OfficeMax 2015 Annual Report Download

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Table of Contents



(Mark One)
x

Or
¨



(Exact name of registrant as specified in its charter)
 
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $0.01 per share NASDAQ Stock 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 x 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 x
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 x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files): Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer,
and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
The aggregate market value of voting stock held by non-affiliates of the registrant as of June 27, 2015 (based on the closing market price on the Composite Tape on June 26, 2015) was approximately
$4,829,125,471 (determined by subtracting from the number of shares outstanding on that date the number of shares held by affiliates of Office Depot, Inc.).
The number of shares outstanding of the registrant’s common stock, as of the latest practicable date: At January 23, 2016, there were 548,986,561 outstanding shares of Office Depot, Inc. 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 Office Depot, Inc. definitive Proxy Statement for its 2016 Annual Meeting of Shareholders, which
shall be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Act of 1934, as amended, within 120 days of Office Depot, Inc.’s fiscal year end.

Table of contents

  • Page 1
    ...Office Depot, Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 6600 North Military Trail, Boca Raton, Florida (Address of principal executive offices) (561) 438-4800 (Registrant's telephone number, including area code...

  • Page 2
    ... in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management and Related...

  • Page 3
    ... transaction fails to close. Under the Staples Merger Agreement, the Senior Secured Notes will be discharged, redeemed or defeased at the Effective Time of the Staples Acquisition. The transaction has been approved by both companies' Boards of Directors and Office Depot shareholders. The completion...

  • Page 4
    ... stores, a contract sales force, Internet sites, an outbound telephone account management sales force, direct marketing catalogs and call centers, all supported by a network of supply chain facilities and delivery operations. Office Depot currently operates under the Office Depot® and OfficeMax...

  • Page 5
    ... Company's reported results. North Tmerican Retail Division The North American Retail Division sells a broad assortment of merchandise through our chain of office supply stores throughout the United States, including Puerto Rico and the U.S. Virgin Islands. We currently offer products and services...

  • Page 6
    ...-home, in-office and in-store support for their technology needs. Sales are recognized by the respective Division based on how the customer order is serviced. North Tmerican Supply Chain We operate a network of distribution centers (or "DCs") and crossdock facilities across the United States, Puerto...

  • Page 7
    ... office products and services through direct mail catalogs, contract sales forces, Internet sites, retail stores, and to a lesser extent, through licensing, franchising, alliances and other arrangements. We also offer copy and print services to our customers in Europe through our ecommerce business...

  • Page 8
    ... account management program. We obtain the names of prospective customers in new and existing markets through the purchase of selected lists from outside marketing information services and other sources as well as through the use of a proprietary mailing list system. We also acquire customers...

  • Page 9
    ... contract and retail distribution channels help our North American Business Solutions Division to compete with other business-to-business office products distributors. We believe our North American Retail Division segment competes based on the quality of our customer service, our store formats...

  • Page 10
    ... forest management; and (3) issue awareness and market development for environmentally preferable products. We offer thousands of different products containing recycled content and technology recycling services. Office Depot continues to implement environmental programs in line with our stated...

  • Page 11
    ...July 2014. From September 2011 to November 2013, Mr. Cosby served as the President, Pharmacy at CVS Caremark Corporation, where he was responsible for all aspects of the $65 billion retail business, including 7,600 retail stores, 19 distribution centers, retail merchandising, supply chain, marketing...

  • Page 12
    ... March 2012, and Senior Vice President, Finance and Chief Accounting Officer in December 2013. Ms. Moehler previously served as Senior Vice President, Finance - North American Retail and North America Financial Planning & Analysis from February 2012 until March 2012, and as our Senior Vice President...

  • Page 13
    ... future opportunities, retain key employees and may otherwise harm our business, results of operations and financial condition. Fiilure to complete the proposed Stiples Acquisition could idversely iffect our business ind the mirket price of our common stock. There is no assurance that the closing of...

  • Page 14
    ... be unanticipated downturns in business relationships with customers; there may be competitive pressures on the combined Company's sales and pricing; we may be unable to close all of the stores targeted for closure or such store closures may not result in the benefits or cost savings at levels that...

  • Page 15
    ... by adding new customers and taking market share from competitors. In addition, consumers are utilizing more technology and purchasing less paper, ink and toner, physical file storage and general office supplies. If we are unable to: (i) provide technology solutions and services that meet consumer...

  • Page 16
    ... 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...

  • Page 17
    ... transport products to our stores and customers as well as shipping costs to import products from overseas. While we may hedge our anticipated fuel purchases, the underlying commodity costs associated with this transport activity have been volatile in recent years and disruptions in availability of...

  • Page 18
    ... used to fund operating and working capital needs, as well as invest in business expansion through new store openings, capital improvements and acquisitions. A deterioration in our financial results or the impact of significant Merger and integration costs could negatively impact our credit ratings...

  • Page 19
    ...described in this section. Most of our operating expenses, such as occupancy costs and associate 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...

  • Page 20
    ... 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. In connection with OfficeMax's sale of its paper, forest products and timberland...

  • Page 21
    ... We cannot provide assurance that our new store openings, including some newly sized or formatted stores or retail concepts, will be successful. There may be unintended consequences of adding joint venture, strategic alliances and franchising partners to the Office Depot model, such as the potential...

  • Page 22
    ... in the cost of such benefits could have a material adverse effect on the Company's financial results and cash flow. Our business could be disrupted due to weither-relited fictors. Our operations are heavily concentrated in the Southern and Midwestern U.S. (including Illinois, Ohio, Florida and the...

  • Page 23
    ... Business Solutions Division. We also operate DCs outside of the United States and Canada, which support our International Division. The following tables set forth the locations of our principal supply chain facilities as of December 26, 2015. The number of facilities in the United States and Canada...

  • Page 24
    .... Our 2015 assessment does not count these as separate locations. DCs and Crossdock Facilities (United States) State # State # Alabama Arizona California Colorado Florida Georgia Hawaii Illinois Kansas 1 1 3 2 3 2 1 2 1 Maine Minnesota Mississippi Nevada Ohio Pennsylvania Puerto-Rico Texas...

  • Page 25
    ... that was instituted in May 2012, is pending in the United States District Court for the District of New Jersey. The complaint alleges that Office Depot's use of the fluctuating workweek (FWW) method of pay was unlawful because Office Depot failed to pay a fixed weekly salary and failed to provide...

  • Page 26
    ..., the Company is unable to estimate a reasonably possible range of loss in this matter. Office Depot intends to vigorously defend itself in this lawsuit. OfficeMax is named a defendant in a number of lawsuits, claims, and proceedings arising out of the operation of certain paper and forest products...

  • Page 27
    ... commenced trading on NASDAQ at market open on September 26, 2014. The Company's common stock continues to trade under the ticker symbol "ODP". As of the close of business on January 22, 2016, there were 9,559 holders of record of our common stock. The last reported sale price of the common stock on...

  • Page 28
    ... graph compares the five-year cumulative total shareholder return on our common stock with the cumulative total returns of the S&P 500 index and the S&P Specialty Stores index. The foregoing graph shall not be deemed to be filed as part of this Annual Report and does not constitute soliciting...

  • Page 29
    ... share: Basic Diluted Statistical Data: Facilities open at end of period: United States: Office supply stores Distribution centers and crossdock facilities International(7): Office supply stores Distribution centers and crossdock facilities Call centers Total square footage - North American Retail...

  • Page 30
    ... of Significant Accounting Policies" in the Notes to the Consolidated Financial Statements for additional information. Amounts for fiscal years 2014, 2013, 2012, and 2011 have changed from prior years' disclosures to reflect the balance sheet classification of debt issuance costs as a reduction...

  • Page 31
    ... supplies, facilities products, and office furniture. Most stores also have a copy and print center offering printing, reproduction, mailing and shipping. The North American Business Solutions Division sells office supply products and services in Canada and the United States, including Puerto Rico...

  • Page 32
    ... transitioned certain customers from the OfficeMax to the Office Depot platform, and made significant progress on identifying customer preferences and developing methods to service their needs. Integration activities will continue in 2016 and certain supply chain activities are currently anticipated...

  • Page 33
    ...comparable store sales reflects increases in supplies, furniture, copy and print services, ink and toner and declines in computer and related technology products. In 2015, transaction counts increased and average order value decreased compared to prior year. The increase in transaction counts result...

  • Page 34
    ...1,564 retail stores in the United States, Puerto Rico and the U.S. Virgin Islands. Store opening and closing activity for the last three years has been as follows: Open at Beginning of Period OfficeMax Merger Open at End of Period Closed Opened 2013 2014 2015 (1) 1,112 1,912 1,745 Store count as...

  • Page 35
    ...closed the 19 Grand & Toy stores in Canada that were added as part of the Merger. These locations primarily serviced contract and other small business customers and, accordingly, were included in results of the North America Business Solutions Division. INTERNTTIONTL DIVISION (In millions) 2015 2014...

  • Page 36
    ... of local currency performance to allow focus on operating trends and results. International Division store count and activity is summarized below: Open at Beginning of Period Office Supply Stores Closed/ Changed Opened/ Designation Acquired Open at End of Period Company-Owned Stores Operated by...

  • Page 37
    ... "Unallocated Costs" below. Tsset Impairments, Merger, Restructuring, Other Charges and Credits In recent years, we have taken actions to adapt to changing and competitive conditions. These actions include closing stores and distribution centers, consolidating functional activities, eliminating...

  • Page 38
    ... over the shortened estimated life resulted in a $5 million impairment charge in 2014. The 2013 goodwill impairment of $44 million was triggered by the sale of our interest in Office Depot de Mexico. The related reporting unit of the International Division included operating subsidiaries in...

  • Page 39
    ... Expenses in 2015 and 2014 include severance, employee retention, integration-related professional fees, incremental temporary contract labor, salary and benefits for employees dedicated to Merger activity, travel and relocation costs, non-capitalizable software integration costs, facility closure...

  • Page 40
    ... expense or credit related to the frozen OfficeMax pension and other benefit plans. Unallocated costs were $99 million, $122 million, and $89 million in 2015, 2014, and 2013, respectively. The 2015 decrease results primarily from synergies from the Merger, including the integration of the corporate...

  • Page 41
    ... tax expense resulting from the sale of our investment in Office Depot de Mexico. The sale of our interest in Grupo OfficeMax during 2014 did not generate a similar gain or income tax expense. The 2013 effective tax rate also includes certain Merger related expenses and the International Division...

  • Page 42
    ... borrowings represent outstanding balances on uncommitted lines of credit, which do not contain financial covenants. The Company was in compliance with all applicable financial covenants at December 26, 2015. Since the Merger date, we have incurred significant expenses associated with the Merger and...

  • Page 43
    ... during the year and across years depending on a variety of factors, including period end sales, the flow of goods, credit terms, timing of promotions, vendor production planning, new product introductions and working capital management. For our accounting policy on cash management, refer to Note...

  • Page 44
    ... sale of Office Depot de Mexico provided additional liquidity for the preferred stock retirement, debt maturity and for the needs of the combined Company for Merger-related expenses. A $35 million return of investment in Boise Cascade Holdings also contributed to the source of cash in 2013. Capital...

  • Page 45
    ... 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...

  • Page 46
    ... 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...

  • Page 47
    ..., 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...

  • Page 48
    ... the contract business and synergy benefits from the Merger. If the Company experiences an unanticipated decline in sales or profitability associated with these customers, the remaining useful life will be reassessed and either acceleration of amortization or impairment could result. Closed store...

  • Page 49
    ... market conditions, for year end 2015 measurements, the discount rate and the assumed long-term rate of return on plan assets decreased. Currently, the net impact of these plans is an annual credit to income. However, because of the judgments and estimates included in pension and other benefit...

  • Page 50
    ...back-to-school customers and year-round casual shoppers. Warehouse 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...

  • Page 51
    ... of plan assets available to pay benefits, contribution levels and expense are also impacted by the return on the pension plan assets. The pension plan assets include U.S. equities, international equities, global equities and fixed-income securities, the cash flows of which change as equity prices...

  • Page 52
    ... in Management's Discussion and Analysis of Financial Condition and Results of Operations. Commodities Risk We operate a large network of stores and delivery centers around the world. As such, we purchase fuel needed to transport products to our stores and customers as well as pay shipping costs to...

  • Page 53
    ... entitled in exchange for those goods or services. The guidance provides a number of steps to apply to achieve that principle and requires additional disclosures. The standard was originally to be effective for the Company's first quarter of 2017. In July 2015, the FASB approved a one year extension...

  • Page 54
    ..., management has concluded that the Company's internal control over financial reporting was effective as of December 26, 2015. Our internal control over financial reporting as of December 26, 2015, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated...

  • Page 55
    ... express an opinion on the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable...

  • Page 56
    ... 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 at www.officedepot...

  • Page 57
    ... the headings "Related Person Transactions Policy" and "Director Independence," respectively, and is incorporated by reference in this Annual Report. Item 14. Principal Tccountant Fees and Services. Information with respect to principal accounting fees and services and pre-approval policies will be...

  • Page 58
    ... Statement Schedules. (a) The following documents are filed as a part of this report: 1. 2. 3. The financial statements listed in "Index to Financial Statements." The financial statement schedules listed in "Index to Financial Statement Schedules." The exhibits listed in "Index to Exhibits." 56

  • Page 59
    ... thereunto duly authorized on this 23rd day of February 2016. OFFICE DEPOT, INC. By: /s/ ROLAND C. SMITH Roland C. 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...

  • Page 60
    ...Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Stockholders' Equity Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Financial Statement Schedule Index to Financial Statement Schedule 58 59 60 61 62 63 64 65 - 114...

  • Page 61
    ... of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 26, 2015, based on the criteria established in Internal Control - Integrated Framework (2013...

  • Page 62
    Table of Contents OFFICE DEPOT, INC. CONSOLIDTTED STTTEMENTS OF OPERTTIONS (In millions, except per share amounts) 2015 2014 2013 Sales Cost of goods sold and occupancy costs Gross profit Selling, general and administrative expenses Asset impairments Merger, restructuring, and other operating ...

  • Page 63
    Table of Contents OFFICE DEPOT, INC. CONSOLIDTTED STTTEMENTS OF COMPREHENSIVE INCOME (LOSS) (In millions) 2015 2014 2013 Net income (loss) Other comprehensive income (loss), net of tax, where applicable: Foreign currency translation adjustments Change in deferred pension, net of $1 million, $1 ...

  • Page 64
    ..., net Inventories Prepaid expenses and other current assets Total current assets Property and equipment, net Goodwill Other intangible assets, net Timber notes receivable Deferred income taxes Other assets Total assets LITBILITIES TND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable...

  • Page 65
    ... provided by (used in) operating activities Cash flows from investing activities: Capital expenditures Acquired cash in Merger, net Proceeds from sale of joint ventures, net Return of investment in Boise Cascade Holdings, L.L.C. Proceeds from sale of available for sale securities Acquisition, net of...

  • Page 66
    ...29, 2012 Acquisition of noncontrolling interest Net loss Other comprehensive income Common stock issuance related to OfficeMax merger Preferred stock dividends Grant of long-term incentive stock Forfeiture of restricted stock Exercise and release of incentive stock (including income tax benefits and...

  • Page 67
    ... of Business: Office Depot, Inc. ("Office Depot" or the "Company") is a global supplier of office products and services. On November 5, 2013, the Company merged with OfficeMax Incorporated ("OfficeMax"); refer to Note 2 for additional discussion of this merger (the "Merger"). OfficeMax's results are...

  • Page 68
    ... Current Report on Form 8-K filed with the SEC on February 4, 2015 for additional information on the transaction. Also, refer to Note 3 for expenses incurred in 2015 related to the Staples Acquisition. Basis of Presentation: The consolidated financial statements of Office Depot include the accounts...

  • Page 69
    ... of 52 weeks; fiscal year 2016 will include 53 weeks. Estimates and Tssumptions: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts...

  • Page 70
    ...The annual review period for the goodwill is as of the first day of the third quarter. The Company elected to conduct a quantitative assessment of possible goodwill impairment in 2015. In periods that a quantitative test is used, the Company estimates the reporting unit's fair value using discounted...

  • Page 71
    ... expectations and stores not meeting performance requirements may be closed. Additionally, since 2014, the Company has been closing stores in connection with the Real Estate Strategy which is expected to be completed in 2016. Refer to Note 3 for additional information. Costs associated with facility...

  • Page 72
    ... to Note 15 for further fair value information. Revenue Recognition: Revenue is recognized at the point of sale for retail transactions and at the time of successful delivery for contract, catalog and Internet sales. Shipping and handling fees are included in Sales with the related costs included...

  • Page 73
    ... former OfficeMax share-based awards was valued using the Black-Scholes model and apportioned between Merger consideration and unearned compensation to be recognized in expense as earned in future periods based on remaining service periods. Self-insurance: Office Depot is primarily self-insured for...

  • Page 74
    ... and Other Postretirement Benefits: The Company sponsors certain closed U.S. and international defined benefit pension plans, certain closed U.S. retiree medical benefit and life insurance plans, as well as a Canadian retiree medical benefit plan open to certain employees. The Company recognizes the...

  • Page 75
    ...of the Company being the accounting acquirer. Like Office Depot, OfficeMax was a leader in both business-to-business and retail office products distribution. OfficeMax had operations in the U.S., Canada, Mexico, Australia, New Zealand, the U.S. Virgin Islands and Puerto Rico. The Merger was intended...

  • Page 76
    ... about the costs incurred and Note 9 for discussion of the income tax impacts of the Merger. Tcquisition During the first quarter of 2015, the Company acquired an interior furniture business for $9 million. The business supports the contract channel of the North American Business Solutions Division...

  • Page 77
    ... at least 400 retail stores for closure through 2016 along with planned changes to the supply chain. In 2014, the Company approved a plan to realign the European organization from a geographic-focus to a business channel-focus (the "European Restructuring Plan"). In 2015, the Staples Acquisition was...

  • Page 78
    ... contract labor, salary and benefits for employees dedicated to the Merger activity, travel costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Such costs are being recognized as incurred. Expenses in 2013 primarily relate to legal, accounting...

  • Page 79
    ...and contract obligations, accruals for facilities closures and other costs: Merger-related accruals European Restructuring Plan Other restructuring accruals Acquired entity accruals Staples acquisition related accruals Total merger and restructuring accruals 2014 Termination benefits: Merger-related...

  • Page 80
    ... expenses, and $1 million net credit associated primarily to fixed assets and rent related items. NOTE 4. PROPERTY TND EQUIPMENT Property and equipment consists of: (In millions) December 26, 2015 December 27, 2014 Land Buildings Leasehold improvements Furniture, fixtures and equipment Less...

  • Page 81
    ...378 Purchase accounting adjustments relate to goodwill associated with a 2015 acquisition, as disclosed in Note 2, as well as final adjustments related to prior acquisitions. The allocation of the Merger consideration to the reporting units was completed in the third quarter of 2014. As the Company...

  • Page 82
    ...-line method. The pattern of benefit associated with one customer relationship asset recognized as part of the Merger warranted a three-year accelerated declining balance method. Favorable leases are amortized using the straight-line method over the lives of the individual leases, including option...

  • Page 83
    ... ("Boise Cascade Holdings"), a building products company that originated in connection with the OfficeMax sale of its paper, forest products and timberland assets in 2004. Through the end of 2013, Boise Cascade Holdings owned common stock of Boise Cascade Company ("Boise Cascade"), a publicly traded...

  • Page 84
    ... (Continued) NOTE 7. TIMBER NOTES/NON-RECOURSE DEBT As part of the Merger, the Company also acquired credit-enhanced timber installment notes with an original principal balance of $818 million (the "Installment Notes") that were part of the consideration received in exchange for OfficeMax's sale of...

  • Page 85
    ... 14 670 735 104 839 $ $ $ $ $ $ The Company was in compliance with all applicable financial covenants of existing loan agreements at December 26, 2015. Tmended Credit Tgreement On May 25, 2011, the Company entered into an Amended and Restated Credit Agreement with a group of lenders. Additional...

  • Page 86
    ... asset sales and increased restricted payments and capital expenditure limits, among other changes. At December 26, 2015, the Company had $1.2 billion of available credit under the Facility based on the December 2014 Borrowing Base certificate. At December 26, 2015, no amounts were outstanding under...

  • Page 87
    ... things, limit or restrict the Company's ability to: incur additional debt or issue stock, pay dividends, make certain investments or make other restricted payments; engage in sales of assets; and engage in consolidations, mergers and acquisitions. However, many of these currently active covenants...

  • Page 88
    ... balances on uncommitted lines of credit, which do not contain financial covenants. Refer to Note 7 for further information on non-recourse debt. Schedule of Debt Maturities Aggregate annual maturities of recourse debt and capital lease obligations are as follows: (In millions) 2016 2017 2018 2019...

  • Page 89
    ...12 $ 15 5 125 (4) (1) 7 $147 2015 2014 2013 Federal tax computed at the statutory rate State taxes, net of Federal benefit Foreign income taxed at rates other than Federal Increase (decrease) in valuation allowance Non-deductible goodwill impairment Non-deductible Merger expenses Non-deductible...

  • Page 90
    ...sale of Office Depot de Mexico. Due to valuation allowances against the Company's deferred tax assets, no income tax benefit was initially recognized in the 2015, 2014, or 2013 Consolidated Statement of Operations related to stock-based compensation expense. However, due to the profitable tax-paying...

  • Page 91
    ... acquired as a result of the Merger. Accordingly, the Company has recorded the deferred tax liabilities associated with the undistributed earnings of such foreign subsidiaries. The following summarizes the activity related to valuation allowances for deferred tax assets: (In millions) 2015 2014 2013...

  • Page 92
    .... 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 2014 and 2009, respectively. During 2015...

  • Page 93
    ...for years before 2013 and 2006, respectively. The U.S. federal income tax returns for 2014 and 2015 are currently under review. Generally, the Company is subject to routine examination for years 2008 and forward in its international tax jurisdictions. NOTE 10. LETSES The Company leases retail stores...

  • Page 94
    ... were 5,915,268 common shares held in treasury. The Company's Senior Secured Notes and the Facility include restrictions on additional common stock repurchases, based on the Company's liquidity and borrowing availability. There were no repurchases of common stock in 2015 or 2014. Tccumulated Other...

  • Page 95
    ...-based incentive awards. Employee share-based awards are generally issued in the first quarter of the year. Each option to purchase OfficeMax common stock outstanding immediately prior to the effective time of the Merger was converted into an option to purchase Office Depot common stock, on the same...

  • Page 96
    ... the activity in the stock option awards for the last three years is presented below. 2015 Weighted Tverage Exercise Price 2014 Weighted Average Exercise Price 2013 Weighted Average Exercise Price Shares Shares Shares Outstanding at beginning of year Granted Assumed - Merger Forfeited Exercised...

  • Page 97
    ... stock grants to Company employees typically vest annually over a three-year service period. A summary of the status of the Company's nonvested shares and changes during 2015, 2014, and 2013 is presented below. 2015 2014 2013 Outstanding at beginning of year Granted Assumed - Merger Vested...

  • Page 98
    ... shares at the time they vested during 2015 was $3 million. NOTE 13. EMPLOYEE BENEFIT PLTNS Pension and Other Postretirement Benefit Plans Pension and Other Postretirement Benefit Plans - North America The Company has retirement obligations under OfficeMax's U.S. pension plans. The Company sponsors...

  • Page 99
    ... the Company's North America defined benefit pension and other postretirement benefit plans as of year-ends: (In millions) Pension Benefits 2015 2014 Other Benefits 2015 2014 Noncurrent assets Current liabilities Noncurrent liabilities Net amount recognized Components of Net Periodic Cost (Benefit...

  • Page 100
    ...cost during 2016. Accumulated other comprehensive loss (income) as of year-ends 2014 and 2015 consist of net losses (gains). Assumptions The assumptions used in accounting for the Company's plans are estimates of factors including, among other things, the amount and timing of future benefit payments...

  • Page 101
    ... pension cost for 2016 is 6.00%. Obligation and costs related to the Canadian retiree health plan are impacted by changes in trend rates. The following table presents the assumed healthcare cost trend rates used in measuring the Company's postretirement benefit obligations at year-ends: 2015 2014...

  • Page 102
    ... the issuer is not available, restricted common stocks are valued at a multiple of current earnings less an appropriate discount. The multiple chosen is consistent with multiples of similar companies based on current market prices. The following table presents the pension plan assets by level within...

  • Page 103
    ... discretionary amounts. In 2015, the Company contributed $8 million to these pension plans. Pension contributions for the full year of 2016 are estimated to be $3 million. The Company may elect at any time to make additional voluntary contributions. Qualified pension benefit payments are paid from...

  • Page 104
    ... Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) Pension Plan - Europe The Company has a defined benefit pension plan which is associated with a 2003 European acquisition and covers a limited number of employees in Europe. During 2008, curtailment of that plan was...

  • Page 105
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) Assumptions Assumptions used in calculating the funded status and net periodic benefit included: 2015 2014 2013 Expected long-term rate of return on plan assets Discount rate Inflation 4.78% 3.90% 3.00% ...

  • Page 106
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) The following table presents the pension plan assets by level within the fair value hierarchy. (In millions) Quoted Prices in Tctive Markets for Identical Tssets (Level 1) Fair Value Measurements 2015 Tsset...

  • Page 107
    ...in the Office Depot, Inc. Retirement Savings Plans (a plan for U.S. employees and a plan for Puerto Rico employees). In December 2014, the Company merged the two contributory defined contribution savings plans that OfficeMax had in place for most of its salaried and hourly employees (also a plan for...

  • Page 108
    ...56 Awards of options and nonvested shares representing an additional 4 million, 9 million and 6 million shares of common stock were outstanding for the years ended December 26, 2015, December 27, 2014, and December 28, 2013, respectively, but were not included in the computation of diluted weighted...

  • Page 109
    ... Timber notes receivable: Fair value is determined as the present value of expected future cash flows discounted at the current interest rate for loans of similar terms with comparable credit risk (Level 2 measure). Company-owned life insurance: In connection with the Merger, the Company acquired...

  • Page 110
    ... in 2014, the Company has conducted a detailed quarterly store impairment analysis. The analysis uses input from retail store operations and the Company's accounting and finance personnel that organizationally report to the Chief Financial Officer. These Level 3 projections are based on management...

  • Page 111
    ... replaced the previous supply contract executed in 2004 with Boise Paper. The Company assumed the commitment under a paper supply contract to buy OfficeMax's North American requirements for office paper, subject to certain conditions, including conditions under which the Company may purchase paper...

  • Page 112
    ..., will materially affect its financial position, results of operations or cash flows. In addition to the foregoing, Heitzenrater v. OfficeMax North America, Inc., et al. was filed in the United States District Court for the Western District of New York in September 2012 as a putative class action...

  • Page 113
    ... supplies, facilities products, and office furniture. Most stores also have a copy and print center offering printing, reproduction, mailing and shipping. The North American Business Solutions Division sells office supply products and services in Canada and the United States, including Puerto Rico...

  • Page 114
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) A summary of significant accounts and balances by segment, reconciled to consolidated totals follows. North American Retail North American Business Solutions Corporate, Eliminations, and Other* (In millions...

  • Page 115
    ... wireless communications products. The furniture and other category includes products such as desks, chairs, luggage, sales in the copy and print centers, and other miscellaneous items. Total Company sales by product category were as follows: 2015 2014 2013 Supplies Technology Furniture and other...

  • Page 116
    ...Quarter Second Quarter Third Quarter Fourth Quarter (In millions, except per share amounts) Fiscal Year Ended December 27, 2014* Net sales Gross profit Net income (loss) (1) Net income (loss) attributable to Office Depot, Inc. (1) Net income (loss) available to common stockholders (1) Net earnings...

  • Page 117
    ... Office Depot, Inc. Boca Raton, Florida We have audited the consolidated financial statements of Office Depot, Inc. and subsidiaries (the "Company") as of December 26, 2015 and December 27, 2014, and for each of the three fiscal years in the period ended December 26, 2015, and the Company's internal...

  • Page 118
    Table of Contents INDEX TO FINTNCITL STTTEMENT SCHEDULES Page Schedule II - Valuation and Qualifying Accounts and Reserves All other schedules have been omitted because they are not applicable, not required or the information is included elsewhere herein. 116 117

  • Page 119
    ...Column A Column B Column C Additions - Charged to Expense Column D Deductions- Write-offs, Payments and Other Adjustments Column E Description Balance at Beginning of Period Balance at End of Period Allowance for doubtful accounts: 2015 2014 2013 117 $ $ $ 18 26 23 9 8 14 11 16 11 $ $ $ 16 18 26

  • Page 120
    ... Annual Report on Form 10-K, filed with the SEC on February 25, 2014). Second Supplemental Indenture, dated as of November 22, 2013, between Office Depot Inc., Mapleby Holdings Merger Corporation, OfficeMax Incorporated, OfficeMax Southern Company, OfficeMax Nevada Company, OfficeMax North America...

  • Page 121
    ... 2007).* 2008 Office Depot, Inc. Bonus Plan for Executive Management Employees (Incorporated by reference from the respective appendix to the Proxy Statement for Office Depot, Inc.'s 2008 Annual Meeting of Shareholders, filed with the SEC on March 13, 2008).* Office Depot Corporate Annual Bonus Plan...

  • Page 122
    ... to therein (Incorporated by reference from Office Depot, Inc.'s Annual Report on Form 10-K, filed with the SEC on February 28, 2012). Form of Restricted Stock Awards for Executives (time vested) (Incorporated by reference from Office Depot, Inc.'s Quarterly Report on Form 10-Q, filed with the...

  • Page 123
    ... on June 19, 2015). 2013 Performance Share Award Agreement between the Company and Roland C. Smith (Incorporated by reference from Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on November 18, 2013).* 2003 OfficeMax Incentive and Performance Plan (amended and restated effective...

  • Page 124
    ... 21, 2014 (Incorporated by reference from Office Depot's Current Report on Form 8-K, filed with the SEC on March 24, 2014). Second Amendment to 2013 Performance Share Award Agreement between Office Depot, Inc. and Roland C. Smith (Incorporated by reference from Office Depot's Quarterly Report on...

  • Page 125
    ... (Incorporated by reference from Office Depot's Current Report on Form 8-K, filed with the SEC on December 23, 2014) Securityholders Agreement among Boise Cascade Corporation (now OfficeMax Incorporated), Forest Products Holdings, L.L.C., and Boise Cascade Holdings, L.L.C., dated October 29, 2004...

  • Page 126
    ... Operating Agreement of Boise Cascade Holdings, L.L.C. (Incorporated by reference from OfficeMax Incorporated's Current Report on Form 8-K, filed with the SEC on March 4, 2013). 2005 Directors Deferred Compensation Plan (Incorporated by reference from OfficeMax Incorporated's Current Report on...

  • Page 127
    ... Trust Indenture dated as of October 1, 1985, between Boise Cascade Corporation and U.S. Bank Trust National Association (as successor in interest to Morgan Guaranty Trust Company of New York) was filed as exhibit 99.2 in OfficeMax Incorporated's Current Report on Form 8-K filed on December 10, 2001...

  • Page 128
    ...was filed as exhibit 10.18 in OfficeMax Incorporated's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Amendment No. 6, dated May 1, 2001, to the Deferred Compensation and Benefits Trust was filed as exhibit 10 in OfficeMax Incorporated's Quarterly Report on Form 10-Q for the...

  • Page 129
    ... Japan Office Supplies, LLC ODV France LLC OD France, LLC 4Sure.com, Inc. Swinton Avenue Trading Limited, Inc. 2300 South Congress LLC Neighborhood Retail Development Fund, LLC HC Land Company LLC Notus Aviation, Inc. OD Medical Solutions LLC OD Brazil Holdings, LLC Office Depot N.A. Shared Services...

  • Page 130
    ... Holdings BV. Guilbert International B.V. Office Depot (Operations) Holdings B.V. Office Depot Coöperatief W.A. Office Depot Europe B.V. Xtreme Office B.V. OfficeMax New Zealand Limited Office Depot Puerto Rico, LLC Office Depot Service Center SRL Office Depot s.r.o. Office Depot S.L. Office Depot...

  • Page 131
    ...Office Depot Holding GmbH Office Depot International (UK) Limited Viking Direct (Holdings) Limited Office Depot UK Limited Guilbert UK Pension Trustees Ltd Guilbert UK Holdings Ltd Niceday Distribution Centre Ltd Office 1 (1995) Ltd Office 1 Ltd Reliable UK Ltd Curry's Limited Office Depot (Holdings...

  • Page 132
    ...(the "Company"), and the effectiveness of the Company's internal control over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the fiscal year ended December 26, 2015. /s/ DELOITTE & TOUCHE LLP Certified Public Accountants Boca Raton, Florida February 23, 2016 130

  • Page 133
    ... financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ ROLAND C. SMITH Name: Roland C. Smith Title: Chief Executive Officer Date: February 23, 2016...

  • Page 134
    ...Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ STEPHEN E. HARE Name: Stephen E. Hare Title: Executive Vice President and Chief Financial Officer Date: February 23, 2016 132

  • Page 135
    ...the Annual Report on Form 10-K of Office Depot, Inc. (the "Company") for the fiscal year ended December 26, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Roland C. Smith, as Chief Executive Officer of the Company, and Stephen E. Hare, as Chief Financial...

  • Page 136