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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 26, 2022

or

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

For the transition period from                     to                    

Commission File Number 1-10948

The ODP Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

 

 

Delaware

85-1457062

(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

 

 

 

6600 North Military Trail, Boca Raton, Florida

33496

(Address of Principal Executive Offices)

(Zip Code)

(561) 438-4800

(Registrant’s Telephone Number, Including Area Code)

 

(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 April 27, 2022, there were 49,196,849 outstanding shares of The ODP Corporation Common Stock, $0.01 par value.


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

 

Page

Condensed Consolidated Statements of Operations (Unaudited)

 

3

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

 

4

Condensed Consolidated Balance Sheets (Unaudited)

 

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

6

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

8

Management’s Discussion and Analysis (MD&A)

 

 

Overview

 

22

Operating Results by Division

 

25

Liquidity and Capital Resources

 

29

New Accounting Standards

 

31

Critical Accounting Policies

 

31

Other Information

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

Controls and Procedures

 

32

Legal Proceedings

 

32

Risk Factors

 

32

Unregistered Sales of Equity Securities and Use of Proceeds

 

33

Exhibits

 

34

Form 10-Q Cross-Reference Index

 

35

Signatures

 

36

 

2


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

 

March 26,

 

 

March 27,

 

 

 

2022

 

 

2021

 

Sales

 

$

2,178

 

 

$

2,174

 

Cost of goods and occupancy costs

 

 

1,694

 

 

 

1,679

 

Gross profit

 

 

484

 

 

 

495

 

Selling, general and administrative expenses

 

 

396

 

 

 

401

 

Asset impairments

 

 

2

 

 

 

12

 

Merger, restructuring and other operating expenses, net

 

 

10

 

 

 

13

 

Operating income

 

 

76

 

 

 

69

 

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

1

 

 

 

 

Interest expense

 

 

(5

)

 

 

(7

)

Other income, net

 

 

2

 

 

 

11

 

Income from continuing operations before income

   taxes

 

 

74

 

 

 

73

 

Income tax expense

 

 

19

 

 

 

10

 

Net income from continuing operations

 

 

55

 

 

 

63

 

Discontinued operations, net of tax

 

 

 

 

 

(10

)

Net income

 

$

55

 

 

$

53

 

Basic earnings (loss) per share

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.14

 

 

$

1.17

 

Discontinued operations

 

 

 

 

 

(0.18

)

Net basic earnings per share

 

$

1.14

 

 

$

0.99

 

Diluted earnings (loss) per share

 

 

 

 

 

 

 

 

Continuing operations

 

$

1.09

 

 

$

1.12

 

Discontinued operations

 

 

 

 

 

(0.17

)

Net diluted earnings per share

 

$

1.09

 

 

$

0.95

 

 

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)

 

 

 

13 Weeks Ended

 

 

 

March 26,

2022

 

 

March 27,

2021

 

Net income

 

$

55

 

 

$

53

 

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

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(1

)

 

 

5

 

Reclassification of foreign currency translation adjustments

   realized upon disposal of business

 

 

6

 

 

 

 

Total other comprehensive income, net of tax, where

   applicable

 

 

5

 

 

 

5

 

Comprehensive income

 

$

60

 

 

$

58

 

 

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)

 

 

 

March 26,

 

 

December 25,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

557

 

 

$

514

 

Receivables, net

 

 

572

 

 

 

495

 

Inventories

 

 

866

 

 

 

859

 

Prepaid expenses and other current assets

 

 

58

 

 

 

52

 

Current assets held for sale

 

 

 

 

 

469

 

Total current assets

 

 

2,053

 

 

 

2,389

 

Property and equipment, net

 

 

466

 

 

 

477

 

Operating lease right-of-use assets

 

 

899

 

 

 

936

 

Goodwill

 

 

464

 

 

 

464

 

Other intangible assets, net

 

 

52

 

 

 

54

 

Deferred income taxes

 

 

209

 

 

 

219

 

Other assets

 

 

386

 

 

 

326

 

Total assets

 

$

4,529

 

 

$

4,865

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

975

 

 

$

950

 

Accrued expenses and other current liabilities

 

 

959

 

 

 

994

 

Income taxes payable

 

 

14

 

 

 

11

 

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

 

 

18

 

 

 

20

 

Current liabilities held for sale

 

 

 

 

 

290

 

Total current liabilities

 

 

1,966

 

 

 

2,265

 

Deferred income taxes and other long-term liabilities

 

 

155

 

 

 

159

 

Pension and postretirement obligations, net

 

 

21

 

 

 

22

 

Long-term debt, net of current maturities

 

 

181

 

 

 

228

 

Operating lease liabilities

 

 

714

 

 

 

753

 

Total liabilities

 

 

3,037

 

 

 

3,427

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

   65,357,585 at March 26, 2022 and 64,704,979 at December 25, 2021;

   outstanding shares — 49,092,644 at March 26, 2022 and 48,455,951 at

   December 25, 2021

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,687

 

 

 

2,692

 

Accumulated other comprehensive loss

 

 

(1

)

 

 

(6

)

Accumulated deficit

 

 

(562

)

 

 

(617

)

Treasury stock, at cost — 16,264,941 shares at March 26, 2022 and 16,249,028

   shares at December 25, 2021

 

 

(633

)

 

 

(632

)

Total stockholders' equity

 

 

1,492

 

 

 

1,438

 

Total liabilities and stockholders’ equity

 

$

4,529

 

 

$

4,865

 

 

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)

 

 

 

13 Weeks Ended

 

 

 

March 26,

 

 

March 27,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

55

 

 

$

53

 

Loss from discontinued operations, net of tax

 

 

 

 

 

(10

)

Net income from continuing operations

 

 

55

 

 

 

63

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

34

 

 

 

38

 

Charges for losses on receivables and inventories

 

 

6

 

 

 

7

 

Asset impairments

 

 

2

 

 

 

12

 

Gain on disposition of assets, net

 

 

(3

)

 

 

 

Compensation expense for share-based payments

 

 

9

 

 

 

10

 

Deferred income taxes and deferred tax asset valuation allowances

 

 

10

 

 

 

6

 

Changes in working capital and other operating activities

 

 

(83

)

 

 

(33

)

Net cash provided by operating activities of continuing operations

 

 

30

 

 

 

103

 

Net cash used in operating activities of discontinued operations

 

 

 

 

 

(17

)

Net cash provided by operating activities

 

 

30

 

 

 

86

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(21

)

 

 

(12

)

Businesses acquired, net of cash acquired

 

 

 

 

 

(28

)

Proceeds from disposition of assets

 

 

6

 

 

 

1

 

Settlement of company-owned life insurance policies

 

 

1

 

 

 

7

 

Net cash used in investing activities of continuing operations

 

 

(14

)

 

 

(32

)

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

 

 

67

 

 

 

(1

)

Net cash provided by (used in) investing activities

 

 

53

 

 

 

(33

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net payments on long and short-term borrowings

 

 

(6

)

 

 

(6

)

Debt retirement

 

 

(43

)

 

 

 

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

 

 

(14

)

 

 

(23

)

Other financing activities

 

 

(1

)

 

 

(1

)

Net cash used in financing activities of continuing operations

 

 

(64

)

 

 

(30

)

Effect of exchange rate changes on cash and cash equivalents

 

 

1

 

 

 

1

 

Net increase in cash and cash equivalents

 

 

20

 

 

 

24

 

Cash and cash equivalents at beginning of period

 

 

537

 

 

 

729

 

Cash and cash equivalents at end of period – continuing operations

 

$

557

 

 

$

753

 

Supplemental information on non-cash investing and financing activities

 

 

 

 

 

 

 

 

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

 

$

35

 

 

$

10

 

Business acquired in exchange for common stock issuance

 

 

 

 

 

35

 

Other current receivable obtained from disposition of discontinued operations

 

 

30

 

 

 

 

Promissory note receivable obtained from disposition of discontinued operations

 

 

55

 

 

 

 

Earn-out receivable obtained from disposition of discontinued operations

 

 

9

 

 

 

 

 

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)

 

 

 

13 Weeks Ended March 26, 2022

 

 

 

Common

Stock

Shares

 

 

Common

Stock

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Treasury

Stock

 

 

Total

Equity

 

Balance at December 25, 2021

 

 

64,704,979

 

 

$

1

 

 

$

2,692

 

 

$

(6

)

 

$

(617

)

 

$

(632

)

 

$

1,438

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

55

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

652,606

 

 

 

 

 

 

(14

)

 

 

 

 

 

 

 

 

 

 

 

(14

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

(1

)

Balance at March 26, 2022

 

 

65,357,585

 

 

$

1

 

 

$

2,687

 

 

$

(1

)

 

$

(562

)

 

$

(633

)

 

$

1,492

 

 

 

 

 

13 Weeks Ended March 27, 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

 

 

62,551,255

 

 

$

1

 

 

$

2,675

 

 

$

(32

)

 

$

(409

)

 

$

(355

)

 

$

1,880

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

 

 

 

53

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

1,225,876

 

 

 

 

 

 

(23

)

 

 

 

 

 

 

 

 

 

 

 

(23

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

10

 

Common stock issuance related to the

   BuyerQuest acquisition

 

 

827,498

 

 

 

 

 

 

35

 

 

 

 

 

 

 

 

 

 

 

 

35

 

Balance at March 27, 2021

 

 

64,604,629

 

 

$

1

 

 

$

2,697

 

 

$

(27

)

 

$

(356

)

 

$

(355

)

 

$

1,960

 

 

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 1,032 retail stores, all supported by supply chain facility and delivery operations. Through its banner brands Office Depot®, OfficeMax® and Grand & Toy®, as well as others, the Company offers its customers the tools and resources they need to focus on starting, growing and running their business. The Company’s corporate headquarters is located in Boca Raton, FL, and its primary website is www.officedepot.com.

At March 26, 2022, the Company had two reportable segments (or “Divisions”): Business Solutions Division and Retail Division. The Company’s CompuCom Division was sold through a single disposal group on December 31, 2021. The Company has reclassified the financial results of the CompuCom Division to Discontinued operations, net of tax in the Condensed Consolidated Statements of Operations for all periods presented. The Company also reclassified the related assets and liabilities as assets and liabilities held for sale on the accompanying Condensed Consolidated Balance Sheets as of December 25, 2021, and presented cash flows from the Company’s discontinued operations in the Condensed Consolidated Statements of Cash Flows for all periods. Refer to Note 12 for additional information.

The Condensed Consolidated Financial Statements as of March 26, 2022, and for the 13-week period ended March 26, 2022 (also referred to as the “first quarter of 2022”) and March 27, 2021 (also referred to as the “first quarter of 2021”) 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.

PLANNED SEPARATION OF CONSUMER BUSINESS

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.

The Company’s Board of Directors is carefully reviewing both proposals with the assistance of its financial and legal advisors to determine the course of action that it believes is in the best interests of the Company and its shareholders. While the Company has previously been focusing on completing the public company separation during the first half of 2022, it has determined to delay further work on the spin-off while it focuses on a potential sale of the consumer business. There can be no assurance that a sale of the consumer business will take place and the terms of any such sale.

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 $9 million at March 26, 2022 are presented in Trade accounts payable and Accrued expenses and other current liabilities, and $1 million at December 25, 2021 are presented in Current liabilities held for sale.

8

 


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

 

At March 26, 2022 and December 25, 2021, cash and cash equivalents held outside the United States amounted to $121 million and $108 million, respectively. At December 25, 2021, there was $17 million cash and cash equivalents held outside the United States included in Current assets held for sale.

 

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. The table below summarizes the major components of Merger, restructuring and other operating expenses, net.

 

 

 

First Quarter

 

(In millions)

 

2022

 

 

2021

 

Merger and transaction related expenses

 

 

 

 

 

 

 

 

Transaction and integration

 

$

 

 

$

1

 

Total Merger and transaction related expenses

 

 

 

 

 

1

 

Restructuring expenses

 

 

 

 

 

 

 

 

Severance

 

 

 

 

 

1

 

Professional fees

 

 

 

 

 

1

 

Facility closure, contract termination, and other expenses, net

 

 

1

 

 

 

9

 

Total Restructuring expenses, net

 

 

1

 

 

 

11

 

Other operating expenses

 

 

 

 

 

 

 

 

Professional fees

 

 

9

 

 

 

1

 

Total Other operating expenses

 

 

9

 

 

 

1

 

Total Merger, restructuring and other operating expenses, net

 

$

10

 

 

$

13

 

 

MERGER AND TRANSACTION RELATED EXPENSES

In the first quarter of 2022, the Company did not incur any transaction and integration expenses. In the first quarter of 2021, the Company incurred transaction and integration expenses of $1 million, primarily related to its acquisition of BuyerQuest Holdings, Inc. (“BuyerQuest”), which is part of its Varis Division.

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 13,100 employee positions by the end of 2023. The Company is evaluating the number and timing of retail store and distribution facility closures and/or consolidations. However, it is generally understood that closures will approximate the store’s lease termination date. The Company closed 6 retail stores during the first quarter of 2022, 111 retail stores in 2021, and 70 retail stores and two distribution facilities in 2020 under the Maximize B2B Restructuring Plan. It is anticipated that additional retail stores will be closed in 2022. Total estimated restructuring costs related to the Maximize B2B Restructuring Plan are expected to be up to $111 million, comprised of:

 

(a)

severance costs of approximately $49 million;

 

(b)

facility closure costs of approximately $34 million, which are mainly related to retail stores; and

 

(c)

other costs, including contract termination costs, to facilitate the execution of the Maximize B2B Restructuring Plan of approximately $28 million.

The total costs of up to $111 million above are less than the Company’s estimate of total costs for this restructuring plan when it commenced, mainly as a result of the reduction in the number of expected retail store and distribution facility closures based upon the Company’s most recent evaluation of economic factors that influence expected store closures. There could be further fluctuations in the estimate of total expected costs in the future and timing of such costs as a result of an assessment of general market conditions and

9

 


THE ODP CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited) – (Continued)

 

changes in the Company’s business strategy, including the potential sale of the consumer business or the Separation described in Note 1 above. In addition, the reduction of employee positions may also be impacted as a result of fewer retail store closures and the changes in the Company’s business strategy. The $111 million of total costs are expected to be incurred as cash expenditures through 2023 and funded primarily with cash on hand and cash from operations. The Company incurred $96 million in restructuring expenses to implement the Maximize B2B Restructuring Plan since its inception in 2020 and through the first quarter of 2022, of which $55 million were cash expenditures.

In the first quarter of 2022, the Company incurred $1 million, net, in restructuring expenses associated with the Maximize B2B Restructuring Plan, which consisted of facility closure and other costs. The Company had $2 million of cash expenditures in the first quarter of 2022 associated with the Maximize B2B Restructuring Plan.

In the first quarter of 2021, the Company incurred $11 million in restructuring expenses associated with the Maximize B2B Restructuring Plan, which consisted of $1 million in employee severance, $1 million in third-party professional fees, and $9 million of retail store and facility closure costs, contract termination and other that were mainly related to closure accruals, gains and losses on asset dispositions, and accelerated depreciation. Of these amounts, $4 million was cash expenditures in the first quarter of 2021.

OTHER OPERATING EXPENSES

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, through a spin-off of its consumer business. Since then, the Company has incurred costs related to activities to separate its consumer business, which included third-party professional fees, as well as costs associated with the operational separation of the two companies, such as those related to human resources, brand management, real estate and IT infrastructure. As described in Note 1 above, 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. The Company’s Board of Directors is carefully reviewing these proposals with the assistance of its financial and legal advisors to determine the course of action that it believes is in the best interests of the Company and its shareholders. The Company incurred $9 million in third party professional fees in the first quarter of 2022 related to separation activities. The Company had incurred $32 million in third-party professional fees associated with separation activities in 2021. The Company expects to continue to incur additional costs for separation activities in the event such potential sale transaction is completed or the spin-off resumes, and currently estimates that total costs related to the separation activities will exceed $100 million, although such estimate is subject to a number of assumptions and uncertainties.

Other operating expenses of $1 million in the first quarter of 2021 represent third-party professional fees incurred related to the evaluation of USR Parent, Inc.’s proposals received during the first quarter of 2021.

MERGER, RESTRUCTURING AND OTHER ACCRUALS

The activity in the merger, restructuring and other accruals in the first quarter of 2022 is presented in the table below. Certain merger, restructuring and other 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 25,

 

 

Charges (credits)

 

 

Cash

 

 

March 26,

 

(In millions)

 

2021

 

 

Incurred

 

 

Payments

 

 

2022

 

Termination benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximize B2B Restructuring Plan

 

 

19

 

 

 

 

 

 

 

 

 

19

 

Lease and contract obligations, accruals for facilities

   closures and other costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximize B2B Restructuring Plan

 

 

6

 

 

 

1

 

 

 

(2

)

 

 

5

 

Comprehensive Business Review

 

 

1

 

 

 

 

 

 

 

 

 

1

 

Planned separation of consumer business

 

 

2

 

 

 

9

 

 

 

(5

)

 

 

6

 

Total

 

$

28

 

 

$

10

 

 

$

(7

)

 

$

31

 

 

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. 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.

 

 

 

First Quarter of 2022

 

(In millions)

 

Business Solution

Division

 

 

Retail

Division

 

 

Other

 

 

Total

 

Major revenue categories