10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 30, 2024

or

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

For the transition period from __ __ __ __to __ __ __ __

Commission File Number 1-10948

The ODP Corporation

(Exact Name of Registrant as Specified in its Charter)

https://cdn.kscope.io/1eb8f7551689469f9c49c5dd986e74af-img217126130_0.jpg 

 

 

 

 

Delaware

85-1457062

(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

 

 

 

6600 North Military Trail, Boca Raton, Florida

33496

(Address of Principal Executive Offices)

(Zip Code)

(561) 438-4800

(Registrant’s Telephone Number, Including Area Code)

 

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

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

Title of Each Class

 

Trading

Symbol(s)

 

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

 

ODP

 

The NASDAQ Stock Market

(NASDAQ Global Select Market)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

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

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

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At May 1, 2024, there were 35,894,892 outstanding shares of The ODP Corporation Common Stock, $0.01 par value.

 


 

 

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.

Financial Statements

 

Page

Condensed Consolidated Statements of Operations (Unaudited)

3

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

4

Condensed Consolidated Balance Sheets (Unaudited)

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

6

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

8

Management’s Discussion and Analysis (MD&A)

 

Overview

 

19

Operating Results by Division

 

22

Liquidity and Capital Resources

 

26

New Accounting Standards

 

28

Critical Accounting Policies

 

28

Other Information

 

 

Quantitative and Qualitative Disclosures About Market Risk

29

Controls and Procedures

29

Legal Proceedings

29

Risk Factors

29

Unregistered Sales of Equity Securities and Use of Proceeds

30

Other Information

 

30

Exhibits

31

Form 10-Q Cross-Reference Index

 

32

Signatures

33

 

2


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

13 Weeks Ended

 

 

 

March 30,

 

 

April 1,

 

 

 

2024

 

 

2023

 

Sales

 

$

1,871

 

 

$

2,108

 

Cost of goods and occupancy costs

 

 

1,461

 

 

 

1,627

 

Gross profit

 

 

410

 

 

 

481

 

Selling, general and administrative expenses

 

 

359

 

 

 

382

 

Asset impairments

 

 

6

 

 

 

4

 

Merger and restructuring expenses, net

 

 

27

 

 

 

 

Operating income

 

 

18

 

 

 

95

 

Other income (expense):

 

 

 

 

 

 

Interest income

 

 

3

 

 

 

2

 

Interest expense

 

 

(4

)

 

 

(5

)

Other income, net

 

 

 

 

 

2

 

Income from continuing operations before income taxes

 

 

17

 

 

 

94

 

Income tax expense

 

 

2

 

 

 

22

 

Net income from continuing operations

 

 

15

 

 

 

72

 

Discontinued operations, net of tax

 

 

 

 

 

 

Net income

 

$

15

 

 

$

72

 

Basic earnings per share

 

 

 

 

 

 

Continuing operations

 

$

0.42

 

 

$

1.79

 

Discontinued operations

 

 

 

 

 

 

Net basic earnings per share

 

$

0.42

 

 

$

1.79

 

Diluted earnings per share

 

 

 

 

 

 

Continuing operations

 

$

0.40

 

 

$

1.71

 

Discontinued operations

 

 

 

 

 

 

Net diluted earnings per share

 

$

0.40

 

 

$

1.71

 

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 28, 2024 (the “2023 Form 10-K”).

3


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

13 Weeks Ended

 

 

 

March 30,
2024

 

 

April 1,
2023

 

Net income

 

$

15

 

 

$

72

 

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

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(4

)

 

 

2

 

Change in deferred pension

 

 

1

 

 

 

 

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

 

 

(3

)

 

 

2

 

Comprehensive income

 

$

12

 

 

$

74

 

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 2023 Form 10-K.

4


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

 

 

March 30,

 

 

December 30,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

282

 

 

$

392

 

Receivables, net

 

 

466

 

 

 

487

 

Inventories

 

 

733

 

 

 

765

 

Prepaid expenses and other current assets

 

 

36

 

 

 

28

 

Current assets held for sale

 

 

7

 

 

 

6

 

Total current assets

 

 

1,524

 

 

 

1,678

 

Property and equipment, net

 

 

360

 

 

 

359

 

Operating lease right-of-use assets

 

 

978

 

 

 

983

 

Goodwill

 

 

403

 

 

 

403

 

Other intangible assets, net

 

 

44

 

 

 

45

 

Deferred income taxes

 

 

147

 

 

 

140

 

Other assets

 

 

279

 

 

 

278

 

Total assets

 

$

3,735

 

 

$

3,886

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Trade accounts payable

 

$

755

 

 

$

755

 

Accrued expenses and other current liabilities

 

 

854

 

 

 

923

 

Income taxes payable

 

 

5

 

 

 

6

 

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

 

 

10

 

 

 

9

 

Total current liabilities

 

 

1,624

 

 

 

1,693

 

Deferred income taxes and other long-term liabilities

 

 

122

 

 

 

123

 

Pension and postretirement obligations, net

 

 

14

 

 

 

15

 

Long-term debt, net of current maturities

 

 

115

 

 

 

165

 

Operating lease liabilities, net of current portion

 

 

791

 

 

 

789

 

Total liabilities

 

 

2,666

 

 

 

2,785

 

Contingencies (Note 10)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock — authorized 80,000,000 shares of $0.01 par value; issued shares —
   
66,958,689 at March 30, 2024 and 66,700,292 at December 30, 2023;
   outstanding shares —
36,260,932 at March 30, 2024 and 36,959,377 at
   December 30, 2023

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,758

 

 

 

2,752

 

Accumulated other comprehensive loss

 

 

(117

)

 

 

(114

)

Accumulated deficit

 

 

(297

)

 

 

(312

)

Treasury stock, at cost — 30,697,757 shares at March 30, 2024 and 29,740,915
   shares at December 30, 2023

 

 

(1,276

)

 

 

(1,226

)

Total stockholders’ equity

 

 

1,069

 

 

 

1,101

 

Total liabilities and stockholders’ equity

 

$

3,735

 

 

$

3,886

 

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 2023 Form 10-K.

5


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

13 Weeks Ended

 

 

 

March 30,

 

 

April 1,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

15

 

 

$

72

 

Income (loss) from discontinued operations, net of tax

 

 

 

 

 

 

Net income from continuing operations

 

 

15

 

 

 

72

 

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

 

 

 

 

 

 

Depreciation and amortization

 

 

29

 

 

 

30

 

Amortization of debt discount and issuance costs

 

 

 

 

 

1

 

Charges for losses on receivables and inventories

 

 

9

 

 

 

5

 

Asset impairments

 

 

6

 

 

 

4

 

Gain on disposition of assets, net

 

 

 

 

 

(1

)

Compensation expense for share-based payments

 

 

11

 

 

 

9

 

Deferred income taxes and deferred tax asset valuation allowances

 

 

(8

)

 

 

17

 

Changes in working capital and other operating activities

 

 

(24

)

 

 

20

 

Net cash provided by operating activities of continuing operations

 

 

38

 

 

 

157

 

Net cash provided by (used in) operating activities of discontinued operations

 

 

 

 

 

 

Net cash provided by operating activities

 

 

38

 

 

 

157

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(35

)

 

 

(27

)

Businesses acquired, net of cash acquired

 

 

 

 

 

(10

)

Proceeds from disposition of assets

 

 

1

 

 

 

1

 

Net cash used in investing activities of continuing operations

 

 

(34

)

 

 

(36

)

Net cash provided by investing activities of discontinued operations

 

 

 

 

 

5

 

Net cash used in investing activities

 

 

(34

)

 

 

(31

)

Cash flows from financing activities:

 

 

 

 

 

 

Net payments on long and short-term borrowings

 

 

(3

)

 

 

(5

)

Debt retirement

 

 

(128

)

 

 

(60

)

Debt issuance

 

 

75

 

 

 

100

 

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

 

 

(6

)

 

 

(19

)

Repurchase of common stock for treasury

 

 

(50

)

 

 

(201

)

Other financing activities

 

 

(1

)

 

 

 

Net cash used in financing activities of continuing operations

 

 

(113

)

 

 

(185

)

Net cash provided by (used in) financing activities of discontinued operations

 

 

 

 

 

 

Net cash used in financing activities

 

 

(113

)

 

 

(185

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(1

)

 

 

 

Net decrease in cash, cash equivalents and restricted cash

 

 

(110

)

 

 

(59

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

395

 

 

 

404

 

Cash, cash equivalents and restricted cash at end of period

 

$

285

 

 

$

345

 

Supplemental information on non-cash investing and financing activities

 

 

 

 

 

 

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

 

$

63

 

 

$

70

 

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

 

 

6

 

 

 

 

Cash interest paid, net of amounts capitalized and non-recourse debt

 

 

3

 

 

 

4

 

Cash taxes paid, net

 

 

1

 

 

 

 

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 2023 Form 10-K.

6


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share amounts)

(Unaudited)

 

 

13 Weeks Ended March 30, 2024

 

 

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Treasury
Stock

 

 

Total
Equity

 

Balance at December 30, 2023

 

 

66,700,292

 

 

$

1

 

 

$

2,752

 

 

$

(114

)

 

$

(312

)

 

$

(1,226

)

 

$

1,101

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

 

 

 

 

15

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

 

 

 

(3

)

Exercise and release of incentive stock
   (including income tax benefits and
   withholding)

 

 

258,397

 

 

 

 

 

 

(6

)

 

 

 

 

 

 

 

 

 

 

 

(6

)

Amortization of long-term incentive
   stock grants

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

11

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(50

)

 

 

(50

)

Other

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Balance at March 30, 2024

 

 

66,958,689

 

 

$

1

 

 

$

2,758

 

 

$

(117

)

 

$

(297

)

 

$

(1,276

)

 

$

1,069

 

 

 

 

13 Weeks Ended April 1, 2023

 

 

 

Common
Stock
Shares

 

 

Common
Stock
Amount

 

 

Additional
Paid-in
Capital

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Treasury
Stock

 

 

Total
Equity

 

Balance at December 31, 2022

 

 

65,636,015

 

 

$

1

 

 

$

2,742

 

 

$

(77

)

 

$

(451

)

 

$

(928

)

 

$

1,287

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

72

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

 

 

 

 

 

 

2

 

Exercise and release of incentive stock
   (including income tax benefits and
   withholding)

 

 

812,978

 

 

 

 

 

 

(19

)

 

 

 

 

 

 

 

 

 

 

 

(19

)

Amortization of long-term incentive
   stock grants

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(202

)

 

 

(202

)

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at April 1, 2023

 

 

66,448,993

 

 

$

1

 

 

$

2,732

 

 

$

(75

)

 

$

(379

)

 

$

(1,131

)

 

$

1,148

 

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 2023 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 products, services and technology solutions through an integrated business-to-business (“B2B”) distribution platform and omni-channel presence, which includes supply chain and distribution operations, dedicated sales professionals, a B2B digital procurement solution, online presence, and a network of Office Depot and OfficeMax retail stores. Through its operating companies ODP Business Solutions, LLC; Office Depot, LLC; Veyer, LLC; and Varis, Inc., The ODP Corporation empowers every business, professional, and consumer to achieve more every day.

The Company has four reportable segments (or “Divisions”), which are ODP Business Solutions Division, Office Depot Division, Veyer Division, and Varis Division. Refer to Note 3 for additional information. On April 24, 2024, the Company’s Board of Directors provided their approval of management’s commitment to a plan to sell its Varis Division through a single disposal group. Refer to Note 12 for additional information.

The Condensed Consolidated Financial Statements as of March 30, 2024, and for the 13-week period ended March 30, 2024 (also referred to as the “first quarter of 2024”), and April 1, 2023 (also referred to as the “first quarter of 2023”) 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.

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 2023 Form 10-K. These interim results are not necessarily indicative of the results that should be expected for the full year.

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 $11 million and $13 million at March 30, 2024 and December 30, 2023, respectively, are presented in Trade accounts payable and Accrued expenses and other current liabilities.

At March 30, 2024 and December 30, 2023, cash and cash equivalents held outside the United States amounted to $87 million and $106 million, respectively. In the first quarter of 2024, the Company repatriated $25 million cash that was held in Canada, for a cost of $1 million.

The Company has certain ongoing pension obligations related to its frozen defined benefit pension plan in the United Kingdom. Restricted cash consists primarily of cash in bank committed to fund UK pension obligations based on the agreements that govern the UK pension plan. Restricted cash is valued at cost, which approximates fair value. Restricted cash was $3 million at both March 30, 2024 and December 30, 2023.

8


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

REVENUE AND CONTRACT BALANCES

The Company generates substantially all of its revenue from contracts with customers for the sale of products and services. Refer to Note 3 for information on revenue by reportable segment and product category. Contract balances primarily consist of receivables, assets related to deferred contract acquisition costs, liabilities related to payments received in advance of performance under the contract, and liabilities related to unredeemed gift cards and loyalty programs. The following table provides information about receivables, contract assets and contract liabilities from contracts with customers:

 

 

March 30,

 

 

December 30,

 

(In millions)

 

2024

 

 

2023

 

Trade receivables, net

 

$

370

 

 

$

369

 

Short-term contract assets

 

 

4

 

 

 

4

 

Long-term contract assets

 

 

1

 

 

 

1

 

Short-term contract liabilities

 

 

30

 

 

 

32

 

The Company recognized revenues of $10 million and $18 million in the first quarters of 2024 and 2023, respectively, which were included in the short-term contract liability balance at the beginning of each respective period.

NEW ACCOUNTING STANDARDS

Standards that are not yet adopted:

Segment Reporting: In November 2023, the Financial Accounting Standards Board (the “FASB”) issued an accounting standard update that modified the disclosure requirements for all public entities that are required to report segment information. The update will change the reporting of segments by adding significant segment expenses, other segment items, title and position of chief operating decision maker and how they use the reported measures to make decisions. The update also requires all annual disclosures about reportable segment’s profit or loss and assets in interim periods. This accounting update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is evaluating the impact of this new standard and believes that the adoption will result in additional disclosures, but will not have any other impact on its Consolidated Financial Statements.

Income Taxes: In December 2023, the FASB issued an accounting standard update that enhances the transparency and decision usefulness of income tax disclosures by adding effects from state and local taxes, foreign tax, changes in tax laws or rates in current period, cross-border tax laws, tax credits, valuation allowances, nontaxable and nondeductible items, and unrecognized tax benefits. This update will also require separate disclosure for any reconciling items. This accounting update is effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025, with early adoption permitted. The Company is evaluating the impact of this new standard and believes that the adoption will result in additional disclosures, but will not have any other impact on its Consolidated Financial Statements.

NOTE 2. MERGER AND RESTRUCTURING 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 and restructuring 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. The table below summarizes the major components of Merger and restructuring expenses, net.

 

 

First Quarter

 

(In millions)

 

2024

 

 

2023

 

Merger and transaction related expenses

 

 

 

 

 

 

Transaction and integration

 

$

 

 

$

 

Total Merger and transaction related expenses

 

 

 

 

 

 

Restructuring expenses

 

 

 

 

 

 

Severance

 

 

18

 

 

 

 

Professional fees

 

 

6

 

 

 

 

Facility closure, contract termination, and other expenses, net

 

 

3

 

 

 

 

Total Restructuring expenses, net

 

 

27

 

 

 

 

Total Merger and restructuring expenses, net

 

$

27

 

 

$

 

 

9


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

MERGER AND TRANSACTION RELATED EXPENSES

Transaction and integration expenses include legal, accounting, and other third-party expenses incurred in connection with acquisitions. In the first quarter of 2024, the Company did not have any transaction and integration expenses. In the first quarter of 2023, the Company recognized transaction and integration expenses of less than $1 million related to the acquisition of the small independent regional office supply distribution business.

RESTRUCTURING EXPENSES

Project Core

In March 2024, the Company’s Board of Directors approved a restructuring plan to redesign its company-wide low-cost business model approach and create further efficiencies in its business to lower costs (“Project Core”). This was driven by a need to significantly reduce costs due to macroeconomic and other factors impacting the Company’s sales, as well as insights gained following the first year of operations of realignment of its operating segments into four divisions. The scope of Project Core was approved in two phases, in March 2024 and April 2024, and includes cost improvement actions across the entire enterprise, including the Varis Division. It aims to optimize the Company’s organizational structure to support future growth of the business. Project Core is expected to be completed in 2025, with the majority of actions expected to be taken by the end of 2024. Total restructuring costs related to Project Core are estimated to be up to $57 million, of which $35 million are estimated to be termination benefits, which mainly consists of severance, and $22 million are estimated to be costs to facilitate the program, which consists of third-party professional fees, and other incremental employee-related costs to implement actions. All costs of Project Core are expected to be cash expenditures.

In the first quarter of 2024, the Company had $25 million of restructuring costs associated with Project Core. Of these costs, $19 million was severance and $6 million was costs to facilitate the program, which mainly consisted of third-party professional fees. The Company made cash payments of $2 million associated with expenditures for Project Core in the first quarter of 2024.

Maximize B2B Restructuring Plan

Since the inception of the Maximize B2B Restructuring Plan in May 2020, the Company has closed a total of 297 retail stores and two distribution facilities through 2023, with an additional 12 retail stores closed in the first quarter of 2024 under this plan. In the first quarter of 2024, the Company had $2 million of restructuring costs associated with the Maximize B2B Restructuring Plan, and made cash payments of $2 million associated with these expenditures. In the first quarter of 2023, the Company incurred less than $1 million of restructuring costs associated with the Maximize B2B Restructuring Plan, and made cash payments of $3 million associated with expenditures for the Maximize B2B Restructuring Plan.

MERGER AND RESTRUCTURING ACCRUALS

The activity in the merger and restructuring accruals the first quarter of 2024 is presented in the table below. Certain merger and restructuring charges are excluded from the table because they are paid as incurred or non-cash, such as accelerated depreciation and gains and losses on asset dispositions.

 

 

Balance as of

 

 

 

 

 

 

 

 

Balance as of

 

 

 

December 30,

 

 

Charges (credits)

 

 

Cash

 

 

March 30,

 

(In millions)

 

2023

 

 

Incurred

 

 

Payments

 

 

2024

 

Termination benefits:

 

 

 

 

 

 

 

 

 

 

 

 

Project Core

 

$

 

 

$

19

 

 

$

 

 

$

19

 

Maximize B2B Restructuring Plan

 

 

2

 

 

 

(1

)

 

 

 

 

 

1

 

Lease and contract obligations, accruals for facilities
   closures and other costs:

 

 

 

 

 

 

 

 

 

 

 

 

Project Core

 

 

 

 

 

6

 

 

 

(2

)

 

 

4

 

Maximize B2B Restructuring Plan

 

 

3

 

 

 

2

 

 

 

(1

)

 

 

4

 

Comprehensive Business Review

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Total

 

$

6

 

 

$

26

 

 

$

(3

)

 

$

29

 

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.

10


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

NOTE 3. SEGMENT INFORMATION

At March 30, 2024, the Company had four reportable segments:

ODP Business Solutions Division – The Company’s leading B2B distribution solutions provider serving small, medium, and enterprise level companies, including those in the public and education sectors. This segment operates in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada. The ODP Business Solutions Division sells nationally branded, as well as the Company’s private branded, office supply and adjacency products and services to customers, who are served through a dedicated sales force, catalogs, telesales, and electronically through the Company’s Internet websites. Adjacency products and services include cleaning, janitorial, and breakroom supplies, office furniture, technology products, and copy and print services. This segment also includes our Federation entities, which are over 20 regional office supply distribution businesses acquired by the Company as part of its transformation to expand its reach and distribution network into geographic areas that were previously underserved, and which continue to operate under their own brand names. The acquisition of these businesses has allowed for an effective means to expand our distribution reach, target new business customers, and grow our offerings beyond traditional office supplies.

Office Depot Division – The Company’s leading provider of retail consumer and small business products and services distributed through a fully integrated omni-channel platform of 903 Office Depot and OfficeMax retail locations in the United States, Puerto Rico, and the U.S. Virgin Islands, and an eCommerce presence (www.officedepot.com). The Office Depot Division sells office supplies, technology products and solutions, business machines and related supplies, cleaning, breakroom and facilities products, personal protective equipment, and office furniture, as well as offering business services including copying, printing, digital imaging, mailing, shipping, and technology support services. In addition, the print needs for retail and business customers are facilitated through the Company’s regional print production centers.

Veyer Division – The Company’s supply chain, distribution, procurement, and global sourcing operation, which specializes in B2B and consumer business service delivery, with core competencies in distribution, fulfillment, transportation, global sourcing, and purchasing. The Veyer Division’s customers include our Office Depot Division and ODP Business Solutions Division, as well as third-party customers. The Veyer Division also includes the Company’s global sourcing operations in Asia.

Varis Division – The Company’s tech-enabled B2B indirect procurement marketplace, which provides a seamless way for buyers and suppliers to transact through the platform’s consumer-like buying experience, advanced spend management tools, network of suppliers, and technology capabilities. In connection with the Company’s development efforts of this Division, it acquired BuyerQuest Holdings, Inc. (“BuyerQuest”) in 2021, a software as a service eProcurement platform company. BuyerQuest’s operating results are included in the Varis Division. The Varis Division currently serves enterprise businesses and provides its services to middle- and small-sized businesses. It is focused on filling the growing demand for a B2B centric digital commerce platform that is modern, trusted, and provides the procurement controls and visibility businesses require to operate.

On April 24, 2024, management obtained the Board of Directors’ approval and committed to a plan to sell its Varis Division through a single disposal group. The Varis Division disposal group has met the accounting criteria to be classified as held for sale as of April 2024 and will be presented as such in the second quarter of 2024. In addition, the Company expects to present the operating results and cash flows of its Varis Division as discontinued operations for all periods presented in future filings. Refer to Note 12 for additional information.

Division operating income is determined based on the measure of performance reported internally to manage the business and for resource allocation. This measure charges to the respective Divisions those expenses considered directly or closely related to their operations and allocates support costs. Certain operating expenses and credits are not allocated to the Divisions, including asset impairments and merger and restructuring expenses, net, as well as expenses and credits retained at the Corporate level, including certain management costs and legacy pension and environmental matters. Other companies may charge more or less of these items to their segments and results may not be comparable to similarly titled measures used by other entities.

11


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

The following is a summary of sales and operating income (loss) by each of the Divisions, reconciled to consolidated totals:

(In millions)

 

ODP Business Solutions Division

 

 

Office Depot Division

 

 

Veyer Division

 

 

Varis Division

 

 

Eliminations

 

 

Total

 

First Quarter of 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales (external)

 

$

923

 

 

$

937

 

 

$

9

 

 

$

2

 

 

$

 

 

$

1,871

 

Sales (internal)

 

 

3

 

 

 

7

 

 

 

1,235

 

 

 

 

 

 

(1,245

)

 

 

 

Total sales

 

$

926

 

 

$

944

 

 

$

1,244

 

 

$

2

 

 

$

(1,245

)

 

$

1,871

 

Division operating income (loss)

 

$

30

 

 

$

50

 

 

$

9

 

 

$

(14

)

 

$

 

 

$

75

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

First Quarter of 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales (external)

 

$

1,005

 

 

$

1,094

 

 

$

7

 

 

$

2

 

 

$

 

 

$

2,108

 

Sales (internal)

 

 

4

 

 

 

9

 

 

 

1,412

 

 

 

 

 

 

(1,425

)

 

 

 

Total sales

 

$

1,009

 

 

$

1,103

 

 

$

1,419

 

 

$

2

 

 

$

(1,425

)

 

$

2,108

 

Division operating income (loss)

 

$

39

 

 

$

85

 

 

$

15

 

 

$

(17

)

 

$

 

 

$

122

 

The reconciliation of the measure of Division operating income to Consolidated income from continuing operations before income taxes is as follows:

 

 

First Quarter

 

(In millions)

 

2024

 

 

2023

 

Total Divisions operating income

 

$

75

 

 

$

122

 

Add/(subtract):

 

 

 

 

 

 

Asset impairments

 

 

(6

)

 

 

(4

)

Merger and restructuring expenses, net

 

 

(27

)

 

 

 

Unallocated expenses

 

 

(24

)

 

 

(23

)

Interest income

 

 

3

 

 

 

2

 

Interest expense

 

 

(4

)

 

 

(5

)

Other income, net

 

 

 

 

 

2

 

Income from continuing operations before income taxes

 

$

17

 

 

$

94

 

The following table provides information about disaggregated sales by major categories:

 

 

First Quarter

 

(In millions)

 

2024

 

 

2023

 

Major sales categories

 

 

 

 

 

 

Supplies

 

$

929

 

 

$

1,052

 

Technology

 

 

531

 

 

 

616

 

Furniture and other

 

 

253

 

 

 

278

 

Copy and print

 

 

158

 

 

162

 

Total

 

$

1,871

 

 

$

2,108

 

The components of goodwill by segment are as follows:

(In millions)

 

Balance as of December 30, 2023

 

 

Acquisitions

 

 

Balance as of March 30, 2024

 

ODP Business Solutions Division

 

$

149

 

 

$

 

 

$

149

 

Office Depot Division

 

 

219

 

 

 

 

 

 

219

 

Veyer Division

 

 

35

 

 

 

 

 

 

35

 

Total

 

$

403

 

 

$

 

 

$

403

 

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. Each reportable segment also represents a reporting unit. There were no events or changes in circumstances that indicate an impairment may have occurred during the first quarter of 2024. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level. 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 value, resulting in goodwill impairment charges.

12


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

NOTE 4. INCOME TAXES

The Company’s effective tax rate was 12% for the first quarter of 2024, and 23% for the first quarter of 2023. For the first quarter of 2024, the Company’s effective rate was primarily impacted by a tax benefit associated with stock-based compensation awards year-to-date and the settlement of an uncertain tax position for less than the reserve. For the first quarter of 2023, the Company’s effective rate was primarily impacted by the recognition of a tax benefit associated with stock-based compensation awards year-to-date. 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 the Company’s 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.

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 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 $3 million of tax positions will be resolved within the next 12 months. Additionally, the Company anticipates 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.

NOTE 5. EARNINGS PER SHARE

The following table represents the calculation of earnings per common share – basic and diluted:

 

 

First Quarter

 

(In millions, except per share amounts)

 

2024

 

 

2023

 

Basic Earnings Per Share

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net income from continuing operations

 

$

15

 

 

$

72

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

Net income

 

$

15

 

 

$

72

 

Denominator:

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

37

 

 

 

40

 

Basic earnings per share

 

 

 

 

 

 

Continuing operations

 

$

0.42

 

 

$

1.79

 

Discontinued operations

 

 

 

 

 

 

Net basic earnings per share

 

$

0.42

 

 

$

1.79

 

Diluted Earnings Per Share

 

 

 

 

 

 

Numerator:

 

 

 

 

 

 

Net income from continuing operations

 

$

15

 

 

$

72

 

Income from discontinued operations, net of tax

 

 

 

 

 

 

Net income

 

$

15

 

 

$

72

 

Denominator:

 

 

 

 

 

 

Weighted-average shares outstanding

 

 

37

 

 

 

40

 

Effect of dilutive securities:

 

 

 

 

 

 

Stock options and restricted stock

 

 

1

 

 

 

2

 

Diluted weighted-average shares outstanding

 

 

38

 

 

 

42

 

Diluted earnings per share

 

 

 

 

 

 

Continuing operations

 

$

0.40

 

 

$

1.71

 

Discontinued operations

 

 

 

 

 

 

Net diluted earnings per share

 

$

0.40

 

 

$

1.71

 

Awards of stock options and nonvested shares representing additional shares of outstanding common stock were less than one million in both the first quarter of 2024 and the first quarter of 2023, but they were not included in the computation of diluted weighted-average shares outstanding because their effect would have been antidilutive.

13


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

NOTE 6. DEBT

On April 17, 2020, the Company entered into the Third Amended and Restated Credit Agreement (the “Third Amended Credit Agreement”), which provided for a $1.2 billion asset-based revolving credit facility and a $100 million asset-based first-in, last-out term loan facility (the “FILO Term Loan Facility”), for an aggregate principal amount of up to $1.3 billion (the “New Facilities”). The New Facilities mature on April 17, 2025. The Third Amended Credit Agreement replaced the Company’s then existing amended and restated credit agreement that was due to mature in May 2021. In 2022, the Company reduced its 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. During the first quarter of 2023, the Third Amended Credit Agreement was amended to replace the LIBOR-based Eurocurrency reference interest rate option with a reference interest rate option based upon SOFR. Other than the foregoing, the material terms of the Third Amended Credit Agreement remain unchanged.

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. During the first quarter of 2024, the Company elected to draw down $75 million under the Third Amended Credit Agreement for working capital management. This was repaid during the quarter, resulting in no revolving loans outstanding at March 30, 2024. During the first quarter of 2024, the Company retired $53 million of outstanding FILO Term Loan Facility loans under the Third Amended Credit Agreement, resulting in no FILO Term Loan Facility loans at March 30, 2024. This was funded through available liquidity. At March 30, 2024, the Company had $37 million of outstanding standby letters of credit and $689 million of available credit under the Third Amended Credit Agreement. The Company was in compliance with all applicable covenants at March 30, 2024.

NOTE 7. 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 30, 2023

 

$

(31

)

 

$

(83

)

 

$

(114

)

Other comprehensive income (loss) activity

 

 

(4

)