Office Depot expects positive cash flow, adequate liquidity as restructuring continues, executives say

By Kenneth Lim

Boston, April 28 - Office Depot, Inc. expects to complete its European restructuring by the end of the year as it eyes a free cash flow-positive 2009, company officials said in a conference call on Tuesday.

The comments came as the Delray Beach, Fla.-based office products and services supplier announced a first-quarter net loss of $54.7 million, or $0.20 per share. Most of the losses came from $120 million in charges related to the closing of 107 stores in the first quarter, and the company expects to incur an additional $110 million later in the year.

Sale and lease-back agreements on certain store properties contributed about $69 million to first-quarter cash flow of $160 million. Free cash flow for the quarter was $67 million, and the company expects free cash flow of $50 million to $100 million in 2009, and cash flow before financing of $275 million to $325 million for the year.

The store closures and sale and lease-back deals were part of a strategic review undertaken by the company during the first quarter. The company's restructuring of its North American operations have been completed and Europe is expected to be completed this year, Office Depot chief financial officer Mike Newman said on the conference call.

"Our net debt at the end of the first quarter was $554 million including $675 million in long-term debt," Newman said.

"With the asset-based credit facility in place, $400 million in bonds not maturing until 2013 and the liquidity actions we are taking we remain comfortable that we have a capital structure in place to take us through this business cycle."

Office Depot also recorded $160 million of asset sales for first quarter, and an additional $40 million of sales in Europe since then brings the to-date total to about $200 million.

"We feel confident we have another $200 million to go in the balance of the year, which includes both sale lease-backs, receivable factoring and some other initiatives," Newman said.

"We probably in my estimation have been on the high end of our expectations on what we have delivered to date on liquidity initiatives and we think that $400 million number for the year is very solid."

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