Office Depot 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
    ... 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) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $0.01...

  • Page 2
    ... 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 Stockholder...

  • Page 3
    ... Annual Report, unless the context otherwise requires, the "Company", "Office Depot", "we", "us", and "our" refer to Office Depot, Inc. and its subsidiaries. Item 1. Business Staples Tcquisition On February 4, 2015, Staples, Inc. ("Staples") and the Company entered into a definitive merger agreement...

  • Page 4
    ... of office supply 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...

  • Page 5
    ... product information. Most retail stores also offer copy and print services, as discussed in the "Copy & Print Depot TM" section below. At the end of 2015, the North American Retail Division operated 1,564 office supply stores. The count of open stores may include locations temporarily closed for...

  • 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
    ...The International Division sells 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...

  • Page 8
    ... advertising campaigns, and direct marketing efforts, such as the Internet and social networking. Our North American marketing programs are prepared on a combined banner basis. In early 2015, we combined the previously existing separate Office Depot and OfficeMax loyalty programs. Our customer...

  • Page 9
    ...our customer service, our store formats, the breadth and depth of our merchandise offering and our pricing. Internationally, we compete on a similar basis to North America. Our wholly-owned entities in the International Division sell through contract and catalog channels and operate retail stores in...

  • Page 10
    ...the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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...

  • Page 11
    ... retail business, including 7,600 retail stores, 19 distribution centers, retail merchandising, supply chain, marketing, real estate and store pharmacy operations. Prior to CVS, Mr. Cosby spent five years at Macy's, Inc., where he served in a number of executive roles, including President, Stores...

  • Page 12
    ...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, Finance North American...

  • Page 13
    ... the Company surviving as a wholly owned subsidiary of Staples. In connection with the proposed merger, we are subject to certain risks including, but not limited to, those set forth below. For additional information related to the Staples Merger Agreement, please refer to the Staples Merger Form...

  • Page 14
    ... 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 we anticipate due to factors such as sales transfers to stores remaining open being below our...

  • Page 15
    ... to grow 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...

  • Page 16
    ...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...

  • Page 17
    ... we secure such alternative measures. We use and resell many manufacturers' branded items and services. As a result, we are dependent on the availability and pricing of key products and services, including ink, toner, paper and technology products. As a reseller, we cannot control the supply, design...

  • Page 18
    ..., 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...

  • Page 19
    ...cash asset impairment charges related to under-performing stores in North America. These charges reflect greater than anticipated downturns in sales at certain lower performing stores and in some cases, early closures associated with the Real Estate Strategy. We regularly assess past performance and...

  • Page 20
    ... 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...

  • Page 21
    ... 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 for compromised operational control...

  • Page 22
    ...which could have a material adverse effect on our business and results of operations. Increises in the cost of employee heilth benefits could impict the Compiny's fininciil results ind cish flow. The Company's expenses relating to employee health benefits are significant. Healthcare costs have risen...

  • Page 23
    ... in Canada support our North American 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...

  • Page 24
    ... Nevada Ohio Pennsylvania Puerto-Rico Texas Washington TOTAL 1 2 1 1 2 3 1 3 3 33 DCs and Crossdock Facilities (Canada) Country # Canada 12 DCs (International Division) Country # Country # Australia China Czech Republic France Germany Ireland Italy 6 3 1 3 1 1 1 New Zealand South Korea...

  • Page 25
    ... class action 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...

  • Page 26
    ... 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 assets prior to those assets being...

  • Page 27
    ...2014 and, 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...

  • Page 28
    ... 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 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...

  • Page 29
    ... International(7): Office supply stores Distribution centers and crossdock facilities Call centers Total square footage - North American Retail Division (in millions) Percentage of sales by segment: North American Retail Division North American Business Solutions Division International Division...

  • Page 30
    ... International Division distribution centers and Canadian distribution centers and crossdock facilities. Fiscal year 2013 includes 144 stores operated by our International Division and 19 stores in Canada operated by our North American Business Solutions Division. These Canadian stores were closed...

  • Page 31
    ...related 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...

  • Page 32
    ... Retail Division increased, while the North American Business Solution Division's remained flat and the International Division's slightly decreased. Grupo OfficeMax has been omitted from basis point calculations. • Total Company Selling, general and administrative expenses decreased in 2015...

  • Page 33
    ..., in part, declines in technology sales, as well as lower average sale prices on certain computer products. Additionally, sales of ink, toner, and paper declined reflecting the highly-competitive market for sales of these products. The North American Retail Division reported operating income of...

  • Page 34
    ... pay in 2014 when compared to 2013. In 2013, based on sales trends, the Division recorded a $13 million inventory markdown related to product with a short selling cycle. At the end of 2015, we operated 1,564 retail stores in the United States, Puerto Rico and the U.S. Virgin Islands. Store opening...

  • Page 35
    ... 2014, the Company 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...

  • Page 36
    ... terms 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...

  • Page 37
    ...not included in the determination of Division income for management reporting or external disclosures. (In millions) 2015 2014 2013 Asset impairments Merger, restructuring, and other operating expenses, net Legal accrual Total charges and credits impact on Operating income (loss) 13 332 - $345 88...

  • Page 38
    ... deferred rent accounts when the leases are terminated or modified. Software impairments As part of the integration process during 2014, the Company decided to convert certain websites and other information technology applications to common platforms resulting in $25 million related to the write off...

  • Page 39
    ... contract labor, salary and benefits for employees dedicated to Merger activity, travel and relocation costs, non-capitalizable software integration costs, facility closure accruals, gains and losses on asset dispositions, accelerated depreciation, and other direct costs to combine the companies...

  • Page 40
    ... Company's corporate headquarters and personnel not directly supporting the Divisions, including certain executive, finance, audit and similar functions. Following the Merger, unallocated costs also include certain pension expense or credit related to the frozen OfficeMax pension and other benefit...

  • 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
    ... of the Internal Revenue Service ("IRS") examination for 2013, the Company's balance of unrecognized tax benefits decreased by $4 million during 2015, which did not impact income tax expense due to an offsetting change in valuation allowance. During 2015, the IRS examination of the OfficeMax 2012...

  • Page 43
    ..., 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 1, "Summary of Significant Accounting Policies," of the Consolidated...

  • 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
    ... income received on the Installment Notes. The operating lease obligations presented reflect future minimum lease payments due under the non-cancelable portions of our leases, as of December 26, 2015. Some of our retail store leases require percentage rentals on sales above specified minimums and...

  • Page 46
    ... As of December 26, 2015, purchase obligations include marketing services, outsourced accounting services, certain fixed assets and software licenses, service and maintenance contracts for information technology and communication. Contracts that can be unilaterally terminated without a penalty have...

  • Page 47
    ... 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...

  • Page 48
    .... 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 projections are based on management's estimates of store-level sales, gross margins, direct expenses, and resulting cash flows...

  • Page 49
    ... reported. We are required to calculate our pension expense and liabilities using actuarial assumptions, including mortality assumptions, a discount rate and long-term asset rate of return. For year end 2015 measurement, we updated North America benefit plans' mortality assumptions based on tables...

  • Page 50
    ... and toner, physical file storage and general office supplies. 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 North American Retail Division...

  • Page 51
    ... in pension plan obligations, the amount 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...

  • Page 52
    ... reported 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...

  • Page 53
    ...Company is assessing what impacts this new standard will have on its Consolidated Financial Statements. Item 7T. Quantitative and Qualitative Disclosures Tbout Market Risk. Refer to information in the "Market Sensitive Risks and Positions" subsection of Part II - Item 7. "MD&A" of this Annual Report...

  • Page 54
    ... our assessment, 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...

  • Page 55
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC TCCOUNTING FIRM To the Board of Directors and Stockholders of Office Depot, Inc. Boca Raton, Florida We have audited the internal control over financial reporting of Office Depot, Inc. and subsidiaries (the "Company") as of December 26, 2015...

  • Page 56
    Table of Contents PTRT III Item 10. Directors, Executive Officers and Corporate Governance. Information concerning our executive officers is set forth in Part 1 - Item 1. "Business" of this Annual Report under the caption "Executive Officers of the Registrant." Information required by this item ...

  • 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
    Table of Contents PTRT IV Item 15. Exhibits and Financial 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 ...

  • Page 59
    ... 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 in the...

  • Page 60
    Table of Contents INDEX TO FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of ...

  • 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
    ... 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 expenses, net Legal...

  • 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
    ...EQUITY Current liabilities: Trade accounts payable Accrued expenses and other current liabilities Income taxes payable Short-term borrowings and current maturities of long-term debt Total current liabilities Deferred income taxes and other long-term liabilities Pension and postretirement obligations...

  • Page 65
    ...in trade accounts payable, accrued expenses and other current and other long-term liabilities Total adjustments Net cash 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...

  • Page 66
    ... 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 withholding) Amortization of long-term incentive stock grants Balance at December 28, 2013 Decrease...

  • Page 67
    ... is traded on the NASDAQ Global Select Market under the ticker symbol ODP. As of December 26, 2015, the Company sold to customers throughout North America, Europe, and Asia/Pacific through three reportable segments (or "Divisions"): North American Retail Division, North American Business Solutions...

  • Page 68
    ... to pay Office Depot a termination fee of $250 million if the Staples Merger Agreement is terminated in certain circumstances relating to the antitrust regulatory review process. Refer to the Company's Current Report on Form 8-K filed with the SEC on February 4, 2015 for additional information on...

  • Page 69
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) The Company also early adopted for 2015 reporting the new accounting standard that allows as a practical expedient, the measurement of pension assets and liabilities at the calendar year end, rather than the...

  • Page 70
    ... of the underlying leases, including renewal options considered reasonably assured. The Company capitalizes certain costs related to internal use software that is expected to benefit future periods. These costs are amortized using the straight-line method over the 3 - 7 year expected life of the...

  • Page 71
    ... commitments under contracts, adjusted for assumed sublease benefits and discounted at the Company's credit-adjusted risk-free rate at the time of closing. Accretion expense is recognized over the life of the contractual payments. Additionally, the Company recognizes charges to terminate existing...

  • Page 72
    ... sales return rates. The Company also records reductions to revenue for customer programs and incentive offerings including special pricing agreements, certain promotions and other volume-based incentives. A liability for future performance is recognized when gift cards are sold and the related...

  • Page 73
    ... of operating and support functions, including: employee payroll and benefits, including variable pay arrangements; advertising; store and field support; executive management and various staff functions, such as information technology, human resources functions, finance, legal, internal audit...

  • Page 74
    ... 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 funded status of its defined benefit pension, retiree medical benefit and life...

  • 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
    ... 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. Fair value of assets acquired and...

  • Page 77
    ... to the actions described above began. The Company also assumed certain restructuring liabilities previously recorded by OfficeMax. In mid-2014, the Company's Real Estate Strategy identified at least 400 retail stores for closure through 2016 along with planned changes to the supply chain. In 2014...

  • 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
    ... Balance Charges Incurred Cash Payments Ending Balance 2015 Termination benefits: Merger-related accruals European Restructuring Plan Other restructuring accruals Lease and contract obligations, accruals for facilities closures and other costs: Merger-related accruals European Restructuring...

  • Page 80
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) remaining $137 million incurred in 2014 is comprised of $124 million Merger transaction and integration expenses, $9 million European restructuring integration expenses, $5 million employee non-cash equity ...

  • Page 81
    ... table: North Tmerican Retail Division North Tmerican Business Solutions Division (In millions) International Division Corporate Total Goodwill Accumulated impairment losses Foreign currency rate impact Balance as of December 28, 2013 Purchase accounting adjustments Sale of Grupo OfficeMax...

  • Page 82
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) decreased by $16 million and tax account adjustments were $1 million. Goodwill of $24 million was allocated to the Grupo OfficeMax business and was removed following the August 2014 sale of that business. ...

  • Page 83
    ...20 $54 As part of the Merger, the Company acquired an investment of approximately 20% of the voting equity securities ("Common Units") of Boise Cascade Holdings, L.L.C. ("Boise Cascade Holdings"), a building products company that originated in connection with the OfficeMax sale of its paper, forest...

  • Page 84
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (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") ...

  • Page 85
    ..., subject to certain terms and conditions, including obtaining increased commitments from existing or new lenders. The amount that can be drawn on the Facility at any given time is determined based on percentages of certain accounts receivable, inventory and credit card receivables (the "Borrowing...

  • Page 86
    ..., 2017, as provided in the Amended Credit Agreement. All amounts borrowed under the Facility, as well as the obligations of the Domestic Guarantors, are secured by a first priority lien on the Company's and such Domestic Guarantors' accounts receivables, inventory, cash, cash equivalents and deposit...

  • Page 87
    .... Under the Staples Merger Agreement, the Senior Secured Notes will be discharged, redeemed or defeased at the Effective Time of the Staples Acquisition. Other Short- and Long-Term Debt As a result of the Merger, the Company assumed the liability for the amounts in the table above related to the...

  • Page 88
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) Capital Lease Obligations Capital lease obligations primarily relate to buildings and equipment. Short-Term Borrowings The Company had short-term borrowings of $4 million at December 26, 2015 under various ...

  • Page 89
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) NOTE 9. INCOME TTXES The components of income (loss) before income taxes consisted of the following: (In millions) 2015 2014 2013 United States Foreign Total income (loss) before income taxes The income tax...

  • 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
    ...-term liabilities. During the fourth quarter of 2015, the Company early adopted the new accounting standard that requires that all deferred taxes be presented as noncurrent on the Consolidated Balance Sheets. Refer to Basis of Presentation in Note 1 for further information. As of December 26, 2015...

  • Page 92
    ... benefit of $9 million in 2014 due to settlements reached with certain taxing authorities. The Company had approximately $3 million accrued for the payment of interest and penalties as of December 26, 2015, which is not included in the table above. The Company files a U.S. federal income tax return...

  • Page 93
    ...10. LETSES The Company leases retail stores and other facilities, vehicles, and equipment under operating lease agreements. Facility leases typically are for a fixed noncancellable term with one or more renewal options. In addition to minimum rentals, the Company is required to pay certain executory...

  • Page 94
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) Unfavorable leases estimated future amortization is as follows: (In millions) 2016 2017 2018 2019 2020 Thereafter Total $ 7 5 3 1 1 1 $18 The Company has capital lease obligations primarily related to ...

  • Page 95
    ... and unearned compensation, based on the past and future service conditions. The assumed awards related to the Merger have been identified, as applicable, in the tables that follow. Stock Options The Company's stock option exercise price for each grant of a stock option shall not be less than 100...

  • Page 96
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) A summary of 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 ...

  • 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
    ... retiree medical benefit and life insurance plans including plans related to operations in the U.S. and Canada (referred to as "Other Benefits" in the tables below). The type of retiree benefits and the extent of coverage vary based on employee classification, date of retirement, location, and other...

  • Page 99
    ... in the Consolidated Balance Sheets related to 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...

  • Page 100
    ... and timing of future benefit payments. The following table presents the key weighted average assumptions used in the measurement of the Company's benefit obligations as of yearends: Other Benefits 2015 Pension Benefits 2014 2013 2015 United States 2014 2013 2015 Canada 2014 2013 Discount rate...

  • Page 101
    ...weights assigned to each asset class are based on the Company's investment strategy. The weighted average expected return on plan assets used in the calculation of net periodic pension cost for 2016 is 6.00%. Obligation and costs related to the Canadian retiree health plan are impacted by changes in...

  • Page 102
    ... to various asset classes in a lower-cost manner than trading securities in the underlying portfolios. Generally, quoted market prices are used to value pension plan assets. Equities, some fixed-income securities, publicly traded investment funds, and U.S. government obligations are valued by...

  • 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
    ... savings plans that OfficeMax had in place for most of its salaried and hourly employees (also a plan for U.S. employees and a plan for Puerto Rico employees) with the respective Office Depot, Inc. Retirement Savings Plan. All of the Company's defined contribution plans (the "401(k) Plans...

  • Page 108
    ...OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) NOTE 14. ETRNINGS PER SHTRE The following table presents the calculation of net loss per common share - basic and diluted: (In millions, except per share amounts) 2015 2014 2013... required application of the two-class method for...

  • Page 109
    ... 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 company-owned life insurance policies on certain former employees. The fair value of the company-owned life insurance...

  • Page 110
    ... 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's estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options...

  • Page 111
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) Following identification of retail stores for closure as part of the Real Estate Strategy, the related favorable lease assets were assessed for accelerated amortization or impairment. Considerations included...

  • Page 112
    ...remedies. Office Depot filed a motion to dismiss the Florida lawsuits for improper venue, and that motion was granted on May 15, 2015. In addition, in the ordinary course of business, sales to and transactions with government customers may be subject to lawsuits, investigations, audits and review by...

  • Page 113
    ...related 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...

  • 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
    ..., telephones, and 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...

  • Page 116
    Table of Contents OFFICE DEPOT, INC. NOTES TO CONSOLIDTTED FINTNCITL STTTEMENTS (Continued) NOTE 18. QUTRTERLY FINTNCITL DTTT (UNTUDITED) (In millions, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended December 26, 2015* Net sales Gross profit ...

  • Page 117
    Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC TCCOUNTING FIRM To the Board of Directors and Stockholders of 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 ...

  • 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
    Table of Contents SCHEDULE II OFFICE DEPOT, INC. VTLUTTION TND QUTLIFYING TCCOUNTS TND RESERVES (In millions) 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 ...

  • Page 120
    ...2.1 Agreement and Plan of Merger, dated February 20, 2013, by and among Office Depot, Inc., Dogwood Merger Sub LLC, Mapleby Holdings Merger Corporation, Mapleby Merger Corporation and OfficeMax Incorporated (Incorporated by reference from Office Depot, Inc.'s Current Report on Form 8-K, filed with...

  • Page 121
    ... for Office Depot, Inc.'s 2008 Annual Meeting of Shareholders, filed with the SEC on March 13, 2008).* Office Depot Corporate Annual Bonus Plan (Incorporated by reference from Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on June 22, 2015). Change of Control Agreement, dated...

  • Page 122
    ... the SEC on April 1, 2011). First Amendment to the Office Depot, Inc. 2007 Long-Term Incentive Plan (Incorporated by reference from Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on April 25, 2011).* Form of Amended and Restated Credit Agreement, dated as of May 25, 2011, among...

  • Page 123
    ... on Form S8, filed with the SEC 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...

  • Page 124
    ... to Outstanding Equity and Long-Term Incentive Awards (Incorporated by reference from Office Depot, Inc.'s Current Report on Form 8-K, filed with the SEC on February 26, 2013).* Form of Second Amendment, dated as of March 4, 2013, to the Amended and Restated Credit Agreement dated as of May 25...

  • Page 125
    ...Severance Plan and Notice of Non-Renewal of Change in Control Agreement (Incorporated by reference from Office Depot's Current Report on Form 8-K, filed with the SEC on August 7, 2014). Form of Settlement Agreement (Incorporated by reference from Office Depot's Current Report on Form 8-K, filed with...

  • Page 126
    ... Form 8K, filed with the SEC on February 22, 2012).* Form of 2012 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated's Current Report on Form 8-K, filed with the SEC on July 31, 2012).* First Amendment to Paper Purchase Agreement dated June 20, 2013...

  • Page 127
    ... 2005 Directors Deferred Compensation Plan (Incorporated by reference from OfficeMax Incorporated's Quarterly Report on Form 10-Q, filed with the SEC on November 6, 2008).* List of Office Depot, Inc.'s Subsidiaries Consent of Independent Registered Public Accounting Firm Certification of CEO...

  • Page 128
    ... Trust National Association was filed as exhibit 4.1 to OfficeMax Incorporated's Current Report on Form 8-K filed on December 22, 2004. Each of the documents referenced in this footnote is incorporated herein by reference. (3) The Deferred Compensation and Benefits Trust, as amended and restated...

  • Page 129
    ... Holdings II, LLC OMX Timber Finance Holdings I, LLC OfficeMax Incorporated OfficeMax Southern Company OfficeMax Nevada Company OMX, Inc. OfficeMax North America, Inc. North American Card and Coupon Services, LLC 127 California California Connecticut Connecticut Delaware Delaware Delaware Delaware...

  • Page 130
    ... 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 Sweden...

  • Page 131
    ... Svanström & Cu AB) Office Depot GmbH 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...

  • Page 132
    ... of Office Depot, Inc. and subsidiaries (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...

  • 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
    ... In connection with 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...

  • Page 136