0.02>=F.E >=0

Office Depot Case

1. Examine the firm early warning signs of earnings management over the years
   1. Cash flows that are not correlated with earnings (CFO vs. NI)

Cash flow from operating activities (CFO) represents the amount a company receives from its continuous and regular operating business activities.

Net income is calculated by subtracting the cost of sales, operational expenses, depreciation, interest, amortization, and taxes from total revenue.

1. 2. Receivables that are not correlated with revenues (AR vs. Sales)
2. 3. Write offs that are not correlated with Bad Debt Expense
3. 4. Acquisitions with no apparent business purpose
4. 5. Earnings that consistently and precisely meet or just beat analysts expectations
5. 6. Deviations from industry norms or performance

2. In your opinion, is Office Depot managing earnings?

OFFICE DEPOT, INC. CONSOL MATED STATEMENTS OF OPERATIONS Iraulicone pour $16.1196 311.241 8.516 2.506 3,776 S10.50 8.160 2.53 2.446 1681 139 56 201 X1 12751 (2051 Sales Color goals wall and panty costs Csepelit Selling general and alministehspirar Recovery of purchase price Asset im aliments Mecze, retractoring, ud ocher ocente expenses, net 1.cyal smul Operating Other income experts Interest income literest expense Loss ou extinguished Con disposition of joint venture Other inoma, net Lancome (losa beboce income taxes Thomas expand Ne lom 1.248: Results struhle to the rencontre ling interes Vet kontrahlta Offic: Impot, Inc Thulemele lividenils Netlow witributable to communsteckholders Race and lite luxe slur 14 1891 3 05 13401 12 13591 14 121 147 (23 13541 7) $ 18541 50.661 52.291 S01.19) 2014 13 5 1.71 1.264 1.618 245 4,21 955 1353 1.812 296 4,396 1,309 398 1941 72 32 343 35 281 $ $ 1.140 31,426 1.463 ASSETS Cumest sets: Cash and cash valents Receivables.net Inventaris Pripher: Toaleur SNS Peperty and ani, Oricingle, Times notes cerable Detered income taxes acier assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Cumestilabilities: Tracker paytle Acer poder lindilitix Income taxes payable Shortcomings and come maturites of legem deht Totalment liilities Taf:meat income tases and other longtem liabiti Pension and postele options. Det Lorg term debt, niet of current mattis Non recourse debt Total habilities Ceriments and continues Nuncontrolling interest in evenin Stockholders' equity Office Depot, Inc. stockholders' equily! Common teck Suthorized 300.000.000 dames of Sol povahe onedlhores 551/409.53in 2014 and 536829.760-2013 Modicional padin capital Accumulated the compense come Accumulated delicit Tichur ck, 2011- 5515.268 d.ca in 2014 and 2013 Tocal Officer pot, he stockholders' equiry Nouccatolling interesa Totalegacy Tistel lists and stockholder' elity 219 163 096 5359 107 2.480 272 1,621 15 2006 1,621 $ 6,544 $ 7,472 5 (353) S (20) 5 (771 313 66 209 59 200 65 13 N8 38 139 14 (312) 44 57 14 0902 256 187) (107) (137) 457 (123) Cash flows from eating activities Netloss Adjustments to reconcile net loss to net cash provided by used in operating activities: Depreciation and medicatii Charges for losses an inventories and receivables Farming from purity method investments Lun extinguish of de Recovery of purchase price Pension plan funding mencinted with awery of purchase price Asset inpaiments Compensation expense for share-based payments Loss) on disposition of cutt ventures Dere ed income taxes and deterd tax asset valotion allowances Las) un disposao Other Changes in acaris and liabilities: Decca (ec) in cables Thecream (cremain inventores Net decrease increase) in prepaid expenses and other assets Net decrease in trade accounts payable, accrued expenses and other curent and other long term. liabilities Total juments Nel cash pruvidalloy (wal inspeling livilis Cash flows from investing activities: Capital expenditures Acquired cash in Merger, at Press from sale of joint ventus, nes Retut of itsmettin Bois Cascade Holdings, L.L.C. Proceeds from sale of available for sale securities Recovery of prio Release of restricted cash Restricted cash Proceeds from disposition of assets and other Net cash provide lay malin) investing activities Cash flows from inter activities Nel process from comployeeshurbarsactions Payment for nor controlling interests Tasce eating default Deix retirement De CE Dek related fies Redemption of redeemable preferred stock Rodonable prefemel dock dividends Proceedition issuance of bomovings Payments on long and short-tembamwings Net cash provided by (used in financing activities Effect of exchange rate changes on cash and eash equivalents Net increase in cash and cash equivalents Calendas. cuivaleas a beginning ofperiod Cash and cash equivalente atend of period (120) 35 11 II LD : 31 (2) 2 1,008 3 (0) (150) 11) (407) 163) 23 (3) 21 1640) 3 15 (27) 116 955 $1,21 671 $ 10 SZ! $ 671 CA Celu D. Cole Doapte Allran: irani UK 2014 2013 2012 16 26 S 23 $ 20 14 IS 11 12 18 26 23 NOTE 3. MERGER, RESTRUCTURING AND OTHER ACCRUALS In recent yeres, the Company has taken actions adapt to changing mod competitive conditions. These actions include closing facilities, consolidating Tinctional activities, in alles andels, and taking a la inceperelticieneis. Alitically the Mager ward 2013 rul incati stiilis hegnIn concctir with the Marrth: Campoy sesimiesit liabilities previas mosche hs Office Starting in the fourth quarter of 2013, the Company began presents Meryer, restructuring and other operating expenses, nxt on a separate line in the Coesolidated States of Oxerations to identit: these activities apurtrom the expenses incurred to sell to and service is customers. During 2015, cese expenses od 20 million with 10 million of Merger and certain cther expenses and 52. million ce net restructuring expenses. As noted in the basis of Presentation above, these expenses de recoded in Divisiou operating income. Mag-clislexul Smillalla Lancia imegali dirilis jily investiet luking, keral, cuanding, (1) 392 million of employee related expenses for cast termination benefits, acceleration of share based compersation for deporting employees and certain incentives to retain and motivate employees, and in) Ss million certas stacchoder related expenses lotel Merger expenses reflect on cuned by Office Depot efore receiving approval ct die Merger, a well as costs incurred by the combined entity following the Mecze upal. Refer to Note 2 for chitral information on the Marver. Kestructuring expenses primary relate to activities in Lurope. These crees include 125 million of te miratie benefits and facility Clostre costs, partially offset by a credit from the reversal of currulative an.com 20count balances pour subsidiary Liguidation Of the $20 millie Merze, tucturing and experees, not recognized in 2013. cerain amounts are considered exit costs and included as charges incurred in the whole bow. Transaction liners.n.certain staretoket rewned and other expenses are not consideed exit costs. The sure boxed compensation that was recognized against additional pidin capital is also not presented in die exit cost cable. The table includes 594 million of employee compensation preciam the Meryerinde incluindi, elminale bercerai cheol. Cherpinutol in the table wasic: 54 million or create a cilities colsportalamping perion, which included in Selling permite expenses in the Consello Statement of Operations. Inakit, te alle price presiously cheal Gacilities which is included in Selline general and sanie.trrive experses is the Consolidated Statement Operas. Quarterly Earnings Surprise History % Fiscal Quarter End Date Reported Earnings Per Share Consensus EPS* Forecast Surprise Jun 2015 08/04/2015 0.06 0.06 Met Mar2015 05/05/2015 0.13 0.13 Met Dec 2014 02/24/2015 0.07 0.04 75 Sep 2014 11/04/2014 0.1 0.09 11.11 2013 $ 6,920,384 3.135.927 1.78-457 ULL $ 7,121.167 5,311.987 1.8119.10 $1,150.00 5,300.355 1,849,652 1.645.145 11,376 1.689.1.30 1 1.690,667 11.197 20.san 86.486 73.130) 14,000 169,765) 43.772 1.117T 146,466 172,133) 42.005 Sales Cost of goods sold and occupancy costs 3 Gremli Galiny, selling, mil general anal sikimidative specs Ana imienin l irgejee, Operating income Interest expense laterest.com (sirit an estinguishansamalin-lexurse is Oder income (Exercel. Det Prate: The per Nec income attributable Officelax and noncicirolling interest Jolet vecture results obtable o cocontrolling interes Nelincueil demoni Pietered dividends Nel camilahkan. Mercuku Netcame per R: Dalused 282 419.517) 38,120 489 6114,546 (248722) 120,818 14,00%) S418,741 12,096) 414.14 0321 115.76 (41,872) 73.561 12,7091 $ 71,153 (2.522 $ 69,62% 34.14 (2,123) 12.771 5 4.79 0.18 S 5 5 5 $ 0.19 Decante Duch! thousan, except Share und per share amounts ASSETS $493,050 812 454 68,568 79.827 1.980.881 S427,111 558,633 821,909 6.X2 117.847 1,938,974 411,243 Ces and cashequrulenti Reviex THERES Paskinclines maxivaliks Other im Total carrete Property and quiere: Tallic Buildings and imments Machinery and Total property and women Accum..ed depreciation Ne and musica. I Investment in Bali Hollis, LLC. Tinber maxi Daerolineames Other Tocal assets 40,404 501,1153 797.378 1,338,837 7K7.492 1.316637 (9413,701 36:4.936: 81.320 175,00 84,265 175,000 817.500 108,759 2n6 181 $3,281315 371,419 239.156 $4,009.275 Twith th IR S420818 5 18.120 $ 73,86+ (7.8401 84.218 (7,254) 100,935 (8,455) 14,124 1670,766) 11.376 57,076 227,111 11.193 10.979 1.965 26,122 Cashovided by operations Ne incisible Of Max and montrolling in Non chemin net incite Dividend income crom investment in Boise Cascade Holdites. L.L.C. Depreciation and maintain Non cash gain on extinguisment of recourse der Non-call implement charges Pension and other postreme berts expense Deler income taxe Oler Changes in operadla.cies: Ricciolik Insubrics Axunts payahl and credibilities Curral Parcel incammel zymis of a ca c :al lif: : parts Our Csh provided by operaties 7.419 19.246 37,26% 20,50 59.950 (13,7361 17.26 154,871 1,178 127,676) 151,515) 20,775 144.44) (27.26) 88,137 IN 471 185201 1.59.350) 53.679 OFFICE DEPOT, INC. CONSOL MATED STATEMENTS OF OPERATIONS Iraulicone pour $16.1196 311.241 8.516 2.506 3,776 S10.50 8.160 2.53 2.446 1681 139 56 201 X1 12751 (2051 Sales Color goals wall and panty costs Csepelit Selling general and alministehspirar Recovery of purchase price Asset im aliments Mecze, retractoring, ud ocher ocente expenses, net 1.cyal smul Operating Other income experts Interest income literest expense Loss ou extinguished Con disposition of joint venture Other inoma, net Lancome (losa beboce income taxes Thomas expand Ne lom 1.248: Results struhle to the rencontre ling interes Vet kontrahlta Offic: Impot, Inc Thulemele lividenils Netlow witributable to communsteckholders Race and lite luxe slur 14 1891 3 05 13401 12 13591 14 121 147 (23 13541 7) $ 18541 50.661 52.291 S01.19) 2014 13 5 1.71 1.264 1.618 245 4,21 955 1353 1.812 296 4,396 1,309 398 1941 72 32 343 35 281 $ $ 1.140 31,426 1.463 ASSETS Cumest sets: Cash and cash valents Receivables.net Inventaris Pripher: Toaleur SNS Peperty and ani, Oricingle, Times notes cerable Detered income taxes acier assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Cumestilabilities: Tracker paytle Acer poder lindilitix Income taxes payable Shortcomings and come maturites of legem deht Totalment liilities Taf:meat income tases and other longtem liabiti Pension and postele options. Det Lorg term debt, niet of current mattis Non recourse debt Total habilities Ceriments and continues Nuncontrolling interest in evenin Stockholders' equity Office Depot, Inc. stockholders' equily! Common teck Suthorized 300.000.000 dames of Sol povahe onedlhores 551/409.53in 2014 and 536829.760-2013 Modicional padin capital Accumulated the compense come Accumulated delicit Tichur ck, 2011- 5515.268 d.ca in 2014 and 2013 Tocal Officer pot, he stockholders' equiry Nouccatolling interesa Totalegacy Tistel lists and stockholder' elity 219 163 096 5359 107 2.480 272 1,621 15 2006 1,621 $ 6,544 $ 7,472 5 (353) S (20) 5 (771 313 66 209 59 200 65 13 N8 38 139 14 (312) 44 57 14 0902 256 187) (107) (137) 457 (123) Cash flows from eating activities Netloss Adjustments to reconcile net loss to net cash provided by used in operating activities: Depreciation and medicatii Charges for losses an inventories and receivables Farming from purity method investments Lun extinguish of de Recovery of purchase price Pension plan funding mencinted with awery of purchase price Asset inpaiments Compensation expense for share-based payments Loss) on disposition of cutt ventures Dere ed income taxes and deterd tax asset valotion allowances Las) un disposao Other Changes in acaris and liabilities: Decca (ec) in cables Thecream (cremain inventores Net decrease increase) in prepaid expenses and other assets Net decrease in trade accounts payable, accrued expenses and other curent and other long term. liabilities Total juments Nel cash pruvidalloy (wal inspeling livilis Cash flows from investing activities: Capital expenditures Acquired cash in Merger, at Press from sale of joint ventus, nes Retut of itsmettin Bois Cascade Holdings, L.L.C. Proceeds from sale of available for sale securities Recovery of prio Release of restricted cash Restricted cash Proceeds from disposition of assets and other Net cash provide lay malin) investing activities Cash flows from inter activities Nel process from comployeeshurbarsactions Payment for nor controlling interests Tasce eating default Deix retirement De CE Dek related fies Redemption of redeemable preferred stock Rodonable prefemel dock dividends Proceedition issuance of bomovings Payments on long and short-tembamwings Net cash provided by (used in financing activities Effect of exchange rate changes on cash and eash equivalents Net increase in cash and cash equivalents Calendas. cuivaleas a beginning ofperiod Cash and cash equivalente atend of period (120) 35 11 II LD : 31 (2) 2 1,008 3 (0) (150) 11) (407) 163) 23 (3) 21 1640) 3 15 (27) 116 955 $1,21 671 $ 10 SZ! $ 671 CA Celu D. Cole Doapte Allran: irani UK 2014 2013 2012 16 26 S 23 $ 20 14 IS 11 12 18 26 23 NOTE 3. MERGER, RESTRUCTURING AND OTHER ACCRUALS In recent yeres, the Company has taken actions adapt to changing mod competitive conditions. These actions include closing facilities, consolidating Tinctional activities, in alles andels, and taking a la inceperelticieneis. Alitically the Mager ward 2013 rul incati stiilis hegnIn concctir with the Marrth: Campoy sesimiesit liabilities previas mosche hs Office Starting in the fourth quarter of 2013, the Company began presents Meryer, restructuring and other operating expenses, nxt on a separate line in the Coesolidated States of Oxerations to identit: these activities apurtrom the expenses incurred to sell to and service is customers. During 2015, cese expenses od 20 million with 10 million of Merger and certain cther expenses and 52. million ce net restructuring expenses. As noted in the basis of Presentation above, these expenses de recoded in Divisiou operating income. Mag-clislexul Smillalla Lancia imegali dirilis jily investiet luking, keral, cuanding, (1) 392 million of employee related expenses for cast termination benefits, acceleration of share based compersation for deporting employees and certain incentives to retain and motivate employees, and in) Ss million certas stacchoder related expenses lotel Merger expenses reflect on cuned by Office Depot efore receiving approval ct die Merger, a well as costs incurred by the combined entity following the Mecze upal. Refer to Note 2 for chitral information on the Marver. Kestructuring expenses primary relate to activities in Lurope. These crees include 125 million of te miratie benefits and facility Clostre costs, partially offset by a credit from the reversal of currulative an.com 20count balances pour subsidiary Liguidation Of the $20 millie Merze, tucturing and experees, not recognized in 2013. cerain amounts are considered exit costs and included as charges incurred in the whole bow. Transaction liners.n.certain staretoket rewned and other expenses are not consideed exit costs. The sure boxed compensation that was recognized against additional pidin capital is also not presented in die exit cost cable. The table includes 594 million of employee compensation preciam the Meryerinde incluindi, elminale bercerai cheol. Cherpinutol in the table wasic: 54 million or create a cilities colsportalamping perion, which included in Selling permite expenses in the Consello Statement of Operations. Inakit, te alle price presiously cheal Gacilities which is included in Selline general and sanie.trrive experses is the Consolidated Statement Operas. Quarterly Earnings Surprise History % Fiscal Quarter End Date Reported Earnings Per Share Consensus EPS* Forecast Surprise Jun 2015 08/04/2015 0.06 0.06 Met Mar2015 05/05/2015 0.13 0.13 Met Dec 2014 02/24/2015 0.07 0.04 75 Sep 2014 11/04/2014 0.1 0.09 11.11 2013 $ 6,920,384 3.135.927 1.78-457 ULL $ 7,121.167 5,311.987 1.8119.10 $1,150.00 5,300.355 1,849,652 1.645.145 11,376 1.689.1.30 1 1.690,667 11.197 20.san 86.486 73.130) 14,000 169,765) 43.772 1.117T 146,466 172,133) 42.005 Sales Cost of goods sold and occupancy costs 3 Gremli Galiny, selling, mil general anal sikimidative specs Ana imienin l irgejee, Operating income Interest expense laterest.com (sirit an estinguishansamalin-lexurse is Oder income (Exercel. Det Prate: The per Nec income attributable Officelax and noncicirolling interest Jolet vecture results obtable o cocontrolling interes Nelincueil demoni Pietered dividends Nel camilahkan. Mercuku Netcame per R: Dalused 282 419.517) 38,120 489 6114,546 (248722) 120,818 14,00%) S418,741 12,096) 414.14 0321 115.76 (41,872) 73.561 12,7091 $ 71,153 (2.522 $ 69,62% 34.14 (2,123) 12.771 5 4.79 0.18 S 5 5 5 $ 0.19 Decante Duch! thousan, except Share und per share amounts ASSETS $493,050 812 454 68,568 79.827 1.980.881 S427,111 558,633 821,909 6.X2 117.847 1,938,974 411,243 Ces and cashequrulenti Reviex THERES Paskinclines maxivaliks Other im Total carrete Property and quiere: Tallic Buildings and imments Machinery and Total property and women Accum..ed depreciation Ne and musica. I Investment in Bali Hollis, LLC. Tinber maxi Daerolineames Other Tocal assets 40,404 501,1153 797.378 1,338,837 7K7.492 1.316637 (9413,701 36:4.936: 81.320 175,00 84,265 175,000 817.500 108,759 2n6 181 $3,281315 371,419 239.156 $4,009.275 Twith th IR S420818 5 18.120 $ 73,86+ (7.8401 84.218 (7,254) 100,935 (8,455) 14,124 1670,766) 11.376 57,076 227,111 11.193 10.979 1.965 26,122 Cashovided by operations Ne incisible Of Max and montrolling in Non chemin net incite Dividend income crom investment in Boise Cascade Holdites. L.L.C. Depreciation and maintain Non cash gain on extinguisment of recourse der Non-call implement charges Pension and other postreme berts expense Deler income taxe Oler Changes in operadla.cies: Ricciolik Insubrics Axunts payahl and credibilities Curral Parcel incammel zymis of a ca c :al lif: : parts Our Csh provided by operaties 7.419 19.246 37,26% 20,50 59.950 (13,7361 17.26 154,871 1,178 127,676) 151,515) 20,775 144.44) (27.26) 88,137 IN 471 185201 1.59.350) 53.679