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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 September 26, 2020

or

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

For the transition period from                     to                    

Commission File Number 1-10948

The ODP Corporation

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Delaware

85-1457062

(State or Other Jurisdiction of Incorporation or Organization)

(IRS Employer Identification No.)

 

 

 

6600 North Military Trail, Boca Raton, Florida

33496

(Address of Principal Executive Offices)

(Zip Code)

(561) 438-4800

(Registrant’s Telephone Number, Including Area Code)

 

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

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

Title of Each Class

 

Trading

Symbol(s)

 

Name of Each Exchange on which Registered

Common Stock, par value $0.01 per share

 

ODP

 

The NASDAQ Stock Market

(NASDAQ Global Select Market)

Preferred Shares Purchase Rights

 

N/A

 

The NASDAQ Stock Market

(NASDAQ Global Select Market)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

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

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

The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At October 28, 2020, there were 52,674,589 outstanding shares of The ODP Corporation (the successor issuer pursuant to Rule 12g-3(a) under the Exchange Act as of June 30, 2020) (“ODP”) Common Stock, $0.01 par value.

1


 

TABLE OF CONTENTS

 

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

 

Financial Statements

 

Page

Condensed Consolidated Statements of Operations (Unaudited)

 

3

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

 

4

Condensed Consolidated Balance Sheets (Unaudited)

 

5

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

6

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

 

7

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

9

Management’s Discussion and Analysis (MD&A)

 

 

Overview

 

27

Operating Results by Division

 

31

Liquidity and Capital Resources

 

37

New Accounting Standards

 

39

Critical Accounting Policies

 

40

Other Information

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

41

Controls and Procedures

 

41

Legal Proceedings

 

42

Risk Factors

 

42

Unregistered Sales of Equity Securities and Use of Proceeds

 

43

Exhibits

 

44

Form 10-Q Cross-Reference Index

 

45

Signatures

 

46

EX 2.1

EX 3.1

EX 3.2

EX 3.3

EX 3.4

EX 3.5

EX 4.1

EX 4.2

EX 10.1

 

 

EX 10.2

EX 31.1

 

 

EX 31.2

EX 32

 

 

EX 101

 

 

EX 104

 

 

 

2


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 26,

 

 

September 28,

 

 

September 26,

 

 

September 28,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

$

2,209

 

 

$

2,377

 

 

$

6,403

 

 

$

6,921

 

Services

 

 

330

 

 

 

405

 

 

 

1,019

 

 

 

1,218

 

Total sales

 

 

2,539

 

 

 

2,782

 

 

 

7,422

 

 

 

8,139

 

Cost of goods and occupancy costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products

 

 

1,727

 

 

 

1,840

 

 

 

5,086

 

 

 

5,412

 

Services

 

 

222

 

 

 

275

 

 

 

701

 

 

 

834

 

Total cost of goods and occupancy costs

 

 

1,949

 

 

 

2,115

 

 

 

5,787

 

 

 

6,246

 

Gross profit

 

 

590

 

 

 

667

 

 

 

1,635

 

 

 

1,893

 

Selling, general and administrative expenses

 

 

452

 

 

 

532

 

 

 

1,378

 

 

 

1,621

 

Asset impairments

 

 

10

 

 

 

5

 

 

 

423

 

 

 

50

 

Merger and restructuring expenses, net

 

 

26

 

 

 

22

 

 

 

107

 

 

 

105

 

Operating income (loss)

 

 

102

 

 

 

108

 

 

 

(273

)

 

 

117

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

5

 

 

 

3

 

 

 

16

 

Interest expense

 

 

(6

)

 

 

(22

)

 

 

(35

)

 

 

(68

)

Loss on extinguishment and modification of debt

 

 

 

 

 

 

 

 

(12

)

 

 

 

Other income, net

 

 

3

 

 

 

2

 

 

 

7

 

 

 

7

 

Income (loss) before income taxes

 

 

99

 

 

 

93

 

 

 

(310

)

 

 

72

 

Income tax expense

 

 

42

 

 

 

33

 

 

 

27

 

 

 

28

 

Net income (loss)

 

$

57

 

 

$

60

 

 

$

(337

)

 

$

44

 

Earnings (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.07

 

 

$

1.09

 

 

$

(6.40

)

 

$

0.81

 

Diluted

 

$

1.04

 

 

$

1.09

 

 

$

(6.40

)

 

$

0.79

 

 

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

 

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

3


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions)

(Unaudited)

 

 

 

13 Weeks Ended

 

 

39 Weeks Ended

 

 

 

September 26,

2020

 

 

September 28,

2019

 

 

September 26,

2020

 

 

September 28,

2019

 

Net income (loss)

 

$

57

 

 

$

60

 

 

$

(337

)

 

$

44

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

9

 

 

 

(9

)

 

 

(19

)

 

 

6

 

Other

 

 

 

 

 

 

 

 

(1

)

 

 

1

 

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

   applicable

 

 

9

 

 

 

(9

)

 

 

(20

)

 

 

7

 

Comprehensive income (loss)

 

$

66

 

 

$

51

 

 

$

(357

)

 

$

51

 

 

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

4


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts)

 

 

 

September 26,

 

 

December 28,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

743

 

 

$

698

 

Receivables, net

 

 

661

 

 

 

823

 

Inventories

 

 

1,000

 

 

 

1,032

 

Prepaid expenses and other current assets

 

 

76

 

 

 

75

 

Timber notes receivable

 

 

 

 

 

819

 

Total current assets

 

 

2,480

 

 

 

3,447

 

Property and equipment, net

 

 

602

 

 

 

679

 

Operating lease right-of-use assets

 

 

1,209

 

 

 

1,413

 

Goodwill

 

 

605

 

 

 

944

 

Other intangible assets, net

 

 

360

 

 

 

388

 

Deferred income taxes

 

 

170

 

 

 

183

 

Other assets

 

 

319

 

 

 

257

 

Total assets

 

$

5,745

 

 

$

7,311

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Trade accounts payable

 

$

1,038

 

 

$

1,026

 

Accrued expenses and other current liabilities

 

 

1,197

 

 

 

1,219

 

Income taxes payable

 

 

31

 

 

 

8

 

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

 

 

21

 

 

 

106

 

Non-recourse debt

 

 

 

 

 

735

 

Total current liabilities

 

 

2,287

 

 

 

3,094

 

Deferred income taxes and other long-term liabilities

 

 

199

 

 

 

176

 

Pension and postretirement obligations, net

 

 

73

 

 

 

85

 

Long-term debt, net of current maturities

 

 

354

 

 

 

575

 

Operating lease liabilities

 

 

1,037

 

 

 

1,208

 

Total liabilities

 

 

3,950

 

 

 

5,138

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

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

   62,528,954 at September 26, 2020 and 62,042,477 at December 28, 2019;

   outstanding shares — 52,671,761 at September 26, 2020 and 53,518,232 at

   December 28, 2019

 

 

1

 

 

 

1

 

Additional paid-in capital

 

 

2,662

 

 

 

2,652

 

Accumulated other comprehensive loss

 

 

(86

)

 

 

(66

)

Accumulated deficit

 

 

(427

)

 

 

(89

)

Treasury stock, at cost — 9,857,193 shares at September 26, 2020 and 8,524,245

   shares at December 28, 2019

 

 

(355

)

 

 

(325

)

Total stockholders' equity

 

 

1,795

 

 

 

2,173

 

Total liabilities and stockholders’ equity

 

$

5,745

 

 

$

7,311

 

 

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

5


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

39 Weeks Ended

 

 

 

September 26,

 

 

September 28,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(337

)

 

$

44

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

143

 

 

 

154

 

Amortization of debt discount and issuance costs

 

 

2

 

 

 

6

 

Charges for losses on receivables and inventories

 

 

27

 

 

 

22

 

Asset impairments

 

 

423

 

 

 

50

 

Loss on disposition of assets, net

 

 

6

 

 

 

2

 

Loss on extinguishment and modification of debt

 

 

12

 

 

 

 

Compensation expense for share-based payments

 

 

28

 

 

 

25

 

Deferred income taxes and deferred tax asset valuation allowances

 

 

11

 

 

 

23

 

Contingent consideration payments in excess of acquisition-date liability

 

 

(2

)

 

 

(11

)

Changes in working capital and other operating activities

 

 

176

 

 

 

(101

)

Net cash provided by operating activities

 

 

489

 

 

 

214

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(54

)

 

 

(123

)

Businesses acquired, net of cash acquired

 

 

(28

)

 

 

(21

)

Proceeds from collection of notes receivable

 

 

818

 

 

 

 

Other investing activities

 

 

10

 

 

 

2

 

Net cash provided by (used in) investing activities

 

 

746

 

 

 

(142

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net payments on long and short-term borrowings

 

 

(337

)

 

 

(74

)

Debt retirement

 

 

(1,196

)

 

 

 

Debt issuance

 

 

400

 

 

 

 

Cash dividends on common stock

 

 

(13

)

 

 

(41

)

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

 

 

(5

)

 

 

(9

)

Repurchase of common stock for treasury

 

 

(30

)

 

 

(11

)

Contingent consideration payments up to amount of acquisition-date liability

 

 

(1

)

 

 

(12

)

Other financing activities

 

 

(6

)

 

 

2

 

Net cash used in financing activities

 

 

(1,188

)

 

 

(145

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(4

)

 

 

3

 

Net increase (decrease) in cash and cash equivalents

 

 

43

 

 

 

(70

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

700

 

 

 

660

 

Cash, cash equivalents and restricted cash at end of period

 

$

743

 

 

$

590

 

Supplemental information

 

 

 

 

 

 

 

 

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

 

$

22

 

 

$

21

 

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

 

 

85

 

 

 

211

 

 

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

6


 

THE ODP CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except share and per share amounts)

(Unaudited)

 

 

 

39 Weeks Ended September 26, 2020

 

 

 

Common

Stock

Shares

 

 

Common

Stock

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Treasury

Stock

 

 

Total

Equity

 

Balance at December 28, 2019

 

 

62,042,477

 

 

$

1

 

 

$

2,652

 

 

$

(66

)

 

$

(89

)

 

$

(325

)

 

$

2,173

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(42

)

 

 

 

 

 

 

 

 

(42

)

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

426,591

 

 

 

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

 

 

(4

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

7

 

Dividends paid on common stock

   ($0.25 per share)

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

(13

)

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(30

)

 

 

(30

)

Adjustment for adoption of accounting

   standard

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Balance at March 28, 2020

 

 

62,469,068

 

 

$

1

 

 

$

2,642

 

 

$

(108

)

 

$

(45

)

 

$

(355

)

 

$

2,135

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(439

)

 

 

 

 

 

(439

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Exercise and release of incentive stock

   (including income tax benefits and

   withholding)

 

 

45,478

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

(1

)

Amortization of long-term incentive

   stock grants

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

9

 

Balance at June 27, 2020

 

 

62,514,546

 

 

$

1

 

 

$

2,650

 

 

$

(95

)

 

$

(484

)

 

$

(355

)

 

$

1,717

 

Net income