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:
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 |
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 ☐ No
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At May 3, 2023, 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.
Financial Statements |
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3 |
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Condensed Consolidated Statements of Comprehensive Income (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 |
Notes to Condensed Consolidated Financial Statements (Unaudited) |
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8 |
Management’s Discussion and Analysis (MD&A) |
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19 |
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22 |
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27 |
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29 |
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29 |
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Other Information |
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30 |
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30 |
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30 |
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30 |
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32 |
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33 |
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34 |
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35 |
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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April 1, |
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March 26, |
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2023 |
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2022 |
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Sales |
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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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— |
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Operating income |
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Other income (expense): |
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Interest income |
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Interest expense |
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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 |
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$ |
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$ |
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Basic earnings per share |
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Continuing operations |
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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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Diluted earnings per share |
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Continuing operations |
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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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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 March 1, 2023 (the “2022 Form 10-K”).
3
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(Unaudited)
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13 Weeks Ended |
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April 1, |
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March 26, |
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Net income |
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$ |
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$ |
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Other comprehensive income, net of tax, where applicable: |
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Foreign currency translation adjustments |
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( |
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Reclassification of foreign currency translation adjustments |
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— |
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Total other comprehensive income, net of tax, where |
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Comprehensive income |
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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 2022 Form 10-K.
4
THE ODP CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share and per share amounts)
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April 1, |
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December 31, |
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2023 |
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2022 |
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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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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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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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Stockholders' equity: |
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Common stock — authorized |
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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 — |
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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 2022 Form 10-K.
5
THE ODP CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
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13 Weeks Ended |
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April 1, |
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March 26, |
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2023 |
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2022 |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Income from discontinued operations, net of tax |
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— |
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— |
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Net income from continuing operations |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of debt discount and issuance costs |
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— |
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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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Net cash provided by operating activities of continuing operations |
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Net cash provided by operating activities of discontinued operations |
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— |
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— |
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Net cash provided by operating activities |
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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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— |
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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 investing activities of discontinued operations |
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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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Debt issuance |
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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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Net cash used in financing activities of discontinued operations |
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— |
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— |
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Net cash used in financing activities |
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( |
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( |
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Effect of exchange rate changes on cash, cash equivalents and restricted cash |
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— |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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( |
) |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period |
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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 operating lease liabilities |
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$ |
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$ |
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Promissory note receivable obtained from disposition of discontinued operations |
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Earn-out receivable obtained from disposition of discontinued operations |
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Cash interest paid, net of amounts capitalized and non-recourse debt |
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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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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 2022 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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13 Weeks Ended April 1, 2023 |
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Common |
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Common |
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Additional |
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Accumulated |
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Accumulated |
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Treasury |
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Total |
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Balance at December 31, 2022 |
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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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Net income |
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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 comprehensive income |
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— |
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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 |
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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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Amortization of long-term incentive |
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— |
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— |
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— |
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— |
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— |
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Repurchase of common stock |
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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 April 1, 2023 |
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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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13 Weeks Ended March 26, 2022 |
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Common |
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Common |
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Additional |
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Accumulated |
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Accumulated |
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Treasury |
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Total |
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Balance at December 25, 2021 |
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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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Net income |
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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 comprehensive income |
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— |
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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 |
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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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Amortization of long-term incentive |
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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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( |
) |
Balance at March 26, 2022 |
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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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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 2022 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, LLC, The ODP Corporation empowers every business, professional, and consumer to achieve more every day.
The Company has
The Company’s CompuCom Division was sold through a single disposal group on December 31, 2021. The Company has presented cash flows from the sale of the CompuCom Division as discontinued operations in the Condensed Consolidated Statements of Cash Flows for all periods. There was no impact of discontinued operations on the Condensed Consolidated Statement of Operations for the periods presented in this Quarterly Report on Form 10-Q. Refer to Note 12 for additional information.
The Condensed Consolidated Financial Statements as of April 1, 2023, and for the 13-week period ended April 1, 2023 (also referred to as the “first quarter of 2023”) and March 26, 2022 (also referred to as the “first quarter of 2022”) 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 made a business acquisition in 2023 which is included prospectively from the date of acquisition, thus affecting the comparability of the Company’s financial statements for the periods presented in this Quarterly Report on Form 10-Q. Refer to Note 2 for additional information.
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 2022 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 $
At April 1, 2023 and December 31, 2022, cash and cash equivalents held outside the United States amounted to $
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 $
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 4 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.
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April 1, |
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December 31, |
|
||
(In millions) |
|
2023 |
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2022 |
|
||
Trade receivables, net |
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|
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Short-term contract assets |
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Long-term contract assets |
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Short-term contract liabilities |
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Long-term contract liabilities |
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— |
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— |
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The Company recognized revenues of $
NOTE 2. ACQUISITIONS
Since 2017, the Company has been acquiring profitable regional office supply distribution businesses to expand its reach and distribution network into geographic areas that were previously underserved. In January 2023, the Company acquired a small independent regional office supply distribution business in the U.S. The Company’s strategy has been to acquire businesses with purchase prices ranging from $
The acquisition was treated as a purchase in accordance with ASC 805, Business Combinations (“ASC 805”) which requires allocation of the purchase price to the estimated fair values of assets and liabilities acquired in the transactions including goodwill and other intangible assets. The Company has performed a preliminary purchase price allocation of the aggregate purchase price to the estimated fair values of assets and liabilities acquired in the transactions. The preliminary purchase price allocation for the acquired office supply distribution business includes $
Under the business combinations accounting guidance, merger and integration costs are not included as components of consideration transferred. Instead, they are accounted for as expenses in the period in which the costs are incurred. Transaction-related expenses are included in the Merger, restructuring and other operating expenses, net line in the Condensed Consolidated Statements of Operations. Refer to Note 3 for additional information about the merger, restructuring and other operating expenses incurred during the first quarter of 2023.
9
THE ODP CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) – (Continued)
NOTE 3. 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.
|
|
First Quarter |
|
|||||
(In millions) |
|
2023 |
|
|
2022 |
|
||
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 |
|
$ |
— |
|
||||