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SEGMENT INFORMATION | 6 Months Ended
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Jul. 01, 2023
Segment Reporting [Abstract] |
SEGMENT INFORMATION | NOTE 4. SEGMENT INFORMATION At July 1, 2023, the Company had four reportable segments: ODP Business Solutions Division – The Company’s leading B2B distribution solutions provider serving small, medium and enterprise level companies, including those in the public and education sectors. 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. 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. Adjacency products and services include cleaning, janitorial, and breakroom supplies, office furniture, technology products, and copy and print services. 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 acquisition of these businesses has allowed for an effective means to expand our distribution reach, target new business customers and grow our offerings beyond traditional office supplies. Office Depot Division – The Company’s leading provider of retail consumer and small business products and services distributed through a fully integrated omni-channel platform of 952 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 offering 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, which has over 35 years of experience with proven leadership. The Veyer Division specializes in B2B and consumer business service delivery, with core competencies in distribution, fulfillment, transportation, global sourcing and purchasing. The Veyer Division’s customers include our Office Depot Division and ODP Business Solutions Division, as well as third-party customers. The Veyer Division also includes the Company’s global sourcing operations in Asia. Varis Division – The Company’s tech-enabled B2B indirect procurement marketplace, which provides a seamless 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. The 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. 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 |
Second Quarter of 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 999 |  |  | $ | 897 |  |  | $ | 10 |  |  | $ | 2 |  |  | $ | - |  |  | $ | 1,908 |
Sales (internal) |  |  | 3 |  |  |  | 8 |  |  |  | 1,312 |  |  |  | - |  |  |  | (1,323 | ) |  |  | - |
Total sales |  | $ | 1,002 |  |  | $ | 905 |  |  | $ | 1,322 |  |  | $ | 2 |  |  | $ | (1,323 | ) |  | $ | 1,908 |
Division operating income (loss) |  | $ | 45 |  |  | $ | 35 |  |  | $ | 6 |  |  | $ | (14 | ) |  | $ | - |  |  | $ | 72 |
First Half of 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 2,004 |  |  | $ | 1,991 |  |  | $ | 17 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 4,016 |
Sales (internal) |  |  | 7 |  |  |  | 17 |  |  |  | 2,725 |  |  |  | - |  |  |  | (2,749 | ) |  |  | - |
Total sales |  | $ | 2,011 |  |  | $ | 2,008 |  |  | $ | 2,742 |  |  | $ | 4 |  |  | $ | (2,749 | ) |  | $ | 4,016 |
Division operating income (loss) |  | $ | 84 |  |  | $ | 120 |  |  | $ | 21 |  |  | $ | (31 | ) |  | $ | - |  |  | $ | 194 |
Second Quarter of 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 995 |  |  | $ | 1,031 |  |  | $ | 7 |  |  | $ | 1 |  |  | $ | - |  |  | $ | 2,034 |
Sales (internal) |  |  | 5 |  |  |  | 8 |  |  |  | 1,409 |  |  |  | - |  |  |  | (1,422 | ) |  |  | - |
Total sales |  | $ | 1,000 |  |  | $ | 1,039 |  |  | $ | 1,416 |  |  | $ | 1 |  |  | $ | (1,422 | ) |  | $ | 2,034 |
Division operating income (loss) |  | $ | 36 |  |  | $ | 49 |  |  | $ | 8 |  |  | $ | (16 | ) |  | $ | - |  |  | $ | 77 |
First Half of 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Sales (external) |  | $ | 1,973 |  |  | $ | 2,225 |  |  | $ | 10 |  |  | $ | 4 |  |  | $ | - |  |  | $ | 4,212 |
Sales (internal) |  |  | 11 |  |  |  | 15 |  |  |  | 2,937 |  |  |  | - |  |  |  | (2,963 | ) |  |  | - |
Total sales |  | $ | 1,984 |  |  | $ | 2,240 |  |  | $ | 2,947 |  |  | $ | 4 |  |  | $ | (2,963 | ) |  | $ | 4,212 |
Division operating income (loss) |  | $ | 55 |  |  | $ | 145 |  |  | $ | 16 |  |  | $ | (31 | ) |  | $ | - |  |  | $ | 185 |
The reconciliation of the measure of Division operating income to Consolidated income from continuing operations before income taxes is as follows:
|  | Second Quarter |  |  | First Half |
(In millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Total Divisions operating income |  | $ | 72 |  |  | $ | 77 |  |  | $ | 194 |  |  | $ | 185 |
Add/(subtract): |  |  |  |  |  |  |  |  |  |  |  |
Asset impairments |  |  | (6 | ) |  |  | (3 | ) |  |  | (10 | ) |  |  | (5 | )
Merger, restructuring and other operating expenses, net |  |  | (1 | ) |  |  | (23 | ) |  |  | (1 | ) |  |  | (34 | )
Unallocated expenses |  |  | (19 | ) |  |  | (23 | ) |  |  | (42 | ) |  |  | (42 | )
Interest income |  |  | 2 |  |  |  | 1 |  |  |  | 4 |  |  |  | 2 |
Interest expense |  |  | (5 | ) |  |  | (4 | ) |  |  | (10 | ) |  |  | (9 | )
Other income, net |  |  | 4 |  |  |  | 3 |  |  |  | 6 |  |  |  | 5 |
Income from continuing operations before income taxes |  | $ | 47 |  |  | $ | 28 |  |  | $ | 141 |  |  | $ | 102 |
The following table provides information about disaggregated sales by major categories:
|  | Second Quarter |  |  | First Half |
(In millions) |  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Major sales categories |  |  |  |  |  |  |  |  |  |  |  |
Supplies |  | $ | 947 |  |  | $ | 976 |  |  | $ | 1,999 |  |  | $ | 2,026 |
Technology |  |  | 527 |  |  |  | 601 |  |  |  | 1,143 |  |  |  | 1,273 |
Furniture and other |  |  | 271 |  |  |  | 301 |  |  |  | 549 |  |  |  | 612 |
Copy and print |  |  | 163 |  |  |  | 156 |  |  |  | 325 |  |  |  | 301 |
Total |  | $ | 1,908 |  |  | $ | 2,034 |  |  | $ | 4,016 |  |  | $ | 4,212 |
The components of goodwill by segment are as follows:
(In millions) |  | Balance as of December 31, 2022 |  |  | Acquisitions |  |  | Balance as of July 1, 2023 |
ODP Business Solutions Division |  | $ | 142 |  |  | $ | 3 |  |  | $ | 145 |
Office Depot Division |  |  | 219 |  |  |  | - |  |  |  | 219 |
Veyer Division |  |  | 35 |  |  |  | - |  |  |  | 35 |
Varis Division |  |  | 68 |  |  |  | - |  |  |  | 68 |
Total |  | $ | 464 |  |  | $ | 3 |  |  | $ | 467 |
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. Each reportable segment also represents a reporting unit. The most recent annual impairment assessment was performed during the fourth quarter of 2022, using a quantitative assessment for its Varis reporting unit, and qualitative assessments for all other reporting units. The quantitative assessment for Varis reporting unit combined the income approach and the market approach valuation methodologies and concluded that the fair value of this reporting unit exceeded its carrying amount by 21%. The Varis reporting unit has been in operation since 2021, therefore the Company has less experience estimating the operating performance of this reporting unit. Changes to the critical assumptions used to estimate the fair value of this reporting unit, including changes in projected revenue growth rates, gross margin or expenses may result in a different calculation of fair value that could lead to the recognition of impairment charges in future periods. The Company will continue to evaluate the recoverability of goodwill at the reporting unit level on an annual basis and whenever events or changes in circumstances indicate there may be a potential impairment. If the operating results of the Company’s reporting units deteriorate in the future, it may cause the fair value of one or more of the reporting units to fall below their carrying value, resulting in additional goodwill impairment charges.

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