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SEGMENT INFORMATION | 9 Months Ended
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Sep. 24, 2022
Segment Reporting [Abstract] |
SEGMENT INFORMATION | NOTE 3. SEGMENT INFORMATION During the third quarter of 2022, the Company re-aligned its operations into its consumer business named Office Depot, and three distinct B2B business and digital segments which are ODP Business Solutions, Veyer and Varis. The decision to re-align was driven by how the Company is looking at its products and offerings and serving its customers. How the Company’s customers work and interact has changed, where businesses demand a wider range of products and services, and a more modern digital environment in which to operate, and consumers demand an omni-channel retail experience. In addition, dependable supply chain operations have become increasingly important in meeting these demands. The Company performed a full strategic review of its operations in light of these factors, and determined that completing the re-alignment of its operations in this manner enables the Company to better focus on its customers by being in a better position to meet a wider array of customer needs for product, service, and omni-channel choices. The Company also determined that the re-alignment provides for greater accountability internally for product and service outcomes, customer experiences, capital allocations, and pursuing strategic opportunities. The re-alignment resulted in a change in the Company’s reportable segments. In addition, management of the Company also changed how it analyzes these businesses, which resulted in the inclusion of certain corporate costs, mainly payroll related, previously excluded from segment profitability measures. The Company accounts for intersegment sales and transfers as if the sales or transfers were to third parties. The changes to its reportable segments did not impact the Company’s current Consolidated Financial Statements. Prior period amounts, including interim periods, have been recast to conform to the current presentation. These changes have no impact on previously reported Condensed Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholders’ Equity, or Statements of Cash Flows. A t September 24, 2022, the Company had four reportable segments: ODP Business Solutions Division – The Company’s leading B2B solutions provider serving small, medium and enterprise level companies. This segment includes the contract sales channel of the Company’s previous Business Solutions Division, and operates in the United States, Puerto Rico, the U.S. Virgin Islands, and Canada. This segment also includes our Federation entities, which are over a dozen regional office supply distribution businesses acquired by the Company as part of its transformation to expand its reach and distribution network into geographic areas that were previously underserved, and which continue to operate under their own brand names. The ODP Business Solutions Division sells nationally branded, as well as the Company’s private branded, office supply and adjacency products and services to customers, who are served through a dedicated sales force, catalogs, telesales, and electronically through the Company’s Internet websites. Office Depot Division – The Company’s leading provider of retail consumer and small business products and services distributed through a fully integrated omnichannel platform of approximately 1,000 Office Depot and OfficeMax retail locations in the United States, Puerto Rico and the U.S. Virgin Islands, and an eCommerce presence (www.officedepot.com). The Office Depot Division sells office supplies, technology products and solutions, business machines and related supplies, cleaning, breakroom and facilities products, personal protective equipment, and office furniture as well as offer business services including copying, printing, digital imaging, mailing, shipping and technology support services. In addition, the print needs for retail and business customers are facilitated through the Company’s regional print production centers. Veyer Division – The Company’s supply chain, distribution, procurement and global sourcing operation. Veyer specializes in B2B and consumer business service delivery, with core competencies in distribution, fulfillment, transportation, global sourcing and purchasing. Veyer’s customers include our Office Depot Division and ODP Business Solutions Division, as well as third-party customers. Veyer also includes the Company’s global sourcing operations in Asia. Varis Division – The Company’s tech-enabled B2B indirect procurement marketplace, which provides a better way for buyers and suppliers to transact through the platform’s consumer-like buying experience, advanced spend management tools, network of suppliers, and technology capabilities. In connection with the Company’s development efforts of this Division, it acquired BuyerQuest Holdings, Inc. (“BuyerQuest”) in 2021, a software as a service eProcurement platform company. BuyerQuest’s operating results are included in the Varis Division. Varis Division currently serves enterprise businesses and provides its services to middle- and small-sized businesses. It is focused on filling the growing demand for a B2B centric digital commerce platform that is modern, trusted, and provides the procurement controls and visibility businesses require to operate. The Company sold its CompuCom Division through a single disposal group on December 31, 2021, which is presented as discontinued operations for all periods presented. Refer to Note 11 for additional information. Division operating income is determined based on the measure of performance reported internally to manage the business and for resource allocation. This measure charges to the respective Divisions those expenses considered directly or closely related to their operations and allocates support costs. Certain operating expenses and credits are not allocated to the Divisions, including asset impairments and merger, restructuring and other operating expenses, as well as expenses and credits retained at the Corporate level, including certain management costs and legacy pension and environmental matters. Other companies may charge more or less of these items to their segments and results may not be comparable to similarly titled measures used by other entities. The following is a summary of sales and operating income (loss) by each of the Divisions, reconciled to consolidated totals:
(In millions) |  | ODP Business Solutions Division |  |  | Office Depot Division |  |  | Veyer Division |  |  | Varis Division |  |  | Eliminations |  |  | Total |
Third Quarter of 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 1,030 |  |  | $ | 1,133 |  |  | $ | 7 |  |  | $ | 2 |  |  | $ | - |  |  | $ | 2,172 |
Sales (internal) |  |  | 5 |  |  |  | 10 |  |  |  | 1,477 |  |  |  | - |  |  |  | (1,492 | ) |  | $ | - |
Total sales |  | $ | 1,035 |  |  | $ | 1,143 |  |  | $ | 1,484 |  |  | $ | 2 |  |  | $ | (1,492 | ) |  | $ | 2,172 |
Division operating income (loss) |  | $ | 48 |  |  | $ | 83 |  |  | $ | 9 |  |  | $ | (17 | ) |  | $ | - |  |  | $ | 123 |
Year-to-Date 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 3,004 |  |  | $ | 3,358 |  |  | $ | 18 |  |  | $ | 5 |  |  | $ | - |  |  | $ | 6,385 |
Sales (internal) |  |  | 15 |  |  |  | 25 |  |  |  | 4,415 |  |  |  | - |  |  |  | (4,455 | ) |  |  | - |
Total sales |  | $ | 3,019 |  |  | $ | 3,383 |  |  | $ | 4,433 |  |  | $ | 5 |  |  | $ | (4,455 | ) |  | $ | 6,385 |
Division operating income (loss) |  | $ | 103 |  |  | $ | 228 |  |  | $ | 25 |  |  | $ | (48 | ) |  | $ | - |  |  | $ | 308 |
Third Quarter of 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 940 |  |  | $ | 1,229 |  |  | $ | 8 |  |  | $ | 2 |  |  | $ | - |  |  | $ | 2,179 |
Sales (internal) |  |  | 7 |  |  |  | 10 |  |  |  | 1,520 |  |  |  | - |  |  |  | (1,537 | ) |  |  | - |
Total sales |  | $ | 947 |  |  | $ | 1,239 |  |  | $ | 1,528 |  |  | $ | 2 |  |  | $ | (1,537 | ) |  | $ | 2,179 |
Division operating income (loss) |  | $ | 34 |  |  | $ | 108 |  |  | $ | 7 |  |  | $ | (10 | ) |  | $ | - |  |  | $ | 139 |
Year-to-Date 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 2,697 |  |  | $ | 3,699 |  |  | $ | 24 |  |  | $ | 3 |  |  | $ | - |  |  | $ | 6,423 |
Sales (internal) |  |  | 19 |  |  |  | 26 |  |  |  | 4,493 |  |  |  | - |  |  |  | (4,538 | ) |  |  | - |
Total sales |  | $ | 2,716 |  |  | $ | 3,725 |  |  | $ | 4,517 |  |  | $ | 3 |  |  | $ | (4,538 | ) |  | $ | 6,423 |
Division operating income (loss) |  | $ | 55 |  |  | $ | 266 |  |  | $ | 22 |  |  | $ | (21 | ) |  | $ | - |  |  | $ | 322 |
The reconciliation of the measure of Division operating income to Consolidated income from continuing operations before income taxes is as follows:
| Third Quarter |  |  | Year-to-Date |
(In millions) | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Total Divisions operating income | $ | 123 |  |  | $ | 139 |  |  | $ | 308 |  |  | $ | 322 |
Add/(subtract): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Asset impairments |  | (3 | ) |  |  | (5 | ) |  |  | (8 | ) |  |  | (18 | )
Merger, restructuring and other operating expenses, net |  | (8 | ) |  |  | (13 | ) |  |  | (42 | ) |  |  | (37 | )
Unallocated expenses |  | (28 | ) |  |  | (17 | ) |  |  | (70 | ) |  |  | (64 | )
Interest income |  | 1 |  |  |  | — |  |  |  | 3 |  |  |  | — |
Interest expense |  | (1 | ) |  |  | (7 | ) |  |  | (10 | ) |  |  | (20 | )
Other income, net |  | 5 |  |  |  | 3 |  |  |  | 9 |  |  |  | 19 |
Income from continuing operations before income taxes | $ | 89 |  |  | $ | 100 |  |  | $ | 190 |  |  | $ | 202 |
The following table provides information about disaggregated sales by major categories:
|  | Third Quarter |  |  | Year-to-Date |
(In millions) |  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Major sales categories |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Supplies |  | $ | 1,080 |  |  | $ | 1,023 |  |  | $ | 3,106 |  |  | $ | 2,879 |
Technology |  |  | 597 |  |  |  | 658 |  |  |  | 1,871 |  |  |  | 2,118 |
Furniture and other |  |  | 336 |  |  |  | 341 |  |  |  | 948 |  |  |  | 987 |
Copy and print |  |  | 159 |  |  |  | 157 |  |  |  | 460 |  |  |  | 439 |
Total |  | $ | 2,172 |  |  | $ | 2,179 |  |  | $ | 6,385 |  |  | $ | 6,423 |
The following table provides information about total assets by each of the Divisions, reconciled to consolidated totals:
(In millions) |  | Balance as of September 24, 2022 |
ODP Business Solutions Division |  | $ | 784 |
Office Depot Division |  |  | 1,700 |
Veyer Division |  |  | 1,104 |
Varis Division |  |  | 112 |
Corporate and other |  |  | 718 |
Total |  | $ | 4,418 |
Goodwill and indefinite-lived intangible assets are tested for impairment annually as of the first day of fiscal December or more frequently when events or changes in circumstances indicate that impairment may have occurred. The changes in reportable segments described above also resulted in the change of the Company’s reporting units during the third quarter of 2022, where each reportable segment also represents a reporting unit. Goodwill was allocated to the new reporting units using their relative fair values. The Company performed a qualitative goodwill impairment assessment of its legacy reporting units immediately before the change and determined that it was more likely than not that the respective fair values of the legacy reporting units were greater than their respective carrying values. The Company also performed a quantitative goodwill impairment assessment of its current reporting units immediately after the change and determined the fair values of all reporting units exceeded their carrying amounts. Changes in goodwill by segment were as follows:
(In millions) |  | Balance as of December 25, 2021 |  |  | Allocation to New segment |  |  | Balance as of September 24, 2022 |  |
Business Solutions Division |  | $ | 318 |  |  | $ | (318 | ) |  | $ | — |  |
Retail Division |  |  | 78 |  |  |  | (78 | ) |  |  | — |  |
Other |  |  | 68 |  |  |  | (68 | ) |  |  | — |  |
ODP Business Solutions Division |  |  | — |  |  |  | 142 |  |  |  | 142 |  |
Office Depot Division |  |  | — |  |  |  | 219 |  |  |  | 219 |  |
Veyer Division |  |  | — |  |  |  | 35 |  |  |  | 35 |  |
Varis Division |  |  | — |  |  |  | 68 |  |  |  | 68 |  |
Total |  | $ | 464 |  |  | $ | — |  |  | $ | 464 |  |

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