[Forward-Looking Statements](index=4&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements within the report, emphasizing inherent risks and the company's disclaimer on future updates - This Annual Report contains forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties[7](index=7&type=chunk) - Future operations and financial results may differ materially from discussions in this report due to various factors, and the Company disclaims any obligation to publicly update or revise these statements, except as required by law[8](index=8&type=chunk) [Fundamentals of Our Business](index=5&type=section&id=FUNDAMENTALS%20OF%20OUR%20BUSINESS) This section provides an overview of ODP Corporation's business structure, capital, strategic initiatives, and management team [The Company](index=5&type=section&id=The%20Company) The ODP Corporation is a leading provider of products, services, and technology solutions through an integrated B2B distribution platform and omni-channel presence - ODP Corporation is a leading provider of products, services, and technology solutions via an integrated B2B distribution platform and omni-channel presence[11](index=11&type=chunk) - The company re-aligned its operations in 2022 into four business units: Office Depot, ODP Business Solutions, Veyer, and Varis, following a decision to maintain all businesses under common ownership instead of pursuing a separation or sale of the consumer business[13](index=13&type=chunk)[15](index=15&type=chunk)[17](index=17&type=chunk) - The fiscal year ends on the last Saturday in December, with fiscal year 2022 having 53 weeks, ending December 31, 2022, while 2021 and 2020 had 52 weeks[14](index=14&type=chunk) [How We Organize Our Business](index=7&type=section&id=HOW%20WE%20ORGANIZE%20OUR%20BUSINESS) As of December 31, 2022, ODP Corporation operates through four reportable segments: ODP Business Solutions Division, Office Depot Division, Veyer Division, and Varis Division. This re-alignment occurred in 2022, following the sale of the CompuCom Division in Q1 2022, to better focus on customer needs and enhance accountability - As of December 31, 2022, operations are organized into four reportable segments: ODP Business Solutions, Office Depot, Veyer, and Varis Divisions[21](index=21&type=chunk) - The CompuCom Division was sold in the first quarter of 2022, leading to the current four-segment structure[21](index=21&type=chunk) [ODP Business Solutions Division](index=7&type=section&id=ODP%20BUSINESS%20SOLUTIONS%20DIVISION) The ODP Business Solutions Division is a leading B2B distribution solutions provider for small, medium, and enterprise-level companies, including public and education sectors. It offers nationally and private-branded office supplies and adjacency products (e.g., cleaning, furniture, technology, print services) through various channels, including a dedicated sales force and e-commerce. Key initiatives in 2022 focused on expanding margins, growing adjacency categories, and increasing cash flows, notably through its Federation strategy of acquiring regional distributors - ODP Business Solutions Division serves B2B customers (small, medium, enterprise, public, education) with office supplies and adjacency products/services (cleaning, janitorial, breakroom, office furniture, technology, copy/print)[22](index=22&type=chunk) - The division expanded its reach and distribution network through the 'Federation' strategy, acquiring over a dozen regional office supply distribution businesses[22](index=22&type=chunk) - In 2022, initiatives included maintaining strength in traditional office supplies, expanding the customer base, driving sales in adjacency categories, providing a customizable digital experience, partnering with vendors for new products, and continuing the Federation strategy[23](index=23&type=chunk) [Office Depot Division](index=7&type=section&id=OFFICE%20DEPOT%20DIVISION) The Office Depot Division is a leading retail provider for consumers and small businesses, operating 980 Office Depot and OfficeMax stores and an e-commerce platform (officedepot.com) across the U.S., Puerto Rico, and U.S. Virgin Islands. It offers a wide range of products and services, including office supplies, technology, furniture, and business services like copying and printing. In 2022, the division focused on expanding product assortments, integrating omni-channel assets, optimizing store footprint, and managing expenses, while continuing store closures under the Maximize B2B Restructuring Plan (237 stores closed since inception) - The Office Depot Division operates **980 retail locations** and an eCommerce presence (www.officedepot.com), serving retail consumers and small businesses[24](index=24&type=chunk) - Key initiatives in 2022 included expanding offerings to new adjacencies (arts and crafts, home office décor), integrating omni-channel assets, optimizing store footprint, and managing expenses[25](index=25&type=chunk) - Since the implementation of the Maximize B2B Restructuring Plan, **237 retail stores have been closed** through the end of 2023[27](index=27&type=chunk) [Veyer Division](index=8&type=section&id=VEYER%20DIVISION) The Veyer Division manages ODP's supply chain, distribution, procurement, and global sourcing, serving both B2B and consumer businesses, as well as third-party customers. It boasts a network of over 100 facilities, including 64 distribution centers, 9 million square feet of space, and a private fleet of approximately 600 vehicles, enabling 98.5% next-day service coverage in the U.S. In 2022, Veyer focused on delivering exceptional service, growing with new clients (including 3PL), modernizing functionality with automation, and driving a low-cost business model - Veyer Division handles supply chain, distribution, procurement, and global sourcing for ODP's divisions and third-party customers[28](index=28&type=chunk) - The division operates over **100 facilities**, including **64 distribution centers**, with over **9 million square feet of space**, and a private fleet of approximately **600 vehicles**, achieving **98.5% next-day service coverage** in the U.S[28](index=28&type=chunk) - In 2022, Veyer focused on delivering competitive pricing and service, growing with new clients (including 3PL), modernizing operations with automated technology, and driving a low-cost business model[29](index=29&type=chunk) [Varis Division](index=8&type=section&id=VARIS%20DIVISION) The Varis Division is a tech-enabled B2B indirect procurement marketplace, acquired BuyerQuest Holdings, Inc. in 2021 to enhance its eProcurement platform. It aims to provide a modern, trusted digital commerce platform with a consumer-like buying experience and advanced spend management tools for enterprise, middle-sized, and small businesses - Varis Division is a tech-enabled B2B indirect procurement marketplace, providing a platform for buyers and suppliers[30](index=30&type=chunk) - The division acquired BuyerQuest Holdings, Inc. in 2021 to support its eProcurement platform development[30](index=30&type=chunk) [Our Capital](index=9&type=section&id=Our%20Capital) ODP Corporation's capital includes its intellectual property, such as brand names like Office Depot® and TUL®, and its human capital. As of January 28, 2023, the company had approximately 25,000 full-time and part-time employees, a decrease from 26,000 in the prior year due to store closures and cost reduction. The company emphasizes attracting, retaining, and developing talent, fostering a 5C culture (customer, commitment, creativity, change, caring), and promoting diversity and inclusion - ODP operates under various brand names including Office Depot®, OfficeMax®, Grand & Toy®, TUL®, Ativa®, Foray®, Realspace®, WorkPro®, Brenton Studio®, Highmark®, and Juku®[32](index=32&type=chunk) - As of January 28, 2023, the company had approximately **25,000 full-time and part-time employees**, down from 26,000 in January 2022, primarily due to planned store closures and cost reduction measures[33](index=33&type=chunk) - The company's human capital management objectives focus on attracting, retaining, and developing talent, driven by a '5C culture' (customer, commitment, creativity, change, caring) and a commitment to diversity and inclusion[33](index=33&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) [Our Strategy](index=9&type=section&id=Our%20Strategy) ODP's strategy encompasses supply chain management, merchandising, sales and marketing, and a focus on ESG. The Veyer Division manages a robust supply chain with over 100 facilities. Merchandising focuses on a broad selection of national and private-branded products across four categories: supplies, technology, furniture, and copy/print. Sales and marketing efforts are increasingly digital, aiming to drive demand and build brand awareness. The business experiences seasonality, with sales generally lower in Q2. ODP operates in a highly competitive market, emphasizing customer service, product selection, and convenience. ESG initiatives are central to its operations, focusing on environmental responsibility, social impact, and governance Total Company Sales by Offering Category (2020-2022) | Major revenue categories | 2022 | 2021 | 2020 | | :----------------------- | :----- | :----- | :----- | | Supplies | 48.8% | 45.1% | 45.2% | | Technology | 29.0% | 32.6% | 34.0% | | Furniture and other | 14.8% | 15.4% | 14.4% | | Copy and print | 7.4% | 6.9% | 6.4% | | Total | 100.0% | 100.0% | 100.0% | - The company's supply chain, managed by the Veyer Division, includes **64 DCs and crossdock facilities** and over **100 distribution network facilities** as of December 31, 2022[38](index=38&type=chunk) - Marketing efforts have shifted significantly to digital programs, including social media and digital videos, to increase demand generation and audience targeting, while also continuing traditional advertising[45](index=45&type=chunk) - The business experiences seasonality, with sales generally lower in the second quarter, following the 'back-to-business' cycle in Q1 and preceding 'back-to-school' (Q3) and holiday (Q4) sales cycles[48](index=48&type=chunk) - ODP operates in a highly competitive environment, competing with various retailers and online platforms based on price, customer service, product selection, and convenience[49](index=49&type=chunk) - ESG issues are integral to the company's success, with a 'triple bottom line' approach (Planet, People, Prosperity) and Board oversight of its Sustainability Program[51](index=51&type=chunk) [Who Manages Our Business](index=12&type=section&id=WHO%20MANAGES%20OUR%20BUSINESS) This section provides an overview of the executive officers managing ODP Corporation, including their ages, current roles, and professional backgrounds. Key executives include Gerry P. Smith (CEO), David Centrella (President of ODP Business Solutions), Sarah E. Hlavinka (Chief Legal Officer), John W. Gannfors (President of Veyer), Zöe Maloney (Chief Human Resources Officer), Kevin Moffitt (President of Office Depot), and D. Anthony Scaglione (Chief Financial Officer) - Gerry P. Smith serves as Chief Executive Officer and a Director since February 2017, previously holding executive roles at Lenovo Group Limited and Dell Inc[53](index=53&type=chunk) - David Centrella was appointed Executive Vice President and President of ODP Business Solutions in May 2022, with over 30 years of experience in finance, merchandising, sales, and sales operations[54](index=54&type=chunk) - D. Anthony Scaglione has been Executive Vice President, Chief Financial Officer since July 2020, having previously served as CFO at ABM Industries Incorporated[60](index=60&type=chunk) [Other Key Information](index=14&type=section&id=OTHER%20KEY%20INFORMATION) This section covers various critical aspects of ODP Corporation, including risk factors, property details, legal proceedings, stock market information, and comparative performance [Risk Factors](index=14&type=section&id=RISK%20FACTORS) ODP Corporation faces various risks, including macroeconomic conditions, intense competition, and the ongoing impacts of the COVID-19 pandemic on business and supply chains. Operational risks include the potential failure of its business re-alignment, challenges in new business offerings, difficulties in attracting and retaining talent, and the need to maintain a relevant customer experience. Financial risks involve retained liabilities from acquired companies, potential impairment charges, and the effective management of its real estate portfolio. Legal and regulatory compliance risks include legal proceedings, climate change regulations, tax law changes, and anti-bribery laws. Information technology risks encompass system disruptions and cybersecurity breaches, which could harm reputation and operations - Macroeconomic conditions, including geopolitical instability, labor shortages, supply chain disruptions, and inflation, continue to adversely affect business and financial performance[64](index=64&type=chunk) - The COVID-19 pandemic continues to impact business, affecting demand for products due to remote/hybrid work, increasing supply chain and delivery costs, and restricting product availability[66](index=66&type=chunk)[67](index=67&type=chunk) - The company operates in a highly competitive market, facing pressure from office supply stores, online retailers (e.g., Amazon.com), mass merchandisers, and wholesale clubs, which could impact financial performance if differentiation or response to shifting consumer demands is inadequate[69](index=69&type=chunk)[70](index=70&type=chunk) - Failure to realize anticipated benefits from the re-alignment of operating and reporting structure into four business units could adversely affect business, financial condition, and operating results[80](index=80&type=chunk) - The company is subject to legal proceedings, including class action lawsuits, government inquiries, environmental matters, and intellectual property litigation, which could result in significant liability and management distraction[122](index=122&type=chunk) - Disruptions of computer systems, including cyber-attacks or security breaches, could adversely affect operations, reputation, and customer relationships, leading to high costs[133](index=133&type=chunk)[135](index=135&type=chunk) [Properties](index=27&type=section&id=Properties) As of December 31, 2022, ODP Corporation operated 980 Office Depot Division retail stores across the United States, Puerto Rico, and the U.S. Virgin Islands, with the largest concentrations in Texas (144), Florida (109), and California (81). The company's supply chain network includes 64 distribution centers and crossdock facilities (57 in the U.S., 7 in Canada) and over 100 total facilities. The corporate headquarters in Boca Raton, FL, is owned but is under an agreement in principle for sale, with a leaseback of a portion of the office space planned Office Depot Division Store Count by State (December 31, 2022) | State | | | :------------------- | :-- | | Alabama | 21 | | Alaska | 5 | | Arizona | 25 | | Arkansas | 10 | | California | 81 | | Colorado | 30 | | District of Columbia | 1 | | Florida | 109 | | Georgia | 41 | | Hawaii | 8 | | Idaho | 6 | | Illinois | 35 | | Indiana | 19 | | Iowa | 6 | | Kansas | 9 | | Kentucky | 9 | | Louisiana | 31 | | Maryland | 8 | | Michigan | 22 | | Minnesota | 20 | | Mississippi | 13 | | Missouri | 24 | | Montana | 2 | | Nebraska | 9 | | Nevada | 18 | | New Mexico | 9 | | New York | 10 | | North Carolina | 36 | | North Dakota | 4 | | Ohio | 29 | | Oklahoma | 13 | | Oregon | 17 | | Pennsylvania | 8 | | Puerto Rico | 10 | | South Carolina | 15 | | South Dakota | 2 | | Tennessee | 27 | | Texas | 144 | | Utah | 11 | | U.S. Virgin Islands | 2 | | Virginia | 24 | | Washington | 27 | | West Virginia | 4 | | Wisconsin | 24 | | Wyoming | 2 | | TOTAL | 980 | Distribution Centers and Crossdock Facilities (December 31, 2022) | State | | | :---------------- | :-- | | Arizona | 1 | | California | 5 | | Colorado | 1 | | Florida | 5 | | Georgia | 2 | | Hawaii | 7 | | Idaho | 1 | | Illinois | 5 | | Kansas | 1 | | Minnesota | 3 | | Mississippi | 1 | | Missouri | 4 | | New Mexico | 1 | | North Carolina | 1 | | North Dakota | 2 | | Ohio | 2 | | Oklahoma | 1 | | Pennsylvania | 1 | | Puerto Rico | 1 | | Tennessee | 1 | | Texas | 3 | | Washington | 3 | | Wisconsin | 5 | | Total United States | 57 | | Canada | 7 | | TOTAL | 64 | - The company's principal corporate headquarters in Boca Raton, FL, is owned but is subject to an agreement in principle for sale, with a planned leaseback of a portion of the building[150](index=150&type=chunk) [Legal Proceedings](index=28&type=section&id=Legal%20Proceedings) The company is involved in various legal proceedings in the normal course of business, including class action lawsuits, governmental inquiries, environmental matters, and asbestos-related claims from past operations. While some claims may be substantial, the company does not believe these contingent liabilities will materially affect its financial position, results of operations, or cash flows - The company is involved in various legal proceedings, including class action lawsuits, governmental inquiries, environmental matters, employment, tort, state false claims act, consumer litigation, and intellectual property litigation[122](index=122&type=chunk) - OfficeMax retained responsibility for certain environmental and asbestos-related liabilities from its paper and forest products assets sold in 2004, with estimated reasonably possible losses for environmental liabilities between **$15 million and $25 million**[98](index=98&type=chunk)[151](index=151&type=chunk)[101](index=101&type=chunk)[568](index=568&type=chunk) [Market for Our Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=29&type=section&id=Market%20for%20Our%20Common%20Stock%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The ODP Corporation's common stock trades on the NASDAQ Global Select Market under the ticker symbol ODP. As of February 22, 2023, there were 3,276 holders of record. The company suspended cash dividends in May 2020 and does not anticipate declaring them in the foreseeable future. ODP has an active stock repurchase program, with a $1 billion authorization approved in October 2022, available through December 31, 2025. In 2022, the company repurchased 7 million shares for $295 million at a weighted average price of $41.21 per share - The ODP Corporation's common stock is traded on the NASDAQ Global Select Market under the ticker symbol **ODP**[153](index=153&type=chunk) - As of February 22, 2023, there were **3,276 holders of record** of the company's common stock[153](index=153&type=chunk) - The company suspended cash dividends in May 2020 and does not anticipate declaring them in the foreseeable future[141](index=141&type=chunk)[154](index=154&type=chunk) Common Stock Repurchases (Q4 2022) | Period | Total Number of Shares Purchased (In thousands) | Average Price Paid per Share | Total Number of Shares Purchased as Part of a Publicly Announced Plan or Program (In thousands) | Approximate Dollar Value of Shares that Yet Be Purchased Under Repurchase Programs (In millions) (1) | | :---------------------------- | :---------------------------------------------- | :--------------------------- | :---------------------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------- | | September 25 — October 22, 2022 | 827 | $36.28 | 827 | $500 | | October 23 — November 19, 2022 | 1,130 | $42.52 | 1,130 | $965 | | November 20 — December 31, 2022 | 2,570 | $46.24 | 2,570 | $847 | | Total | 4,527 | $43.49 | 4,527 | | - In 2022, the company repurchased **7 million shares** of common stock for a total consideration of **$295 million**, at a weighted average price of **$41.21 per share**[156](index=156&type=chunk) - As of December 31, 2022, **$847 million remained available** under the **$1 billion stock repurchase program** authorized in October 2022[156](index=156&type=chunk) [The ODP Corporation Stock Comparative Performance Graph](index=30&type=section&id=The%20ODP%20Corporation%20Stock%20Comparative%20Performance%20Graph) This section presents a five-year cumulative total shareholder return comparison for The ODP Corporation's common stock against the S&P 500, S&P 500 Specialty Stores, and S&P Composite 1500 Specialty Retail indices. The company is transitioning from the S&P 500 Specialty Stores to the S&P Composite 1500 Specialty Retail index for 2022, and both are presented as required by SEC rules. The graph assumes a $100 investment on December 30, 2017 - The company is transitioning from the S&P 500 Specialty Stores to the S&P Composite 1500 Specialty Retail index for the year ended December 31, 2022, and both are presented[161](index=161&type=chunk) 5-Year Cumulative Total Return (12/30/17 - 12/31/22) | | 12/30/17 | 12/29/18 | 12/28/19 | 12/26/20 | 12/25/2021 | 12/31/2022 | | :-------------------------- | :------- | :------- | :------- | :------- | :--------- | :--------- | | The ODP Corporation | 100.00 | 73.82 | 80.77 | 88.86 | 121.02 | 141.35 | | S&P 500 | 100.00 | 95.62 | 125.72 | 148.85 | 191.58 | 156.89 | | S&P Specialty Stores | 100.00 | 97.59 | 121.14 | 144.66 | 216.56 | 200.53 | | S&P Composite 1500 Specialty Retail | 100.00 | 98.81 | 128.21 | 155.12 | 230.40 | 195.40 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20(MD%26A)) This section provides an in-depth analysis of ODP Corporation's financial performance, liquidity, capital resources, and critical accounting policies, along with significant trends and market risks [Overview](index=31&type=section&id=Overview) The ODP Corporation is a leading provider of business services and supplies, undergoing a strategic transformation to an integrated B2B distribution platform. In 2022, the Board decided to maintain all businesses under common ownership and re-aligned operations into four segments: Office Depot, ODP Business Solutions, Veyer, and Varis. The CompuCom Division was sold on December 31, 2021, and is reported as discontinued operations. The company continues to monitor the impacts of COVID-19 and recent global events, such as the Russia-Ukraine conflict, on its business - The ODP Corporation is a leading provider of business services and supplies, products, and digital workplace technology solutions to small, medium, and enterprise businesses[165](index=165&type=chunk) - In 2022, the Board of Directors decided to maintain all businesses under common ownership and re-aligned operations into four segments: Office Depot, ODP Business Solutions, Veyer, and Varis[166](index=166&type=chunk)[167](index=167&type=chunk) - The CompuCom Division was sold on December 31, 2021, and its operating results and cash flows are classified as discontinued operations for all periods presented[168](index=168&type=chunk)[174](index=174&type=chunk)[175](index=175&type=chunk) - The company continues to monitor the impacts of the COVID-19 pandemic and recent global events, such as the Russia-Ukraine conflict, on its business, supply chain, and economic conditions[176](index=176&type=chunk)[177](index=177&type=chunk) [Consolidated Results of Continuing Operations and Liquidity](index=33&type=section&id=CONSOLIDATED%20RESULTS%20OF%20CONTINUING%20OPERATIONS%20AND%20LIQUIDITY) In 2022, consolidated sales remained relatively flat year-over-year at $8,491 million, with a 53rd week contributing $128 million. ODP Business Solutions Division sales increased 11% due to higher demand, while Office Depot Division sales decreased 8% due to store closures and lower demand. Gross profit decreased slightly by 1%, but gross margin remained consistent at 22%. Selling, general and administrative expenses decreased by $6 million, primarily due to Office Depot Division store closures. The company reported diluted EPS from continuing operations of $3.61 in 2022, up from $3.42 in 2021. Total liquidity at year-end 2022 was approximately $1.3 billion, comprising $403 million in cash and $856 million in available credit Consolidated Sales (External) by Division (2021-2022) | (In millions) Sales (External) | 2022 | 2021 | Change | | :----------------------------- | :---- | :---- | :----- | | ODP Business Solutions Division | $4,005 | $3,602 | 11% | | Office Depot Division | 4,451 | 4,830 | (8)% | | Veyer Division | 28 | $28 | —% | | Varis Division | 7 | $5 | 40% | | Total | $8,491 | $8,465 | — | - Consolidated sales were relatively flat in 2022 compared to 2021, with a **$128 million increase** from the 53rd week in 2022[180](index=180&type=chunk) - Gross profit decreased by **$15 million (1%)** in 2022, while total gross margin remained consistent at **22%**[182](index=182&type=chunk)[183](index=183&type=chunk) - Selling, general and administrative expenses decreased by **$6 million** in 2022, mainly due to store closures in the Office Depot Division, partially offset by increases in other divisions and corporate costs[184](index=184&type=chunk) Earnings Per Share (2021-2022) | (In millions, except per share amounts) | 2022 | 2021 | | :-------------------------------------- | :---- | :----- | | Diluted earnings per share from continuing operations | $3.61 | $3.42 | | Diluted loss per share from discontinued operations | $(0.24) | $(7.21) | | Net diluted earnings per share | $3.37 | $(3.79) | - At December 31, 2022, total liquidity was approximately **$1.3 billion**, consisting of **$403 million in cash and cash equivalents** and **$856 million of available credit**[191](index=191&type=chunk) [Operating Results by Division](index=35&type=section&id=OPERATING%20RESULTS%20BY%20DIVISION) This section details the operating results for each of ODP's four divisions. The ODP Business Solutions Division saw an 11% sales increase in 2022, driven by higher demand and favorable pricing, leading to a 94% increase in operating income. The Office Depot Division experienced an 8% sales decrease due to store closures and lower demand, resulting in a 12% decrease in operating income. The Veyer Division's external sales were flat, and operating income slightly decreased by $2 million. The Varis Division, a newer segment, saw a 40% sales increase but a 94% increase in operating loss due to significant investments in its technology platform Total Sales by Division (2020-2022) | (In millions) Sales (external) | 2022 | 2021 | 2020 | | :----------------------------- | :----- | :----- | :----- | | ODP Business Solutions Division | $4,005 | $3,602 | $3,549 | | Office Depot Division | $4,451 | $4,830 | $5,300 | | Veyer Division | $28 | $28 | $23 | | Varis Division | $7 | $5 | $— | Division Operating Income (Loss) (2020-2022) | (In millions) Division operating income | 2022 | 2021 | 2020 | | :-------------------------------------- | :---- | :---- | :---- | | ODP Business Solutions Division | $140 | $72 | $51 | | Office Depot Division | $285 | $325 | $317 | | Veyer Division | $28 | $30 | $28 | | Varis Division | $(66) | $(34) | $— | - ODP Business Solutions Division sales increased **11%** in 2022 (including 1% from the 53rd week), driven by higher demand in categories like paper, furniture, and school/office supplies, and favorable pricing, with operating income increasing **94%** year-over-year[194](index=194&type=chunk)[197](index=197&type=chunk) - Office Depot Division sales decreased **8%** in 2022, primarily due to planned store closures and lower demand in technology products, furniture, and office supplies, resulting in a **12% decrease** in operating income due to lower sales and higher supply chain/occupancy costs[200](index=200&type=chunk)[203](index=203&type=chunk) - Veyer Division's external sales were flat in 2022, and operating income decreased by **$2 million** year-over-year, mainly due to the flow-through impact of lower internal sales[209](index=209&type=chunk) - Varis Division sales increased **40%** in 2022, driven by the BuyerQuest acquisition and new customer acquisition, but operating loss increased **94%** due to significant investments in expanding the technology platform and product offerings[211](index=211&type=chunk)[212](index=212&type=chunk) [Corporate](index=38&type=section&id=CORPORATE) Corporate activities include asset impairments, merger and restructuring expenses, unallocated general and administrative expenses, and other income/expense items. In 2022, asset impairment charges totaled $14 million, primarily for retail store ROU assets. Merger, restructuring, and other operating expenses, net, were $39 million, related to the previously planned consumer business separation and operational re-alignment. Unallocated expenses increased to $91 million due to higher payroll incentives and professional fees. The effective tax rate was 26% in 2022, influenced by a tax windfall from stock-based compensation and state taxes Corporate Charges and Credits Impact on Operating Income (2020-2022) | (In millions) | 2022 | 2021 | 2020 | | :---------------------------------------------- | :--- | :--- | :---- | | Asset impairments | $14 | $20 | $182 | | Merger, restructuring and other operating expenses, net | 39 | 51 | 102 | | Total charges and credits impact on Operating income | $53 | $71 | $284 | - Asset impairment charges in 2022 were **$14 million**, primarily related to operating lease ROU assets and fixed assets at retail store locations[186](index=186&type=chunk)[215](index=215&type=chunk) - Merger, restructuring and other operating expenses, net, were **$39 million** in 2022, mainly due to third-party professional fees for the previously planned consumer business separation and operational re-alignment[187](index=187&type=chunk)[218](index=218&type=chunk) - Unallocated expenses increased to **$91 million** in 2022 (from $88 million in 2021), primarily due to higher Corporate payroll incentive expenses and professional fees[219](index=219&type=chunk) Income Tax Expense and Effective Tax Rate (2020-2022) | (In millions) Income tax expense | 2022 | 2021 | 2020 | | :------------------------------- | :--- | :--- | :--- | | Income tax expense | $64 | $44 | $25 | | Effective income tax rate* | 26% | 19% | (66)%| - The effective tax rate in 2022 was **26%**, primarily impacted by a tax windfall associated with stock-based compensation, state taxes, and the mix of income/losses across jurisdictions[188](index=188&type=chunk)[224](index=224&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) ODP Corporation maintains strong liquidity, with $403 million in cash and cash equivalents and $856 million in available credit as of December 31, 2022, totaling approximately $1.3 billion. The company expects to fund working capital, capital expenditures (projected up to $100 million in 2023), debt repayments, and share repurchases through these resources and future operating cash flows. A $1 billion stock repurchase program was approved in October 2022, with $847 million remaining. Cash provided by operating activities from continuing operations decreased to $237 million in 2022 from $344 million in 2021, mainly due to higher working capital usage - At December 31, 2022, the company had **$403 million in cash and cash equivalents** and **$856 million of available credit**, totaling approximately **$1.3 billion in liquidity**[228](index=228&type=chunk) - The company expects to incur capital expenditures of up to approximately **$100 million in 2023**, funded by available cash and operating cash flows[233](index=233&type=chunk) - A new stock repurchase program of up to **$1 billion** was approved in October 2022, available through December 31, 2025, with **$847 million remaining available** as of December 31, 2022[234](index=234&type=chunk)[235](index=235&type=chunk) Cash Flows from Operating, Investing, and Financing Activities (Continuing Operations) (2020-2022) | (In millions) | 2022 | 2021 | 2020 | | :---------------------------------------------- | :---- | :---- | :----- | | Operating activities of continuing operations | $237 | $344 | $425 | | Investing activities of continuing operations | (86) | (75) | 746 | | Financing activities of continuing operations | (355) | (459) | (1,193) | - Cash provided by operating activities from continuing operations decreased to **$237 million** in 2022 from $344 million in 2021, primarily due to **$123 million less cash inflows from working capital**[241](index=241&type=chunk) - Contractual obligations at December 31, 2022, primarily relate to operating and finance lease commitments, long-term debt, and purchase commitments[247](index=247&type=chunk) [Critical Accounting Policies and Estimates](index=44&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) ODP's critical accounting policies and estimates include inventory valuation, vendor arrangements, long-lived asset impairments, goodwill and other intangible assets, and accounting for business combinations. Inventory is valued at the lower of cost or net realizable value, with adjustments for obsolescence and shrink. Vendor arrangements, including volume-based rebates and event-based programs, are estimated and recognized to reduce product costs. Long-lived assets and goodwill are reviewed for impairment, requiring significant judgment in estimating future cash flows and fair values. Business combinations involve allocating purchase consideration to acquired assets and liabilities based on fair value estimates - Inventories are stated at the lower of weighted average cost or net realizable value, with adjustments for excessive quantities, slow-moving items, and estimated physical inventory loss (shrink)[254](index=254&type=chunk)[255](index=255&type=chunk) - Vendor arrangements, including volume-based rebates and event-based programs, are recognized as a reduction of costs of goods sold or inventory, based on estimates of purchase volume and program conditions[256](index=256&type=chunk)[257](index=257&type=chunk) - Long-lived assets and goodwill are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, using estimates of future cash flows and fair value[259](index=259&type=chunk)[263](index=263&type=chunk) - Accounting for business combinations involves allocating the fair value of purchase consideration to acquired assets and liabilities, with significant judgments and estimates required for fair value determination[267](index=267&type=chunk) [Significant Trends, Developments and Uncertainties](index=46&type=section&id=Significant%20Trends%2C%20Developments%20and%20Uncertainties) ODP faces significant competitive pressures from Internet-based companies, mass merchandisers, and wholesale clubs, which have expanded their office product offerings and increased price awareness among consumers. The industry also sees a trend towards consolidation and declining demand for traditional office products like paper, leading to increased costs. Economic factors, such as macroeconomic conditions, credit availability, and inflation, impact consumer and small business spending. The company relies on cash flow from operating activities, available cash, and financial markets for liquidity, with economic factors potentially limiting access to credit or increasing refinancing costs - The company faces increased competition from Internet-based companies (e.g., Amazon), mass merchandisers (e.g., Walmart, Target), and wholesale clubs (e.g., Costco), leading to pricing and margin pressure[269](index=269&type=chunk) - There is a declining demand for traditional office products like paper, ink, and toner, which is causing a decline in manufacturing and an increase in paper costs[270](index=270&type=chunk) - Spending by small and home office businesses, key customers for ODP, is affected by macroeconomic conditions, including changes in the housing market, commodity costs, credit availability, and inflation[271](index=271&type=chunk) - Liquidity relies on cash flow from operating activities, available cash, and access to financial markets, but economic factors may limit credit access or lead to less favorable refinancing terms[272](index=272&type=chunk) [Market Sensitive Risks and Positions](index=46&type=section&id=Market%20Sensitive%20Risks%20and%20Positions) ODP Corporation manages market risk exposures related to interest rates, foreign currency exchange rates, and commodities through an enterprise risk management process. A hypothetical 50-basis-point change in interest rates would impact interest income by approximately $2 million and interest expense on New Facilities loans by less than $1 million. A 10% change in foreign exchange rates would impact pretax earnings by less than $1 million. A 10% change in domestic commodity costs (excluding hedges) would impact operating profit by approximately $6 million - The company is exposed to market risks related to interest rates, foreign currency exchange rates, and commodities, managed through an enterprise risk management process[273](index=273&type=chunk) - A hypothetical **50-basis-point change in interest rates** would result in an approximate **$2 million increase or decrease in interest income** on cash and cash equivalents, and less than **$1 million** on New Facilities loans[274](index=274&type=chunk) - A **10% change in applicable foreign exchange rates** would result in an increase or decrease in pretax earnings from continuing operations of less than **$1 million**[277](index=277&type=chunk) - A **10% change in domestic commodity costs** (excluding hedge impact) would result in an approximate **$6 million increase or decrease in operating profit**[279](index=279&type=chunk) [Seasonality](index=48&type=section&id=Seasonality) ODP's business experiences a certain level of seasonality, with sales generally trending lower in the second quarter. This follows the 'back-to-business' sales cycle in the first quarter and precedes the 'back-to-school' sales cycle in the third quarter and the holiday sales cycle in the fourth quarter for its ODP Business Solutions and Office Depot Divisions. These cycles can impact operations and financial position [New Accounting Standards](index=48&type=section&id=New%20Accounting%20Standards) As of December 31, 2022, there were no recently issued accounting standards identified that are expected to have a material impact on the company's financial position, results of operations, or cash flows upon their adoption [Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the information provided in the 'Market Sensitive Risks and Positions' section within MD&A for details on quantitative and qualitative disclosures about market risk [Controls and Procedures](index=48&type=section&id=CONTROLS%20AND%20PROCEDURES) This section details management's assessment of disclosure controls and internal control over financial reporting, along with other relevant corporate information and the independent auditor's report [Management's Disclosures](index=48&type=section&id=Management%27s%20Disclosures) Management concluded that ODP's disclosure controls and procedures were effective as of December 31, 2022, providing reasonable assurance that information required for SEC filings is recorded, processed, summarized, and reported timely. There were no material changes in internal control over financial reporting during Q4 2022, and the company's internal controls have not been materially impacted by remote work arrangements due to COVID-19. Management also assessed and concluded that internal control over financial reporting was effective as of December 31, 2022, based on COSO criteria - As of December 31, 2022, ODP's disclosure controls and procedures were effective in ensuring timely and accurate reporting for SEC filings[282](index=282&type=chunk) - No material changes in internal control over financial reporting occurred during Q4 2022, and remote work due to COVID-19 has not materially impacted internal controls[283](index=283&type=chunk) - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO Internal Control — Integrated Framework (2013)[285](index=285&type=chunk) [Other Information](index=49&type=section&id=Other%20Information) The Board of Directors amended the company's bylaws on February 24, 2023, to enhance procedural mechanics and disclosure requirements for shareholder director nominations. Additionally, Max W. Hood was appointed Senior Vice President, Chief Accounting Officer & Controller, effective February 26, 2023, with an annual base salary of $335,000 and eligibility for incentive plans - On February 24, 2023, the Board of Directors amended the bylaws to enhance procedural mechanics and disclosure requirements for shareholder nominations of directors[286](index=286&type=chunk) - Max W. Hood was appointed Senior Vice President, Chief Accounting Officer & Controller, effective February 26, 2023, with an annual base salary of **$335,000**[287](index=287&type=chunk)[288](index=288&type=chunk) [Report of Independent Registered Public Accounting Firm](index=50&type=section&id=REPORT%20OF%20INDEPENDENT%20REGISTERED%20PUBLIC%20ACCOUNTING%20FIRM) Deloitte & Touche LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of The ODP Corporation's internal control over financial reporting as of December 31, 2022, based on COSO criteria. They also expressed an unqualified opinion on the consolidated financial statements for the fiscal year ended December 31, 2022 - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[291](index=291&type=chunk) - The audit was conducted in accordance with PCAOB standards, providing reasonable assurance about the maintenance of effective internal control over financial reporting[293](index=293&type=chunk) [Reference to the Proxy Statement](index=51&type=section&id=REFERENCE%20TO%20THE%20PROXY%20STATEMENT) This section indicates that detailed information on corporate governance, executive compensation, security ownership, related transactions, and principal accountant fees is incorporated by reference from the company's definitive Proxy Statement [Directors, Executive Officers and Corporate Governance](index=51&type=section&id=Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, the nomination process, the audit committee, and audit committee financial experts is incorporated by reference from the company's definitive Proxy Statement for its 2023 Annual Meeting of Shareholders. The company's Code of Ethical Behavior, compliant with SEC rules, is available on its investor relations website - Information on directors, the nomination process, audit committee, and audit committee financial experts is incorporated by reference from the 2023 Proxy Statement[297](index=297&type=chunk)[298](index=298&type=chunk) - The company's Code of Ethical Behavior, compliant with SEC rules, is available on its investor relations website[298](index=298&type=chunk) [Executive Compensation](index=51&type=section&id=Executive%20Compensation) Details on executive compensation, director compensation, compensation committee interlocks, insider participation, and compensation programs risk assessment are incorporated by reference from the Proxy Statement - Information on executive and director compensation, compensation committee interlocks, insider participation, and compensation programs risk assessment is incorporated by reference from the Proxy Statement[299](index=299&type=chunk)[300](index=300&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=51&type=section&id=Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information concerning securities authorized for issuance under equity compensation plans and security ownership of certain beneficial owners and management is incorporated by reference from the Proxy Statement - Information on securities authorized under equity compensation plans and security ownership of beneficial owners and management is incorporated by reference from the Proxy Statement[301](index=301&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=51&type=section&id=Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding contractual relationships, related person transactions policy, and director independence determinations is incorporated by reference from the Proxy Statement - Information on contractual relationships, related person transactions policy, and director independence is incorporated by reference from the Proxy Statement[302](index=302&type=chunk) [Principal Accountant Fees and Services](index=51&type=section&id=Principal%20Accountant%20Fees%20and%20Services) Information on principal accounting fees and services, along with audit committee pre-approval policies and procedures, is incorporated by reference from the Proxy Statement - Information on principal accounting fees and services and audit committee pre-approval policies is incorporated by reference from the Proxy Statement[303](index=303&type=chunk) [Financial Statements and Supplemental Details](index=52&type=section&id=FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTAL%20DETAILS) This section presents ODP Corporation's audited consolidated financial statements, including the statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes and the auditor's report [Exhibits and Financial Statement Schedules](index=52&type=section&id=Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the documents filed as part of the Annual Report, including financial statements, exhibits, and financial statement schedules. It also notes that the report of the independent registered public accounting firm is included in Item 8 and Item 9A of Form 10-K - The section lists financial statements and exhibits filed as part of the Annual Report, including the report of the independent registered public accounting firm[304](index=304&type=chunk) [Signatures](index=55&type=section&id=Signatures) The report is signed by Gerry P. Smith (Chief Executive Officer), D. Anthony Scaglione (Executive Vice President and Chief Financial Officer), Max W. Hood (Senior Vice President and Chief Accounting Officer), and members of the Board of Directors, affirming compliance with the Securities Exchange Act of 1934 [Auditor's Report on the Financial Statements](index=57&type=section&id=Auditor%27s%20Report%20on%20the%20Financial%20Statements) Deloitte & Touche LLP provided an unqualified opinion on The ODP Corporation's consolidated financial statements as of December 31, 2022, and December 25, 2021, and for the three fiscal years ended December 31, 2022, confirming fair presentation in accordance with GAAP. The report also highlights goodwill impairment as a critical audit matter, emphasizing the significant judgments involved in estimating fair value for the Varis reporting unit - Deloitte & Touche LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2022, confirming fair presentation in accordance with GAAP[314](index=314&type=chunk) - Goodwill impairment, particularly for the Varis reporting unit, was identified as a critical audit matter due to the significant judgments required in estimating fair value, including forecasts of revenues, costs, and weighted-average cost of capital[319](index=319&type=chunk)[321](index=321&type=chunk)[322](index=322&type=chunk) [Consolidated Statements of Operations](index=59&type=section&id=Consolidated%20Statements%20of%20Operations) The Consolidated Statements of Operations show that for 2022, ODP Corporation reported total sales of $8,491 million, gross profit of $1,848 million, and operating income of $243 million. Net income from continuing operations was $178 million, and net income was $166 million. Diluted earnings per share from continuing operations was $3.61, and net diluted earnings per share was $3.37 Consolidated Statements of Operations (2020-2022) | (In millions, except per share amounts) | 2022 | 2021 | 2020 | | :-------------------------------------- | :----- | :----- | :----- | | Sales | $8,491 | $8,465 | $8,872 | | Cost of goods sold and occupancy costs | 6,643 | 6,602 | 6,921 | | Gross profit | 1,848 | 1,863 | 1,951 | | Selling, general and administrative expenses | 1,552 | 1,558 | 1,661 | | Asset impairments | 14 | 20 | 182 | | Merger, restructuring and other operating expenses, net | 39 | 51 | 102 | | Operating income | 243 | 234 | 6 | | Other income (expense): | | | | | Interest income | 5 | 1 | 4 | | Interest expense | (16) | (28) | (42) | | Loss on extinguishment and modification of debt | — | — | (12) | | Other income, net | 10 | 24 | 6 | | Income (loss) from continuing operations before income taxes | 242 | 231 | (38) | | Income tax expense | 64 | 44 | 25 | | Net income (loss) from continuing operations | 178 | 187 | (63) | | Discontinued operations, net of tax | (12) | (395) | (256) | | Net income (loss) | $166 | $(208) | $(319) | | Basic earnings (loss) per share: | | | | | Continuing operations | $3.73 | $3.54 | $(1.20)| | Discontinued operations | (0.25) | (7.47) | (4.85) | | Net basic earnings (loss) per share | $3.48 | $(3.93)| $(6.05)| | Diluted earnings (loss) per share: | | | | | Continuing operations | $3.61 | $3.42 | $(1.20)| | Discontinued operations | (0.24) | (7.21) | (4.85) | | Net diluted earnings (loss) per share | $3.37 | $(3.79)| $(6.05)| [Consolidated Statements of Comprehensive Income (Loss)](index=60&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The Consolidated Statements of Comprehensive Income (Loss) show that ODP Corporation reported net income of $166 million in 2022, a significant improvement from a net loss of $(208) million in 2021. Total other comprehensive income (loss) was $(71) million in 2022, primarily due to foreign currency translation adjustments and changes in deferred pension. Overall comprehensive income was $95 million in 2022, compared to a loss of $(182) million in 2021 Consolidated Statements of Comprehensive Income (Loss) (2020-2022) | (In millions) | 2022 | 2021 | 2020 | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | :----- | :----- | :----- | | Net income (loss) | $166 | $(208) | $(319) | | Other comprehensive income, net of tax, where applicable: | | | | | Foreign currency translation adjustments | (12) | — | 2 | | Change in deferred pension, net of $(3) million, $6 million and $7 million of deferred income taxes in 2022, 2021 and 2020, respectively | (59) | 26 | 32 | | Total other comprehensive income, net of tax, where applicable | (71) | 26 | 34 | | Comprehensive income (loss) | $95 | $(182) | $(285) | [Consolidated Balance Sheets](index=61&type=section&id=Consolidated%20Balance%20Sheets) The Consolidated Balance Sheets show total assets decreased from $4,865 million in 2021 to $4,149 million in 2022. This was primarily driven by a decrease in current assets held for sale from $469 million to $107 million, and reductions in cash and cash equivalents, inventories, and property and equipment. Total liabilities also decreased from $3,427 million to $2,862 million, mainly due to lower trade accounts payable and current liabilities held for sale. Total stockholders' equity decreased from $1,438 million to $1,287 million Consolidated Balance Sheets (2021-2022) | ASSETS | December 31, 2022 | December 25, 2021 | | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | :---------------- | :---------------- | | Current assets: | | | | Cash and cash equivalents | $403 | $514 | | Receivables, net | 536 | 495 | | Inventories | 828 | 859 | | Prepaid expenses and other current assets | 36 | 52 | | Current assets held for sale | 107 | 469 | | Total current assets | 1,910 | 2,389 | | Property and equipment, net | 352 | 477 | | Operating lease right-of-use assets | 874 | 936 | | Goodwill | 464 | 464 | | Other intangible assets, net | 46 | 54 | | Deferred income taxes | 182 | 219 | | Other assets | 321 | 326 | | Noncurrent assets held for sale | — | — | | Total assets | $4,149 | $4,865 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current liabilities: | | | | Trade accounts payable | $821 | $950 | | Accrued expenses and other current liabilities | 1,005 | 994 | | Income taxes payable | 17 | 11 | | Short-term borrowings and current maturities of long-term debt | 16 | 20 | | Current liabilities held for sale | — | 290 | | Total current liabilities | 1,859 | 2,265 | | Deferred income taxes and other long-term liabilities

The ODP Corporation (NASDAQ:ODP) Q2 2022 Results Conference Call August 3, 2022 9:00 AM ET Company Participants Tim Perrott - Vice President, IR Gerry Smith - CEO Anthony Scaglione - EVP, CFO Conference Call Participants Mike Lasser - UBS Operator Good morning, and welcome to The ODP Corporation's Second Quarter 2022 Earnings Conference Call. [Operator Instructions] At the request of ODP Corporation, today's call is being recorded. I would now like to introduce Tim Perrott, Vice President, Investor Relation ...

Retail Operations - The ODP Corporation operates 1,038 retail stores across North America, with the largest concentrations in Texas, California, and Florida[22]. - The company has closed a total of 263 retail stores as part of its Business Acceleration Program and Maximize B2B Restructuring Plan[23]. - The Retail Division offers a range of business-related services, including printing, copying, mailing, and shipping services[20]. - The company operates separate merchandising functions in the U.S. and Canada, leveraging global offerings to reduce product costs while maintaining quality[40]. - The company operates a total of 1,038 retail locations across various states in the United States as of December 25, 2021[156]. Business Solutions Division - The Business Solutions Division is the largest revenue-generating segment, providing office supply products and services to business customers[17]. - The company has a robust field sales force and dedicated customer service associates, positioning its Business Solutions Division well against competitors[48]. - Business Solutions Division sales decreased by 2% to $4,597 million, impacted by lower sales of cleaning products and personal protective equipment[198]. Strategic Transformation - The company has been undergoing a strategic transformation since 2017 to pivot into an integrated B2B distribution platform, aiming to expand product offerings and capture greater market share[30]. - The company is transforming into a business services-driven platform, which may increase operational complexity and require significant management resources[91]. - The company is exploring a potential sale of its consumer business while delaying further work on a planned separation into two independent companies[182]. - The company plans to spin off its consumer business, Office Depot, into an independent publicly traded company, but the timeline and benefits of this spin-off remain uncertain[86]. Financial Performance - Consolidated sales decreased by 5% in 2021, totaling $8,465 million compared to $8,872 million in 2020, primarily due to lower sales in the Retail Division[195]. - The Retail Division's sales fell by 8% to $3,837 million in 2021, driven by planned store closures and reduced demand in technology and cleaning product categories[198]. - Total gross profit decreased by $89 million or 5% in 2021, with reductions of $66 million in the Business Solutions Division and $23 million in the Retail Division[199]. - Total selling, general and administrative expenses decreased by $103 million or 6% in 2021, attributed to store closures and strategic initiatives[201]. Employee Management - As of January 22, 2022, the company employed approximately 26,000 full-time and part-time employees, a decrease from 37,000 in 2021 due to the sale of the CompuCom Division and planned store closures[25]. - The company is focused on investing in employee development and has transitioned training programs to virtual settings due to the COVID-19 pandemic[27]. - The company’s large employee base and potential unionization efforts could significantly increase labor costs and restrict operational efficiency[138]. Supply Chain and Logistics - The company operates a network of 67 distribution centers and crossdock facilities across the U.S. and Canada, capable of providing next-day delivery services for approximately 98.5% of the U.S. population[34][36]. - The company continues to invest in its supply chain network, focusing on enhancing capabilities and lowering costs through automation and robotics[35]. - Increased supply chain costs have resulted from the pandemic, with higher costs to replenish inventory and increased delivery costs as the company shifts to more residential deliveries[67]. Market Competition - The company faces significant competition in the office products market, competing with major players like Staples and Amazon, which pressures pricing and market share[73]. - The retail sector's focus on delivery services has intensified, with customers seeking faster and lower-cost delivery options, impacting the company's profit margins[74]. Economic and Regulatory Risks - Macroeconomic conditions, including high unemployment and inflation, continue to adversely affect business and consumer spending, potentially leading to a decline in comparable retail store sales[80]. - The ongoing COVID-19 pandemic has resulted in disruptions to supply chains, affecting product availability and consumer purchasing patterns, which may continue to impact financial performance[82]. - Legal proceedings and compliance risks could expose the company to significant liabilities, affecting business operations and financial results[133]. Environmental and Social Responsibility - The company is committed to environmental responsibility, focusing on initiatives such as reducing energy consumption and increasing sales of sustainable products[49]. - The company’s human capital management emphasizes diversity, with 33% of its Board of Directors being female and 41% of its total workforce being female[26]. Technology and Cybersecurity - The company relies heavily on computer systems for operations, and disruptions could lead to substantial costs and interruptions in business activities[141]. - The company has invested in cyber insurance and security measures to protect sensitive data, but vulnerabilities remain due to the evolving nature of cyber threats[146]. - The company is subject to increasing data privacy and security laws globally, which could lead to legal actions and substantial costs in the event of a security breach[147]. Financial Management - The company has suspended its quarterly cash dividend since May 2020 due to the COVID-19 pandemic, and there is no assurance that it will resume paying cash dividends in the future[148]. - The asset-based credit facility contains covenants that, if breached, could lead to defaults and higher borrowing costs, impacting liquidity[132]. - The company has incurred incremental costs related to trade tariffs on inventory from China, although these have not materially impacted operations to date[129].