UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from to
Commission File Number
(Exact Name of Registrant as Specified in its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(IRS Employer Identification No.) |
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(Address of Principal Executive Offices) |
(Zip Code) |
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(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on which Registered |
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The NASDAQ Stock 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.
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).
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.:
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At July 27, 2022, there were
1
TABLE OF CONTENTS
The order and presentation of this Quarterly Report on Form 10-Q differ from that of the traditional U.S. Securities and Exchange Commission (“SEC”) Form 10-Q format. We believe that 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.
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Financial Statements |
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Page |
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3 |
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Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) |
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4 |
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5 |
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6 |
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Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
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7 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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8 |
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Management’s Discussion and Analysis (MD&A) |
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24 |
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28 |
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32 |
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34 |
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34 |
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Other Information |
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35 |
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35 |
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35 |
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35 |
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36 |
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37 |
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38 |
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39 |
2
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
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13 Weeks Ended |
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26 Weeks Ended |
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June 25, |
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June 26, |
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June 25, |
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June 26, |
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2022 |
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2021 |
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2022 |
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2021 |
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Sales |
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$ |
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$ |
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$ |
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$ |
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Cost of goods and occupancy costs |
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Gross profit |
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Selling, general and administrative expenses |
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Asset impairments |
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Merger, restructuring and other operating expenses, net |
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Operating income |
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Other income (expense): |
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Interest income |
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— |
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— |
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Interest expense |
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( |
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( |
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( |
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( |
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Other income, net |
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Income from continuing operations before income taxes |
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Income tax expense |
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Net income from continuing operations |
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Discontinued operations, net of tax |
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( |
) |
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( |
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Net income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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Basic earnings (loss) per share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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( |
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( |
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Net basic earnings per share |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Diluted earnings (loss) per share |
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Continuing operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued operations |
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( |
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( |
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Net diluted earnings per share |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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 ODP Corporation Annual Report on Form 10-K filed on February 23, 2022 (the “2021 Form 10-K”).
3
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In millions)
(Unaudited)
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13 Weeks Ended |
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26 Weeks Ended |
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June 25, 2022 |
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June 26, 2021 |
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June 25, 2022 |
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June 26, 2021 |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
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$ |
( |
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Other comprehensive income (loss), net of tax, where applicable: |
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Foreign currency translation adjustments |
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( |
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( |
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Reclassification of foreign currency translation adjustments realized upon disposal of business |
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— |
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— |
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— |
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Other |
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( |
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( |
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Total other comprehensive income (loss), net of tax, where applicable |
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( |
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( |
) |
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Comprehensive income (loss) |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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 2021 Form 10-K.
4
THE ODP CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
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June 25, |
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December 25, |
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2022 |
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2021 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, net |
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Inventories |
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Prepaid expenses and other current assets |
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Current assets held for sale |
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— |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Goodwill |
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Other intangible assets, net |
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Deferred income taxes |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Trade accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Income taxes payable |
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Short-term borrowings and current maturities of long-term debt |
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Current liabilities held for sale |
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— |
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Total current liabilities |
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Deferred income taxes and other long-term liabilities |
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Pension and postretirement obligations, net |
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Long-term debt, net of current maturities |
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Operating lease liabilities |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' equity: |
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Common stock — authorized outstanding shares — December 25, 2021 |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
) |
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( |
) |
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Accumulated deficit |
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( |
) |
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( |
) |
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Treasury stock, at cost — shares at December 25, 2021 |
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( |
) |
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( |
) |
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Total stockholders' equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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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 2021 Form 10-K.
5
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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26 Weeks Ended |
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June 25, |
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June 26, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
( |
) |
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Income (loss) from discontinued operations, net of tax |
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( |
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Net income from continuing operations |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and amortization |
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Charges for losses on receivables and inventories |
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Asset impairments |
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Gain on disposition of assets, net |
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( |
) |
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( |
) |
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Compensation expense for share-based payments |
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Deferred income taxes and deferred tax asset valuation allowances |
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Changes in working capital and other operating activities |
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( |
) |
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( |
) |
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Net cash provided by (used in) operating activities of continuing operations |
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( |
) |
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Net cash used in operating activities of discontinued operations |
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— |
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( |
) |
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Net cash provided by (used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
) |
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( |
) |
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Businesses acquired, net of cash acquired |
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— |
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( |
) |
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Proceeds from disposition of assets |
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Settlement of company-owned life insurance policies |
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Net cash used in investing activities of continuing operations |
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( |
) |
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( |
) |
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Net cash provided by (used in) investing activities of discontinued operations |
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( |
) |
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Net cash provided by (used in) investing activities |
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( |
) |
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Cash flows from financing activities: |
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Net payments on long and short-term borrowings |
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( |
) |
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( |
) |
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Debt retirement |
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( |
) |
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— |
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Share purchases for taxes, net of proceeds from employee share-based transactions |
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( |
) |
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( |
) |
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Repurchase of common stock for treasury |
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— |
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( |
) |
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Other financing activities |
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( |
) |
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( |
) |
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Net cash used in financing activities of continuing operations |
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( |
) |
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( |
) |
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Effect of exchange rate changes on cash and cash equivalents |
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( |
) |
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Net decrease in cash and cash equivalents |
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( |
) |
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( |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period – continuing operations |
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$ |
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$ |
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Supplemental information on non-cash investing and financing activities |
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Right-of-use assets obtained in exchange for new finance lease liabilities |
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$ |
— |
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$ |
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Right-of-use assets obtained in exchange for new operating lease liabilities |
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Business acquired in exchange for common stock issuance |
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— |
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Other current receivable obtained from disposition of discontinued operations |
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— |
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Promissory note receivable obtained from disposition of discontinued operations |
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— |
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Earn-out receivable obtained from disposition of discontinued operations |
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— |
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Transfer from additional paid-in capital to treasury stock for final settlement of the accelerated share repurchase agreement |
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— |
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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 2021 Form 10-K.
6
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In millions, except share and per share amounts)
(Unaudited)
|
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26 Weeks Ended June 25, 2022 |
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Common Stock Shares |
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Common Stock Amount |
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Additional Paid-in Capital |
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Accumulated Other Comprehensive Loss |
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Accumulated Deficit |
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Treasury Stock |
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Total Equity |
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|||||||
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Balance at December 25, 2021 |
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$ |
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$ |
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|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
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— |
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— |
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— |
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— |
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Other comprehensive income |
|
|
— |
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— |
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— |
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— |
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— |
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Exercise and release of incentive stock (including income tax benefits and withholding) |
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— |
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( |
) |
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— |
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— |
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— |
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( |
) |
|
Amortization of long-term incentive stock grants |
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— |
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— |
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— |
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— |
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— |
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Other |
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— |
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— |
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— |
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— |
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|
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— |
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|
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( |
) |
|
|
( |
) |
|
Balance at March 26, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
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|
— |
|
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|
Other comprehensive loss |
|
|
— |
|
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|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Exercise and release of incentive stock (including income tax benefits and withholding) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
( |
) |
|
Amortization of long-term incentive stock grants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Final settlement of the accelerated share repurchase agreement |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
Balance at June 25, 2022 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
|
|
26 Weeks Ended June 26, 2021 |
|
|||||||||||||||||||||||||
|
|
|
Common Stock Shares |
|
|
Common Stock Amount |
|
|
Additional Paid-in Capital |
|
|
Accumulated Other Comprehensive Loss |
|
|
Accumulated Deficit |
|
|
Treasury Stock |
|
|
Total Equity |
|
|||||||
|
Balance at December 26, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise and release of incentive stock (including income tax benefits and withholding) |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
Amortization of long-term incentive stock grants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Common stock issuance related to the BuyerQuest acquisition |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Balance at March 27, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Exercise and release of incentive stock (including income tax benefits and withholding) |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Amortization of long-term incentive stock grants |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 26, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
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 2021 Form 10-K.
7
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The ODP Corporation, including its consolidated subsidiaries (“ODP” or the “Company”), is a leading provider of business services and supplies, products and digital workspace technology solutions to small, medium-sized and enterprise businesses. The Company operates through its direct and indirect subsidiaries and maintains a fully integrated business-to-business (“B2B”) distribution platform of thousands of dedicated sales and technology service professionals, online presence and
At June 25, 2022, the Company had
The Condensed Consolidated Financial Statements as of June 25, 2022, and for the 13-week and 26-week periods ended June 25, 2022 (also referred to as the “second quarter of 2022” and the “first half of 2022,” respectively) and June 26, 2021 (also referred to as the “second quarter of 2021” and the “first half of 2021,” respectively) are unaudited. However, in management’s opinion, these Condensed Consolidated Financial Statements reflect all adjustments of a normal recurring nature necessary to provide a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Business acquisitions in 2021 are included prospectively from the date of acquisition, thus affecting the comparability of the Company’s financial statements for the periods presented in this report on Form 10-Q.
The Company has prepared the Condensed Consolidated Financial Statements included herein pursuant to the rules and regulations of the SEC. Some information and note disclosures, which would normally be included in comprehensive annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”), have been condensed or omitted pursuant to those SEC rules and regulations. The preparation of these Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. For a better understanding of the Company and its Condensed Consolidated Financial Statements, the Company recommends reading these Condensed Consolidated Financial Statements in conjunction with the audited financial statements, which are included in the Company’s 2021 Form 10-K. These interim results are not necessarily indicative of the results that should be expected for the full year.
MAINTAINING ALL OPERATING BUSINESSES UNDER COMMON OWNERSHIP
In May 2021, the Company’s Board of Directors unanimously approved a plan to pursue a separation of the Company into two independent, publicly traded companies representing its B2B and consumer businesses, which was planned to be achieved through a spin-off of its consumer business. On January 14, 2022, the Company announced that its Board of Directors determined to delay the previously announced public company separation to evaluate a potential sale of the Company’s consumer business and that it had received a non-binding proposal from another third party, in addition to the previously received proposal from USR Parent, Inc., to acquire the Company’s consumer business.
On June 21, 2022, the Company’s Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire its consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest the consumer business at this time. Further, due to current market conditions, the Company’s Board of Directors also determined not to resume the Company’s previously planned spin-off of its consumer business at this time and instead to maintain all of its businesses under common ownership.
In connection with the Company’s announcement to maintain all of its businesses under common ownership, the Company announced that it is re-aligning its operations into its consumer business named Office Depot, and three distinct B2B business and digital segments which are ODP Business Solutions, Veyer and Varis. As of the end of the second quarter, the Company continues to transition the assets that support its B2B and consumer businesses as part of this re-alignment.
8
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
CASH MANAGEMENT
The cash management process generally utilizes zero balance accounts which provide for the settlement of the related disbursement and cash concentration accounts on a daily basis. Amounts not yet presented for payment to zero balance disbursement accounts of $
At June 25, 2022 and December 25, 2021, cash and cash equivalents held outside the United States amounted to $
NOTE 2. MERGER, RESTRUCTURING AND OTHER ACTIVITY
The Company has taken actions to optimize its asset base and drive operational efficiencies. These actions include acquiring profitable businesses, closing underperforming retail stores and non-strategic distribution facilities, consolidating functional activities, eliminating redundant positions and disposing of non-strategic businesses and assets. The expenses and any income recognized directly associated with these actions are included in Merger, restructuring and other operating expenses, net on a separate line in the Condensed Consolidated Statements of Operations in order to identify these activities apart from the expenses incurred to sell to and service customers. These expenses are not included in the determination of Division operating income.
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Merger and transaction related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transaction and integration |
|
$ |
— |
|
|
$ |
— |
|
|
|
— |
|
|
|
|
|
|
Total Merger and transaction related expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Restructuring expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Professional fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Facility closure, contract termination, and other expenses, net |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
Total Restructuring expenses, net |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Merger, restructuring and other operating expenses, net |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
MERGER AND TRANSACTION RELATED EXPENSES
9
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
In the second quarter and first half of 2022, the Company did
RESTRUCTURING EXPENSES
Maximize B2B Restructuring Plan
In May 2020, the Company’s Board of Directors approved a restructuring plan to realign the Company’s operational focus to support its “business-to-business” solutions and IT services business units and improve costs (“Maximize B2B Restructuring Plan”). Implementation of the Maximize B2B Restructuring Plan is expected to be substantially completed by the end of 2023. The Maximize B2B Restructuring Plan aims to generate savings through optimizing the Company’s retail footprint, removing costs that directly support the Retail business and additional measures to implement a company-wide low-cost business model, which will then be invested in accelerating the growth of the Company’s business-to-business platform. The plan is broader than restructuring programs the Company has implemented in the past and includes closing and/or consolidating retail stores and distribution facilities and the reduction of up to
|
|
(a) |
severance costs of approximately $ |
|
|
(b) |
facility closure costs of approximately $ |
|
|
(c) |
other costs, including contract termination costs, to facilitate the execution of the Maximize B2B Restructuring Plan of approximately $ |
The total costs of up to $
In the second quarter and first half of 2022, the Company incurred $
In the second quarter of 2021, the Company incurred $(
10
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
OTHER OPERATING EXPENSES
As described in Note 1 above, the Company had been evaluating the separation of its consumer business, first through a spin-off and subsequently through a potential sale. On June 21, 2022, the Company’s Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire its consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest the consumer business at this time. Further, due to current market conditions, the Company’s Board of Directors also determined not to resume the Company’s previously planned separation of its consumer business at this time and instead to maintain all of its businesses under common ownership. The Company incurred $
Other operating expenses of $
MERGER, RESTRUCTURING AND OTHER ACCRUALS
|
|
|
Balance as of |
|
|
|
|
|
|
|
|
|
|
Balance as of |
|
||
|
|
|
December 25, |
|
|
Charges (credits) |
|
|
Cash |
|
|
June 25, |
|
||||
|
(In millions) |
|
2021 |
|
|
Incurred |
|
|
Payments |
|
|
2022 |
|
||||
|
Termination benefits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximize B2B Restructuring Plan |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Lease and contract obligations, accruals for facilities closures and other costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximize B2B Restructuring Plan |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Comprehensive Business Review |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Previously planned separation of consumer business |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilities and Deferred income taxes and other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets.
11
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
NOTE 3. REVENUE RECOGNITION
REVENUE
As a result of the CompuCom Division’s presentation as discontinued operations, the Company’s level of service revenue is below 10% of the Company’s total revenue for all periods presented. Accordingly, revenues and cost of sales from services and products are not separately disclosed in the Company’s Condensed Consolidated Statements of Operations. The Company updated its major revenue categories disclosed herein according to this presentation, and prior period amounts have been reclassified to conform to the current period presentation.
The following table provides information about disaggregated revenue from continuing operations by Division, and major revenue categories.
|
|
|
Second Quarter of 2022 |
|
|||||||||||||
|
(In millions) |
|
Business Solutions Division |
|
|
Retail Division |
|
|
Other |
|
|
Total |
|
||||
|
Major revenue categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copy and print |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second Quarter of 2021 |
|
|||||||||||||
|
(In millions) |
|
Business Solutions Division |
|
|
Retail Division |
|
|
Other |
|
|
Total |
|
||||
|
Major revenue categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copy and print |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half of 2022 |
|
|||||||||||||
|
(In millions) |
|
Business Solutions Division |
|
|
Retail Division |
|
|
Other |
|
|
Total |
|
||||
|
Major revenue categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copy and print |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Half of 2021 |
|
|||||||||||||
|
(In millions) |
|
Business Solutions Division |
|
|
Retail Division |
|
|
Other |
|
|
Total |
|
||||
|
Major revenue categories |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplies |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Technology |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copy and print |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
12
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
Revenue includes the sale of:
|
|
• |
Supplies such as paper, writing instruments, office supplies, cleaning and breakroom items, personal protective equipment, and product subscriptions; |
|
|
• |
Technology-related products such as toner and ink, printers, computers, tablets and accessories, electronic storage and sales of third-party software, as well as technology support services offerings provided in the Company’s retail stores, such as installation and repair; |
|
|
• |
Furniture and other products such as desks, seating, luggage, gift cards and warranties; and |
|
|
• |
Copy and print services, including managed print and fulfillment services. |
The Company sells its supplies, technology, furniture and other products through its Business Solutions and Retail Divisions. Customers can purchase products through the Company’s call centers, electronically through its Internet websites, or through its retail stores. Revenues from supplies, technology, and furniture and other product sales are recognized when the customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the customer.
Furniture and other products also include arrangements where customers can make special furniture interior design and installation orders that are customized to their needs. The performance obligations related to these arrangements are satisfied over time.
Substantially all of the Company’s copy and print and technology support services offerings are satisfied at a point in time and revenue is recognized as such. The majority of copy and print offerings, which includes printing, copying, and digital imaging, are fulfilled through retail stores and the related performance obligations are satisfied within a short period of time (generally within the same day).
REVENUE RECOGNITION AND SIGNIFICANT JUDGMENTS
Revenue is recognized upon transfer of control of promised products or services to customers for an amount that reflects the consideration the Company is entitled to receive in exchange for those products or services. For product sales, transfer of control occurs at a point in time, typically upon delivery to the customer. For service offerings, the transfer of control and satisfaction of the performance obligation is either over time or at a point in time. When performance obligations are satisfied over time, the Company evaluates the pattern of delivery and progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Revenue is recognized net of allowance for returns and net of any taxes collected from customers, which are subsequently remitted to governmental authorities. Shipping and handling costs are considered fulfillment activities and are recognized within the Company’s cost of goods sold.
Contracts with customers could include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Determining the standalone selling price also requires judgment. The Company did not have significant revenues generated from such contracts in the first halves of 2022 and 2021.
Products are generally sold with a right of return and the Company may provide other incentives, such as rebates and coupons, which are accounted for as variable consideration when estimating the amount of revenue to recognize. The Company estimates returns and incentives at contract inception and includes the amount in the transaction price for which significant reversal is not probable. These estimates are updated at the end of each reporting period as additional information becomes available.
The Company offers a customer loyalty program that provides customers with rewards that can be applied to future purchases or other incentives. Loyalty rewards are accounted for as a separate performance obligation and deferred revenue is recorded in the amount of the transaction price allocated to the rewards, inclusive of the impact of estimated breakage. The estimated breakage of loyalty rewards is based on historical redemption rates experienced under the loyalty program. Revenue is recognized when the loyalty rewards are redeemed or expire. As of June 25, 2022 and December 25, 2021, the Company had $
The Company recognizes revenue in certain circumstances before product delivery occurs (commonly referred to as bill-and-hold transactions). Revenue from bill-and-hold transactions is recognized when all specific requirements for transfer of control under a bill-and-hold arrangement have been met which include, among other things, a request from the customer that the product be held for future scheduled delivery. For these bill-and-hold arrangements, the associated product inventory is identified separately as belonging to the customer and is ready for physical transfer.
13
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
CONTRACT BALANCES
The timing of revenue recognition may differ from the timing of invoicing to customers. A receivable is recognized in the period the Company delivers goods or provides services, and is recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is also recognized for unbilled services where the Company’s right to consideration is unconditional, and is recorded based on an estimate of time and materials. Payment terms and conditions vary by contract type, although terms generally include a requirement of payment within 20 to 60 days. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the contracts do not include a significant financing component. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing its products and services.
The Company receives payments from customers based upon contractual billing schedules. Contract assets include amounts related to deferred contract acquisition costs (refer to the section “Costs to Obtain a Contract” below) and if applicable, the Company’s conditional right to consideration for completed performance under a contract. The short- and long-term components of contract assets in the table below are included in Prepaid expenses and other current assets, and Other assets, respectively, in the Condensed Consolidated Balance Sheets. Contract liabilities include payments received in advance of performance under the contract, which are recognized as revenue when the performance obligation is completed under the contract, as well as accrued contract acquisition costs, liabilities related to the Company’s loyalty program and gift cards. The short- and long-term components of contract liabilities in the table below are included in Accrued expenses and other current liabilities, and Deferred income taxes and other long-term liabilities, respectively, in the Condensed Consolidated Balance Sheets.
The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:
|
|
|
June 25, |
|
|
December 25, |
|
||
|
(In millions) |
|
2022 |
|
|
2021 |
|
||
|
Trade receivables, net |
|
$ |
|
|
|
$ |
|
|
|
Short-term contract assets |
|
|
|
|
|
|
|
|
|
Long-term contract assets |
|
|
|
|
|
|
|
|
|
Short-term contract liabilities |
|
|
|
|
|
|
|
|
|
Long-term contract liabilities |
|
|
— |
|
|
|
|
|
In the first halves of 2022 and 2021, the Company did not have any contract assets related to conditional rights. The Company recognized revenues of $
A majority of the purchase orders and statements of work related to contracts with customers require delivery of the product or service within one year or less. For certain service contracts that exceed one year, the Company recognizes revenue at the amount to which it has the right to invoice for services performed. Accordingly, the Company has applied the optional exemption provided by the current revenue recognition standard relating to unsatisfied performance obligations and does not disclose the value of unsatisfied performance obligations for its contracts.
COSTS TO OBTAIN A CONTRACT
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if it expects the benefit of those costs to be longer than one year. The Company has determined that certain rebate incentive programs meet the requirements to be capitalized. These costs are periodically reviewed for impairment, and are amortized on a straight-line basis over the expected period of benefit. As of June 25, 2022 and December 25, 2021, short-term contract assets and long-term contract assets in the table above represent capitalized acquisition costs. In the second quarter and first half of 2022, amortization expense was $
14
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
NOTE 4. SEGMENT INFORMATION
At June 25, 2022, the Company had
The retained global sourcing operations previously included in the former International Division and the operating results of the Varis Division, which is the Company’s new digital platform technology business, are not significant and have been presented as Other.
The products and services offered by the Business Solutions Division and the Retail Division are similar. These
The following is a summary of sales and operating income (loss) by each of the Divisions and Other, reconciled to consolidated totals.
|
|
|
Sales |
|
|||||||||||||
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Business Solutions Division |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Retail Division |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Division Operating Income (Loss) |
|
|||||||||||||
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Business Solutions Division |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Retail Division |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
15
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
A reconciliation of the measure of Division operating income to Consolidated income from continuing operations before income taxes is as follows:
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Total Divisions operating income |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Add/(subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairments |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Merger, restructuring and other operating expenses, net |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Unallocated expenses |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Interest income |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other income, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The components of goodwill by segment are provided in the following table:
|
|
|
Business Solutions |
|
|
Retail |
|
|
|
|
|
|
|
|
|
||
|
(In millions) |
|
Division |
|
|
Division |
|
|
Other |
|
|
Total |
|
||||
|
Balance as of December 25, 2021 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Balance as of June 25, 2022 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Goodwill and indefinite-lived intangible assets are tested for impairment annually as of the first day of fiscal December or more frequently when events or changes in circumstances indicate that impairment may have occurred. The most recent annual impairment assessment was performed during the fourth quarter of 2021, using a quantitative assessment for the Contract and Varis reporting units, and qualitative assessments for the Direct and Retail reporting units. The quantitative assessment combined the income approach and the market approach valuation methodologies and concluded that the fair value of the Contract and Varis reporting units exceed their carrying amounts. The margin of passage for the Contract reporting unit was
The Company is monitoring the performance of its Contract reporting unit, which had been negatively impacted by COVID-19, and has experienced partial recovery as the impacts of the pandemic on its business customers have begun to recede since 2021. The Contract reporting units’ operating performance and future outlook are in line with the Company’s forecasts used in determining the fair value estimates in the most recent quantitative annual impairment test. Accordingly, there are no impairment indicators identified for this reporting unit as of June 25, 2022. The Company also did not identify indicators of impairment related to its other reporting units, which have been performing in accordance with forecasts. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. If the operating results of the Company’s reporting units deteriorate in the future, it may cause the fair value of one or more of the reporting units to fall below their carrying amount, resulting in goodwill impairment charges.
NOTE 5. INCOME TAXES
During 2022 and 2021, the mix of income and losses across jurisdictions, although still applicable, has become less of a factor in influencing the Company’s effective tax rates due to limited international operations and improved operating results. The Company’s effective tax rates were
16
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
The Company continues to have a U.S. valuation allowance for certain U.S. federal credits and state tax attributes, which relates to deferred tax assets that require certain types of income or for income to be earned in certain jurisdictions in order to be realized. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods. The sale of CompuCom resulted in the Company recognizing a capital loss of approximately $
The Company files a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state and local income tax examinations for years prior to 2021 and 2014, respectively. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. federal income tax examination, and with few exceptions, is no longer subject to U.S. state and local income tax examinations for years prior to 2013. Generally, the Company is subject to routine examination for years 2013 and forward in its international tax jurisdictions.
It is anticipated that $
NOTE 6. EARNINGS PER SHARE
The following table represents the calculation of earnings (loss) per common share – basic and diluted:
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions, except per share amounts) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Basic Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net basic earnings (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Diluted Earnings (Loss) Per Share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Income (loss) from discontinued operations, net of tax |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and restricted stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted-average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Discontinued operations |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net diluted earnings (loss) per share |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
Awards of stock options and nonvested shares representing additional shares of outstanding common stock were less than
17
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
NOTE 7. DEBT
On April 17, 2020, the Company entered into the Third Amended and Restated Credit Agreement (the “Third Amended Credit Agreement”), which provides for a $
As provided by the Third Amended Credit Agreement, available amounts that can be borrowed at any given time are based on percentages of certain outstanding accounts receivable, credit card receivables, inventory, cash value of company-owned life insurance policies, and certain specific real estate of the Company. At June 25, 2022, the Company had
NOTE 8. STOCKHOLDERS’ EQUITY
Accumulated other comprehensive loss activity, net of tax, where applicable, is provided in the following table:
|
|
|
Foreign |
|
|
Change in |
|
|
|
|
|
||
|
|
|
Currency |
|
|
Deferred |
|
|
|
|
|
||
|
|
|
Translation |
|
|
Pension and |
|
|
|
|
|
||
|
(In millions) |
|
Adjustments |
|
|
Other |
|
|
Total |
|
|||
|
Balance at December 25, 2021 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Other comprehensive loss activity before reclassifications |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Reclassification of foreign currency translation adjustments realized upon disposal of business |
|
|
|
|
|
|
— |
|
|
|
|
|
|
Balance at June 25, 2022 |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
TREASURY STOCK
The Board of Directors reviewed the Company’s existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $
On November 16, 2021, as part of the stock repurchase program expiring on June 30, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) to repurchase shares of the Company’s common stock in exchange for an up-front payment $
At June 25, 2022, there were
18
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
DIVIDENDS ON COMMON STOCK
In
NOTE 9. EMPLOYEE BENEFIT PLANS
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS – NORTH AMERICA
The components of net periodic pension benefit for the Company’s North America pension plans are as follows:
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net periodic pension benefit |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The North American qualified pension plan is in a net asset position and included in Other assets in the Condensed Consolidated Balance Sheets at June 25, 2022 and December 25, 2021. The North American nonqualified pension plan is in a net liability position and included in Pension and postretirement obligations, net in the Condensed Consolidated Balance Sheets at June 25, 2022 and December 25, 2021. During the first half of 2022, $
PENSION PLAN – UNITED KINGDOM
The components of net periodic pension benefit for the Company’s pension plan in the United Kingdom (“UK”) are as follows:
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net periodic pension benefit |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
The UK pension plan is in a net asset position and included in Other assets in the Condensed Consolidated Balance Sheets at June 25, 2022 and December 25, 2021. During the first half of 2022, cash contributions of $
Net periodic pension benefits for the North America and UK pension plans and other postretirement benefit plans (the “Plans”) are recorded at the Corporate level. The service cost for the Plans are reflected in Selling, general and administrative expenses, and the other components of net periodic pension benefits are reflected in Other income, net, in the Condensed Consolidated Statements of Operations.
19
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
NOTE 10. FAIR VALUE MEASUREMENTS
The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. In developing its fair value estimates, the Company uses the following hierarchy:
|
Level 1: |
|
Quoted prices in active markets for identical assets or liabilities. |
|
|
|
|
|
Level 2: |
|
Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
|
|
|
|
Level 3: |
|
Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows or option pricing models using the Company’s own estimates and assumptions or those expected to be used by market participants. |
RECURRING FAIR VALUE MEASUREMENTS
In accordance with GAAP, certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company’s assets and liabilities that are adjusted to fair value on a recurring basis are money market funds that qualify as cash equivalents, and derivative financial instruments, which may be entered into to mitigate risks associated with changes in foreign currency exchange rates, fuel and other commodity prices and interest rates. The Company did
NONRECURRING FAIR VALUE MEASUREMENTS
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company records certain assets and liabilities at fair value on a nonrecurring basis as required by GAAP. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. In the second quarter and first half of 2022, the Company recognized asset impairment charges of $
The Company regularly reviews retail store assets for impairment indicators at the individual store level, as this represents the lowest level of identifiable cash flows. When indicators of impairment are present, a recoverability analysis is performed which considers the estimated undiscounted cash flows over the retail store’s remaining life and uses input from retail operations and accounting and finance personnel. These inputs include management’s best estimates of retail store-level sales, gross margins, direct expenses, exercise of future lease renewal options when reasonably certain to be exercised, and resulting cash flows that can naturally include judgments about how current initiatives will impact future performance. The assumptions used within the recoverability analysis for the retail stores were updated to consider current quarter retail store operational results and formal plans for future retail store closures as part of the Company’s restructuring programs, including the probability of closure at the retail store level. While it is generally understood that closures will approximate the store’s lease termination date, it is possible that changes in store performance or other conditions could result in future changes in assumptions utilized. These assumptions reflected declining sales over the forecast period, and gross margin and operating cost assumptions that are consistent with recent actual results and consider plans for future initiatives. The Company also analyzed the impact of the COVID-19 pandemic on store asset recoverability. Due to the nature of products sold, the retail stores were considered to be essential by most local jurisdictions and as a result, the substantial majority of these retail stores have remained open and operational with the appropriate safety measures in place since the beginning of the COVID-19 outbreak, including a curbside pickup option. Since late in the first quarter of 2020, the Company has reduced retail location hours by one to two hours daily, which continues to be in effect at the majority of its retail locations. The Company’s recoverability assessment included evaluating the impact of these developments.
If the undiscounted cash flows of a retail store cannot support the carrying amount of its assets, the assets are impaired if necessary and written down to estimated fair value. The fair value of retail store assets is determined using a discounted cash flow analysis which uses Level 2 unobservable inputs that are corroborated by market data such as independent real estate valuation opinions. Specifically, the analysis uses assumptions of potential rental rates for each retail store location which are based on market data for comparable locations. These estimated cash flows used in the second quarter of 2022 impairment calculation were discounted at a weighted average discount rate of
The Company will continue to evaluate initiatives to improve performance and lower operating costs. There are uncertainties regarding the impact of the COVID-19 pandemic, supply chain and macroeconomic conditions on the future results of operations, including the forecast period used in the recoverability analysis. To the extent that forward-looking sales and operating assumptions
20
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
are not achieved and are subsequently reduced, additional impairment charges may result. However, at the end of the second quarter of 2022, the impairment recognized reflects the Company’s best estimate of future performance.
In addition to its retail store assets, the Company also regularly evaluates whether there are impairment indicators associated with its other long-lived assets, which were negatively impacted by the COVID-19 pandemic. The Company did not identify any impairment indicators for these long-lived assets as of June 25 2022, and as a result, there were no associated impairment charges.
OTHER FAIR VALUE DISCLOSURES
The fair values of cash and cash equivalents, receivables, trade accounts payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.
The following table presents information about financial instruments at the balance sheet dates indicated.
|
|
|
June 25, |
|
|
December 25, |
|
||||||||||
|
|
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2022 |
|
|
2021 |
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||||||||||
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|
Carrying |
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|
Fair |
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Carrying |
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|
Fair |
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||||
|
(In millions) |
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Amount |
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|
Value |
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|
Amount |
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Value |
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||||
|
Financial assets: |
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Company-owned life insurance |
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Financial liabilities: |
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Long-term debt: |
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|
|
New Facilities loans under the Third Amended Credit Agreement, due |
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Revenue bonds, due in varying amounts periodically through |
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American & Foreign Power Company, Inc. due |
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The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
|
|
• |
Company-owned life insurance: In connection with the 2013 OfficeMax merger, the Company acquired company-owned life insurance policies on certain former employees. The fair value of the company-owned life insurance policies is derived using determinable net cash surrender value, which is the cash surrender value less any outstanding loans (Level 2 measure). Death benefits received on company-owned life insurance policies, which are tax-free at payout, typically exceed their cash surrender values. |
|
|
• |
Long-term debt: Long-term debt, for which there were no transactions on the measurement date, was valued based on quoted market prices near the measurement date when available or by discounting the future cash flows of each instrument using rates based on the most recently observable trade or using rates currently offered to the Company for similar debt instruments of comparable maturities (Level 2 measure). The carrying amount of the New Facilities loans under the Third Amended Credit Agreement approximates fair value because the interest rates vary with market interest rates. Refer to Note 7 for additional information about the Third Amended Credit Agreement. |
NOTE 11. COMMITMENTS AND CONTINGENCIES
LEGAL MATTERS
The Company is involved in litigation arising in the normal course of business. While, from time to time, claims are asserted that make demands for a large sum of money (including, from time to time, actions which are asserted to be maintainable as class action suits), the Company does not believe that contingent liabilities related to these matters (including the matters discussed below), either individually or in the aggregate, will materially affect the Company’s financial position, results of operations, or cash flows.
In the ordinary course of business, sales to and transactions with government customers may be subject to lawsuits, investigations, audits and review by governmental authorities and regulatory agencies, with which the Company cooperates. Many of these lawsuits, investigations, audits and reviews are resolved without material impact to the Company. While claims in these matters may at times assert large demands, the Company does not believe that contingent liabilities related to these matters, either individually or in the aggregate, will materially affect its financial position, results of operations, or cash flows.
In addition to the foregoing, OfficeMax is named as a defendant in a number of lawsuits, claims, and proceedings arising out of the operation of certain paper and forest products assets prior to those assets being sold in 2004, for which OfficeMax agreed to retain responsibility. Also, as part of that sale, OfficeMax agreed to retain responsibility for all pending, threatened and future proceedings alleging asbestos-related injuries arising out of the operation of the paper and forest products assets prior to the closing of the sale. The
21
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
Company has made provision for losses with respect to the pending proceedings. Additionally, as of June 25, 2022, the Company has made provision for environmental liabilities with respect to certain sites where hazardous substances or other contaminants are or may be located. For these liabilities, the Company’s estimated range of reasonably possible losses was approximately $
NOTE 12. DISCONTINUED OPERATIONS
The Company sold its former CompuCom Division through a single disposal group on December 31, 2021. The transaction was structured and accounted for as an equity sale. The related Securities Purchase Agreement (“SPA”) provides for consideration consisting of a cash purchase price equal to $
CompuCom was presented as held for sale as of December 25, 2021, and the loss from classification to held for sale was measured at the lower of its carrying amount or estimated fair value less costs to sell and was included in the valuation allowance of current assets held for sale as of December 25, 2021. The estimated fair value of CompuCom was based on the terms of the SPA, and amounted to $
Merger and restructuring expenses incurred by the former CompuCom Division, that were previously presented as Corporate expenses, are included in the measurement and presentation of discontinued operations in all periods presented.
The following table represents a reconciliation of the major components of discontinued operations, net of tax presented in the Condensed Consolidated Statements of Operations.
|
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Second Quarter |
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|
First Half |
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||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
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|
2022 |
|
|
2021 |
|
||||
|
Major components of discontinued operations before income taxes: |
|
|
|
|
|
|
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|
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|
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|
|
|
|
|
|
Sales |
|
$ |
— |
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Cost of goods and occupancy costs: |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Gross profit |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Asset impairments |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Merger, restructuring and other operating expenses, net |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Operating loss |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Loss from major components of discontinued operations before income taxes |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Gain (loss) on disposal of discontinued operations |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
Income (loss) from discontinued operations before income taxes |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Income tax benefit |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Discontinued operations, net of tax |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
22
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
The following table represents the major classes of assets and liabilities of the disposal group classified as held for sale presented in the Condensed Consolidated Balance Sheets as of December 25, 2021. The Company completed the sale of CompuCom on December 31, 2021, and therefore no assets or liabilities are included in discontinued operations as of June 25, 2022.
|
|
|
December 25, |
|
|
|
(In millions) |
|
2021 |
|
|
|
Major classes of assets included in discontinued operations: |
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
Receivables, net |
|
|
|
|
|
Inventories |
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
|
|
|
Property and equipment, net |
|
|
|
|
|
Operating lease right-of-use assets |
|
|
|
|
|
Other intangible assets, net |
|
|
|
|
|
Other assets |
|
|
|
|
|
Less: valuation allowance |
|
|
( |
) |
|
Total assets of the disposal group classified as held for sale |
|
$ |
|
|
|
Major classes of liabilities included in discontinued operations: |
|
|
|
|
|
Trade accounts payable |
|
$ |
|
|
|
Accrued expenses and other current liabilities |
|
|
|
|
|
Deferred income taxes and other long-term liabilities |
|
|
|
|
|
Operating lease liabilities |
|
|
|
|
|
Total liabilities of the disposal group classified as held for sale |
|
$ |
|
|
23
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
This document, including the following discussion and analysis, contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. All statements that are not statements of historical fact are forward-looking statements. Without limitation, when we use the words “believe,” “estimate,” “plan,” “expect,” “intend,” “anticipate,” “continue,” “may,” “project,” “probably,” “should,” “could,” “will” and similar expressions in this Quarterly Report on Form 10-Q, we are identifying forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995). These statements appear in a number of places in this discussion and analysis and include statements regarding the intent, belief or current expectations of the Company, its directors or its officers with respect to, among other things, trends affecting the Company’s financial condition or results of operations, the Company’s ability to achieve its strategic plans, the potential impact of the COVID-19 pandemic on our business, liquidity, suppliers, consumers, customers, and employees, disruptions or inefficiencies in our supply chain, our strategic shift to maintain all of our businesses under common ownership, our ability to mitigate or manage disruptions posed by COVID-19, uncertainties arising from the Russia-Ukraine conflict including its effect on the U.S. economy, changes in worldwide and U.S. economic conditions that materially impact consumer spending and employment and the demand for our products and services, and the outcome of contingencies such as litigation and investigations. Readers are cautioned that any forward-looking statements are not guarantees of future performance and involve risks and uncertainties. More information regarding these risks, uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth herein under “Risk Factors,” found in Other Information which supplements our discussion of “Risk Factors” within Other Key Information in our Annual Report on Form 10-K filed on February 23, 2022 (the “2021 Form 10-K”) with the SEC, Forward-Looking Statements, found in our 2021 Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist readers in better understanding and evaluating our financial condition and results of operations. We recommend reading this MD&A in conjunction with our Condensed Consolidated Financial Statements and the Notes to those statements included in the “Financial Statements” section of this Quarterly Report on Form 10-Q, as well as our 2021 Form 10-K.
OVERVIEW
THE COMPANY
We are a leading provider of business services and supplies, products and digital workplace technology solutions to small, medium-sized and enterprise businesses. We operate through our direct and indirect subsidiaries and maintain a fully integrated business-to-business (“B2B”) distribution platform of thousands of dedicated sales and technology service professionals, online presence and 1,020 retail stores. Through our banner brands Office Depot®, OfficeMax® and Grand & Toy®, as well as others, we offer our customers the tools and resources they need to focus on starting, growing and running their business.
As of June 25, 2022, our operations are organized into two reportable segments (or “Divisions”): Business Solutions Division and Retail Division. We sold our CompuCom Division through a single disposal group on December 31, 2021. Accordingly, that business is presented as discontinued operations.
The Business Solutions Division, or BSD, is the largest component of our integrated B2B distribution platform in terms of both revenue and customers, and provides our customers with nationally branded as well as our private branded office supply products and services. Additionally, BSD provides adjacency products and services including cleaning and breakroom supplies, personal protective equipment, technology services, copy and print services, and office furniture products and services in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada through a dedicated sales force, catalogs, telesales, and electronically through our Internet websites. BSD includes the regional office supply distribution businesses we have acquired as part of our strategic transformation described in the section below.
The Retail Division includes our chain of retail stores in the United States, Puerto Rico and the U.S. Virgin Islands where we sell office supplies, technology products and solutions, business machines and related supplies, print, cleaning, breakroom supplies and facilities products, and furniture. In addition, our Retail Division offers a range of business-related services targeted to small businesses, technology support services as well as printing, copying, mailing and shipping services.
24
STRATEGIC TRANSFORMATION
In May 2021, our Board of Directors had unanimously approved a plan to pursue a separation of the Company into two independent, publicly traded companies, representing our B2B and consumer businesses, which was planned to be achieved through a spin-off of our consumer business. On January 14, 2022, we announced that our Board of Directors determined to delay the previously announced public company separation to evaluate a potential sale of our consumer business and that we had received a non-binding proposal from another third party, in addition to that previously received from USR Parent, Inc., to acquire our consumer business. On June 21, 2022, our Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire our consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest our consumer business at this time. Further, due to current market conditions, our Board of Directors also determined not to resume our previously planned separation of our consumer business at this time and instead to maintain all of our businesses under common ownership.
We have been undergoing a strategic business transformation to pivot our Company into an integrated B2B distribution platform, with the objective of expanding our product offerings to include value-added services for our customers and capture greater market share. Using the flexibility afforded by our holding company restructuring that was previously completed, we are transforming our operations under our holding company structure into our consumer business named Office Depot, and three distinct B2B business and digital segments which are ODP Business Solutions, Veyer and Varis. We believe our B2B and consumer businesses operating collectively under our holding company structure will improve shareholder value and derive benefits from scaling. We continue to transition the assets that support our B2B and consumer businesses as part of this process. Upon completion of this re-alignment, we will also re-evaluate our reportable segments based on how the business is managed, including decision-making about resources allocation and assessing performance of the segments.
As part of our transformation, we are also developing our new digital platform technology business, Varis, which is part of our evolving B2B business. We aim to transform the B2B procurement and sourcing industry by filling the growing demand for a modern, trusted, digital B2B platform. In connection with our development efforts in this area, we had acquired BuyerQuest Holdings, Inc. in 2021, a business services software company with an eProcurement platform. BuyerQuest’s operating results are included in our Varis Division. We continue to grow our customer and supplier relationships and invest in the capabilities of our Varis Division and its platform in order to drive future value in the large and growing business commerce market.
Our strategy continues to include expanding our reach and distribution network through our Federation entities, which comprise more than a dozen profitable regional office supply distribution businesses acquired by us over time, serving small and mid-market customers. Many of these customers are in geographic areas that were previously underserved by our network. These Federation entities, which continue to operate under their own brand names, have allowed for an effective and accretive means to expand our distribution reach, target new business customers and grow our offerings beyond traditional office supplies. During the second quarter and first half of 2022, we did not have any new acquisitions. In addition, we continue to invest in our supply chain, distribution, procurement and global sourcing operations supporting our businesses, as well as the logistics needs for other third parties.
Finally, we sold our CompuCom Division on December 31, 2021, which allows us to enhance our focus on our core capabilities and strategies discussed above. Refer to the “Dispositions” section below for more information on this sale.
DISPOSITIONS
The sale of CompuCom, which represented our former CompuCom Division, was completed on December 31, 2021. The transaction was structured and accounted for as an equity sale. The related Securities Purchase Agreement (“SPA”) provides for consideration consisting of a cash purchase price equal to $125 million (subject to customary adjustments, including for cash, debt and working capital), an interest-bearing promissory note in the amount of $55 million, and a holding fee (“earn-out”) provision providing for payments of up to $125 million in certain circumstances. The promissory note accrues interest at six percent per annum, payable on a quarterly basis in cash or in-kind, and is due in full on June 30, 2027. Under the earn-out provision, if the purchaser receives dividends or sale proceeds from the CompuCom business equal to (i) three (3) times its initial capital investment in the CompuCom business plus (ii) 15% per annum on subsequent capital investments, the Company will be entitled to 50% of any subsequent dividends or sale proceeds up to and until the Company has received an aggregate of $125 million. The Company also agreed to provide certain transitional services to the purchaser for a period of three to twelve months under a separate agreement after closing. The SPA contains customary warranties of the Company and the purchaser.
The sale of CompuCom represented a strategic shift that had a major impact on our operations and financial results. Accordingly, the operating results and cash flows are classified as discontinued operations for all periods presented. Refer to Note 12. “Discontinued Operations” in Notes to Condensed Consolidated Financial Statements for additional information.
25
COVID-19 UPDATE
For a discussion of the impacts to our business from COVID-19, refer to “COVID-19 Update” included in Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations, certain risk factors included in Item 1A Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 25, 2021 and the information presented below within Operating Results by Division.
RECENT GLOBAL EVENTS
We are closely monitoring the unfolding events due to the Russia-Ukraine conflict and its regional and global ramifications. We do not have operations in Ukraine or Russia, and our supply chain has not been impacted. While we do have certain vendors that are based in Ukraine, we have not experienced an impact as a result of the conflict. Other impacts due to this rapidly evolving situation are currently unknown and the broader economic impacts could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope.
CONSOLIDATED RESULTS OF CONTINUING OPERATIONS AND LIQUIDITY
The following summarizes the more significant factors impacting our operating results for the 13-week and 26-week periods ended June 25, 2022 (also referred to as the “second quarter of 2022” and the “first half of 2022,” respectively) and June 26, 2021 (also referred to as the “second quarter of 2021” and the “first half of 2021,” respectively).
Our consolidated sales were 2% lower in the second quarter of 2022 compared to the same period of the prior year. Sales in our Business Solutions Division increased $69 million, or 6%, as compared to the same period in the prior year. This increase was driven by higher sales of $88 million to our business-to-business customers, which was partially offset by lower sales in our eCommerce platform. The increase in sales in our Business Solutions Division were mainly in categories of cleaning, personal protective equipment, breakroom, office supplies, paper, and copy and print services. Sales in our Retail Division decreased $103 million, or 11%, as compared to the same period in the prior year, mainly as a result of planned store closures and lower demand. Our Retail Division had lower demand in certain product categories that had higher sales in the prior year comparable quarter driven by the needs of our customers to help address their challenges derived from the COVID-19 pandemic, such as facilitating the continued remote work and virtual learning environments.
Our consolidated sales were 1% lower in the first half of 2022 compared to the same period of the prior year. Sales in our Business Solutions Division increased $171 million, or 8%, as compared to the same period in the prior year. This increase was driven by higher sales of $217 million to our business-to-business customers, which was partially offset by lower sales in our eCommerce platform. The increase in sales in our Business Solutions Division were mainly in categories of cleaning, personal protective equipment, breakroom, office supplies, paper, and copy and print services. Sales in our Retail Division decreased $199 million, or 10%, as compared to the same period in the prior year, mainly as a result of planned store closures and lower demand. Our Retail Division had lower demand in certain product categories that had higher sales in the prior year comparable period driven by the needs of our customers to help address their challenges derived from the COVID-19 pandemic, such as facilitating the continued remote work and virtual learning environments.
|
Sales |
|
Second Quarter |
|
|
First Half |
|
||||||||||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
Change |
|
|
2022 |
|
|
2021 |
|
|
Change |
|
||||||
|
Business Solutions Division |
|
$ |
1,215 |
|
|
$ |
1,146 |
|
|
|
6 |
% |
|
$ |
2,445 |
|
|
$ |
2,274 |
|
|
|
8 |
% |
|
Retail Division |
|
|
811 |
|
|
|
914 |
|
|
|
(11 |
)% |
|
|
1,754 |
|
|
|
1,953 |
|
|
|
(10 |
)% |
|
Other |
|
|
8 |
|
|
|
10 |
|
|
|
(20 |
)% |
|
|
13 |
|
|
|
17 |
|
|
|
(24 |
)% |
|
Total |
|
$ |
2,034 |
|
|
$ |
2,070 |
|
|
|
(2 |
)% |
|
$ |
4,212 |
|
|
$ |
4,244 |
|
|
|
(1 |
)% |
OTHER SIGNIFICANT FACTORS IMPACTING TOTAL COMPANY RESULTS AND LIQUIDITY
|
|
• |
Total gross profit was relatively flat with a slight decrease of $1 million in the second quarter of 2022 when compared to the same period in 2021. Our Business Solutions Division had $12 million higher gross profit resulting from higher sales, which was more than offset by $13 million decrease in gross profit of our Retail Division. Total gross profit decreased by $11 million or 1% in the first half of 2022 when compared to the same period in 2021. Our Business Solutions Division had $26 million higher gross profit resulting from higher sales, which was more than offset by $38 million decrease in gross profit of our Retail Division. The decrease in the Retail Division gross profit in both the second quarter and first half of 2022 is due to the flow through impact of lower sales, partially offset by improved product margin. The first half of 2022 also had lower operating lease costs due to store closures. |
|
|
• |
Total gross margin for the second quarter and first half of 2022 was 21% and 22%, respectively, which were consistent with the gross margins in the comparative prior year periods. While we incurred incremental costs related to trade tariffs on inventory we purchase from suppliers in China, certain actions, including changes to our contracting model, alternative sourcing strategies, and selective price increase pass-through efforts mitigated much of the impact of such trade tariffs to our results of operations. |
26
|
|
• |
Total selling, general and administrative expenses decreased by $13 million and $19 million in the second quarter and first half of 2022, respectively, when compared to the same periods in 2021. Selling, general and administrative expenses as a percentage of total sales reduced by approximately 30 basis points in both the second quarter and first half of 2022 as compared to the prior year periods. The decreases were the result of store closures in our Retail Division and certain strategic initiatives, including the Maximize B2B Restructuring Plan, aimed to generate savings through optimizing our retail footprint and remove corresponding costs supporting our Retail Division as our retail footprint is reduced, and additional measures to implement a company-wide low-cost business model reducing our spend on payroll and payroll-related costs and other discretionary expenses such as professional fees, contingent labor, travel and marketing. |
|
|
• |
We recorded $3 million and $5 million of asset impairment charges in the second quarter and first half of 2022, respectively primarily related to the impairment of operating lease ROU assets associated with our retail store locations. Refer to Note 10. “Fair Value Measurements” in Notes to Condensed Consolidated Financial Statements for additional information. |
|
|
• |
We recorded $23 million and $34 million of merger, restructuring and other operating expenses, net in the second quarter and first half of 2022. The expenses in both periods relate to costs associated with the previously planned separation of our consumer business, mainly third-party professional fees. In the first half of 2022, the expenses also include $1 million associated with restructuring activities. We did not record any transaction and integration costs in the second quarter and first half of 2022. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Condensed Consolidated Financial Statements for additional information. |
|
|
• |
In the first half of 2022, we recognized a tax benefit associated with stock-based compensation awards. This along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused our effective tax rate of 26% to differ from the statutory rate of 21%. Our effective tax rate in the prior period was primarily impacted by the recognition of tax benefits associated with stock-based compensation awards and recognition of tax benefits due to an agreement reached with the IRS, state taxes, and the mix of income and losses across U.S. and non-U.S. jurisdictions. Refer to Note 5. “Income Taxes” in Notes to Condensed Consolidated Financial Statements for additional information. |
|
|
• |
Diluted earnings per share from continuing operations was $0.39 in the second quarter of 2022 compared to $0.35 in the second quarter of 2021. Diluted earnings per share from continuing operations was $1.49 in the first half of 2022 compared to $1.47 in the first half of 2021. |
|
|
• |
Diluted earnings per share from discontinued operations was $0.15 in the second quarter of 2022 compared to diluted loss per share of $(1.93) in the second quarter of 2021. Diluted earnings per share from discontinued operations was $0.14 in the first half of 2022 compared to diluted loss per share of $(2.10) in the first half of 2021. |
|
|
• |
Net diluted earnings per share was $0.54 in the second quarter of 2022 compared to net diluted loss per share of $(1.58) in the second quarter of 2021. Net diluted earnings per share was $1.63 in the first half of 2022 compared to net diluted loss per share of $(0.63) in the first half of 2021. |
|
|
• |
Our Board of Directors reviewed the existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $200 million for share repurchases under the then existing stock repurchase program, for a total authorization of $650 million. This stock repurchase program expired on June 30, 2022, and in July 2022, our Board of Directors approved a new stock repurchase program of up to $600 million, available through June 30, 2024. On November 16, 2021, as part of the stock repurchase program expiring on June 30, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) to repurchase shares of the Company’s common stock in exchange for an up-front payment $150 million. The ASR repurchase period ran through May 25, 2022, and we received 0.7 million shares of our common stock as the final settlement of the ASR in the second quarter of 2022. We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the ASR. We did not repurchase any additional shares of our common stock in the second quarter and first half of 2022. |
|
|
• |
At June 25, 2022, we had $417 million in cash and cash equivalents and $953 million of available credit under the Third Amended Credit Agreement, for a total liquidity of approximately $1.4 billion. Cash used in operating activities of continuing operations was $84 million for the first half of 2022 compared to cash provided by operating activities of $135 million in the comparable prior year period. Refer to the “Liquidity and Capital Resources” section for further information on cash flows. |
27
OPERATING RESULTS BY DIVISION
Discussion of additional income and expense items, including material charges and credits and changes in interest and income taxes follows our review of segment results.
BUSINESS SOLUTIONS DIVISION
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Sales |
|
$ |
1,215 |
|
|
$ |
1,146 |
|
|
$ |
2,445 |
|
|
$ |
2,274 |
|
|
% change |
|
|
6 |
% |
|
|
12 |
% |
|
|
8 |
% |
|
|
(4 |
)% |
|
Division operating income |
|
$ |
45 |
|
|
$ |
31 |
|
|
$ |
78 |
|
|
$ |
48 |
|
|
% of sales |
|
|
4 |
% |
|
|
3 |
% |
|
|
3 |
% |
|
|
2 |
% |
Sales in our Business Solutions Division increased 6% in the second quarter of 2022 compared to the corresponding quarter in 2021. During the second quarter of 2022, our Business Solutions Division experienced higher demand across the majority of our product categories. The higher demand was driven by the continued recovery of our business-to-business customers, including those in the education sector, from the disruptions to their operations as a result of the impacts of the COVID-19 pandemic. The increase in demand resulted in $88 million higher sales across a majority of our offerings, including paper, furniture, breakroom, school and office supplies, copy and print services, as well as personal protective equipment and cleaning supplies, which contributed $9 million to this increase. The higher demand from our business-to-business customers was partially offset by $20 million lower sales in our eCommerce platform, as compared to the second quarter of 2021.
Sales in our Business Solutions Division increased 8% in the first half of 2022 compared to the corresponding period in 2021. During the first half of 2022, our Business Solutions Division experienced higher demand across the majority of our product categories. The higher demand was driven by the continued recovery of our business-to-business customers, including those in the education sector, from the disruptions to their operations as a result of the impacts of the COVID-19 pandemic. The increase in demand resulted in $217 million higher sales across a majority of our offerings, including paper, furniture, breakroom, school and office supplies, copy and print services, as well as personal protective equipment and cleaning supplies, which contributed $66 million to this increase. The higher demand from our business-to-business customers was partially offset by $45 million lower sales in our eCommerce platform, as compared to the first half of 2021.
Our Business Solutions Division sales could be impacted in the near term related to numerous factors, among others, a weaker U.S. economy and higher unemployment and inflation that materially impact consumer spending, the demand for our products and services and the availability of supply. Specifically, we experienced supply constraints in some of our larger product categories such as ink and technology products, and we may continue to face delays or difficulty sourcing these products.
The impacts of the COVID-19 outbreak in 2022 and the magnitude by which sales of our Business Solutions Division will be affected will depend heavily on the duration of the pandemic through new variants, impact and speed of vaccination distributions, as well as the substance and pace of macroeconomic recovery. However, as discussed above, the impact has been material to the results of the Business Solutions Division in the second quarter and first half of 2022 and could continue into the third quarter of 2022 and beyond. In addition, changes in work environments, such as a prolonged or permanent shift to hybrid or continued remote work arrangements could also have a material impact to the future results of the Business Solutions Division.
Our Business Solutions Division operating income was $45 million in the second quarter of 2022 compared to $31 million in the second quarter of 2021, an increase of 45%, which was mainly driven by the flow through impact of higher sales and lower selling, general and administrative expenses. As a percentage of sales, operating income increased approximately 100 basis points. Although we experienced increases in third-party transportation costs due to the impacts of COVID-19, which reduced our gross margin by approximately 60 basis points, this was more than offset by adjustments to selling price and lower selling, general and administrative expenses as a percentage of our sales. The improvement in our selling, general and administrative expenses is attributable to cost saving initiatives of our Maximize B2B restructuring program, which reduced costs in payroll, advertising and other operating expenses.
Our Business Solutions Division operating income was $78 million in the first half of 2022 compared to $48 million in the first half of 2021, an increase of 63%, which was mainly driven by the flow through impact of higher sales and lower selling, general and administrative expenses. As a percentage of sales, operating income increased approximately 110 basis points. Although we experienced increases in third-party transportation costs due to the impacts of COVID-19, which reduced our gross margin by approximately 20 basis points, this was more than offset by adjustments to selling price and lower selling, general and administrative expenses as a percentage of sales. The improvement in our selling, general and administrative expenses is attributable to cost saving initiatives of our Maximize B2B restructuring program, which reduced costs in payroll, advertising and other operating expenses.
28
RETAIL DIVISION
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Sales |
|
$ |
811 |
|
|
$ |
914 |
|
|
$ |
1,754 |
|
|
$ |
1,953 |
|
|
% change |
|
|
(11 |
)% |
|
|
0 |
% |
|
|
(10 |
)% |
|
|
(6 |
)% |
|
Division operating income |
|
$ |
46 |
|
|
$ |
44 |
|
|
$ |
136 |
|
|
$ |
145 |
|
|
% of sales |
|
|
6 |
% |
|
|
5 |
% |
|
|
8 |
% |
|
|
7 |
% |
Sales in our Retail Division decreased 11% and 10% in the second quarter and first half of 2022, respectively, compared to the corresponding periods in 2021. As vaccination rates have increased since early in 2021 and the effects of the COVID-19 pandemic have begun to recede, more of our customers are transitioning into on-site work and in-person learning. As a result of this recovery, we experienced $5 million and $12 million of increased sales in copy and print services in the second quarter and first half of 2022, respectively. This was more than offset by fewer transactions in product sales for the second quarter and first half of 2022, as a result of both planned store closures and lower demand. Specifically, technology products, furniture, office supplies, cleaning supplies and personal protective equipment had lower sales in the second quarter and first half of 2022, compared to the corresponding periods in 2021. These categories had experienced higher demand in the prior year, which was driven by the needs of our customers to help address their challenges derived from the COVID-19 pandemic, and included facilitating the continued remote work and virtual learning environments. Our sales could be impacted in the near term related to numerous factors, among others, a weaker U.S. economy and higher unemployment that materially impact consumer spending, the demand for our products and services and the availability of supply. Specifically, we experienced supply constraints in some of our larger product categories such as ink and technology products, and we may continue to face delays or difficulty sourcing these products.
Buy online pick up in store (“BOPIS”) transactions are included in our Retail Division results because they are fulfilled with retail store inventory and serviced by our retail store associates. Our BOPIS sales were $75 million and $161 million in the second quarter and first half of 2022, respectively, as compared to $79 million and $168 million in the second quarter and first half of 2021, respectively.
Our business is considered to be essential by most local jurisdictions, and as a result, the substantial majority of our retail locations have remained open and operational with the appropriate safety measures in place during the COVID-19 pandemic, including a curbside pickup option. Since late in the first quarter of 2020, we have reduced our retail location hours by one to two hours daily, which continues to be in effect at the majority of our retail locations. We believe sales in our Retail Division may continue to be adversely impacted in the third quarter of 2022 and potentially longer. As there is uncertainty in the extent and duration of the impacts of the pandemic, we are unable to estimate the full impact at this time as there is uncertainty in the extent and duration of the impacts of the pandemic.
We have historically reported our comparable store sales, which relate to stores that have been open for at least one year. Stores are removed from the comparable sales calculation one month prior to closing, as sales during that period are mostly related to clearance activity. Stores are also removed from the comparable sales calculation during periods of store remodeling, store closures due to hurricanes, natural disasters or epidemics/pandemics, or if significantly downsized. Our measure of comparable store sales has been applied consistently across periods, but may differ from measures used by other companies. Due to the reduction in our retail location hours due to COVID-19 during late in the first quarter of 2020, and the variability in COVID-19 related restrictions imposed by state and local governments such as occupancy levels and business regulations that can affect demand for our in-store products and services, comparable store sales is not a meaningful metric for the second quarter and first half of 2022, and therefore is not provided.
The Retail Division operating income was $46 million in the second quarter of 2022, which increased 5% as compared to $44 million in the second quarter of 2021. In addition, operating income as a percentage of sales increased 1% in the second quarter of 2022 compared to the corresponding period in 2021. The improvement in operating income was mainly due to higher gross margin rate as a result of favorable product mix, which more than offset the flow through impact of lower sales. The Retail Division operating income was $136 million in the first half of 2022, which decreased 6% as compared to $145 million in the first half of 2021. The decrease is mostly attributable to the flow-through impact of lower sales, which more than offset lower selling, general and administrative expenses resulting from continuous efforts to optimize costs, lower operating lease costs recognized as a result of store closures, and improved product margin.
As of June 25, 2022, the Retail Division operated 1,020 retail stores in the United States, Puerto Rico and the U.S. Virgin Islands compared to 1,091 stores at the end of the second quarter of 2021. Charges associated with store closures as part of a restructuring plan are reported as appropriate in Asset impairments and Merger, restructuring and other operating expenses, net in the Condensed Consolidated Statements of Operations. In addition, as part of our periodic recoverability assessment of owned retail stores and distribution center assets, and operating lease ROU assets, we recognize impairment charges in the Asset impairments line item of our Condensed Consolidated Statements of Operations. These charges are reflected in Corporate reporting and are not included in the determination of Division operating income. Refer to the “Corporate” section below for additional information of expenses incurred to date.
29
OTHER
Certain operations previously included in the former International Division, including our global sourcing and trading operations in the Asia/Pacific region, which we have retained, are not significant and have been presented as Other. These operations primarily relate to the sale of products to former joint venture partners, and are not material in any period. The operating results of our Varis Division, which is our new digital platform technology business, are also not significant and presented as Other.
CORPORATE
The line items in our Condensed Consolidated Statements of Operations included as Corporate activities are Asset impairments and Merger, restructuring and other operating expenses, net. These activities are managed at the Corporate level and, accordingly, are not included in the determination of Division income for management reporting or external disclosures. In addition to these charges and credits, certain selling, general and administrative expenses are not allocated to the Divisions and are managed at the Corporate level. Those expenses are addressed in the section “Unallocated Expenses” below.
Asset impairments
We recognized asset impairment charges of $3 million and $5 million in the second quarter and first half of 2022, respectively, primarily related to impairment of operating lease ROU assets associated with our retail store locations. We recognized asset impairment charges of $1 million and $13 million in the second quarter and first half of 2021, respectively. Of the asset impairment charges in the second quarter and first half of 2021, $1 million and $11 million were related to impairment of operating lease ROU assets associated with our retail store locations, respectively, and the remainder was related to impairment of fixed assets.
We regularly review retail store assets for impairment indicators at the individual store level, as this represents the lowest level of identifiable cash flows. When indicators of impairment are present, a recoverability analysis is performed which considers the estimated undiscounted cash flows over the retail store’s remaining life and uses inputs from retail operations and accounting and finance personnel. These inputs include our best estimates of retail store-level sales, gross margins, direct expenses, exercise of future lease renewal options when reasonably certain to be exercised, and resulting cash flows, which, by their nature, include judgments about how current initiatives will impact future performance. In the second quarter and first half of 2022, the assumptions used within the recoverability analysis for the retail stores were updated to consider current quarter retail store operational results and formal plans for future retail store closures as part of our restructuring programs, including the probability of closure at the retail store level. While it is generally expected that closures will approximate the store’s lease termination date, it is possible that changes in store performance or other conditions could result in future changes in assumptions utilized. In addition, the assumptions used reflected declining sales over the forecast period, and gross margin and operating cost assumptions that are consistent with recent actual results and consider plans for future initiatives. If the undiscounted cash flows of a retail store cannot support the carrying amount of its assets, the assets are impaired and written down to estimated fair value. Our retail store assets recoverability analyses in the second quarter of 2022 also included the impact of the COVID-19 pandemic on the operations of our retail stores as described in the “Retail Division” section. As discussed above, there is uncertainty regarding the impact of the COVID-19 pandemic on the results of our operations in the third quarter of 2022 and beyond, which could result in future impairments of store assets if deemed unrecoverable.
We are monitoring the performance of our Contract reporting unit, which is a component of our Business Solutions Division segment. The operating performance and future outlook for the Contract reporting unit are in line with our revised forecasts used in determining the fair value estimates in the most recent quantitative annual impairment assessment, which it passed by a 16% margin. Accordingly, there are no impairment indicators identified for this reporting unit as of June 25, 2022. We also did not identify indicators of impairment related to our other reporting units, which mainly serve consumers through our retail stores, eCommerce platform and digital B2B platform, and have been performing in accordance with our forecasts. We will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. If the operating results of our reporting units deteriorate in the future, it may cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in additional goodwill impairment charges. Further, while we are currently in a strong liquidity and capital position, a significant deterioration may have a material impact on our liquidity and capital in future periods.
Merger, restructuring and other operating expenses, net
We have taken actions to optimize our asset base and drive operational efficiencies. These actions include acquiring profitable businesses, closing underperforming retail stores and non-strategic distribution facilities, consolidating functional activities, eliminating redundant positions and disposing of non-strategic businesses and assets. In addition, we have also incurred costs related to our actions to separate our consumer business through a potential sale, prior to our Board of Directors’ decision on June 21, 2022 to maintain the consumer business under common ownership. The expenses and any income recognized directly associated with these actions are included in Merger, restructuring and other operating expenses, net on a separate line in the Condensed Consolidated Statements of Operations in order to identify these activities apart from the expenses incurred to sell to and service customers. These expenses are not included in the determination of Division operating income. Merger, restructuring and other operating expenses, net were $23 million and $34 million in the second quarter and first half of 2022, respectively, compared to $11 million and $23 million
30
in the second quarter and first half of 2021, respectively. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Condensed Consolidated Financial Statements for an additional analysis of these Corporate charges.
Unallocated Expenses
We allocate to our Divisions functional support expenses that are considered to be directly or closely related to segment activity. These allocated expenses are included in the measurement of Division operating income. Other companies may charge more or less for functional support expenses to their segments, and our results, therefore, may not be comparable to similarly titled measures used by other companies. The unallocated expenses primarily consist of the buildings used for our corporate headquarters and personnel not directly supporting the Divisions, including certain executive, finance, legal, audit and similar functions. Unallocated expenses were $22 million and $42 million in the second quarter and first half of 2022 compared to $27 million and $49 million in the second quarter and first half of 2021, respectively. The decrease in the second quarter of 2022 compared to the prior year period was primarily due to lower Corporate incentive expenses. The decrease in the first half of 2022 compared to the prior year period was primarily due to lower Corporate incentive expenses and lower third-party professional fees.
Other Income and Expense
|
|
|
Second Quarter |
|
|
First Half |
|
||||||||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
Interest income |
|
$ |
1 |
|
|
$ |
— |
|
|
$ |
2 |
|
|
$ |
— |
|
|
Interest expense |
|
|
(4 |
) |
|
|
(6 |
) |
|
|
(9 |
) |
|
|
(14 |
) |
|
Other income, net |
|
|
3 |
|
|
|
5 |
|
|
|
5 |
|
|
|
17 |
|
In April 2020, we entered into the Third Amended Credit Agreement which provided for an aggregate principal amount of up to $1.3 billion asset-based revolving credit facility and asset-based FILO Term Loan Facility, maturing in April 2025. We recorded $1 million and $2 million of interest expense in the second quarter and first half of 2022, respectively, and $1 million and $2 million of interest expense in the second quarter and first half of 2021, respectively, related to the Third Amended Credit Agreement. We also recorded interest expense related to our finance lease obligations and revenue bonds in all periods presented.
Other income, net includes the pension credit related to the frozen OfficeMax pension and other benefit plans, as well as the pension credit related to the pension plan in the United Kingdom that has been retained by us in connection with the sale of the European Business. We also recorded $7 million of other income, net related to the release of certain liabilities of our former European Business in the first half of 2021.
Income Taxes
During 2022 and 2021, the mix of income and losses across jurisdictions, although still applicable, has become less of a factor in influencing our effective tax rates due to limited international operations and improved operating results. Our effective tax rates were 29% and 26% for the second quarter and first half of 2022, respectively, and 31% and 20% for the second quarter and first half of 2021, respectively. In the first half of 2022, our effective rate was primarily impacted by the recognition of a tax benefit associated with stock-based compensation awards year-to-date. This along with the impact of state taxes and the mix of income and losses across U.S and non-U.S. jurisdictions, caused our effective tax rate to differ from the statutory rate of 21%. In the first half of 2021, our effective rate was primarily impacted by the recognition of tax benefits associated with stock-based compensation awards year-to-date and recognition of tax benefits due to an agreement reached with the IRS related to a prior tax position. These factors, along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused our effective tax rate to differ from the statutory rate of 21%. Changes in pretax income projections and the mix of income across jurisdictions could impact the effective tax rates in future quarters.
We continue to have a U.S. valuation allowance for certain U.S. federal credits and state tax attributes, which relates to deferred tax assets that require certain types of income or for income to be earned in certain jurisdictions in order to be realized. We will continue to assess the realizability of our deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods. The sale of CompuCom resulted in us recognizing a capital loss of approximately $210 million, tax effected. A portion of this capital loss, approximately $20 million, is available to be carried back in several jurisdictions. The tax benefit of these carry back claims was reflected in the discontinued operations income tax expense at December 25, 2021. We have determined that it is more likely than not that the benefit from the excess capital loss of $190 million will not be realized at this time. In recognition of this risk, we have provided a full valuation allowance against the excess capital loss not carried back.
We file a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal and state and local income tax examinations for years prior to 2021 and 2014, respectively. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. federal income tax examination, and with few exceptions, is no longer subject to U.S. state and local income tax examinations for years prior to 2013. Generally, we are subject to routine examination for years 2013 and forward in our international tax jurisdictions.
31
It is anticipated that $1 million of tax positions will be resolved within the next 12 months. Additionally, we anticipate that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits; however, an estimate of such changes cannot be reasonably made at this time.
Discontinued Operations
Refer to Note 12. “Discontinued Operations” in Notes to Condensed Consolidated Financial Statements for information regarding the CompuCom Division which is accounted for as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
At June 25, 2022 and December 25, 2021, we had $417 million and $514 million in cash and cash equivalents, respectively, and $953 million and $877 million of available credit under the Third Amended Credit Agreement (as defined in Note 7. “Debt” in Notes to Condensed Consolidated Financial Statements), respectively, for a total liquidity of approximately $1.4 billion at the end of both respective periods. Despite the weaker global economic conditions and the uncertainties related to the impacts of the COVID-19 pandemic, we currently believe that as a result of our strong financial position, including our cash and cash equivalents on hand, availability of funds under the Third Amended Credit Agreement, and future year cash flows generated from operations, we will be able to fund our working capital, capital expenditures, debt repayments, common stock repurchases, dividends (if any), merger integration and restructuring expenses, costs associated with the previously planned Separation of our consumer business, and future acquisitions consistent with our strategic growth initiatives for at least the next twelve months from the date of this Quarterly Report on Form 10-Q. From time to time, we may prepay outstanding debt and/or restructure or refinance debt obligations. As the impact of the COVID-19 pandemic on the global and national economies and our operations evolve, we will continue to assess our liquidity needs.
Financing
On April 17, 2020, as disclosed in Note 7. “Debt,” we entered into the Third Amended and Restated Credit Agreement, which provides for a $1.2 billion asset-based revolving credit facility and a $100 million asset-based FILO Term Loan Facility, for an aggregate principal amount of up to $1.3 billion (the “New Facilities”). The New Facilities mature in April 2025. The Third Amended and Restated Credit Agreement replaced our then existing amended and restated credit agreement that was due to mature in May 2021. During the first quarter of 2022, we reduced our asset-based revolving credit facility by $200 million to $1.0 billion and retired $43 million of outstanding FILO Term Loan Facility loans under the Third Amended Credit Agreement.
There were no revolving loans outstanding, $57 million of outstanding FILO Term Loan Facility loans, and $47 million of outstanding standby letters of credit under the Third Amended Credit Agreement at the end of the second quarter of 2022, and we were in compliance with all applicable covenants at June 25, 2022.
Strategic Transformation
In addition to the acquisitions disclosed herein, we have evaluated, and expect to continue to evaluate, possible acquisitions and dispositions of businesses and assets in connection with our strategic transformation. Such transactions may be material and may involve cash, our securities or the incurrence of additional indebtedness.
Capital Expenditures
We estimate capital expenditures in 2022 to be up to approximately $110 million, which includes investments to support our business priorities. These expenditures will be funded through available cash on hand and operating cash flows.
Capital Return Programs – Share Repurchases and Dividends
Our Board of Directors reviewed the existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $200 million for share repurchases under the then existing stock repurchase program, for a total authorization of $650 million. This stock repurchase program expired on June 30, 2022, and in July 2022, our Board of Directors approved a new stock repurchase program of up to $600 million, available through June 30, 2024. The new authorization may be suspended or discontinued at any time. The exact timing of share repurchases will depend on market conditions and other factors, and will be funded through available cash balances.
On November 16, 2021, as part of the stock repurchase program expiring on June 30, 2022, the Company entered into an accelerated share repurchase agreement (“ASR”) to repurchase shares of the Company’s common stock in exchange for an up-front payment $150 million. The ASR repurchase period ran through May 25, 2022, and we received 0.7 million shares of our common stock as the final settlement of the ASR in the second quarter of 2022. We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the ASR. We did not repurchase any additional shares of our common stock in the second quarter and first half of 2022. In July 2022, as part of the new $600 million stock repurchase program, the Company entered into a Dutch auction
32
tender offer to repurchase up to $300 million worth of shares of its common stock, based on demand. Subject to certain limitations and legal requirements, the Company could repurchase up to an additional 2% of the outstanding shares in the tender offer. Through this tender offer, the Company’s shareholders have the opportunity to tender some or all of their shares at a price within the range of $31.50 to $36.00 per share subject to the conditions set forth in the tender offer documents. The tender offer commenced on July 18, 2022 and is expected to expire on August 12, 2022, unless extended or earlier terminated by the Company. We expect to use a combination of funds borrowed under our asset-based revolving credit facility and cash on hand to fund the purchase of accepted shares.
The stock repurchase authorization permits us to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The exact number and timing of stock repurchases will depend on market conditions and other factors, and will be funded through available cash balances. Our Third Amended Credit Agreement permits restricted payments, such as common stock repurchases, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements. The authorized amount under the stock repurchase program excludes fees, commissions or other expenses.
In May 2020, in order to preserve liquidity during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, our Board of Directors temporarily suspended the Company’s quarterly cash dividend beginning in the second quarter of fiscal 2020. There was no quarterly cash dividend declared and paid in the second quarter and first half of 2022. Our quarterly cash dividend remains suspended. Prior to its suspension, dividends had been recorded as a reduction to additional paid-in capital as we are in an accumulated deficit position. Our Third Amended Credit Agreement permits restricted payments, such as dividends, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements.
We will continue to evaluate our capital return programs as appropriate. Decisions regarding future share buybacks and dividends are within the discretion of our Board of Directors, and depend on a number of factors, including, general business and economic conditions, which includes the impact of COVID-19 on such conditions, and other factors which are discussed in this discussion and analysis and “Risk Factors” within Other Key Information in our 2021 Form 10-K.
CASH FLOWS
Continuing Operations
Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows:
|
|
|
First Half |
|
|||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
||
|
Operating activities of continuing operations |
|
$ |
(84 |
) |
|
$ |
135 |
|
|
Investing activities of continuing operations |
|
|
(35 |
) |
|
|
(32 |
) |
|
Financing activities of continuing operations |
|
|
(74 |
) |
|
|
(83 |
) |
Operating Activities from Continuing Operations
In the first half of 2022, cash used in operating activities from continuing operations was $84 million, compared to cash provided by operating activities of $135 million during the corresponding period in 2021. This decrease in cash flows from operating activities was primarily driven by $200 million more cash outflows from working capital and $24 million less net income after adjusting for non-cash charges, slightly offset by $5 million more usage of deferred tax assets against current obligations. Working capital is influenced by a number of factors, including period end sales, the flow of goods, credit terms, timing of promotions, vendor production planning, new product introductions and working capital management. For the first half of 2022, the primary driver for higher working capital usage was due to $93 million increase in cash outflows from our inventories, $73 million more cash outflows due to changes in our trade payables and other liabilities, and $34 million less cash inflows due to changes in our receivables. The change in inventories is mainly attributable to purchase volume. The change in our payables and other liabilities is reflective of the timing of payments. The change in our receivables is due to the impact of the COVID-19 pandemic on the sales of our Business Solutions Division in the prior year period, as well as the recovery we are observing in the first half of 2022.
For our accounting policy on cash management, refer to Note 1. “Summary of Significant Accounting Policies” in Notes to Condensed Consolidated Financial Statements.
33
Investing Activities
Cash used in investing activities from continuing operations was $35 million first half of 2022, compared to $32 million first half of 2021. The cash outflow in the first half of 2022 was driven by $43 million in capital expenditures associated with improvements in our service platform, distribution network, and eCommerce capabilities. These outflows were partially offset by proceeds from sale of assets of $6 million and the cash proceeds from our company-owned life insurance policies of $2 million. The cash outflow in the first half of 2021 was driven by $28 million in business acquisitions, net of cash acquired, and $28 million in capital expenditures associated with improvements in our service platform, distribution network, and eCommerce capabilities. These outflows were partially offset by the cash proceeds from our company-owned life insurance policies of $21 million and proceeds from sale of assets of $3 million.
Financing Activities
Cash used in financing activities from continuing operations was $74 million first half of 2022, compared to $83 million first half of 2021. The cash outflow in the first half of 2022 primarily consisted of $11 million of net payments on long- and short-term borrowings activity related to our debt, $43 million payment on our FILO Term Loan Facility loans under the Third Amended Credit Agreement, and $17 million share purchases for taxes, net of proceeds, for employee share-based transactions. Cash used in the first half of 2021 primarily consisted of $13 million of net payments on long- and short-term borrowings activity related to our debt, $46 million in repurchases of common stock, including commissions, and $23 million share purchases for taxes, net of proceeds, for employee share-based transactions.
Discontinued Operations
Cash provided by (used in) operating and investing activities from discontinued operations is summarized as follows:
|
|
|
First Half |
|
|||||
|
(In millions) |
|
2022 |
|
|
2021 |
|
||
|
Operating activities of discontinued operations |
|
$ |
— |
|
|
$ |
(60 |
) |
|
Investing activities of discontinued operations |
|
|
74 |
|
|
|
(1 |
) |
There was no cash flow related to operating activities of discontinued operations in the first half of 2022. Cash used in operating activities from discontinued operations was $60 million in the first half of 2021. The change in operating cash flows of discontinued operations in the comparative periods was primarily driven by the sale of our CompuCom Division on December 31, 2021.
Cash flows from investing activities from discontinued operations was $74 million in the first half of 2022, compared to cash used in investing activities from discontinued operations of $1 million in the first half of 2021. The change in investing cash flows of discontinued operations in the comparative periods reflects proceeds received from the sale of our CompuCom Division, net of cash sold and selling costs, on December 31, 2021. In addition, the first half of 2022 includes $7 million of insurance proceeds received related to the malware incident in 2021.
NEW ACCOUNTING STANDARDS
For a description of new applicable accounting standards, refer to Note 1. “Summary of Significant Accounting Policies” in Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING POLICIES
Our Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2021 Form 10-K, in Note 1 of the Notes to the Consolidated Financial Statements and the Critical Accounting Policies and Estimates section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Except for our accounting policy updates described in Note 1 “Summary of Significant Accounting Policies” in Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q, there have been no significant changes to our critical accounting policies since December 25, 2021.
34
OTHER INFORMATION
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At June 25, 2022, there had not been a material change in the interest rate, foreign exchange, and commodities risks information disclosed in the “Market Sensitive Risks and Positions” subsection of the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our 2021 Form 10-K.
CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the possible controls and procedures. Each reporting period, we carry out an evaluation, with the participation of our principal executive officer and principal financial officer, or persons performing similar functions, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Based on management’s evaluation, our principal executive officer and principal financial officer have concluded that, as of June 25, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes in our internal control over financial reporting during the quarter ended June 25, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We continually monitor and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
LEGAL PROCEEDINGS
For a description of our legal proceedings, see Note 11. “Commitments and Contingencies” in Notes to Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in “Risk Factors” within Other Key Information in our 2021 Form 10-K.
35
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
At June 25, 2022, $314 million remained available for additional repurchases under the current stock repurchase program which expired on June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximate Dollar |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Value of Shares that |
|
||
|
|
|
Total |
|
|
|
|
|
|
Shares Purchased as |
|
|
May Yet Be |
|
|||
|
|
|
Number |
|
|
|
|
|
|
Part of a Publicly |
|
|
Purchased Under |
|
|||
|
|
|
of Shares |
|
|
Average |
|
|
Announced Plan or |
|
|
the Repurchase |
|
||||
|
|
|
Purchased |
|
|
Price Paid |
|
|
Program |
|
|
Programs |
|
||||
|
Period |
|
(In millions) |
|
|
per Share |
|
|
(In millions) |
|
|
(In millions) (1) |
|
||||
|
March 27, 2022 — April 23, 2022 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
342 |
|
|
April 24, 2022 — May 21, 2022 |
|
|
0.3 |
|
|
$ |
39.93 |
|
|
|
0.3 |
|
|
$ |
328 |
|
|
May 22, 2022 — June 25, 2022 |
|
|
0.4 |
|
|
$ |
38.10 |
|
|
|
0.4 |
|
|
$ |
314 |
|
|
Total |
|
|
0.7 |
|
|
$ |
39.00 |
|
|
|
0.7 |
|
|
|
|
|
(1) In May 2021, our Board of Directors approved a new stock repurchase program of up to $300 million, available through June 30, 2022. On November 16, 2021, we entered into an accelerated share repurchase agreement (“ASR”) to repurchase shares of our common stock in exchange for an up-front payment of $150 million and increased the authorization to $450 million. Our Board of Directors reviewed the existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $200 million for share repurchases under the then existing stock repurchase program, for a total authorization of $650 million. The ASR repurchase period ran through May 25, 2022, and we received 0.7 million shares of our common stock as the final settlement of the ASR in the second quarter of 2022. We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the ASR. We did not repurchase any additional shares of our common stock in the second quarter of 2022. In July 2022, our Board of Directors approved a new stock repurchase program of up to $600 million, available through June 30, 2024, which replaced our current $650 million stock repurchase program that expired on June 30, 2022. The authorization may be suspended or discontinued at any time. The stock repurchase authorization permits us to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The exact number and timing of stock repurchases will depend on market conditions and other factors, and will be funded through a combination of funds borrowed under our asset-based revolving credit facility and cash on hand. Our Third Amended Credit Agreement permits restricted payments, such as common stock repurchases, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements. The authorized amount under the stock repurchase program excludes fees, commissions or other expenses.
In order to preserve liquidity during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, in May 2020, our Board of Directors suspended the Company’s quarterly cash dividend beginning in the second quarter of 2020. There was no quarterly cash dividend declared and paid in the second quarter and first half of 2022. Our quarterly cash dividend remains suspended. Prior to its suspension, dividends had been recorded as a reduction to additional paid-in capital as we are in an accumulated deficit position. Our Third Amended Credit Agreement permits restricted payments, such as dividends, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements.
36
EXHIBITS
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31.1 |
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31.2 |
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32 |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
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|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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|
|
|
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101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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|
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101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
104 |
|
The cover page from this Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101. |
37
FORM 10-Q CROSS-REFERENCE INDEX
|
Item |
|
Page |
|
Part I - Financial Information |
|
|
|
Item 1. Financial Statements |
|
|
|
|
3 |
|
|
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) |
|
4 |
|
|
5 |
|
|
|
6 |
|
|
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) |
|
7 |
|
Notes to Condensed Consolidated Financial Statements (Unaudited) |
|
8 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
24 |
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk |
|
35 |
|
|
35 |
|
|
Part II - Other Information |
|
|
|
|
35 |
|
|
|
35 |
|
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
36 |
|
Item 3. Defaults Upon Senior Securities |
|
Not Applicable |
|
Item 4. Mine Safety Disclosures |
|
Not Applicable |
|
|
Not Applicable |
|
|
|
37 |
|
|
|
39 |
38
SIGNATURES
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.
|
|
|
|
|
THE ODP CORPORATION |
||
|
|
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|
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(Registrant) |
|
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|
|
Date: August 3, 2022 |
|
|
|
By: |
|
/s/ GERRY P. SMITH |
|
|
|
|
|
|
|
Gerry P. Smith |
|
|
|
|
|
|
|
Chief Executive Officer |
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|
|
|
|
|
|
(Principal Executive Officer) |
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|
|
Date: August 3, 2022 |
|
|
|
By: |
|
/s/ D. ANTHONY SCAGLIONE |
|
|
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|
|
|
D. Anthony Scaglione |
|
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Executive Vice President and |
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|
|
|
|
|
Chief Financial Officer |
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|
|
|
(Principal Financial Officer and Principal Accounting Officer)
|
39
Exhibit 31.1
Rule 13a-14(a)/15d-14(a) Certification
I, Gerry P. Smith, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of The ODP Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
/s/ GERRY P. SMITH |
|
|
Name: |
Gerry P. Smith |
|
Title: |
Chief Executive Officer (principal executive officer) |
|
Date: |
August 3, 2022 |
Exhibit 31.2
Rule 13a-14(a)/15d-14(a) Certification
I, D. Anthony Scaglione, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of The ODP Corporation; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
/s/ D. ANTHONY SCAGLIONE |
|
|
Name: |
D. Anthony Scaglione |
|
Title: |
Executive Vice President and Chief Financial Officer (principal financial officer) |
|
Date: |
August 3, 2022 |
Exhibit 32
The ODP Corporation
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to
18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q (the “Report”) of The ODP Corporation (the “Company”) for the quarter ended June 25, 2022, as filed with the U.S. Securities and Exchange Commission on the date hereof, Gerry P. Smith, as Chief Executive Officer of the Company, and D. Anthony Scaglione, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to each officer’s knowledge:
(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
|
|
|
/s/ GERRY P. SMITH |
|
|
Name: |
Gerry P. Smith |
|
Title: |
Chief Executive Officer (principal executive officer) |
|
Date: |
August 3, 2022 |
|
|
|
|
/s/ D. ANTHONY SCAGLIONE |
|
|
Name: |
D. Anthony Scaglione |
|
Title: |
Chief Financial Officer (principal financial officer) |
|
Date: |
August 3, 2022 |
A signed original of this certification required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the U.S. Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of the United States Code and, accordingly, is not being filed with the U.S. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).