# EDGAR Filing Document

**Accession Number:** 0000800240
**File Stem:** 0001193125-23-074089
**Filing Date:** 2023-3
**Character Count:** 297817
**Document Hash:** 923be93a53ed419b3f45c8e0ae6828f7
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001193125-23-074089.hdr.sgml**: 20230317

**ACCESSION NUMBER**: 0001193125-23-074089

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230317

**DATE AS OF CHANGE**: 20230317

**EFFECTIVENESS DATE**: 20230317

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** ODP Corp
- **CENTRAL INDEX KEY:** 0000800240
- **STANDARD INDUSTRIAL CLASSIFICATION:** RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940]
- **IRS NUMBER:** 851457062
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1228

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-10948
- **FILM NUMBER:** 23743909

**BUSINESS ADDRESS:**
- **STREET 1:** 6600 NORTH MILITARY TRAIL
- **CITY:** BOCA RATON
- **STATE:** FL
- **ZIP:** 33496
- **BUSINESS PHONE:** 561-438-4800

**MAIL ADDRESS:**
- **STREET 1:** 6600 NORTH MILITARY TRAIL
- **CITY:** BOCA RATON
- **STATE:** FL
- **ZIP:** 33496

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** OFFICE DEPOT INC
- **DATE OF NAME CHANGE:** 19920703

### Attached PDF Documents

**Attachment 1:** `d389096dars.pdf`

# **UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
Washington, DC 20549
**FORM 10-K**

(Mark One)

☑ Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2022

Or

☐ Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________

Commission file number 1-10948

# **The ODP Corporation**

(Exact Name of Registrant as Specified in its Charter)

![img-0.jpeg](img-0.jpeg)

**Delaware**

(State or Other Jurisdiction of
Incorporation or Organization)

**6600 North Military Trail, Boca Raton, Florida**
(Address of Principal Executive Offices)

**85-1457062**

(I.R.S. Employer
Identification No.)

**33496**

(Zip Code)

**(561) 438-4800**

(Registrant's telephone number, including area code)

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) |

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑

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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

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

The aggregate market value of common stock held by non-affiliates of the registrant as of June 26, 2022 (based on the closing market price of the common stock on the Composite Tape on June 24, 2022) was approximately $1,462,200,515 (determined by subtracting from the number of shares outstanding on that date the number of shares held by affiliates of the registrant).

The number of shares outstanding of the registrant's common stock, as of the latest practicable date: At February 22, 2023, there were 40,198,205 outstanding shares of The ODP Corporation Common Stock, $0.01 par value.

# **Documents Incorporated by Reference:**

Certain information required for Part III of this Annual Report on Form 10-K is incorporated by reference to The ODP Corporation's definitive Proxy Statement for its 2023 Annual Meeting of Shareholders, to be filed with the Securities and Exchange Commission within 120 days after close of the registrant's fiscal year covered by this Annual Report.

# TABLE OF CONTENTS

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

## Fundamentals of Our Business

|  | Page |
| --- | --- |
| The Company | 3 |
| How We Organize Our Business | 4 |
| Our Capital | 6 |
| Our Strategy | 7 |
| Who Manages Our Business | 9 |

## Other Key Information

| Risk Factors | 10 |
| --- | --- |
| Properties | 23 |
| Legal Proceedings | 24 |
| Market for Our Common Stock, Related Stockholder Matters and Issuer Purchases of Equity Securities | 25 |

## Management’s Discussion and Analysis (MD&A)

| Overview | 27 |
| --- | --- |
| Operating Results by Division | 31 |
| Liquidity and Capital Resources | 37 |
| Critical Accounting Policies and Estimates | 40 |
| Significant Trends, Developments and Uncertainties | 42 |
| Market Sensitive Risks and Positions | 42 |
| Seasonality | 44 |
| New Accounting Standards | 44 |
| Quantitative and Qualitative Disclosures About Market Risk | 44 |

## Controls and Procedures

| Management’s Disclosures | 44 |
| --- | --- |
| Auditor’s Report on Internal Control over Financial Reporting | 46 |

## Reference to the Proxy Statement

| Directors, Executive Officers and Corporate Governance | 47 |
| --- | --- |
| Executive Compensation | 47 |
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 47 |
| Certain Relationships and Related Transactions, and Director Independence | 47 |
| Principal Accountant Fees and Services | 47 |

## Financial Statements and Supplemental Details

| Exhibits and Financial Statement Schedules | 48 |
| --- | --- |
| Signatures | 51 |
| Auditor’s Report on the Financial Statements | 53 |
| Consolidated Statements of Operations | 55 |
| Consolidated Statements of Comprehensive Income (Loss) | 56 |
| Consolidated Balance Sheets | 57 |
| Consolidated Statements of Cash Flows | 58 |
| Consolidated Statements of Stockholders’ Equity | 59 |
| Notes to Consolidated Financial Statements | 60 |
| Form 10-K Cross-Reference Index | 101 |

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# FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“Annual Report”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”), that involve risks and uncertainties. These forward-looking statements include both historical information and other information that can be used to infer future performance. Examples of historical information include annual financial statements and the commentary on past performance contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”). While certain information has specifically been identified as being forward-looking in the context of its presentation, we caution you that, with the exception of information that is historical, all the information contained in this Annual Report should be considered to be “forward-looking statements” as referred to in the Reform Act. Without limiting the generality of the preceding sentence, any time we use the words “estimate,” “project,” “intend,” “expect,” “believe,” “anticipate,” “continue,” “may,” “will” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. Certain information in MD&A is clearly forward-looking in nature, and without limiting the generality of the preceding cautionary statements, we specifically advise you to consider all of MD&A in the light of the cautionary statements set forth herein.

Much of the information in this Annual Report that looks towards future performance of The ODP Corporation and its consolidated subsidiaries is based on various factors and important assumptions about future events that may or may not actually come true. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in this Annual Report. Significant factors that could impact our future results are provided in “Risk Factors” within Other Key Information in this Annual Report. Other risk factors are incorporated into the text of MD&A, which should itself be considered a statement of future risks and uncertainties, as well as management’s view of our businesses. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

In this Annual Report, unless the context otherwise requires, the “Company,” “ODP,” “we,” “us,” and “our” refer to The ODP Corporation and its subsidiaries. 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 Annual 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 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.

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## THE COMPANY

The ODP Corporation (including its consolidated subsidiaries, “ODP” or the “Company”) is a leading provider of products, services and technology solutions through an integrated business-to-business (“B2B”) distribution platform and omni-channel presence, which includes supply chain and distribution operations, dedicated sales professionals, a B2B digital procurement solution, online presence, and a network of Office Depot and OfficeMax retail stores. We were incorporated in the state of Delaware in 1986 with the name Office Depot, Inc. and opened our first retail store in Fort Lauderdale, Florida on October 9, 1986.

Our vision is to empower every business, professional and consumer with the products and services they need to achieve more every day. We achieve our vision by driving our low-cost business model and continuing to provide our customers with innovative products and services they need to sustainably grow their businesses. We remain focused on driving stable growth and deploying a disciplined capital management strategy, which has helped position us as a leading provider of business products, services and supplies, and digital workplace technology solutions to small, medium and enterprise-level businesses. Our foundation is our 5C culture, which is customer, commitment, creativity, change and caring. These 5Cs drive strong community support and focus on sustainability, diversity and environmental improvements.

We have re-aligned our structure and operate through four business units including Office Depot, LLC; ODP Business Solutions, LLC; Veyer, LLC; and Varis, LLC. These four synergistic and defined business units position us to deliver value as follows:

![img-1.jpeg](img-1.jpeg)

## FISCAL YEAR

Our fiscal year results are based on a 52- or 53-week calendar ending on the last Saturday in December. Fiscal year 2022 had 53 weeks and ended on December 31, 2022. Fiscal year 2021 had 52 weeks and ended on December 25, 2021. Fiscal year 2020 had 52 weeks and ended on December 26, 2020. Certain subsidiaries operate on a calendar year basis; however, the reporting difference did not have a material impact on 2022 and the other periods presented.

## STRATEGIC TRANSFORMATION

We have been undergoing a strategic business transformation to pivot our Company into an integrated B2B distribution platform, with the objective of expanding our product offerings to include value-added products and services for our customers and capture greater market share. In May 2021, our Board of Directors had unanimously approved a plan to pursue a separation of the Company into two independent, publicly traded companies, representing our B2B and consumer businesses, which was planned to be achieved through a spin-off of our consumer business. On January 14, 2022, we announced that our Board of Directors determined to delay the previously announced public company separation to evaluate a potential sale of our consumer business and that we had received a non-binding proposal from another third party, in addition to the offer previously received from USR Parent, Inc., to acquire our consumer business. On June 21, 2022, our Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire our consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest our consumer business at this time. Further, our Board of Directors also determined not to resume our previously planned separation of our consumer business at that time and instead to maintain all of our businesses under common ownership.

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Upon the decision to maintain all our businesses under common ownership, using the flexibility afforded by our holding company restructuring that was previously completed in 2020, we re-aligned our operations under our holding company structure in 2022 into our 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 we are looking at our products and offerings and serving our customers. How our customers work and interact has changed, with businesses demanding a wider range of products and services, and a more modern digital environment in which to operate, and with consumers demanding an omni-channel retail experience. In addition, dependable supply chain operations have become increasingly important in meeting these demands. We performed a full strategic review of our operations in light of these factors and determined that completing the re-alignment of our operations in this manner enables us to better focus on our customers by being in a better position to meet a wider array of customer needs for product, service, and omni-channel choices. We also determined that the re-alignment provides for greater accountability internally for product and service outcomes, customer experiences, capital allocations, and pursuing strategic opportunities. We believe our B2B and consumer businesses operating collectively under our holding company structure will improve shareholder value, business transparency, and derive benefits from scaling.

## AVAILABLE INFORMATION

We make available, free of charge, on the “Investor Relations” section of our website, investor.theodpcorp.com, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file or furnish such materials to the United States Securities and Exchange Commission (“SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, such as the Company, that file electronically with the SEC. The address of that website is www.sec.gov.

Additionally, our corporate governance materials, including our bylaws, corporate governance guidelines, charters of the Audit, Compensation & Talent, and Corporate Governance & Nominating Committees, and our code of ethical behavior may be found under the “Investor Relations” section of our website, investor.theodpcorp.com.

## HOW WE ORGANIZE OUR BUSINESS

At December 31, 2022, our operations are organized into four reportable segments (or “Divisions”): ODP Business Solutions Division, Office Depot Division, Veyer Division, and Varis Division. Prior to the third quarter of 2022, we had two reportable segments which were our Business Solutions Division and Retail Division. We sold our CompuCom Division in the first quarter of 2022. Additional information regarding our Divisions is presented in MD&A and in Note 3. “Segment Information” in Notes to Consolidated Financial Statements located in Financial Statements and Supplemental Details of this Annual Report.

### ODP BUSINESS SOLUTIONS DIVISION

The ODP Business Solutions Division, or ODP BSD, is our 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 our 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 our private branded, office supply and adjacency products and services to customers, who are served through a dedicated sales force, catalogs, telesales, and electronically through our 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 us as part of our transformation to expand our 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 and accretive opportunity to expand our distribution reach, target new business customers and grow our offerings beyond traditional office supplies.

In 2022, we continued to build on several initiatives to expand our margins, grow in adjacency product and services categories, and increase cash flows of ODP BSD, including the following:

- maintain strength in traditional office supplies by providing a customized experience for our customers, and offering differentiated value;
- expand customer base through targeted business customer acquisitions and continued strong retention trends;
- drive sales in our adjacency categories by offering customers opportunities to save via consolidating vendors and leveraging our national distribution footprint;

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- provide a highly customizable digital customer experience, including subscription services and reporting and analytic tools;
- partner with key vendors to add new products to our assortment of offerings; and
- continue our highly successful Federation strategy to acquire new small business customers while also expanding in underserved markets.

# OFFICE DEPOT DIVISION

The Office Depot Division is our leading provider of retail consumer and small business products and services distributed through a fully integrated omni-channel platform of 980 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). Our 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, and offers business services including copying, printing, digital imaging, mailing, shipping and technology support services. In addition, the printing needs for retail and business customers are facilitated through our regional print production centers. Our Office Depot Division aims to serve small business, home office, educational customers, and consumers better than anyone else can by providing a unique combination of value, convenience and customer engagement.

We have a broad representation across the United States with the largest concentration of our retail stores in Texas, California, and Florida. Most of our retail stores are located in leased facilities that currently average over 20,000 square feet. To better serve our customers any way they choose to shop, we have a Buy Online-Pickup in Store (“BOPIS”) offering, and a 20 minute in-store or curbside pick-up guarantee for online orders placed two hours before our store closing time in all locations. We also offer same-day delivery in selected markets.

In 2022, we continued to build on several initiatives to drive cash flow generation from our Office Depot Division, including the following:

- expand our assortment of offerings to new adjacencies relevant to our core customer segments, including arts and crafts, home office organization and décor, and small business services;
- integrate our newly combined omni-channel assets, incorporating our eCommerce channel, OfficeDepot.com, within our consumer Office Depot segment;
- expand our industry-leading in-store pickup program while improving our online and mobile conversion rate and average order size;
- optimize store footprint and carefully manage expenses to remain highly profitable; and
- optimize growing our 5C culture, giving back to our local communities and supporting equal opportunities in education and entrepreneurship.

In 2020, we implemented the Maximize B2B Restructuring Plan, a restructuring plan to re-align our operational focus to support our “business-to-business” solutions and improve costs. The Maximize B2B Restructuring Plan is broader than restructuring programs we have implemented in the past and includes closing retail stores through the end of 2023. Since the implementation of the Maximize B2B Restructuring Plan, we have closed a total of 237 retail stores as a result of this plan. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Consolidated Financial Statements for additional information.

# VEYER DIVISION

The Veyer Division is our supply chain, distribution, procurement and global sourcing operation. With over 35 years of experience and branded under a new name, 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.

At the core of the Veyer Division’s asset base is our distribution network with more than 100 facilities, which include 64 distribution centers (“DCs”) and crossdock facilities as well as satellite locations, and over 9 million square feet of distribution space, which provides for coverage in all the key markets we serve. We have a workforce of approximately 4,000 team members, and a robust network of dedicated national and international carrier partnerships, supporting ocean, line haul, less than truckload and national small parcel capacity. We have a private fleet of approximately 600 vehicles in the Veyer Division’s delivery fleet and a nationwide last-mile delivery service. With our network coverage, we can reach 98.5% of the U.S. population for next day services across multiple distribution points, whether they are retail stores, consumer homes, or businesses. Our local and global sourcing offices in Asia select, source and purchase products each year in office product, technology, furniture, cleaning and breakroom categories, including private

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brands, all of which we distribute for our customers throughout our network. These assets are supported by quality technology that supports a high level of service for our customers and reduces Veyer Division's operating costs.

In 2022, we continued to build on several initiatives to drive incremental income through our Veyer Division, including the following:

- deliver exceptional service and competitive pricing to Office Depot and ODP Business Solutions to ensure they achieve their business objectives and remain highly competitive in the markets they serve;
- utilize available existing capacity to grow with new clients, including in the third-party logistics segment where there is demand for the services we provide and capabilities we have;
- modernize key functionality to ensure we provide great value to our customers, for example, through automated technology and robotics in our DCs and crossdock facilities; and
- drive a low-cost business model to drive profitability.

# VARIS DIVISION

The Varis Division is our 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 our development efforts of this Division, we acquired BuyerQuest Holdings, Inc. ("BuyerQuest") in 2021, a software as a service eProcurement platform company. BuyerQuest's operating results are included in the operating results for our 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.

# OUR CAPITAL

# INTELLECTUAL PROPERTY

We currently operate under the brand names Office Depot®, OfficeMax® and Grand & Toy®, as well as others. We hold trademark registrations and pending applications domestically and worldwide for these operating brands as well as for a wide assortment of private branded products and services including "Office Depot," "TUL®," "Ativa®," "Foray®," "Realspace®," "WorkPro®," "Brenton Studio®," "Highmark®," "Executive Suite®," "Juku®," and others. We also hold issued patents and pending patent applications domestically and worldwide for certain private branded products, such as shredders, office chairs and writing instruments.

# HUMAN CAPITAL MANAGEMENT

As of January 28, 2023, we had approximately 25,000 full-time and part-time employees from continuing operations as compared to 26,000 full-time and part-time employees as of January 22, 2022. The year-on-year change is mainly attributable to planned store closures and other cost reduction measures. We also utilize independent contractors and temporary personnel to supplement our workforce. Our key human capital management objectives are to attract, retain and develop talent to drive our strategy for long-term success.

Our Board of Directors provides oversight on certain human capital management matters, including through its Compensation & Talent Committee. The Compensation & Talent Committee is responsible for overseeing and providing perspective on our strategies and policies including with respect to diversity and inclusion, pay equity, recruiting, retention, training and development, and workplace environment and safety consistent with our culture, objectives and strategy. We believe in maintaining a supportive and inclusive culture that values everyone's talents, life experiences and backgrounds. We are proud of the diversity within our Board of Directors, comprised of 33% female directors and 33% of directors who are People of Color. Our total workforce is 42% female.

Human capital development underpins our efforts to execute our strategy. We invest in our employees' career growth and provide employees with a range of development opportunities. Since the onset of the COVID-19 pandemic in 2020, our training and educational programs switched exclusively to virtual settings, and we swiftly pivoted to offer online courses to associates across all banners. Online courses proved effective for reaching employees working remotely and effective for advancing employee learning.

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We have a demonstrated history of investing in our workforce through comprehensive and competitive compensation and benefits, and a focus on employee health and wellbeing. A key component of our foundation is our 5C culture, which is built on five key cultural values - “customer”, “commitment”, “create”, “change” and “caring.” Our 5C culture drives exceptional performance in everything we do. We focus on the skills and behaviors that matter most, shaping our culture through actions. Our 5C focus helps drive strong community support and focuses on sustainability, diversity, and environmental improvements, driving a stronger and more effective organization.

Our corporate headquarters is open, but certain employees who are able to work productively from home, have had the flexibility to work remotely since the COVID-19 pandemic. We continue to have employees in our retail stores, customer support and DCs working on-site at our facilities, as well as technicians and field support on-site at customer locations. Employee business travel remains limited to only essential business needs.

## OUR STRATEGY

### SUPPLY CHAIN

Our supply chain is managed by our Veyer Division. Refer to the “How we organize our business” section above for further information on our supply chain capabilities and resources. We believe that inventory held in our DCs is at levels sufficient to meet current and anticipated customer needs. Certain purchases are sent directly from the manufacturer, industry wholesaler or other primary supplier to our customers or retail stores. Some supply chain facilities and some retail locations also house sales offices, showrooms, and administrative offices supporting our contract sales channel.

As of December 31, 2022, we operated a total of 64 DCs and crossdock facilities from continuing operations in the United States and Canada. Including our satellite locations, we had over 100 facilities in our distribution network. Refer to “Properties” within Other Key Information for more details.

### MERCHANDISING AND SERVICES

Our merchandising and services strategy is to meet our customers’ needs by offering a broad selection of nationally branded office supply and adjacency products, as well as our own private branded products and services. The selection of our private branded products has increased in breadth and level of sophistication over time. We currently offer products under such labels, including Office Depot®, OfficeMax®, Foray®, Ativa®, TUL®, Realspace®, WorkPro®, Brenton Studio®, Highmark®, and Grand & Toy®.

We generally classify our offerings into four categories: (1) supplies, (2) technology, (3) furniture and other, and (4) copy and print. The supplies category includes products such as paper, writing instruments, office supplies, cleaning and breakroom supplies, personal protective equipment, and product subscriptions. The technology category includes products such as toner and ink, printers, computers, tablets and accessories electronic storage, and sales of third-party software, as well as technology support services offerings provided in our retail stores. The furniture and other category includes products such as desks, seating, luggage, gift cards, and warranties. The copy and print category includes offerings such as printing of business cards, banners, documents and promotional products, copying and photo services, and managed print and fulfillment services.

Total Company sales by offering were as follows:

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Major revenue categories |  |  |  |
| 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% |

We buy substantially all of our merchandise through our Veyer Division directly from manufacturers, industry wholesalers, and other primary suppliers, and source our private branded products from domestic and offshore sources. We enter into arrangements with vendors that can lower our unit product costs if certain volume thresholds or other criteria are met. For additional discussion regarding these arrangements, refer to “Critical Accounting Policies” in MD&A.

In recent years, we have increasingly used global offerings across the regions to further reduce our product cost while maintaining product quality.

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As part of our Veyer Division, we operate a global sourcing office in Shenzhen, China, which allows us to better manage our product sourcing, logistics and quality assurance. This office consolidates our purchasing power with Asian factories and, in turn, helps us to increase the scope of our own branded offerings.

## SALES AND MARKETING

We regularly assess consumer shopping behaviors in order to refine our strategy and curate the desired product assortment, shopping environment and purchasing methods. Identifying the most desirable and effective way to reach our customers and allowing them to shop through whichever channel they prefer will continue to be a priority. These efforts have impacted the extent, format and vehicles we use to advertise to and reach customers, our web page design, promotions and product offerings.

Our marketing programs are designed to create and capture demand, drive frequency of customer visits, increase customer spend across product lines, and build brand awareness. We have shifted a meaningful amount of our marketing efforts in recent periods to digital programs that increase demand generation, enhance audience targeting and include the use of social media platforms and digital videos. We also continue to advertise through traditional outbound marketing vehicles such as e-mail, direct mail and catalogues.

Our customer loyalty and other incentive programs provide our customers with rewards that can be applied towards future purchases or other incentives. These programs enable us to effectively market to our customers and may change as customer preferences shift.

We perform periodic competitive pricing analyses to monitor each market, and prices are adjusted as necessary to further our competitive positioning. We generally target our pricing to be competitive with other resellers of office products and providers of business services and technology solutions. Refer to “Industry and Competition” below for further information.

Our customer acquisition efforts regularly shift to vehicles and formats found to be most productive for reaching the targeted customer. We acquire customers through e-mail and social media campaigns, online affiliate connections, on-premises sales calls, outbound sales calls, and catalogs, among others. No single customer accounted for more than 10% of total consolidated sales or receivables in 2022, 2021 or 2020. Additionally, we believe that none of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect in our consolidated results of operations.

## SEASONALITY

Our business experiences a certain level of seasonality, with sales generally trending lower in the second quarter, following the “back-to-business” sales cycle in the first quarter and preceding the “back-to-school” sales cycle in the third quarter and the holiday sales cycle in the fourth quarter for our ODP Business Solutions and Office Depot Divisions. Certain working capital components may build and recede during the year reflecting established selling cycles. Business cycles can and have impacted our operations and financial position when compared to other periods.

## INDUSTRY AND COMPETITION

We operate in a highly competitive environment. Our ODP Business Solutions and Office Depot Divisions compete with office supply stores, warehouse clubs, discount stores, mass merchandisers, independent dealers, wholesalers, online retailers, off-price retailers, food and drug stores, computer and electronics superstores and direct marketing companies. These companies compete with us in substantially all of our current markets. Increased competition in the office products markets, together with increased advertising, and Internet-based search tools, has heightened price awareness among end-users. Such heightened price awareness has led to sales and margin pressure on our office products categories and has impacted our results. In addition to price, we also compete based on customer service, the quality and extent of product selection and convenience. Other office supply retail companies market similarly to us in terms of store format, pricing strategy, product selection and product availability in the markets where we operate. Although we also compete through our private label offerings, some of our competitors are larger than us and have greater financial resources, which provide them with greater purchasing power, increased financial flexibility and more capital resources for expansion and improvement, which may enable them to compete more effectively. We anticipate that in the future we will continue to face high levels of competition from these companies.

We believe our robust field sales forces, dedicated customer service associates and the efficiency and convenience for our customers position our ODP Business Solutions Division well to compete with other business-to-business office products distributors. We believe our Office Depot Division competes favorably against competitors based on convenience, location, the quality of our customer service, our store layouts, the range and depth of our merchandise offering and our pricing.

Our Veyer Division competes externally with supply chain operators, and our Varis Division competes with other digital platform operations and procurement technologies. As external sales of our Veyer Division and our Varis Division continue to grow, how they compete in their respective industries is expected to be further defined.

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# ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)

We believe that ESG issues play an essential role in the success of our Company, our industry and our communities, now and for future generations. We are committed to conducting our business in a sustainable manner and maintain policies and procedures that establish the foundation of our environmental responsibility program. We are committed to empowering our employees and suppliers at all levels to promote safe and environmentally responsible practices. In this regard, we focus on initiatives such as the reduction of facility energy consumption, reduction in transmission emissions in our private fleet, increasing sales of high-quality, sustainable products with greener attributes, improved recycling programs, and minimize the use of harmful chemicals. We utilize a “triple bottom line” approach as the framework for our sustainability initiatives: Planet (environmental), People (social) and Prosperity (economic). While the environmental and social aspects help us lower emissions, capture community impacts, and quantify other metrics, they ultimately impact our success by creating greater business value. Our governance model also includes Board oversight of our Sustainability Program through the Corporate Governance and Nominating Committee.

ODP continues to implement environmental programs in line with our stated environmental policy to “buy greener, be greener and sell greener” - including environmental sensitivity in our packaging, operations and sales offerings. Additional information on our green product offerings can be found at www.officedepot.com/buygreen.

We are subject to a variety of environmental laws and regulations related to historical OfficeMax operations of paper and forest products businesses and timberland assets. We record environmental and asbestos liabilities, and accrue losses associated with these obligations, when probable and reasonably estimable. We record a separate insurance recovery receivable when considered probable. Refer to “Legal Proceedings” within Other Key Information for more details.

# WHO MANAGES OUR BUSINESS

## INFORMATION ABOUT OUR EXECUTIVE OFFICERS

The following information is provided regarding the executive officers of ODP.

### *Gerry P. Smith - Age: 59*

Mr. Smith was appointed to serve as our Chief Executive Officer and a Director in February 2017. Prior to joining us and since 2006, Mr. Smith was at Lenovo Group Limited (“Lenovo”) and previously served as Lenovo’s Executive Vice President and Chief Operating Officer since 2016 where he was responsible for all operations across Lenovo’s global product portfolio. Prior to assuming this role, also in 2016, Mr. Smith was Executive Vice President and President, Data Center Group. From 2015 to 2016, he served as Chief Operating Officer of the Personal Computing Group and Enterprise Business Group, and from 2013 to 2015 he served as President of the Americas. In these roles, Mr. Smith oversaw Lenovo’s fast-growing enterprise business worldwide and Lenovo’s overall business in the America’s region. Prior to that, Mr. Smith was President, North America and Senior Vice President, Global Operations of Lenovo from 2012 to 2013, and Senior Vice President of Global Supply Chain of Lenovo from 2006 until 2012 where he was responsible for end-to-end supply chain management. Prior to Lenovo, Mr. Smith held a number of executive positions at Dell Inc. from 1994 until 2006, as the company became a global leader in personal computers. Since August 2020, he serves on the Board of Directors of Arrow Electronics, Inc. and is a member of its Corporate Governance and Compensation Committees. In January 2022, Mr. Smith became a founding member of the Advisory Board for Zero100 - a global coalition of CEOs, Chief Operations and Supply Chain Officers working to accelerate progress towards zero percent carbon, 100% digital supply chains.

### *David Centrella - Age: 52*

Mr. Centrella was appointed to serve as our Executive Vice President and President of ODP Business Solutions in May 2022. Mr. Centrella joined the Company in 1998 and has over 30 years of experience in Finance, Merchandising, Sales and Sales Operations in various leadership roles during his tenure, including most recently as Sr. Vice President of FP&A. Mr. Centrella is responsible for core B2B sales and operations across all customer segments and vertical markets.

### *Sarah E. Hlavinka - Age: 58*

Ms. Hlavinka was appointed to serve as our Executive Vice President, Chief Legal Officer and Corporate Secretary in July 2022, and previously served as General Counsel of Office Depot, LLC from April 2022 to July 2022. Prior to joining The ODP Corporation, Ms. Hlavinka served as Senior Vice President, General Counsel and Corporate Secretary for Itron, Inc. Prior to Itron, Inc., she served in a similar role at Xerox and served in various legal roles in companies across a broad range of disciplines. Ms. Hlavinka has served on the Board of Directors of Quanterix Corporation since 2019 and is a member of its Corporate Governance and Audit Committees.

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# ***John W. Gannfors - Age: 57***

Mr. Gannfors was appointed to serve as our Executive Vice President and President of Veyer in September 2022. He previously served as Executive Vice President and Chief Merchandising and Supply Chain Officer from August 2018 to September 2022. Mr. Gannfors served as Executive Vice President, Transformation, Strategic Sourcing and Supply Chain from July 2017 to August 2018, and as our Executive Vice President, Transformation and Strategic Sourcing when he joined the Company in April 2017. Prior to joining us, Mr. Gannfors served as Chief Procurement Officer at Lenovo, where he spent nearly ten years. Prior to assuming this role, Mr. Gannfors served in various leadership roles at Dell Inc. Mr. Gannfors began his career in Product Management at Lockheed Martin’s Calcomp division and Definicon Systems.

# ***Zöe Maloney - Age: 50***

Ms. Maloney was appointed to serve as our Executive Vice President, Chief Human Resources Officer in November 2021. Ms. Maloney joined us in February 2005 and has more than 25 years of experience in communications, organization and leadership development, and human resources and held several executive management roles including serving as our Senior Vice President, Human Resources from April 2017 to October 2021; Vice President, Human Resources from August 2011 to April 2017; and Senior Director, Communications & Engagement from 2010 to 2011. Prior to joining us, Ms. Maloney served in various management positions at Johnson & Johnson, 3-Dimensional Pharmaceuticals, and CDI International.

# ***Kevin Moffitt - Age: 49***

Mr. Moffitt was appointed to serve as our Executive Vice President and President of Office Depot in September 2022. He previously served as Executive Vice President, Chief Retail Officer from November 2018 to September 2022. Mr. Moffitt served as our Senior Vice President, Chief Retail Officer from January 2018 to November 2018; Senior Vice President, Chief Digital Officer in 2017; Senior Vice President, eCommerce & Direct Business Unit Leader from 2016 to 2017; and as our Vice President, eCommerce Product Management and Customer Experience from 2012 to 2016. Prior to joining us, he held several leadership roles at Dillard’s Department Stores, Circuit City Stores and Putnam Investments.

# ***D. Anthony Scaglione - Age: 50***

Mr. Scaglione was appointed to serve as our Executive Vice President, Chief Financial Officer in July 2020. Prior to joining the Company, Mr. Scaglione served as Executive Vice President and Chief Financial Officer at ABM Industries Incorporated (“ABM”), where he was responsible for all financial, M&A, IT, tax, enterprise services and procurement functions from 2015 to 2020. Mr. Scaglione joined ABM as Vice President & Treasurer in 2009, and was Senior Vice President, Treasurer, Mergers & Acquisitions from 2012 to 2015. Prior to joining ABM, Mr. Scaglione held executive finance positions at CA Technologies from 2005 to 2009. Prior to CA Technologies, Mr. Scaglione served as a manager with Ernst & Young from 2001 to 2005.

## OTHER KEY INFORMATION

### RISK FACTORS

In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to us and our industry could materially impact our business, financial condition, results of operations, cash flows and future performance and results. You should carefully consider the risks described below in our subsequent periodic filings with the SEC. The following risk factors should be read in conjunction with MD&A and Notes to Consolidated Financial Statements of this Annual Report.

#### Risks Related to Our Industry and Macroeconomic Conditions

##### *Macroeconomic conditions have had and may continue to adversely affect our business and financial performance.*

Our operating results and performance depend significantly on economic conditions and their impact on business and consumer spending. In the past, the decline in business and consumer spending has caused our comparable retail store sales and ODP BSD sales to decline from prior periods. The global macroeconomic outlook continues to remain uncertain due to a variety of factors, including geopolitical instability, labor shortages, supply chain disruptions and inflation related to increased occupancy, fuel, raw materials and other costs, and the impacts of the COVID-19 pandemic may continue, all of which may continue to exacerbate many of the other risks described in this “Risk Factors” section, any of which could have a material effect on us. Our business and financial performance may continue to be adversely affected by current and future economic conditions, including, without limitation, the level of consumer debt, high levels of unemployment, higher interest rates and the ability of our customers to obtain credit, which may cause a continued or further decline in business and consumer spending. In addition, a weaker U.S. economy, higher unemployment

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and inflation on essential goods will materially impact consumer spending. Decreased foot traffic at our stores and declining financial performance of or product demand from our business customers has and will continue to adversely impact future sales.

*Our business, results of operations and financial performance have been and will continue to be adversely affected by the ongoing COVID-19 pandemic, which could materially affect our future results.*

The COVID-19 pandemic has had widespread, rapidly evolving and unpredictable impacts on global society, economies, financial markets and consumer and business spending. Given that businesses still continue remote and hybrid working arrangements and there is no certainty on return to office full time, this has impacted and will continue to impact our business and the demand for our products. Except for certain identified positions where in-person work is essential, our employees and our third-party vendors also continue to work remotely or pursuant to hybrid work arrangements and this change in work force conditions may continue to introduce risk, including, but not limited to, loss of productivity, cybersecurity, and operational risks. We are monitoring the continuing impact of the COVID-19 pandemic on all aspects of our business, including how it is and will continue to impact our customers, employees, suppliers, vendors, business partners and distribution channels.

COVID-19 has also impacted our supply chain which has resulted in higher supply chain costs to replenish inventory in our retail stores and distribution centers, and increased delivery costs. Furthermore, we have experienced restricted product availability in certain categories, and while we have significantly increased our purchases across many categories, including new product categories, we have faced and may continue to face delays or difficulty sourcing certain products.

In addition, we cannot predict the impact that COVID-19 will continue to have on our customers, employees, suppliers, vendors, other business partners, and each of their financial conditions including the impacts on our supply chain, impacts to our distribution and logistics providers' ability to operate or increases in their operating costs, which have and may continue to have an adverse effect on our ability to meet customer demand and has resulted and could continue to result in an increase in our costs of production and distribution, including increased freight and logistics costs and other expenses; disruption to our third-party manufacturing partners and other vendors, including through effects of facility closures, reductions in operating hours and work force. Any material effect on these parties could adversely impact us. The impact of COVID-19 may also exacerbate other risks discussed in this section, any of which could have a material effect on us. The situation surrounding COVID-19 remains fluid and additional impacts may arise that we are not aware of currently.

*Our business is highly competitive and failure to adequately differentiate ourselves or respond to shifting consumer demands could continue to adversely impact our financial performance.*

The office products market is highly competitive and we compete locally, domestically and internationally with office supply resellers, including Staples, Internet-based companies such as Amazon.com, mass merchandisers such as Wal-Mart and Target, wholesale clubs such as Costco, Sam's Club and BJs, computer and electronics superstores such as Best Buy, food and drug stores, discount stores, and direct marketing companies. Some competitors may offer a broader assortment of products or have more extensive e-commerce channels, while others have substantially greater financial resources to devote to sourcing, marketing and selling their products. The ability of consumers to compare prices on a real-time basis using digital technology puts additional pressure on us to maintain competitive pricing. In addition, consumers are utilizing more technology and purchasing less paper, ink and toner, physical file storage and general office supplies. In order to achieve and maintain expected profitability levels, we must continue to grow by adding new customers and taking market share from competitors. If we are not able to compete effectively, it could negatively affect our business and results of operations.

The retail sector continues to focus on delivery services, with customers increasingly seeking faster, guaranteed delivery times and low-price or free shipping. Our ability to be competitive on delivery times and delivery costs depends on many factors, and our failure to successfully manage these factors and offer competitive delivery options could negatively impact the demand for our products and our profit margins. Because our business strategy is based on offering superior levels of customer service and a full range of services to complement the products we offer, our cost structure might be higher than some of our competitors, and this, in conjunction with price transparency, could put pressure on our margins.

*Our quarterly operating results are subject to fluctuation due to the seasonality of our business.*

Our business experiences a certain level of seasonality with sales generally trending lower in the second quarter, following the 'back-to-business' sales cycle in the first quarter and preceding the 'back-to-school' sales cycle in the third quarter and the holiday sales cycle in the fourth quarter. As a result, our operating results have fluctuated from quarter to quarter in the past, with sales and profitability being generally stronger in the second half of our fiscal year than the first half of our fiscal year. Factors that could also cause these quarterly fluctuations include: the pricing behavior of our competitors; the types and mix of products sold; the level of advertising and promotional expenses; severe weather; global pandemic; macroeconomic factors that affect consumer confidence and spending; and the other risk factors described in this section. Most of our operating expenses, such as occupancy costs and associate

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salaries, are not variable, and so short-term adjustments to reflect quarterly results are difficult. As a result, if sales in certain quarters are significantly below expectations, we may not be able to proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall would have an adverse effect on our net income for the quarter.

***Increases in fuel and other commodity prices could have an adverse impact on our earnings.***

We operate a large network of retail stores, distribution centers, and delivery vehicles. As such, we purchase significant amounts of fuel needed to transport products to our retail stores and customers as well as shipping costs to import products from overseas. Additionally, the performance of certain of our divisions is dependent upon market conditions in the transportation and logistics industry, including fluctuations in fuel costs. While we may hedge our anticipated fuel purchases, the underlying commodity costs associated with this transport activity is beyond our control and may be volatile. Recently, the supply and availability of fuel in markets in which we operate have experienced increased volatility and have led to increased fuel prices. Disruptions in availability of fuel or future increases in the price of fuel could cause our operating costs to rise significantly to the extent not covered by our hedges and could have a negative impact on our ability to operate our transportation networks. Additionally, other commodity prices, such as paper, may increase and we may not be able to pass along such costs to our customers. Fluctuations in the availability or cost of our energy and other commodity prices could have a material adverse effect on our profitability.

***Increased transportation costs and changes in the relationships with independent shipping companies may have an adverse effect on our business.***

We rely upon third-party carriers for timely delivery of our product shipments. As a result, we are subject to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather and increased labor and fuel costs. Any failure to deliver products to our customers in a timely and accurate manner may damage our reputation and brand and may cause us to lose customers. If our relationship with any of these third-party carriers is terminated or impaired, or if any of these third parties are unable to ship products for us, we would be required to use alternative, and possibly more expensive, carriers for the shipment of products. We may be unable to engage alternative carriers on a timely basis or on terms favorable to us, if at all, which may have an adverse effect on our results of operations, financial condition and cash flows. Changes in shipping terms, or the inability of these third-party shippers to perform effectively (whether as a result of mechanical failure, casualty loss, labor stoppage, or any other reason), may have an adverse effect on our results of operations, financial condition and cash flows. Additionally, deterioration of the financial condition of these third-party carriers may have an adverse effect on our shipping costs. Any future increases in shipping rates may have an adverse effect on our results of operations, financial condition and cash flows, particularly if we are unable to pass on these higher costs to our customers.

***Catastrophic events could adversely affect our operating results.***

The risk or actual occurrence of one or more catastrophic events could have a material adverse effect on our financial performance. Such events may be caused by, for example:

- natural disasters or extreme weather events such as climate change, hurricanes, tornadoes, floods and earthquakes;
- diseases, epidemics or pandemics (such as the ongoing COVID-19 pandemic) that may affect our employees, customers or partners;
- floods, fire or other catastrophes affecting our properties;
- the Russia-Ukraine conflict, terrorism, civil unrest or other conflicts; or
- extended power outages.

As noted above, the COVID-19 pandemic has had, and may continue to have, a material adverse impact on our business and results of operations. Such catastrophic events could result in physical damage to, or complete loss of, one or more of our properties, the closure of one or more stores, the lack of an adequate work force in the market, changes in the purchasing patterns of consumers (including the frequency of visits by consumers to physical retail locations, whether as a result of limitations on large gatherings, travel and movement limitations or otherwise) and in consumers' disposable income, the temporary or long-term disruption in the supply of products from some suppliers, the disruption in the transport of goods from overseas, the disruption or delay in the delivery of goods to our distribution and fulfillment centers or stores within the country, the reduction in the availability of products in our stores and can disrupt or disable portions of our supply chain and distribution network. They can also affect our information systems, resulting in disruption to various aspects of our operations, including our ability to transact with customers and fulfill orders.

Furthermore, the long-term impacts of climate change, whether involving physical risks (such as extreme weather conditions) or transition risks (such as regulatory or technology changes) are expected to be widespread and unpredictable. These changes over time

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could affect, for example, the availability and cost of certain consumer products, commodities and energy (including utilities), which in turn may impact our ability to manufacture or procure certain goods required for the operation of our business at the quantities and levels we require. As a consequence of these or other catastrophic events, we may endure interruption to our operations or losses of property, equipment or inventory, which would adversely affect our revenue and profitability. For example, hurricanes can disrupt operations in the southeastern United States and the Gulf Coast region where a heavy concentration of our customers are located, and negatively impact sales in both our ODP Business Solutions and Office Depot Divisions. Moreover, current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if such events are catastrophic in nature or occur in combination.

## Risks Related to our Business and Operations

*The re-alignment of our operating and reporting structure into four business units may not result in the anticipated benefits.*

The Company has recently undergone a re-alignment of its business to four operating divisions. We may not realize, in full or in part, the anticipated benefits and improvements in our operations from our strategic business transformation due to unforeseen difficulties, delays or unexpected costs. If we are not able to effectively execute on our strategic business transformation, we may not be able to offer attractive value-added services to our customers or capture greater market share. We may have limited experience in our newer market segments, and our customers may not adopt our product or service offerings. These offerings, which can present new and difficult technology challenges, may subject us to claims if customers of these offerings experience, or are otherwise impacted by, service disruptions, delays, setbacks, or failures or quality issues. In addition, profitability, if any, in our newer activities may not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them, which investments are significant. Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those investments being written down or written off. In addition, our strategic business transformation may be disruptive to our existing operations and, among other things, implementing our new business plan will require significant managerial attention, which may be diverted from our other operations. If we are unable to realize the expected operational efficiencies and scaling benefits from the re-alignment, our business, financial condition and operating results may be adversely affected.

*Our focus on new business offerings exposes us to certain risks that could have a material adverse impact on our revenue and profitability as well as our reputation.*

Our transformation into an integrated distribution platform of business services and products, including supply chain, distribution, procurement, global sourcing and our new digital procurement platform can differentiate us from many of our competitors and provide an opportunity to deliver superior customer service while generating additional revenue and profit. However, designing, marketing and executing these services successfully and consistently is subject to risks. These risks include, for example:

- increased labor expense to fulfill our customer promises, which may be higher than the related revenue;
- intense competition in the marketplace;
- lack of brand recognition; and
- need for continued investment of our technology and infrastructure;

Our ability to compete successfully depends on our ability to ensure a continuing and timely introduction of innovative new products, services and technologies to the marketplace. If we are unable to pivot into a more business services-driven platform and sell innovative new products, our ability to gain a competitive advantage could be adversely affected.

These expanded risks increase the complexity of our business and places significant responsibility on our management, employees, operations, systems, technical expertise, financial resources, and internal financial and regulatory control and reporting functions. In addition, new initiatives we test through trials and pilots may not scale or grow effectively or as we expected, which could limit our growth and negatively affect our operating results. They may also involve significant laws or regulations that are beyond our current expertise.

*If we are unable to successfully refine and execute our business strategies, our operating performance could be significantly impacted.*

Our ability to both refine our operating and strategic plans and execute the business activities associated with our refined plans, including cost savings initiatives, could impact our ability to meet our operating performance targets.

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Our business strategy also includes making acquisitions and investments that complement our existing business as well as strategic divestitures to maximize value. These acquisitions and investments or divestitures could be unsuccessful or consume significant resources, which could adversely affect our operating results.

Our ability to achieve the benefits we anticipate from acquisitions we make will depend in large part upon whether we are able to leverage the capabilities of the acquired companies to grow revenue across our combined organization, manage the acquired company's business, execute our strategy in an efficient and effective manner and realize anticipated cost synergies. In addition, private companies recently acquired which were previously not subject to Section 404 of the Sarbanes-Oxley Act of 2002 ('SOX'), may lack certain internal controls, which could ultimately affect our ability to ensure compliance with the requirements of SOX.

Because our business and the business of acquired companies may differ operationally, we may not be able to effectively manage or oversee the operations of the acquired company's business smoothly or successfully and the process of achieving expected revenue growth and cost synergies may take longer than expected. If we are unable to successfully manage the operations of the acquired company's business, we may be unable to realize the revenue growth, cost synergies and other anticipated benefits we expect to achieve as a result of the acquisition.

While our business strategy may contemplate divestitures of certain business units, we may not be able to complete these divestitures on terms favorable to us, on a timely basis, or at all. Furthermore, desired or proposed divestitures of business units may not meet all of our strategic objectives or our growth or profitability targets. Our divestiture activities, or related activities such as reorganizations, restructuring programs and transformation initiatives, may require us to recognize impairment charges or to take action to reduce costs that remain after we complete a divestiture. Gains or losses on the sales of, or lost operating income from those businesses may also affect our profitability.

# ***Failure to attract and retain qualified personnel could have an adverse impact on our business.***

Our performance is highly dependent on attracting, retaining and engaging appropriately qualified employees in our retail stores, service centers, distribution centers, field and corporate offices. The market for qualified employees, with the right talent and competencies, is highly competitive. Factors that affect our ability to maintain sufficient numbers of qualified employees include employee morale, our reputation, unemployment rates, competition from other employers, availability of qualified personnel and our ability to offer appropriate compensation and benefits packages. We operate in a competitive labor market and there is a risk that market increases in compensation and benefits costs could have a material adverse effect on our profitability. Failure to recruit or retain qualified employees, and the inability to keep our supply of skills and resources in balance with customer demand, may impair our efficiency and effectiveness, our ability to pursue growth opportunities and adversely affect our results of operations. In addition, a significant amount of turnover of our executive team or other employees in key positions with specific knowledge relating to us, our operations and our industry, may negatively impact our operations.

We depend on our executive management team and other key personnel, and the inability to recruit and retain certain personnel could adversely affect our performance and result in the loss of management continuity and institutional knowledge.

Although certain members of our executive team have entered into agreements relating to their employment with us, most of our key personnel are not bound by employment agreements, and those with employment or retention agreements are bound only for a limited period of time and enforceability of the non-compete provisions of those employment agreements is declining. If we are unable to retain our key personnel or restrict the manner in which they may be employed by our competitors, we may be unable to successfully develop and implement our business plans, which may have an adverse effect on our business and results of operations.

# ***If we are unable to successfully maintain a relevant experience for our customers, our results of operations could be adversely affected.***

With the increasing use of digital technology to shop in our retail stores and online, we rely on our omni-channel capabilities to provide a seamless shopping experience to our customers and to keep pace with new developments by our competitors. If we are unable to attract and retain team members or contract third parties with the specialized skills needed to support our omni-channel platforms or are unable to implement improvements to our customer-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected. In addition, if our website and our other customer-facing technology systems do not function as designed, the customer experience could be negatively affected, resulting in a reduction of the amount of traffic in our stores, a loss of customer confidence and satisfaction, and lost sales, which could adversely affect our reputation and results of operations.

Moreover, changes in customer preferences have reduced, and may continue to reduce, demand for our products and services in certain markets. If we fail to manage changes in our relationships with our long-term customers, it may have an adverse effect on our financial results.

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Many end markets are experiencing changes due to technological progress, an evolving workplace and changes in customer preferences. In order to grow and remain competitive, we will need to continue to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address the changing demands of customers. If we are unable to continue to utilize new and existing technologies to adapt to new distribution methods and address changing customer preferences, our business may be adversely affected.

Technological developments and changing demands of customers may require additional investment in new equipment and technologies. We must monitor changes in markets and develop new solutions to meet customers' needs, otherwise we may not be able to keep or grow our customer base. The development of such solutions may be costly and there is no assurance that these solutions will be accepted by our customers. If we are unable to adapt to technological changes on a timely basis or at an acceptable cost, customers' demand for our products and services may be adversely affected.

There can be no assurance that our customers will continue to purchase our products in the same mix or quantities or on the same terms as in the past. The loss of or disruptions related to customers may result in a reduction in sales or change in the mix of products we sell to our customers. This may adversely affect our results of operations, financial condition and cash flows. Additionally, disputes with significant suppliers, including those related to pricing or performance, may adversely affect our ability to supply products to our customers and also our results of operations, financial condition and cash flows.

# ***We have retained responsibility for liabilities of acquired companies that may adversely affect our financial results.***

OfficeMax sponsors defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active employees (the 'Pension Plans'). The Pension Plans are frozen and do not allow new entrants; however, they are under-funded and we may be required to make contributions in subsequent years in order to maintain required funding levels. Required future contributions could have an adverse impact on our cash flows and our financial results. Additional future contributions to the Pension Plans, financial market performance and Internal Revenue Service ('IRS') funding requirements could materially change these expected payments.

As part of the sale of our business in Europe, we have retained responsibility for the defined benefit plan covering certain employees in the United Kingdom. While the plan was in a net asset position at the end of 2022 changes in assumptions and actual experience could result in that plan being considered underfunded in the future. Additionally, we have agreed to make contributions to the plan as required by the trustees. Financial performance of the plan and future valuation assumptions could materially change the expected payments. In addition, as part of the sale transaction, the purchaser shall indemnify and hold us harmless in connection with any guarantees in place as of September 23, 2016, and given by us in respect of the liabilities or obligations of the European business. Further, if the purchaser wishes to terminate any such guarantee or cease to comply with any underlying obligation which is subject to such a guarantee, the purchaser shall obtain an unconditional and irrevocable release of the guarantee. However, we are contingently liable in the event of a breach by the purchaser of any such obligation.

In connection with OfficeMax's sale of its paper, forest products and timberland assets in 2004, OfficeMax agreed to assume responsibility for certain liabilities of the businesses sold. These obligations include liabilities related to environmental, asbestos, health and safety, tax, litigation and employee benefit matters. Some of these retained liabilities could turn out to be significant, which could have an adverse effect on our results of operations. Our exposure to these liabilities could harm our ability to compete with other office products distributors who would not typically be subject to similar liabilities.

# ***We have incurred significant impairment charges and we continue to incur impairment charges.***

We regularly assess past performance and make estimates and projections of future performance at an individual store and reporting unit level. Reduced sales, our shift in strategy to be less price promotional, as well as competitive factors and changes in consumer spending habits resulted in a downward adjustment of anticipated future cash flows for the individual retail stores that resulted in the impairment. We continue to foresee challenges in the market and economy that could adversely impact our operations. To the extent that forward-looking sales and operating assumptions are not achieved and are subsequently reduced, or if we implement the more aggressive store downsizing strategy contemplated by our Maximize B2B Restructuring, including allocating capital to further modify store formats, additional impairment charges may result. We have also recognized impairment charges on retail store related assets, including operating lease right-of-use ('ROU') assets, that were deemed unrecoverable based on the Comprehensive Business Review and the Business Acceleration Program. Additional asset impairments may be recognized based on future decisions and conditions.

Changes in the numerous variables associated with the judgments, assumptions and estimates we make, in assessing the appropriate valuation of our goodwill and other intangible assets of our reporting units, including changes resulting from macroeconomic, or disposition of components within reporting units, could in the future require a reduction of goodwill and recognition of related non-cash impairment charges. If we were required to further impair our store assets, our goodwill or intangible assets of our reporting units, it could have a material adverse effect on our business and results of operations.

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In addition, if we experience a decline in our market capitalization in the future, and if the decline becomes sustained or future declines in macroeconomic factors or business conditions occur, we could incur impairment charges in future periods.

*Our failure to effectively manage our real estate portfolio may negatively impact our operating results.*

Effective management of our real estate portfolio is critical to our omni-channel strategy. Most of our properties are subject to long-term leases. As such, it is essential that we effectively evaluate a range of factors that may influence the success of our long-term real estate strategy. Such factors include but are not limited to:

- changing patterns of customer consumption and behavior, particularly in light of an evolving omni-channel environment;
- the appropriate number of retail stores in our portfolio;
- the formats and sizes of our retail stores;
- the locations of our retail stores;
- the interior layouts of our retail stores;
- the trade area demographics and economic data of each of our retail stores;
- the local competitive positioning in and around our retail stores;
- the primary term lease commitment for each retail store;
- the long-term lease option coverage for each retail store;
- the occupancy cost of our retail stores relative to market rents;
- our supply chain network strategy; and
- our ongoing network of service locations.

The consequences for failure to effectively evaluate these factors or negotiate appropriate terms or anticipate changes could include:

- having to close retail stores and abandon the related assets, while retaining the financial commitments of the leases;
- incurring significant costs to remodel or transform our retail stores;
- having retail stores, supply chain or service locations that no longer meet the needs of our business; and
- bearing excessive lease expenses.

These consequences could have a materially adverse impact on our profitability, cash flows and liquidity.

For leased property, the financial impact of exiting a location varies greatly depending on, among other factors, the terms of the lease, the condition of the local real estate market, demand for the specific property, our relationship with the landlord and the availability of potential sub-lease tenants. It is difficult for us to influence some of these factors, and the costs of exiting a property can be significant. In addition to rent, we are still responsible for the maintenance, taxes, insurance and common area maintenance charges for vacant properties until the lease commitment expires or is terminated. Similarly, when we enter into a contract with a tenant to sub-lease property, we usually retain our obligations as the master lessor. This leaves us at risk for any remaining liability in the event of default by the sub-lease tenant.

*We do a significant amount of business with government entities, various purchasing consortiums, and through sole- or limited-source distribution arrangements, and loss of this business could negatively impact our results.*

One of our largest customer groups consists of various governmental entities, government agencies and non-profit organizations, such as purchasing consortiums. Contracting with U.S. state and local governments is highly competitive and complex, subject to federal and state procurement laws, requires more restrictive contract terms and compliance measures, and can be expensive and time-consuming. Violations of these laws and regulations and/or inadvertent non-compliance with complex contractual terms or disagreements regarding interpretations of those terms could result in liabilities, fines, criminal sanctions, the inability to participate in existing or future government contracting and other administrative sanctions. Any such penalties could result in damage to the

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Company's reputation, increased costs of compliance and/or remediation and could adversely affect the Company's financial condition and results of operations. Moreover, bidding on government contracts often requires that we incur significant upfront time and expense without any assurance that we will win a contract. Our ability to compete successfully for and retain business with federal, state and local governments is highly dependent on cost-effective performance. Our business with governmental entities and agencies is also sensitive to changes in national and international priorities and their respective budgets, which in the current economy continue to decrease.

We also service a substantial amount of business through agreements with purchasing consortiums and other sole- or limited-source distribution arrangements. If we are unsuccessful in retaining these customers, or if there is a significant reduction in sales under any of these arrangements, it could adversely impact our business and results of operations.

# ***Failure to maintain our reputation and brand at a high level, may adversely impact our financial performance.***

Effective marketing efforts play a crucial role in maintaining our reputation to attract new customers and retain existing customers. Failure to execute effective marketing efforts or misjudgment of consumer responses to our existing or future promotional activities, may adversely impact our financial performance.

Failure to detect, prevent, or mitigate issues that might give rise to reputational risk or failure to adequately address negative publicity or perceptions could adversely impact our reputation, business, results of operations, and financial condition. Issues that might pose a reputational risk include an inability to achieve our omni-channel goals, including providing an e-commerce and delivery experience that meets the expectations of consumers; failure of our cybersecurity measures to protect against data breaches; product liability and product recalls; our social media activity; failure to comply with applicable laws and regulations; and any of the other risks enumerated in these risk factors. In addition, information concerning us, whether or not true, may be instantly and easily posted on social media platforms at any time, which information may be adverse to our reputation or brand. The harm may be immediate without affording us an opportunity for redress or correction. If our reputation or brand is damaged, our customers may refuse to continue shopping with us, potential employees may be unwilling to work for us, business partners may be discouraged from seeking future business dealings with us and, as a result, our operations and financial results may suffer.

# ***Our exclusive brand products are subject to several additional product, supply chain and legal risks that could affect our operating results.***

We sell a substantial number of products under our own brands including Office Depot®, OfficeMax® and other proprietary brands where we are the importer of record. While we have focused on the quality of our proprietary branded products, we rely on third parties to manufacture these products. Such third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may vary from our expectations and standards, such products may not meet applicable regulatory requirements which may require us to recall those products, or such products may infringe upon the intellectual property rights of third parties. The manufacturers and related factories of these products may fail to comply with global social responsibility regulations. As the importer of record and private labeler there are increased regulatory reporting and compliance risks, including customs compliance, global social responsibilities, country of origin, chemical compliance, product liability, advertising and labeling. Though we seek indemnities from the manufacturers of these products, the uncertainty of realization of any such indemnity and the lack of understanding of U.S. laws in certain foreign jurisdictions make it more likely that we may have to respond to claims or complaints from our customers.

# ***Our business may be adversely affected by the actions of and risks related to the activities of our third-party vendors.***

We purchase products for resale under credit arrangements with our vendors and have been able to negotiate payment terms that are approximately equal in length to the time it takes to sell the vendor's products. When the global economy is experiencing weakness as it has in the past, vendors may seek credit insurance to protect against non-payment of amounts due to them. If we experience declining operating performance and severe liquidity challenges, vendors may demand that we accelerate our payment for their products or require cash on delivery, which could have an adverse impact on our operating cash flow and result in severe stress on our liquidity. Borrowings under our existing credit facility could reach maximum levels under such circumstances, causing us to seek alternative liquidity measures, but we may not be able to meet our obligations as they become due until we secure such alternative measures.

We use and resell many manufacturers' branded items and services. We rely on key vendors who may have a large market share of the categories of products and services that we resell in order to provide best in class solutions to our customers. As a result, we are dependent on the availability and pricing of key products and services, including but not limited to ink, toner, paper and technology products and key vendors could change their business strategies or models and no longer offer products or services of value to our customers. As a reseller, we cannot control the supply, design, function, cost or vendor-required conditions of sale of many of the products we offer for sale. Disruptions in the availability of these products or the products and services we provide to our customers coupled with our inability to quickly pivot and find new products and services to our portfolio of offerings may adversely affect our

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sales and result in customer dissatisfaction. Further, we cannot control the cost of manufacturers' products, and cost increases must either be passed along to our customers or will result in erosion of our earnings.

Failure to identify desirable products and make them available to our customers when desired and at attractive prices could have an adverse effect on our business and our results of operations. In addition, a material interruption in service by the carriers that ship goods within our supply chain may adversely affect our sales. Many of our vendors are small or medium-sized businesses which are impacted by current macroeconomic conditions, both in the U.S., Asia and other locations. We may have no warning before a vendor fails, which may have an adverse effect on our business and results of operations.

We also engage key third-party business partners to support various functions of our business, including but not limited to, information technology, web hosting and cloud-based services, human resource operations, customer loyalty programs, gift cards, customer warranty, delivery and installation, technical support, transportation and insurance programs. Any material disruption in our relationship with key third-party business partners or any disruption in the services or systems provided or managed by third parties, including as a result of denial-of-service, ransomware or other cyber attacks, could impact our revenues and cost structure and hinder our operations, particularly if a disruption occurs during peak revenue periods.

# ***Product safety and quality concerns could have a material adverse impact on our revenue and profitability.***

If the products we sell fail to meet applicable safety standards or our customers' expectations regarding safety and quality, we could be exposed to increased legal risk and our reputation may be damaged. Failure to take appropriate actions in relation to product recalls could lead to breaches in laws and regulations and leave us susceptible to government enforcement actions or private litigation. Recalls of products, particularly when combined with lack of available alternatives or our difficulty in sourcing sufficient volumes of replacement products, could also have a material adverse impact on our revenue and profitability.

# ***Disruption of global sourcing activities, evolving foreign trade policy (including tariffs imposed on certain foreign trade goods) could negatively impact the cost and availability of our products and services.***

Economic and civil unrest in areas of the world where we source products and services, as well as shipping and dockage issues, could adversely impact the availability or cost of our products and services, or both. Most of our goods imported to the U.S. arrive from Asia through ports located on the U.S. west coast and we are therefore subject to potential disruption due to labor unrest, security issues or natural disasters affecting any or all of these ports. In addition, we purchase and source products from a wide variety of suppliers, including from suppliers overseas, particularly in China where we maintain a global sourcing office to facilitate product sourcing. Diplomatic tensions between China and the US and developments in Hong Kong and Taiwan, alongside other potential areas of tension, may affect us by creating regulatory, reputational and market risks. For example, the U.S. government has imposed various sanctions and trade restrictions on Chinese persons and companies, and the US continues to advance the development of its framework for strategic competition with China. In response to foreign sanctions and trade restrictions, China has announced a number of sanctions, trade restrictions and laws that could impact us. Such sanctions and trade restrictions target or provide authority to target foreign individuals and companies, and have been primarily imposed against certain public officials associated with the implementation of foreign sanctions against China. The new laws provide a legal framework for further imposing such sanctions, prohibit implementing or complying with foreign sanctions against China and create private rights of action in Chinese courts for damages caused by third parties implementing foreign sanctions or other discriminatory measures. These and any future measures and countermeasures that may be taken by the US, China may increase our cost of goods sold or reduce the supply of the products available to us. There is no assurance that any such increased costs could be passed on to our customers, or that we could find alternative products from other sources at comparable prices. To the extent that we are subject to more challenging regulatory environments and enhanced legal and regulatory requirements, such exposure could have a material adverse effect on our business, including the added cost of increased compliance measures that we may determine to be necessary.

In light of the trade tensions between the U.S. and China, we have incurred incremental costs related to trade tariffs on inventory we purchase from China, but such costs have not had a material impact on our results of operations. We continue to monitor and evaluate the potential impact of the effective and proposed tariffs as well as other recent changes in foreign trade policy on our supply chain, costs, sales and profitability and have implemented strategies to mitigate such impact, including changes to our contracting model, alternative sourcing strategies and selective price increase pass-through efforts. If any of these events continue as described, they could disrupt the movement of products through our supply chain or increase their cost. In addition, we are in the process of diversifying our sourcing options outside Asia and executing this diversification plan introduces risk, including cybersecurity, global social responsibilities, product quality assurance and compliance, operations, and logistics. Further, a larger scale sourcing shift will be time consuming and difficult or impracticable for many products and may result in an increase in our manufacturing costs. Substantial regulatory uncertainty exists regarding foreign trade and trade policy, both in the United States and abroad. The adoption and expansion of trade restrictions, retaliatory tariffs, or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and/or the U.S. economy, which in turn could adversely impact our results of operations and business.

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## Risks Related to Our Indebtedness and Liquidity

### *Covenants in our credit facility could adversely impact our operations.*

Our asset-based credit facility contains a fixed charge coverage ratio covenant that is operative only when borrowing availability is below 10% of the Borrowing Base (as defined in Note 11, “Debt” in Notes to Consolidated Financial Statements) or prior to a restricted transaction, such as incurring additional indebtedness, acquisitions, dispositions, dividends, or share repurchases if we do not have the required liquidity. The agreement governing our credit facility (the “Third Amended Credit Agreement” as defined in Note 11, “Debt” in Notes to Consolidated Financial Statements) also contains representations, warranties, affirmative and negative covenants, and default provisions. A breach of any of these covenants could result in a default under our Third Amended Credit Agreement. Upon the occurrence of an event of default under our Third Amended Credit Agreement, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If the lenders were to accelerate the repayment of borrowings, we may not have sufficient assets to repay our asset-based credit facility and our other indebtedness. Also, should there be an event of default, or a need to obtain waivers following an event of default, we may be subject to higher borrowing costs and/or more restrictive covenants in future periods. Acceleration of our obligations under our credit facilities would permit the holders of our other material debt to accelerate their obligations. We were in compliance with all applicable covenants as of December 31, 2022.

## Risks Related to Legal and Regulatory Compliance

### *We are subject to legal proceedings and legal compliance risks.*

We are involved in various legal proceedings, which from time to time may involve class action lawsuits, state and federal governmental inquiries, audits and investigations, environmental matters, employment, tort, state false claims act, consumer litigation and intellectual property litigation. At times, such matters may involve directors and/or executive officers. Certain of these legal proceedings, including government investigations, may be a significant distraction to management and could expose our Company to significant liability, including settlement expenses, damages, fines, penalties, attorneys’ fees and costs, and non-monetary sanctions, including suspensions and debarments from doing business with certain government agencies, any of which could have a material adverse effect on our business and results of operations. For a description of our legal proceedings, refer to Note 17, “Commitments and Contingencies” in Notes to Consolidated Financial Statements.

### *Legal, regulatory or market measures to address climate change, could adversely affect our business, financial condition or results of operations.*

There has been increased focus by federal, international, state and local regulatory and legislative bodies to combat and/or limit the effects of climate change through a variety of means, including regulating greenhouse gas (“GHG”) emissions (and the establishment of enhanced internal processes or systems to track them), policies mandating or promoting the use of renewable or zero-carbon energy and sustainability initiatives, and additional taxes on fuel and energy. If legislation or regulations are enacted or promulgated in the United States or in any other jurisdiction in which we do business that impose more stringent restrictions and requirements than our current legal or regulatory obligations, we and companies in our supply chain may experience increased compliance burdens and costs to meet the regulatory obligations, which could cause disruption in the sourcing, manufacturing and distribution of our products and adversely affect our business, financial condition or results of operations.

Additionally, the impacts of climate change and chemical compliance initiatives by our corporate and public sector customers may further influence customer preferences and requirements, such as increased demand for products with lower environmental footprints, compliance with customers’ restricted chemical lists and/or beyond restricted substances lists for products they are purchasing, and for companies to produce and demonstrate progress against GHG reduction plans and targets. Failure to provide climate-friendly products, demonstrate GHG reductions, and/or comply with B2B customers’ chemical compliance standards could potentially result in loss of market share.

### *Changes in tax laws in any of the jurisdictions in which we operate can cause fluctuations in our overall tax rate impacting our reported earnings.*

Our tax rate is derived from a combination of applicable tax rates in the various domestic and international jurisdictions in which we operate. While we have disposed of the majority of our international businesses, we remain subject to international taxes as part of our existing operations. Depending upon the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the tax filing positions we take in these jurisdictions, our overall tax rate may fluctuate significantly from other companies or even our own past tax rates. In addition, changes in applicable U.S. or foreign tax laws and regulations, including the Tax Cuts and Jobs Act of 2017, or their interpretation and application, including the possibility of retroactive effect, could affect our tax expense and profitability. At any given point in time, we base our estimate of an annual effective tax rate upon a calculated mix of

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the tax rates applicable to us and to estimates of the amount of income likely to be generated in any given geography. The loss of or modification to one or more agreements with taxing jurisdictions, whether as a result of a third party challenge, negotiation, or otherwise, a change in the mix of our business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate, changes in valuation allowances, or adverse outcomes from the tax audits that regularly are in process in any of the jurisdictions in which we operate could result in substantial volatility, including an unfavorable change in our overall tax rate and/or our effective tax rate.

On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. Starting on January 1, 2023, the 1% U.S. federal excise tax included in the Inflation Reduction Act of 2022 will apply to certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations. Under the new excise tax requirements, we may be subject to the 1% excise tax (rather than our shareholders) in connection with certain of our repurchases. The foregoing could cause a reduction in the cash available on hand.

# ***Increases in wage and benefit costs, changes in laws and other labor regulations could impact our financial results and cash flow.***

Our expenses relating to employee labor, including employee health benefits, are significant. Our ability to control our employee and related labor costs is generally subject to numerous external factors, including prevailing wage rates, legislative and private sector initiatives regarding healthcare reform, and adoption of new or revised employment and labor laws and regulations. Recently, various legislative movements have sought to increase the federal minimum wage in the United States and the minimum wage in a number of individual states, some of which have been successful at the state level. As federal or state minimum wage rates increase, we may need to increase not only the wage rates of our minimum wage employees, but also the wages paid to our other employees as well. Further, should we fail to increase our wages competitively in response to increasing wage rates, the quality of our workforce could decline, causing our customer service to suffer. Any increase in the cost of our labor could have an adverse effect on our operating costs, financial condition and results of operations. We have a large employee base and while our management believes that our employee relations are good, we cannot be assured that we will not experience organization efforts from labor unions. The potential for unionization could increase if federal legislation is passed that would facilitate labor organization. Significant union representation would require us to negotiate wages, salaries, benefits and other terms with many of our employees collectively and could adversely affect our results of operations by significantly increasing our labor costs or otherwise restricting our ability to maximize the efficiency of our operations.

We also have employees in Canada and Asia and are required to comply with laws and regulations in those countries that may differ substantially from country to country, requiring significant management attention and cost.

# ***Changes in the regulatory environment and violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws may negatively impact our business.***

We are subject to regulations relating to our corporate conduct and the conduct of our business, including securities laws, consumer protection laws, hazardous material regulations, trade regulations, advertising regulations, privacy and cybersecurity laws, regulations relating to climate change and chemical compliance and wage and hour regulations and anti-corruption legislation. Certain jurisdictions have taken a particularly aggressive stance with respect to such matters and have implemented new initiatives and reforms, including more stringent regulations, disclosure and compliance requirements.

The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and the SEC, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings brought against companies and individuals. Our policies mandate compliance with all anti-bribery laws. However, we operate in certain countries that are recognized as having governmental and commercial corruption. Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or third-party intermediaries. Violations of these anti-bribery laws may result in criminal or civil sanctions, which could have a material adverse effect on our business and results of operations.

# **Risks Related to Information Technology and Information Security**

# ***Disruptions of our computer systems could adversely affect our operations.***

We rely heavily on computer systems to process transactions, including delivery of technology services, manage our inventory and supply-chain and to summarize and analyze our global business. In addition, if our website and our other customer-facing technology systems do not function as designed, our business could be negatively affected, resulting in a loss of customer confidence and satisfaction, and lost sales, which could adversely affect our reputation and result of operations. Various components of our

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information technology and computer systems, including hardware, networks, and software, are licensed to us and hosted by third-party vendors.

Our systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches, catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes, acts of war or terrorism, and usage errors by our employees. We carry insurance, including cyber insurance, which we believe to be commensurate with our size and the nature of our operations and expect that a portion of these costs may be covered by insurance.

If our computer systems are damaged or cease to function properly in the future, or, if we do not replace or upgrade certain systems, we may incur substantial costs to repair or replace them and may experience an interruption of our normal business activities or loss of critical data.

We maintain and periodically upgrade many of these systems that increase productivity and efficiency. If these systems are not properly maintained or enhanced, the attention of our workforce could be diverted and our ability to provide the level of service our customers demand could be constrained for some time. Failure to make such investments could limit our ability to compete against our peers that are investing in these areas. Further, new systems might not properly integrate with existing systems. Also, once implemented, the new systems and technology may not provide the intended efficiencies or anticipated benefits and could add costs and complications to our ongoing operations.

*A breach of our information technology systems could adversely affect our reputation, business partner and customer relationships and operations and result in high costs.*

Through our sales, marketing activities, and use of third-party information, we collect and store certain personally identifiable information that our customers provide to purchase products or services, enroll in promotional programs, register on our website, or otherwise communicate and interact with us. This may include, but is not limited to, names, addresses, phone numbers, driver license numbers, e-mail addresses, contact preferences, personally identifiable information stored on electronic devices, and payment account information, including credit and debit card information. We also gather and retain information about our employees in the normal course of business. We may share information about such persons with vendors that assist with certain aspects of our business. In addition, our online operations depend upon the secure transmission of confidential information over public networks, such as information permitting cashless payments.

We have instituted safeguards for the protection of such information and invested considerable resources, including insurance to cover cyber liabilities, in protecting our systems. These security measures may be compromised as a result of third-party security breaches, burglaries, cyber-attack, errors by our employees or the employees of third-party vendors, faulty password management, misappropriation of data by employees, vendors or unaffiliated third parties, or other irregularity, and result in persons obtaining unauthorized access to our data or accounts.

Despite instituted safeguards for the protection of such information, we cannot be certain that all of our systems and those of our vendors and unaffiliated third parties are entirely free from vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently.

We have experienced and we expect to continue to experience attempts to breach our systems, none of which has been material to the Company as a whole to date, and we may be unable to protect sensitive data and the integrity of our systems or to prevent fraudulent purchases.

We are also subject to data privacy and security laws and regulations, the number and complexity of which are increasing globally, and despite reasonable efforts to comply with all applicable laws and regulations, there can be no assurance that we will not be the subject of enforcement or other legal actions in the event of an incident. Moreover, an alleged or actual security breach that affects our systems or results in the unauthorized release of personally identifiable information could:

- materially damage our reputation and brand, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information; and
- cause us to incur substantial costs, including but not limited to costs associated with remediation for stolen assets or information, payments of customer incentives for the maintenance of business relationships after an attack, litigation costs, lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack, and increased cyber security protection costs. While we maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of our cyber risks, such insurance coverage may be unavailable or insufficient to cover our losses or all types of claims that may arise in the continually evolving area of cyber risk.

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Although all of our divisions are exposed to these types of security risks, a successful cyber-attack, security breach, disruption or other incident could have a larger impact on divisions launching new product offerings by damaging reputation or brand and negatively affecting customer satisfaction and loyalty at an early stage in the business. Additionally, for divisions with newer technological offerings or new technology integrated into their operations, exposure to security risks may have a greater impact on operations.

## Risks Related to Ownership of Our Securities

*There can be no assurance that we will resume paying cash dividends.*

Decisions regarding dividends depend on a number of factors, including general business and economic conditions, our financial condition, operating results and restrictions imposed by our debt agreements, the emergence of alternative investment or acquisition opportunities, changes in business strategy and other factors. Decisions on dividends are within the discretion of the Board of Directors. In order to preserve liquidity during the COVID-19 pandemic and in light of the uncertainties as to its duration and economic impact, in May 2020, our Board of Directors suspended the Company’s quarterly cash dividend beginning in the second quarter of 2020. Our quarterly cash dividend remains suspended and we do not anticipate declaring cash dividends in the foreseeable future. Changes in or the elimination of dividends could have an adverse effect on the price of our common stock.

*Our common stock price has been and may continue to be subject to volatility, and shareholders could incur substantial losses of any investment in our common stock.*

Our common stock price has experienced volatility over time and this volatility may continue, in part due to factors mentioned in this Item 1A or due to other market-driven events beyond our control. As a result of these and other factors, investors in our common stock may not be able to resell their shares at or above their original purchase price.

*Our amended and restated bylaws designate the Court of Chancery of the State of Delaware (the “Chancery Court”), or, if the Chancery Court does not have jurisdiction, the federal district court for the district of Delaware or other state courts located in the State of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers.*

Pursuant to our amended and restated bylaws, unless we consent in writing to the selection of an alternative forum, the Chancery Court (or, if the Chancery Court does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the sole and exclusive forum for any shareholder (including a beneficial owner) to bring: (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our shareholders, (3) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our restated certificate of incorporation or amended and restated bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine, except as to each of (1) through (4) above, for any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination). This forum selection provision may limit the ability of our shareholders to bring a claim in a judicial forum that such shareholders find favorable for disputes with us or our directors or officers, which may discourage such lawsuits against us and our directors and officers.

Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. In addition, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Securities Act or any other claim for which the federal and state courts have concurrent jurisdiction.

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# PROPERTIES

As of December 31, 2022, we operated in the following locations:

## STORES

### Office Depot Division (United States)

| State | # | State | # |
| --- | --- | --- | --- |
| Alabama | 21 | Nebraska | 9 |
| Alaska | 5 | Nevada | 18 |
| Arizona | 25 | New Mexico | 9 |
| Arkansas | 10 | New York | 10 |
| California | 81 | North Carolina | 36 |
| Colorado | 30 | North Dakota | 4 |
| District of Columbia | 1 | Ohio | 29 |
| Florida | 109 | Oklahoma | 13 |
| Georgia | 41 | Oregon | 17 |
| Hawaii | 8 | Pennsylvania | 8 |
| Idaho | 6 | Puerto Rico | 10 |
| Illinois | 35 | South Carolina | 15 |
| Indiana | 19 | South Dakota | 2 |
| Iowa | 6 | Tennessee | 27 |
| Kansas | 9 | Texas | 144 |
| Kentucky | 9 | Utah | 11 |
| Louisiana | 31 | U.S. Virgin Islands | 2 |
| Maryland | 8 | Virginia | 24 |
| Michigan | 22 | Washington | 27 |
| Minnesota | 20 | West Virginia | 4 |
| Mississippi | 13 | Wisconsin | 24 |
| Missouri | 24 | Wyoming | 2 |
| Montana | 2 | TOTAL | 980 |

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The supply chain facilities which we operate in the continental United States and Puerto Rico support our ODP Business Solutions and Office Depot Divisions and the facilities in Canada support our ODP Business Solutions Division. The following table sets forth the locations of our principal supply chain facilities from continuing operations as of December 31, 2022.

#### DCs and Crossdock Facilities

| State | # | State | # |
| --- | --- | --- | --- |
| Arizona | 1 | New Mexico | 1 |
| California | 5 | North Carolina | 1 |
| Colorado | 1 | North Dakota | 2 |
| Florida | 5 | Ohio | 2 |
| Georgia | 2 | Oklahoma | 1 |
| Hawaii | 7 | Pennsylvania | 1 |
| Idaho | 1 | Puerto Rico | 1 |
| Illinois | 5 | Tennessee | 1 |
| Kansas | 1 | Texas | 3 |
| Minnesota | 3 | Washington | 3 |
| Mississippi | 1 | Wisconsin | 5 |
| Missouri | 4 | Total United States | 57 |
|  |  | Canada | 7 |
|  |  | TOTAL | 64 |

Our principal corporate headquarters in Boca Raton, FL consists of three interconnected buildings of approximately 625,000 square feet. This facility is considered to be in good condition, adequate for its purpose and suitably utilized according to the individual nature and requirements of the relevant operations. Although we currently own our corporate office in Boca Raton, FL, as well as a small number of our retail store locations, most of our facilities are leased or subleased. The Company has entered into an agreement in principle with a third-party buyer to sell our corporate office. Additional information regarding our operating leases and leasing arrangements is available in Note 1. 'Summary of Significant Accounting Policies' and Note 9. 'Leases' in Notes to Consolidated Financial Statements. Additional information regarding the sale of the corporate office is available in Note 6. 'Property and Equipment' in Notes to Consolidated Financial Statements.

#### LEGAL PROCEEDINGS

For a description of our legal proceedings, refer to Note 14. 'Commitments and Contingencies' in Notes to Consolidated Financial Statements.

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## MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market under the ticker symbol ODP.

### Holders

As of the close of business on February 22, 2023, there were 3,276 holders of record of our common stock.

### Cash Dividend

We did not declare any cash dividends in 2022 and do not anticipate declaring cash dividends in the foreseeable future. Our Third Amended Credit Agreement permits restricted payments, such as dividends, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements.

### Issuer Purchases of Equity Securities

In May 2021, our Board of Directors approved a stock repurchase program of up to $300 million, available through June 30, 2022. Our Board of Directors reviewed the existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $200 million for share repurchases under the then existing stock repurchase program, for a total authorization of $650 million. This stock repurchase program expired on June 30, 2022, and in July 2022, our Board of Directors approved a stock repurchase program of up to $600 million, available through June 30, 2024. In October 2022, our Board of Directors approved a new stock repurchase program of up to $1 billion, available through December 31, 2025, to replace the existing $600 million stock repurchase program effective November 3, 2022.

On November 16, 2021, as part of the stock repurchase program that expired on June 30, 2022, we entered into an accelerated share repurchase agreement ('ASR') to repurchase shares of our common stock in exchange for an up-front payment of $150 million and increased the authorization to $450 million. The ASR repurchase period ran through May 25, 2022, and we received 0.7 million shares of our common stock as the final settlement of the ASR in the second quarter of 2022. We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the ASR. In July 2022, as part of the $600 million stock repurchase program, the Board of Directors approved a Dutch auction tender offer to repurchase up to $300 million worth of shares of its common stock, based on demand. Through this tender offer, the Company's shareholders had the opportunity to tender some or all of their shares at a price within the range of $31.50 to $36.00 per share subject to the conditions set forth in the tender offer documents. The tender offer commenced on July 18, 2022 and expired on August 12, 2022. We repurchased 14 thousand shares under the tender offer at a cost of $1 million. We repurchased 6 million additional shares of our common stock, at a cost of $266 million, in the third and fourth quarters of 2022. As a result, we repurchased 7 million shares in 2022, including the final settlement of the ASR at a weighted average price of $41.21 per common share, for a total consideration of $295 million. As of December 31, 2022, $847 million remains available for stock repurchases under the current stock repurchase program, after considering purchases made under the $1 billion authorization effective November 3, 2022.

The new authorization may be suspended or discontinued at any time. The stock repurchase authorization permits us to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The exact number and timing of stock repurchases will depend on market conditions and other factors and will be funded through available cash balances. Our Third Amended Credit Agreement permits restricted payments, such as common stock repurchases, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements. The authorized amount under the stock repurchase program excludes fees, commissions or other expenses.

The following table summarizes our common stock repurchases during the fourth quarter of 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 May Yet Be Purchased Under the 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 |  |

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## The ODP Corporation Stock Comparative Performance Graph

*The information contained in The ODP Corporation Comparative Performance Graph section shall not be deemed to be filed as part of this Annual Report and does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent we specifically incorporate the graph by reference.*

The following graph compares the five-year cumulative total shareholder return on our common stock with the cumulative total returns of the Standard & Poor's 500 Index ('S&P 500'), the Standard & Poor's 500 Specialty Stores Index ('S&P 500 Specialty Stores') and the Standard & Poor's Composite 1500 Specialty Retail Index ('S&P Composite 1500 Specialty Retail') of which we are a component of each Index.

To better align with comparable investment opportunities, we are transitioning from the S&P 500 Specialty Stores to the S&P Composite 1500 Specialty Retail for the year ended December 31, 2022. Both indices are presented, in accordance with SEC rules, which require that if a company selects a different index from that used in the immediately preceding fiscal year, the company's stock performance must be compared against both the newly selected index and previous index in the year of change.

The graph assumes an investment of $100 at the close of trading on December 30, 2017, the last trading day of fiscal year 2017, in our common stock, the S&P 500, the S&P 500 Specialty Stores and the S&P Composite 1500 Specialty Retail.

### COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN\*

Among The ODP Corporation, the S&P 500 Index the S&P Specialty Stores Index, and the S&P Composite 1500 Specialty Retail Index

![img-0.jpeg](img-0.jpeg)

\*\$100 invested on 12/30/17 in stock or in index, including reinvestment of dividends. Indexes calculated on month-end basis.

Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved

|  | 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 |

*The stock price performance included in this graph is not necessarily indicative of future stock price performance.*

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# MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist readers in better understanding and evaluating our financial condition and results of operations. We recommend reading this MD&A in conjunction with our Consolidated Financial Statements and Notes thereto included in this Annual Report.

## OVERVIEW

### THE COMPANY

We are a leading provider of business services and supplies, products and digital workplace technology solutions to small, medium-sized and enterprise businesses. We operate through our direct and indirect subsidiaries and maintain a fully integrated business-to-business ('B2B') distribution platform of thousands of dedicated sales and technology service professionals, online presence and 980 retail stores.

In May 2021, our Board of Directors had unanimously approved a plan to pursue a separation of the Company into two independent, publicly traded companies, representing our B2B and consumer businesses, which was planned to be achieved through a spin-off of our consumer business. On January 14, 2022, we announced that our Board of Directors determined to delay the previously announced public company separation to evaluate a potential sale of our consumer business and that we had received a non-binding proposal from another third party, in addition to the offer previously received from USR Parent, Inc., to acquire our consumer business. On June 21, 2022, our Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire our consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest our consumer business at this time. Further, our Board of Directors also determined not to resume our previously planned separation of our consumer business at that time and instead to maintain all of our businesses under common ownership.

We have been undergoing a strategic business transformation to pivot our Company into an integrated B2B distribution platform, with the objective of expanding our product offerings to include value-added services for our customers and capture greater market share. Using the flexibility afforded by our holding company restructuring that was previously completed in 2020, we re-aligned our operations under our holding company structure in 2022 into our 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 we are looking at our products and offerings and serving our customers. How our customers work and interact has changed, with businesses demanding a wider range of products and services, and a more modern digital environment in which to operate, and with consumers demanding an omni-channel retail experience. In addition, dependable supply chain operations have become increasingly important in meeting these demands. We performed a full strategic review of our operations in light of these factors, and determined that completing the re-alignment of our operations in this manner enables us to better focus on our customers by being in a better position to meet a wider array of customer needs for product, service, and omni-channel choices. We also determined that the re-alignment provides for greater accountability internally for product and service outcomes, customer experiences, capital allocations, and pursuing strategic opportunities. We also believe our B2B and consumer businesses operating collectively under our holding company structure will improve shareholder value and derive benefits from scaling. Upon completion of this re-alignment, we also re-evaluated our reportable segments based on how the business is managed, including decision-making about resources allocation and assessing performance of the segments.

As of December 31, 2022, our operations are organized into four reportable segments (or 'Divisions'), as described below. Previously, we had two reportable segments which were the Business Solutions Division and Retail Division. We sold our CompuCom Division through a single disposal group on December 31, 2021. Accordingly, that business is presented as discontinued operations.

*ODP Business Solutions Division* - Our 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 our 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 our private branded, office supply and adjacency products and services to customers, who are served through a dedicated sales force, catalogs, telesales, and electronically through our 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 us as part of our transformation to expand our 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 and accretive means to expand our distribution reach, target new business customers and grow our offerings beyond traditional office supplies.

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*Office Depot Division* - Our leading provider of retail consumer and small business products and services distributed through a fully integrated omni-channel platform of 980 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). Our 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 our regional print production centers.

*Veyer Division* - Our supply chain, distribution, procurement and global sourcing operation, which has over 35 years of experience with proven leadership and has been branded under a new name. 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* - Our 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 our development efforts of this Division, we acquired BuyerQuest Holdings, Inc. (“BuyerQuest”) in 2021, a software as a service eProcurement platform company. BuyerQuest’s operating results are included in our 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.

## DISPOSITIONS

The sale of CompuCom, which represented our former CompuCom Division, was completed on December 31, 2021. The transaction was structured and accounted for as an equity sale. The related Securities Purchase Agreement (“SPA”) provides for consideration consisting of a cash purchase price equal to $125 million (subject to customary adjustments, including for cash, debt and working capital), an interest-bearing promissory note in the amount of $55 million, and a holding fee (“earn-out”) provision providing for payments of up to $125 million in certain circumstances. The promissory note accrues interest at six percent per annum, payable on a quarterly basis in cash or in-kind, and is due in full on June 30, 2027. Under the earn-out provision, if the purchaser receives dividends or sale proceeds from the CompuCom business equal to (i) three (3) times its initial capital investment in the CompuCom business plus (ii) 15% per annum on subsequent capital investments, the Company will be entitled to 50% of any subsequent dividends or sale proceeds up to and until the Company has received an aggregate of $125 million. The Company also agreed to provide certain transitional services to the purchaser for a period of three to twelve months under a separate agreement after closing. The SPA contains customary warranties of the Company and the purchaser.

In February 2023, the Company and the purchaser reached a settlement on the cash, debt and working capital adjustments, and amended the promissory note which increased its principal balance to $59 million. The sale of CompuCom represented a strategic shift that had a major impact on our operations and financial results. Accordingly, the operating results and cash flows are classified as discontinued operations for all periods presented. Refer to Note 15. “Discontinued Operations” in Notes to Consolidated Financial Statements for additional information.

## COVID-19 UPDATE

As a result of the continuing impacts of the COVID-19 pandemic, we expect that weaker global economic conditions and increased unemployment, including continued business disruption relating to COVID-19 and continued remote and hybrid working arrangements could continue to negatively impact our business and results of operations in 2023, and could result in future impairments of our assets. For a discussion of the impacts to our business from COVID-19 in 2022, refer to Consolidated Results of Continuing Operations and Liquidity and Operating Results by Division sections below, and certain risk factors included in Item 1A Risk Factors in this Annual Report on Form 10-K.

## RECENT GLOBAL EVENTS

We are closely monitoring the unfolding events due to the Russia-Ukraine conflict and its regional and global ramifications. We do not have operations in Ukraine or Russia, and our supply chain has not been impacted as of the date of this report. While we do have certain vendors that are based in Ukraine, we have not experienced an impact as a result of the conflict. Other impacts due to this rapidly evolving situation are currently unknown and the broader economic impacts could potentially subject our business to materially adverse consequences should the situation escalate beyond its current scope.

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## CONSOLIDATED RESULTS OF CONTINUING OPERATIONS AND LIQUIDITY

The following summarizes the more significant factors impacting our operating results for the 53-week period ended December 31, 2022 (also referred to as “2022”) and the 52-week period ended December 25, 2021 (also referred to as “2021”) as well as our liquidity in 2022 and 2021. We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in MD&A of our 2021 Annual Report on Form 10-K. Prior year amounts have been recast to conform to the current presentation of our 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 changes to our reportable segments did not impact our Consolidated Financial Statements. These changes also have no impact on previously reported Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholders’ Equity, or Statements of Cash Flows.

Our consolidated sales were $26 million higher, or relatively flat, in 2022 compared to 2021. The 53rd week in 2022 increased total Company sales by $128 million with related flow-through impact of additional operating income of $20 million. Sales in our ODP Business Solutions Division increased $403 million, or 11%, as compared to 2021. The increase in sales in our ODP Business Solutions Division were mainly due to higher demand in categories of paper, furniture, breakroom, school and office supplies, copy and print services, and personal protective equipment and cleaning supplies. The higher demand was driven by the continued recovery of our business-to-business customers, including those in the education sector, from the disruptions to their operations as a result of the impacts of the COVID-19 pandemic. The impact of the 53rd week in 2022 on ODP Business Solutions Division sales was an increase of $58 million. Sales in our Office Depot Division decreased $379 million, or 8%, as compared to the same period in the prior year, mainly as a result of planned store closures and lower demand. Our Office Depot Division had lower demand in certain product categories that had higher sales in the prior year comparable period driven by the needs of our customers to help address their challenges derived from the COVID-19 pandemic, such as facilitating the continued remote work and virtual learning environments, as well as lower sales in our eCommerce platform. The decrease was partially offset by sales in the 53rd week of $70 million. The contribution of our Veyer Division and Varis Division to change in consolidated sales was not material.

| (In millions) | 2022 | 2021 | Change |
| --- | --- | --- | --- |
| Sales (External) |  |  |  |
| 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 | - |

## OTHER SIGNIFICANT FACTORS IMPACTING TOTAL COMPANY RESULTS AND LIQUIDITY

- Total gross profit decreased by $15 million, or 1%, in 2022 when compared to 2021. Our ODP Business Solutions Division had $91 million higher gross profit resulting from higher sales, which was more than offset by a $107 million decrease in gross profit of our Office Depot Division. Our Veyer and Varis Divisions also contributed $1 million to gross profit. The decrease in the Office Depot Division gross profit in 2022 when compared to 2021 is due to the flow through impact of lower sales, and higher supply chain and occupancy costs. In 2022, these unfavorable impacts were partially offset by improved product margin. Our supply chain and occupancy costs have been impacted by inflationary pressures. We have experienced increases in the cost of fuel, labor, facility and store rents, utilities, and common area maintenance, which have resulted in pressures on our gross profit.
- Total gross margin for 2022 was 22% which was consistent with the gross margin in 2021. While we incurred incremental costs related to trade tariffs on inventory we purchase from suppliers in China, certain actions by our Veyer Division, including changes to our contracting model, alternative sourcing strategies, and selective price increase pass-through efforts mitigated much of the impact of such trade tariffs to our results of operations.
- Total selling, general and administrative expenses decreased by $6 million in 2022 when compared to 2021, mainly driven by a $66 million decrease in our Office Depot Division, partially offset by increases related to payroll and incentives in our ODP Business Solutions Division, Varis Division, and corporate costs. The ODP Business Solutions Division also had increased expenses related to higher sales volume. The decreases in our Office Depot Division were driven by store closures and certain strategic initiatives, including the Maximize B2B Restructuring Plan, aimed to generate savings through optimizing our retail footprint and remove corresponding costs supporting our Office Depot Division as our retail footprint is reduced. Selling, general and administrative expenses as a percentage of total sales was flat in 2022 as compared to 2021.

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- We recorded $14 million of asset impairment charges in 2022 which included $12 million related to impairment of operating lease right-of-use (“ROU”) assets associated with our retail store locations, with the remainder primarily relating to impairment of fixed assets at these retail store locations. We recorded $20 million of asset impairment charges in 2021, which included $16 million related to impairment of operating lease ROU assets associated with our retail store locations, with the remainder primarily relating to impairment of fixed assets at these retail store locations. Refer to Note 13. “Fair Value Measurements” in Notes to Consolidated Financial Statements for additional information.
- We recorded $39 million of Merger, restructuring and other operating expenses, net in 2022 compared to $51 million in 2021. Merger, restructuring and other operating expenses in 2022 relate to costs associated with the previously planned separation of our consumer business and the re-alignment of our operations, which are mainly third-party professional fees and were partially offset by $8 million income related to restructuring activities, and $7 million income related to earn-out adjustment for BuyerQuest. We did not record any transaction and integration costs in 2022. Merger, restructuring and other operating expenses in 2021 included $37 million of third-party professional fees associated with the planned separation of our consumer business and USR Parent, Inc. Proposals. Also included in merger, restructuring and other operating expenses were $14 million of costs associated with restructuring activities in 2021. We did not record any transaction and integration costs in 2021. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Consolidated Financial Statements for additional information.
- In 2022, the Company’s effective tax rate was primarily impacted by the recognition of a tax windfall associated with stock-based compensation. This factor, along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused our effective tax rate of 26% for 2022 to differ from the statutory rate of 21%. Our effective tax rate for prior periods has varied considerably primarily due to the impact of goodwill impairment, state taxes, stock-based compensation awards, recognition of tax benefits due to an agreement reached with the IRS related to a prior tax position, certain nondeductible items and the mix of income and losses across U.S. and non-U.S. jurisdictions. Changes in pretax income projections and the mix of income across jurisdictions could impact the effective tax rates in future quarters. Refer to Note 4. “Income Taxes” in Notes to Consolidated Financial Statements for additional information.
- Diluted earnings per share from continuing operations was $3.61 in 2022 compared to $3.42 in 2021.
- Diluted loss per share from discontinued operations was $(0.24) in 2022 compared to $(7.21) in 2021.
- Net diluted earnings per share was $3.37 in 2022 compared to net diluted loss per share of $(3.79) in 2021.
- We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the accelerated share repurchase agreement (“ASR”) entered into on November 16, 2021 and we repurchased 6 million additional shares of our common stock in the third and fourth quarters of 2022. As a result, we repurchased 7 million shares in 2022, including 0.7 million shares of our common stock received as the final settlement of the ASR, for a total consideration of $295 million. As of December 31, 2022, $847 million remains available for stock repurchases under the current stock repurchase program, after considering purchases made under the $1 billion authorization effective November 3, 2022. Subsequent to the end of 2022 and through February 22, 2023, we bought back 2 million shares of our common stock at a cost of $100 million.
- At December 31, 2022, we had $403 million in cash and cash equivalents and $856 million of available credit under the Third Amended Credit Agreement (as defined in Note 8. “Debt” in Notes to Consolidated Financial Statements), for a total liquidity of approximately $1.3 billion. Cash provided by operating activities of continuing operations was $237 million in 2022 compared to cash provided by operating activities of $344 million in 2021. Refer to the “Liquidity and Capital Resources” section for further information on cash flows.

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## OPERATING RESULTS BY DIVISION

Discussion of additional income and expense items, including material charges and credits and changes in interest and income taxes follows our review of segment results. Fiscal years 2022 includes 53 weeks, and fiscal years and 2021 and 2020 include 52 weeks.

### ODP BUSINESS SOLUTIONS DIVISION

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Sales (external) | $4,005 | $3,602 | $3,549 |
| Sales (internal) | $19 | $24 | $29 |
| % change of total sales | 11% | 1% | (16)% |
| Division operating income | $140 | $72 | $51 |
| % of total sales | 3% | 2% | 1% |

Sales in our ODP Business Solutions Division increased 11% in 2022 compared to 2021, of which 1% or $58 million related to the 53$^{rd}$ week in 2022. In 2022, our ODP Business Solutions Division experienced higher demand across the majority of our product categories. The higher demand was driven by the continued recovery of our business-to-business customers, including those in the education sector, from the disruptions to their operations as a result of the impacts of the COVID-19 pandemic. The increase in demand resulted in $417 million higher sales across a majority of our offerings, including paper, furniture, breakroom, school and office supplies, copy and print services, as well as personal protective equipment and cleaning supplies, which contributed $80 million of this increase. In addition to higher demand, inflationary initiatives also resulted in favorable pricing, which also contributed to the increase in sales. These increases were partially offset by a decline of $19 million in ink and toner sales, mainly as a result of supply challenges. Sales include internal sales of $19 million in 2022, which relate to ODP Business Solutions Division customers' transactions held at Office Depot Division retail store locations.

Sales in our ODP Business Solutions Division increased 1% in 2021 compared to 2020. During 2021, our Business Solutions Division experienced higher demand in product categories such as furniture, technology, paper, breakroom, school and office supplies, as well as in our copy and print services. This was driven by the continued recovery of our business-to-business customers, including those in the education sector, from the disruptions to their operations as a result of the impacts of the COVID-19 pandemic. The higher demand from our business-to-business customers, which resulted in an increase of $184 million in sales in 2021 as compared to 2020, was partially offset by decreases in sales in product categories such as ink, toner, and personal protective equipment and cleaning supplies, which contributed $106 million to this decrease. The impact of acquisitions, while positive, was not material to 2021. Sales include internal sales of $24 million in 2021, which relate to ODP Business Solutions Division customers' transactions held at Office Depot Division retail store locations.

Our ODP Business Solutions Division sales could be impacted in the near term related to numerous factors, among others, a weaker U.S. economy and higher unemployment and inflation that materially impact spending, the demand for our products and services and the availability of supply. Specifically, we experienced supply constraints in some of our larger product categories such as ink and technology products, and we may continue to face delays or difficulty sourcing these products.

The changes in work environments as a result of the COVID-19 outbreak in 2022 has been material to the results of the ODP Business Solutions Division in 2022. A prolonged or permanent shift to hybrid or continued remote work arrangements, as well as the substance and pace of macroeconomic recovery could continue to have a material impact to the future results of the ODP Business Solutions Division.

Our ODP Business Solutions Division operating income was $140 million in 2022 compared to $72 million in 2021, an increase of 94% year-over-year. The increase was mainly driven by the flow through impact of higher sales and higher gross profit, as well as the 53$^{rd}$ week in 2022, which contributed $5 million to the increase in operating income. As a percentage of sales, operating income increased approximately 150 basis points. Although we experienced higher supply chain and import costs due to the impacts of COVID-19 and cost inflation of fuel and labor costs, this was more than offset by adjustments to selling price and lower selling, general and administrative expenses as a percentage of sales. The improvement in our selling, general and administrative expenses is attributable to cost saving initiatives of our Maximize B2B restructuring program, which reduced costs in payroll, advertising and other operating expenses.

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Our ODP Business Solutions Division operating income was $72 million in 2021 compared to $51 million in 2020, an increase of 41% year-over-year. As a percentage of sales, operating income increased approximately 60 basis points. Although we experienced increases in third-party transportation costs due to the impacts of COVID-19, this was more than offset by lower selling, general and administrative expenses as a percentage of our sales. The improvement in our selling, general and administrative expenses is attributable to cost saving initiatives of our Maximize B2B restructuring program, which reduced costs in payroll, advertising and other operating expenses.

## OFFICE DEPOT DIVISION

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Sales (external) | $4,451 | $4,830 | $5,300 |
| Sales (internal) | $36 | $34 | $35 |
| % change of total sales | (8)% | (9)% | (1)% |
| Division operating income | $285 | $325 | $317 |
| % of total sales | 6% | 7% | 6% |

*Sales* in our Office Depot Division decreased 8% in 2022 compared to 2021, including the positive impact of sales from the 53$^{rd}$ week in 2022, which were 2% or $70 million. As vaccination rates have increased since early in 2021 and the effects of the COVID-19 pandemic have begun to recede, more of our customers are transitioning into on-site work and in-person learning. As a result of this recovery, we experienced $70 million of increased sales mainly in copy and print services and paper, school and breakroom supplies in 2022. This was more than offset by fewer transactions in the majority of our product categories in 2022, as a result of both planned store closures and lower demand. Specifically, technology products, furniture, office supplies, cleaning supplies and personal protective equipment had lower sales in 2022, compared to 2021. These categories had experienced higher demand in the prior year, which was driven by the needs of our customers to help address their challenges derived from the COVID-19 pandemic and included facilitating the continued remote work and virtual learning environments.

*Sales* in our Office Depot Division decreased 9% in 2021 compared to 2020, which were driven by the same factors discussed above. We experienced $64 million of increased sales mainly in copy and print services, software, and office and school supplies in 2021. This was more than offset by lower demand in product categories such as technology products, cleaning supplies and personal protective equipment.

Our sales could be impacted in the near term related to numerous factors, among others, a weaker U.S. economy and higher unemployment that materially impact consumer spending, the demand for our products and services and the availability of supply. Specifically, we experienced supply constraints in some of our larger product categories such as ink and technology products, and we may continue to face delays or difficulty sourcing these products.

Sales include internal sales of $36 million, $34 million and $35 million in 2022, 2021 and 2020, respectively, which relate to print services provided to the ODP Business Solutions Division as well as internal service fee for providing buy online, pick up in store (“BOPIS”) transactions to ODP Business Solutions Division customers.

Sales generated through our eCommerce platform include online sales fulfilled through warehouses, BOPIS transactions, online orders shipped from store, and same day delivery orders fulfilled with retail store inventory. These sales represented 30% of Office Depot Division’s total sales in 2022, as compared to 29% of total sales in 2021, and 30% of total sales in 2020.

We are re-evaluating the definition of our comparable store metric in light of the re-alignment of our eCommerce platform along with our retail stores under this Division. We expect to resume providing our comparable store metric in fiscal 2023.

Our Office Depot Division operating income was $285 million in 2022, which decreased 12% as compared to $325 million in 2021, including the positive impact of the 53$^{rd}$ week in 2022, which contributed $15 million to operating income. This decrease is mostly attributable to the flow-through impact of lower sales and higher supply chain and occupancy costs, which more than offset our improved product margin rate. Our supply chain, import and occupancy costs were impacted by cost increases due to COVID-19, cost inflation of fuel and labor costs, and higher rent costs from lease renewals. Selling, general and administrative costs as a percentage of sales was flat compared to the corresponding period in the prior year. Our Office Depot Division operating income in 2021 increased 3% as compared to $317 million in 2020. As a percentage of sales, operating income increased approximately 80 basis points. The comparative increase in operating income in 2021 was mostly attributable to lower selling, general and administrative expenses resulting from continuous efforts to optimize costs, lower operating lease costs recognized as a result of store closures, and improved product margin. These improvements have more than offset the flow-through impact of lower sales in 2021.

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As of December 31, 2022, our Office Depot Division operated 980 retail stores in the United States, Puerto Rico and the U.S. Virgin Islands compared to 1,038 stores at the end of 2021. Charges associated with store closures as part of a restructuring plan are reported as appropriate in Asset impairments and Merger, restructuring and other operating expenses, net in the Consolidated Statements of Operations. In addition, as part of our periodic recoverability assessment of owned retail stores and distribution center assets, and operating lease ROU assets, we recognize impairment charges in the Asset impairments line item of our Consolidated Statements of Operations. These charges are reflected in Corporate reporting and are not included in the determination of Division operating income. Refer to the “Corporate” section below for additional information of expenses incurred to date.

|  | Open at Beginning of Period | Closed | Opened | Open at End of Period |
| --- | --- | --- | --- | --- |
| 2020 | 1,307 | 153 | - | 1,154 |
| 2021 | 1,154 | 116 | - | 1,038 |
| 2022 | 1,038 | 58 | - | 980 |

## VEYER DIVISION

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Sales (external) | $28 | $28 | $23 |
| Sales (internal) | $5,855 | $5,963 | $6,321 |
| % change of total sales | (2)% | (6)% | N/A |
| Division operating income | $28 | $30 | $28 |
| % of total sales | 0% | 1% | 0% |

*Internal sales* represent sales of product and supply chain services provided to our Office Depot Division and ODP Business Solutions Division, which are then sold to third-party customers through those divisions. Internal sales of product are made at a price that includes a service fee to the cost of product we source from third-party vendors, net of the impact of vendor income, and certain other adjustments. Internal sales of services represent supply chain and logistics support services, which include warehousing, shipping and handling, returns and others. These internal sales of services are also provided to the Office Depot Division and the ODP Business Solutions Division, at a service fee over cost. Internal sales are eliminated upon consolidation.

Our Veyer Division aims to be the lowest cost provider to the Office Depot Division and the ODP Business Solutions Division, with the purpose of achieving the most favorable outcome for our Company’s consolidated results. As a result, Veyer Division’s internal sales and profitability related to these internal sales could be impacted by activities that we may undertake to drive efficiencies in the Veyer Division, as well as decisions made by the Office Depot Division and ODP Business Solutions Division for alternative sourcing options to meet customer needs.

In 2022, 2021, and 2020, $2.9 billion, $3.3 billion and $3.6 billion of internal sales are to the Office Depot Division, and $2.9 billion, $2.7 billion and $2.7 billion are to the ODP Business Solutions Division, respectively. The decrease in internal sales to the Office Depot Division is related to the decline in customer demand at our retail stores and eCommerce platform, which is discussed further in the Office Depot Division section above. This was partially offset by the 53$^{rd}$ week in 2022. The increase in internal sales to the ODP Business Solutions Division is related to the increase in demand from our business customers as well as the 53$^{rd}$ week in 2022, which is discussed above in the ODP Business Solutions Division section.

*External sales* represent supply chain services provided to third parties, as well as product sales by our Asia sourcing operation to third parties. External sales were flat in 2022 as compared to 2021. The increase in external sales in 2021 as compared to 2020 was driven by the needs of our customers to help address their supply chain challenges as a result of the COVID-19 pandemic

Our Veyer Division operating income was $28 million in 2022 compared to $30 million in 2021. The year-over-year decrease of $2 million was mainly due to the flow through impact of lower sales. Our Veyer Division operating income increased to $30 million in 2021 as compared to $28 million in 2020. The year-over-year increase was related to lower selling, general and administrative expenses resulting from continuous efforts to optimize costs, partially offset by the flow-through impact of lower sales in 2021. Future performance of our Veyer Division is dependent upon market conditions in the transportation and logistics industry, including fluctuations in labor and fuel costs, and its ability to pass any cost increases through to its customers.

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## VARIS DIVISION

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Sales (external) | $7 | $5 | $ - |
| Sales (internal) | $ - | $ - | $ - |
| % change of total sales | 40% | N/A | N/A |
| Division operating loss | $(66) | $(34) | $ - |
| % of total sales | (943)% | (680)% | N/A |

*Sales* in our Varis Division increased $2 million or 40% in 2022, compared to 2021. The increase in sales year-over-year was driven by the acquisition of BuyerQuest in the first quarter of 2021, the impact of purchase accounting adjustments on prior period sales, which had an impact of $1 million, and the 53$^{rd}$ week in 2022. Our Varis Division also acquired new customers on the platform in 2021 and early 2022 that contributed to the increase in sales. Since our Varis Division was formed in 2021 there are no prior operating results.

*Division operating loss* was $66 million in 2022 compared to operating loss of $34 million in 2021, an increase of 94%, which was driven by investments in the resources required to expand and scale the technology platform and upgraded product offerings. The costs were mainly related to payroll, third-party professional fees, and amortization of internally developed software. We expect to continue to incur costs and invest in growing our Varis Division in the near future.

## CORPORATE

The line items in our Consolidated Statements of Operations impacted by Corporate activities are presented in the table below, followed by a narrative discussion of the significant matters. These activities are managed at the Corporate level and, accordingly, are not included in the determination of Division income for management reporting or external disclosures.

| (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 |

In addition to these charges and credits, certain selling, general and administrative expenses are not allocated to the Divisions and are managed at the Corporate level. Those expenses are addressed in the section 'Unallocated Expenses' below.

### Asset impairments

Asset impairment charges are comprised of the following:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Retail stores | $14 | $20 | $60 |
| Goodwill and other intangible assets | - | - | 115 |
| Other | - | - | 7 |
| Total Asset impairments | $14 | $20 | $182 |

In 2022, 2021 and 2020, we recognized asset impairment charges of $14 million, $20 million and $182 million, respectively, related to our continuing operations. Of the asset impairment charges in 2022, $12 million was related to the impairment of operating lease ROU assets associated with our retail store locations, and the remainder was related to impairment of fixed assets at these retail store locations. Of the asset impairment charges in 2021, $16 million was related to impairment of operating lease ROU assets associated with our retail store locations, and the remainder was related to impairment of fixed assets at these retail store locations.

We regularly review retail store assets for impairment indicators at the individual store level, as this represents the lowest level of identifiable cash flows. When indicators of impairment are present, a recoverability analysis is performed which considers the estimated undiscounted cash flows over the retail store's remaining life and uses inputs from retail operations and accounting and finance personnel. These inputs include our best estimates of retail store-level sales, gross margins, direct expenses, exercise of future lease renewal options when reasonably certain to be exercised, and resulting cash flows, which, by their nature, include judgments about how current initiatives will impact future performance. In 2022, the assumptions used within the recoverability analysis for the retail stores were updated to consider current quarter retail store operational results and formal plans for future retail store closures as part of our restructuring programs, including the probability of closure at the retail store level. While it is generally expected that closures will approximate the store's lease termination date, it is possible that changes in store performance or other conditions could

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result in future changes in assumptions utilized. In addition, the assumptions used reflected declining sales over the forecast period, and gross margin and operating cost assumptions that are consistent with recent actual results and consider plans for future initiatives. If the undiscounted cash flows of a retail store cannot support the carrying amount of its assets, the assets are impaired and written down to estimated fair value. Our retail store assets recoverability analyses in 2022 also included the impact of the COVID-19 pandemic on the operations of our retail stores as described in the “Office Depot Division” section. As discussed above, there is uncertainty regarding the impact of the COVID-19 pandemic on the results of our operations in 2023 and beyond, which could result in future impairments of store assets if deemed unrecoverable.

We test our goodwill and indefinite-lived intangible assets 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 re-alignment of our reportable segments described above also resulted in the change of our reporting units during the third quarter of 2022, where each reportable segment also represents a reporting unit. We allocated goodwill to our new reporting units using their relative fair values. We performed impairment assessments of our legacy and current reporting units immediately before and after this change. No impairment was recorded as result of this assessment. During the fourth quarter of 2022, we performed our annual impairment assessment, which was as of the first day of fiscal month December. We used a quantitative assessment for our Varis Division reporting unit, and qualitative assessments for all other reporting units. The quantitative assessment for the Varis Division 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. The fair value of our Varis reporting unit exceeded its carrying amount by 21%. Our Varis reporting unit has been in operation since 2021, therefore we have 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.

Refer to Note 7. “Goodwill and Other Intangible Assets” in Notes to Consolidated Financial Statements for additional information. If the operating results of our 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 goodwill impairment charges. Further, while we are currently in a strong liquidity and capital position, a significant deterioration may have a material impact on our liquidity and capital in future periods.

#### **Merger, restructuring and other operating expenses, net**

We have taken actions to optimize our asset base and drive operational efficiencies. These actions include acquiring profitable businesses, closing underperforming retail stores and non-strategic distribution facilities, consolidating functional activities, eliminating redundant positions and disposing of non-strategic businesses and assets. We have also incurred costs related to our actions to separate our consumer business through a potential sale, prior to our Board of Directors’ decision on June 21, 2022 to maintain the consumer business under common ownership. In addition, we have incurred costs related to completing the re-alignment of operations into four Divisions, which also represent our new reportable segments. The expenses and any income recognized directly associated with these actions are included in Merger, restructuring and other operating expenses, net on a separate line in the Consolidated Statements of Operations in order to identify these activities apart from the expenses incurred to sell to and service customers. These expenses are not included in the determination of Division operating income. Merger, restructuring and other operating expenses, net were $39 million, $51 million and $102 million in 2022, 2021 and 2020, respectively. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Consolidated Financial Statements for an additional analysis of these Corporate charges.

#### **Unallocated Expenses**

We allocate to our Divisions functional support expenses that are considered to be directly or closely related to segment activity. These allocated expenses are included in the measurement of Division operating income. Other companies may charge more or less for functional support expenses to their segments, and our results, therefore, may not be comparable to similarly titled measures used by other companies. The unallocated expenses primarily consist of the buildings used for our corporate headquarters and personnel not directly supporting the Divisions, including certain executive, finance, legal, audit and similar functions. Unallocated expenses were $91 million, $88 million, and $106 million in 2022, 2021 and 2020, respectively. The increase in 2022 compared to 2021 was primarily due to higher Corporate payroll incentive expenses and professional fees.

#### **Other Income and Expense**

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Interest income | $5 | $1 | $4 |
| Interest expense | (16) | (28) | (42) |
| Loss on extinguishment and modification of debt | - | - | (12) |
| Other income, net | 10 | 24 | 6 |

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In April 2020, we entered into the Third Amended Credit Agreement which provided for an aggregate principal amount of up to $1.3 billion asset-based revolving credit facility and asset-based FILO Term Loan Facility, maturing in April 2025. During the first quarter of 2022, we reduced our asset-based revolving credit facility by $200 million to $1.0 billion and retired $43 million of outstanding FILO Term Loan Facility loans under the Third Amended Credit Agreement. We recorded $4 million, $5 million and $6 million of interest expense in 2022, 2021 and 2020, respectively, related to the Third Amended Credit Agreement. We also recorded interest expense related to our finance lease obligations and revenue bonds in all periods presented. Interest expense in 2022 also includes $3 million of income related to reversal of uncertain tax positions.

Other income, net includes the pension credit related to the frozen OfficeMax pension and other benefit plans, as well as the pension credit related to the pension plan in the United Kingdom that has been retained by us in connection with the sale of the European Business. We also recorded $7 million of other income, net related to the release of certain liabilities of our former European Business in 2021.

### Income Taxes

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Income tax expense | $64 | $44 | $25 |
| Effective income tax rate* | 26% | 19% | (66)% |

\* Income taxes as a percentage of income from continuing operations before income taxes.

During 2022 and 2021, the mix of income and losses across jurisdictions, although still applicable, has become less of a factor in influencing our effective tax rates due to limited international operations and improved operating results. Our effective tax rates were 26%, 19% and (66)% in 2022, 2021 and 2020, respectively.

In 2022, our effective tax rate was primarily impacted by the recognition of a tax windfall associated with stock-based compensation. This factor, along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused our effective tax rate of 26% for 2022 to differ from the statutory rate of 21%. Our effective tax rate for prior periods has varied considerably primarily due to the impact of goodwill impairment, state taxes, stock-based compensation awards, recognition of tax benefits due to an agreement reached with the IRS related to a prior tax position, certain nondeductible items and the mix of income and losses across U.S. and non-U.S. jurisdictions. Changes in pretax income projections and the mix of income across jurisdictions could impact our effective tax rates in future quarters.

We continue to have a U.S. valuation allowance for certain U.S. Federal credits and state tax attributes, which relate to deferred tax assets that require either certain types of income or for income to be earned in certain jurisdictions in order to be realized. We will continue to assess the realizability of our deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods.

It is anticipated that $2 million of the material tax positions will be resolved within the next 12 months. Additionally, we anticipate that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits; however, an estimate of such changes cannot reasonably be made.

We file a U.S. Federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. Federal and state and local income tax examinations for years before 2020 and 2017, respectively. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. Federal income tax examination and with few exceptions, is no longer subject to U.S. state and local income tax examinations for years prior to 2017. Our U.S. Federal income tax returns for 2021 are currently under review. Generally, we are subject to routine examination for years 2017 and forward in our international tax jurisdictions.

Refer to Note 4. 'Income Taxes' in Notes to Consolidated Financial Statements for additional tax discussion.

### Discontinued Operations

Refer to Note 15. 'Discontinued Operations' in Notes to Consolidated Financial Statements for information regarding the CompuCom Division which is accounted for as discontinued operations.

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# LIQUIDITY AND CAPITAL RESOURCES

## LIQUIDITY

At December 31, 2022 and December 25, 2021, we had $403 million and $514 million in cash and cash equivalents, respectively, and $856 million and $877 million of available credit under the Third Amended Credit Agreement (as defined in Note 8. “Debt” in Notes to Consolidated Financial Statements), for a total liquidity of approximately $1.3 billion at the end of fiscal 2022. Despite the weaker global economic conditions and the uncertainties related to the current macroeconomic environment, we currently believe that as a result of our strong financial position, including our cash and cash equivalents on hand, availability of funds under the Third Amended Credit Agreement, and future year cash flows generated from operations, we will be able to fund our working capital, capital expenditures, debt repayments, common stock repurchases, dividends (if any), merger integration and restructuring expenses, costs associated with the previously planned separation of our consumer business, and future acquisitions consistent with our strategic growth initiatives for at least the next twelve months from the date of this Annual Report on Form 10-K. From time to time, we may prepay outstanding debt and/or restructure or refinance debt obligations. As the impact of the COVID-19 pandemic on the global and national economies and our operations evolve, we will continue to assess our liquidity needs.

### Financing

As disclosed in Note 8. “Debt” in Notes to Consolidated Financial Statements, on April 17, 2020, we entered into the Third Amended and Restated Credit Agreement, which provided for a $1.2 billion asset-based revolving credit facility and a $100 million asset-based FILO Term Loan Facility, for an aggregate principal amount of up to $1.3 billion (the “New Facilities”). The New Facilities mature in April 2025. The Third Amended and Restated Credit Agreement replaced our then existing amended and restated credit agreement that was due to mature in May 2021. During the first quarter of 2022, we reduced our asset-based revolving credit facility by $200 million to $1.0 billion and retired $43 million of outstanding FILO Term Loan Facility loans under the Third Amended Credit Agreement.

There were no revolving loans outstanding. We had $57 million of outstanding FILO Term Loan Facility loans and $41 million of outstanding standby letters of credit under the Third Amended Credit Agreement at the end of fiscal 2022, and we were in compliance with all applicable covenants at December 31, 2022.

### Strategic Transformation

In addition to the acquisitions disclosed herein, we have evaluated, and expect to continue to evaluate, possible acquisitions and dispositions of businesses and assets in connection with our strategic transformation. Such transactions may be material and may involve cash, our securities or the incurrence of additional indebtedness.

### Capital Expenditures

In 2023, we expect to incur capital expenditures of up to approximately $100 million, including investments to support our business priorities. These expenditures will be funded through available cash on hand and operating cash flows.

### Capital Return Programs - Share Repurchases and Dividends

In May 2021, our Board of Directors approved a stock repurchase program of up to $300 million, available through June 30, 2022. Our Board of Directors reviewed the existing capital allocation programs in connection with the sale of CompuCom, and on December 31, 2021, authorized an additional $200 million for share repurchases under the then existing stock repurchase program, for a total authorization of $650 million. This stock repurchase program expired on June 30, 2022, and in July 2022, our Board of Directors approved a stock repurchase program of up to $600 million, available through June 30, 2024. In October 2022, our Board of Directors approved a new stock repurchase program of up to $1 billion, available through December 31, 2025 to replace the existing $600 million stock repurchase program effective November 3, 2022.

On November 16, 2021, as part of the stock repurchase program that expired on June 30, 2022, we entered into an ASR to repurchase shares of our common stock in exchange for an up-front payment $150 million and increased the authorization to $450 million. The ASR repurchase period ran through May 25, 2022, and we received 0.7 million shares of our common stock as the final settlement of the ASR in the second quarter of 2022. We repurchased 3.6 million shares of our common stock in total at an average price per share of $41.46 under the ASR. In July 2022, as part of the $600 million stock repurchase program, our Board of Directors approved a Dutch auction tender offer to repurchase up to $300 million worth of shares of its common stock, based on demand. Through this tender offer, the Company’s shareholders had the opportunity to tender some or all of their shares at a price within the range of $31.50 to $36.00 per share subject to the conditions set forth in the tender offer documents. The tender offer commenced on July 18, 2022 and expired on August 12, 2022. We repurchased 14 thousand shares under the tender offer at a cost of $1 million. We repurchased 6 million additional shares of our common stock, at a cost of $266 million, in the third and fourth quarters of 2022. As a result, we repurchased 7 million shares in 2022, including the final settlement of the ASR at a weighted average price of $41.21 per common

37

share, for total consideration of $295 million. As of December 31, 2022, $847 million remains available for stock repurchases under the current stock repurchase program, after considering purchases made under the $1 billion authorization effective November 3, 2022. Subsequent to the end of fiscal 2022 and through February 22, 2023, we repurchased 2 million shares of our common stock at a cost of $100 million.

The new authorization may be suspended or discontinued at any time. The stock repurchase authorization permits us to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiated transactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The exact number and timing of stock repurchases will depend on market conditions and other factors and will be funded through available cash balances. Our Third Amended Credit Agreement permits restricted payments, such as common stock repurchases, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements. The authorized amount under the stock repurchase program excludes fees, commissions or other expenses.

We did not declare any cash dividends in 2022. We do not anticipate declaring cash dividends in the foreseeable future. Our Third Amended Credit Agreement permits restricted payments, such as dividends, but may be limited if we do not meet the required minimum liquidity or fixed charge coverage ratio requirements.

We will continue to evaluate our capital return programs as appropriate. Decisions regarding future share repurchases and dividends are within the discretion of our Board of Directors, and depend on a number of factors, including, general business and economic conditions, which includes the impact of COVID-19 on such conditions, and other factors which are discussed in this discussion and analysis and “Risk Factors” within Other Key Information in this Annual Report.

## CASH FLOWS

Cash provided by (used in) operating, investing and financing activities of continuing operations is summarized as follows:

| (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) |

### *Operating Activities from Continuing Operations*

Cash provided by operating activities from continuing operations was $237 million in 2022, compared to $344 million in 2021. This decrease in cash flows from operating activities was primarily driven by $123 million less cash inflows from working capital, and $30 million less income from operations, after adjusting for non-cash charges, partially offset by $46 million higher usage of deferred tax assets. Working capital is influenced by a number of factors, including period end sales, the flow of goods, credit terms, timing of customer promotions, vendor production planning, new product introductions and working capital management. In 2022, the primary drivers for higher working capital usage was due to $124 million more cash outflows due to changes in our trade payables and other liabilities and $22 million more cash outflows from inventory purchases, partially offset by $19 million more cash inflows due to changes in our receivables. The higher outflows related to our trade payables and other liabilities was mainly due to timing of payments and the 53$^{rd}$ week in 2022. The change in inventories is mainly attributable to purchase volume. The change in our receivables is due to the impact the recovery in sales of our ODP Business Solutions Division in 2022.

Cash provided by operating activities of continuing operations decreased by $81 million during 2021 when compared to 2020. This decrease was primarily driven by $103 million less cash inflows from working capital, partially offset by $39 million more income from operations, after adjusting for non-cash charges.

For our accounting policy on cash management, refer to Note 1. “Summary of Significant Accounting Policies” in Notes to Consolidated Financial Statements.

### *Investing Activities from Continuing Operations*

Cash used by investing activities from continuing operations was $86 million in 2022, which was primarily driven by $99 million in capital expenditures associated with improvements in our service platform, distribution network, and eCommerce capabilities. These outflows were partially offset by the cash proceeds from our company-owned life insurance policies of $5 million and proceeds from sale of assets of $8 million.

Cash used by investing activities of continuing operations was $75 million in 2021, primarily driven by $29 million in business acquisitions, net of cash acquired, and $73 million in capital expenditures associated with improvements in our service platform, distribution network, and eCommerce capabilities. These outflows were partially offset by the cash proceeds from our company-owned life insurance policies of $22 million and proceeds from sale of assets of $5 million.

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### Financing Activities from Continuing Operations

Cash used in financing activities of continuing operations was $355 million in 2022. The cash outflow in 2022 primarily consisted of $266 million in repurchases of common stock including commission, $64 million of net payments on short- and long-term borrowings activity related to our debt, including retirement, and $20 million share purchases for taxes, net of proceeds, for employee share-based transactions.

Cash used in financing activities of continuing operation was $459 million in 2021, primarily consisting of $125 million of net payments on short- and long-term borrowings activity related to our debt, including retirement, $277 million in repurchases of common stock including commission, $30 million advance payment for accelerated share repurchase and $26 million share purchases for taxes, net of proceeds, for employee share-based transactions.

### Discontinued Operations

Cash provided by (used in) operating, investing and financing activities of discontinued operations is summarized as follows:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Operating activities of discontinued operations | $ - | $2 | $60 |
| Investing activities of discontinued operations | 76 | (4) | (10) |
| Financing activities of discontinued operations | - | - | - |

There were no cash flows related to operating activities of discontinued operations year-to-date 2022. Cash used in operating activities from discontinued operations was $2 million in 2021. The change in operating cash flows of discontinued operations in the comparative periods was primarily driven by the sale of our CompuCom Division on December 31, 2021.

Cash flows from investing activities from discontinued operations was $76 million in 2022, compared to cash used in investing activities from discontinued operations of $4 million in 2021. The change in investing cash flows of discontinued operations in the comparative periods reflects proceeds received from the sale of our CompuCom Division, net of cash sold and selling costs, on December 31, 2021. In addition, 2022 includes $10 million of insurance proceeds received related to the malware incident in 2021.

### Contractual Obligations

Contractual obligations for future payments at December 31, 2022 primarily relate to operating and finance lease commitments, obligations under our long-term debt, and purchase commitments.

Operating and financing leases represent minimum required lease payments during the noncancelable lease term. Most real estate leases also require payment of related operating expenses such as taxes, insurance, utilities, and maintenance, which are not included in our estimated lease obligation. Refer to Note 9. “Leases” in Notes to Consolidated Financial Statements for the maturities of our operating and finance lease obligations.

Long-term debt obligations consist primarily of expected payments of principal and interest on our $57 million of outstanding FILO Term Loan Facility loans under the Third Amended Credit Agreement and $90 million of revenue bonds and gold debentures at various interest rates. Refer to Note 8. “Debt” in Notes to Consolidated Financial Statements for the maturities of our long-term debt obligations.

Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that are enforceable and legally binding on us that meet any of the following criteria: (1) they are non-cancelable, (2) we would incur a penalty if the agreement was cancelled, or (3) we must make specified minimum payments even if we do not take delivery of the contracted products or services. If the obligation is non-cancelable, the entire value of the contract is included as a purchase obligation. If the obligation is cancelable, but we would incur a penalty if cancelled, the dollar amount of the penalty is included as a purchase obligation. If we can unilaterally terminate an agreement simply by providing a certain number of days’ notice or by paying a termination fee, the amount of the termination fee or the amount that would be paid over the “notice period” is included as a purchase obligation. As of December 31, 2022, purchase obligations include marketing services, outsourced accounting services, certain fixed assets and software licenses, service and maintenance contracts for information technology and communication.

Our Consolidated Balance Sheet as of December 31, 2022 includes $122 million classified as Deferred income taxes and other long-term liabilities. Deferred income taxes and other long-term liabilities primarily consist of net long-term deferred income taxes, deferred lease credits, long-term restructuring accruals, certain liabilities under our deferred compensation plans, accruals for uncertain tax positions, and environmental accruals. Refer to Note 2. “Merger, Restructuring and Other Activity” in Notes to Consolidated Financial Statements for a discussion of our restructuring accruals and Note 4. “Income Taxes” in Notes to Consolidated Financial Statements for additional information regarding our deferred tax positions and accruals for uncertain tax positions.

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Our Consolidated Balance Sheet as of December 31, 2022 also includes $11 million of current and non-current pension and postretirement obligations. Our estimate is that payments in future years will total $52 million. This estimate represents the minimum contributions required per Internal Revenue Service funding rules and our estimated future payments under pension and postretirement plans. Actuarially-determined liabilities related to pension and postretirement benefits are recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, rates of return on investments, healthcare cost trends, benefit payment patterns and other factors. Changes in assumptions related to the measurement of funded status could have a material impact on the amount reported. Refer to Note 12. “Employee Benefit Plans” in Notes to Consolidated Financial Statements for additional information.

In addition to the above, we have outstanding standby letters of credit totaling $41 million at December 31, 2022.

## CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies and estimates have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies can be found in Note 1. “Summary of Significant Accounting Policies” in Notes to Consolidated Financial Statements. We have also identified certain accounting policies and estimates that we consider critical to understanding our business and our results of operations and we have provided below additional information on those policies.

*Inventory valuation* - Inventories are stated at the lower of weighted average cost or net realizable value. We monitor active inventory for excessive quantities and slow-moving items and record adjustments as necessary to lower the value if the anticipated realizable amount is below cost. We also identify merchandise that we plan to discontinue or have begun to phase out and assess the estimated recoverability of the carrying value. This includes consideration of the quantity of the merchandise, the rate of sale, and our assessment of current and projected market conditions and anticipated vendor programs. If necessary, we record a charge to cost of sales to reduce the carrying value of this merchandise to our estimate of the lower of cost or realizable amount. Additional promotional activities may be initiated, and markdowns may be taken as considered appropriate until the product is sold or otherwise disposed. Estimates and judgments are required in determining what items to stock and at what level, and what items to discontinue and how to value them prior to sale.

We also recognize an expense in cost of sales for our estimate of physical inventory loss from theft, short shipments and other factors - referred to as inventory shrink. During the year, we adjust the estimate of our inventory shrink rate accrual following on-hand adjustments and our physical inventory count results. These changes in estimates may result in volatility within the year or impact comparisons to other periods.

*Vendor arrangements* - Inventory purchases from vendors are generally under arrangements that automatically renew until cancelled with periodic updates or annual negotiated agreements. Many of these arrangements require the vendors to make payments to us or provide credits to be used against purchases if and when certain conditions are met. We refer to these arrangements as “vendor programs.” Vendor programs fall into two broad categories, with some underlying sub-categories. The first category is volume-based rebates. Under those arrangements, our product costs per unit decline as higher volumes of purchases are reached. Current accounting rules provide that companies with a reasonable basis for estimating their full year purchases, and therefore the ultimate rebate level, can use that estimate to value inventory and cost of goods sold throughout the year. We believe our history of purchases with many vendors provides us with a basis for our estimates of purchase volume. If the anticipated volume of purchases is not reached, however, or if we form the belief at any point in the year that it is not likely to be reached, cost of goods sold and the remaining inventory balances are adjusted to reflect that change in our outlook. We review sales projections and related purchases against vendor program estimates at least quarterly and adjust these balances accordingly.

The second broad category of arrangements with our vendors is event-based programs. These arrangements can take many forms, including advertising support, special pricing offered by certain of our vendors for a limited time, payments for special placement or promotion of a product, reimbursement of costs incurred to launch a vendor’s product, and various other special programs. These payments are classified as a reduction of costs of goods sold or inventory, based on the nature of the program and the sell-through of the inventory. Some arrangements may meet the specific, incremental, identifiable cost criteria that allow for direct operating expense offset, but such arrangements are not significant.

Vendor programs are recognized throughout the year based on judgment and estimates and amounts due from vendors are generally settled throughout the year based on purchase volumes. The final amounts not already collected from vendors are generally known soon after year-end and are reflected in our results of operations. Substantially all vendor program receivables outstanding at the end of the year are settled within the three months following year-end. We believe that our historical collection rates of these receivables provide a sound basis for our estimates of anticipated vendor payments throughout the year.

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*Long-lived asset impairments* - Long-lived assets with identifiable cash flows are reviewed for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We assess recovery of the asset or asset groups using estimates of cash flows directly associated with the future use and eventual disposition of the asset or asset groups. If anticipated cash flows are insufficient to recover the asset on an undiscounted basis, impairment is measured as the difference between the asset’s estimated fair value (generally, the discounted cash flows or its salvage value) and its carrying value, and any costs of disposition. Factors that could trigger an impairment assessment include, among others, a significant change in the extent or manner in which an asset is used or the business climate that could affect the value of the asset. As restructuring activities continue, we may identify assets or asset groups for sale or abandonment and incur impairment charges.

Because of declining sales, store assets are reviewed periodically throughout the year for recoverability of their asset carrying amounts. The frequency of this test may change in future periods if performance warrants. The analysis uses input from retail store operations and our accounting and finance personnel that organizationally report to the Chief Financial Officer. These projections are based on our estimates of store-level sales, gross margins, direct expenses, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance.

Important assumptions used in these projections include an assessment of future overall economic conditions, our ability to control future costs, maintain aspects of positive performance, and successfully implement initiatives designed to enhance sales and gross margins. Our assumptions in 2022 also included the impact of the COVID-19 pandemic on store asset recoverability. Due to the nature of products sold, our retail stores were considered to be essential by most local jurisdictions and as a result, the substantial majority of our retail stores have remained open and operational with the appropriate safety measures in place since the beginning of the COVID-19 outbreak, including a curbside pickup option. Our recoverability assessment in 2022 included evaluating the impact of these developments. To the extent our estimates of future performance are not realized, future assessments could result in material impairment charges.

*Goodwill and other intangible assets* - Goodwill represents the excess of the purchase price of an acquired entity over the fair value of the net tangible and intangible assets acquired and liabilities assumed in a business combination. We review the carrying amount of goodwill at the reporting unit level on an annual basis as of the first day of fiscal month December, or more frequently, if events or changes in circumstances suggest that goodwill may not be recoverable. For those reporting units where events or change in circumstances indicate that potential impairment indicators exist, we perform a quantitative assessment to determine whether the carrying amount of goodwill can be recovered. A significant amount of judgment is involved in determining if an indicator of impairment has occurred.

When performing the annual goodwill impairment test, we may start with an optional qualitative assessment which involves the evaluation of all events and circumstances, including both positive and negative events, in their totality, to determine whether it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. If we bypass the qualitative assessment, or if the qualitative assessment indicates that a quantitative analysis should be performed, we evaluate goodwill for impairment by comparing the fair value of a reporting unit to its carrying value, including the associated goodwill. We estimate the reporting unit’s fair value using discounted cash flow analysis and market-based evaluations, when available. If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded to reduce the carrying value to the estimated fair value. We typically use a combination of valuation approaches that are dependent on several significant estimates and assumptions related to forecasts of future revenues, cost of sales, expenses and the weighted-average cost of capital for each reporting unit. These estimates and assumptions included consideration related to the impact of COVID-19 on our reporting units. Any adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on our financial statements.

The re-alignment of our reportable segments in the third quarter of 2022 resulted in the change of our reporting units, where each reportable segment also represents a reporting unit. We allocated goodwill to our new reporting units using their relative fair values. We performed impairment assessment of our legacy and current reporting units immediately before and after this change. No impairment was recorded as result of this assessment. Refer to Note 7. “Goodwill and Other Intangible Assets” in Notes to Consolidated Financial Statements for additional information.

Other intangible assets primarily include customer relationship values and, trade names and technology, which primarily related to the CompuCom acquisition and OfficeMax merger. The customer relationship and trade name related to CompuCom are classified within Assets Held for Sale in the Consolidated Financial Statements. The original valuation of our customer relationship values assumed continuation of attrition rates previously experienced with these businesses and synergy benefits from the transactions. If we experience an unanticipated decline in sales or profitability associated with these customers, the remaining useful life will be reassessed and could result in either acceleration of amortization or impairment.

*Accounting for Business Combinations* - We include the results of operations of acquired businesses in our consolidated results prospectively from the date of acquisition. Total purchase consideration of acquired businesses may include contingent consideration based on the future results of operations of the acquired businesses. Significant judgements are required to estimate the future results

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of operations of the acquired businesses and the contingent consideration. Differences between the actual results of operations of the acquired businesses and the original estimate may result in additional contingent consideration liabilities. Changes in fair value of the contingent consideration may result in additional transaction related expenses. We allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquired entity generally based on their fair values at the acquisition date. We use various valuation methodologies to estimate the fair value of assets acquired and liabilities assumed, including using a market participant perspective when applying cost, income and relief from royalty analyses, supplemented with market appraisals where appropriate. Significant judgments and estimates are required in preparing these fair value estimates. The excess of the fair value of purchase consideration over the fair value of the assets acquired, liabilities assumed and non-controlling interests in the acquired entity is recorded as goodwill. The primary items that generate goodwill include the value of the synergies between the acquired company and us and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. Acquisition-related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred.

## SIGNIFICANT TRENDS, DEVELOPMENTS AND UNCERTAINTIES

*Competitive Factors* - We continue to see development and growth of competitors in all segments of our business. In particular, Internet-based companies, mass merchandisers and wholesale clubs, as well as food and drugstore chains, have increased their assortment of home office merchandise, attracting additional back-to-school customers and year-round casual shoppers. We have seen substantial growth in the number of competitors that offer office products over the Internet, as well as the breadth and depth of their product offerings. As a result of the changes in customer purchasing habits with the COVID-19 pandemic, we have seen a substantial increase in Internet-based purchasing by customers as they continue to make their purchases online and utilize curbside pickup or offered delivery services instead of going into stores. In addition to large numbers of smaller Internet providers featuring special price incentives and one-time deals (such as close-outs), we are experiencing strong competitive pressures from large Internet providers such as Amazon and Walmart that offer a full assortment of office products through direct sales and, in the case of Amazon, acting as a “storefront” for other specialty office product providers.

Wholesale clubs have expanded beyond their in-store assortment by adding catalogs and websites from which a much broader assortment of products may be ordered. We also face competition from other office supply stores that compete directly with us in numerous markets. This competition is likely to result in increased competitive pressures on pricing, product selection and services provided by our ODP Business Solutions and Office Depot Divisions. Many of these retail competitors, including discounters, wholesale clubs, and drug stores and grocery chains, carry basic office supply products. Some of them also feature technology products. Many of them may price certain of these offerings lower than we do. This trend towards a proliferation of retailers offering a limited assortment of office products is a potentially serious trend that could shift purchasing away from office supply specialty retailers and adversely impact our results. Another trend in our office products industry has been consolidation, as competitors in office supply stores and the copy/print channel have been acquired and consolidated into larger, well-capitalized corporations. This trend towards consolidation, coupled with acquisitions by financially strong organizations, is potentially a significant trend in our office products industry that could impact our results. Additionally, consumers are utilizing more technology and purchasing less paper, ink and toner, physical file storage and general office supplies. Lower demand for printing paper is causing a decline in manufacturing and ensuing industry supply of paper products. This, in turn, is leading to a meaningful increase in paper cost, which we are not always able to pass along to our customers commensurably.

We regularly consider these and other competitive factors when we establish both offensive and defensive aspects of our overall business strategy and operating plans.

*Economic Factors* - Our customers in the Office Depot Division and certain of our customers in the ODP Business Solutions Division are small and home office businesses. Accordingly, spending by these customers is affected by macroeconomic conditions, such as changes in the housing market and commodity costs, credit availability, inflation and other factors.

*Liquidity Factors* - We rely on our cash flow from operating activities, available cash and cash equivalents, and access to broad financial markets to provide the liquidity we need to operate our business and fund integration and restructuring activities. Together, these sources have been used to fund operating and working capital needs, as well as invest in business expansion through capital improvements and acquisitions. While we have in place a $1.0 billion asset-based credit facility to provide liquidity, the economic factors affecting our business may limit our ability to access this credit facility in full or cause future refinancing terms to be less favorable than the terms of our current indebtedness.

## MARKET SENSITIVE RISKS AND POSITIONS

We have adopted an enterprise risk management process patterned after the principles set out by the Committee of Sponsoring Organizations (COSO). We utilize a common view of exposure identification and risk management. A process is in place for periodic risk reviews and identification of appropriate mitigation strategies.

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We have market risk exposure related to interest rates, foreign currency exchange rates, and commodities. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year. Interest rate changes on obligations may result from external market factors. We manage our exposure to market risks at the corporate level. The portfolio of interest-sensitive assets and liabilities is monitored to provide liquidity necessary to satisfy anticipated short-term needs. Our risk management policies allow the use of specified financial instruments for hedging purposes only; speculation on interest rates, foreign currency rates, or commodities is not permitted.

#### *Interest Rate Risk*

We are exposed to the impact of interest rate changes on cash, cash equivalents, debt obligations, and defined benefit pension and other postretirement plans.

The impact on cash and cash equivalents held at December 31, 2022, from a hypothetical 50-basis-point change in interest rates, would be an increase or decrease in interest income of approximately $2 million. The impact on our New Facilities loans at December 31, 2022, from a hypothetical 50-basis-point change in interest rates, would be an increase or decrease in interest expense of less than $1 million.

The following table provides information about our debt portfolio outstanding as of December 31, 2022, that is sensitive to changes in interest rates. The following table does not include our obligations for pension plans and other postretirement benefits, although market risk also arises within our defined benefit pension plans to the extent that the obligations of the pension plans are not fully matched by assets with determinable cash flows. Refer to Note 12. 'Employee Benefit Plans' in Notes to Consolidated Financial Statements for additional information about our pension plans and other postretirement benefits obligations.

| (In millions) | 2022 |  |  | 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Carrying Amount | Fair Value | Risk Sensitivity | Carrying Amount | Fair Value | Risk Sensitivity |
| Financial liabilities: |  |  |  |  |  |  |
| Recourse debt: |  |  |  |  |  |  |
| New Facilities loans under the Third Amended Credit Agreement, due 2025 | $57 | $57 | $ - | $100 | $100 | $1 |
| Revenue bonds, due in varying amounts periodically through 2029 | $75 | $76 | $2 | $75 | $76 | $2 |
| American & Foreign Power Company, Inc. 5% debentures, due 2030 | $15 | $14 | $ - | $15 | $16 | $1 |

The risk sensitivity of fixed rate debt reflects the estimated increase in fair value from a 50-basis-point decrease in interest rates, calculated on a discounted cash flow basis. The sensitivity of variable rate debt reflects the possible increase in interest expense during the next period from a 50-basis-point change in interest rates prevailing at year-end.

#### *Foreign Exchange Rate Risk*

We conduct business through our entities in Canada and China, where their functional currency is not the U.S. dollar. We continue to assess our exposure to foreign currency fluctuations against the U.S. dollar. As of December 31, 2022, a 10% change in the applicable foreign exchange rates would have resulted in an increase or decrease in our pretax earnings from continuing operations of less than $1 million.

#### *Commodities Risk*

We operate a large network of stores and distribution centers. As such, we purchase fuel needed to transport products to our retail stores and customers as well as pay shipping costs to import products from overseas. We are exposed to potential changes in the underlying commodity costs associated with this transport activity.

We may enter into economic hedge transactions for a portion of our anticipated fuel consumption. These arrangements are marked to market at each reporting period. Some of these arrangements may not be designated as hedges for accounting purposes and changes in value are recognized in current earnings through the Cost of goods sold and occupancy costs line in the Consolidated Statements of Operations. Those that are designated as hedges for accounting purposes are also marked to market at each reporting period, with the change in value deferred in accumulated other comprehensive income until the related fuel is consumed. Currently, these economic

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hedging transactions are not considered material. As of December 31, 2022, excluding the impact of any hedge transaction, a 10% change in domestic commodity costs would have resulted in an increase or decrease in our operating profit of approximately $6 million.

## SEASONALITY

Our business experiences a certain level of seasonality, with sales generally trending lower in the second quarter, following the “back-to-business” sales cycle in the first quarter and preceding the “back-to-school” sales cycle in the third quarter and the holiday sales cycle in the fourth quarter for our ODP Business Solutions and Office Depot Divisions. Certain working capital components may build and recede during the year reflecting established selling cycles. Business cycles can and have impacted our operations and financial position when compared to other periods.

## NEW ACCOUNTING STANDARDS

For a description of new applicable accounting standards, refer to Note 1. “Summary of Significant Accounting Policies” in Notes to Consolidated Financial Statements.

## QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to information in the “Market Sensitive Risks and Positions” in MD&A of this Annual Report.

## CONTROLS AND PROCEDURES

### MANAGEMENT’S DISCLOSURES

#### *Disclosure Controls and Procedures*

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the possible controls and procedures. Each reporting period, we carry out an evaluation, with the participation of our principal executive officer and principal financial officer, or persons performing similar functions, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Based on management’s evaluation, our principal executive officer and principal financial officer have concluded that, as of December 31, 2022, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the principal executive officer and the principal financial officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosures.

#### *Changes in Internal Controls*

There were no changes in our internal control over financial reporting during the fourth quarter of 2022, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We continually monitor and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

#### *Management’s Report on Internal Control Over Financial Reporting*

Our management is responsible for establishing and maintaining adequate internal control over financial reporting for ODP as defined in under Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements.

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Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in *Internal Control - Integrated Framework (2013)*. Based on our assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022.

Our internal control over financial reporting as of December 31, 2022, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report provided below.

## OTHER INFORMATION

### AMENDED AND RESTATED BYLAWS

On February 24, 2023, our Board of Directors amended our bylaws, effective immediately, to enhance procedural mechanics and disclosure requirements in connection with shareholder nominations of directors, including by requiring (i) a shareholder delivering a nomination notice pursuant to Rule 14a-19 under the Exchange Act to certify that such shareholder has met the requirements of Rule 14a-19 and (ii) a shareholder directly or indirectly soliciting proxies from other shareholders to use a proxy card color other than white. The amendments to the bylaws also included certain other modifications that provide clarification and consistency.

The foregoing description of the amendments to the bylaws is qualified in its entirety by the text of the bylaws, as amended, a copy of which is attached as Exhibit 3.2 to this Annual Report on Form 10-K and is incorporated herein by reference.

### APPOINTMENT OF CHIEF ACCOUNTING OFFICER & CONTROLLER

On February 27, 2023, we announced the appointment of Max W. Hood, 44, to serve as Senior Vice President, Chief Accounting Officer & Controller of the Company, effective February 26, 2023 (the “Effective Date”). Mr. Hood joined the Company in 2018 as Vice President, Financial Operations and was named Vice President, Accounting & Treasury in March 2021. Prior to joining the Company, Mr. Hood held roles at GE, including Global Operations Controller for its $10 billion energy division. Mr. Hood has a dual Bachelor of Science degree in Accounting and Management Information Systems from Miami University in Oxford, Ohio and he is a Certified Public Accountant.

On the Effective Date, Mr. Hood’s annual base salary will be $335,000. In addition, Mr. Hood will (i) be eligible to participate in the Company’s Corporate Incentive Plan with a target incentive payout set at 60% of his annual eligible earnings, (ii) continue to be eligible to receive awards under the Company’s Long-Term Incentive Plan at the time grants are made to other senior executives of the Company, and (iii) be eligible for the Company’s Executive Car Allowance Program.

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# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

## Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of The ODP Corporation and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended December 31, 2022, of the Company and our report dated March 1, 2023 expressed an unqualified opinion on those financial statements.

## Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Boca Raton, Florida March 1, 2023

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# REFERENCE TO THE PROXY STATEMENT

## DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our executive officers is set forth under the caption “Information About Our Executive Officers” within Who Manages Our Business of this Annual Report.

Information required by this item with respect to our directors and the nomination process will be contained under the headings “Election of Directors” and “Corporate Governance,” respectively, in the proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC (the “Proxy Statement”) within 120 days after the end of our fiscal year, which information is incorporated by reference in this Annual Report.

Information required by this item with respect to our audit committee and our audit committee financial experts will be contained in the Proxy Statement under the heading “Corporate Governance - Board and Committee Responsibilities” and is incorporated by reference in this Annual Report.

Our Code of Ethical Behavior is in compliance with applicable rules of the SEC that apply to our principal executive officer, our principal financial officer, and our principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethical Behavior is available free of charge on the “Investor Relations” section of our website, investor.theodpcorp.com. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this Code of Ethical Behavior by posting such information on our website at the address and location specified above.

## EXECUTIVE COMPENSATION

Information required by this item with respect to executive compensation and director compensation will be contained in the Proxy Statement under the headings “Compensation Discussion & Analysis” and “Director Compensation,” respectively, and is incorporated by reference in this Annual Report.

The information required by this item with respect to compensation committee interlocks and insider participation will be contained in the Proxy Statement under the heading “Compensation & Talent Committee Interlocks and Insider Participation” and is incorporated by reference in this Annual Report.

The compensation committee report required by this item will be contained in the Proxy Statement under the heading “Compensation & Talent Committee Report” and is incorporated by reference in this Annual Report.

The information required by this item with respect to compensation policies and practices as they relate to the Company’s risk management will be contained in the Proxy Statement under the heading “Corporate Governance” under the subheadings “Board Oversight of Risk,” “Role of the Board Committees in Risk Oversight,” and “Compensation Programs Risk Assessment” and are incorporated by reference in this Annual Report.

## SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by this item with respect to securities authorized for issuance under the Company’s equity compensation plans will be contained in the Proxy Statement under the heading “Equity Compensation Plan Information” and is incorporated herein by reference in this Annual Report.

Information required by this item with respect to security ownership of certain beneficial owners and management will be contained in the Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated by reference in this Annual Report.

## CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by this item with respect to such contractual relationships and director independence will be contained in the Proxy Statement under the heading “Corporate Governance” under subheading “Certain Relationships and Related Person Transactions Policy” and under the heading “Election of Directors” under subheading “Director Independence and Independence Determinations” and is incorporated by reference in this Annual Report.

## PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information with respect to principal accounting fees and services and pre-approval policies will be contained in the Proxy Statement under the heading “Ratification of Appointment of Independent Registered Public Accounting Firm” under subheadings “Audit and Non-Audit Fees” and “Audit Committee Pre-Approval Policies and Procedures,” respectively, and is incorporated by reference in this Annual Report.

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# FINANCIAL STATEMENTS AND SUPPLEMENTAL DETAILS

# EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as a part of this Annual Report:

1. The financial statements listed in Index to Financial Statements.
2. All other financial statements are omitted because the required information is not applicable, or because the information is included in the Company's Consolidated Financial Statements or the Notes to Consolidated Financial Statements.
The report of the Company's independent registered public accounting firm (PCAOB ID: 34) with respect to the above-referenced financial statements and their report on internal control over financial reporting are included in Item 8 and Item 9A of this Form 10-K. Their consent appears as Exhibit 23.1 of this Form 10-K.
3. Exhibits.

# INDEX TO EXHIBITS FOR THE ODP CORPORATION 10-K

| Exhibit Number | Exhibit |
| --- | --- |
| 2.1 | Agreement and Plan of Merger, dated as of June 30, 2020, by and among Office Depot, Inc., The ODP Corporation, ODP Investment, LLC and Office Depot, LLC (Incorporated by reference from Exhibit 2.1 of The ODP Corporation's Form 8-K12B, filed with the SEC on July 1, 2020). |
| 3.1 | Amended and Restated Certificate of Incorporation of The ODP Corporation (Incorporated by reference from Exhibit 3.1 of The ODP Corporation's Form 8-K12B, filed with the SEC on July 1, 2020). |
| 3.2 | Amended and Restated Bylaws of The ODP Corporation. |
| 3.3 | Certificate of Designations of Series A Junior Participating Preferred Stock of The ODP Corporation (Incorporated by reference from Exhibit 3.3 of The ODP Corporation's Form 8-K12B, filed with the SEC on July 1, 2020). |
| 4.1 | Specimen Common Stock Certificate of The ODP Corporation (Incorporated by reference from Exhibit 4.2 of The ODP Corporation's Current Report on Form 8-K, filed with the SEC on July 1, 2020). |
| 4.2 | Description of The ODP Corporation's Securities. |
| 10.1 | Office Depot, Inc. 2019 Long-Term Incentive Plan (Incorporated by reference from Annex 1 to the Proxy Statement for Office Depot, Inc.'s 2019 Annual Meeting of Shareholders, filed with the SEC on March 20, 2019).* |
| 10.2 | Office Depot, Inc. 2017 Long-Term Incentive Plan (Incorporated by reference from Exhibit 99.1 of Office Depot, Inc.'s Registration Statement on Form S-8, filed with the SEC on July 20, 2017).* |
| 10.3 | Form of Third Amended and Restated Credit Agreement, dated as of April 17, 2020, among Office Depot, Inc., Grand & Toy Limited/Grand & Toy Limitée, CompuCom Canada Co., as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent, and the other lenders referred to therein (Incorporated by reference from Exhibit 10.1 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on April 20, 2020). |
| 10.4 | Form of Restricted Stock Unit Agreement (Executives) (Incorporated by reference from Exhibit 99.4 of Office Depot, Inc.'s Registration Statement on Form S-8, filed with the SEC on July 20, 2017).* |
| 10.5 | Form of AOI Performance Share Award Agreement (Executives) (Incorporated by reference from Exhibit 99.5 of Office Depot, Inc.'s Registration Statement on Form S-8, filed with the SEC on July 20, 2017).* |
| 10.6 | Form of TSR Performance Share Award Agreement (Executives) (Incorporated by reference from Exhibit 99.6 of Office Depot, Inc.'s Registration Statement on Form S-8, filed with the SEC on July 20, 2017).* |
| 10.7 | Employment Agreement between Office Depot, Inc. and Gerry P. Smith (Incorporated by reference from Exhibit 10.1 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on January 30, 2017).* |
| 10.8 | 2017 Non-Qualified Stock Option Award Agreement between Office Depot, Inc. and Gerry P. Smith (Incorporated by reference from Exhibit 10.2 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on January 30, 2017).* |
| 10.9 | 2017 Restricted Stock Unit Award Agreement between Office Depot, Inc. and Gerry P. Smith (Incorporated by reference from Exhibit 10.3 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on January 30, 2017).* |

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| Exhibit Number | Exhibit |
| --- | --- |
| 10.10 | Form of Restricted Stock Unit Award Agreement (Incorporated by reference from Exhibit 99.3 of Office Depot, Inc.'s Registration Statement on Form S-8, filed with the SEC on June 19, 2015).* |
| 10.11 | The Office Depot, Inc. Executive Change in Control Severance Plan effective August 1, 2014 (Incorporated by reference from Exhibit 10.1 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on August 7, 2014).* |
| 10.12 | Amendment to Office Depot, Inc. Executive Change in Control Severance Plan effective as of August 10, 2020 (Incorporated by reference from Exhibit 10.12 of The ODP Corporation's Annual Report on Form 10-K, filed with the SEC on February 23, 2022).* |
| 10.13 | Form of Office Depot, Inc. Indemnification Agreement (Incorporated by reference from Exhibit 10.63 of Office Depot, Inc.'s Annual Report on Form 10-K, filed with the SEC on February 28, 2018).* |
| 10.14 | Form of Restricted Stock Unit Agreement (Executives) (Incorporated by reference from Exhibit 10.4 of Office Depot, Inc.'s Quarterly Report on Form 8-K, filed with the SEC on May 8, 2019).* |
| 10.15 | Form of FCF Performance Share Award Agreement (Executives) (Incorporated by reference from Exhibit 10.5 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on May 8, 2019).* |
| 10.16 | Form of TSR Performance Share Award Agreement (Executives) (Incorporated by reference from Exhibit 10.6 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on May 8, 2019).* |
| 10.17 | Letter Agreement, dated May 14, 2020, between Office Depot, Inc. and D. Anthony Scaglione (Incorporated by reference from Exhibit 10.1 of Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on June 18, 2020).* |
| 10.18 | Amendment to Employment Agreement, dated July 1, 2020, by and between The ODP Corporation, Office Depot, LLC and Gerry P. Smith (Incorporated by reference from Exhibit 10.2 of The ODP Corporation's Quarterly Report on Form 10-Q, filed with the SEC on November 5, 2020).* |
| 10.19 | Assignment and Assumption Agreement, as of June 30, 2020, by and between The ODP Corporation and Office Depot, LLC (Incorporated by reference from Exhibit 10.1 of The ODP Corporation's Form 8-K12B, filed with the SEC on July 1, 2020). |
| 10.20 | Cooperation Agreement, by and among HG Vora Capital Management, LLC and The ODP Corporation, dated January 25, 2021 (Incorporated by reference from Exhibit 10.1 of The ODP Corporation's Form 8-K, filed with the SEC on January 26, 2021). |
| 10.21 | Second Amendment to the Cooperation Agreement, by and among HG Vora Capital Management, LLC and The ODP Corporation, dated December 27, 2022 (Incorporated by reference from Exhibit 10.1 of The ODP Corporation's Form 8-K, filed with the SEC on December 28, 2022). |
| 10.22 | First Amendment to the Cooperation Agreement, by and among HG Vora Capital Management, LLC and The ODP Corporation, dated December 30, 2021 (Incorporated by reference from Exhibit 10.1 of The ODP Corporation's Form 8-K, filed with the SEC on January 3, 2022). |
| 10.23 | The ODP Corporation 2021 Long-Term Incentive Plan (Incorporated by reference from Annex 1 of The ODP Corporation's Definitive Proxy Statement on Schedule 14A, filed with the SEC on March 12, 2021).* |
| 10.24 | Form of 2021 Restricted Stock Unit Award Agreement (Incorporated by reference from Exhibit 10.2 of The ODP Corporation's Form 8-K, filed with the SEC on April 21, 2021).* |
| 10.25 | Form of 2021 Lump Sum Restricted Stock Unit Award Agreement (Non-Employee Directors) (Incorporated by reference from Exhibit 10.3 of The ODP Corporation's Form 8-K, filed with the SEC on April 21, 2021).* |
| 10.26 | Form of 2021 Installment Payment Restricted Stock Unit Award Agreement (Non-Employee Directors) (Incorporated by reference from Exhibit 10.4 of The ODP Corporation's Form 8-K, filed with the SEC on April 21, 2021).* |
| 10.27 | Form of 2021 FCF Performance Share Award Agreement (Incorporated by reference from Exhibit 10.5 of The ODP Corporation's Form 8-K, filed with the SEC on April 21, 2021).* |
| 10.28 | Form of 2021 TSR Performance Share Award Agreement (Incorporated by reference from Exhibit 10.6 of The ODP Corporation's Form 8-K, filed with the SEC on April 21, 2021).* |
| 10.29 | Executive Transition Agreement, dated as of September 28, 2021, by and between The ODP Corporation and N. David Bleisch (Incorporated by reference from Exhibit 10.1 of The ODP Corporation's Quarterly Report on Form 10-Q, filed with the SEC on November 3, 2021).* |

49

| Exhibit Number | Exhibit |
| --- | --- |
| 10.30 | Securities Purchase Agreement with Lincoln Merger Sub Two LLC, CompuCom Super Holdings LLC, and Project Heritage Acquisition, LLC, dated December 31, 2021 (Incorporated by reference from Exhibit 10.30 of The ODP Corporation’s Annual Report on Form 10-K, filed with the SEC on February 23, 2022).* |
| 21 | List of The ODP Corporation’s Subsidiaries |
| 23.1 | Consent of Independent Registered Public Accounting Firm |
| 31.1 | Certification of Principal Executive Officer required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a) |
| 31.2 | Certification of Principal Financial Officer required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a). |
| 32.1 | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101.INS | Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |

\* Management contract or compensatory plan or arrangement.

50

## SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 1$^{st}$ day of March 2023.

THE ODP CORPORATION

By: /s/ GERRY P. SMITH  
Gerry P. Smith  
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on March 1, 2023.

| Signature | Capacity |
| --- | --- |
| /s/ GERRY P. SMITH Gerry P. Smith | Chief Executive Officer (Principal Executive Officer), Director |
| /s/ D. ANTHONY SCAGLIONE D. Anthony Scaglione | Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
| /s/ MAX W. HOOD Max W. Hood | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) |
| /s/ JOSEPH S. VASSALLUZZO Joseph S. Vassalluzzo | Chairman, Board of Directors |
| /s/ QUINCY L. ALLEN Quincy L. Allen | Director |
| /s/ KRISTIN A. CAMPBELL Kristin A. Campbell | Director |
| /s/ MARCUS B. DUNLOP Marcus B. Dunlop | Director |
| /s/ CYNTHIA T. JAMISON Cynthia T. Jamison | Director |
| /s/ SHASHANK SAMANT Shashank Samant | Director |
| /s/ WENDY L. SCHOPPERT Wendy L. Schoppert | Director |
| /s/ DAVID M. SZYMANSKI David M. Szymanski | Director |

51

# INDEX TO FINANCIAL STATEMENTS

|  | Page |
| --- | --- |
| Report of Independent Registered Public Accounting Firm | 53 |
| Consolidated Statements of Operations | 55 |
| Consolidated Statements of Comprehensive Income (Loss) | 56 |
| Consolidated Balance Sheets | 57 |
| Consolidated Statements of Cash Flows | 58 |
| Consolidated Statements of Stockholders' Equity | 59 |
| Notes to Consolidated Financial Statements | 60 |
| Note 1. Summary of Significant Accounting Policies | 60 |
| Note 2. Merger, Restructuring and Other Activity | 68 |
| Note 3. Segment Information | 70 |
| Note 4. Income Taxes | 74 |
| Note 5. Earnings (Loss) Per Share | 77 |
| Note 6. Property and Equipment | 77 |
| Note 7. Goodwill and Other Intangible Assets | 79 |
| Note 8. Debt | 80 |
| Note 9. Leases | 82 |
| Note 10. Stockholders' Equity | 83 |
| Note 11. Stock-Based Compensation | 85 |
| Note 12. Employee Benefit Plans | 86 |
| Note 13. Fair Value Measurements | 95 |
| Note 14. Commitments and Contingencies | 97 |
| Note 15. Discontinued Operations | 97 |
| Note 16. Quarterly Financial Data (Unaudited) | 99 |
| Note 17. Subsequent Events | 100 |

52

# REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of The ODP Corporation and subsidiaries (the 'Company') as of December 31, 2022 and December 25, 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, for each of the three fiscal years in the period ended December 31, 2022, and the related notes (collectively referred to as the 'financial statements'). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and December 25, 2021, and the results of its operations and its cash flows for each of the three fiscal years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in *Internal Control - Integrated Framework (2013)* issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2023 expressed an unqualified opinion on the Company's internal control over financial reporting.

## Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

### Goodwill - Refer to Notes 1 and 7 to the financial statements

#### Critical Audit Matter Description

The Company's consolidated goodwill balance was $464 million at December 31, 2022. Goodwill is tested for impairment by management at least annually at the reporting unit level, or more often if an indicator of impairment is present, by comparing allocated carrying value of goodwill to the estimated fair value of the respective reporting unit or through a qualitative assessment to determine whether it is not more likely than not that the fair value of the reporting units are less than their respective carrying amounts. The determination of fair value of the reporting units, or events and conditions affecting fair value in the case of a qualitative analysis, require management to make significant estimates and assumptions related to forecasts of future revenues, cost of sales, expenses and the weighted-average cost of capital for each reporting unit. An adverse change in these factors could have a significant impact on the recoverability of goodwill and could have a material impact on the financial statements.

Of the $464 million consolidated goodwill balance, the Varis reporting unit represented $68 million of the balance at December 31, 2022. As of November 20, 2022, the Company performed its annual impairment assessment. The annual impairment assessment was

53

performed using a quantitative assessment for the Varis reporting unit. Based upon these tests, it was concluded that the fair value of the Varis reporting unit exceeded its carrying amount.

Given the significant judgments made by management to estimate the fair value of the Varis reporting unit, performing audit procedures to evaluate the reasonableness of management's estimates and assumptions related to forecasts of future revenues, cost of sales, expenses and the weighted-average cost of capital, required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.

#### *How the Critical Audit Matter Was Addressed in the Audit*

Our audit procedures related to management's judgments related to forecasts of future revenues, cost of sales, expenses, and weighted-average cost of capital for the Varis reporting unit included the following, among others:

- • We tested the effectiveness of controls relating to management's goodwill impairment test, including those over the forecasts and the weighted-average cost of capital.
- • We evaluated the reasonableness of management's revenue, cost of sales and expenses forecast by comparing the forecast to (1) the actual historical results of the Varis reporting unit, (2) internal communications amongst management and the Board of Directors, (3) external communications made by management to analysts and investors, (4) evidence obtained throughout the audit, and (5) industry reports discussing the operating forecasts for the technology services industry.
- • We developed a range of independent estimates based on the key inputs into the discounted cash flow model and compared those to the assumptions used by management.
- • With the assistance of our fair value specialists, we evaluated the valuation methodology and assumptions used to determine the fair value of the Varis reporting unit, such as the weighted average cost of capital, by
  - ○ Testing the underlying source information and mathematical accuracy of the calculations;
  - ○ For the weighted-average cost of capital, comparing the amount used by management to the amounts associated with other technology services companies with a similar risk profile; and
  - ○ Evaluating the interaction between the weighted-average cost of capital and the forecasts to understand and sensitize management's assumptions regarding risk inherent in the forecast.

/s/ DELOITTE & TOUCHE LLP

Boca Raton, Florida March 1, 2023

We have served as the Company's auditor since 1990.

54

# **THE ODP CORPORATION**  
 **CONSOLIDATED STATEMENTS OF OPERATIONS**  
 *(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) |

The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

55

# **THE ODP CORPORATION**  
 **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)**  
 *(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) |

The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

56

# **THE ODP CORPORATION**  
 **CONSOLIDATED BALANCE SHEETS**  
 *(In millions, except shares and par value)*

|  | December 31, 2022 | December 25, 2021 |
| --- | --- | --- |
| ASSETS |  |  |
| 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 | 122 | 159 |
| Pension and postretirement obligations, net | 16 | 22 |
| Long-term debt, net of current maturities | 172 | 228 |
| Operating lease liabilities | 693 | 753 |
| Noncurrent liabilities held for sale | - | - |
| Total liabilities | 2,862 | 3,427 |
| Commitments and contingencies |  |  |
| Stockholders’ equity: |  |  |
| Common stock - authorized 80,000,000 shares of $0.01 par value; issued shares - 65,636,015 at December 31, 2022 and 64,704,979 at December 25, 2021; outstanding shares - 42,213,046 at December 31, 2022 and 48,455,951 at December 25, 2021 | 1 | 1 |
| Additional paid-in capital | 2,742 | 2,692 |
| Accumulated other comprehensive loss | (77) | (6) |
| Accumulated deficit | (451) | (617) |
| Treasury stock, at cost - 23,422,969 shares at December 31, 2022 and 16,249,028 shares at December 25, 2021 | (928) | (632) |
| Total stockholders’ equity | 1,287 | 1,438 |
| Total liabilities and stockholders’ equity | $4,149 | $4,865 |

The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

57

# **THE ODP CORPORATION**  
 **CONSOLIDATED STATEMENTS OF CASH FLOWS**  
 *(In millions)*

|  | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Cash flows from operating activities: |  |  |  |
| Net income (loss) | $166 | $(208) | $(319) |
| Loss from discontinued operations, net of tax | (12) | (395) | (256) |
| Net income (loss) from continuing operations | 178 | 187 | (63) |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |
| Depreciation and amortization | 131 | 146 | 157 |
| Amortization of debt discount and issuance costs | 2 | 2 | 3 |
| Charges for losses on receivables and inventories | 19 | 22 | 33 |
| Asset impairments | 14 | 20 | 182 |
| (Gain) loss on disposition of assets, net | (4) | (5) | 4 |
| Loss on extinguishment and modification of debt | - | - | 12 |
| Compensation expense for share-based payments | 40 | 38 | 41 |
| Deferred income taxes and deferred tax asset valuation allowances | 40 | (6) | 11 |
| Changes in assets and liabilities: |  |  |  |
| Decrease (increase) in receivables | (42) | (61) | 185 |
| Decrease in inventories | 13 | 35 | 76 |
| Net decrease in prepaid expenses, operating lease right-of-use assets, and other assets | 282 | 281 | 304 |
| Net increase in trade accounts payable, accrued expenses, operating lease liabilities, and other current and other long-term liabilities | (436) | (312) | (519) |
| Other operating activities | - | (3) | (1) |
| Total adjustments | 59 | 157 | 488 |
| Net cash provided by operating activities of continuing operations | 237 | 344 | 425 |
| Net cash provided by operating activities of discontinued operations | - | 2 | 60 |
| Net cash provided by operating activities | 237 | 346 | 485 |
| Cash flows from investing activities: |  |  |  |
| Capital expenditures | (99) | (73) | (58) |
| Businesses acquired, net of cash acquired | - | (29) | (30) |
| Proceeds from collection of notes receivable | - | - | 818 |
| Proceeds from disposition of assets | 8 | 5 | 3 |
| Settlement of company-owned life insurance policies | 5 | 22 | 13 |
| Net cash provided by (used in) investing activities of continuing operations | (86) | (75) | 746 |
| Net cash provided by (used in) investing activities of discontinued operations | 76 | (4) | (10) |
| Net cash provided by (used in) investing activities | (10) | (79) | 736 |
| Cash flows from financing activities: |  |  |  |
| Net payments on long and short-term borrowings | (21) | (25) | (341) |
| Debt retirement | (43) | (100) | (1,196) |
| Debt issuance | - | - | 400 |
| Cash dividends on common stock | - | - | (13) |
| Share purchases for taxes, net of proceeds from employee share-based transactions | (20) | (26) | (5) |
| Repurchase of common stock for treasury and advance payment for accelerated share repurchase | (266) | (307) | (30) |
| Other financing activities | (5) | (1) | (8) |
| Net cash used in financing activities of continuing operations | (355) | (459) | (1,193) |
| Net cash used in financing activities of discontinued operations | - | - | - |
| Net cash used in financing activities | (355) | (459) | (1,193) |
| Effect of exchange rate changes on cash and cash equivalents | (5) | - | 1 |
| Net increase (decrease) in cash, cash equivalents and restricted cash | (133) | (192) | 29 |
| Cash, cash equivalents and restricted cash at beginning of period | 537 | 729 | 700 |
| Cash, cash equivalents and restricted cash at end of period | 404 | 537 | 729 |
| Less: cash and cash equivalents of discontinued operations | - | (23) | - |
| Cash, cash equivalents and restricted cash at end of period - continuing operations | $404 | $514 | $729 |
| Supplemental information on operating, investing, and financing activities |  |  |  |
| Right-of-use assets obtained in exchange for new finance lease liabilities | $4 | $3 | $29 |
| Right-of-use assets obtained in exchange for new operating lease liabilities | 228 | 127 | 117 |
| Cash taxes paid (refunded), net | 17 | 43 | (14) |
| Cash interest paid, net of amounts capitalized and Timber notes/Non-recourse debt | 16 | 25 | 40 |
| Other current and noncurrent receivables obtained from disposition of discontinued operations | 9 | - | - |
| Promissory note receivable obtained from disposition of discontinued operations | 55 | - | - |
| Earn-out receivable obtained from disposition of discontinued operations | 9 | - | - |
| Transfer from additional paid-in capital to treasury stock for final settlement of the accelerated share repurchase agreement | 29 | - | - |
| Business acquired in exchange for common stock issuance | - | 35 | - |

The accompanying notes to Consolidated Financial Statements are an integral part of these statements.

58

# **THE ODP CORPORATION**  
**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

# **RESTRUCTURING EXPENSES**

# *Maximize B2B Restructuring Plan*

In May 2020, the Company's Board of Directors approved a restructuring plan to re-align the Company's operational focus to support its 'business-to-business' solutions and IT services business units and improve costs ('Maximize B2B Restructuring Plan'). Implementation of the Maximize B2B Restructuring Plan was expected to be substantially completed by the end of 2023. The Maximize B2B Restructuring Plan aims to generate savings through optimizing the Company's retail footprint, removing costs that directly support the Retail business and additional measures to implement a company-wide low-cost business model, which will then be invested in accelerating the growth of the Company's business-to-business platform.

In December 2022, the Company's Board of Directors approved to extend the program through 2024, as a result of the delays in executing the program in 2021 and 2022 associated with the previously planned separation of the consumer business. With the decision to maintain all businesses under common ownership, described above in Note 1, the Company will continue with the execution of the Maximize B2B Restructuring Plan as previously planned and therefore has extended the program through 2024. The Company closed 56 retail stores under the Maximize B2B Restructuring Plan in 2022. The Company had closed 181 retail stores and two distribution facilities in 2021 and 2020 under the Maximize B2B Restructuring Plan. It is anticipated that additional retail stores will be closed in 2023 and 2024, however, it is generally understood that closures will approximate the store's lease termination date.

In 2022, the Company had $8 million of income associated with the Maximize B2B Restructuring Plan which consisted of $5 million in facility closures, contract termination and other costs, more than offset by $13 million in reversals of employee severance accruals due to changes in estimates. The facility closure costs were mainly related to retail store closure accruals and accelerated depreciation. In 2022, the Company made cash payments of $8 million associated with expenditures for the Maximize B2B Restructuring Plan. Since its inception in 2020, the Company incurred $81 million in restructuring expenses to implement the Maximize B2B Restructuring Plan through 2022 for its continuing operations, of which $61 million were cash expenditures. Total estimated restructuring costs related to the Maximize B2B Restructuring Plan are expected to be up to $95 million.

# *Other*

Included in restructuring expenses in 2020 are $19 million in costs incurred in connection with the Business Acceleration Program. These costs included third-party professional fees, retail and facility closure costs and other costs. The Business Acceleration Program was announced in 2019 and largely concluded at the end of 2020.

Restructuring expenses in 2020 also included $3 million in third-party professional fees incurred in connection with the Reorganization.

Asset impairments related to the restructuring initiatives are not included in the table above. Refer to Note 13 for further information.

# **OTHER OPERATING EXPENSES**

Other operating expenses represent costs incurred that are incremental to those related to running the Company's core operations, which are presented within Selling, general and administrative expenses on the Consolidated Statements of Operations.

As described in Note 1 above, the Company had been evaluating the separation of its consumer business, first through a spin-off and subsequently through a potential sale. On June 21, 2022, the Company's Board of Directors, with the assistance of its financial and legal advisors, completed its review of both proposals received by the Company to acquire its consumer business and unanimously determined it to be in the best interests of the Company and its shareholders not to divest the consumer business at this time. Further, due to current market conditions, the Company's Board of Directors also determined not to resume the Company's previously planned separation of its consumer business at this time and instead to maintain all of its businesses under common ownership. The Company incurred $33 million in third-party professional fees in year-to-date 2022 related to separation activities, which was all incurred in the first half of 2022. The Company had incurred $32 million in third-party professional fees associated with separation activities in 2021.

Also as described in Note 1 above, during the third quarter of 2022, the Company re-aligned its operations into four Divisions, which also represent its new reportable segments. The Company incurred $21 million in third-party professional fees in connection with the re-alignment in 2022, which was all incurred in the second half of 2022. At December 31, 2022, the Company is substantially complete with activities related to the re-alignment. The costs incurred in the second half of 2022 represent trailing costs to complete activities that were previously started as part of the separation process discussed above and leveraged to achieve the re-alignment. The Company does not expect to have a re-alignment of its businesses in the future. Accordingly, the Company has presented the costs

69

# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

associated with the re-alignment as Other operating expenses, as they represent incremental operating expenses that are not part of its core costs to support its operations.

Other operating expenses in 2021 also included $5 million of third-party professional fees incurred related to the evaluation of USR Parent, Inc.’s proposals received during the first half of 2021.

# **MERGER AND RESTRUCTURING ACCRUALS**

The activity in the merger and restructuring accruals in 2022 and 2021 is presented in the table below. Certain merger and restructuring charges are excluded from the table because they are paid as incurred or non-cash, such as accelerated depreciation and gains and losses on asset dispositions.

| (In millions) | Beginning Balance | Charges Incurred | Cash Payments | Ending Balance |
| --- | --- | --- | --- | --- |
| 2022 |  |  |  |  |
| Termination benefits: |  |  |  |  |
| Maximize B2B Restructuring Plan | 19 | (13) | (1) | 5 |
| Lease and contract obligations, accruals for facilities closures and other costs: |  |  |  |  |
| Maximize B2B Restructuring Plan | 6 | 5 | (7) | 4 |
| Comprehensive Business Review | 1 | - | - | 1 |
| Previously planned separation of consumer business and re-alignment | 2 | 52 | (52) | 2 |
| Total | $28 | $44 | $(60) | $12 |
| 2021 |  |  |  |  |
| Termination benefits: |  |  |  |  |
| Maximize B2B Restructuring Plan | 27 | (2) | (6) | 19 |
| Business Acceleration Program | 2 | - | (2) | - |
| Lease and contract obligations, accruals for facilities closures and other costs: |  |  |  |  |
| Maximize B2B Restructuring Plan | 10 | 9 | (13) | 6 |
| Business Acceleration Program | 1 | - | (1) | - |
| Comprehensive Business Review | 2 | - | (1) | 1 |
| USR Parent, Inc. proposals | - | 5 | (5) | - |
| Planned separation of consumer business | - | 32 | (30) | 2 |
| Total | $42 | $44 | $(58) | $28 |

The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilities and Deferred income taxes and other long-term liabilities, respectively, in the Consolidated Balance Sheets.

# **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

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## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Stockholders' Equity, or Statements of Cash Flows.

At December 31, 2022, 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 and accretive 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 980 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 and has been branded under a new name. 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 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 operating results for 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 15 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.

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

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 |
| --- | --- | --- | --- | --- | --- | --- |
| 2022 |  |  |  |  |  |  |
| Sales (external) | $4,005 | $4,451 | $28 | $7 | $ - | $8,491 |
| Sales (internal) | 19 | 36 | 5,855 | - | (5,910) | - |
| Total sales | $4,024 | $4,487 | $5,883 | $7 | $(5,910) | $8,491 |
| Division operating income (loss) | $140 | $285 | $28 | $(66) | $ - | $387 |
| 2021 |  |  |  |  |  |  |
| Sales (external) | $3,602 | $4,830 | $28 | $5 | $ - | $8,465 |
| Sales (internal) | 24 | 34 | 5,963 | - | (6,021) | - |
| Total sales | $3,626 | $4,864 | $5,991 | $5 | $(6,021) | $8,465 |
| Division operating income (loss) | $72 | $325 | $30 | $(34) | $ - | $393 |
| 2020 |  |  |  |  |  |  |
| Sales (external) | $3,549 | $5,300 | $23 | $ - | $ - | $8,872 |
| Sales (internal) | 29 | 35 | 6,321 | - | (6,385) | - |
| Total sales | $3,578 | $5,335 | $6,344 | $ - | $(6,385) | $8,872 |
| Division operating income (loss) | $51 | $317 | $28 | $ - | $ - | $396 |

A reconciliation of the measure of Division operating income to Consolidated income (loss) from continuing operations before income taxes is as follows:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Division operating income | $387 | $393 | $396 |
| Add/(subtract): |  |  |  |
| Asset impairments | (14) | (20) | (182) |
| Merger, restructuring and other operating expenses, net | (39) | (51) | (102) |
| Unallocated expenses | (91) | (88) | (106) |
| 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) |

The following table provides information about disaggregated sales by major categories:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Major sales categories |  |  |  |
| Supplies | $4,144 | $3,815 | $4,006 |
| Technology | 2,461 | 2,758 | 3,014 |
| Furniture and other | 1,255 | 1,302 | 1,281 |
| Copy and print | 631 | 590 | 571 |
| Total | $8,491 | $8,465 | $8,872 |

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

The following table provides information about other significant balances by each of the Divisions, reconciled to consolidated totals:

| (In millions) | ODP Business Solutions Division | Office Depot Division | Veyer Division | Varis Division | Corporate and Discontinued Operations* | Consolidated Total |
| --- | --- | --- | --- | --- | --- | --- |
| 2022 |  |  |  |  |  |  |
| Capital expenditures | $5 | $14 | $20 | $44 | $16 | $99 |
| Depreciation and amortization | 21 | 56 | 37 | 13 | 4 | 131 |
| Assets | 749 | 1,553 | 993 | 130 | 724 | 4,149 |
| 2021 |  |  |  |  |  |  |
| Capital expenditures | 5 | 15 | 22 | 14 | 17 | 73 |
| Depreciation and amortization | 24 | 67 | 40 | 4 | 11 | 146 |
| Assets | 654 | 1,728 | 1,038 | 83 | 1,362 | 4,865 |
| 2020 |  |  |  |  |  |  |
| Capital expenditures | 8 | 25 | 19 | - | 6 | 58 |
| Depreciation and amortization | 21 | 75 | 49 | - | 12 | 157 |

\* Amounts included in “Corporate and Discontinued Operations” consist of (i) assets (including all cash and cash equivalents) and depreciation related to corporate activities and shared services of continuing operations, and (ii) assets of discontinued operations amounting to $469 million at December 25, 2021.

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

# **NOTE 4. INCOME TAXES**

The components of income (loss) from continuing operations before income taxes consisted of the following:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| United States | $226 | $173 | $(30) |
| Foreign | 16 | 58 | (8) |
| Total income (loss) from continuing operations before income taxes | $242 | $231 | $(38) |

The income tax expense (benefit) related to income (loss) from continuing operations consisted of the following:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Current: |  |  |  |
| Federal | $26 | $14 | $(7) |
| State | (4) | 8 | 17 |
| Foreign | 7 | 5 | 4 |
| Deferred: |  |  |  |
| Federal | 27 | 13 | 19 |
| State | 10 | 2 | (5) |
| Foreign | (2) | 2 | (3) |
| Total income tax expense | $64 | $44 | $25 |

The following is a reconciliation of income taxes at the U.S. Federal statutory rate to the provision for income taxes:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Federal tax computed at the statutory rate | $51 | $48 | $(8) |
| State taxes, net of Federal benefit | 11 | 10 | 4 |
| Foreign income taxed at rates other than Federal | 2 | (5) | 4 |
| Increase (decrease) in valuation allowance | - | (3) | (3) |
| Non-deductible Goodwill impairments | - | - | 24 |
| Other non-deductible expenses and settlements | 4 | 5 | 4 |
| FIN 48 adjustments | (2) | - | - |
| Non-taxable income and additional deductible expenses | (1) | (3) | (3) |
| Impact of stock compensation (windfall)/shortfall | (3) | (6) | 2 |
| State NOL expirations | 2 | - | - |
| Other items, net | - | (2) | 1 |
| Income tax expense | $64 | $44 | $25 |

During 2022 and 2021, the mix of income and losses across jurisdictions, although still applicable, has become less of a factor in influencing the Company’s effective tax rates due to limited international operations and improved operating results. The Company’s effective tax rates were 26%, 19% and (66)% in 2022, 2021 and 2020, respectively. In 2022, the Company’s effective tax rate was primarily impacted by the recognition of a tax windfall associated with stock-based compensation. This factor, along with the impact of state taxes and the mix of income and losses across U.S. and non-U.S. jurisdictions, caused the Company’s effective tax rate of 26% for 2022 to differ from the statutory rate of 21%. The Company’s effective tax rate for prior periods has varied considerably primarily due to the impact of goodwill impairment, state taxes, stock-based compensation awards, recognition of tax benefits due to an agreement reached with the IRS related to a prior tax position, certain nondeductible items and the mix of income and losses across U.S. and non-U.S. jurisdictions. Changes in pretax income projections and the mix of income across jurisdictions could impact the effective tax rates in future quarters.

The Company continues to have a U.S. valuation allowance for certain U.S. Federal credits and state tax attributes, which relate to deferred tax assets that require either certain types of income or for income to be earned in certain jurisdictions in order to be realized. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods.

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

The Company operates in several foreign jurisdictions with income tax rates that differ from the U.S. Federal statutory rate, which resulted in an expense for 2022 presented in the effective tax rate reconciliation. Significant foreign tax jurisdictions for which the Company realized such expense are Canada and Puerto Rico.

The components of deferred income tax assets and liabilities consisted of the following:

| (In millions) | December 31, 2022 | December 25, 2021 |
| --- | --- | --- |
| U.S. and foreign loss carryforwards | $277 | $61 |
| Operating lease right-of-use assets | 262 | 273 |
| Pension and other accrued compensation | 35 | 47 |
| Basis difference in subsidiary held for sale | - | 23 |
| Accruals for facility closings | 2 | 2 |
| Inventory | 10 | 7 |
| Self-insurance accruals | 13 | 14 |
| Deferred revenue | 9 | 10 |
| U.S. and foreign income tax credit carryforwards | 38 | 70 |
| Allowance for bad debts | 4 | 5 |
| Accrued expenses | 14 | 18 |
| Basis difference in fixed assets | 43 | 36 |
| Internally developed software | 1 | - |
| Gross deferred tax assets | 708 | 566 |
| Valuation allowance | (266) | (93) |
| Deferred tax assets | 442 | 473 |
| Internal software | - | 2 |
| Operating lease liabilities | 244 | 251 |
| Intangibles | 12 | 5 |
| Undistributed foreign earnings | 5 | - |
| Deferred tax liabilities | 261 | 258 |
| Net deferred tax assets | $181 | $215 |

As of December 31, 2022, and December 25, 2021, deferred income tax liabilities amounting to $2 million and $4 million, respectively, are included in deferred income taxes and other long-term liabilities.

As of December 31, 2022, the Company has utilized all of its U.S. Federal net operating loss (“NOL”) carryforwards. The Company has $238 million of foreign and $636 million of state NOL carryforwards. Of the state NOL carryforwards, $20 million will expire in 2023 and the remaining balance will expire between 2024 and 2041. The Company recognized a capital loss on the sale of CompuCom of $841 million, $94 million of which will be carried back to 2020 and 2021 resulting in an expected refund of $23 million. The remaining capital loss carryforward of $747 million will be offset by a valuation allowance until such time as the Company is able to utilize the losses.

Additionally, the Company has $27 million of U.S. Federal tax credit carryforwards, which expire in 2023 and 2024, and $11 million of state and foreign tax credit carryforwards, $2 million of which can be carried forward indefinitely, and the remainder of which will expire between 2023 and 2028.

As of December 31, 2022, the Company has not triggered an “ownership change” as defined in Internal Revenue Code Section 382 or other similar provisions that would limit the use of NOL and tax credit carryforwards. However, if the Company were to experience an ownership change in future periods, its deferred tax assets and income tax expense may be negatively impacted. Deferred income taxes have been provided on all undistributed earnings of foreign subsidiaries.

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

The following summarizes the activity related to valuation allowances for deferred tax assets:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Beginning balance | $93 | $99 | $100 |
| Additions, charged to expense | 184 | - | 2 |
| Reductions | (11) | (6) | (3) |
| Ending balance | $266 | $93 | $99 |

The Company’s valuation allowance increased in 2022 due to the valuation allowance related to the capital loss on the sale of CompuCom and decreased during 2022, 2021 and 2020 due to the expiration of certain credits for which a valuation allowance had been established. As of December 31, 2022, the Company continues to have a U.S. valuation allowance for certain U.S. Federal credits and certain state tax attributes, which relate to deferred tax assets that require either certain types of income or for income to be earned in certain jurisdictions in order to be realized. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods. Changes in pretax income projections could impact this evaluation in future periods.

The following table summarizes the activity related to unrecognized tax benefits:

| (In millions) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Beginning balance | $13 | $13 | $13 |
| Decrease related to prior year tax positions | (3) | - | - |
| Ending balance | $10 | $13 | $13 |

Included in the balance of $10 million at December 31, 2022, is $6 million of unrecognized tax benefits that, if recognized, would impact the effective tax rate. The other $4 million primarily results from tax positions that, if sustained, would be offset by changes in deferred tax assets. During 2022, the Company increased the unrecognized tax benefits by $1 million related to a foreign tax filing and reduced the unrecognized tax benefits by $4 million related to the expiration of certain jurisdictional statutes of limitations. It is anticipated that $2 million of the material tax positions will be resolved within the next 12 months. Additionally, the Company anticipates that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits; however, an estimate of such changes cannot be reasonably made.

The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in the provision for income taxes. The Company recognized immaterial interest and penalty expense in 2022, 2021 and 2020. The Company had approximately $4 million accrued for the payment of interest and penalties as of December 31, 2022.

The Company files a U.S. Federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. Federal and state and local income tax examinations for years before 2020 and 2017, respectively. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. Federal income tax examination and with few exceptions, is no longer subject to U.S. state and local income tax examinations for years before 2017. The U.S. Federal income tax returns for 2021 are currently under review. Generally, the Company is subject to routine examination for years 2017 and forward in its international tax jurisdictions.

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

# **NOTE 5. EARNINGS (LOSS) PER SHARE**

The following table presents the calculation of net earnings (loss) per common share - basic and diluted:

| (In millions, except per share amounts) | 2022 | 2021 | 2020 |
| --- | --- | --- | --- |
| Basic Earnings (Loss) Per Share |  |  |  |
| Numerator: |  |  |  |
| Net income (loss) from continuing operations | $178 | $187 | $(63) |
| Loss from discontinued operations, net of tax | (12) | (395) | (256) |
| Net income (loss) | $166 | $(208) | $(319) |
| Denominator: |  |  |  |
| Weighted-average shares outstanding | 48 | 53 | 53 |
| 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 |  |  |  |
| Numerator: |  |  |  |
| Net income (loss) from continuing operations | $178 | $187 | $(63) |
| Loss from discontinued operations, net of tax | (12) | (395) | (256) |
| Net income (loss) | $166 | $(208) | $(319) |
| Denominator: |  |  |  |
| Weighted-average shares outstanding | 48 | 53 | 53 |
| Effect of dilutive securities: |  |  |  |
| Stock options and restricted stock | 1 | 2 | - |
| Diluted weighted-average shares outstanding | 49 | 55 | 53 |
| 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) |

Awards of stock options and nonvested shares representing additional shares of outstanding common stock were less than 1 million, 1 million and 2 million for the fiscal years ended December 31, 2022, December 25, 2021 and December 26, 2020, respectively, but were not included in the computation of diluted weighted-average shares outstanding because their effect would have been antidilutive.

# **NOTE 6. PROPERTY AND EQUIPMENT**

Property and equipment consists of:

| (In millions) | December 31, 2022 | December 25, 2021 |
| --- | --- | --- |
| Land | $30 | $45 |
| Buildings | 79 | 200 |
| Computer software | 764 | 693 |
| Leasehold improvements | 565 | 587 |
| Furniture, fixtures and equipment | 753 | 775 |
| Construction in progress | 17 | 12 |
|  | 2,208 | 2,312 |
| Less accumulated depreciation | (1,856) | (1,835) |
| Total | $352 | $477 |

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# **THE ODP CORPORATION**  
 **NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

The above table of property and equipment includes assets held under finance leases as follows:

| (In millions) | December 31, 2022 | December 25, 2021 |
| --- | --- | --- |
| Buildings | $11 | $19 |
| Furniture, fixtures and equipment | 143 | 143 |
|  | 154 | 162 |
| Less accumulated depreciation | (125) | (123) |
| Total | $29 | $39 |

Depreciation expense was $75 million in 2022, $88 million in 2021 and $101 million in 2020.

Included in computer software and construction in progress above are capitalized software costs of $773 million and $699 million at December 31, 2022 and December 25, 2021, respectively. The unamortized amounts of the capitalized software costs are $145 million and $115 million at December 31, 2022 and December 25, 2021, respectively. Amortization of capitalized software costs totaled $47 million, $49 million and $50 million in 2022, 2021 and 2020, respectively. Software development costs that do not meet the criteria for capitalization are expensed as incurred.

Estimated future amortization expense related to capitalized software at December 31, 2022 is as follows:

| (In millions) |  |
| --- | --- |
| 2023 | $45 |
| 2024 | 38 |
| 2025 | 31 |
| 2026 | 21 |
| 2027 | 9 |
| Thereafter | 1 |

The weighted average remaining amortization period for capitalized software is 4 years.

# *Assets Held for Sale*

The Company’s corporate headquarters in Boca Raton met the criteria to be classified as held for sale during the third quarter of 2022. The asset was measured at the lower of its carrying amount or estimated fair value less costs to sell upon classification to held for sale, which was $104 million, and did not result in any valuation reserve being recorded. Accordingly, the Company presented its corporate headquarters in Boca Raton within current assets held for sale in the Consolidated Balance Sheets as of December 31, 2022. The Company has entered into an agreement in principle with a third-party buyer to sell this facility. The completion of the sales transaction, which is expected to occur in the first half of 2023, is subject to various conditions, including an intention for the Company to lease back a portion of the building’s office space from the new owner.

78