review and first quarter results can be
found in our Form 10-Q filed with the Securities and Exchange Commission on April 28, 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.
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.
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 1,604 worldwide retail stores, a dedicated sales force, top-rated catalogs and a $4.6 billion e-commerce operation. Office Depot has annual sales of approximately $14.5 billion, and employs about 42,000 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.
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 1,604 worldwide retail stores, a dedicated sales force, top-rated catalogs and a $4.6 billion e-commerce operation. Office Depot has annual sales of approximately $14.5 billion, and employs about 42,000 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 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.
3
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| As of | As of | As of | ||||||||||
| March 28, | December 27, | March 29, | ||||||||||
| 2009 | 2008 | 2008 | ||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 175,957 | $ | 155,745 | $ | 181,524 | ||||||
Receivables, net |
1,174,176 | 1,255,735 | 1,573,663 | |||||||||
Inventories |
1,128,061 | 1,331,593 | 1,644,090 | |||||||||
Deferred income taxes |
212,744 | 196,192 | 110,903 | |||||||||
Prepaid expenses and other current assets |
182,825 | 183,122 | 155,942 | |||||||||
Total current assets |
2,873,763 | 3,122,387 | 3,666,122 | |||||||||
Property and equipment, net |
1,416,996 | 1,557,301 | 1,669,078 | |||||||||
Goodwill |
19,431 | 19,431 | 1,329,554 | |||||||||
Other intangible assets |
27,195 | 28,311 | 110,395 | |||||||||
Other assets |
514,110 | 540,796 | 577,903 | |||||||||
Total assets |
$ | 4,851,495 | $ | 5,268,226 | $ | 7,353,052 | ||||||
Liabilities and stockholders’ equity |
||||||||||||
Current liabilities: |
||||||||||||
Trade accounts payable |
$ | 1,098,977 | $ | 1,251,808 | $ | 1,540,042 | ||||||
Accrued expenses and other current liabilities |
1,099,310 | 1,173,201 | 1,213,248 | |||||||||
Income taxes payable |
8,631 | 8,803 | 10,283 | |||||||||
Short-term borrowings and current maturities
of long-term debt |
54,687 | 191,932 | 125,597 | |||||||||
Total current liabilities |
2,261,605 | 2,625,744 | 2,889,170 | |||||||||
Deferred income taxes and other long-term liabilities |
646,211 | 585,861 | 572,577 | |||||||||
Long-term debt, net of current maturities |
674,888 | 688,788 | 623,246 | |||||||||
Total liabilities |
3,582,704 | 3,900,393 | 4,084,993 | |||||||||
Commitments and contingencies |
||||||||||||
Stockholders’ equity: |
||||||||||||
Office Depot, Inc. stockholders’ equity: |
||||||||||||
Common stock — authorized 800,000,000 shares
of $.01 par value; issued and outstanding
shares — 280,628,656 in 2009, 280,800,135 in
December 2008 and 428,993,252 in March 2008 |
2,806 | 2,808 | 4,290 | |||||||||
Additional paid-in capital |
1,197,372 | 1,194,622 | 1,795,905 | |||||||||
Accumulated other comprehensive income |
170,719 | 217,197 | 584,225 | |||||||||
Retained earnings (accumulated deficit) |
(48,469 | ) | 6,270 | 3,852,578 | ||||||||
Treasury stock, at cost — 5,926,763 shares in
2009, 5,938,059 shares in December 2008
and 155,889,488 shares in March 2008 |
(57,812 | ) | (57,947 | ) | (2,985,217 | ) | ||||||
Total Office Depot, Inc. stockholders’ equity |
1,264,616 | 1,362,950 | 3,251,781 | |||||||||
Noncontrolling interest |
4,175 | 4,883 | 16,278 | |||||||||
Total stockholders’ equity |
1,268,791 | 1,367,833 | 3,268,059 | |||||||||
Total liabilities and stockholders’ equity |
$ | 4,851,495 | $ | 5,268,226 | $ | 7,353,052 | ||||||
4
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
| 13 Weeks Ended | ||||||||
| March 28, | March 29, | |||||||
| 2009 | 2008 | |||||||
Sales |
$ | 3,225,264 | $ | 3,962,017 | ||||
Cost of goods sold and occupancy costs |
2,315,002 | 2,793,337 | ||||||
Gross profit |
910,262 | 1,168,680 | ||||||
Store and warehouse operating and selling expenses |
794,320 | 866,806 | ||||||
General and administrative expenses |
176,399 | 198,550 | ||||||
Amortization of deferred gain on building sale |
— | (1,873 | ) | |||||
Operating profit (loss) |
(60,457 | ) | 105,197 | |||||
Other income (expense): |
||||||||
Interest income |
1,194 | 905 | ||||||
Interest expense |
(17,918 | ) | (14,820 | ) | ||||
Miscellaneous income (expense), net |
(3,559 | ) | 8,301 | |||||
Earnings (loss) before income taxes |
(80,740 | ) | 99,583 | |||||
Income tax expense (benefit) |
(25,408 | ) | 30,950 | |||||
Net earnings (loss) |
(55,332 | ) | 68,633 | |||||
Less: Net earnings (loss) attributable to the noncontrolling interest |
(593 | ) | (140 | ) | ||||
Net earnings (loss) attributable to Office Depot, Inc. |
$ | (54,739 | ) | $ | 68,773 | |||
Net earnings (loss) attributable to Office Depot, Inc. per common share: |
||||||||
Basic |
$ | (0.20 | ) | $ | 0.25 | |||
Diluted |
(0.20 | ) | 0.25 | |||||
Weighted average number of common shares outstanding: |
||||||||
Basic |
273,179 | 272,394 | ||||||
Diluted |
273,179 | 272,840 | ||||||
5
OFFICE DEPOT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| 13 Weeks Ended | ||||||||
| March 28, | March 29, | |||||||
| 2009 | 2008 | |||||||
Cash flows from operating activities: |
||||||||
Net earnings (loss) attributable to Office Depot, Inc. |
$ | (54,739 | ) | $ | 68,773 | |||
Adjustments to reconcile net earnings (loss) attributable to Office
Depot, Inc. to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
53,662 | 63,567 | ||||||
Charges for losses on inventories and receivables |
23,671 | 27,569 | ||||||
Changes in working capital and other |
75,158 | (32,780 | ) | |||||
Net cash provided by operating activities |
97,752 | 127,129 | ||||||
Cash flows from investing activities: |
||||||||
Capital expenditures |
(30,860 | ) | (105,853 | ) | ||||
Acquisition related payments |
— | (270 | ) | |||||
Release of restricted cash |
— | 18,100 | ||||||
Purchase of assets subsequently sold |
— | (25,668 | ) | |||||
Proceeds from assets sold |
98,209 | 33,756 | ||||||
Net cash provided by (used in) investing activities |
67,349 | (79,935 | ) | |||||
Cash flows from financing activities: |
||||||||
Proceeds from exercise of stock options and sale of
stock under employee stock purchase plans |
18 | 54 | ||||||
Treasury stock additions from employee related plans |
— | (880 | ) | |||||
Net payments on borrowings |
(140,008 | ) | (90,764 | ) | ||||
Net cash used in financing activities |
(139,990 | ) | (91,590 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(4,899 | ) | 2,966 | |||||
Net increase (decrease) in cash and cash equivalents |
20,212 | (41,430 | ) | |||||
Cash and cash equivalents at beginning of period |
155,745 | 222,954 | ||||||
Cash and cash equivalents at end of period |
$ | 175,957 | $ | 181,524 | ||||
6
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)
| % of | % of | |||||||||||||||||||
| Q1 2009 | GAAP | Sales | Charges | Non-GAAP | Sales | |||||||||||||||
Gross profit |
$ | 910.3 | 28.2% | $ | 9.9 | $ | 920.2 | 28.5% | ||||||||||||
Operating expenses |
$ | 970.7 | 30.1% | $ | (110.1 | ) | $ | 860.6 | 26.7% | |||||||||||
Operating profit (loss) |
$ | (60.4 | ) | (1.9)% | $ | 120.0 | $ | 59.6 | 1.8% | |||||||||||
Net earnings (loss) attributable to Office Depot, Inc. |
$ | (54.7 | ) | (1.7)% | $ | 82.0 | $ | 27.3 | 0.8% | |||||||||||
Earnings (loss) attributable to Office
Depot, Inc. per diluted share |
$ | (0.20 | ) | $ | 0.30 | $ | 0.10 | |||||||||||||
| % of | % of | |||||||||||||||||||
| Q1 2008 | GAAP | Sales | Charges | Non-GAAP | Sales | |||||||||||||||
Gross profit |
$ | 1,168.7 | 29.5% | $ | — | $ | 1,168.7 | 29.5% | ||||||||||||
Operating expenses |
$ | 1,063.5 | 26.8% | $ | (10.7 | ) | $ | 1,052.8 | 26.6% | |||||||||||
Operating profit |
$ | 105.2 | 2.7% | $ | 10.7 | $ | 115.9 | 2.9% | ||||||||||||
Net earnings attributable to
Office Depot, Inc. |
$ | 68.8 | 1.7% | $ | 9.3 | $ | 78.1 | 2.0% | ||||||||||||
Earnings attributable to Office
Depot, Inc. per diluted share |
$ | 0.25 | $ | 0.04 | $ | 0.29 | ||||||||||||||
7
OFFICE DEPOT, INC.
GAAP to Non-GAAP Reconciliations (Continued)
GAAP to Non-GAAP Reconciliations (Continued)
| Q1 2009 | Q1 2008 | |||||||
Cash Flow Summary |
||||||||
Net cash provided by (used in) operating activities |
$ | 97.8 | $ | 127.1 | ||||
Net cash provided by (used in) investing activities |
67.3 | (79.9 | ) | |||||
Net cash provided by (used in) financing activities |
(140.0 | ) | (91.6 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
(4.9 | ) | 3.0 | |||||
Net increase (decrease) in cash and cash equivalents |
$ | 20.2 | $ | (41.4 | ) | |||
Free Cash Flow |
||||||||
Net cash provided by (used in) operating activities |
$ | 97.8 | $ | 127.1 | ||||
Less: Capital expenditures |
30.9 | 105.8 | ||||||
Free Cash Flow |
$ | 66.9 | $ | 21.3 | ||||
Cash Flow Before Financing Activities |
||||||||
Net increase (decrease) in cash and cash equivalents |
$ | 20.2 | $ | (41.4 | ) | |||
Less: Net cash provided by (used in) financing activities |
(140.0 | ) | (91.6 | ) | ||||
Cash Flow Before Financing Activities |
$ | 160.2 | $ | 50.2 | ||||
| * | 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. |
8
Office Depot, Inc.
DIVISION INFORMATION
(Unaudited)
DIVISION INFORMATION
(Unaudited)
North American Retail Division
| First Quarter | |||||||||
| (Dollars in millions) | 2009 | 2008 | |||||||
| $ | 1,436.4 | $ | 1,713.5 | ||||||
Sales |
1,713.5 | 1,713.5 | |||||||
% change |
(16)% | (7)% | |||||||
Division operating profit |
$ | 81.3 | $ | 82.5 | |||||
% of sales |
5.7% | 4.8% | |||||||
North American Business Solutions Division
| First Quarter | |||||||||
| (Dollars in millions) | 2009 | 2008 | |||||||
Sales |
$ | 914.1 | $ | 1,104.0 | |||||
% change |
(17)% | (5)% | |||||||
Division operating profit |
$ | 33.1 | $ | 59.6 | |||||
% of sales |
3.6% | 5.4% | |||||||
International Division
| First Quarter | |||||||||
| (Dollars in millions) | 2009 | 2008 | |||||||
Sales |
$ | 874.7 | $ | 1,144.5 | |||||
% change |
(24)% | 6% | |||||||
% change in local currency sales |
(9)% | (4)% | |||||||
Division operating profit |
$ | 18.5 | $ | 60.2 | |||||
% of sales |
2.1% | 5.3% | |||||||
Division operating profit excludes Charges from the Division performance, as those Charges are
evaluated at a corporate level.
9
Office Depot, Inc.
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
SELECTED FINANCIAL AND OPERATING DATA
(Unaudited)
Selected Operating Highlights
| 13 Weeks Ended | 13 Weeks Ended | |||||||
| March 28, 2009 | March 29, 2008 | |||||||
Store Statistics |
||||||||
United States and Canada: |
||||||||
Store count: |
||||||||
Stores opened |
— | 45 | ||||||
Stores closed |
107 | — | ||||||
Stores relocated |
1 | 1 | ||||||
Total U.S. and Canada stores |
1,160 | 1,267 | ||||||
North American Retail Division square footage: |
28,347,697 | 30,744,621 | ||||||
Average square footage per NAR store |
24,438 | 24,266 | ||||||
Inventory per store (end of period) |
$ | 635,000 | $ | 864,000 | ||||
International Division company-owned: |
||||||||
Store count: |
||||||||
Stores opened |
2 | 1 | ||||||
Stores closed |
5 | 1 | ||||||
Total International company-owned stores |
159 | 148 | ||||||
10
| Supplemental Investor Presentation April 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 1,100 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 16 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 *As of March 28th, 2009 |
| 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 |
| Strategic Priorities |
| North American Retail North American Business Solutions International Continuing product assortment reviews Increasing high margin services Manage inventory tightly Reduce new store openings Reorganized sales force to become regionally focused Improve telephone account management program Align Retail and BSD organizations aligning their efforts Optimize Direct pricing and promotional strategy Shifting from channel approach to customer segment approach in Europe Harmonizing and rationalizing SKU assortment Expanding presence in new markets Strategic Priorities - Taking Care of Business Cash Management Reducing capital expenditures Inventory management Exiting businesses with negative cash flows |
| Strategic Business Review Update Strategic business review actions should provide benefit EBIT by $130 million and cash flow by $85 million in 2009 Recognized $120 million of pre-tax Charges in Q1 2009 First quarter actions included: Closed 106 underperforming North American Retail stores Closed five North American distribution facilities Streamlined European organizational structure Began rationalizing Japanese retail business Reduced North American headquarters staffing levels Expect additional Charges of $110 million Q2 - Q4 2009 Cash usage estimated to be about $90 million Should benefit EBIT by about $105 million and cash flow by $60 million |
| North American Retail Product assortment line reviews going well Improved pricing and more exciting product presentations for customer Continue to upgrade high-margin services critical to micro-business customers Including Design, Print & Ship and Tech Depot Services Managing inventory very tightly Reduced end of period inventory by 27% in first quarter versus prior year but maintained high "in stock" levels Reducing new store openings Fewer than 12 new store openings planned for 2009 Committed to providing strong customer service Very high customer satisfaction scores N. A. Retail - Taking Care of Business Update |
| North American Business Solutions Reorganized sales force to become more regionally focused Territory Account Managers are responsible for retaining as well as growing the business Improving the telephone account management (TAM) program Expanded responsibilities to include handling orders and prospecting North American Retail and Business Solutions organizations aligning their efforts Collaborating more closely to meet customers' needs Continue to optimize Direct pricing and promotional strategy Launched new pricing strategy Pursuing new business opportunities and vertical product offerings N.A. Business Solutions - Taking Care of Business Update |
| International Shifting from channel approach to customer segment approach in Europe Accomplished by monitoring the purchasing behaviors of customers Identifies prospective customers Harmonizing and rationalizing SKU assortment Simplify inventory management Reducing costs and inventory levels Initial results are encouraging Expanding presence in new markets Using strategic alliances, franchise arrangements and partnerships Expect to open two new franchise stores in Kuwait in the second half of 2009 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 11 cross docks (NA Retail) 16 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 2.2% 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 |
| First Quarter 2009 Results |
| First Quarter 2009 Summary Total Company sales of $3.2 billion, a decline of approximately 19% versus first quarter of 2008 GAAP loss of $55 million or $0.20 per share on a diluted basis Adjusted for Charges(1), earnings of $27 million or $0.10 per share on a diluted basis Pre-tax Charges of $120 million or $0.30 per share for actions taken as part of the strategic business review Company had Cash Flow Before Financing Activities(1)(2) of $160 million and Free Cash Flow(1)(3) of $67 million in the first quarter of 2009 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. 3Free Cash Flow equals net cash provided by operating activities less capital expenditures. |
| 1Non-GAAP numbers, adjusted for Charges. A reconciliation of GAAP to non-GAAP numbers can be found on the Office Depot web site at www.officedepot.com. Consolidated Financials - First Quarter 2009 in millions, except ratios, returns and per share data Q1 2009 Q1 2009 Q1 2009 Q1 2009 Q1 2008 Q1 2008 Q1 2008 Q1 2008 Amount % Sales Amount Amount % Sales Sales $ 3,225 $ 3,225 -- $ 3,962 $ 3,962 -- Operating Expenses(1) $ 861 $ 861 26.7% $ 1,053 $ 1,053 26.6% EBIT(1) $ 57 $ 57 1.8% $ 124 $ 124 3.1% Net Earnings(1) $ 27 $ 27 0.8% $ 78 $ 78 2.0% Net Earnings (Loss) - GAAP $ (55) $ (55) -1.7% $ 69 $ 69 1.7% Diluted Shares 273.2 273.2 -- 272.8 272.8 -- EPS - GAAP $ (0.20) $ (0.20) -- $ 0.25 $ 0.25 -- EPS(1) $ 0.10 $ 0.10 -- $ 0.29 $ 0.29 -- |
| North American Retail - Results in millions, except ratios and statistics Q1 2009 Q1 2008 Sales $ 1,436 $ 1,713 Comparable Sales -17% -9% Division Operating Profit $ 81 $ 82 Division Operating Margin 5.7% 4.8% |
| North American Retail - Results & Variance Analysis Sales down 16%; comparable store sales 17% lower in the first quarter of 2009 AOV lower as customers reduced spending on discretionary items Less aggressive with promotions Operating profit of $81 million versus $82 million one year ago Key components of the operating profit change include: Higher product margins than year ago Lower charges for shrink and inventory valuation Closure of unprofitable stores Expense reduction, including lower advertising and pre-opening expenses Flow through impact from sales volume decline Operating Profit (in millions) Q1 2008 $ 82 Product margin improvement 27 Lower charges for shrink and inventory valuation 15 Store closures 15 Expense reduction 13 Flow through impact from sales volume decline (71) Q1 2009 $ 81 |
| North American Business Solutions - Results in millions, except ratios and statistics Q1 2009 Q1 2008 Sales $ 914 $ 1,104 Division Operating Profit $ 33 $ 60 Division Operating Margin 3.6% 5.4% |
| N.A. Business Solutions - Results & Variance Analysis Sales down 17% in the first quarter of 2009 Continued significant spending cuts in all customer segments Further deterioration in sales to small- to medium-sized customers and large, national account customers Operating profit of $33 million versus $60 million one year ago Factors driving the operating profit change included: Flow through impact from weaker sales volume Less profitable mix, cost increases unable to pass on to our customers and increased promotions, partially offset by increased vendor program funds Partially offset by reduced selling and G&A expenses Operating Profit (in millions) Q1 2008 $ 60 Flow through impact from sales volume decline (36) Less profitable mix, cost increases and increased promotions (13) Benefit from reduced selling and G&A expenses 22 Q1 2009 $ 33 |
| International - Results In millions, except ratios and statistics Q1 2009 Q1 2008 Sales $ 875 $ 1,145 Change in Local Currency Sales -9% -4% Division Operating Profit $ 19 $ 60 Division Operating Margin 2.1% 5.3% |
| International - Results & Variance Analysis Operating Profit (in millions) Q1 2008 $ 60 Reduced selling and distribution costs 21 Flow through impact from sales volume decline (42) Increase in promotional activity and higher costs (13) Foreign exchange impact (7) Q1 2009 $ 19 Sales down 24% in the first quarter of 2009 Local currency sales down 9% Difficult conditions abroad Operating profit was $19 million versus $60 million one year ago Factors driving the operating profit change included: Benefit from reduced selling and distribution costs Flow through impact from sales decline Increased promotional activity and cost increases that could not full be passed to the customer Impact of stronger U.S. dollar on foreign exchange rates |
| Summary and Outlook Operating results exceeded our expectations in the first quarter Second quarter is typically our weakest quarter of the year; may use some cash EBIT(1) could be $60 to $80 million negative in the second quarter due to seasonally lower sales levels EBIT(1) could be breakeven or slightly negative in the second half of 2009 Expect Free Cash Flow(1)(2) to be $50 - $100 million in 2009 and Cash Flow Before Financing(1)(3) to be in the $275 - $325 million range Continue to take conservative approach to liquidity for near and long term Committed to managing the Company through these challenging times 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. |
| Charges 1Future amounts may be impacted by changes as plans are implemented and changes in currency exchange rates. in millions Q1 Q1 Q1 Projected(1) 2009 2008 Q2 - Q4 2009 N.A. Retail & Supply Chain Initiatives $ 87 - $ 25 Other Initiative & Headcount Reductions 26 - 65 Asset Write Downs 7 - - - 2005 Initiatives - 11 20 Total Charges $ 120 $ 11 $ 110 Cash Usage $ 28 $ 7 $ 90 |
| 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 Q1 2009 Q1 2008 Net Earnings (Loss) $ (55) $ 69 Depreciation & Amortization $ 54 $ 64 Other Operating and Non-Cash Items $ 99 $ (6) Capital Expenditures $ (31) $ (106) Free Cash Flow(1)(2) $ 67 $ 21 Other Investing Activities & FX Impact on Cash $ 93 $ 29 Cash Flow Before Financing Activities(1)(3) $ 160 $ 50 |
| Liquidity Update At the end of the first quarter, Office Depot had $806 million in total available liquidity Excellent cash flow in the quarter resulted in no ABL borrowings at quarter end Expect ABL availability to increase $100 - $150 million in the second quarter as Office Depot ramps up inventories for third quarter Back to School season Expect to be Free Cash Flow(1)(2) positive in 2009 Expect Cash Flow Before Financing Activities(1)(3) to be in $275 - $325 million range for 2009 Liquidity initiatives completed in the first quarter contributed $160 million in cash Assuming second quarter is seasonally weak and second half of year results are similar to the first quarter, Office Depot should expect minimal or no ABL borrowings at quarters end for the balance of 2009 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. |
| 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 Q1 current year + WC Q1 prior year) / 2) / Trailing four quarter sales in millions, except ratios and returns Q1 2009 Q1 2008 Cash and Cash Equivalents $ 176 $ 182 NAR Inventory Per Store (end of period) $ 0.635 $ 0.864 Inventories $ 1,128 $ 1,644 Working Capital(1) $ 491 $ 721 Working Capital as a % of Sales(2) 4.4% 3.8% Net Debt (end of period) $ 554 $ 567 |
| 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 Q1 2009 capital spending was $31 million FY 2009 is targeted at $125 million, which is about 50% of projected depreciation and amortization 2005 2006 2007 2008 2009F East 261 434 461 330 125 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 March, the Company had nothing drawn on its asset- based loan (ABL) facility, and had $160 million in outstanding letters of credit against the facility, leaving it with $630 million of availability |
| Macroeconomic Environment |
| U.S. Recession Job Losses Top 5 Million in March Note: Permission to quote was neither sought nor obtained. "The U.S. shed 663,000 jobs in March, pushing total losses since the recession started 16 months ago past five million. The jobless rate rose to 8.5%." Wall Street Journal, April 3, 2009 U.S. Housing Crisis Driving Mortgage Default Rates "The U.S. mortgage quarterly default rate has increased by about 210 basis points from one year ago." Mortgage Banker's Association of America U.S. Mortgage Default Rates 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 Q4 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 0.0788 Job losses since the recession began Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Cumaltive Job Losses 0 -216 -338 -498 -635 -796 -924 -1099 -1420 -1800 -2397 -3078 -3819 -4470 -5133 Monthly Job Losses -72 -144 -122 -160 -137 -161 -128 -175 -321 -380 -597 -681 -741 -651 -663 Source: Bureau of Labor Statistics Source: Mortgage Bankers Association (000s) Challenging Business Environment |
| U.S. GDP / The Consumer Consumer Confidence Unemployment Rate Gross Domestic Product 2006:Q1 2006:Q2 2006:Q3 2006:Q4 2007:Q1 2007:Q2 2007:Q3 2007:Q4 2008:Q1 2008:Q2 2008:Q3 2008:Q4 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 -0.063 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 1/15/2009 2/15/2009 3/15/2009 Consumer Confidence 87.3 76.4 65.9 62.8 58.1 51 51.9 58.5 61.4 38.8 44.7 38 37.4 25 26 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 1/15/2009 2/15/2009 3/15/2009 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 0.076 0.081 0.085 U.S. economy shrank 6.2% in Q4'08, exceeding earlier forecasts due to a downturn in exports and a much larger decrease in equipment and software U.S. consumer confidence, which had decreased moderately in January, declined in February, reaching yet another all-time low U.S. unemployment rose to 8.5% in March 2009. Job losses were large and widespread across nearly all major industry sectors Source: Bureau of Economic Analysis Source: The Conference Board Source: Bureau of Labor Statistics |
| Small Business / Home Sales Residential Real Estate Loans Delinquency 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 11/1/2009 12/1/2008 1/1/2009 2/1/2009 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 9.1 9.2 9.2 9.4 9.8 The number of months leading indicator shows continued increases are expected. Delinquency rates increased significantly from 5.1 in Q3'08 to 6.9 in Q4'08 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 89 basis points since Q3'08, and up 206 basis points from one year ago 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 Q4 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 0.0788 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 9.1 11/1/2008 5.11 9.2 12/1/2008 5.11 9.2 1/1/2009 5.11 9.4 2/1/2009 6.92 9.8 3/1/2009 6.92 4/1/2009 6.92 Source: Federal Reserve, Census Dept. Source: Census Dept. Source: Mortgage Bankers Association |
| Taking Care of Business April 2009 |