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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the quarterly period ended June 27, 2020

or

Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

For the transition period from                     to                    

Commission File Number 1-10948

The ODP Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware

85-1457062

(State or Other Jurisdiction of Incorporation or Organization)

(IRS 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)

 

Office Depot, Inc.

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

 

Trading

Symbol(s)

 

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

 

ODP

 

The NASDAQ Stock Market

(NASDAQ Global Select Market)

Preferred Shares Purchase Rights

 

N/A

 

The NASDAQ Stock Market

(NASDAQ Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At July 29, 2020, there were 52,664,952 outstanding shares of The ODP Corporation (the successor issuer pursuant to Rule 12g-3(a) under the Exchange Act as of June 30, 2020) (“ODP”) Common Stock, $0.01 par value.

1



2


TABLE OF CONTENTS

 

The order and presentation of this Quarterly Report on Form 10-Q (“Form 10-Q”) differ from that of the traditional U.S. Securities and Exchange Commission (“SEC”) Form 10-Q format. We believe our format better presents the relevant sections of this document and enhances readability. See “Form 10-Q Cross-Reference Index” within “Other Information” for a cross-reference index to the traditional SEC Form 10-Q format.

 

Financial Statements

 

Page

Condensed Consolidated Statements of Operations (Unaudited)

 

3

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 

4

Condensed Consolidated Balance Sheets (Unaudited)

 

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

6

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Management’s Discussion and Analysis (MD&A)

 

 

Overview

 

26

Operating Results by Division

 

30

Liquidity and Capital Resources

 

36

New Accounting Standards

 

38

Critical Accounting Policies

 

38

Other Information

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

Controls and Procedures

 

39

Legal Proceedings

 

40

Risk Factors

 

40

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Exhibits

 

43

Form 10-Q Cross-Reference Index

 

44

Signatures

 

45

EX 3.1

 

 

EX 4.1

 

 

EX 10.1

 

 

EX 10.2

EX 10.3

 

 

EX 31.1

 

 

EX 31.2

EX 32

 

 

EX 101

 

 

EX 104

 

 

 

3


THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

June 27,

 

 

June 29,

 

 

June 27,

 

 

June 29,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

1,857

 

 

$

2,183

 

 

$

4,194

 

 

$

4,543

 

Services

 

 

301

 

 

 

405

 

 

 

689

 

 

 

813

 

Total sales

 

 

2,158

 

 

 

2,588

 

 

 

4,883

 

 

 

5,356

 

Cost of goods and occupancy costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,531

 

 

 

1,731

 

 

 

3,358

 

 

 

3,570

 

Services

 

 

211

 

 

 

272

 

 

 

479

 

 

 

559

 

Total cost of goods and occupancy costs

 

 

1,742

 

 

 

2,003

 

 

 

3,837

 

 

 

4,129

 

Gross profit

 

 

416

 

 

 

585

 

 

 

1,046

 

 

 

1,227

 

Selling, general and administrative expenses

 

 

406

 

 

 

515

 

 

 

928

 

 

 

1,090

 

Asset impairments

 

 

401

 

 

 

16

 

 

 

413

 

 

 

45

 

Merger and restructuring expenses, net

 

 

65

 

 

 

69

 

 

 

81

 

 

 

83

 

Operating income (loss)

 

 

(456

)

 

 

(15

)

 

 

(376

)

 

 

9

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

5

 

 

 

3

 

 

 

11

 

Interest expense

 

 

(11

)

 

 

(23

)

 

 

(29

)

 

 

(46

)

Loss on extinguishment and modification of debt

 

 

(12

)

 

 

 

 

 

(12

)

 

 

 

Other income, net

 

 

4

 

 

 

2

 

 

 

5

 

 

 

5

 

Loss before income taxes

 

 

(475

)

 

 

(31

)

 

 

(409

)

 

 

(21

)

Income tax benefit

 

 

(36

)

 

 

(7

)

 

 

(15

)

 

 

(5

)

Net loss

 

$

(439

)

 

$

(24

)

 

$

(394

)

 

$

(16

)

Loss per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(8.34

)

 

$

(0.43

)

 

$

(7.46

)

 

$

(0.29

)

Diluted

 

$

(8.19

)

 

$

(0.43

)

 

$

(7.31

)

 

$

(0.28

)

 

On June 30, 2020, Office Depot, Inc., the predecessor of The ODP Corporation, implemented a holding company reorganization (the “Reorganization”), which resulted in The ODP Corporation becoming the parent company of, and the successor issuer to, Office Depot, Inc. For purposes of this report, references to “we” or the “Company” or its management or business at any period prior to the holding company reorganization (June 30, 2020) refer to those of Office Depot, Inc. as the predecessor company and its subsidiaries and thereafter to those of The ODP Corporation and its consolidated subsidiaries, except as otherwise specified or to the extent the context otherwise indicates.

 

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements in the Office Depot, Inc. Annual Report on Form 10-K filed on February 26, 2020 (the “2019 Form 10-K”).

4


THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

26 Weeks Ended

 

 

 

June 27,

2020

 

 

June 29,

2019

 

 

June 27,

2020

 

 

June 29,

2019

 

Net loss

 

$

(439

)

 

$

(24

)

 

$

(394

)

 

$

(16

)

Other comprehensive income (loss), net of tax, where applicable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

13

 

 

 

5

 

 

 

(28

)

 

 

15

 

Other

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

Total other comprehensive income (loss), net of tax, where

   applicable

 

 

13

 

 

 

5

 

 

 

(29

)

 

 

16

 

Comprehensive loss

 

$

(426

)

 

$

(19

)

 

$

(423

)

 

$

 

 

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements in the 2019 Form 10-K.

5


THE ODP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

 

 

 

June 27,

 

 

December 28,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

762

 

 

$

698

 

Receivables, net

 

 

679

 

 

 

823

 

Inventories

 

 

1,005

 

 

 

1,032

 

Prepaid expenses and other current assets

 

 

79

 

 

 

75

 

Timber notes receivable

 

 

 

 

 

819

 

Total current assets

 

 

2,525

 

 

 

3,447

 

Property and equipment, net

 

 

612

 

 

 

679

 

Operating lease right-of-use assets

 

 

1,272

 

 

 

1,413

 

Goodwill

 

 

593

 

 

 

944

 

Other intangible assets, net

 

 

363

 

 

 

388

 

Deferred income taxes

 

 

183

 

 

 

183

 

Other assets

 

 

317

 

 

 

257

 

Total assets

 

$

5,865

 

 

$

7,311

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

991

 

 

$

1,026

 

Accrued expenses and other current liabilities

 

 

1,104

 

 

 

1,219

 

Income taxes payable

 

 

10

 

 

 

8

 

Short-term borrowings and current maturities of long-term debt

 

 

30

 

 

 

106

 

Non-recourse debt

 

 

 

 

 

735

 

Total current liabilities

 

 

2,135

 

 

 

3,094

 

Deferred income taxes and other long-term liabilities

 

 

189

 

 

 

176

 

Pension and postretirement obligations, net

 

 

80

 

 

 

85

 

Long-term debt, net of current maturities

 

 

642

 

 

 

575

 

Operating lease liabilities

 

 

1,102

 

 

 

1,208

 

Total liabilities

 

 

4,148

 

 

 

5,138

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock — authorized 80,000,000 shares of $0.01 par value; issued shares —

   62,514,546 at June 27, 2020 and 62,042,477 at December 28, 2019;

   outstanding shares — 52,657,353 at June 27, 2020 and 53,518,232 at

   December 28, 2019

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,650

 

 

 

2,652

 

Accumulated other comprehensive loss

 

 

(95

)

 

 

(66

)

Accumulated deficit

 

 

(484

)

 

 

(89

)

Treasury stock, at cost — 9,857,193 shares at June 27, 2020 and 8,524,245

   shares at December 28, 2019

 

 

(355

)

 

 

(325

)

Total stockholders' equity

 

 

1,717

 

 

 

2,173

 

Total liabilities and stockholders’ equity

 

$

5,865

 

 

$

7,311

 

 

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements in the 2019 Form 10-K.

6


THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

26 Weeks Ended

 

 

 

June 27,

 

 

June 29,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(394

)

 

$

(16

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

97

 

 

 

102

 

Amortization of debt discount and issuance costs

 

 

2

 

 

 

4

 

Charges for losses on receivables and inventories

 

 

16

 

 

 

14

 

Asset impairments

 

 

413

 

 

 

45

 

Loss on disposition of assets, net

 

 

5

 

 

 

1

 

Loss on extinguishment and modification of debt

 

 

12

 

 

 

 

Compensation expense for share-based payments

 

 

16

 

 

 

17

 

Deferred income taxes and deferred tax asset valuation allowances

 

 

(3

)

 

 

(9

)

Contingent consideration payments in excess of acquisition-date liability

 

 

(2

)

 

 

(11

)

Changes in working capital and other operating activities

 

 

18

 

 

 

(145

)

Net cash provided by operating activities

 

 

180

 

 

 

2

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(40

)

 

 

(91

)

Businesses acquired, net of cash acquired

 

 

(18

)

 

 

(22

)

Proceeds from collection of notes receivable

 

 

818

 

 

 

 

Other investing activities

 

 

2

 

 

 

 

Net cash provided by (used in) investing activities

 

 

762

 

 

 

(113

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net payments on long and short-term borrowings

 

 

(30

)

 

 

(48

)

Debt retirement

 

 

(1,187

)

 

 

 

Debt issuance

 

 

400

 

 

 

 

Cash dividends on common stock

 

 

(13

)

 

 

(27

)

Share purchases for taxes, net of proceeds from employee share-based transactions

 

 

(5

)

 

 

(9

)

Repurchase of common stock for treasury

 

 

(30

)

 

 

(11

)

Contingent consideration payments up to amount of acquisition-date liability

 

 

(1

)

 

 

(12

)

Other financing activities

 

 

(6

)

 

 

 

Net cash used in financing activities

 

 

(872

)

 

 

(107

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(6

)

 

 

4

 

Net increase (decrease) in cash and cash equivalents

 

 

64

 

 

 

(214

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

700

 

 

 

660

 

Cash, cash equivalents and restricted cash at end of period

 

$

764

 

 

$

446

 

Supplemental information

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for new finance lease liabilities

 

$

3

 

 

$

12

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

 

63

 

 

 

130

 

 

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements in the 2019 Form 10-K.

7


THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

 

 

 

26 Weeks Ended June 27, 2020

 

 

 

Common

Stock

Shares

 

 

Common

Stock

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Treasury

Stock

 

 

Total

Equity

 

Balance at December 28, 2019

 

 

62,042,477

 

 

$

1

 

 

$

2,652

 

 

$

(66

)

 

$

(89

)

 

$

(325

)

 

$

2,173

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

 

 

 

(42

)

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

426,591

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

(4

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Dividends paid on common stock

   ($0.25 per share)

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

(13

)

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

Adjustment for adoption of accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance at March 28, 2020

 

 

62,469,068

 

 

$

1

 

 

$

2,642

 

 

$

(108

)

 

$

(45

)

 

$

(355

)

 

$

2,135

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(439

)

 

 

 

 

 

(439

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

45,478

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Balance at June 27, 2020

 

 

62,514,546

 

 

$

1

 

 

$

2,650

 

 

$

(95

)

 

$

(484

)

 

$

(355

)

 

$

1,717

 

 

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements in the 2019 Form 10-K.

 

8


THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited) – (Continued)

 

 

 

26 Weeks Ended June 29, 2019

 

 

 

Common

Stock