The ODP
Annual Report 2014

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-K(Mark One) xAnnual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934For the fiscal year ended December 27, 2014Or ¨Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934For the transition period from to Commission file number 1-10948Office Depot, Inc.(Exact name of registrant as specified in its charter) Delaware 59-2663954(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.)6600 North Military Trail, Boca Raton, Florida 33496(Address of principal executive offices) (Zip Code)(561) 438-4800(Registrant’s telephone number, including area code)Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Stock, par value $0.01 per share NASDAQ Stock MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate 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 xIndicate 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 periodthat 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 ofRegulation 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’sknowledge, 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. xIndicate 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 xThe aggregate market value of voting stock held by non-affiliates of the registrant as of June 28, 2014 (based on the closing market price on the Composite Tape on June 27, 2014) was approximately$3,009,760,984 (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 24, 2015, there were 545,374,602 outstanding shares of Office Depot, Inc. Common Stock, $0.01par 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 2015 Annual Meeting of Shareholders, whichshall 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 ContentsTABLE OF CONTENTS PART I. Item 1. Business 1 Item 1A. Risk Factors 11 Item 1B. Unresolved Staff Comments 20 Item 2. Properties 21 Item 3. Legal Proceedings 23 Item 4. Mine Safety Disclosures 24 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 25 Item 6. Selected Financial Data 27 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 29 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 54 Item 8. Financial Statements and Supplementary Data 54 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 54 Item 9A. Controls and Procedures 54 Item 9B. Other Information 54 PART III Item 10. Directors, Executive Officers and Corporate Governance 56 Item 11. Executive Compensation 56 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 56 Item 13. Certain Relationships and Related Transactions, and Director Independence 57 Item 14. Principal Accountant Fees and Services 57 PART IV Item 15. Exhibits and Financial Statement Schedules 58 SIGNATURES 59 Table of ContentsPART IForward-Looking StatementsThis Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements, within the meaning of the Private Securities Litigation ReformAct of 1995 (the “Reform Act”), that involve risks and uncertainties. These forward-looking statements include both historical information and otherinformation that can be used to infer future performance. Examples of historical information include annual financial statements and the commentary on pastperformance contained in Part II — Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”). Whilecertain information has specifically been identified as being forward-looking in the context of its presentation, we caution you that, with the exception ofinformation that is historical, all the information contained in this Annual Report should be considered to be “forward-looking statements” as referred to inthe Reform Act. Without limiting the generality of the preceding sentence, any time we use the words “estimate,” “project,” “intend,” “expect,” “believe,”“anticipate,” “continue” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking innature. Certain information in our MD&A is clearly forward-looking in nature, and without limiting the generality of the preceding cautionary statements, wespecifically advise you to consider all of our MD&A in the light of the cautionary statements set forth herein.Much of the information in this Annual Report that looks towards future performance of Office Depot, Inc. and its subsidiaries is based on various factors andimportant assumptions about future events that may or may not actually come true. As a result, our operations and financial results in the future could differmaterially and substantially from those we have discussed in this Annual Report. Significant factors that could impact our future results are provided in Part I— Item 1A. “Risk Factors” included in this Annual Report. Other risk factors are incorporated into the text of our MD&A, which should itself be considered astatement of future risks and uncertainties, as well as management’s view of our businesses.In this Annual Report, unless the context otherwise requires, the “Company”, “Office Depot”, “we”, “us”, and “our” refer to Office Depot, Inc. and itssubsidiaries.Item 1. BusinessRecent DevelopmentsOn February 4, 2015, Staples, Inc. (“Staples”) and the Company announced that the companies have entered into a definitive merger agreement (the “StaplesMerger Agreement”), under which Staples will acquire all of the outstanding shares of Office Depot and the Company will become a wholly owned subsidiaryof Staples (the “Staples Acquisition”). Under the terms of the Staples Merger Agreement, Office Depot shareholders will receive, for each Office Depot shareheld by such shareholders, $7.25 in cash and 0.2188 of a share in Staples common stock at closing. Each employee share-based award outstanding at the dateof the agreement will vest upon the effective date of the Staples Acquisition. The transaction has been approved by both companies’ Board of Directors andthe completion of the Staples Merger is subject to customary closing conditions including, among others, the approval of Office Depot shareholders andvarious regulatory approvals. The transaction is anticipated to close before the end of 2015. Refer to the Company’s Form 8-K filed February 4, 2015 foradditional information on the transaction. We cannot guarantee that the Staples Acquisition will be completed or that, if completed, it will be exactly on theterms as set forth in the Staples Merger Agreement.Merger and IntegrationOn November 5, 2013, the Company completed its merger with OfficeMax Incorporated (“OfficeMax”) in an all-stock transaction (the “Merger”). Inconnection with the Merger, each outstanding share of OfficeMax common stock was converted into 2.69 shares of Office Depot common stock. TheCompany issued approximately 240 million shares of Office Depot, Inc. common stock to former holders of OfficeMax common stock. Office Depot wasdetermined to be the accounting acquirer. Since the Merger date, OfficeMax’s financial results are included in our Consolidated Financial Statements, asdiscussed herein. 1Table of ContentsIntegration planning commenced shortly after the announcement of the Merger in February 2013, while the Federal Trade Commission (“FTC”) conducted aninvestigation of the proposed Merger. On November 1, 2013, the FTC closed its investigation and the transaction closed on November 5, 2013 when all otherclosing conditions were met.From the Merger date through the end of 2014, significant progress has been made on key integration activities. The organization design and talent selectionwas completed in early 2014 and the integration of staff functions was completed during the course of the year. Mid-year, the Company’s real estate strategy(the “Real Estate Strategy”) identified at least 400 retail stores for closure through 2016 along with planned changes to the supply chain. By year end, in theUnited States, we closed 168 stores, converted over 50 stores to common point of sale systems, completed two cross-banner warehouse consolidations andplatform modifications, successfully launched the co-branded website (www.officedepot.com), combined operating support functions, and made significantprogress on identifying customer preferences and developing methods to service their needs. The facility closures, store and warehouse conversions andcertain back-office functions will continue through 2016.The remaining discussion of the “Business” section in this Annual Report addresses the way the Company operates currently; however, the integration willcontinue to impact many of these processes in future periods.The CompanyOffice Depot is a global supplier of office products and services. Office Depot was incorporated in Delaware in 1986 with the opening of its first retail store inFort Lauderdale, Florida.The Company sells products and services to consumers and businesses of all sizes through three reportable segments (or “Divisions”): North American RetailDivision, North American Business Solutions Division and International Division. Sales for these Divisions are processed through multiple channels,consisting of office supply stores, a contract sales force, Internet sites, an outbound telephone account management sales force, direct marketing catalogs andcall centers, all supported by a network of supply chain facilities and delivery operations. Office Depot currently operates under the Office Depot andOfficeMax brands and utilizes other proprietary company and product brand names.Additional information regarding our Divisions and operations in geographic areas is presented below in Part II — Item 7. “MD&A” and in Note 19,“Segment Information,” of the Consolidated Financial Statements located in Part IV — Item 15. “Exhibits and Financial Statement Schedules” of this AnnualReport.The Company’s primary website is www.officedepot.com. The Company’s primary brands are discussed in the “Intellectual Property” section below.During 2014, the Company voluntarily transferred the listing of its common stock from the New York Stock Exchange (“NYSE”) to the NASDAQ GlobalSelect Market (“NASDAQ”). The Company’s common stock continues to trade under the ticker symbol ODP.Fiscal YearOur fiscal year results are based on a 52- or 53-week retail calendar ending on the last Saturday in December. Fiscal years 2014, 2013, and 2012 consisted of52 weeks and ended on December 27, 2014, December 28, 2013, and December 29, 2012, respectively. The Company’s business in Canada, which has beenincluded in the Company’s results since the date of the Merger maintains calendar years with December 31 year-ends. The Australia and New Zealandbusinesses, also included in the Company’s results since the date of the Merger, migrated to the Company’s retail calendar during 2014. 2®®Table of ContentsNorth American Retail DivisionThe 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 office supplies, technology products and solutions, business machines and relatedsupplies, facilities products, and office furniture from national brands as well as our own brands. Refer to the “Merchandising” section below for additionalproduct information. Most retail stores also offer copy and print services, as discussed in the “Copy & Print Depot and OfficeMax ImPress” sectionbelow.At the end of 2014, the North American Retail Division operated 1,745 office supply stores. The count of open stores may include locations temporarilyclosed for remodels or other factors. We have a broad representation across North America with the largest concentration of our retail stores in Texas, Florida,California and Illinois. The majority of our retail stores are located in leased facilities that currently average over 20,000 square feet; however, most new storeopenings and store remodels have been in facilities smaller than the Company’s current average square footage.During 2012, we developed a retail strategy that included planned downsizing of a significant number of stores or closing lower-contributing stores at theend of their lease terms. Additionally, as part of the integration of the Office Depot and OfficeMax stores, we are implementing the Real Estate Strategy thatanticipates closing at least 400 stores in North America through 2016, which includes the 168 stores closed in 2014. Closures include both Office Depot andOfficeMax locations. The real estate portfolio optimization plan will be adjusted in future periods as market and competitive conditions change.Implementation of this strategy is expected to result in exit costs associated with facility closures, termination costs, and possibly additional assetimpairments. Refer to Part II — Item 7. “MD&A” for additional information on the store activity.The retail stores continue to operate under their legacy banners of Office Depot or OfficeMax, though the business is managed as a single operation. TheOfficeMax stores are being converted to a common point of sale system, the loyalty programs have merged and product offerings are converging. Thecustomer-facing material generally contains the brand message Office Depot OfficeMax — Now One Company.Refer to the “North American Supply Chain” discussion below for additional information on our supply chain network.Sales and marketing efforts are integral to understanding the Divisions’ processes and management. These efforts are addressed after the Divisionsdiscussions.North American Business Solutions DivisionThe North American Business Solutions Division sells nationally branded and our own brands’ office supplies, technology products, cleaning and breakroomsupplies, office furniture, certain services, and other solutions to customers in Canada and the United States, including Puerto Rico, and the U.S. VirginIslands. Office Depot customers are served by a dedicated sales force, through catalogs, telesales, and electronically through our Internet sites. Refer to the“Merchandising” section below for additional product information. The North American Business Solutions Division also offers copy and print services, asdiscussed in the “Copy & Print Depot and OfficeMax ImPress” section below.Our contract sales channel employs a dedicated inside and field sales force that services the office supply needs to a range of small, medium and large-sizedbusinesses. Part of our contract business is also with various schools, local, state and national governmental agencies. We also enter into agreements withconsortiums to sell to various entities and across industries, including governmental and non-profit entities, for non-exclusive buying arrangements. Sales toour contract customers that are fulfilled at retail locations are included in the results of our North American Retail Division, while honoring their contractpricing, as applicable. The migration of customers to Office Depot systems was initiated during 2014. 3 TM TM TM TMTable of ContentsOur direct sales channel is tailored to serve small- to medium-sized customers. During 2014, the Company launched its co-branded and expanded website toserve legacy customers of both Office Depot and OfficeMax. Similar to the approach used in reaching the customers identified in the North America RetailDivision, the co-branded site operates under the banner Office Depot OfficeMax — Now One Company. Site functionality provides customers theconvenience of using the combined loyalty program and offers suggestions by product ratings, pricing, and brand, among other features. Direct customers canorder products through our public websites, from our catalogs, or by phone. Customer orders are fulfilled through the common supply chain; refer to the“North American Supply Chain” discussion below for additional information on our supply chain network.Copy & Print Depot and OfficeMax ImPressOffice Depot Copy & Print Depot and OfficeMax ImPress provide printing, digital imaging, reproduction, mailing, shipping through UPS, FedEx, andthe U.S. Postal Service, and other services. We also maintain nationwide availability of personal computer (“PC”) support and network installation servicethat provides our customers with in-home, in-office and in-store support for their technology needs. Sales are recognized by the respective Division based onhow the customer order is placed.North American Supply ChainWe operate a network of distribution centers (or “DCs”) and crossdock facilities across the United States, Puerto Rico, and Canada. Certain of our DCs operateas flow-through facilities where merchandise is sorted for distribution and shipped to fulfill the inventory needs of our retail stores and customers. Some DCsin the OfficeMax network are larger facilities primarily serving the retail business. The crossdocks in the OfficeMax network are smaller buildings wherecustomer orders are sorted and loaded onto private fleet trucks for last mile delivery. The DC and crossdock facilities’ costs, including real estate, technology,labor and inventory, are allocated to the North American Retail Division and North American Business Solutions Division based on the relative servicesprovided.The integration of the companies has resulted in changes to two facilities to service both Office Depot and OfficeMax banner customers and the closure ofseven facilities during 2014. In the next two years, we expect to change the warehouse management system in six facilities to service both Office Depot andOfficeMax banner customers, create or repurpose five locations, expand capacity in 12 existing facilities to service both Office Depot and Office max bannercustomers, and close 12 locations.Inventory is held in our DCs at levels we believe sufficient to meet current and anticipated customer needs. Certain purchases are sent directly from themanufacturer to our customers or retail stores. Some supply chain facilities and some retail locations also house sales offices, showrooms, and administrativeoffices supporting our contract sales channel.As of December 27, 2014, we operated 78 DC and crossdock facilities in the United States and Canada.Out-bound delivery and inbound direct import operations are currently provided by us and third-party carriers.International DivisionIn recent years, the International Division has undergone significant restructuring activities, including disposing of assets and streamlining processes,primarily in Europe. These activities have helped to lower operating expenses. In late 2014, the Company approved a European restructuring plan to realignthe organization from a geographic-focus to a business channel-focus. The restructuring plan includes the creation of centralized and standardized processesthat operate across Europe and the elimination of approximately 1,100 employee positions. This excludes approximately 300 employee positions previouslyeliminated. As required by law, the Company is consulting with each of the affected countries’ local Works Councils as part of the implementation of therestructuring plan, which is expected to be substantially completed by December 2015. Refer to Part II — Item 7. “MD&A” for further details on this plan. 4TMTMTMTMTable of ContentsThe International Division sells office products and services through direct mail catalogs, contract sales forces, Internet sites and retail stores, primarilythrough Company-owned operations, but also through joint ventures, and to a lesser extent, licensing and franchise agreements, alliances and otherarrangements. We also offer copy and print services to our customers in Europe through our e-commerce business and certain retail locations. Refer to the“Merchandising” section below for additional product information.As of December 27, 2014, the International Division sold to customers in 54 countries throughout Europe, Asia/Pacific, and Latin America. Outside of NorthAmerica, the Company operates wholly-owned entities and participates in other ventures covering 27 countries and has alliances in an additional 27countries.As of December 27, 2014, the International Division operated, through wholly-owned entities, 146 retail stores in France, South Korea, Sweden, NewZealand, and Australia. In addition, we participate in the retail business under licensing and merchandise arrangements in certain countries in Latin America,in Europe, Israel, and Japan.In August 2014, the Company completed the sale of its 51% capital stock interest in Grupo OfficeMax S. de R.L. de C.V. and related entities (together,“Grupo OfficeMax”), the former OfficeMax business in Mexico, to its joint venture partner. Refer to Part II — Item 7. “MD&A” for additional information.The Company maintains DCs and call centers throughout Europe and Asia/Pacific to support these operations. Refer to Part I — Item 2. “Properties” foradditional information on the International Division stores and DCs count and Part II — Item 7. “MD&A” for stores activity.The International Division has separate regional headquarters for Europe in The Netherlands and for Asia in Hong Kong.MerchandisingOur merchandising strategy is to meet our customers’ needs by offering a broad selection of country and regional branded office products, as well as our ownbranded products and services. The selection of our own branded products has increased in breadth and level of sophistication over time. We currently offerproducts under various labels, including Office Depot, OfficeMax, Foray, Ativa, TUL, Realspace, WorkPro, Brenton Studio, Highmark, Grand &Toy and Viking Office Products.We classify our products into three categories: (1) supplies, (2) technology, and (3) furniture and other. The supplies category includes products such aspaper, binders, writing instruments, and school supplies. The technology category includes products such as desktop and laptop computers, monitors, tablets,printers, ink and toner, cables, software, digital cameras, telephones, and wireless communications products. The furniture and other category includesproducts such as desks, chairs, luggage, sales in our copy and print centers, and other miscellaneous items.Total Company sales by product group were as follows: 2014 2013* 2012 Supplies 47.2% 46.6% 45.8% Technology 38.0% 40.6% 41.8% Furniture and other 14.8% 12.8% 12.4% 100.0% 100.0% 100.0% *Amounts include the OfficeMax sales since November 5, 2013. 5®®®®®®®®®®®Table of ContentsWe buy substantially all of our merchandise directly from manufacturers, industry wholesalers, and other primary suppliers, including direct sourcing of ourown brands products from domestic and offshore sources. We also enter into arrangements with vendors that can lower our unit product costs if certainvolume thresholds or other criteria are met. For additional discussion regarding these arrangements, refer to “Critical Accounting Policies” in Part II — Item 7.“MD&A”.We operate separate merchandising functions in North America, Europe and Asia/Pacific. Each group is responsible for selecting, purchasing and pricingmerchandise as well as managing the product life cycle of our inventory. In recent years, we have increasingly used global offerings across all regions tofurther reduce our product cost while maintaining product quality.We operate a converged global sourcing office in Shenzhen, China, which allows us to better manage our product sourcing, logistics and quality assurance.This office consolidates our purchasing power with Asian factories and, in turn, help us to increase the scope of our own branded offerings.Sales and MarketingAs part of bringing Office Depot and OfficeMax together and setting a foundation for growth, the Company invested significant effort during 2014 toidentify our customers, understand their preferences and develop strategies to meet their needs. This includes assessing consumer shopping desires andtendencies which will help refine our strategy to identify and offer desired product assortment, shopping environment and purchasing methods. This effortwill help shape our business in future periods and may impact store and website design, product offerings and placement, promotional activity and customercontact methods. Identifying the most desirable and effective way to reach our customers and allowing them to shop through whichever channel they preferwill continue to be a priority in 2015 and the future.Our marketing programs are designed to attract new customers and to drive frequency of customer visits to our stores and websites. We regularly advertise inmajor newspapers in most of our North American markets. We also advertise through local and national radio, network and cable television advertisingcampaigns, and direct marketing efforts, such as the Internet and social networking. Our North American marketing programs are now prepared on a combinedbanner basis.In early 2015, we combined the previously existing separate Office Depot and OfficeMax loyalty programs. Our customer loyalty program providescustomers with rewards that can be applied to future purchases or other incentives. These programs enable us to market more effectively to our customers.Loyalty programs may change in popularity in the future, and we may make alterations to them from time to time.We perform periodic competitive pricing analyses to monitor each market, and prices are adjusted as necessary to further our competitive positioning. Wegenerally target our everyday pricing to be competitive with other resellers of office products.We acquire new customers by selectively mailing specially designed catalogs and by making on-premises sales calls to prospective customers. We also makeoutbound sales calls using dedicated agents through our telephone account management program. We obtain the names of prospective customers in new andexisting markets through the purchase of selected lists from outside marketing information services and other sources as well as through the use of aproprietary mailing list system. We also acquire customers through e-mail marketing campaigns and online affiliates. No single customer in any of ourDivisions accounts for more than 10% of our total sales or accounts receivable.Our business is somewhat seasonal, with sales generally trending lower in the second quarter, following the “back-to-business” sales cycle in the first quarterand preceding the “back-to-school” sales cycle in the third 6Table of Contentsquarter and the holiday sales cycle in the fourth quarter. Certain working capital components may build and recede during the year reflecting establishedselling cycles. Business cycles can and have impacted our operations and financial position when compared to other periods.With the exception of online purchases placed or fulfilled in our retail locations, online sales activities are reported in the North American Business Solutionsor International Divisions, as appropriate.Intellectual PropertyWe currently operate under the Office Depot and OfficeMax brand names. We hold trademark registrations domestically and worldwide and have numerousother applications pending worldwide for the names “Office Depot”, “Viking”, “Ativa”, “Foray”, “Realspace”, “OfficeMax”, “TUL”, “WorkPro”, “BrentonStudio”, “Highmark” and others. As with all domestic trademarks, our trademark registrations in the United States are for a ten year period and are renewableevery ten years, prior to their respective expirations, as long as the trademarks are used in the regular course of trade.Industry and CompetitionWe operate in a highly competitive environment in all three Divisions. We compete with office supply stores, wholesale clubs, discount stores, massmerchandisers, Internet-based companies, food and drug stores, computer and electronics superstores and direct marketing companies. These companiescompete with us in substantially all of our current markets. Increased competition in the office products markets, together with increased advertising, hasheightened price awareness among end-users. Such heightened price awareness has led to margin pressure on office products and impacted our results. Inaddition to price, competition is also based on customer service, the quality and breadth of product selection and convenience. Other office supply retailcompanies market similarly to us in terms of store format, pricing strategy, product selection and product availability in the markets where we operate,primarily those in the United States. Some of our competitors are larger than us and have greater financial resources, which affords them greater purchasingpower, increased financial flexibility and more capital resources for expansion and improvement, which may enable them to compete more effectively. Weanticipate that in the future we will continue to face competition from these companies.We believe our customer service and the efficiency and convenience for our customers from our combined contract and retail distribution channels helps ourNorth 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, the breadth and depth ofour 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 catalogchannels and operates retail stores in 17 countries. Additionally, our International Division provides office products and services in another 37 countriesthrough licensing and franchise agreements, cross-border transactions, alliances and other arrangements.EmployeesAs of January 24, 2015, we had approximately 56,000 employees worldwide. In certain international locations, changes in staffing or work arrangements mayneed approval of local works councils or other bodies. 7®®Table of ContentsEnvironmental MattersAs both a significant user and seller of paper products, we have developed environmental practices that are values-based and market-driven. Ourenvironmental initiatives center on three guiding principles: (1) recycling and pollution reduction; (2) sustainable forest management; and (3) issueawareness and market development for environmentally preferable products. We offer thousands of different products containing recycled content andtechnology recycling services in our retail stores.Office Depot continues to implement environmental programs in line with our stated environmental vision to “increasingly buy green, be green and sellgreen” — including environmental sensitivity in our packaging, operations and sales offerings. Operations in the US and internationally have beencommended for our leadership position for our facility design, recycling efforts, and ‘Green’ product offerings. Additional information on our achievementsand green product offerings can be found at www.officedepotcitizenship.com/planet/ and www.officedepot.com/buygreen.We are subject to a variety of environmental laws and regulations related to historical OfficeMax operations of paper and forest products businesses andtimberland assets. We record environmental and asbestos liabilities, and accrue losses associated with these obligations, when probable and reasonablyestimable. We record a separate insurance recovery receivable when considered probable. Refer to Item 3. “Legal Proceedings” for additional information.Available InformationWe make available, free of charge, on the “Investor Relations” section of our website www.officedepot.com, our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), as soon as reasonably practicable after we electronically file or furnish such materials to the UnitedStates Securities and Exchange Commission (“SEC”). In addition, the public may read and copy any of the materials we file with the SEC at the SEC’s PublicReference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by callingthe SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regardingissuers, such as the Company, that file electronically with the SEC. The address of that website is www.sec.gov.Additionally, our corporate governance materials, including our bylaws; corporate governance guidelines; charters of the Audit, Compensation, Finance andIntegration, and Corporate Governance and Nominating Committees; and code of ethical behavior may also be found under the “Investor Relations” sectionof our website.Our Executive OfficersMichael Allison — Age: 57Mr. Allison was appointed as our Executive Vice President and Chief People Officer in December 2013. From July 2011 until December 2013, Mr. Allisonwas our Executive Vice President, Human Resources. Mr. Allison joined Office Depot in September 2006 as Vice President, Human Resources. Prior tojoining Office Depot, Mr. Allison served as Executive Vice President of Human Resources for Victoria’s Secret Direct from February, 2001 to September,2005. Prior to Victoria’s Secret, he was Senior Vice President of Human Resources for Bank One, and Senior Vice President and Director of Human Resourcesfor National City Bank.Mark Cosby — Age: 56Mr. Cosby was appointed as our President, North America in July 2014. From September 2011 to November 2013, Mr. Cosby served as the President,Pharmacy at CVS Caremark Corporation, where he was responsible for 8Table of Contentsall aspects of the $65 billion retail business, including 7,600 retail stores, 19 distribution centers, retail merchandising, supply chain, marketing, real estateand 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 from April 2009 to August 2011. Prior to Macy’s, Inc., Mr. Cosby served as President, Full-line Stores at Sears, Roebuck & Company and chiefoperating officer and chief development officer at YUM! Brands, Inc.Elisa D. Garcia C. — Age: 57Ms. Garcia was appointed as our Executive Vice President, Chief Legal Officer and Corporate Secretary in December 2013. From July 2007 until December2013, Ms. Garcia was our Executive Vice President, General Counsel and Corporate Secretary. Ms. Garcia is responsible for global legal and compliancematters, loss prevention, safety, and government relations. Prior to joining Office Depot, Ms. Garcia served as Executive Vice President, General Counsel andCorporate Secretary of Domino’s Pizza, Inc. from April 2000 until May 2007. Prior to joining Domino’s Pizza, Ms. Garcia served as Latin American RegionalCounsel for Philip Morris International, and Corporate Counsel for GAF Corporation.Stephen Hare — Age: 61Mr. Hare was appointed as our Executive Vice President and Chief Financial Officer in December 2013. Prior to joining the Company, Mr. Hare served as theSenior Vice President and Chief Financial Officer of The Wendy’s Company, a restaurant owner, operator and franchisor, from July 2011 until September2013. Mr. Hare also served as the Senior Vice President and Chief Financial Officer of Wendy’s/Arby’s Group, Inc., a position he held from October 2008until July 2011. He also served as Chief Financial Officer of Arby’s Restaurant Group, Inc., a restaurant owner, operator and franchisor (“Arby’s”), from June2006 until the sale of Arby’s by The Wendy’s Company in July 2011. Prior to joining The Wendy’s Company, Mr. Hare served as an Executive VicePresident of Cadmus Communications Corporation (“Cadmus”), a leading publisher of scientific, technical, medical, and scholarly journals, and as Presidentof Publisher Services Group, a division of Cadmus, from January 2003 to June 2006, and as the Executive Vice President, Chief Financial Officer of Cadmusfrom September 2001 to January 2003. Mr. Hare currently serves as a director of Hanger, Inc., a provider of orthotic and prosthetic products and services thatenhance human physical capability.Juliet Johansson — Age: 45Ms. Johansson was appointed as our Executive Vice President and Chief Strategy Officer in March 2014. From May 2012 to September 2013, Ms. Johanssonserved as Senior Vice President of the Global Commercial Business of Biomet 3i, a dental implant manufacturer. Prior to Biomet 3i, Ms. Johansson served asan Operating Advisor at The Blackstone Group from September 2010 to May 2012. Prior to the Blackstone Group, Ms. Johansson spent five years at Ryder,Inc., where she held a number of senior executive roles involving strategy, national sales and marketing, including Vice President Marketing from September2005 to March 2008 and Vice President National Sales until March 2010. Prior to Ryder, Ms. Johansson was a consultant with McKinsey & Company forseven years.Kim Moehler — Age: 46Ms. Moehler was appointed as our Senior Vice President and Controller in March 2012, and Senior Vice President, Finance and Chief Accounting Officer inDecember 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 Retail from September 2006 through February2012. From May 2000 through September 2006, Ms. Moehler served in director and vice president finance positions at the Company. Ms. Moehler joinedOffice Depot in February 1999 as Senior Manager, Budget & Finance Reporting. Before Office Depot, Ms. Moehler was employed with AdvanticaCorporation (owner of Denny’s restaurants), leaving as the Director of Field Finance. Ms. Moehler is a licensed CPA. 9Table of ContentsSteven Schmidt — Age: 60Mr. Schmidt was appointed as our Executive Vice President and President of International in November 2011 after serving as our Executive Vice President,Corporate Strategy and New Business Development from July 2011 until November 2011, and as our President, North American Business Solutions from July2007 until November 2011. Prior to joining Office Depot, Mr. Schmidt spent 11 years with the ACNielsen Corporation, most recently serving as Presidentand Chief Executive Officer. Prior to joining ACNielsen, Mr. Schmidt spent eight years at the Pillsbury Food Company, serving as President of its Canadianand Southeast Asian operations. He has also held management positions at PepsiCo and Procter & Gamble.Roland Smith — Age 60Mr. Smith was appointed as our Chairman and Chief Executive Officer in November 2013. Prior to joining Office Depot, Mr. Smith served as the Presidentand Chief Executive Officer of Delhaize America, LLC, the U.S. division of Delhaize Group, and Executive Vice President of Delhaize Group, aninternational food retailer, from October 2012 to September 2013. Mr. Smith was a Special Advisor to The Wendy’s Company, a restaurant owner, operatorand franchisor, from September 2011 to December 2011, served as President and Chief Executive Officer from July 2011 to September 2011. Mr. Smithserved as President and Chief Executive Officer of Wendy’s/Arby’s Group, Inc. and Chief Executive Officer of Wendy’s International, Inc. from September2008 to July 2011. Mr. Smith also served as Chief Executive Officer of Triarc Companies, Inc. from June 2007 to July 2011, and the Chief Executive Officerof Arby’s Restaurant Group, Inc., a restaurant owner, operator and franchisor, from April 2006 to September 2008. Mr. Smith served as President and ChiefExecutive Officer of American Golf Corporation and National Golf Properties, an owner and operator of golf courses, from February 2003 to November 2005.He was President and Chief Executive Officer of AMF Bowling Worldwide, Inc., an owner and operator of bowling centers, from April 1999 until January2003. Mr. Smith has been a member of Carmike Cinemas, Inc.’s (“Carmike”) board of directors since June 2009, and also serves as Chairman of theCompensation and Nominating Committee and as a member of the Executive Committee of Carmike’s board. 10Table of ContentsItem 1A. Risk Factors.In addition to risks and uncertainties in the ordinary course of business that are common to all businesses, important factors that are specific to our industryand our Company could materially impact our future performance and results. We have provided below a list of risk factors that should be reviewed whenconsidering investing in our securities.Risks Related to the Staples AcquisitionOn February 4, 2015, we entered into the Staples Merger Agreement with Staples, a Delaware corporation and Staples AMS, Inc., a Delaware corporation anda wholly owned subsidiary of Staples (“Merger Sub”), providing for, among other things, that, upon the terms and subject to the conditions set forth therein,Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of Staples. In connection with the proposedmerger, 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 Current Report on Form 8-K filed with the SEC on February 4, 2015(the “Staples Merger Form 8-K”). The foregoing description of the Staples Merger Agreement is qualified in its entirety by reference to the full text of theMerger Agreement attached as Exhibit 2.1 to the Staples Merger Form 8-K.The announcement and pendency of the Staples Acquisition could adversely affect our business, results of operations and financial condition.The announcement and pendency of the Staples Acquisition of our company with Staples could cause disruptions in and create uncertainty surrounding ourbusiness, including affecting our relationships with our existing and future customers, suppliers and employees, which could have an adverse effect on ourbusiness, results of operations and financial condition, regardless of whether the proposed Staples Acquisition is completed. In particular, we couldpotentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the Staples Acquisition.We could also potentially lose customers or suppliers, and new customer or supplier contracts could be delayed or decreased. In addition, we have allocated,and will continue to allocate, significant management resources towards the completion of the transaction, which could adversely affect our business andresults of operations.We are subject to putative class action lawsuits challenging the Staples Acquisition. The lawsuits seek, among other things, to enjoin the consummation ofthe Staples Acquisition, rescission of the Staples Acquisition if it is consummated, and an award of monetary damages, costs and fees. The costs, delay andmanagement resources associated with litigation related to the Staples Acquisition could adversely affect our business, results of operations and financialcondition.We are also subject to restrictions on the conduct of our business prior to the consummation of the Staples Acquisition as provided in the Staples MergerAgreement, including, among other things, certain restrictions on our ability to acquire other businesses, sell or transfer our assets, amend our organizationaldocuments, and incur indebtedness. These restrictions could result in our inability to respond effectively to competitive pressures, industry developmentsand future opportunities and may otherwise harm our business, results of operations and financial condition.Failure to complete the proposed Staples Acquisition could adversely affect our business and the market price of our common stock.There is no assurance that the closing of the Staples Acquisition will occur. Consummation of the Staples Acquisition is subject to various conditions,including, among other things, the approval of the Staples Merger Agreement and the Staples Acquisition by the holders of a majority of our outstandingshares of common stock, 11Table of Contentsand certain other customary conditions, including, among other things, the absence of laws or judgments prohibiting or enjoining the merger and the receiptof certain regulatory approvals. We cannot predict with certainty whether and when any of these conditions will be satisfied. We are subject to putative classaction lawsuits challenging the Staples Acquisition, which seek, among other things, to enjoin the consummation of the Staples Acquisition. In addition, theStaples Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of ourBoard of Directors or a termination of the Staples Merger Agreement by us to enter into an agreement for a “superior proposal”. If the Staples MergerAgreement is terminated, we may be required to pay Staples a termination fee of $185 million. If the Staples Acquisition is not consummated, our stock pricewill likely decline as our stock has recently traded based on the proposed per share price for the Staples Acquisition. We will have incurred significant costs,including, among other things, the diversion of management resources, for which we will have received little or no benefit if the closing of the StaplesAcquisition does not occur. A failed transaction may result in negative publicity and a negative impression of us in the investment community. Theoccurrence of any of these events individually or in combination could have a material adverse effect on our results of operations and the market price of ourcommon stock.Risks Related to Our BusinessOur ongoing business is subject to certain risks related to our merger with OfficeMax and restructuring activities.We completed a merger with OfficeMax on November 5, 2013, pursuant to which OfficeMax became an indirect, wholly-owned subsidiary of our Company.The Merger involved the integration of two companies that previously operated independently with principal offices in two distinct locations. We havedevoted, and will continue to devote, significant management attention and resources to integrating the companies. As previously disclosed, the combinedcompany is expected to capture over $750 million in cost synergies by the end of 2016, including at least $100 million in annual run-rate synergies fromstore closures. Additionally, in response to economic and competitive factors in our industry, we may, from time to time, undertake certain restructuringactivities within our business divisions to improve our performance. In recent years, the International Division has undergone significant restructuringactivities, including disposing of assets and streamlining processes, primarily in Europe in an effort to be more responsive to customer needs and furtherimprove processes. In 2014, the International Division launched a European-wide restructuring plan to realign the business organization from a geographicfocus to a business channel focus. As previously disclosed, this plan is expected to provide $90 million of annual cost savings by the end of 2016.We may not be able to achieve the expected Merger synergies or restructuring benefits due to certain risks, among other things, risks that: • the businesses of Office Depot and OfficeMax may not be integrated successfully or such integration may take longer, be more difficult, time-consuming or costly to accomplish than expected; • we may experience business disruption following the Merger, including adverse effects on employee retention and loss of employee focus duringperiods of restructuring activities; • we may be unable to avoid potential liabilities and unforeseen increased expenses or delays associated with the Merger integration or otherrestructuring activities, including in Europe; • there may be unanticipated changes in the markets for the combined Company’s business segments; • branding or rebranding initiatives may involve substantial costs and may not be favorably received by customers; 12Table of Contents • there may 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 weanticipate due to factors such as sales transfers to stores remaining open being below our projections and costs to close stores being higher than ourprojections, because of the terms of the existing lease, the condition of the local property market, demand for the specific property, our relationshipwith the landlord, the availability of potential sub-lease tenants and employee severance and other costs; • the benefits of any restructuring activity, including in Europe, may not be fully realized due to competitive, regulatory or operational difficulties; and • we may be unable to successfully manage the complex integration of systems, technology, networks and other assets of the combined Company in amanner that minimizes any adverse impact on our customers, vendors, suppliers, employees and other constituencies.Accordingly, there can be no assurance that: (i) the Merger and restructuring activities will result in the realization of the full benefits of synergies,innovation and operational efficiencies that we currently expect; (ii) these benefits will be achieved within the anticipated timeframe: (iii) we will be able tofully and accurately measure any such synergies; or (iv) we will be able to implement new strategies to transform the combined Company. Failure tosuccessfully integrate the businesses and realize the projected synergies, innovation and operational efficiencies may have a material adverse effect on ourbusiness and results of operations.Our business is highly competitive and failure to adequately differentiate ourselves or respond to the decline in general office supplies sales or to shiftingconsumer demands could adversely impact our financial performance.The office products market is highly competitive and we compete locally, domestically and internationally with office supply stores, including Staples,wholesale clubs such as Costco, Sam’s Club and BJs, mass merchandisers such as Wal-Mart and Target, computer and electronics superstores such as BestBuy, Internet-based companies such as Amazon.com, food and drug stores, discount stores, and direct marketing companies. Many competitors have alsoincreased their presence by broadening their assortments or broadening from retail into the delivery and e-commerce channels, while others havesubstantially greater financial resources to devote to sourcing, marketing and selling their products. Product pricing is also becoming ever more competitive,particularly among competitors on the Internet. In order to achieve and maintain expected profitability levels, we must continue to grow by adding newcustomers and taking market share from competitors. In addition, consumers are utilizing more technology and purchasing less paper, ink and toner, physicalfile storage and general office supplies. If we are unable to: (i) provide technology solutions and services that meet consumer needs; (ii) continuously stockproducts that are up-to-date and among the latest trends in the rapidly changing technological environment; (iii) differentiate ourselves from other retailerswho sell similar products; and (iv) effectively compete, our sales and financial performance could be negatively impacted.If we are unable to successfully maintain a relevant multichannel experience for our customers, our results of operations could be adversely affected.With the increasing use of computers, tablets, mobile phones and other devices to shop in our stores and online, we offer full and mobile versions of ourwebsite and applications for mobile phones and tablets. In addition, we are increasing the use of social media as a means of interacting with our customersand enhancing their shopping experiences. Multichannel retailing is rapidly evolving and we must keep pace with the changing expectations of ourcustomers and new developments by our competitors. If we are unable to attract and retain team members or 13Table of Contentscontract third parties with the specialized skills needed to support our multichannel platforms, or are unable to implement improvements to our customer-facing technology in a timely manner, our ability to compete and our results of operations could be adversely affected. In addition, if our website and ourother customer-facing technology systems do not function as designed, the customer experience could be negatively affected, resulting in a loss of customerconfidence and satisfaction, and lost sales, which could adversely affect our reputation and results of operations.Disruptions of our computer systems could adversely affect our operations.We rely heavily on computer systems to process transactions, manage our inventory and supply-chain and to summarize and analyze our global business. Ifour systems are damaged or fail to function properly, or, if we do not replace or upgrade certain systems, we may incur substantial costs to repair or replacethem and may experience an interruption of our normal business activities or loss of critical data. We are undertaking certain system enhancements andconversions to increase productivity and efficiency, that, if not done properly, could divert the attention of our workforce and constrain for some time ourability to provide the level of service our customers demand. Also, once implemented, the new systems and technology may not provide the intendedefficiencies or anticipated benefits, and could add costs and complications to our ongoing operations.A breach of our information technology systems could adversely affect our reputation, business partner and customer relationships and operations andresult in high costs.Through our sales, marketing activities, and use of third-party information, we collect and store certain personally identifiable information that our customersprovide to purchase products or services, enroll in promotional programs, register on our website, or otherwise communicate and interact with us. This mayinclude but is not limited to names, addresses, phone numbers, driver license numbers, e-mail addresses, contact preferences, personally identifiableinformation stored on electronic devices, and payment account information, including credit and debit card information. We also gather and retaininformation about our employees in the normal course of business. We may share information about such persons with vendors that assist with certain aspectsof our business. In addition, our online operations depend upon the secure transmission of confidential information over public networks, such as informationpermitting cashless payments.We have instituted safeguards for the protection of such information. These security measures may be compromised as a result of third-party securitybreaches, burglaries, cyber-attack, errors by employees or employees of third-party vendors, faulty password management, misappropriation of data byemployees, vendors or unaffiliated third-parties, or other irregularity, and result in persons obtaining unauthorized access to our data or accounts. Despiteinstituted safeguards for the protection of such information, we cannot be certain that all of our systems and those of our vendors and unaffiliated third-partiesare entirely free from vulnerability to attack or compromise given that the techniques used to obtain unauthorized access, disable or degrade service, orsabotage systems change frequently. During the normal course of our business, we have experienced and we expect to continue to experience attempts tobreach our systems, and we may be unable to protect sensitive data and the integrity of our systems or to prevent fraudulent purchases. Moreover, an allegedor actual security breach that affects our systems or results in the unauthorized release of personally identifiable information could: • materially damage our reputation and brand, negatively affect customer satisfaction and loyalty, expose us to negative publicity, individual claims orconsumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information; and • cause us to incur substantial costs, including but not limited to costs associated with remediation for stolen assets or information, payments of customerincentives for the maintenance of business relationships after an attack, litigation costs, lost revenues resulting from unauthorized use of proprietaryinformation or the failure to retain or attract customers following an attack, and increased cyber security protection costs. While we maintain insurancecoverage that may, subject to policy terms and conditions, cover certain aspects of our cyber risks, such insurance coverage may be unavailable orinsufficient to cover our losses or all types of claims that may arise in the continually evolving area of cyber risk. 14Table of ContentsWe do a significant amount of business with government entities, various purchasing consortiums, and through sole- or limited- source distributionarrangements, and loss of this business could negatively impact our results.One of our largest customer groups consists of various national and international governmental entities, government agencies and non-profit organizations,such as purchasing consortiums. Contracting with U.S. state and local governments is highly competitive, subject to federal and state procurement laws,requires more restrictive contract terms and can be expensive and time-consuming. Bidding such contracts often requires that we incur significant upfronttime and expense without any assurance that we will win a contract. Our ability to compete successfully for and retain business with the federal and variousstate and local governments is highly dependent on cost-effective performance. Our business with governmental entities and agencies is also sensitive tochanges in national and international priorities and their respective budgets, which in the current economy continue to decrease. We also service asubstantial amount of business through agreements with purchasing consortiums and other sole- or limited-source distribution arrangements. If we areunsuccessful in retaining these customers, or if there is a significant reduction in sales under any of these arrangements, it could adversely impact ourbusiness and results of operations.Macroeconomic conditions have had and may continue to adversely affect our business and financial performance.Our operating results and performance depend significantly on worldwide economic conditions and their impact on business and consumer spending. In thepast, the decline in business and consumer spending resulting from the global recession has caused our comparable store sales to continue to decline fromprior periods and we have experienced similar declines in most of our other domestic and international businesses. Our business and financial performancemay continue to be adversely affected by current and future economic conditions in the U.S. and internationally, including, without limitation, the level ofconsumer debt, high levels of unemployment, higher interest rates and the ability of our customers to obtain credit, which may cause a continued or furtherdecline in business and consumer spending.Increases in fuel and other commodity prices could have an adverse impact on our earnings.While fuel prices declined late in 2014, because these products are non-renewable resources, there can be no assurance that prices will not rise in the nearfuture even above past levels. We operate a large network of stores, delivery centers, and delivery vehicles around the globe. As such, we purchase significantamounts of fuel needed to transport products to our stores and customers as well as shipping costs to import products from overseas. While we may hedge ouranticipated fuel purchases, the underlying commodity costs associated with this transport activity have been volatile in recent years and disruptions inavailability of fuel could cause our operating costs to rise significantly to the extent not covered by our hedges. Additionally, other commodity prices, suchas paper, may increase and we may not be able to pass along such costs to our customers. Fluctuations in the availability or cost of our energy and othercommodity prices could have a material adverse effect on our profitability.Our business may be adversely affected by the actions of and risks related to the activities of our third-party vendors.We purchase products for resale under credit arrangements with our vendors and have been able to negotiate payment terms that are approximately equal inlength to the time it takes to sell the vendor’s products. When the global economy is experiencing weakness as it has over the last five years, vendors mayseek credit insurance to protect against non-payment of amounts due to them. If we continue to experience declining operating performance, and if weexperience severe liquidity challenges, vendors may demand that we accelerate our payment for their products or require cash on delivery, which could havean adverse impact on our operating cash 15Table of Contentsflow and result in severe stress on our liquidity. Borrowings under our existing credit facility could reach maximum levels under such circumstances, causingus to seek alternative liquidity measures, but we may not be able to meet our obligations as they become due until we secure such alternative measures.We use and resell many manufacturers’ branded items and services. 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, function, cost or vendor-required conditions of saleof many of the products we offer for sale. Disruptions in the availability of these products or the products and services we provide to our customers mayadversely affect our sales and result in customer dissatisfaction. Further, we cannot control the cost of manufacturers’ products, and cost increases must eitherbe passed along to our customers or will result in erosion of our earnings. Failure to identify desirable products and make them available to our customerswhen desired and at attractive prices could have an adverse effect on our business and our results of operations. In addition, a material interruption in serviceby 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 areimpacted by current macroeconomic conditions, both in the U.S., Asia and other locations. We may have no warning before a vendor fails, which may havean adverse effect on our business and results of operations.Our product offering also includes many of our own branded products. While we have focused on the quality of our own branded products, we rely on third-party manufacturers for these products. Such third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may not meetour expectations, such products may not meet applicable regulatory requirements which may require us to recall those products, or such products mayinfringe upon the intellectual property rights of third-parties. Furthermore, economic and political conditions in areas of the world where we source suchproducts may adversely affect the availability and cost of such products. In addition, our own branded products compete with other manufacturers’ brandeditems that we offer. As we continue to increase the number and types of our own branded products that we sell, we may adversely affect our relationships withour vendors, who may decide to reduce their product offerings through us and may increase their product offerings through our competitors. Finally, if any ofour customers are harmed by our own branded products, they may bring product liability and other claims against us. Any of these circumstances could havean adverse effect on our business and results of operations.Disruption of global sourcing activities and our own brands’ quality concerns could negatively impact brand reputation and earnings.Economic and civil unrest in areas of the world where we source products, as well as shipping and dockage issues, could adversely impact the availability orcost of our products, or both. Most of our goods imported to the U.S. arrive from Asia through ports located on the U.S. west coast and we are therefore subjectto potential disruption due to labor unrest, security issues or natural disasters affecting any or all of these ports. In addition, in recent years, we havesubstantially increased the number and types of products that we sell under our own brands including Office Depot , OfficeMax and other proprietarybrands. While we have focused on the quality of our proprietary branded products, we rely on third-parties to manufacture these products. Such third-partymanufacturers may prove to be unreliable, the quality of our globally sourced products may vary from our expectations and standards, such products may notmeet applicable regulatory requirements which may require us to recall those products, or such products may infringe upon the intellectual property rights ofthird-parties. Moreover, as we seek indemnities from the manufacturers of these products, the uncertainty of realization of any such indemnity and the lack ofunderstanding of U.S. product liability laws in certain foreign jurisdictions make it more likely that we may have to respond to claims or complaints from ourcustomers.A downgrade in our credit ratings or a general disruption in the credit markets could make it more difficult for us to access funds, refinance indebtedness,obtain new funding or issue securities.While Merger-related costs have been significant in 2014 and 2013, historically, we have generated positive cash flow from operating activities and have hadaccess to broad financial markets that provide the liquidity we need to operate our business. Together, these sources have been used to fund operating andworking capital needs, as 16®®Table of Contentswell as invest in business expansion through new store openings, capital improvements and acquisitions. A deterioration in our financial results or the impactof significant Merger and integration costs could negatively impact our credit ratings, our liquidity and our access to the capital markets. If we need torefinance all or a portion of that indebtedness, there is no assurance that we will be able to secure such refinancing at the same or more favorable terms thanthe terms of our existing indebtedness.A default under our credit facility could significantly restrict our access to funding and adversely impact our operations.Our asset based credit facility contains a fixed charge coverage ratio covenant that is operative only when borrowing availability is below $125 million orprior to a restricted transaction, such as incurring additional indebtedness, acquisitions, dispositions, dividends, or share repurchases. The agreementgoverning our credit facility (the “Credit Agreement”) also contains representations, warranties, affirmative and negative covenants, and default provisions. Abreach of any of these covenants could result in a default under our Credit Agreement. Upon the occurrence of an event of default under our CreditAgreement, the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend furthercredit. If the lenders were to accelerate the repayment of borrowings, we may not have sufficient assets to repay our asset based credit facility and our otherindebtedness. Also, should there be an event of default, or a need to obtain waivers following an event of default, we may be subject to higher borrowingcosts and/or more restrictive covenants in future periods. Acceleration of our obligations under our credit facilities would permit the holders of our othermaterial debt to accelerate their obligations.We have incurred significant impairment charges and we continue to incur significant impairment charges.In recent years, we recognized significant non-cash asset impairment charges related to under-performing stores in North America. These charges reflectgreater than anticipated downturns in sales at certain lower performing stores and in some cases, early closures associated with the Real Estate Strategy. Weregularly assess past performance and make estimates and projections of future performance at an individual store level. Reduced sales, our shift in strategy tobe less promotional, as well as competitive factors and changes in consumer spending habits resulted in a downward adjustment of anticipated future cashflows for the individual stores that resulted in the impairment. We foresee challenges in the market and economy that could adversely impact our operations.To the extent that forward-looking sales and operating assumptions are not achieved and are subsequently reduced, or if we commit to a more aggressivestore downsizing strategy, including allocating capital to further modify store formats, additional impairment charges may result. We have also recognizednon-cash asset impairment charges from the abandonment of assets identified as not to be used in the new organization and from certain lease-relatedintangible assets that were deemed unrecoverable based on the Real Estate Strategy. Additional asset impairments may be recognized based on futuredecisions and conditions.Changes in the numerous variables associated with the judgments, assumptions and estimates we make, in assessing the appropriate valuation of ourgoodwill, including changes resulting from macroeconomic challenges in international markets, or disposition of components within reporting units, couldin the future require a reduction of goodwill and recognition of related non-cash impairment charges. If we were required to further impair our store assets, ourgoodwill or intangible assets, it could have a material adverse effect on our business and results of operations.Our quarterly operating results are subject to fluctuation due to the seasonality of our business.Our business is somewhat seasonal, with sales generally trending lower in the second quarter, following the “back-to-business” sales cycle in the first quarterand preceding the “back-to-school” sales cycle in the third quarter and the holiday sales cycle in the fourth quarter. As a result, our operating results havefluctuated from quarter to quarter in the past, with sales and profitability being generally stronger in the second half of our fiscal year than the first half of ourfiscal year. Factors that could also cause these quarterly fluctuations include: the 17Table of Contentspricing behavior of our competitors; the types and mix of products sold; the level of advertising and promotional expenses; severe weather; macroeconomicfactors that affect consumer confidence; and the other risk factors described in this section. Most of our operating expenses, such as occupancy costs andassociate salaries, are not variable, and so short term adjustments to reflect quarterly results are difficult. As a result, if sales in certain quarters aresignificantly below expectations, we may not be able to proportionately reduce operating expenses for that quarter, and therefore such a sales shortfall wouldhave an adverse effect on our net income for the quarter.We have retained responsibility for liabilities of acquired companies that may adversely affect our financial results.OfficeMax sponsors noncontributory defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some activeemployees (the “Pension Plans”). The Pension Plans are under-funded and we may be required to make contributions in subsequent years in order to maintainrequired funding levels, which would have an adverse impact on our cash flows and our financial results. Additional future contributions to the PensionPlans, 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 assets in 2004, OfficeMax agreed to assume responsibility for certainliabilities of the businesses sold. These obligations include liabilities related to environmental, asbestos, health and safety, tax, litigation and employeebenefit matters. Some of these retained liabilities could turn out to be significant, which could have an adverse effect on our results of operations. Ourexposure to these liabilities could harm our ability to compete with other office products distributors, who would not typically be subject to similarliabilities.Changes in tax laws in any of the multiple jurisdictions in which we operate can cause fluctuations in our overall tax rate impacting our reportedearnings.Our global tax rate is derived from a combination of applicable tax rates in the various domestic and international jurisdictions in which we operate.Depending upon the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the tax filing positions we takein these jurisdictions, our overall tax rate may fluctuate significantly from other companies or even our own past tax rates. At any given point in time, we baseour estimate of an annual effective tax rate upon a calculated mix of the tax rates applicable to our Company and to estimates of the amount of income likelyto be generated in any given geography. Additionally, because of recent operating losses, the Company has significant valuation allowances on deferred taxassets, limiting the amount of deferred tax benefits that can be recognized on current operations. The loss of one or more agreements with taxing jurisdictions,a change in the mix of our business from year to year and from country to country, changes in rules related to accounting for income taxes, changes in taxlaws in any of the multiple jurisdictions in which we operate, changes in valuation allowances, or adverse outcomes from the tax audits that regularly are inprocess in any of the jurisdictions in which we operate could result in substantial volatility, including an unfavorable change in our overall tax rate and/orour effective tax rate.Loss of key personnel could have an adverse impact on our business.We depend on our executive management team and other key personnel, and the loss of certain personnel could result in the loss of management continuityand institutional knowledge. We depend heavily upon our retail labor force to identify new customers and provide desired products and personalizedcustomer service to existing customers. The market for qualified employees, with the right talent and competencies, is highly competitive, and may subject usto increased labor costs during periods of low unemployment. The loss of the services of key employees or the inability to attract additional qualifiedmanagers for our retail stores and other lines of business may adversely affect our ability to conduct operations in accordance with the standards that we haveset. 18Table of ContentsAlthough certain members of our executive team have entered into agreements relating to their employment with us, most of our key personnel are not boundby employment agreements, and those with employment or retention agreements are bound only for a limited period of time. If we are unable to retain ourkey personnel, we may be unable to successfully develop and implement our business plans, which may have an adverse effect on our business and results ofoperations.We are subject to legal proceedings and legal compliance risks.We are involved in various legal proceedings, which from time to time may involve class action lawsuits, state and federal governmental inquiries, audits andinvestigations, environmental matters, employment, tort, state false claims act, consumer litigation and intellectual property litigation. At times, such mattersmay involve directors and/or executive officers. Certain of these legal proceedings, including government investigations, may be a significant distraction tomanagement and could expose our Company to significant liability, including settlement expenses, damages, fines, penalties, attorneys’ fees and costs, andnon-monetary sanctions, including suspensions and debarments from doing business with certain government agencies, any of which could have a materialadverse effect on our business and results of operations.Failure to successfully manage our domestic and international business could have an adverse effect on our operations and financial results.Circumstances outside of our control could negatively impact anticipated store openings, joint ventures, strategic alliances and franchise arrangements. Wecannot provide assurance that our new store openings, including some newly sized or formatted stores or retail concepts, will be successful. There may beunintended consequences of adding joint venture, strategic alliances and franchising partners to the Office Depot model, such as the potential forcompromised operational control in certain countries and inconsistent international brand image. These joint venture, strategic alliances and franchisearrangements may also add complexity to our processes, and may require unanticipated operational adjustments in the future that could adversely impact ourbusiness and results of operations.Our international operations subject us to risks as foreign currency fluctuations, potential unfavorable foreign trade policies or unstable political andeconomic conditions.As of December 27, 2014, we sold to customers in 56 countries throughout North America, Europe, Asia/Pacific, and Latin America. We operate wholly-owned entities and participate in joint ventures and alliances globally. Sales from our operations outside the U.S. are denominated in local currency, whichmust be translated into U.S. dollars for reporting purposes and therefore our consolidated earnings can be significantly impacted by fluctuations in worldcurrency markets. We are required to comply with multiple foreign laws and regulations that may differ substantially from country to country, requiringsignificant management attention and cost. In addition, the business cultures in certain areas of the world are different than those that prevail in the U.S., andwe may be at a competitive disadvantage against other companies that do not have to comply with standards of financial controls or business integrity thatwe are committed to maintaining as a U.S. publicly traded company.Changes in the regulatory environment may increase our expenses and may negatively impact our business.We are subject to regulatory matters relating to our corporate conduct and the conduct of our business, including securities laws, consumer protection laws,advertising regulations, privacy and cybersecurity laws, and wage and hour regulations and anti-corruption legislation. Certain jurisdictions have taken aparticularly aggressive stance with respect to such matters and have implemented new initiatives and reforms, including more stringent disclosure andcompliance requirements. To the extent that we are subject to more challenging regulatory environments and enhanced legal and regulatory requirements,such exposure could have a material adverse effect on our business, including the added cost of increased compliance measures that we may determine to benecessary. 19Table of ContentsWe could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws.The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar anti-bribery laws in other jurisdictions generally prohibit companies and theirintermediaries from making improper payments for the purpose of obtaining or retaining business. Recent years have seen a substantial increase in anti-bribery law enforcement activity with more frequent and aggressive investigations and enforcement proceedings by both the Department of Justice and theU.S. Securities and Exchange Commission, increased enforcement activity by non-U.S. regulators and increases in criminal and civil proceedings broughtagainst companies and individuals. Our policies mandate compliance with all anti-bribery laws. However, we operate in certain countries that are recognizedas having governmental and commercial corruption. Our internal control policies and procedures may not always protect us from reckless or criminal actscommitted by our employees or third-party intermediaries. Violations of these anti-bribery laws may result in criminal or civil sanctions, which could have amaterial adverse effect on our business and results of operations.Healthcare reform legislation could adversely affect our future profitability and financial condition.Rising healthcare costs and interest in universal healthcare coverage in the United States have resulted in government and private sector initiatives proposingsignificant healthcare reforms. The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, is expected to increase our annualemployee health care costs, with the most significant increases commencing in 2015. We cannot predict the extent of the effect of this statute, or any futurestate or federal healthcare legislation or regulation, will have on us. However, an expansion in government’s role in the U.S. healthcare industry could resultin significant long-term costs to us, which could in turn adversely affect our future profitability and financial condition.Our business could be disrupted due to weather-related factors.Our operations are heavily concentrated in the Southern and Midwestern U.S. (including Illinois, Ohio, Florida and the Gulf Coast). Because of ourconcentration in the Southern U.S., we may be more susceptible than some of our competitors to the effects of tropical weather disturbances, such astornadoes and hurricanes. In addition, winter storm conditions in areas that have a large concentration of our business activities could also result in reduceddemand for our products, lost retail sales, supply chain constraints or other business disruptions. We believe that we have taken reasonable precautions toprepare for weather-related events, but our precautions may not be adequate to mitigate the adverse effect of such events in the future.The unionization of a significant portion of our workforce could increase our overall costs and adversely affect our operations.We have a large employee base and while our management believes that our employee relations are good, we cannot be assured that we will not experienceorganization efforts from labor unions. The potential for unionization could increase if federal legislation is passed that would facilitate labor organization.Significant union representation would require us to negotiate wages, salaries, benefits and other terms with many of our employees collectively and couldadversely affect our results of operations by significantly increasing our labor costs or otherwise restricting our ability to maximize the efficiency of ouroperations.Disclaimer of Obligation to UpdateWe assume no obligation (and specifically disclaim any such obligation) to update these Risk Factors or any other forward-looking statements contained inthis Annual Report to reflect actual results, changes in assumptions or other factors affecting such forward-looking statements.Item 1B. Unresolved Staff Comments.None. 20Table of ContentsItem 2. Properties.As of December 27, 2014, our wholly-owned entities operated the following retail stores, which are presented in the tables below by Division and location.STORESNorth American Retail Division State # State # UNITED STATES: Alabama 30 Montana 6 Alaska 6 Nebraska 15 Arizona 37 Nevada 30 Arkansas 13 New Jersey 11 California 176 New Mexico 14 Colorado 58 New York 33 Connecticut 2 North Carolina 60 Delaware 1 North Dakota 4 District of Columbia 1 Ohio 61 Florida 169 Oklahoma 18 Georgia 68 Oregon 25 Hawaii 11 Pennsylvania 32 Idaho 9 Puerto Rico 18 Illinois 83 Rhode Island 1 Indiana 30 South Carolina 24 Iowa 10 South Dakota 5 Kansas 17 Tennessee 40 Kentucky 22 Texas 210 Louisiana 40 Utah 17 Maine 1 U.S. Virgin Islands 2 Maryland 20 Virginia 44 Massachusetts 5 Washington 51 Michigan 53 West Virginia 5 Minnesota 43 Wisconsin 43 Mississippi 20 Wyoming 4 Missouri 47 TOTAL UNITED STATES 1,745 International Division Country # Australia 4 France 58 New Zealand 16 South Korea 21 Sweden 47 TOTAL 146 The supply chain facilities which we operate in the United States support our North American Retail and North American Business Solutions Divisions andthe facilities in Canada support our North American Business Solutions Division. We also operate DCs outside of the United States and Canada, whichsupport our 21Table of ContentsInternational Division. The following tables set forth the locations of our supply chain facilities as of December 27, 2014. The number of facilities in theUnited States and Canada, as of December 27, 2014, exclude or include certain locations reported in the prior year because of the updated assessment of thesupply chain facilities’ primary function and size considerations.DCs and Crossdock Facilities (United States) State # State # Alabama 1 Missouri 1 Arizona 1 Nevada 1 California 6 New Hampshire 1 Colorado 2 New Jersey 1 Connecticut 1 New York 1 Florida 4 North Carolina 1 Georgia 2 Ohio 3 Hawaii 4 Oregon 2 Illinois 4 Pennsylvania 6 Indiana 1 Puerto-Rico 1 Kansas 1 Tennessee 2 Kentucky 2 Texas 4 Maine 1 Utah 1 Massachusetts 1 Virginia 2 Minnesota 2 Washington 4 Mississippi 1 Wisconsin 1 TOTAL 66 DCs and Crossdock Facilities (Canada) Country # Canada 12 DCs (International Division) Country # Country # Australia 8 New Zealand 2 China 3 South Korea 1 Czech Republic 1 Spain 1 France 5 Sweden 1 Germany 2 Switzerland 1 Ireland 1 The Netherlands 1 Italy 1 United Kingdom 3 TOTAL 31 Our corporate office in Boca Raton, FL consists of approximately 625,000 square feet. We selected Boca Raton as the location for our combined company’scorporate headquarters, and transitioned the majority of OfficeMax’s operations which were in place in Naperville, IL to Boca Raton. The Naperville officeconsists of 360,000 square feet of office space, under a lease agreement that expires in 2017. We also lease a corporate office in Venlo, The Netherlands,which is approximately 210,000 square feet, and we lease other administrative offices. Each of our facilities is considered to be in good condition, adequatefor its purpose and suitably utilized according to the individual nature and requirements of the relevant operations.Although we own a small number of our retail store locations, most of our facilities are leased or subleased. 22Table of ContentsItem 3. Legal Proceedings.The Company is involved in litigation arising in the normal course of business. While, from time to time, claims are asserted that make demands for a largesum of money (including, from time to time, actions which are asserted to be maintainable as class action suits), the Company does not believe thatcontingent liabilities related to these matters (including the matters discussed below), either individually or in the aggregate, will materially affect theCompany’s financial position, results of operations or cash flows.On February 4, 2015, Staples and Office Depot entered into the Staples Merger Agreement under which the companies would combine in a stock and cashtransaction. On February 9, 2015, a putative class action lawsuit was filed by purported Office Depot shareholders in the Court of Chancery of the State ofDelaware (“Court”) challenging the transaction and alleging that the defendant companies and individual members of Office Depot’s Board of Directorsviolated applicable laws by breaching their fiduciary duties and/or aiding and abetting such breaches. The plaintiffs in David Raul, v. Office Depot, Inc. et al.seek, among other things, injunctive relief and rescission, as well as fees and costs. Subsequently, seven other lawsuits were filed in the Court of Chancery ofthe State of Delaware making similar allegations, namely Beth Koeneke v. Office Depot, Inc. et al., Jamison Miller v. Office Depot, Inc. et al., Eric R. Gilbertv. Office Depot, Inc. et al., The Feivel and Helene Gottlieb Defined Benefit Pension Plan v. Office Depot, et al., Charles Miller v. Office Depot, Inc. et al.,David Max v. Office Depot, Inc. et al., and Steve Renous v. Staples Inc. et al. Two lawsuits were filed in Palm Beach County Circuit Court, namely KenyPetit-Frere v. Office Depot, Inc., et al. and John Sweatman v. Office Depot, Inc., et al. Other lawsuits may be filed with similar allegations.In addition, in the ordinary course of business, sales to and transactions with government customers may be subject to lawsuits, investigations, audits andreview by governmental authorities and regulatory agencies, with which the Company cooperates. Many of these lawsuits, investigations, audits and reviewsare resolved without material impact to the Company. While claims in these matters may at times assert large demands, the Company does not believe thatcontingent liabilities related to these matters, either individually or in the aggregate, will materially affect its financial position, results of operations or cashflows. In addition to the foregoing in 2009, State of California et al., ex rel. David Sherwin v. Office Depot, Inc. (the “Sherwin lawsuit”) was filed in SuperiorCourt for the State of California, Los Angeles County, and unsealed on October 16, 2012. The lawsuit asserted claims, including claims under the CaliforniaFalse Claims Act, based on allegations regarding certain pricing practices under now expired agreements that were in place between 2001 and January 1,2011, pursuant to which governmental agencies purchased office supplies from us. The plaintiffs sought monetary damages and other relief, includingtrebling of damages and statutory penalties. On June 25, 2014, the Company participated in a non-binding, voluntary mediation in which the Companynegotiated a potential settlement to resolve the matter. During the second quarter of 2014, the Company recorded an $80 million incremental increase to thelegal accrual which included the potential settlement, as well as attorneys’ fees and other related legal matters. On December 19, 2014, Office Depot and theplaintiffs executed a Settlement Agreement to resolve the lawsuit. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay theplaintiffs $68 million to settle the matter (the “Settlement Amount”), as well as $9 million in legal fees, costs, and expenses. In exchange for, and inconsideration of, the Company’s agreement to pay the Settlement Amount, the plaintiffs agreed to dismiss their action against the Company with prejudice.In February 2015, the court entered orders approving the settlement and dismissing the case with prejudice. The Settlement Amount was subsequently placedin escrow pursuant to the Settlement Agreement. The funds are to be released from escrow and disbursed in accordance with the terms of the court’s orders.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 NewYork in September 2012 as a putative class action alleging violations of the Fair Labor Standards Act and New York Labor Law. The complaint alleges thatOfficeMax misclassified its assistant store managers (“ASMs”) as exempt employees. The Company believes that adequate provisions have been made forprobable losses and such amounts are not material. However, in light of the early stage of the case and the inherent uncertainty of litigation, the Company isunable to estimate a reasonably possible range of loss in the matter. OfficeMax intends to vigorously defend itself in this lawsuit. Further, Kyle Rivet v.Office Depot, Inc., is pending in the United States District Court for the District of New Jersey. 23Table of ContentsThe complaint alleges that Office Depot’s use of the fluctuating workweek (FWW) method of pay was unlawful because Office Depot failed to pay a fixedweekly salary and failed to provide its ASMs with a clear and mutual understanding notification that they would receive a fixed weekly salary for all hoursworked. The plaintiffs similarly seek unpaid overtime, punitive damages, and attorneys’ fees. The Company believes in this case that adequate provisionshave been made for probable losses and such amounts are not material. However, in light of the early stage of the case and the inherent uncertainty oflitigation, the Company is unable to estimate a reasonably possible range of loss in these matters. Office Depot intends to vigorously defend itself in theselawsuits.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 priorto those assets being sold in 2004, for which OfficeMax agreed to retain responsibility. Also, as part of that sale, OfficeMax agreed to retain responsibility forall pending or threatened proceedings and future proceedings alleging asbestos-related injuries arising out of the operation of the paper and forest productsassets prior to the closing of the sale. The Company has made provision for losses with respect to the pending proceedings. As of December 27, 2014, ourestimate of the range of reasonably possible losses for environmental liabilities was approximately $10 million to $25 million. We regularly monitor ourestimated exposure to these liabilities. As additional information becomes known, our estimates may change. However, the Company does not believe any ofthese OfficeMax retained proceedings are material to the Company’s business.Item 4. Mine Safety Disclosures.Not applicable. 24Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.In connection with the voluntary transfer of the listing of the Company’s common stock from the NYSE to NASDAQ, the Company’s common stock ceasedtrading on the NYSE effective at the close of business on September 25, 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 23, 2015, there were 9,634 holders of record of our common stock. The last reported sale price of the common stock onthe NASDAQ on January 23, 2015 was $7.82.The following table sets forth, for the periods indicated, the high and low sale prices of our common stock. These prices do not include retail mark-ups,markdowns or commission. High Low 2014 First Quarter $5.45 $3.97 Second Quarter 5.85 3.84 Third Quarter 5.91 4.83 Fourth Quarter 8.90 4.26 2013 First Quarter $6.10 $3.40 Second Quarter 4.51 3.55 Third Quarter 4.85 3.86 Fourth Quarter 5.85 4.53 At December 27, 2014, pursuant to an indenture, dated as of March 14, 2012, we have restrictions on the amount of cash dividends we can pay. We havenever declared or paid cash dividends on our common stock and do not anticipate declaring or paying any cash dividends on our common stock in theforeseeable future.Our common stock price has been, and likely will continue to be, impacted by the pending Staples Acquisition. 25Table of ContentsThe following graph compares the five-year cumulative total shareholder return on our common stock with the cumulative total returns of the S&P 500 indexand 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 filedor incorporated by reference into any other filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, asamended, except to the extent we specifically incorporate the graph by reference. 26Table of ContentsItem 6. Selected Financial Data.The following table sets forth selected consolidated financial data at and for each of the five fiscal years in the period ended December 27, 2014. It should beread in conjunction with the Consolidated Financial Statements and Notes thereto in Part IV — Item 15. “Exhibits and Financial Statement Schedules” andPart II — Item 7. “MD&A” of this Annual Report. (In millions, except per share amounts and statistical data) 2014 2013 2012 2011 2010 Statements of Operations Data: Sales $16,096 $11,242 $10,696 $11,489 $11,633 Net income (loss) $(352) $(20) $(77) $96 $(46) Net income (loss) attributable to Office Depot, Inc. $(354) $(20) $(77) $96 $(45) Net income (loss) available to common shareholders $(354) $(93) $(110) $60 $(82) Net earnings (loss) per share: Basic $(0.66) $(0.29) $(0.39) $0.22 $(0.30) Diluted $(0.66) $(0.29) $(0.39) $0.22 $(0.30) Statistical Data: Facilities open at end of period: United States: Office supply stores 1,745 1,912 1,112 1,131 1,147 Distribution centers and crossdock facilities 66 81 15 15 16 International: Office supply stores 146 163 123 131 97 Distribution centers and crossdock facilities 43 46 23 27 26 Call centers 14 19 21 22 25 Total square footage — North American Retail Division 39,614,909 43,642,514 25,518,027 26,556,126 27,559,184 Percentage of sales by segment: North American Retail Division 40.6% 41.0% 41.7% 42.4% 42.7% North American Business Solutions Division 37.4% 31.8% 30.0% 28.4% 28.3% International Division 21.1% 26.8% 28.3% 29.2% 29.0% Balance Sheet Data: Total assets $6,844 $7,477 $4,011 $4,251 $4,569 Long-term recourse debt, excluding current maturities 674 696 485 648 660 Redeemable preferred stock, net — — 386 364 356 On November 5, 2013, the Company merged with OfficeMax. Statement of operations data and percentage of sales by segment include OfficeMax’sresults from the Merger date through December 28, 2013. Balance sheet and facilities data include OfficeMax data as of December 28, 2013. Sales in2013 include $939 million from OfficeMax operations. Additionally, fiscal year Net income (loss), Net income attributable to Office Depot, Inc., andNet income available to common shareholders includes a $382 million pre-tax gain on sale of investment, $70 million of asset impairment charges, and$201 million of Merger-related, restructuring, and other operating expenses. Net income (loss) available to common shareholders includes $45 millionof dividends related to the redemption of the redeemable preferred stock. Refer to MD&A for additional information. 27(1)(2) (3)(4)(5)(6) (3)(4)(5)(6) (3)(4)(5)(6)(7)(1)Table of Contents Includes 53 weeks in accordance with our 52 — 53 week reporting convention. Fiscal year 2014 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders includes $88million of asset impairment charges, $403 million of Merger-related, restructuring, and other operating expenses, and $81 million of Legal accrual.Refer to MD&A for additional information. Fiscal year 2012 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders includeapproximately $139 million of asset impairment charges, $63 million net gain on purchase price recovery and $51 million of charges related to closurecosts and process improvement activity. Refer to MD&A for additional information. Fiscal year 2011 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders includeapproximately $58 million of charges relating to facility closure and process improvement activity. Additionally, approximately $123 million of taxand interest benefits were recognized associated with settlements and removal of contingencies and valuation allowances. Fiscal year 2010 Net income (loss), Net loss attributable to Office Depot, Inc., and Net loss available to common shareholders include charges ofapproximately $87 million, including approximately $51 million for the write-off of Construction in Progress related to developed software.Additionally, tax benefits and interest reversals of approximately $41 million were recognized from settlements. Includes Canadian locations. Fiscal year 2013 includes 144 stores operated by our International Division and 19 stores in Canada operated by ourNorth American Business Solutions Division. These Canadian stores were closed in 2014. 28(2)(3)(4)(5)(6)(7)Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Acquisition by StaplesOn February 4, 2015, Staples and the Company announced that the companies have entered into a definitive merger agreement (the “Staples MergerAgreement”), under which Staples will acquire all of the outstanding shares of Office Depot and the Company will become a wholly owned subsidiary ofStaples (the “Staples Acquisition”). Under the terms of the Staples Merger Agreement, Office Depot shareholders will receive, for each Office Depot share heldby such shareholders, $7.25 in cash and 0.2188 of a share in Staples common stock at closing. Each employee share-based award outstanding at the date ofthe agreement will vest upon the effective date of the Staples Acquisition. The transaction has been approved by both companies’ Board of Directors and thecompletion of the Staples Acquisition is subject to customary closing conditions including, among others, the approval of Office Depot shareholders andvarious regulatory approvals. Certain existing debt agreements will require modification prior to closing. The transaction is anticipated to close before theend of 2015. Refer to the Company’s Form 8-K filed February 4, 2015 for additional information on the transaction. We cannot guarantee that the StaplesMerger will be completed or that, if completed, it will be exactly on the terms as set forth in the Staples Merger Agreement. Should the Staples Acquisitionnot be completed, the Company will continue to be responsible for payment of commitments to current employees under retention arrangements and mayeither receive or pay a breakup fee, as provided for in the Staples Merger Agreement.RESULTS OF OPERATIONSOVERVIEWOur business is comprised of three segments. The North American Retail Division includes our retail stores in the United States, including Puerto Rico andthe U.S. Virgin Islands, which offer office supplies, technology products and solutions, business machines and related supplies, facilities products, and officefurniture. Most stores also have a copy and print center offering printing, reproduction, mailing and shipping. The North American Business SolutionsDivision sells office supply products and services in Canada and the United States, including Puerto Rico and the U.S. Virgin Islands. North AmericanBusiness Solutions Division customers are served through dedicated sales forces, through catalogs, telesales, and electronically through our Internet sites.Our International Division sells office products and services through direct mail catalogs, contract sales forces, Internet sites, and retail stores in Europe andAsia/Pacific. The former OfficeMax business in Mexico is presented as an Other segment. The integration of this business into the International Division wassuspended in the second quarter of 2014 due to the sale and it was managed and reported independently of the Company’s other international businessesthrough the date of the sale. Prior period segment information has been recast to reflect this change in reporting structure.A summary of factors important to understanding our results for 2014 is provided below. A more detailed comparison to prior years is included in thenarrative that follows this overview.Merger • On November 5, 2013, the Company completed its Merger with OfficeMax. OfficeMax’s financial results since the Merger date are included in our 2013and 2014 Consolidated Statements of Operations, affecting comparability of the full year amounts. Due to the significance of the OfficeMax results to theCompany, the OfficeMax sales and operating expense categories, as well as the Merger-related integration and restructuring activities in the twelvemonths of 2014, are the main drivers of the changes in results of operations when compared to the 2013 results. 29Table of Contents• The impact of the Merger on total Company sales is as follows: (In millions) NorthAmericanRetail NorthAmericanBusinessSolutions International Other ConsolidatedTotal 2014 Office Depot banner $4,002 $3,254 $2,849 $— $10,105 OfficeMax banner 2,526 2,759 551 155 5,991 Total Company Sales $6,528 $6,013 $3,400 $155 $16,096 2013 Office Depot banner $4,230 $3,158 $2,915 $— $10,303 OfficeMax banner (since the Merger) 384 422 93 40 939 Total Company Sales $4,614 $3,580 $3,008 $40 $11,242 % Change Office Depot banner (5)% 3% (2)% (2)% Total Company Sales 41% 68% 13% 43% • Due to the similarities in the underlying businesses under both banners (Office Depot and OfficeMax), the trends impacting the results are often the sameor similar. In the Division operating results discussion that follows, where the factors affecting the Office Depot banner business differ significantly fromthe factors affecting the OfficeMax banner business compared to their operations in the fiscal year 2013 (including period prior to the Merger), separateexplanations are provided. As the integration of the two companies’ systems, processes and offerings continues, the delineation of the contribution fromthe separate banners is diminishing; however, providing the OfficeMax banner component of sales remains relevant for 2014. • During 2014, we made significant progress on our integration activities. We are implementing our Real Estate Strategy that anticipates closing at least 400stores in North America through 2016, of which we closed 168 in 2014. We completed modifications to two supply chain facilities to service both OfficeDepot and OfficeMax banner customers and closed seven facilities. In the next two years, we expect to convert another six supply chain facilities toservice both Office Depot and OfficeMax banner customers, create or repurpose five locations, expand capacity in 12 existing facilities, and close another12 locations. Additionally, in 2014, we converted over 50 stores to common point of sale systems, launched a combined company website(www.officedepot.com), combined operating support functions, and made significant progress on identifying customer preferences and developingmethods to reach them and service their needs.Other Significant Factors Impacting Total Company Results and Liquidity • Gross margin increased 10 basis points in 2014 compared to 2013, following a 36 basis point decrease in the prior year to year comparison. An increase ingross margin in the North American Retail Division was partially offset by decreases in the other Divisions. • Total Company Selling, general and administrative expenses increased in 2014 compared to 2013, reflecting the addition of OfficeMax operatingexpenses for the twelve months in 2014. Selling and general and administrative expenses as a percentage of sales decreased 116 basis points, reflectinglower payroll and advertising expenses, as well as operational efficiencies and synergies from the Merger. • Non-cash asset impairment charges of $88 million and $70 million were recorded in 2014 and 2013, respectively. The 2014 year-to-date charges include a$28 million asset impairment related to the abandonment of a software implementation project in Europe, $25 million related to the write off ofcapitalized software following certain information technology platform decisions related to the Merger, $5 million related to favorable lease assetsreassessed in connection with the Real Estate Strategy, and $5 million related to the 30Table of Contents reassessment of the use of an international private brand trade name. The 2013 impairment charge includes a $44 million goodwill impairment triggeredby the sale of our interest in Office Depot de Mexico. Both 2014 and 2013 include charges related to underperforming stores in North America. • We incurred $403 million and $201 million of Merger, restructuring, and other operating expenses, net in 2014 and 2013, respectively. In 2014, this lineitem includes $332 million of expenses related to the Merger transaction and integration activities, including store closure costs incurred to date, and $71million of restructuring and other operating expenses. Additional integration and restructuring expenses are expected to be incurred in 2015 and 2016. • We recorded an $81 million incremental legal accrual during 2014 relating to allegations of certain pricing practices under agreements that were in placebetween 2001 and January 1, 2011. In December 2014, the Company and plaintiffs executed a Settlement Agreement to resolve this litigation. In February2015, the court entered orders approving the settlement and dismissing the case with prejudice. The Settlement Amount was subsequently placed inescrow pursuant to the Settlement Agreement. The funds are to be released from escrow and disbursed in accordance with the terms of the court’s orders. • In August 2014, we completed the sale of our interest in Grupo OfficeMax to our joint venture partner, for net cash proceeds of $43 million. The lossassociated with this disposed Mexican business amounted to approximately $2 million, which resulted primarily from the release of the net foreigncurrency remeasurement differences from investment to the disposition date recorded in other comprehensive income (cumulative translation adjustment)and fees incurred to complete the transaction. • Interest income increased in 2014 primarily due to the impact of OfficeMax Timber Notes income. Interest expenses in 2014 increased when compared to2013, mainly due to interest expense related to OfficeMax recourse and non-recourse debt, which was partially offset by a reversal in 2014 of previouslyaccrued interest expense on uncertain tax positions and the August 2013 maturity of $150 million of the 6.25% senior notes. • The effective tax rate for 2014 was negative 4%, reflecting the impact of valuation allowances limiting recognition of deferred tax assets. Because of thevaluation allowances and changes in the mix of earnings among jurisdictions, the Company continues to experience significant effective tax ratevolatility within the year and across years. • The loss per share was $(0.66) in 2014 compared to $(0.29) in 2013. The 2014 loss per share was negatively impacted by Merger expenses andrestructuring charges, asset impairments and the legal accrual. The 2014 weighted average shares include a twelve month impact from the outstandingshares issued in connection with the Merger, compared to the 2013 impact for the period from the Merger date through year end. The 2013 loss per sharewas positively impacted by the gain on joint venture sale. • At the end of 2014, we had approximately $1.1 billion in cash and cash equivalents and $1.1 billion available on our asset based credit facility. Cash flowfrom operating activities was a source of $156 million for 2014. 31Table of ContentsOPERATING RESULTSDiscussion of additional income and expense items, including material charges and credits and changes in interest and income taxes follows our review ofsegment results.NORTH AMERICAN RETAIL DIVISION (In millions) 2014 2013 2012 Sales $ 6,528 $ 4,614 $ 4,458 % change 41% 3% (8)% Division operating income $126 $8 $24 % of sales 2% —% 1% Comparable store sales decline (2)% (4)% (5)% Sales in our North American Retail Division increased 41% in 2014 and 3% in 2013, as a result of the addition of OfficeMax sales of $2,526 million in 2014and $384 million in 2013. Excluding the OfficeMax sales, sales would have decreased 5% in both 2014 and 2013. The sales decline in each of the three yearswas impacted by store closures. The Company believes that some shoppers continue to purchase in Company stores that are in proximity to closed locationsand online or through catalogs. Online and catalog sales are reported in the North American Business Solutions Division. While store closures result in lowersales in the North American Retail Division, they are typically lower performing stores and future Division operating results may benefit.Comparable sales in 2014 from the 973 Office Depot branded stores that were open for more than one year decreased 2%. Comparable sales for Office Depotbranded stores in 2013 from the 1,071 stores that were open for more than one year decreased 4%. Transaction counts and average order values were lowereach of the three years, consistent with the comparable store sales declines. Lower transaction counts reflect lower customer traffic. The decline in averageorder values reflect, in part, declines in technology sales as customers continue to reduce purchases in this overall category, as well as due to lower averagesale prices on certain computer products. Additionally, sales of ink, toner, and paper declined in all years presented reflecting the highly-competitive marketfor sales of these products as consumers switch to an increasingly digital environment. The Company is working to offset declines in these categories withenhanced customer service, improved product adjacencies and offerings. Under the Office Depot banner, sales of furniture, supplies, and in Copy and PrintDepot increased. Sales in the OfficeMax stores since the Merger date trended negative in the major categories, with the exception of portable computers,which experienced a positive sales trend as a result of expanded offering of these products in the OfficeMax branded stores.Our comparable store sales relate to stores that have been open for at least one year. Stores are removed from the comparable sales calculation duringremodeling and if significantly downsized. Our measure of comparable store sales has been applied consistently across periods, but may differ from similarmeasures used by other companies. Because the OfficeMax stores were acquired in November 2013, they have impacted the comparable store salescalculation for only a portion of the full year 2014 measure. Also, as we close stores consistent with the Real Estate Strategy, we expect that comparable storesales will be favorably impacted as customers migrate from closed stores to nearby stores which remain open.The North American Retail Division reported operating income of $126 million in 2014, compared to $8 million in 2013 and $24 million in 2012. TheDivision’s operating income improvement in 2014 reflects higher gross profit margin from the addition of the OfficeMax banner and improvements in theOffice Depot banner, as well as synergy benefits from combining the two companies. Partially offsetting the benefits recognized in operating expenses, theDivision recognized amortization of Merger-related intangible assets and higher variable pay compared to 2013. As the integration of the businessescontinues, including the phasing in of certain common systems, the identity of Division operating results is becoming less identifiable at the individualbanner level and 32Table of Contentsoperating trends will be discussed at the Division level in future periods. Division operating income in all periods was negatively affected by the impact ourcomparable sales volume decline had on gross profit and fixed operating expenses (the “flow through impact”). In 2013, based on sales trends, the Divisionrecorded a $13 million inventory markdown related to product with a short selling cycle. Additionally, higher freight charges were largely offset by lowerproperty costs. Excluding the OfficeMax impact, operating expenses in 2013 decreased from lower payroll and advertising costs, as well as a benefit fromsettlement of a dispute. Division operating income in 2013 includes the positive contribution from the Merger. Operating expenses in 2012 included higherallocated support costs, partially offset by lower Division payroll and variable pay.At the end of 2014, we operated 1,745 retail stores in the United States, Puerto Rico and the U.S. Virgin Islands. Store opening and closing activity for the lastthree years has been as follows: Open atBeginningof Period OfficeMaxMerger Closed Opened Open atEndof Period 2012 1,131 — 23 4 1,112 2013 1,112 829 33 4 1,912 2014 1,912 — 168 1 1,745 Store count as of November 5, 2013.Based on the current Real Estate Strategy, at least 400 stores in the United States, including the 168 stores closed in 2014, are expected to be closed through2016. The real estate portfolio optimization plan will be adjusted in future periods as market and competitive conditions change. Implementation of thisstrategy is expected to result in additional integration charges that will be reflected in Corporate reporting, and not included in the determination of Divisionincome in future periods. Refer to “Corporate and other” discussion below for additional information of expenses incurred to date.NORTH AMERICAN BUSINESS SOLUTIONS DIVISION (In millions) 2014 2013 2012 Sales $6,013 $3,580 $3,215 % change 68% 11% (1)% Division operating income $232 $113 $110 % of sales 4% 3% 3% Sales in our North American Business Solutions Division increased 68% and 11% in 2014 and 2013, respectively, primarily as a result of the addition ofOfficeMax sales of $2,759 million in 2014 and $422 million in 2013. Excluding the sales reported under the OfficeMax banner, sales would have increased3% in 2014 and decreased 2% in 2013. As the integration of the two companies continues, the delineation of the contribution from the Office Depot andOfficeMax banners is diminishing. Sales reported under the Office Depot banner in 2014 are benefiting from the integration as sales are recorded in thecombined entity’s systems and presented under the Office Depot banner.Compared to the same period in 2013, the 2014 sales under the Office Depot banner increased in the contract and direct channels. Online sales through thedirect channel increased during 2014, reflecting efforts to enhance the Internet shopping offering and experience, as well as a result of the Office Depotbanner benefit from the launch of a combined website for Office Depot and OfficeMax customers in September 2014 (www.officedepot.com). The increasedonline sales were partially offset by reduced call center sales. We anticipate this shift in customer shopping preference will continue. Sales in the mergedbusiness in Canada have shown declines in the second half of 2014 compared to the first half of 2014, in part reflecting the closing of Grand & Toy storesduring the second quarter of 2014. In future periods, Division results may be impacted by changes in foreign currency 33(1)(1)Table of Contentsexchange rates associated with the Canadian business added through the Merger. Sales under the Office Depot banner increased across all categories.Sales contribution in 2013 from the Office Depot business decreased 2%, reflecting a 2% decline in the contract channel and a slight decline in the directchannel. During 2013, the Company restructured and relocated the focused technology selling effort in the contract channel and anticipated this negativeimpact on sales. This change is projected to lower future operating costs and have an overall positive impact on future operating income. Additionally,during 2013, the contract channel experienced declines in sales to the federal government customers as they continue to experience budgetary pressures.Sales in the remaining portions of the contract channel were flat in 2013. Increased sales during 2013 to state and local governments and education accountswere offset by declines in sales to large and enterprise-level accounts. Online sales through the direct channel increased during 2013, offset by reducedcatalog and call center sales. On a product category basis for the total Division, copy and print, cleaning and breakroom, and furniture sales increased in2013, while sales in the supplies category decreased.Division operating income was $232 million in 2014, compared to $113 million in 2013, and $110 million in 2012. Division operating income as apercentage of sales in 2014 increased to 4% compared to 3% in both 2013 and 2012. Gross profit margin decreased reflecting in part the impact of addingOfficeMax contract channel customers with a higher mix of lower margin accounts. The gross profit margin decrease was offset by lower advertising andpayroll expense as a percentage of sales across this Division compared to the prior year. These benefits reflect efficiencies of combining the companies.Division operating income in 2013 reflects lower operating expenses, partially offset by legal expenses, relatively constant gross profit margin and a positivecontribution from the Merger.In 2014, the Company closed the 19 Grand & Toy stores in Canada that were added as part of the Merger. Because this decision was after the Merger date, thefair value of assets for these locations recognized in purchase accounting has been written down to the amount recoverable through operations. Theimpairment charge of $1 million has been reflected in the Asset impairments line in the Consolidated Statement of Operations and as a Corporate charge andis not included in determination of Division operating income. These locations primarily serviced contract and other small business customers and,accordingly, were included in results of the North America Business Solutions Division.INTERNATIONAL DIVISION (In millions) 2014 2013 2012 Sales $ 3,400 $ 3,008 $ 3,023 % change 13% —% (10)% Division operating income $53 $36 $36 % of sales 2% 1% 1% Sales in our International Division in U.S. dollars increased 13% in 2014 and remained flat in 2013 when compared to 2012, as a result of the addition ofOfficeMax sales of $551 million in 2014 and $93 million in 2013. Excluding the OfficeMax sales, 2014 and 2013 sales would have decreased 2% and 4%,respectively. Excluding the OfficeMax sales, constant currency sales decreased 3% in 2014 and 5% in 2013. Sales under the Office Depot banner in thecontract and direct channels decreased in 2014. The contract channel sales decline reflects competitive market pressures, soft economic conditions in Europe,the loss of certain contracts, discontinuation of low margin business, and reduced spend in the public sector across regions. The sales decline in the directchannel over the three years reflects the continued decline in catalog and call center sales, partially offset by online sales increases. The Company anticipatesthe customer migration to online purchases and away from catalogs and call center sales will continue and has added functional capabilities, improvedcontent and developed more effective marketing to grow the online business. The sales decline in 2013 also results from 34Table of Contentscompetitive pressures and soft economic conditions in Europe, as well as the discontinuation of certain less profitable contract accounts. Retail sales werelower in 2013, reflecting the disposition of stores in Hungary in late 2012.Division operating income totaled $53 million in 2014, compared to $36 million in both 2013 and 2012. Division operating income as a percentage of saleswas 2% in 2014 and 1% for both 2013 and 2012. The improvement in Division operating income reflects benefits from lower payroll and advertising, as wellas benefits associated to prior restructuring activities under the Office Depot banner. Division operating income in 2013 reflects the negative flow-throughimpact of lower sales, offset by the favorable impact of operational efficiencies, and the inclusion of a slightly positive OfficeMax contribution in 2013 sincethe date of the Merger. Operating expenses decreased across the Division in 2013, reflecting benefits from current and prior period restructuring activities.During 2014, the Division announced a restructuring plan to align the organization from a geographic-focus to a channel-focus. The restructuring plan isintended to provide operational efficiency and allow enhanced customer service and is expected to benefit future Division operating results. Costs associatedwith restructuring activities, including employee termination benefits, lease obligations and other costs, are reported at the Corporate level and discussed inthe “Restructuring and other operating expenses, net” section below.For U.S. reporting, the International Division’s sales are translated into U.S. dollars at average exchange rates experienced during the year. The Division’sreported sales were positively impacted from changes in foreign currency exchange rates by approximately $35 million and $52 million in 2014 and 2013,respectively. Internally, we analyze our international operations in terms of local currency performance to allow focus on operating trends and results.International Division store count and activity is summarized below: Office Supply Stores Open atBeginningof Period Opened/Acquired Closed/ChangedDesignation Open atEnd ofPeriod Company-Owned Stores 131 4 12 123 Operated by Joint Ventures 232 16 — 248 Franchise and Licensing Arrangements 183 7 44 146 Total stores 2012 546 27 56 517 Company-Owned Stores 123 25 4 144 Operated by Joint Ventures 248 96 251 93 Franchise and Licensing Arrangements 146 8 39 115 Total stores 2013 517 129 294 352 Company-Owned Stores 144 7 5 146 Operated by Joint Ventures 93 — 93 — Franchise and Licensing Arrangements 115 6 3 118 Total stores 2014 352 13 101 264 38 of these stores relate to the termination of the Thailand license agreement. Includes 249 stores operated by Office Depot de Mexico, which the Company sold its interest in during 2013. 22 Company–owned stores and 93 stores operated by Grupo OfficeMax. Stores operated by Grupo OfficeMax, which the Company sold its interest in the third quarter of 2014. 35(1)(3)(3)(2)(4)(1)(2)(3)(4)Table of ContentsOTHER (In millions) 2014 2013 Sales $ 155 $ 40 Other operating income (loss) $8 $(2)With the Merger, we acquired the OfficeMax joint venture business operating in Mexico, Grupo OfficeMax. In August 2014, we completed the sale of ourinterest in this business to our joint venture partner. In the second quarter of 2014, due to the pending sale, the integration of this business into theInternational Division was suspended and has since been managed and reported independently of the Company’s other international businesses. Prior periodsegment information has been recast to reflect this change in the reporting structure.Since the Company controlled the joint venture, the total Grupo OfficeMax results through the date of the sale are included in the Consolidated Statement ofOperations, with an apportionment of the period results to the noncontrolling interest based on their ownership percentage. The release of cumulativetranslation adjustments and transaction fees are included in Merger, restructuring and other operating expenses, net in the Consolidated Statement ofOperations.The Company adopted the new accounting standard on discontinued operations in the second quarter of 2014. While this is a disposal of all of ouroperations in Mexico, it is not considered to have a major effect on our operations or financial results and, accordingly, it is not presented as discontinuedoperations.CORPORATEThe line items in our Consolidated Statements of Operations impacted by these Corporate activities are presented in the table below, followed by a narrativediscussion of the significant matters. These activities are managed at the Corporate level and, accordingly, are not included in the determination of Divisionincome for management reporting or external disclosures. (In millions) 2014 2013 2012 Recovery of purchase price — — (68) Asset impairments 88 70 139 Merger, restructuring, and other operating expenses, net 403 201 56 Legal accrual 81 — — Total charges and credits impact on Operating loss $ 572 $ 271 $ 127 In addition to these charges and credits, certain Selling, general and administrative expenses are not allocated to the Divisions and are managed at theCorporate level. Those expenses are addressed in the section “Unallocated Costs” below.Recovery of purchase priceThe sale and purchase agreement (“SPA”) associated with the 2003 European acquisition included a provision whereby the seller was required to pay anamount to the Company if the acquired pension plan was determined to be underfunded based on 2008 plan data. The unfunded obligation amountcalculated by the plan’s actuary based on that data was disputed by the seller. While the matter was still pending, in 2011, the seller paid GBP 5.5 million ($9million, measured at then-current exchange rates) to the Company to allow for future monthly payments to the pension plan. In January 2012, the Companyand the seller entered into a settlement agreement that settled all claims by either party for this and any other matter under the original SPA. The seller paid anadditional GBP 32.2 million (approximately $50 million, measured at then-current exchange rates) to the Company in February 2012. Following this cashreceipt in February 2012, the Company contributed the GBP 36Table of Contents37.7 million (approximately $58 million at then-current exchange rates) to the pension plan, resulting in the plan changing from an unfunded liabilityposition to a net asset position. There are no additional funding requirements while the plan is in a surplus position.This pension provision of the SPA was disclosed in 2003 and subsequent periods as a matter that would reduce goodwill when the plan was remeasured andcash received. However, all goodwill associated with this transaction was impaired in 2008, and because the remeasurement process had not yet begun, noestimate of the potential payment to the Company could be made at that time. Consistent with disclosures subsequent to the 2008 goodwill impairment,resolution of this matter in the first quarter of 2012 was reflected as a credit to operating expense. The cash received from the seller, reversal of an accruedliability as a result of the settlement agreement, fees incurred in 2012, and fee reimbursement from the seller have been reported in Recovery of purchase pricein the Consolidated Statements of Operations for 2012, totaling $68 million. An additional expense of $5 million of costs related to this arrangement isincluded in Merger, restructuring and other operating expenses, net, resulting in a net increase in operating profit for 2012 of $63 million. Refer to Note 14,“Employee Benefit Plans — Pension Plans-Europe” of the Consolidated Financial Statements for additional information about this pension plan.Asset Impairments, Merger, Restructuring, Other Charges and CreditsIn recent years, we have taken actions to adapt to changing and competitive conditions. These actions include closing stores and distribution centers,consolidating functional activities, disposing of businesses and assets, and improving process efficiencies. We have also recognized significant assetimpairment charges related to stores and intangible assets and significant expenses associated with the Merger and integration. These expense items areexpected to continue in future periods.Asset impairmentsWe recognized asset impairment charges of $88 million, $70 million, and $139 million in 2014, 2013, and 2012, respectively.Asset impairment charges are comprised as follows: (In millions) 2014 2013 2012 North America stores $ 25 $ 26 $ 124 Goodwill — 44 — Software implementation project 28 — — Software 25 — — Intangible assets 10 — 15 Total Asset impairments $88 $70 $139 Store impairmentsAs a result of declining sales in recent periods and adoption of our Real Estate Strategy in 2014, the Company has conducted a detailed quarterly storeimpairment analysis. The analysis includes estimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options whereapplicable, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance.The 2014 analysis incorporated the probability assessment of which stores will be closed through 2016, as well as projected cash flows through the base leaseperiod for stores identified for ongoing operations. The projections assumed flat sales for one year, decreasing thereafter. Gross margin assumptions have beenheld constant at current actual levels and operating costs have been assumed to be consistent with recent actual results and 37Table of Contentsplanned activities. For the fourth quarter 2014 impairment analysis, identified locations were reduced to estimated fair value of $1 million based on theirprojected cash flows, discounted at 13% or estimated salvage value of $2 million, as appropriate. The Company continues to capitalize additions topreviously-impaired operating stores and tests for subsequent impairment. The 2014 store impairment charge also includes $1 million related to the closureof stores in Canada.The store impairment analysis for 2013 projected sales declines for several years, then stabilizing. Gross margin and operating cost assumptions wereconsistent with actual results and planned activities. For the 2013 impairment analysis, identified locations were reduced to estimated fair value of $10million based on their projected cash flows, discounted at 13% or estimated salvage value of $7 million, as appropriate.A review of the North American Retail portfolio during 2012 concluded with a plan for each location to maintain its current configuration, downsize to eithersmall or mid-size format, relocate, remodel, renew or close at the end of the base lease term. The asset impairment analysis previously had assumed at leastone optional lease renewal. Additionally, projected sales trends included in the impairment calculation model in prior periods were reduced. These changes,and continued store performance, served as a basis for the Company’s asset impairment review for 2012.The Company will continue to evaluate initiatives to improve performance and lower operating costs. To the extent that forward-looking sales and operatingassumptions are not achieved and are subsequently reduced, or in certain circumstances, even if store performance is as anticipated, additional impairmentcharges may result. However, at the end of 2014, the impairment analysis reflects the Company’s best estimate of future performance.Software impairmentsAs part of the integration process during 2014, the Company decided to convert certain websites and other information technology applications to commonplatforms resulting in $25 million related to the write off of capitalized software. Additionally, the Company abandoned a software project in Europe andrecognized impairment of the $28 million capitalized software.Intangible assetsFollowing identification of retail stores for closure as part of our Real Estate Strategy, the related favorable lease assets recorded in the Merger were assessedfor accelerated amortization or impairment. Considerations included the projected cash flows discussed above, the net book value of operating assets andfavorable lease assets and related estimated favorable lease fair value. Impairment of $5 million was recognized during 2014. Additionally, the Companydecided to change the profile and expected life of a private brand trade name previously identified as having an indefinite life. The projected cash flow on arelief from royalty measurement over the shortened estimated life resulted in a $5 million impairment charge.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 theInternational Division included operating subsidiaries in Europe and ownership of the investment in Office Depot de Mexico. A substantial majority of theestimated fair value of the reporting unit over its carrying value related to the joint venture. Following the July 2013 sale of our interest in Office Depot deMexico and return of cash proceeds to the U.S. parent company, the fair value of the reporting unit with goodwill decreased below its carrying value andgoodwill was fully impaired.The 2012 impairment charge of $15 million related to intangible asset impairment associated with a prior acquisition of operations in Sweden thatexperienced a downturn in performance and certain operational difficulties. 38Table of ContentsMerger, restructuring and other operating expenses, netThe table below summarizes the major components of Merger, restructuring and other operating expenses, net. (In millions) 2014 2013 2012 Merger related expenses Severance, retention, and relocation $ 148 $92 $— Transaction and integration 124 80 — Other related expenses 60 8 — Total Merger related expenses 332 180 — Restructuring and certain other expenses 71 21 56 Total Merger, restructuring and other operating expenses, net $403 $ 201 $ 56 Merger-related expensesExpenses in 2014 include severance, employee retention, integration-related professional fees, incremental temporary contract labor, salary and benefits foremployees dedicated to Merger activity, travel and relocation costs, non-capitalizable software integration costs, facility closure accruals, gains and losses onasset dispositions, accelerated depreciation, and other direct costs to combine the companies.Expenses in 2013 include expenses incurred by Office Depot prior to the Merger and are primarily investment banking and professional fees associated withthe transaction, including preparation for regulatory filings and shareholder approvals, as well employee retention accruals, direct incremental travel anddedicated personnel costs.It is expected that significant Merger-related expenses will continue to be incurred in future periods as decisions are made about facility closures,organizational structure and other integration activities in 2015 and 2016.Restructuring and other operating expenses, netRestructuring and certain other expenses in 2014 and 2013 primarily relate to international organizational changes and facility closures prior to theEuropean restructuring plan approved in October 2014 to realign the organization from a geographic-focus to a business channel-focus (the Europeanrestructuring plan). These charges include severance and other costs for organizational changes intended to promote operational efficiency in future periods,as well as a net benefit from the reversal of cumulative translation account balances following the liquidation of certain subsidiaries.The Company anticipates incurring incremental expenses associated with the European restructuring plan of approximately $120 million, $112 million ofwhich are cash expenditures. The expected $120 million of charges associated with the restructuring plan consist primarily of approximately $95 million ofseverance pay and other employee termination benefits and approximately $25 million of costs associated with lease obligations and other costs. Of thesetotal estimated expenses, $37 million has been incurred through December 27, 2014 with the remainder expected to be recognized during 2015.Restructuring and certain other expenses in 2012 include severance, lease and other restructuring accruals, primarily related to the consolidation andelimination of functions in Europe, as well as Company-wide process improvement initiatives. Additionally, in 2012, the Company recognized $5 million ofexpense related to the purchase price recovery discussed above.Refer to Note 2, “Merger, Acquisitions and Dispositions” and Note 3, “Merger, Restructuring, and Other Accruals”, in Notes to the Consolidated FinancialStatements for additional information. 39Table of ContentsLegal AccrualOn June 25, 2014, the Company participated in a non-binding, voluntary mediation in which the Company negotiated a potential settlement to resolve theSherwin lawsuit. During the second quarter of 2014, the Company recorded an $80 million incremental increase to the legal accrual which included thepotential settlement, as well as attorneys’ fees and other related legal matters. On December 19, 2014, Office Depot and the plaintiffs executed a SettlementAgreement to resolve the lawsuit. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay the plaintiffs $68 million to settle the matter(the “Settlement Amount”), as well as $9 million in legal fees, costs, and expenses. In exchange for, and in consideration of, the Company’s agreement to paythe Settlement Amount, the plaintiffs agreed to dismiss their action against the Company with prejudice. In February 2015, the court entered ordersapproving the settlement and dismissing the case with prejudice. The Settlement Amount was subsequently placed in escrow pursuant to the SettlementAgreement. The funds are to be released from escrow and disbursed in accordance with the terms of the court’s orders.Unallocated CostsThe Company allocates to the Divisions functional support costs that are considered to be directly or closely related to segment activity. Those allocatedcosts are included in the measurement of Division operating income. Other companies may charge more or less of functional support costs to their segments,and our results therefore may not be comparable to similarly titled measures used by other companies. The unallocated costs primarily consist of thebuildings used for the Company’s corporate headquarters and personnel not directly supporting the Divisions, including certain executive, finance, audit andsimilar functions. Following the Merger, unallocated costs also include certain pension expense or credit related to the frozen OfficeMax pension and otherbenefit plans.Unallocated costs were $122 million, $89 million, and $74 million in 2014, 2013, and 2012, respectively. The 2014 and 2013 increases are primarily due tothe addition of OfficeMax expenses and higher variable pay.Other Income and Expense (In millions) 2014 2013 2012 Interest income $ 24 $ 5 $ 2 Interest expense (89) (69) (69)Loss on extinguishment of debt — — (12)Gain on disposition of joint venture — 382 — Other income, net — 14 35 Interest income in 2014 and 2013 includes $21 million and $3 million, respectively, related to OfficeMax Timber Notes, including amortization of the fairvalue adjustment recorded in purchase accounting. The associated non-recourse debt added $20 million and $3 million of interest expense in 2014 and 2013,respectively, including amortization of the fair value adjustment recorded in purchase accounting. Refer to Note 7, “Timber Notes/Non-Recourse Debt”, inNotes to Consolidated Financial Statements for additional information. Interest expense in 2014 includes a $9 million reversal of previously accrued interestexpense on uncertain tax positions following resolution of the related matter. Interest expense in 2013 also reflects the maturity in August 2013 of $150million of the 6.25% senior notes.On March 15, 2012, we completed a cash tender offer to purchase up to $250 million aggregate principal amount of 6.25% Senior Notes due 2013. The totalconsideration for each $1,000.00 note surrendered was $1,050.00. Additionally, tender fees and a proportionate amount of deferred debt issue costs and adeferred cash flow hedge gain were included in the measurement of the $12 million extinguishment costs reported in our Consolidated Statement ofOperations for 2012.The pre-tax Gain on disposition of joint venture of $382 million results from the July 2013 sale of the investment in Office Depot de Mexico for the MexicanPeso amount of 8,777 million in cash ($680 million at then-current 40Table of Contentsexchange rates). The gain is net of third party fees, as well as recognition of $39 million of cumulative translation loss released from other comprehensiveincome because the subsidiary holding the investment was substantially liquidated. The removal of this investment from the related reporting unit resulted inan impairment of goodwill. Both the gain on disposition and the related impairment charge were recognized at the Corporate level and not included in thedetermination of Division income.Other income (expense), net includes gains and losses related to foreign exchange transactions, losses on sales of the Boise Cascade Company stock receivedby the Company following the Merger, investment results from deferred compensation plans, and prior to the sale in July 2013, our portion of the OfficeDepot de Mexico joint venture income. Our portion of the joint venture results for the year-to-date 2013 was $13 million compared to $32 million in 2012.Income Taxes (In millions) 2014 2013 2012 Income tax expense (benefit) $ 12 $ 147 $ 2 Effective income tax rate* (4)% 116% (2)% *Income taxes as a percentage of income (loss) before income taxes.The 2014 effective tax rate is negative because we recognized tax expense in jurisdictions with pretax income but were precluded from recognizing deferredtax benefits on pretax losses in the U.S. and certain foreign jurisdictions with valuation allowances. In addition, no benefit was recognized for certain non-deductible expenses, including foreign interest expense. The effective tax rate for 2014 also reflects a benefit for our international operations in jurisdictionswith statutory tax rates that are lower than the aggregate U.S. federal and state income tax rates, as well as jurisdictions in which we have favorable taxrulings.The significant 2013 effective tax rate is primarily attributable to $140 million of U.S. and Mexico income tax expense resulting from the sale of ourinvestment 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. The2013 effective tax rate also includes certain Merger related expenses and the International Division’s goodwill impairment that are not deductible for incometax purposes. For 2012, the effective tax rate includes a $16 million benefit related to the favorable settlement of the U.S. Internal Revenue Service (“IRS”)examination of the 2009 and 2010 tax years and a $22 million benefit related to the pension settlement since it was a non-taxable purchase price adjustment.Both 2013 and 2012 effective tax rates reflect the impact of valuation allowances limiting the recognition of deferred tax assets, as well as the benefit oflower statutory tax rates and favorable rulings in our international operations, as described above for 2014.Following the recognition of significant valuation allowances in 2009, we have regularly experienced substantial volatility in our effective tax rate ininterim periods and across years. Because deferred income tax benefits cannot be recognized in several jurisdictions, changes in the amount, mix and timingof pretax earnings among jurisdictions can have a significant impact on the overall effective tax rate. This interim and full year volatility is likely to continuein future periods until the valuation allowances can be released.We file a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. The U.S. federal income tax return for 2013 isunder concurrent year review. Generally, we are subject to routine examination for years 2008 and forward in our foreign jurisdictions and for years 2009 andforward in our state jurisdictions. The acquired OfficeMax U.S. consolidated group is no longer subject to U.S. federal and state income tax examinations foryears before 2010 and 2006, respectively. It is reasonably possible that some audits will close within the next twelve months, which we do not believe wouldresult in a change to our accrued uncertain tax positions.Refer to Note 9, “Income Taxes,” in the Notes to Consolidated Financial Statements for additional tax discussion. 41Table of ContentsPreferred Stock DividendsIn accordance with certain OfficeMax Merger-related agreements, which we entered into with the holders of our preferred stock concurrently with theexecution of the Merger Agreement, in 2013, we redeemed the preferred stock, with 50 percent redeemed upon shareholder approval in July 2013 and theremaining 50 percent redeemed immediately prior to closing of the Merger in November 2013. The $431 million in cash payments for full redemption of thepreferred stock in 2013 included the liquidation preference of $407 million and redemption premium of $24 million measured at 6% of the liquidationpreference.Preferred stock dividends for 2013 in our Consolidated Statement of Operations were $73 million, including $28 million regular dividends and $45 millionrelated to the redemptions. The $45 million is comprised of $24 million redemption premium and $21 million representing the difference betweenliquidation preference and carrying value of the preferred stock. The liquidation preference exceeded the carrying value because of initial issuance costs andpaid-in-kind dividends recorded for accounting purposes at fair value.LIQUIDITY AND CAPITAL RESOURCESLiquidityIn 2011, we entered into an Amended and Restated Credit Agreement with a group of lenders. Additional amendments to the Amended and Restated CreditAgreement have been entered into and were effective February 2012 and November 2013 (the Amended and Restated Credit Agreement including allamendments is referred to as the “Amended Credit Agreement”). The Amended Credit Agreement provides for an asset based, multi-currency revolving creditfacility of up to $1.25 billion and expires May 25, 2016. Refer to Note 8, “Debt,” of our Consolidated Financial Statements for additional information.At December 27, 2014, we had approximately $1.1 billion in cash and cash equivalents and approximately $1.1 billion available under the Amended CreditAgreement based on the December 2014 borrowing base certificate, for a total liquidity of approximately $2.2 billion. Approximately $309 million of cashand cash equivalents was held outside the United States and could result in additional tax expense if repatriated. Refer to Note 9, “Income Taxes” of theConsolidated Financial Statements for additional information. We consider our resources adequate to satisfy our cash needs for at least the next twelvemonths.No amounts were drawn under the Amended Credit Agreement during 2014 and no amounts were outstanding at December 27, 2014. There were letters ofcredit outstanding under the Amended Credit Agreement at the end of the year totaling $92 million.The Company had short-term borrowings of $1 million at December 27, 2014 under various local currency credit facilities for international subsidiaries thathad an effective interest rate at the end of the year of approximately 5%. The maximum month end balance occurred in March 2014 at approximately $10million and the maximum monthly average amount occurred in March 2014 at approximately $6 million. The majority of these short-term borrowingsrepresent 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 27, 2014.In 2014, we have incurred $332 million in expenses associated primarily with the Merger integration activities and $71 million in expenses associatedprimarily with restructuring actions taken in Europe. Significant Merger and restructuring expenses are expected to continue to be incurred in 2015 and2016. In 2015, the Company expects capital expenditures to be approximately $250 million, including approximately $100 million related to mergerintegration. 42Table of ContentsThe Company assumed obligations under the OfficeMax U.S. pension plans. In 2004, the plans were closed to new entrants and the benefits of eligibleparticipants frozen. However, the plans were and continue to be in a net underfunded liability position. The Company makes contributions to the plans inamounts that are within the limits of deductibility under current tax regulations and not less than the minimum required by law. During 2014, the Companycontributed $43 million to these plans. The passage of new legislation in the Highway and Transportation Funding Act (HATFA) of 2014 reduced therequired contributions to underfunded plans beginning retroactively with the 2013 plan year. The funding relief provided by HATFA will also reducerequired contributions to the pension plans for the next several years. The Company now anticipates contributing $9 million and $2 million to these plans in2015 and 2016, respectively. The amounts funded are presented as Operating activity outflows in the Consolidated Statement of Cash Flows.We have entered into the Staples Merger Agreement with Staples and have agreed to pay a fee of $185 million to Staples if the Staples Merger Agreement isterminated under any of the following circumstances: • the Company’s Board makes a change in recommendation; • the Company terminates, at any time prior to obtaining approval of the Staples Acquisition from its stockholders, for the purpose of entering into anagreement for a “superior proposal”; or • the Staples Acquisition is not consummated by November 4, 2015 (or, February 4, 2016, if extended as permitted in the Staples Merger Agreement) or theCompany’s stockholders fail to adopt the Merger Agreement and to approve the Staples Acquisition, in each case, only if (i) a third party has made anacquisition proposal before the Company’s meeting of stockholders to vote on the Staples Acquisition and (ii) within 12 months of the termination of theStaples Merger Agreement, the Company enters into an alternative transaction.In addition, whether or not the Staples Acquisition is completed, the uncertainty related to the proposed Staples Acquisition could adversely impact ourbusiness through several factors, including, but not limited to: (i) our current clients may experience uncertainty associated with the Staples Acquisition andmay attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us; (ii) we mayface additional challenges in competing for new and renewal business; and (iii) vendors or suppliers may seek to modify or terminate their businessrelationships with us.Cash FlowsCash provided by (used in) operating, investing and financing activities is summarized as follows: (In millions) 2014 2013 2012 Operating activities $ 156 $ (107) $ 179 Investing activities (28) 1,028 (30) Financing activities 15 (640) (55) Operating ActivitiesCash provided by operating activities was $156 million in 2014 and $179 million in 2012, compared to cash used by operating activities of $107 million in2013. The 2014 operating cash flows reflect a full year of operations as a combined company compared to the prior year impact of the OfficeMax businessonly following the Merger date of November 5, 2013. Operating activities reflect outflows related to Merger and integration activities in 2014 and 2013.Cash used in operating activities in 2013 was negatively impacted by the payment of $147 million of income taxes related to the Company’s gain on thedisposition of the investment in Office Depot de Mexico. The source of cash from this gain is shown in Investing activities. In 2012, the Company recognizeda credit in earnings as the Recovery of purchase price from a 2003 business combination. The cash portion of this 43Table of Contentsrecovery is reclassified out of operating activities and reflected as a source of cash in investing activities. However, that cash was required by the originalpurchase agreement to be contributed to the acquired pension plan. The pension funding during 2012 is presented as a use of cash in operating activities.Changes in net working capital for 2014 resulted in a $10 million use of cash compared to $77 million in 2013 and $36 million in 2012. The working capitalfactors in 2014 are largely attributable to timing, including the impact on certain payables of a one day shift in the retail calendar. The change in accountsreceivable in 2013 was influenced by the timing of certain vendor arrangements, largely offset by proceeds from an account receivable factoring agreement inFrance. The increase in inventories in 2013 reflects building above prior year levels for the back to business selling cycle. Inventory balances were lower atthe end of 2012 as a result of initiatives to better manage working capital. The working capital changes in 2013 were also impacted by the timing of theMerger, which caused the consolidated cash flows to reflect the changes in the OfficeMax working capital accounts from the Merger date throughDecember 27, 2014. Payment of the legal accrual will result in approximately $80 million use of operating cash in 2015.The timing of changes in working capital is subject to variability during the year and across years depending on a variety of factors, including period endsales, the flow of goods, credit terms, timing of promotions, vendor production planning, new product introductions and working capital management. Forour accounting policy on cash management, refer to Note 1, “Summary of Significant Accounting Policies,” of the Consolidated Financial Statements.The Company expects total Company sales in 2015 to be lower than 2014, primarily due to challenging market trends, its decision to close certain stores, andthe negative impact of currency translation.Investing ActivitiesNet cash used in investing activities was $28 million in 2014 and $30 million in 2012, compared to cash provided of $1,028 million in 2013. The use of cashis 2014 reflects $123 million of capital expenditures, partially offset by $43 million proceeds from the disposition of Grupo OfficeMax, $43 million proceedsfrom the sale of Boise Cascade Company common stock, and $12 million proceeds from the disposition of assets and other. The sale of a Californiadistribution center classified as an asset held for sale at December 27, 2014 was finalized in January 2015 and will provide $35 million of investing cash flowin the first quarter of 2015.The source of cash in 2013 results primarily from $675 million in net proceeds from the disposition of the joint venture Office Depot de Mexico and $460million in cash acquired from OfficeMax at the Merger date. The cash proceeds from the sale of Office Depot de Mexico provided additional liquidity for thepreferred stock retirement, debt maturity and for the needs of the combined Company for Merger-related expenses. A $35 million return of investment inBoise Cascade Holdings also contributed to the source of cash in 2013. Capital expenditures in 2013 were $137 million.The $30 million net cash used in investing activities in 2012 reflects capital expenditures of $120 million, partially offset by $31 million from a sale leaseback and other asset dispositions. Also, as discussed above, $50 million was received in 2012 from a purchase price recovery, as well as a $9 million releaseof restricted cash related to the same matter.Financing ActivitiesCash provided by financing activities was $15 million in 2014, compared to cash used by financing activities of $640 million in the 2013 and $55 million in2012. The 2014 source of cash primarily was the net proceeds from exercise of employee share-based transactions. Proceeds from borrowings were $21million and payments on long- and short-term borrowings were $45 million during 2014. 44Table of ContentsIn 2013, the Company redeemed 50% of its preferred stock in July of 2013 and the remaining 50% in November 2013 with total cash payment of $431million. The redemption payment of $431 million includes the liquidation preference of $407 million and redemption premium of $24 million, measured at6% of the liquidation preference. The premium of $24 million is included in the $63 million dividend of preferred stock. Contractual dividends on preferredstock were paid in cash in 2013 and 2011 and paid-in-kind during 2012. Also in 2013, the Company repaid the $150 million of 6.25% senior notes atmaturity. Net repayments on long- and short-term borrowings were $21 million in 2013.During 2012, the Company completed the settlement of a cash tender offer to purchase up to $250 million aggregate principal amount of its outstanding6.25% senior notes due 2013. The Company also issued $250 million aggregate principal amount of 9.75% senior secured notes due March 15, 2019. Thetender activity resulted in a $13 million cash loss on extinguishment of debt. Additionally, new issuance costs and costs to amend a separate borrowingagreement totaled $8 million. Net repayments on long- and short-term borrowings amounted to $35 million in 2012.Off-Balance Sheet ArrangementsAs of December 27, 2014, we lease retail stores and other facilities and equipment under operating lease agreements, which are included in the table below. Inaddition, Note 17, “Commitments and Contingencies,” of the Consolidated Financial Statements in Part IV — Item 15. “Exhibits and Financial StatementSchedules” of this Annual Report describes certain of our arrangements that contain indemnifications.Contractual ObligationsThe following table summarizes our contractual cash obligations at December 27, 2014, and the effect such obligations are expected to have on liquidity andcash flow in future periods. Some of the figures included in this table are based on management’s estimates and assumptions about these obligations,including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions arenecessarily subjective, the amounts we will actually pay in future periods may vary from those reflected in the table. Payments Due by Period (In millions) Total 2015 2016-2017 2018-2019 Thereafter Contractual Obligations Recourse debt: Long-term debt obligations $744 $42 $98 $317 $287 Short-term borrowings 1 1 — — — Capital lease obligations 293 42 72 59 120 Non-recourse debt 948 40 80 80 748 Operating lease obligations 2,653 697 982 520 454 Purchase obligations 98 46 52 — — Pension obligations 119 9 6 6 98 Total contractual cash obligations $4,856 $877 $1,290 $982 $1,707 Long-term obligations consist primarily of expected payments (principal and interest) on our $250 million 9.75% Senior Secured Notes and $186million of revenue bonds at various interest rates. Short-term borrowings consist of amounts outstanding under credit facilities for certain of our international subsidiaries. The present value of these obligations is included on our Consolidated Balance Sheets. Refer to Note 8, “Debt,” of the Consolidated FinancialStatements for additional information about our capital lease obligations. 45 (1) (2) (3) (4) (5) (6) (7)(1)(2)(3)Table of Contents There is no recourse against the Company on the Securitization Notes as recourse is limited to proceeds from the pledged Installment Notes receivableand underlying guaranty. The non-recourse debt remains outstanding until it is legally extinguished, which will be when paid in cash or when theInstallment Notes and related guaranty is transferred to and accepted by the Securitization Note holders. Interest payments on non-recourse debt will becompletely offset by interest 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 ofDecember 27, 2014. Some of our retail store leases require percentage rentals on sales above specified minimums and contain escalation clauses. Theminimum lease payments shown in the table above do not include contingent rental expense and have not been reduced by sublease income of $43million. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating lease obligationswould change if we exercised these renewal options and if we entered into additional operating lease agreements. Our operating lease obligations aredescribed in Note 10, “Leases,” of the Consolidated Financial Statements. Purchase obligations include all commitments to purchase goods or services of either a fixed or minimum quantity that are enforceable and legallybinding on us that meet any of the following criteria: (1) they are non-cancelable, (2) we would incur a penalty if the agreement was cancelled, or(3) we must make specified minimum payments even if we do not take delivery of the contracted products or services. If the obligation is non-cancelable, the entire value of the contract is included in the table. If the obligation is cancelable, but we would incur a penalty if cancelled, the dollaramount of the penalty is included as a purchase obligation.If we can unilaterally terminate the agreement simply by providing a certain number of days notice or by paying a termination fee, we have includedthe amount of the termination fee or the amount that would be paid over the “notice period.” As of December 27, 2014, purchase obligations includemarketing services, outsourced accounting services, certain fixed assets and software licenses and service and maintenance contracts for informationtechnology. Contracts that can be unilaterally terminated without a penalty have not been included. Pension obligations in the table above represent the estimated, minimum contributions required per Internal Revenue Service funding rules and theCompany’s estimated future payments under nonqualified pension and postretirement plans. Actuarially-determined liabilities related to pension andpostretirement benefits are recorded based on estimates and assumptions. Key factors used in developing estimates of these liabilities includeassumptions related to discount rates, rates of return on investments, future compensation costs, healthcare cost trends, benefit payment patterns andother factors. Changes in assumptions related to the measurement of funded status could have a material impact on the amount reported.Our Consolidated Balance Sheet as of December 27, 2014 includes $621 million classified as Deferred income taxes and other long-term liabilities. Deferredincome taxes and other long-term liabilities primarily consist of net long-term deferred income taxes, deferred lease credits, long-term restructuring accruals,certain liabilities under our deferred compensation plans, accruals for uncertain tax positions, and environmental accruals. Certain of these liabilities havebeen excluded from the above table as either the amounts are fully funded or the timing and/or the amount of any cash payment is uncertain. Refer to Note 3,“Merger, Restructuring, and Other Accruals,” for a discussion of our restructuring accruals and Note 9, “Income Taxes,” of the Consolidated FinancialStatements for additional information regarding our deferred tax positions and accruals for uncertain tax positions.In addition to the above, we have outstanding letters of credit totaling $92 million at December 27, 2014. 46(4)(5)(6)(7)Table of ContentsCRITICAL ACCOUNTING POLICIES AND ESTIMATESOur Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America.Preparation of these statements requires management to make judgments and estimates. Some accounting policies and estimates have a significant impact onamounts reported in these financial statements. A summary of significant accounting policies can be found in Note 1, “Summary of Significant AccountingPolicies,” of the Consolidated Financial Statements. We have also identified certain accounting policies and estimates that we consider critical tounderstanding our business and our results of operations and we have provided below additional information on those policies. No significant changes havebeen made during 2014 to the methodologies used in preparing the estimates discussed below.Merger impacts — The integration of two like companies generally is expected to provide benefits from reduction of duplicate functions and greatereconomies of scale. Such benefits will be reflected as lower operating costs as the integration continues. However, the integration also results in significantcosts related to the closure of facilities, severance of employees and incurring incremental costs required to merge the two companies where such costs are notexpected to be incurred in periods following the integration. During 2014, the Company recognized $332 million of Merger costs and costs are expected tocontinue through the integration timeline which is generally expected to be complete by 2016. Also, gains and losses may be recognized from dispositions ofOffice Depot or OfficeMax properties that are no longer in use following Merger-related facility consolidation and closure. Gains are recognized whenrealized; losses are recognized when closure or disposition decisions are made. These costs, net of gains, are included in Merger, restructuring and otheroperating expenses, net in the Consolidated Statements of Operations. Refer to the Long-lived asset impairments, Goodwill and other intangible assets, andClosed store accruals sections below for additional Merger-related impacts. The accounting policies for the recognition of these Merger costs are the same asthose the Company follows for other asset impairments, severance accruals, facility closure costs and gains and loss on dispositions. Refer to Note 1,“Summary of Significant Accounting Policies,” of the Consolidated Financial Statements for further discussion of these policies.Vendor arrangements — Inventory purchases from vendors are generally under arrangements that automatically renew until cancelled with periodic updatesor annual negotiated agreements. Many of these arrangements require the vendors to make payments to us or provide credits to be used against purchases ifand when certain conditions are met. We refer to these arrangements as “vendor programs.” Vendor programs fall into two broad categories, with someunderlying sub-categories. The first category is volume-based rebates. Under those arrangements, our product costs per unit decline as higher volumes ofpurchases are reached. Current accounting rules provide that companies with a reasonable basis for estimating their full year purchases, and therefore theultimate rebate level, can use that estimate to value inventory and cost of goods sold throughout the year. We believe our history of purchases with manyvendors provides us with a basis for our estimates of purchase volume. If the anticipated volume of purchases is not reached, however, or if we form the beliefat any point in the year that it is not likely to be reached, cost of goods sold and the remaining inventory balances are adjusted to reflect that change in ouroutlook. We review sales projections and related purchases against vendor program estimates at least quarterly and adjust these balances accordingly.The second broad category of arrangements with our vendors is event-based programs. These arrangements can take many forms, including advertisingsupport, special pricing offered by certain of our vendors for a limited time, payments for special placement or promotion of a product, reimbursement of costsincurred to launch a vendor’s product, and various other special programs. These payments are classified as a reduction of costs of goods sold or inventory,based on the nature of the program and the sell-through of the inventory. Some arrangements may meet the specific, incremental, identifiable cost criteria thatallow for direct operating expense offset, but such arrangements are not significant.Vendor programs are recognized throughout the year based on judgment and estimates and amounts due from vendors are generally settled throughout theyear based on purchase volumes. The final amounts due from 47Table of Contentsvendors are generally known soon after year-end. Substantially all vendor program receivables outstanding at the end of the year are settled within the threemonths immediately following year-end. We believe that our historical collection rates of these receivables provide a sound basis for our estimates ofanticipated vendor payments throughout the year. Should the Company change its arrangements to focus more on event-based programs, the timing ofprograms offered and implemented may result in variability of benefit recognition throughout the year.Inventory valuation — Inventories are valued at the lower of weighted average cost or market value. We monitor active inventory for excessive quantitiesand slow-moving items and record adjustments as necessary to lower the value if the anticipated realizable amount is below cost. We also identifymerchandise that we plan to discontinue or have begun to phase out and assess the estimated recoverability of the carrying value. This includes considerationof the quantity of the merchandise, the rate of sale, and our assessment of current and projected market conditions and anticipated vendor programs. Ifnecessary, we record a charge to cost of sales to reduce the carrying value of this merchandise to our estimate of the lower of cost or realizable amount.Additional promotional activities may be initiated and markdowns may be taken as considered appropriate until the product is sold or otherwise disposed.Estimates and judgments are required in determining what items to stock and at what level, and what items to discontinue and how to value them prior tosale.We also recognize an expense in cost of sales for our estimate of physical inventory loss from theft, short shipments and other factors — referred to asinventory shrink. During the year, we adjust the estimate of our inventory shrink rate accrual following on-hand adjustments and our physical inventorycount results. These changes in estimates may result in volatility within the year or impact comparisons to other periods.Long-lived asset impairments — Long-lived assets with identifiable cash flows are reviewed for possible impairment whenever events or changes incircumstances indicate that the carrying amount of such assets may not be recoverable. We estimate the fair value of the asset or asset groups using valuationmethodologies that typically include estimates of cash flows directly associated with the future use and eventual disposition of the asset or asset groups. Ifundiscounted cash flows are insufficient to recover the asset, an impairment is measured as the difference between the asset’s estimated fair value (generally,the discounted cash flows or its salvage value) and its carrying value, and any costs of disposition. Factors that could trigger an impairment assessmentinclude a significant change in the extent or manner in which an asset is used or the business climate that could affect the value of the asset, among others. In2014, the Company abandoned certain capitalized software following information technology decisions. As integration decisions are made, the Companymay identify other assets or asset groups for sale or abandonment and incur impairment charges.Because of the period of declining sales and following identification in 2014 of the Real Estate Strategy, store assets are reviewed quarterly for recoverabilityof their asset carrying amounts. The analysis uses input from retail store operations and the Company’s accounting and finance personnel thatorganizationally report to the chief financial officer. These projections are based on management’s estimates of store-level sales, gross margins, directexpenses, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. If the anticipatedcash flows of a store cannot support the carrying value of its assets, the assets are written down to estimated fair value. Store asset impairment charges of $25million, $26 million and $124 million for 2014, 2013 and 2012, respectively, are included in Asset impairments in the Consolidated Statements ofOperations. Based on the fourth quarter 2014 analysis, a 100 basis point decrease in next year sales, combined with a 50 basis point decrease in gross margin,would have increased the impairment charge by $1 million. Further, a 100 basis point decrease in sales for all periods would have increased the impairmentcharge by an additional $1 million.Important assumptions used in these projections include an assessment of future overall economic conditions, our ability to control future costs, maintainaspects of positive performance, and successfully implement initiatives designed to enhance sales and gross margins. To the extent that management’sestimates of future performance are not realized, future assessments could result in material impairment charges. 48Table of ContentsGoodwill and other intangible assets — The Merger-related purchase price allocation was completed during 2014 and goodwill was allocated to thereporting units. Because of the addition to goodwill, the Company elected to perform its 2014 impairment analysis using a quantitative approach ofdiscounted cash flow analysis supplemented with market comparison data, where available. The estimated fair value of each reporting unit exceeded itscarrying value at the test date, which was the first day of the third quarter. The reporting unit of Australia and New Zealand, which was not combined with anyexisting Office Depot businesses, had an estimated fair value approximately 10% above its carrying value. Goodwill in that reporting unit is $15 million. Theestimated fair value of this reporting unit includes projected cash outflows related to certain restructuring activities. Should these restructuring activities notresult in the anticipated future period benefits, or if there is a downturn in performance, a potential future goodwill impairment could result. However, theCompany believes, based on these projections, that there are no current indicators of impairment in this reporting unit. The estimated fair values of the otherreporting units, which were combined with existing Office Depot businesses, were substantially in excess of their carrying values.Unless conditions suggest an asset’s value may not be recoverable, indefinite-lived intangible assets are tested annually for impairment and definite-livedintangible assets are a reviewed annually to ensure the remaining useful lives are appropriate. A change in the anticipated value of an intangible asset mayresult in its impairment. During 2014, the Company changed its planned use of a private brand trade name used internationally from an indefinite life to ashorter period and at a lower profile. This change in planned usage resulted in an impairment charge of $5 million.Other intangible assets include favorable lease assets, trade names and assets associated with customer relationships. The favorable lease assets wereestablished in the Merger for lease rental rates below current market rates for comparable properties and assumed renewal of all available options. Thefavorable lease asset is being amortized over the same period. Should the Company decide to close the facility prior to the full contemplated term, therecoverability will be subject to then-current fair value of the lease right. During 2014, the Company recognized $5 million of impairment of favorable leaseassets because of closure activity. Approximately $12 million, or 50% of the favorable lease asset balance related to stores in the U.S. at December 27, 2014,is associated with 13 locations. The remainder in the U.S. is for lower amounts distributed across many locations. Should the Company close locations in thefuture, or assumed future sublease rates decline, some amount of the favorable lease asset value may be impaired.The most significant remaining intangible asset at December 27, 2014 relates to customer relationships in the North America Contract channel. If theCompany experiences an unanticipated decline in sales associated with these customers, the remaining useful life will be reassessed and either acceleration ofamortization or impairment could result.Closed store accruals — During 2014, the Company developed the Real Estate Strategy that included closing of approximately 400 retail stores in theUnited States through 2016. The locations identified for possible closure considered market position, sales trends, remaining lease term, the proximity ofother Company locations, likely sales transfer rates and other factors. The specific identity of stores to close will be influenced by real estate and marketplaceconditions. At the point of closure, we recognize a liability for the remaining costs related to the property, reduced by an estimate of any sublease income.The calculation of this liability requires us to make assumptions and to apply judgment regarding the remaining term of the lease (including vacancy period),anticipated sublease income, and costs associated with vacating the premises. Lease commitments with no economic benefit to the Company are discountedat the credit-adjusted discount rate at the time of each location closure. With assistance from independent third parties to assess market conditions, weperiodically review these judgments and estimates and adjust the liability accordingly. Future fluctuations in the economy and the market demand forcommercial properties could result in material changes in this liability. Costs associated with facility closures that are related to Merger and restructuringactivities are and, in future periods will be, presented in Merger, restructuring and other operating activities, net in our Consolidated Statements ofOperations. Costs 49Table of Contentsassociated with facility closures that are deemed operational are included in Selling, general and administrative expenses.Pensions and other postretirement benefits — In addition to an existing but closed defined benefit plan in Europe, the Company assumed responsibility forcertain OfficeMax noncontributory defined benefit pension plans and retiree medical benefit and life insurance plans. The OfficeMax plans are frozen and donot allow new entrants. At December 27, 2014, the funded status of our existing and assumed OfficeMax defined benefit pension and other postretirementbenefit plans was a liability of $196 million. Changes in assumptions related to the measurement of funded status could have a material impact on theamount reported. We are required to calculate our pension expense and liabilities using actuarial assumptions, including mortality assumptions, a discountrate and long-term asset rate of return. For year end 2014 measurement, we updated North America benefit plans’ mortality assumptions based on tablesrecently-published by Society of Actuaries’ Retirement Plan Experience Committee. We do not anticipate changes to those assumptions in the near future.We base our North America plans’ discount rate assumption on the rates of return for a theoretical portfolio of high-grade corporate bonds (rated AA- orbetter) with cash flows that generally match our expected benefit payments in future years. The discount rate for the European plan is derived based on long-term UK government fixed income yields, having regard to the proportion of assets in each asset class. We base our long-term asset rate of return assumptionon the average rate of earnings expected on invested assets. Based on current market conditions, both the discount rate and the assumed long-term rate ofreturn on plan assets decreased for year end 2014 measurements. Currently, the net impact of these plans is an annual credit to income. However, because ofthe judgments and estimates included in pension and other benefit valuation, such amount could change in future periods and have a significant impact onour financial position and results of operations. A 50 basis point reduction in the discount rate would increase the 2015 pension expense credit by $2 million.A 50 basis point reduction in the assumed long-term rate of return on plan assets would reduce the 2015 net pension credit by $6 million.Income taxes — Income tax accounting requires management to make estimates and apply judgments to events that will be recognized in one period underrules that apply to financial reporting and in a different period in our tax returns. In particular, judgment is required when estimating the value of future taxdeductions, tax credits, and the realizability of net operating loss carryforwards (NOLs), as represented by deferred tax assets. When we believe the realizationof all or a portion of a deferred tax asset is not likely, we establish a valuation allowance. Changes in judgments that increase or decrease these valuationallowances impact current earnings. Our effective tax rate in future periods may be positively or negatively impacted by changes in related judgments aboutvaluation allowances or pre-tax operations.In addition to judgments associated with valuation accounts, our current tax provision can be affected by our mix of income and identification or resolutionof uncertain tax positions. Because income from domestic and international sources may be taxed at different rates, the shift in mix during a year or over yearscan cause the effective tax rate to change. We base our rate during the year on our best estimate of an annual effective rate, and update that estimate quarterly,with the cumulative effect of a change in the anticipated annual rate reflected in the tax provision of that period. Such changes can result in significantinterim reporting volatility. This volatility can result from changes in our projected earnings levels, the mix of income, the impact of valuation allowances incertain jurisdictions and the interim accounting rules applied to entities expected to pay taxes on a full year basis, but recognizing losses in an interimperiod.SIGNIFICANT TRENDS, DEVELOPMENTS AND UNCERTAINTIESCompetitive Factors — Over the years, we have seen continued development and growth of competitors in all segments of our business. In particular, massmerchandisers and warehouse clubs, as well as grocery and drugstore chains, have increased their assortment of office merchandise. Warehouse clubs haveexpanded beyond their in-store assortment by adding catalogs and websites from which a much broader assortment of products may be ordered. We also facecompetition from other office supply stores that compete with us in numerous markets. This competition is likely to result in increased competitive pressureson pricing, product selection and 50Table of Contentsservices provided. Many of these retail competitors, including discounters, warehouse clubs, and drug stores and grocery chains, carry a wide assortment ofoffice supply products. Some of them also feature technology products. Many of them may price certain of these offerings lower than we do. This trendtowards a proliferation of retailers offering a limited assortment of office products is a potentially serious trend in our industry that could shift purchasingaway from office supply specialty retailers and adversely impact our results.We have seen substantial growth in the number of competitors that offer office products over the Internet, as well as the breadth and depth of their productofferings. In addition to large numbers of smaller Internet providers featuring special price incentives and one-time deals (such as close-outs), we areexperiencing strong competitive pressures from large Internet providers such as Amazon.com and Walmart that offer a full assortment of office productsthrough direct sales and, in the case of Amazon.com, acting as a “storefront” for other specialty office product providers.Additionally, consumers are utilizing more technology and purchasing less paper, ink 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 andoperating plans.Economic Factors — Our customers in the North American Retail Division, the International Division, and many of our customers in the North AmericanBusiness Solutions Division are predominantly small and home office businesses. Accordingly, spending by these customers is affected by macroeconomicconditions, such as changes in the housing market and commodity costs, credit availability and other factors. The downturn in the global economyexperienced in recent years negatively impacted our sales and profits.Liquidity Factors — Our cash flow from operating activities, available cash and cash equivalents, and access to broad financial markets provide the liquiditywe need to operate our business and fund integration and restructuring activities. Together, these sources have been used to fund operating and workingcapital needs, as well as invest in business expansion through new store openings, capital improvements and acquisitions. We have in place a $1.25 billionasset based credit facility to provide liquidity, subject to availability as specified in the agreement.MARKET SENSITIVE RISKS AND POSITIONSWe have adopted an enterprise risk management process patterned after the principles set out by the Committee of Sponsoring Organizations (COSO).Management utilizes a common view of exposure identification and risk management. A process is in place for periodic risk reviews and identification ofappropriate mitigation strategies.We have market risk exposure related to interest rates, foreign currency exchange rates, and commodities. Market risk is measured as the potential negativeimpact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year.Interest rate changes on obligations may result from external market factors, as well as changes in our credit rating. We manage our exposure to market risks atthe corporate level. The portfolio of interest-sensitive assets and liabilities is monitored to provide liquidity necessary to satisfy anticipated short-term needs.Our risk management policies allow the use of specified financial instruments for hedging purposes only; speculation on interest rates, foreign currency rates,or commodities is not permitted.Interest Rate RiskWe are exposed to the impact of interest rate changes on cash, cash equivalents, noncontributory defined benefit pension plans, and debt obligations. Theimpact on cash and short-term investments held at December 27, 2014 from a hypothetical 10% decrease in interest rates would be a decrease in interestincome of less than $1 million. 51Table of ContentsThe following tables provide information about our debt portfolio outstanding as of December 27, 2014 that is sensitive to changes in interest rates. Thefollowing table does not include our obligations for pension plans and other postretirement benefits, although market risk also arises within our definedbenefit pension plans to the extent that the obligations of the pension plans are not fully matched by assets with determinable cash flows. We sponsor U.S.noncontributory defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active employees. These planswere acquired in the Merger transaction and have been frozen since 2004. Our active employees and all inactive participants who are covered by these plansare no longer accruing additional benefits. However, the pension plans obligations are still subject to change due to fluctuations in long-term interest rates aswell as factors impacting actuarial valuations, such as retirement rates and pension plan participants’ increased life expectancies. In addition to changes inpension plan obligations, the amount of plan assets available to pay benefits, contribution levels and expense are also impacted by the return on the pensionplan assets. The pension plan assets include U.S. equities, international equities, global equities and fixed-income securities, the cash flows of which changeas equity prices and interest rates vary. The risk is that market movements in equity prices and interest rates could result in assets that are insufficient overtime to cover the level of projected obligations. This in turn could result in significant changes in pension expense and funded status, further impactingfuture required contributions. Management, together with the trustees who act on behalf of the pension plan beneficiaries, assess the level of this risk usingreports prepared by independent external actuaries and investment advisors and take action, where appropriate, in terms of setting investment strategy andagreed contribution levels. 2014 2013 (In millions) CarryingValue FairValue RiskSensitivity CarryingValue FairValue RiskSensitivity Financial assets: Timber notes receivable $ 926 $ 930 $ 21 $ 945 $ 933 $ 25 Boise investment — — — 46 47 — Financial liabilities: Recourse debt: 9.75% Senior Secured Notes, due 2019 250 280 2 250 290 6 7.35% debentures, due 2016 18 18 — 18 19 — Revenue bonds, due in varying amounts periodically through 2029 186 185 7 186 186 6 American & Foreign Power Company, Inc. 5% debentures, due2030 14 13 1 13 13 1 Non-recourse debt $839 $845 $18 $859 $851 $22 The risk sensitivity of fixed rate debt reflects the estimated increase in fair value from a 50 basis point decrease in interest rates, calculated on a discountedcash flow basis. The sensitivity of variable rate debt reflects the possible increase in interest expense during the next period from a 50 basis point change ininterest rates prevailing at year-end.Foreign Exchange Rate RiskWe conduct business through entities in various countries outside the United States where their functional currency is not the U.S. dollar. Our principalinternational operations are in countries with Euro, British Pound, Canadian Dollar, Australian Dollar, and New Zealand Dollar functional currencies. Wecontinue to assess our exposure to foreign currency fluctuation against the U.S. dollar. As of December 27, 2014, a 10% change in the applicable foreignexchange rates would result in an increase or decrease in our pretax earnings of approximately $5 million.Although operations generally are conducted in the relevant local currency, we also are subject to foreign exchange transaction exposure when oursubsidiaries transact business in a currency other than their own 52Table of Contentsfunctional currency. This exposure arises primarily from inventory purchases denominated in a foreign currency. At December 27, 2014, there are foreignexchange forward contracts with an aggregate notional amount of $5 million hedging inventory exposures. The highest notional amount outstanding at anypoint during 2014 was $32 million during the month of May. Also, from time-to-time, we enter into foreign exchange forward transactions to protect againstpossible changes in exchange rates related to scheduled or anticipated cash movements among our operating entities. At December 27, 2014, foreignexchange forward contracts with an aggregate notional amount of $25 million were in place to hedge these movements.Generally, we evaluate the performance of our international businesses by focusing on the results of the business in local currency, and not with regard to thetranslation into U.S. dollars, as the latter is impacted by external factors.Commodities RiskWe operate a large network of stores and delivery centers around the world. As such, we purchase fuel needed to transport products to our stores andcustomers as well as pay shipping costs to import products from overseas. We are exposed to potential changes in the underlying commodity costs associatedwith this transport activity. We enter into economic hedge transactions for a portion of our anticipated fuel consumption in the U.S. These arrangements aremarked to market at each reporting period. Some of these arrangements may not be designated as hedges for accounting purposes and changes in value arerecognized in current earnings through the Cost of goods sold and occupancy costs line on the Consolidated Statements of Operations. Those that aredesignated as hedges for accounting purposes are also marked to market at each reporting period, with the change in value deferred in accumulated othercomprehensive income until the related fuel is consumed. At December 27, 2014, we had entered into contracts for approximately 15 million gallons of fuelthat will be settled monthly through January 2016. Currently, these economic hedging transactions are not considered material. As of December 27, 2014,excluding the impact of any hedge transaction, a 10% change in domestic commodity costs would result in an increase or decrease in our operating profit ofapproximately $7 million.INFLATION AND SEASONALITYAlthough we cannot determine the precise effects of inflation on our business, we do not believe inflation has had a material impact on our sales or the resultsof our operations. We consider our business to be somewhat seasonal, with sales generally trending lower in the second quarter, following the “back-to-business” sales cycle in the first quarter and preceding the “back-to-school” sales cycle in the third quarter and the holiday sales cycle in the fourth quarter.Certain working capital components may build and recede during the year reflecting established selling cycles. Business cycles can and have impacted ouroperations and financial position when compared to other periods.NEW ACCOUNTING STANDARDSDuring 2014, the Company early adopted the new accounting standard related to accounting for discontinued operations. There was no significant impact tothe Consolidated Financial Statements. Additionally, during 2014, the Financial Accounting Standards Board (“FASB”) issued a new accounting standardrelating to revenue recognition. That standard will be effective in 2017, with retrospective application possible. The Company has not finalized assessing theimpact this standard will have on the Consolidated Financial Statements. Refer to Note 1, “Summary of Significant Accounting Policies,” of theConsolidated Financial Statements for further discussion of these new accounting standards.In addition, the FASB has issued proposed rules relating to leasing transactions that, if passed in their current form, would have a significant impact on ourfinancial statements. Among other things, the proposed standard would create a right of use asset and corresponding liability on the balance sheet measuredat the present value of lease payments. Depending on the nature of the asset being leased, the income statement impact would either be similar to currentoperating lease treatment or current capital lease treatment. The Company continues to monitor developments relating to this project. 53Table of ContentsItem 7A. Quantitative and Qualitative Disclosures About Market Risk.Refer to information in the “Market Sensitive Risks and Positions” subsection of Part II — Item 7. “MD&A” of this Annual Report.Item 8. Financial Statements and Supplementary Data.Refer to Part IV — Item 15(a) of this Annual Report.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.Item 9A. Controls and Procedures.Disclosure Controls and ProceduresBased on management’s evaluation which included the participation of the Company’s Chief Executive Officer (“CEO”), and Chief Financial Officer(“CFO”), as of December 28, 2013, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“the Act”)), were effective to provide reasonable assurance that informationrequired to be disclosed by the Company in reports that the Company files or submits under the Act is recorded, processed, summarized and reported withinthe time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company’s management, including theCEO and CFO, to allow timely decisions regarding required disclosures.Changes in Internal ControlsThere have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter thathave materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Management’s Report on Internal Control Over Financial ReportingManagement of Office Depot is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)under the Act. Our Internal Control structure is designed to provide reasonable assurance to our management and the Board of Directors regarding thereliability of financial reporting and the preparation and fair presentation of published financial statements.Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.In evaluating our Internal Control, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control — Integrated Framework (2013). Based on our assessment, management has concluded that the Company’s internal control over financialreporting was effective as of December 27, 2014.Our internal control over financial reporting as of December 27, 2014, has been audited by Deloitte & Touche LLP, an independent registered publicaccounting firm, as stated in their report provided below.Item 9B. Other Information. 54Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofOffice Depot, Inc.Boca Raton, FloridaWe have audited the internal control over financial reporting of Office Depot, Inc. and subsidiaries (the “Company”) as of December 27, 2014, based oncriteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Ourresponsibility is to 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 thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management anddirectors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition ofthe company’s assets that could have a material effect on the financial statements.Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with the policies or procedures may deteriorate.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 27, 2014, based on thecriteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financialstatements and financial statement schedule as of and for the fiscal year ended December 27, 2014 of the Company and our report dated February 24, 2015expressed an unqualified opinion on those financial statements and financial statement schedule./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaFebruary 24, 2015 55Table of ContentsPART IIIItem 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 theRegistrant.”Information required by this item with respect to our directors and the nomination process will be contained under the heading “Election of Directors” in theproxy statement for our 2015 Annual Meeting of Shareholders to be filed with the SEC (the “Proxy Statement”) within 120 days after the end of our fiscalyear, which information is incorporated by reference in this Annual Report.Information required by this item with respect to our audit committee and our audit committee financial experts will be contained in the Proxy Statementunder the heading “Committees of Our Board of Directors — Audit Committee” and is incorporated by reference in this Annual Report.Information required by this item with respect to compliance with Section 16(a) of the Exchange Act will be contained in the Proxy Statement under theheading “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated by reference in this Annual Report.Our Code of Ethical Behavior is in compliance with applicable rules of the SEC that apply to our principal executive officer, our principal financial officer,and our principal accounting officer or controller, or persons performing similar functions. A copy of the Code of Ethical Behavior is available free of chargeon the “Investor Relations” section of our website at www.officedepot.com. We intend to satisfy any disclosure requirement under Item 5.05 of Form 8-Kregarding an amendment to, or waiver from, a provision of this Code of Ethical Behavior by posting such information on our website at the address andlocation specified above.Item 11. Executive Compensation.Information required by this item with respect to executive compensation and director compensation will be contained in the Proxy Statement under theheadings “Compensation Discussion & Analysis” and “Director Compensation,” respectively, and is incorporated by reference in this Annual Report.The information required by this item with respect to compensation committee interlocks and insider participation will be contained in the Proxy Statementunder the heading “Compensation Committee Interlocks and Insider Participation” and is incorporated by reference in this Annual Report.The compensation committee report required by this item will be contained in the Proxy Statement under the heading “Compensation Committee Report”and is incorporated by reference in this Annual Report.The information required by this item with respect to compensation policies and practices as they relate to the Company’s risk management will be containedin the Proxy Statement under the heading “Board of Directors’ Role in Risk Oversight” and is incorporated by reference in this Annual Report.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Information required by this item with respect to security ownership of certain beneficial owners and management will be contained in the Proxy Statementunder the heading “Stock Ownership Information” and is incorporated by reference in this Annual Report. 56Table of ContentsItem 13. Certain Relationships and Related Transactions, and Director Independence.Information required by this item with respect to such contractual relationships and director independence will be contained in the Proxy Statement under theheadings “Related Person Transactions Policy” and “Director Independence,” respectively, and is incorporated by reference in this Annual Report.Item 14. Principal Accountant Fees and Services.Information with respect to principal accounting fees and services and pre-approval policies will be contained in the Proxy Statement under the headings“Audit & Other Fees” and “Audit Committee Pre-Approval Policies and Procedures” respectively, and is incorporated by reference in this Annual Report. 57Table of ContentsPART IVItem 15. Exhibits and Financial Statement Schedules. (a)The following documents are filed as a part of this report: 1.The financial statements listed in “Index to Financial Statements.” 2.The financial statement schedules listed in “Index to Financial Statement Schedules.” 3.The exhibits listed in the “Index to Exhibits.” (b)Exhibit 99 1.Financial statements of Office Depot de Mexico, S.A. de C.V. and Subsidiaries as of July 9, 2013 (Unaudited) and December 31, 2012 58Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized on this 24th day of February 2015. OFFICE DEPOT, INC.By: /s/ ROLAND C. SMITH Roland C. Smith Chief Executive OfficerPursuant 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 inthe capacities indicated on February 24, 2015. Signature Capacity/s/ ROLAND C. SMITHRoland C. Smith Chief Executive Officer (Principal Executive Officer) and Chairman,Board of Directors/s/ STEPHEN E. HAREStephen E. Hare Executive Vice President and Chief Financial Officer (Principal FinancialOfficer)/s/ KIM MOEHLERKim Moehler Senior Vice President and Chief Accounting Officer (PrincipalAccounting Officer)/s/ WARREN BRYANTWarren Bryant Director/s/ RAKESH GANGWALRakesh Gangwal Director/s/ CYNTHIA T. JAMISONCynthia T. Jamison Director/s/ FRANCESCA RUIZ DE LUZURIAGAFrancesca Ruiz de Luzuriaga Director/s/ V. JAMES MARINOV. James Marino Director/s/ MICHAEL J. MASSEYMichael J. Massey Director/s/ DAVID M. SZYMANSKIDavid M. Szymanski Director/s/ NIGEL TRAVISNigel Travis Director/s/ JOSEPH S. VASSALLUZZOJoseph S. Vassalluzzo Director 59Table of ContentsINDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm 61Consolidated Statements of Operations 62Consolidated Statements of Comprehensive Income (Loss) 63Consolidated Balance Sheets 64Consolidated Statements of Cash Flows 65Consolidated Statements of Stockholders’ Equity 66Notes to Consolidated Financial Statements 67 — 121Report of Independent Registered Public Accounting Firm on Financial Statement Schedule 122Index to Financial Statement Schedule 123 60Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofOffice Depot, Inc.Boca Raton, FloridaWe have audited the accompanying consolidated balance sheets of Office Depot, Inc. and subsidiaries (the “Company”) as of December 27, 2014 andDecember 28, 2013, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of thethree fiscal years in the period ended December 27, 2014. These financial statements are the responsibility of the Company’s management. Our responsibilityis to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Office Depot, Inc. and subsidiaries as ofDecember 27, 2014 and December 28, 2013, and the results of their operations and their cash flows for each of the three fiscal years in the period endedDecember 27, 2014, in conformity with accounting principles generally accepted in the United States of America.We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal controlover financial reporting as of December 27, 2014, based on the criteria established in Internal Control-Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission and our report dated February 24, 2015 expressed an unqualified opinion on theCompany’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaFebruary 24, 2015 61Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except per share amounts) 2014 2013 2012 Sales $16,096 $11,242 $10,696 Cost of goods sold and occupancy costs 12,320 8,616 8,160 Gross profit 3,776 2,626 2,536 Selling, general and administrative expenses 3,479 2,560 2,440 Recovery of purchase price — — (68)Asset impairments 88 70 139 Merger, restructuring, and other operating expenses, net 403 201 56 Legal accrual 81 — — Operating loss (275) (205) (31)Other income (expense): Interest income 24 5 2 Interest expense (89) (69) (69)Loss on extinguishment of debt — — (12)Gain on disposition of joint venture — 382 — Other income, net — 14 35 Income (loss) before income taxes (340) 127 (75)Income tax expense 12 147 2 Net loss (352) (20) (77)Less: Results attributable to the noncontrolling interests 2 — — Net loss attributable to Office Depot, Inc. (354) (20) (77) Preferred stock dividends — 73 33 Net loss attributable to common stockholders $(354) $(93) $(110)Basic and diluted loss per share $(0.66) $(0.29) $(0.39) The accompanying notes to consolidated financial statements are an integral part of these statements. 62Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In millions) 2014 2013 2012 Net loss $(352) $(20) $(77)Other comprehensive income (loss), net of tax, where applicable: Foreign currency translation adjustments (78) 47 23 Amortization of gain on cash flow hedge — — (2)Change in deferred pension, net of $1 million and $10 million of deferred income taxes in 2014 and 2013, respectively (87) 12 (3)Total other comprehensive income (loss), net of tax, where applicable (165) 59 18 Comprehensive income (loss) (517) 39 (59) Comprehensive income attributable to the noncontrolling interest 2 — — Comprehensive income (loss) attributable to Office Depot, Inc. $(519) $39 $(59) The accompanying notes to consolidated financial statements are an integral part of these statements. 63Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED BALANCE SHEETS(In millions, except shares and par value) December 27,2014 December 28,2013 ASSETS Current assets: Cash and cash equivalents $1,071 $955 Receivables, net 1,264 1,333 Inventories 1,638 1,812 Prepaid expenses and other current assets 245 296 Total current assets 4,218 4,396 Property and equipment, net 963 1,309 Goodwill 391 398 Other intangible assets, net 72 113 Timber notes receivable 926 945 Deferred income taxes 32 35 Other assets 242 281 Total assets $6,844 $7,477 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable $1,340 $1,426 Accrued expenses and other current liabilities 1,517 1,463 Income taxes payable 4 4 Short-term borrowings and current maturities of long-term debt 32 29 Total current liabilities 2,893 2,922 Deferred income taxes and other long-term liabilities 621 719 Pension and postretirement obligations, net 196 163 Long-term debt, net of current maturities 674 696 Non-recourse debt 839 859 Total liabilities 5,223 5,359 Commitments and contingencies Noncontrolling interest in joint venture — 54 Stockholders’ equity: Office Depot, Inc. stockholders’ equity: Common stock — authorized 800,000,000 shares of $.01 par value; issued shares — 551,097,537 in 2014 and536,629,760 in 2013 6 5 Additional paid-in capital 2,556 2,480 Accumulated other comprehensive income 107 272 Accumulated deficit (990) (636) Treasury stock, at cost — 5,915,268 shares in 2014 and 2013 (58) (58) Total Office Depot, Inc. stockholders’ equity 1,621 2,063 Noncontrolling interests — 1 Total equity 1,621 2,064 Total liabilities and stockholders’ equity $6,844 $7,477 The accompanying notes to consolidated financial statements are an integral part of these statements. 64Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions) 2014 2013 2012 Cash flows from operating activities: Net loss $(352) $(20) $(77)Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 313 209 203 Charges for losses on inventories and receivables 66 59 65 Earnings from equity method investments — (14) (30)Loss on extinguishment of debt — — 13 Recovery of purchase price — — (58)Pension plan funding associated with recovery of purchase price — — (58)Asset impairments 88 70 139 Compensation expense for share-based payments 38 38 14 Loss (gain) on disposition of joint ventures 2 (382) — Deferred income taxes and deferred tax asset valuation allowances — 8 1 Loss (gain) on disposition of assets 6 (3) (2)Other 5 5 5 Changes in assets and liabilities: Decrease (increase) in receivables (3) (2) 44 Decrease (increase) in inventories (1) (34) 53 Net decrease (increase) in prepaid expenses and other assets 14 (2) — Net decrease in trade accounts payable, accrued expenses and other current and other long-term liabilities (20) (39) (133)Total adjustments 508 (87) 256 Net cash provided by (used in) operating activities 156 (107) 179 Cash flows from investing activities: Capital expenditures (123) (137) (120)Acquired cash in Merger, net — 457 — Proceeds from sale of joint ventures, net 43 675 — Return of investment in Boise Cascade Holdings, L.L.C. — 35 — Proceeds from sale of available for sale securities 43 — — Recovery of purchase price — — 50 Release of restricted cash — — 9 Restricted cash (3) (4) — Proceeds from disposition of assets and other 12 2 31 Net cash provided by (used in) investing activities (28) 1,028 (30)Cash flows from financing activities: Net proceeds from employee share-based transactions 39 3 2 Payment for noncontrolling interests — — (1)Loss on extinguishment of debt — — (13)Debt retirement — (150) (250)Debt issuance — — 250 Debt related fees — (1) (8)Redemption of redeemable preferred stock — (407) — Redeemable preferred stock dividends — (63) — Proceeds from issuance of borrowings 21 23 22 Payments on long- and short-term borrowings (45) (45) (57)Net cash provided by ( used in) financing activities 15 (640) (55)Effect of exchange rate changes on cash and cash equivalents (27) 3 6 Net increase in cash and cash equivalents 116 284 100 Cash and cash equivalents at beginning of period 955 671 571 Cash and cash equivalents at end of period $1,071 $955 $671 The accompanying notes to consolidated financial statements are an integral part of these statements. 65Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In millions, except share amounts) CommonStockShares CommonStockAmount AdditionalPaid-inCapital AccumulatedOtherComprehensiveIncome (Loss) AccumulatedDeficit TreasuryStock NoncontrollingInterest TotalEquity Balance at December 31, 2011 286,430,567 $3 $1,139 $195 $(539) $(58) $ $740 Net loss (77) (77) Other comprehensive income 18 18 Preferred stock dividends (33) (33) Grant of long-term incentive stock 3,608,806 — Forfeiture of restricted stock (446,703) — Exercise and release of incentive stock(including income tax benefits andwithholding) 2,141,357 — Amortization of long-term incentive stockgrants 14 14 Balance at December 29, 2012 291,734,027 $3 $1,120 $213 $(616) $(58) $— $662 Acquisition of noncontrolling interest 1 1 Net loss (20) (20) Other comprehensive income 59 59 Common stock issuance related to OfficeMaxmerger 239,344,963 2 1,393 1,395 Preferred stock dividends (73) (73) Grant of long-term incentive stock 3,230,565 — Forfeiture of restricted stock (762,496) — Exercise and release of incentive stock(including income tax benefits andwithholding) 3,082,701 2 2 Amortization of long-term incentive stockgrants 38 38 Balance at December 28, 2013 536,629,760 $5 $2,480 $272 $(636) $(58) $1 $2,064 Decrease in subsidiary shares fromnoncontrolling interests (1) (1) Net loss (354) (354) Other comprehensive income (165) (165) Forfeiture of restricted stock (742,823) — Exercise and release of incentive stock(including income tax benefits andwithholding) 15,210,600 1 38 39 Amortization of long-term incentive stockgrants 38 38 Balance at December 27, 2014 551,097,537 $6 $2,556 $107 $(990) $(58) $— $1,621 The accompanying notes to consolidated financial statements are an integral part of these statements. 66Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of Business: Office Depot, Inc. (“Office Depot” or the “Company”) is a global supplier of office products and services. On November 5, 2013, theCompany merged with OfficeMax Incorporated (“OfficeMax”); refer to Note 2 for additional discussion of this merger (the “Merger”). OfficeMax’s results areincluded in the Consolidated Statements of Operations and Cash Flows since the Merger date, affecting comparability of amounts in the three yearspresented. The merged Company currently operates under the Office Depot and OfficeMax banners and utilizes proprietary company and product brandnames.In connection with the voluntary transfer of the listing of the Company’s common stock from the New York Stock Exchange (“NYSE”) to the NASDAQGlobal Select Market (“NASDAQ”), the Company’s common stock ceased trading on the NYSE effective at the close of business on September 25, 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 December 27, 2014, 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 Division and International Division. Following the date of the Merger:(i) the former OfficeMax U.S. Retail business is included in the North American Retail Division; (ii) the former OfficeMax United States and Canada Contractbusiness is included in the North American Business Solutions Division; and (iii) the former OfficeMax businesses in Australia and New Zealand are includedin the International Division. Due to the sale of the Company’s interest in Grupo OfficeMax S. de R.L. de C.V. and related entities (together, “GrupoOfficeMax”) in August 2014, the integration of this business into the International Division was suspended in the second quarter of 2014 and the jointventure’s results have been removed from the International Division and reported as Other to align with how this information is presented for managementreporting.Office Depot currently operates through wholly-owned entities and participates in other ventures and alliances. The Company’s corporate headquarters islocated in Boca Raton, FL, and the Company’s primary website is www.officedepot.com.On February 4, 2015, Staples, Inc. (“Staples”) and the Company announced that the companies have entered into a definitive merger agreement (the “StaplesMerger Agreement”), under which Staples will acquire all of the outstanding shares of Office Depot and the Company will become a wholly owned subsidiaryof Staples (the “Staples Acquisition”). The Company will survive the Staples Merger as a wholly owned subsidiary of Staples. Under the terms of the StaplesMerger Agreement, Office Depot shareholders will receive, for each Office Depot share held by such shareholders, $7.25 in cash and 0.2188 of a share inStaples common stock at closing. Each employee share-based award outstanding at the date of the agreement will vest upon the effective date of the StaplesMerger. The agreement includes representations, warranties and conditions, including breakup fees payable or receivable under certain conditions if thetransaction fails to close. Certain existing debt agreements will require modification prior to closing. The transaction has been approved by both companies’Board of Directors and the completion of the Staples Merger is subject to customary closing conditions including, among others, the approval of OfficeDepot shareholders and various regulatory approvals. Refer to the Company’s Form 8-K filed February 4, 2015 for additional information on the transaction.Basis of Presentation: The consolidated financial statements of Office Depot include the accounts of all wholly owned and, prior to disposition in 2014,financially controlled subsidiaries. Also, variable interest entities formed by OfficeMax in prior periods solely related to the Timber Notes and Non-recoursedebt are consolidated because the Company is the primary beneficiary. Refer to Note 7 for additional information. As a result of the Merger, the Companyowns 88% of a subsidiary that formerly owned assets in Cuba, which were confiscated by the Cuban 67®®Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) government in the 1960’s. Due to various asset restrictions, the fair value of this investment at the Merger date was not determinable and no amounts areincluded in the consolidated financial statements. All material intercompany transactions have been eliminated in consolidation.Noncontrolling interests related to the Company’s investment in Grupo OfficeMax S. de R.L. de C.V. (“Grupo OfficeMax”) through its sale in the thirdquarter of 2014 is presented outside of permanent equity in the Consolidated Balance Sheets because redemption features were not within the Company’scontrol. Results attributable to noncontrolling interests were insignificant for all periods.The equity method of accounting is used for investments in which the Company does not control but either shares control equally or has significantinfluence; the cost method is used when the Company neither shares control nor has significant influence.Fiscal Year: Fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. Certain international locations operate on a calendaryear basis; however, the reporting difference is not considered significant. All years presented in the Consolidated Financial Statements consisted of 52weeks.Estimates and Assumptions: The preparation of financial statements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actualresults could differ from those estimates.Foreign Currency: International operations primarily use local currencies as their functional currency. Assets and liabilities are translated into U.S. dollarsusing the exchange rate at the balance sheet date. Revenues, expenses and cash flows are translated at average monthly exchange rates, or rates on the date ofthe transaction for certain significant items. Translation adjustments resulting from this process are recorded in Stockholders’ equity as a component ofAccumulated other comprehensive income.Foreign currency transaction gains or losses are recorded in the Consolidated Statements of Operations in Other income (expense), net or Cost of goods soldand occupancy costs, depending on the nature of the transaction.Cash and Cash Equivalents: All short-term highly liquid investments with original maturities of three months or less from the date of acquisition areclassified as cash equivalents. Amounts in transit from banks for customer credit card and debit card transactions are classified as cash. The banks process themajority of these amounts within two business days.Amounts not yet presented for payment to zero balance disbursement accounts of $91 million and $118 million at December 27, 2014 and December 28,2013, respectively, are presented in Trade accounts payable and Accrued expenses and other current liabilities.Approximately $309 million of Cash and cash equivalents was held outside the United States at December 27, 2014.Receivables: Trade receivables, net, totaled $812 million and $855 million at December 27, 2014 and December 28, 2013, respectively. An allowance fordoubtful accounts has been recorded to reduce receivables to an amount expected to be collectible from customers. The allowance at December 27, 2014 andDecember 28, 2013 was $18 million and $26 million, respectively.Exposure to credit risk associated with trade receivables is limited by having a large customer base that extends across many different industries andgeographic regions. However, receivables may be adversely affected by an economic slowdown in the United States or internationally. No single customeraccounted for more than 10% of total sales or receivables in 2014, 2013 or 2012. 68Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other receivables are $452 million and $478 million at December 27, 2014 and December 28, 2013, respectively, of which $360 million and $319 million,respectively, are amounts due from vendors under purchase rebate, cooperative advertising and various other marketing programs.The Company sells selected accounts receivables on a non-recourse basis to an unrelated financial institution under a factoring agreement in France. TheCompany accounts for this transaction as a sale of receivables, removes receivables sold from its financial statements, and records cash proceeds whenreceived by the Company as cash provided by operating activities in the Consolidated Statements of Cash Flows. The financial institution makes available80% of the face value of the receivables to the Company and retains the remaining 20% as a guarantee until the receipt of the proceeds associated with thefactored invoices.In 2014 and 2013, the Company withdrew $479 million and $443 million, respectively, under the factoring agreement. Receivables sold for which theCompany did not obtain cash directly from the financial institution are included in Receivables and amount to $6 million and $10 million as ofDecember 27, 2014 and December 28, 2013, respectively. Retention guarantees of $11 million and $13 million are included in Prepaid expenses and othercurrent assets in the Consolidated Balance Sheets as of December 27, 2014 and December 28, 2013, respectively.Inventories: Inventories are stated at the lower of cost or market value and are reduced for inventory losses based on estimated obsolescence and the resultsof physical counts. In-bound freight is included as a cost of inventories. Also, cash discounts and certain vendor allowances that are related to inventorypurchases are recorded as a product cost reduction. The weighted average method is used throughout the Company to determine the cost of inventory and thefirst-in-first-out method is used for inventory held within certain European countries where the Company has operations.Prepaid Expenses and Other Current Assets: At December 27, 2014 and December 28, 2013, Prepaid expenses and other current assets on the ConsolidatedBalance Sheets included prepaid expenses of $116 million and $163 million, respectively, relating to short-term advance payments on rent, marketing,services and other matters. Also, refer to Note 9 for information on deferred taxes included in this financial statement caption.Income Taxes: Income taxes are accounted for under the asset and liability method. This approach requires the recognition of deferred tax assets andliabilities attributable to differences between the carrying amounts and the tax bases of assets and liabilities and operating loss and tax credit carryforwards.Valuation allowances are recorded to reduce deferred tax assets to the amount believed to be more likely than not to be realized. The Company recognizestax benefits from uncertain tax positions when it is more likely than not that the position will be sustained upon examination. Interest related to income taxexposures is included in interest expense in the Consolidated Statements of Operations. Refer to Note 9 for additional information on income taxes.Property and Equipment: Property and equipment additions are recorded at cost. Depreciation and amortization is recognized over the estimated usefullives using the straight-line method. The useful lives of depreciable assets are estimated to be 15-30 years for buildings and 3-10 years for furniture, fixturesand equipment. Computer software is amortized over three years for common office applications, five years for larger business applications and seven yearsfor certain enterprise-wide systems. Leasehold improvements are amortized over the shorter of the estimated economic lives of the improvements or the termsof the underlying leases, including renewal options considered reasonably assured. The Company capitalizes certain costs related to internal use software thatis expected to benefit future periods. These costs are amortized using the straight-line method over the 3–7 year expected life of the software. Major repairsthat extend the useful lives of assets are capitalized and amortized over the estimated use period. Routine maintenance costs are expensed as incurred. 69Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Goodwill and Other Intangible Assets: Goodwill is the excess of the cost of an acquisition over the fair value assigned to net tangible and identifiableintangible assets of the business acquired. The Company reviews goodwill for impairment annually or sooner if indications of possible impairment areidentified. The review period for the goodwill associated with the Merger was the first day of the third quarter of 2014. The Company elected to conduct aquantitative assessment of possible goodwill impairment in 2014. In periods that a quantitative test is used, the Company estimates the reporting unit’s fairvalue using discounted cash flow analysis and market-based evaluations, when available. If the reporting unit’s carrying value exceeds its fair value, animpairment charge is recognized to the extent that the carrying amount of goodwill exceeds its implied fair value. This method of estimating fair valuerequires assumptions, judgments and estimates of future performance. The Company may assess goodwill for possible impairment in future periods byconsidering qualitative factors, rather than this quantitative test.Unless conditions warrant earlier action, intangible assets with indefinite lives also are assessed annually for impairment. Following a decision in 2014 tochange the use and profile of a trade name, the only previous indefinite live intangible asset was tested for impairment and the adjusted balance will beamortized over the estimated use period. Amortizable intangible assets are periodically reviewed to determine whether events and circumstances warrant arevision to the remaining period of amortization or asset impairment. Certain locations identified for closure resulted in impairment of favorable lease assetsrecorded as part of the Merger.Impairment of Long-Lived Assets: Long-lived assets with identifiable cash flows are reviewed for possible impairment whenever events or changes incircumstances indicate that the carrying amount of such assets may not be recoverable. The Company estimates the fair value of the asset or asset groupsusing valuation methodologies that typically include estimates cash flows directly associated with the future use and eventual disposition of the asset orasset groups. If undiscounted cash flows are insufficient to recover the asset, an impairment is measured as the difference between the asset’s estimated fairvalue, generally, the discounted cash flows, and its carrying value, net of salvage, and any costs of disposition.Because of recent operating results and following identification in 2014 of the post-Merger real estate strategy (the “Real Estate Strategy”), retail store long-lived assets are reviewed for impairment indicators quarterly. Impairment is assessed at the individual store level which is the lowest level of identifiable cashflows, and considers the estimated undiscounted cash flows over the asset’s remaining life. If estimated undiscounted cash flows are insufficient to recover theinvestment, an impairment loss is recognized equal to the difference between the estimated fair value of the asset and its carrying value, net of salvage, andany costs of disposition. The fair value estimate is generally the discounted amount of estimated store-specific cash flows.Facility Closure and Severance Costs: Store performance is regularly reviewed against expectations and stores not meeting performance requirements maybe closed. Additionally, in 2014, the Company completed the Real Estate Strategy review that identified approximately 400 stores for closure through 2016.Refer to Note 3 for additional information.Costs associated with facility closures, principally accrued lease costs, are recognized when the facility is no longer used in an operating capacity or when aliability has been incurred. Store assets are also reviewed for possible impairment, or reduction of estimated useful lives.Accruals for facility closure costs are based on the future commitments under contracts, adjusted for assumed sublease benefits and discounted at theCompany’s credit-adjusted risk-free rate at the time of closing. Accretion expense is recognized over the life of the contractual payments. Additionally, theCompany recognizes charges to terminate existing commitments and charges or credits to adjust remaining closed facility accruals to reflect currentexpectations. Accretion expense and adjustments to facility closure costs are presented the Consolidated 70Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Statements of Operations in Selling, general and administrative expenses if the related facility was closed as part of ongoing operations or in Merger,restructuring and other operating expenses, net, if the related facility was closed as part of Merger or restructuring activities. Refer to Note 3 for additionalinformation on accrued expenses relating to closed facilities. The short-term and long-term components of this liability are included in Accrued expenses andother current liabilities and Deferred income taxes and other long-term liabilities, respectively, on the Consolidated Balance Sheets.Employee termination costs covered under written and substantive plans are accrued when probable and estimable and consider continuing servicerequirements, if any. Additionally, one-time employee benefit costs are recognized when the key terms of the arrangements have been communicated toaffected employees. Amounts are recognized when communicated or over the remaining service period, based on the terms of the arrangements.Accrued Expenses: Included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets are accrued payroll-related amounts of$343 million and $319 million at December 27, 2014 and December 28, 2013, respectively.Fair Value of Financial Instruments: The Company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. In developing its fair value estimates, the Company uses the following hierarchy: Level 1 Quoted prices in active markets for identical assets or liabilities.Level 2 Observable market based inputs or unobservable inputs that are corroborated by market data.Level 3 Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuationtechniques such as discounted cash flows or option pricing models using own estimates and assumptions or those expected to be used bymarket participants.The fair values of cash and cash equivalents, receivables, accounts payable and accrued expenses and other current liabilities approximate their carryingvalues because of their short-term nature. Refer to Note 16 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 andInternet sales. Shipping and handling fees are included in Sales with the related costs included in Cost of goods sold and occupancy costs in theConsolidated Statements of Operations. Service revenue is recognized in Sales as the services are rendered. The Company recognizes sales on a gross basiswhen it is considered the primary obligor in the transaction and on a net basis when it is considered to be acting as an agent. Sales taxes collected are notincluded in reported Sales. The Company uses judgment in estimating sales returns, considering numerous factors such as historical sales return rates. TheCompany also records reductions to revenue for customer programs and incentive offerings including special pricing agreements, certain promotions andother volume-based incentives.A liability for future performance is recognized when gift cards are sold and the related revenue is recognized when gift cards are redeemed as payment forproducts or when the likelihood of gift card redemption is considered remote. Gift cards do not have an expiration date. During 2013, the Company modifiedits method of recognizing the estimated portion of the gift card program liability that will not be redeemed, or the breakage amount. Based on the developedhistory of these programs, the Company now recognizes breakage in proportion to usage, rather than at the end of a fixed period of time. The change resultedin an increase in sales of $10 million in 2013. 71Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Franchise fees, royalty income and the sales of products to franchisees and licensees, which currently are not significant, are included in Sales, while relatedproduct costs are included in Cost of goods sold and occupancy costs in the Consolidated Statements of Operations.Cost of Goods Sold and Occupancy Costs: Cost of goods sold and occupancy costs include: -inventory costs (as discussed above); -outbound freight; -employee and non-employee receiving, distribution, and occupancy costs (rent), including real estate taxes and common area costs, ofinventory-holding and selling locations; and -identifiable employee-related costs associated with services provided to customers.Selling, General and Administrative Expenses: Selling, general and administrative expenses include amounts incurred related to expenses of operating andsupport 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, andcertain merchandising and product development functions; -other operating costs incurred relating to selling activities; and -closed defined benefit pension and postretirement plans.Selling, general and administrative expenses are included in the determination of Division operating income to the extent those costs are considered to bedirectly or closely related to segment activity and through allocation of support costs.Merger, restructuring, and other operating expenses, net: Merger, restructuring, and other operating expenses, net in the Consolidated Statements ofOperations includes amounts related to the Merger, including transaction, integration, employee termination benefits, employee retention, employeerelocation, and other related expenses. Transaction and integration activities are primarily integration-related professional fees, incremental labor, travel andrelocation costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Other related expenses include accelerateddepreciation, lease closure accruals and gains and losses on asset dispositions. This presentation reflects costs incurred by the Company prior to the Mergerand costs incurred by the combined entity following the Merger. The impacts of future integration activities such as facility closures, contract terminations,and additional employee-related costs will be reported in this financial statement line item. Integration activities are expected to continue through 2016.Also, the current and prior period amounts include restructuring-related charges not associated with the Merger. Such expenses include facility closure andfunctional re-alignment costs, gains and losses associated with business and asset dispositions, and expenses related to certain shareholder matters andprocess improvement activities. Changes in estimates and accruals related to these restructuring activities are also reflected on this line.Merger, restructuring, and other operating expenses are not included in the measure of Division operating income. Refer to Note 3 for additional information. 72Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Advertising: Advertising costs are charged either to Selling, general and administrative expenses when incurred or, in the case of direct marketingadvertising, capitalized and amortized in proportion to the related revenues over the estimated life of the materials, which range from several months to up toone year.Advertising expense recognized was $447 million in 2014, $378 million in 2013 and $402 million in 2012. Prepaid advertising costs were $21 million as ofDecember 27, 2014 and $26 million as of December 28, 2013.Share-Based Compensation: Compensation expense for all share-based awards expected to vest is measured at fair value on the date of grant and recognizedon a straight-line basis over the related service period. The Black-Scholes valuation model is used to determine the fair value of stock options. The fair valueof restricted stock and restricted stock units, including performance-based awards, is determined based on the Company’s stock price on the date of grant. TheMerger-date value of former OfficeMax share-based awards was valued using the Black-Scholes model and apportioned between Merger consideration andunearned 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 workers’ compensation, auto and general liability and employee medical insurance programs. TheCompany has stop-loss coverage to limit the exposure arising from these claims. Self-insurance liabilities are based on claims filed and estimates of claimsincurred but not reported. These liabilities are not discounted.Vendor Arrangements: The Company enters into arrangements with substantially all significant vendors that provide for some form of consideration to bereceived from the vendors. Arrangements vary, but some specify volume rebate thresholds, advertising support levels, as well as terms for payment and otheradministrative matters. The volume-based rebates, supported by a vendor agreement, are estimated throughout the year and reduce the cost of inventory andcost of goods sold during the year. This estimate is regularly monitored and adjusted for current or anticipated changes in purchase levels and for salesactivity. Other promotional consideration received is event-based or represents general support and is recognized as a reduction of Cost of goods sold andoccupancy costs or Inventories, as appropriate based on the type of promotion and the agreement with the vendor. Certain arrangements meet the specific,incremental, identifiable criteria that allow for direct operating expense offset, but such arrangements are not significant.Pension 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 funded status of its defined benefit pension, retiree medical benefit and life insurance plans in the Consolidated Balance Sheets,with changes in the funded status recognized through accumulated other comprehensive income (loss), net of tax, in the year in which the changes occur.Actuarially-determined liabilities related to pension and postretirement benefits are recorded based on estimates and assumptions. Factors used in developingestimates of these liabilities include assumptions related to discount rates, rates of return on investments, healthcare cost trends, benefit payment patterns andother factors. The Company also updates periodically its assumptions about employee retirement factors, mortality, and turnover. Refer to Note 14 foradditional details.Environmental and Asbestos Matters: Environmental and asbestos liabilities relate to acquired legacy paper and forest products businesses and timberlandassets. The Company accrues for losses associated with these obligations when probable and reasonably estimable. These liabilities are not discounted. Areceivable for insurance recoveries is recorded when probable. 73Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Acquisitions: The Company applies the acquisition method of accounting for acquisitions, including mergers where the Company is considered theaccounting acquirer. As such, the total consideration is allocated to the fair value of assets acquired and liabilities assumed at the point the Company obtainscontrol of the entity. Refer to Note 2 for additional information.Leasing Arrangements: The Company conducts a substantial portion of its business in leased properties. Some of the Company’s leases contain escalationclauses and renewal options. The Company recognizes rental expense for leases that contain predetermined fixed escalation clauses on a straight-line basisover the expected term of the lease. The difference between the amounts charged to expense and the contractual minimum lease payment is accrued for.The expected term of a lease is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any optionor renewal periods management believes are probable of exercise. This expected term is used in the determination of whether a lease is capital or operatingand in the calculation of straight-line rent expense. Rent abatements and escalations are considered in the calculation of minimum lease payments in theCompany’s capital lease tests and in determining straight-line rent expense for operating leases. Straight-line rent expense is also adjusted to reflect anyallowances or reimbursements provided by the lessor. When required under lease agreements, estimated costs to return facilities to original condition areaccrued over the lease period.Derivative Instruments and Hedging Activities: The Company records all derivative instruments on the balance sheet at fair value. Changes in the fair valueof derivative instruments are recorded in current income or deferred in accumulated other comprehensive income, depending on whether a derivative isdesignated as, and is effective as, a hedge and on the type of hedging transaction. Changes in fair value of derivatives that are designated as cash flow hedgesare deferred in accumulated other comprehensive income until the underlying hedged transactions are recognized in earnings, at which time any deferredhedging gains or losses are also recorded in earnings. If a derivative instrument is designated as a fair value hedge, changes in the fair value of the instrumentare reported in current earnings and offset the change in fair value of the hedged assets, liabilities or firm commitments. Historically, the Company has notentered into transactions to hedge its net investment in foreign operations but may in future periods. At December 27, 2014 the fair value of derivativeinstruments were not considered material and the Company had no material hedge transactions in 2014, 2013 or 2012.New Accounting Standards: In April 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update that changes thecriteria for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations that has (or will have) amajor effect on an entity’s operations and financial results will be presented as discontinued operations. The standard also removed continuing cash flowsand significant continuing involvement as considerations in determining if a disposal should be presented as discontinued operations. The standard is to beapplied prospectively and is effective for public entities beginning in annual periods after December 15, 2014, with early adoption allowed. The Companyelected to adopt this standard early, which had no significant impact in the Company’s Consolidated Financial Statements.In May 2014, the FASB issued an accounting standards update that will supersede most current revenue recognition guidance and modify the accounting forcertain costs associated with revenue generation. The core principle of this guidance is that an entity should recognize revenue to depict the transfer ofpromised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. The guidance provides a number of steps to apply to achieve that principle. The standard is effective for the Company’s first quarter of 2017. Earlyadoption is not permitted. Implementation may be either through retrospective application to each period from the first quarter of 2015 or 74Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) with a cumulative effect adjustment upon adoption in 2017. Additional disclosures will also be required under the new standard. The Company is assessingwhat impacts this new standard will have on its Consolidated Financial Statements.NOTE 2. MERGER AND DISPOSITIONSMergerOn November 5, 2013, the Company completed its previously announced merger of equals transaction with OfficeMax. In connection with the Merger, eachformer share of OfficeMax common stock, par value $2.50 per share, issued and outstanding immediately prior to the effective time of the Merger wasconverted to 2.69 shares of Office Depot common stock. The Company issued approximately 240 million shares of Office Depot, Inc. common stock to formerholders of OfficeMax common stock, representing approximately 45% of the approximately 530 million total shares of Company common stock outstandingon the Merger date. Additionally, OfficeMax employee stock options and restricted stock were converted into mirror awards exercisable or earned in OfficeDepot, Inc. common stock. The value of these awards was apportioned between total Merger consideration and unearned compensation and is beingrecognized over the remaining original vesting periods of the awards.Office Depot was determined to be the accounting acquirer. In this all-stock transaction only Office Depot common stock was transferred, the Office Depotshareholders received approximately 55% of the voting interest of the combined company and other factors were equally shared between the two formercompanies, including representation on the combined entity’s Board of Directors, or were further indicators of the Company being the accounting acquirer.Like Office Depot, OfficeMax is 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 to create a more efficient global provider of theseproducts and services that is better able to compete in a changing office supply industry. OfficeMax’s results since the Merger date are included in theConsolidated Statement of Operations. The merged business contributed sales of $939 million and a Net loss of $39 million in 2013.The following unaudited consolidated pro forma summary has been prepared by adjusting the Company’s historical data to give effect to the Merger as if ithad occurred on January 1, 2012: Pro Forma – Unaudited (In millions, except per share amounts) Year EndedDecember 28, 2013 Year EndedDecember 29, 2012 Sales $16,879 $17,640 Net income $33 $262 Net income attributable to common stockholders $31 $258 Earnings per share available to common stockholders Basic $0.06 $0.50 Diluted $0.06 $0.49 The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition method of accounting under existing standardsand is not necessarily indicative of the results of operations that would have occurred if the Merger had been completed on the date indicated, nor is itindicative of the future operating results of the Company. 75Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The unaudited pro forma results have been adjusted with respect to certain aspects of the Merger to reflect: • additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing OfficeMaxassets acquired and liabilities assumed, including property and equipment, favorable and unfavorable lease values, the Timber Notes and Non-recourse debt, and share-based compensation awards; • valuation allowances on U.S. deferred tax assets limited deferred tax benefit recognition; • elimination of the OfficeMax recognition of deferred gain in 2013 of $138 million from the disposition of a portion of its investment in BoiseCascade Holdings and elimination of the OfficeMax recognition of pension settlement charges in 2012 of $56 million as the related deferredvalues were removed in purchase accounting; and • inclusion in the pro forma year 2012 of $79 million Merger transaction costs incurred by both companies through year end 2013.The unaudited pro forma results do not reflect future events that either have occurred or may occur after the Merger, including, but not limited to, theanticipated realization of ongoing savings from operating synergies in subsequent periods. They also do not give effect to certain charges that the Companyexpects to incur in connection with the Merger, including, but not limited to, additional professional fees, employee integration, retention and severancecosts, facility closure costs, potential asset impairments, accelerated depreciation and amortization or product rationalization charges.The Merger was an all-stock transaction. The following table summarizes the consideration transferred. (In millions, except for share exchange ratio and price) OfficeMax common shares outstanding as of November 5, 2013 88 OfficeMax share-based awards exchanged 3 OfficeMax Series D preferred shares, as converted 1 OfficeMax common shares exchanged 92 Exchange ratio 2.69 Office Depot common stock issued for consideration 246.9 Office Depot common stock per share price on November 5, 2013 $5.65 Total fair value of consideration transferred $1,395 76Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the allocation of the consideration to the assets and liabilities at November 5, 2013, as adjusted through the measurementperiod. (In millions) Cash and cash equivalents $460 Receivables 521 Inventories 766 Prepaid expenses and other current assets 106 Property and equipment 521 Favorable leases 44 Definite-lived intangible assets, primarily customer relationships and trade names 57 Investment in Boise Cascade Holdings 80 Timber notes receivable 948 Other noncurrent assets 51 Accounts payable (527)Other current liabilities (471)Unfavorable leases (54)Non-recourse debt (863)Recourse debt (228)Pension and other postretirement obligations (180)Deferred income taxes and other long-term liabilities and Noncontrolling interest (230)Total identifiable net assets 1,001 Goodwill 394 Total $1,395 Includes accrued expenses and other current liabilities and income taxes payable Includes $24 million of goodwill allocated to Grupo OfficeMax that was sold in 2014Receivables are recorded at fair value which represents the amount expected to be collected. Contractual amounts are higher by $14 million. Receivablesinclude trade receivables of approximately $343 million and vendor and other receivables of $178 million.The goodwill attributable to the Merger will not be amortizable or deductible for tax purposes. Goodwill is considered to represent the value associated withthe workforce and synergies the two companies anticipate realizing as a combined company. Refer to Note 5 for further details on goodwill allocation to thereporting units.Noncontrolling interest relating to the joint venture in Mexico was valued, using the same fair value measurement methodologies applied to all assetsacquired and liabilities assumed in the Merger and a fair value estimate based on market multiples. The disposition of the joint venture in 2014 resulted in nogain or loss other than transaction costs and foreign currency impacts.Merger and integration costs are not included as components of consideration transferred but are accounted for as expenses in the period in which the costsare incurred. Transaction-related expenses are included in the Merger, restructuring, and other operating expenses, net line in the Consolidated Statements ofOperations. Refer to Note 3 for additional information about the costs incurred and Note 9 for discussion of the income tax impacts of the Merger. 77(a) (b)(a)(b)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DispositionsGrupo OfficeMaxIn August 2014, the Company completed the sale of its 51% capital stock interest in Grupo OfficeMax, the former OfficeMax business in Mexico, to its jointventure partner for net cash proceeds of approximately $43 million. The loss associated with the disposed business amounted to approximately $2 million,which resulted primarily from the release of the net foreign currency remeasurement differences from investment to the disposition date recorded in othercomprehensive income (cumulative translation adjustment) and fees incurred to complete the transaction. The loss on disposition is included in Merger,restructuring, and other operating expenses, net in the Consolidated Statements of Operations. This disposition will not have a major effect on the Company’soperations and financial results, therefore, the transaction does not meet the discontinued operations criteria under the recently issued and early adoptedaccounting standards disclosed in Note 1.The amounts included in the 2014 Consolidated Statements of Operations for this business through the date of sale are as follows: (In millions) Sales $155 Income before income taxes 6 Income attributable to Office Depot, before income taxes 4 Office Depot de MexicoIn the third quarter of 2013, the Company sold its 50 percent investment in Office Depot de Mexico, S.A. de C.V. (“Office Depot de Mexico”) to its jointventure partner, Grupo Gigante, S.A.B. de C.V. (“Grupo Gigante”). The transaction generated cash proceeds of the Mexican Peso amount of 8,777 million incash (approximately $680 million at then-current exchange rates). A pretax gain of $382 million was recognized in 2013 as Gain on the disposition of jointventure in Other income (expense) in the Consolidated Statement of Operations. The gain is net of third party fees, as well as recognition of $39 million ofcumulative translation losses released from Other comprehensive income because the subsidiary holding the joint venture investment was substantiallyliquidated following the disposition. The investment in this joint venture was accounted for under the equity method of accounting; accordingly, thedisposition is not reflected as discontinued operations. Refer to Note 6 for additional information on this former joint venture. The disposition of this assetfrom the International Division and return of sale proceeds to the Company’s U.S. parent resulted in the fair value of the related reporting unit falling belowits carrying value. Refer to Notes 5 and 9 for further information on the goodwill impairment recorded in 2013 and income tax impacts of the sale,respectively.NOTE 3. MERGER, RESTRUCTURING, AND OTHER ACCRUALSIn recent years, the Company has taken actions to adapt to changing and competitive conditions. These actions include closing facilities, consolidatingfunctional activities, eliminating redundant positions, disposing of businesses and assets, and taking actions to improve process efficiencies. Additionally, in2013, the Merger was completed and integration activities similar to the actions described above began. The Company assumed certain restructuringliabilities previously recorded by OfficeMax. 78Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Merger, restructuring, and other operating expenses, netThe Company presents Merger, restructuring and other operating expenses, net on a separate line in the Consolidated Statements of Operations to identifythese activities apart from the expenses incurred to sell to and service its customers. These expenses are not included in the determination of Divisionoperating income. The table below summarizes the major components of Merger, restructuring and other operating expenses, net. (In millions) 2014 2013 2012 Merger related expenses Severance, retention, and relocation $148 $92 $— Transaction and integration 124 80 — Other related expenses 60 8 — Total Merger related expenses 332 180 — Restructuring and certain other expenses 71 21 56 Total Merger, restructuring and other operating expenses, net $403 $201 $56 Severance, retention, and relocation includes expenses incurred by Office Depot in 2013 and by the combined companies since the date of the Merger thoughDecember 27, 2014, and reflects integration throughout the staff functions. Since the second quarter of 2014, the Real Estate Strategy has been sufficientlydeveloped to provide a basis for estimating termination benefits for certain retail and supply chain closures that are expected to extend through 2016. Suchbenefits are being accrued through the anticipated employee full eligibility date. Because the specific identity of retail locations to be closed is subject tochange as the Real Estate Strategy evolves, the Company applied a probability method to estimating the store closure severance accrual. The calculationconsiders factors such as the expected timing of store closures, terms of existing severance plans, expected employee turnover and attrition. As the integrationevolves and additional decisions about the identity and timing of closures are made, more current information will be available and assumptions used inestimating the termination benefits accrual may change.Transaction and integration expenses in 2014 include integration-related professional fees, incremental temporary contract labor, salary and benefits foremployees dedicated to Merger activity, travel costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Expensesin 2013 primarily relate to legal, accounting, and pre-merger integration activities incurred by Office Depot. Such costs are being recognized as incurred.Other merger related expenses primarily relate to facility closure accruals, gains and losses on asset dispositions, and accelerated depreciation. Facilityclosure expenses in 2014 include amounts incurred by the Company to close 168 retail stores in the United States as part of the Real Estate Strategy. Anadditional 232 retail stores are expected to be closed through 2016. The specific sites to close over this period may be influenced by real estate and othermarket conditions and, therefore, a reasonable estimate of future facility closure accruals cannot be made at this time.Restructuring and certain other expenses in 2014 and 2013 primarily relate to international organizational changes and facility closures prior to theEuropean restructuring plan approved in October 2014 to realign the organization from a geographic-focus to a business channel-focus (the Europeanrestructuring plan). The 2012 amounts include restructuring activities taken in North America as well as Europe and include severance accruals, facilityclosure, and associated other costs.The Company anticipates incurring incremental expenses associated with the European restructuring plan of approximately $120 million, $112 million ofwhich are cash expenditures. The expected $120 million of charges 79Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) associated with the restructuring plan consist primarily of approximately $95 million of severance pay and other employee termination benefits, andapproximately $25 million associated with lease obligations and other costs. Of these total estimated expenses, $37 million has been incurred throughDecember 27, 2014.Merger-related asset impairments are not included in the table above. Refer to Note 16 for further information.Merger and restructuring accrualsThe activity in the merger and restructuring accruals in 2014 and 2013 is presented in the table below. Of the total $403 million and $201 million Merger,restructuring and other expenses incurred in 2014 and 2013, respectively, $266 million and $98 million are related to merger or restructuring liabilities andare included as Charges incurred in the table below. (In millions) BeginningBalance ChargesIncurred OfficeMaxMergerAdditions CashPayments Currency,LeaseAccretion,and OtherAdjustments EndingBalance 2014 Termination benefits Merger-related accruals $23 $99 $— $(91) $— $31 European restructuring plan — 26 — — — 26 Other restructuring accruals 5 23 — (21) 1 8 Acquired entity accruals 4 — — (2) (2) — 32 148 — (114) (1) 65 Lease and contract obligations, accruals for facilities closures and othercosts Merger-related accruals 25 111 — (65) — 71 European restructuring plan — 2 — (2) — — Other restructuring accruals 62 5 — (33) 1 35 Acquired entity accruals 59 — — (25) 2 36 146 118 — (125) 3 142 Total $178 $266 $— $(239) $2 $207 2013 Termination benefits Merger-related accruals $— $29 $— $(6) $— $23 Other restructuring accruals 6 23 — (24) — 5 Acquired entity accruals — 1 4 (1) — 4 6 53 4 (31) — 32 Lease and contract obligations, accruals for facilities closures and othercosts Merger-related accruals — 42 22 (39) — 25 Other restructuring accruals 87 1 — (34) 8 62 Acquired entity accruals — 2 63 (6) — 59 87 45 85 (79) 8 146 Total $93 $98 $89 $(110) $8 $178 80Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The remaining $137 million and $103 million in 2014 and 2013, respectively, are excluded from the table above because these items are expensed asincurred, non-cash, or otherwise not associated with the merger and restructuring balance sheet accounts. The $137 million incurred in 2014 is comprised of$124 million merger transaction and integration expenses, $9 million European restructuring transaction and integration expenses, $5 million employee non-cash equity compensation expenses, and $1 million net credit associated primarily to fixed assets and rent related items. The $103 million incurred in 2013 iscomprised of $80 million merger transaction and integration expenses, $20 million employee non-cash equity compensation expenses, and a net $3 millionof other expenses.NOTE 4. PROPERTY AND EQUIPMENTProperty and equipment consists of: (In millions) December 27,2014 December 28,2013 Land $88 $101 Buildings 431 469 Leasehold improvements 745 780 Furniture, fixtures and equipment 1,480 1,605 2,744 2,955 Less accumulated depreciation (1,781) (1,646)Total $963 $1,309 The above table of property and equipment includes assets held under capital leases as follows: (In thousands) December 27,2014 December 28,2013 Buildings $204 $228 Furniture, fixtures and equipment 74 65 278 293 Less accumulated depreciation (124) (127)Total $154 $166 Depreciation expense was $210 million in 2014, $149 million in 2013, and $152 million in 2012.Included in furniture, fixtures and equipment above are capitalized software costs of $558 million and $531 million at December 27, 2014 and December 28,2013, respectively. The unamortized amounts of the capitalized software costs are $148 million and $236 million at December 27, 2014 and December 28,2013, respectively. Amortization of capitalized software costs totaled $86 million, $56 million and $46 million in 2014, 2013 and 2012, respectively.Software development costs that do not meet the criteria for capitalization are expensed as incurred. 81Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Estimated future amortization expense related to capitalized software at December 27, 2014 is as follows: (In millions) 2015 $74 2016 42 2017 19 2018 9 2019 4 Thereafter — The weighted average remaining amortization period for capitalized software is 2.8 years.Other assets held for saleCertain facilities identified for closure through integration and other activities have been accounted for as assets held for sale. As of December 27, 2014, theseassets amount to $31 million and are presented in Prepaid expenses and other current assets in the Consolidated Balance Sheet. Any gain on thesedispositions, which are expected to be completed within one year, will be recognized at the Corporate level and included when realized in Merger,restructuring and other operating expenses, net in the Consolidated Statement of Operations.NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETSGoodwillThe components of goodwill by segment are provided in the following table: (In millions) NorthAmericanRetailDivision NorthAmericanBusinessSolutionsDivision InternationalDivision Corporate Total Goodwill $2 $368 $909 — $1,279 Accumulated impairment losses (2) (349) (863) — (1,214) Foreign currency rate impact — — (1) — (1) Balance as of December 29, 2012 $— $19 $45 — $64 Impairment loss — — (44) — (44)Additions — 2 — 377 379 Foreign currency rate impact — — (1) — (1)Balance as of December 28, 2013 $— $21 $— 377 $398 Measurement period fair value adjustments — — — 17 17 Sale of Grupo OfficeMax — — — (24) (24)Allocation to reporting units 78 277 15 (370) — Balance as of December 27, 2014 $78 $298 $15 — $391 Goodwill additions included in Corporate in 2013 relate to the Merger. The allocation of the Merger consideration to the reporting units was completed inthe third quarter of 2014. As the Company finalized the purchase price allocation in 2014, certain preliminary values were adjusted as additional informationbecame available. Initial amounts allocated to certain property and equipment accounts decreased by $16 million and tax 82Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) account adjustments were $1 million. Goodwill of $24 million was allocated to the Grupo OfficeMax business and was removed following the August 2014sale of that business.As a result of the disposition of its investment in Office Depot de Mexico and the associated return of cash to the U.S. parent, in the third quarter of 2013, thecarrying value of the related reporting unit exceeded its fair value. Because the investment was accounted for under the equity method, no goodwill wasallocated to the gain on disposition of joint venture calculation. However, concurrent with the sale and gain recognition, a goodwill impairment charge of$44 million was recognized and is reported on the Asset impairments line in the Consolidated Statements of Operations. Refer to Note 16 for additionaldiscussion of goodwill valuation considerations and annual impairment testing.Intangible AssetsDefinite-lived intangible assets are reviewed periodically to determine whether events and circumstances indicate the carrying amount may not berecoverable or the remaining period of amortization should be revised. In connection with implementing the Real Estate Strategy in 2014, the Companyrecognized impairment charges associated with favorable leases related to identified closing locations totaling $5 million. In 2012, the Company re-evaluated the remaining balances of certain amortizing intangible assets associated with a 2011 acquisition in Sweden. An impairment charge of $14 millionwas recognized. These impairment charges are presented in Asset impairments in the Consolidated Statements of Operations. Refer to Note 16 for additionalinformation on fair value measurement and Real Estate Strategy.During 2014, the Company reassessed its use of a private brand trade name used internationally that previously had been assigned an indefinite life. Theexpected change in profile and life of this brand, along with assigning an estimated life of three years, resulted in an impairment charge of $5 million which isreported in Asset impairments in the Consolidated Statement of Operations. At December 28, 2013, the carrying value of this indefinite-lived intangible assetwas $6 million.Definite-lived intangible assets, which are included in Other intangible assets in the Consolidated Balance Sheets, are as follows: December 27, 2014 (In millions) GrossCarrying Value AccumulatedAmortization NetCarrying Value Customer relationships $77 $ (37) $ 40 Favorable leases 36 (8) 28 Trade names 9 (5) 4 Total $122 $(50) $72 December 28, 2013 (In millions) GrossCarrying Value AccumulatedAmortization NetCarrying Value Customer relationships $74 $ (20) $54 Favorable leases 44 — 44 Trade names 10 (1) 9 Total $128 $(21) $ 107 83Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Definite-lived intangible assets generally are amortized using the straight-line method. The pattern of benefit associated with one customer relationship assetrecognized as part of the Merger warranted a three-year accelerated declining balance method. Favorable leases are amortized using the straight-line methodover the lives of the individual leases, including option renewals anticipated in the original valuation. The remaining weighted average amortization periodsfor customer relationships, favorable leases and trade names are 6 years, 15 years, and 1 year, respectively.Amortization of customer relationships and trade names was $18 million in 2014, $4 million in 2013, and $5 million in 2012. Intangible assets amortizationexpenses are included in the Consolidated Statements of Operations in Selling, general and administrative expenses. Amortization of favorable leases isincluded in rent expense. Refer to Note 10 for further detail.Estimated future amortization expense for the intangible assets is as follows: (In millions) 2015 $ 17 2016 12 2017 7 2018 6 2019 5 Thereafter 25 Total $72 NOTE 6. INVESTMENTSUnconsolidated Joint VenturesFrom 1994 through the third quarter of 2013, the Company participated in a joint venture that sold office products and services in Mexico and Central andSouth America, and accounted for this investment under the equity method. In the third quarter of 2013, the Company sold its 50 percent investment inOffice Depot de Mexico to Grupo Gigante, the joint venture partner. Refer to Note 2 for further details on the disposition. For periods prior to the sale, theCompany’s proportionate share of Office Depot de Mexico’s net income is presented in Other income (expense), net in the Consolidated Statements ofOperations and totaled $13 million through the date of sale in 2013 and $32 million in 2012.Boise Cascade Holdings, LLCAs part of the Merger, the Company acquired an investment of approximately 20% of the voting equity securities (“Common Units”) of Boise CascadeHoldings, L.L.C. (“Boise Cascade Holdings”), a building products company that originated in connection with the OfficeMax sale of its paper, forestproducts and timberland assets in 2004. Through the end of 2013, Boise Cascade Holdings owned common stock of Boise Cascade Company (“BoiseCascade”), a publicly traded entity, which gave the Company the indirect ownership interest of approximately 4% of the shares of Boise Cascade. During thefirst quarter of 2014, Boise Cascade Holdings distributed to its shareholders all of the Boise Cascade common stock it held. The Company received1.6 million shares in this distribution, which the Company fully disposed of in open market transactions through the end of the second quarter of 2014 fortotal cash proceeds of $43 million. During the third quarter of 2014, the Company received an additional $1 million of cash in conjunction with thedissolution of Boise Cascade Holdings. 84Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Through the date of disposition, the investment in Boise Cascade Holdings was accounted for under the cost method because the Company did not have theability to significantly influence the entity’s operating and financial policies. The investment was recorded at fair value on the date of the Merger. AtDecember 28, 2013, the investment of $46 million is included in Other assets in the Consolidated Balance Sheet. Refer to Note 16 for additional fair valueinformation.Additionally, in November 2013, the Company received a $35 million cash distribution as part of a distribution that Boise Cascade Holdings made to theholders of its Common Units following an offering of common shares of Boise Cascade Company. This distribution is considered return of investment and ispresented as an investing activity in the Consolidated Statements of Cash Flows.NOTE 7. TIMBER NOTES/NON-RECOURSE DEBTAs 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 timberland assets in October 2004. The InstallmentNotes were issued by a single-member limited liability company formed by affiliates of Boise Cascade, L.L.C. (the “Note Issuers”). The Installment Notes arenon-amortizing obligations bearing interest at 4.98% and maturing in 2020. In order to support the issuance of the Installment Notes, the Note Issuerstransferred a total of $818 million in cash to Wells Fargo & Company (“Wells Fargo”) (which at the time was Wachovia Corporation). Wells Fargo issued acollateral note (the “Collateral Note”) to the Note Issuers. Concurrently with the issuance of the Installment Notes and the Collateral Note, Wells Fargoguaranteed the respective Installment Notes and the Note Issuers pledged the Collateral Note as security for the performance of the obligations under theInstallment Notes. As all amounts due on the Installment Notes are current and the Company has no reason to believe that the Company will not be able tocollect all amounts due according to the contractual terms of the Installment Notes, the Installment Notes are reported as Timber Notes in the ConsolidatedBalance Sheets in the amount of $926 million and $945 million at December 27, 2014 and December 28, 2013, respectively, which represents the originalprincipal amount of $818 million plus a fair value adjustment recorded through purchase accounting in connection with the Merger. The premium isamortized under the effective interest method as a component of interest income through the maturity date.Also as part of the Merger, the Company acquired non-recourse debt that OfficeMax issued under the structure of the timber note transactions. In December2004, the interests in the Installment Notes and related guarantee were transferred to wholly-owned bankruptcy remote subsidiaries in a securitizationtransaction. The subsidiaries pledged the Installment Notes and related guarantee and issued for cash securitized notes (the “Securitization Notes”) in theamount of $735 million supported by the Wells Fargo guaranty. Recourse on the Securitization Notes is limited to the proceeds of the applicable pledgedInstallment Notes and underlying Wells Fargo guaranty, and therefore there is no recourse against the Company. The Securitization Notes are non-amortizingand pay interest of 5.42% through maturity in 2019. The Securitization Notes are reported as Non-recourse debt in the Company’s Consolidated BalanceSheets in the amount of $839 million and $859 million at December 27, 2014 and December 28, 2013, respectively, which represents the original principalamount of $735 million plus a fair value adjustment recorded through purchase accounting in connection with the Merger. The premium is amortized underthe effective interest method as a component of interest expense through the maturity date. Refer to Note 8 for additional information.The Installment Notes and related Securitization Notes are scheduled to mature in 2020 and 2019, respectively. The Securitization Notes have an initial termthat is approximately three months shorter than the Installment Notes. 85Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The sale of the timberlands in 2004 generated a tax gain for OfficeMax and a related deferred tax liability was recognized. The timber installment notesstructure allowed the deferral of the resulting tax liability until 2020, the maturity date for the Installment Notes. At December 27, 2014, there is a deferredtax liability of $251 million related to the Installment Notes that will reverse upon maturity.NOTE 8. DEBTDebt consists of the following: (In millions) December 27,2014 December 28,2013 Recourse debt: Short-term borrowings and current maturities of long-term debt: Short-term borrowings $1 $3 Capital lease obligations 29 23 Other current maturities of long-term debt 2 3 Total $32 $29 Long-term debt, net of current maturities: Senior Secured Notes, due 2019 $250 $250 7.35% debentures, due 2016 18 18 Revenue bonds, due in varying amounts periodically through 2029 186 186 American & Foreign Power Company, Inc. 5% debentures, due 2030 14 13 Grupo OfficeMax loans — 4 Capital lease obligations 192 207 Other 14 18 Total $674 $696 Non-recourse debt: 5.42% Securitization Notes, due 2019 — Refer to Note 7 $735 $735 Unamortized premium 104 124 Total $839 $859 The Company was in compliance with all applicable financial covenants of existing loan agreements at December 27, 2014.Amended Credit AgreementOn May 25, 2011, the Company entered into an Amended and Restated Credit Agreement with a group of lenders. Additional amendments to the Amendedand Restated Credit Agreement have been entered into and were effective February 2012 and November 2013 (the Amended and Restated Credit Agreementincluding all amendments is referred to as the “Amended Credit Agreement”). The Amended Credit Agreement provides for an asset based, multi-currencyrevolving credit facility of up to $1.25 billion (the “Facility”). The Amended Credit Agreement also provides that the Facility may be increased by up to$250 million, subject to certain terms and conditions, including obtaining increased commitments from existing or new lenders. The amount that can bedrawn on the Facility at any given time is determined based on percentages of certain accounts receivable, inventory and credit card receivables (the“Borrowing Base”). The Facility includes a sub-facility of up to 86Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) $200 million which is available to certain of the Company’s European and Canadian subsidiaries (the “European Borrowers”). Certain of the Company’sdomestic subsidiaries guaranty the obligations under the Facility (the “Domestic Guarantors”). The Amended Credit Agreement also provides for a letter ofcredit sub-facility of up to $400 million, as well as a swingline loan sub-facility of up to $125 million to the Company and an additional swingline loan sub-facility of up to $25 million to the European Borrowers. All loans borrowed under the Agreement may be borrowed, repaid and reborrowed from time to timeuntil the maturity date of May 25, 2016.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 suchDomestic Guarantors’ accounts receivables, inventory, cash, cash equivalents and deposit accounts and a second priority lien on substantially all of theCompany’s and the Domestic Guarantors’ other assets. All amounts borrowed by the European Borrowers under the Facility are secured by a lien on suchEuropean Borrowers’ accounts receivable, inventory, cash, cash equivalents and deposit accounts, as well as certain other assets. At the Company’s option,borrowings made pursuant to the Facility bear interest at either, (i) the alternate base rate (defined as the higher of the Prime Rate (as announced by theAgent), the Federal Funds Rate plus 1/2 of 1% and the one month Adjusted LIBO Rate (defined below) and 1%) or (ii) the Adjusted LIBO Rate (defined as theLIBO Rate as adjusted for statutory revenues) plus, in either case, a certain margin based on the aggregate average availability under the Facility.The Amended Credit Agreement also contains representations, warranties, affirmative and negative covenants, and default provisions which are conditionsprecedent to borrowing. The most significant of these covenants and default provisions include limitations in certain circumstances on acquisitions,dispositions, share repurchases and the payment of cash dividends. The Company has never paid a cash dividend on its common stock.The Facility also includes provisions whereby if the global availability is less than $150 million, or the European availability is below $25 million, theCompany’s cash collections go first to the agent to satisfy outstanding borrowings. Further, if total availability falls below $125 million, a fixed chargecoverage ratio test is required. Any event of default that is not cured within the permitted period, including non-payment of amounts when due, any debt inexcess of $25 million becoming due before the scheduled maturity date, or the acquisition of more than 40% of the ownership of the Company by any personor group, within the meaning of the Securities and Exchange Act of 1934, could result in a termination of the Facility and all amounts outstanding becomingimmediately due and payable.The amendment entered into by the Company which is effective November 5, 2013 (the “Amendment”) increased the Facility from $1.0 billion to $1.25billion, allowed for the Merger, recognized OfficeMax debt and assets, expanded amounts permitted for indebtedness, liens, investments and asset sales andincreased restricted payments and capital expenditure limits, among other changes. In addition, an aggregate undrawn amount of $38 million of letters ofcredit previously issued under a credit agreement of OfficeMax and certain of its subsidiaries, which credit facility was terminated in connection with andimmediately prior to the consummation of the Merger, are deemed as having been issued and being outstanding under the Amended Credit Agreement.At December 27, 2014, the Company had approximately $1.1 billion of available credit under the Facility based on the December 2014 Borrowing Basecertificate. At December 27, 2014, no amounts were outstanding under the Facility. Letters of credit outstanding under the Facility totaled $92 million. Therewere no borrowings under the Facility during 2014.Senior Secured NotesOn March 14, 2012, the Company issued $250 million aggregate principal amount of its 9.75% Senior Secured Notes due March 15, 2019 (“Senior SecuredNotes”) with interest payable in cash semiannually in arrears on March 15 and September 15 of each year. The Senior Secured Notes are fully andunconditionally guaranteed on 87Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) a senior secured basis by each of the Company’s existing and future domestic subsidiaries that guarantee the Amended Credit Agreement. The Senior SecuredNotes are secured on a first-priority basis by a lien on substantially all of the Company’s domestic subsidiaries’ present and future assets, other than assetsthat secure the Amended Credit Agreement, and certain of their present and future equity interests in foreign subsidiaries. The Senior Secured Notes aresecured on a second-priority basis by a lien on the Company and its domestic subsidiaries’ assets that secure the Amended Credit Agreement. The SeniorSecured Notes were issued pursuant to an indenture, dated as of March 14, 2012, among the Company, the domestic subsidiaries named therein and U.S.Bank National Association, as trustee (the “Indenture”). Approximately $7 million of debt issuance costs were capitalized with the issuance of the SeniorSecured Notes and are being amortized through 2019.The terms of the Indenture provide that, among other things, the Senior Secured Notes and guarantees will be senior secured obligations and will: (i) ranksenior in right of payment to any future subordinated indebtedness of the Company and the guarantors; (ii) rank equally in right of payment with all of theexisting and future senior indebtedness of the Company and the guarantors; (iii) rank effectively junior to all existing and future indebtedness under theAmended Credit Agreement to the extent of the value of certain collateral securing the Facility on a first-priority basis, subject to certain exceptions andpermitted liens; (iv) rank effectively senior to all existing and future indebtedness under the Amended Credit Agreement to the extent of the value of certaincollateral securing the Senior Secured Notes; and (v) be structurally subordinated in right of payment to all existing and future indebtedness and otherliabilities of the Company’s non-guarantor subsidiaries (other than indebtedness and liabilities owed to the Company or one of the guarantors).The Indenture contains affirmative and negative covenants that, among other things, limit or restrict the Company’s ability to: incur additional debt or issuestock, pay dividends, make certain investments or make other restricted payments; engage in sales of assets; and engage in consolidations, mergers andacquisitions. However, many of these currently active covenants will cease to apply for so long as the Company receives and maintains investment graderatings from specified debt rating services and there is no default under the Indenture. There are no maintenance financial covenants.The Senior Secured Notes may be redeemed by the Company, in whole or in part, at any time prior to March 15, 2016 at a price equal to 100% of theprincipal amount plus a make-whole premium as of the redemption date and accrued and unpaid interest. Thereafter, the Senior Secured Notes carry optionalredemption features whereby the Company has the redemption option prior to maturity at par plus a premium beginning at 104.875% at March 15, 2016 anddeclining ratably to par at March 15, 2018 and thereafter, plus accrued and unpaid interest.Additionally, on or prior to March 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with the netcash proceeds from certain equity offerings at a redemption price equal to 109.750% of the principal amount of the Senior Secured Notes redeemed plusaccrued and unpaid interest to the redemption date; and, upon the occurrence of a change of control, holders of the Senior Secured Notes may require theCompany to repurchase all or a portion of the Senior Secured Notes in cash at a price equal to 101% of the principal amount to be repurchased plus accruedand unpaid interest to the repurchase date. Change of control, as defined in the Indenture, is a transfer of all or substantially all of the assets of Office Depot,acquisition of more than 50% of the voting power of Office Depot by a person or group, or members of the Office Depot Board of Directors as previouslyapproved by the stockholders of Office Depot ceasing to constitute a majority of the Office Depot Board of Directors.Senior NotesIn August 2003, the Company issued $400 million, 6.25% senior notes (“Senior Notes”) that, because of amortization of a terminated treasury rate lock, hadan effective interest rate of 5.86%. 88Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) On March 15, 2012, the Company repurchased $250 million aggregate principal amount of its outstanding Senior Notes under a cash tender offer. The totalconsideration for each $1,000.00 note surrendered was $1,050.00. Tender fees and a proportionate amount of deferred debt issue costs and a deferred cashflow hedge gain were included in the measurement of the $12 million extinguishment loss reported in the Consolidated Statement of Operations for 2012.The cash amounts of the premium paid and tender fees are reflected as financing activities in the Consolidated Statements of Cash Flows. Accrued interestwas paid through the extinguishment date. The remaining $150 million was repaid at par, upon maturity in August 2013.Other Long-Term DebtAs a result of the Merger, the Company assumed the liability for the amounts in the table above related to the (i) 7.35% debentures, due 2016, (ii) Revenuebonds, due in varying amounts periodically through 2029, and (iii) American & Foreign Power Company, Inc. 5% debentures, due 2030.Capital Lease ObligationsCapital lease obligations primarily relate to buildings and equipment.Short-Term BorrowingsThe Company had short-term borrowings of $1 million at December 27, 2014 under various local currency credit facilities for international subsidiaries thathad an effective interest rate at the end of the year of approximately 5%. The maximum month end amount occurred in March 2014 at approximately $10million and the maximum monthly average amount occurred in March 2014 at approximately $6 million. The majority of these short-term borrowingsrepresent outstanding 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 MaturitiesAggregate annual maturities of recourse debt and capital lease obligations are as follows: (In millions) 2015 $46 2016 59 2017 34 2018 32 2019 281 Thereafter 328 Total 780 Less amount representing interest on capital leases (74)Total 706 Less current portion (32)Total long-term debt $674 89Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9. INCOME TAXESThe components of income (loss) before income taxes consisted of the following: (In millions) 2014 2013 2012 United States $(264) $(230) $(129) Foreign (76) 357 54 Total income (loss) before income taxes $(340) $127 $(75) The income tax expense related to income (loss) from operations consisted of the following: (In millions) 2014 2013 2012 Current: Federal $(2) $15 $(14) State (1) 5 1 Foreign 15 125 14 Deferred : Federal — (4) (5) State 3 (1) — Foreign (3) 7 6 Total income tax expense $12 $147 $2 The following is a reconciliation of income taxes at the U.S. Federal statutory rate to the provision for income taxes: (In millions) 2014 2013 2012 Federal tax computed at the statutory rate $(119) $44 $(26)State taxes, net of Federal benefit 4 3 1 Foreign income taxed at rates other than Federal (10) (28) (15)Increase (decrease) in valuation allowance 112 8 (9)Non-deductible goodwill impairment — 15 — Non-deductible Merger expenses — 13 — Non-deductible foreign interest 13 8 10 Other non-deductible expenses 12 4 3 Change in unrecognized tax benefits (2) — 1 Tax expense from intercompany transactions 2 2 2 Subpart F and dividend income, net of foreign tax credits 2 75 — Change in tax rate — 2 2 Non-taxable return of purchase price — — (22)Deferred taxes on undistributed foreign earnings — 5 68 Tax accounting method change ruling — — (16)Other items, net (2) (4) 3 Income tax expense $12 $147 $2 In 2014, the Company recognized income tax expense on a pretax loss due to deferred tax benefits not being recognized on pretax losses in certain taxjurisdictions with valuation allowances, while income tax expense was recognized in tax jurisdictions with pretax income. The decrease in income taxexpense from 2013 to 2014 is 90Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) primarily attributable to the 2013 sale of the Company’s investment in Office Depot de Mexico, which is discussed in Note 2. In 2013, the Company paid$117 million of Mexican income tax upon the sale and recognized additional U.S. income tax expense of $23 million due to dividend income and Subpart Fincome as a result of the sale, for total income tax expense of $140 million. The sale of the Company’s interest in Grupo OfficeMax during 2014 did notgenerate a similar gain or income tax expense. The 2013 effective tax rate also includes charges related to goodwill impairment (refer to Note 5) and certainMerger expenses that are not deductible for tax purposes.The 2012 effective tax rate includes benefits related to the $16 million favorable settlement of the U.S. Internal Revenue Service (“IRS”) examination of the2009 and 2010 tax years, as well as the recovery of purchase price that is treated as a purchase price adjustment for tax purposes. As discussed in Note 14, thisrecovery would have been a reduction of related goodwill for financial reporting purposes, but the related goodwill was impaired in 2008.The Company operates in several foreign jurisdictions with income tax rates that differ from the U.S. Federal statutory rate, which resulted in a benefit for allyears presented in the effective tax rate reconciliation. Significant foreign tax jurisdictions for which the Company realized such benefit include theNetherlands, the UK, and France. Additionally, Mexico is included for 2013 due to the sale of Office Depot de Mexico.Due to valuation allowances against the Company’s deferred tax assets, no income tax benefit was recognized in the 2014 Consolidated Statement ofOperations related to stock-based compensation. In addition, no income tax benefit was initially recognized in the 2012 and 2013 Consolidated Statement ofOperations related to stock-based compensation. However, due to the sale of Office Depot de Mexico in 2013, the Company realized an income tax benefit of$5 million for the utilization of net operating loss carryforwards that had resulted from excess stock-based compensation deductions for which no benefit waspreviously recorded. The Company also realized an income tax benefit of $3 million for excess stock-based compensation deductions resulting from theexercise and vesting of equity awards during 2013. These income tax benefits were recorded as increases to additional paid-in capital in 2013. 91Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The components of deferred income tax assets and liabilities consisted of the following: (In millions) December 27,2014 December 28,2013 U.S. and foreign net operating loss carryforwards $322 $314 Deferred rent credit 80 97 Pension and other accrued compensation 184 170 Accruals for facility closings 45 38 Inventory 23 25 Self-insurance accruals 33 33 Deferred revenue 39 34 U.S. and foreign income tax credit carryforwards 246 234 Allowance for bad debts 5 8 Accrued expenses 80 60 Basis difference in fixed assets 59 15 Other items, net 8 6 Gross deferred tax assets 1,124 1,034 Valuation allowance (804) (683)Deferred tax assets 320 351 Internal software 8 22 Installment gain on sale of timberlands 251 258 Deferred Subpart F income 27 23 Undistributed foreign earnings 2 12 Deferred tax liabilities 288 315 Net deferred tax assets $32 $36 For financial reporting purposes, a jurisdictional netting process is applied to deferred tax assets and deferred tax liabilities, resulting in the balance sheetclassification shown below. (In millions) December 27,2014 December 28,2013 Deferred tax assets: Included in Prepaid and other current assets $87 $114 Deferred income taxes — noncurrent 32 35 Deferred tax liabilities: Included in Accrued expenses and other current liabilities 3 3 Included in Deferred income taxes and other long-term liabilities 84 110 Net deferred tax asset $32 $36 As of December 27, 2014, the Company has $39 million of U.S. Federal net operating loss (“NOL”) carryforwards, $9 million of which resulted from excessstock-based compensation deductions that will increase additional paid-in capital by $3 million if realized in future periods. The Company has $852 millionof foreign and $1.7 billion of state NOL carryforwards. Of the foreign NOL carryforwards, $668 million can be carried forward indefinitely, $8 million willexpire in 2015, and the remaining balance will expire between 2016 and 2034. Of the state NOL carryforwards, $23 million will expire in 2015, and theremaining balance will expire between 2016 and 2034. The Company also has $109 million of U.S. Federal alternative minimum tax credit carryforwards,which can be used to reduce future regular federal income tax, if any, over an indefinite period. 92Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Additionally, the Company has $125 million of U.S. Federal foreign tax credit carryforwards, which expire between 2015 and 2024, and $17 million of stateand foreign tax credit carryforwards, $5 million of which can be carried forward indefinitely, and the remaining balance will expire between 2023 and 2027.As a result of the Merger in 2013, the Company triggered an “ownership change” as defined in Internal Revenue Code Section 382 and related provisions.Sections 382 and 383 place a limitation on the amount of taxable income which can be offset by carryforward tax attributes, such as net operating losses ortax credits, after a change in control. Generally, after a change in control, a loss corporation cannot deduct carryforward tax attributes in excess of thelimitation prescribed by Section 382 and 383. Therefore, certain of the Company’s carryforward tax attributes may be subject to an annual limitationregarding their utilization against taxable income in future periods. The Company estimates that at least $15 million of deferred tax assets related tocarryforward tax attributes will not be realized because of Section 382 and related provisions. Accordingly, in 2013, the Company reduced the impacteddeferred tax assets by this amount, which was fully offset by a corresponding change in the valuation allowance. If the Company were to experience anotherownership change in future periods, the Company’s deferred tax assets and income tax expense may be negatively impacted.U.S. deferred income taxes have not been provided on certain undistributed earnings of foreign subsidiaries, which were approximately $416 million as ofDecember 27, 2014. The determination of the amount of the related unrecognized deferred tax liabilities is not practicable because of the complexitiesassociated with the hypothetical calculations. The Company has historically reinvested such earnings overseas in foreign operations and expects that futureearnings will also be indefinitely reinvested overseas, with the exception of certain foreign subsidiaries acquired as a result of the Merger. Accordingly, theCompany 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) 2014 2013 2012 Beginning balance $683 $583 $622 Additions, charged to expense 121 26 — Additions, due to the Merger — 84 — Deductions — (10) (39)Ending balance $804 $683 $583 The Company has significant deferred tax assets in the U.S. and in foreign jurisdictions against which valuation allowances have been established to reducesuch deferred tax assets to an amount that is more likely than not to be realized. The establishment of valuation allowances requires significant judgment andis impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered indetermining the appropriateness of recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strongnegative evidence in that evaluation. While the Company believes positive evidence exists with regard to the realizability of these deferred tax assets, it isnot considered sufficient to outweigh the objectively verifiable negative evidence, including the cumulative 36-month pre-tax loss history.In 2014, the Company released valuation allowances in certain foreign jurisdictions due to the existence of sufficient positive evidence, which resulted in anincome tax benefit of $4 million. Valuation allowances were established in certain foreign jurisdictions in 2012 because the realizability of the relateddeferred tax assets was no longer more likely than not. As of 2014, valuation allowances remain in the U.S. and certain foreign jurisdictions where theCompany believes it is necessary to see further positive evidence, such as sustained achievement of cumulative profits, before these valuation allowances canbe released. If such positive evidence 93Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) develops in certain foreign jurisdictions, the Company may release all or a portion of the remaining valuation allowances in these jurisdictions as early as thefirst half of 2015. The Company will continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions.The following table summarizes the activity related to unrecognized tax benefits: (In millions) 2014 2013 2012 Beginning balance $15 $5 $7 Increase related to current year tax positions 7 4 — Increase related to prior year tax positions 4 — 3 Decrease related to prior year tax positions (2) — (1)Decrease related to lapse of statute of limitations — — — Decrease related to settlements with taxing authorities (1) — (4)Increase related to the Merger — 6 — Ending balance $23 $15 $5 Due to settlements with certain tax authorities in 2014, the Company’s balance of unrecognized tax benefits decreased by $3 million, which resulted in anincome tax benefit of $2 million. Included in the balance of $23 million at December 27, 2014, are $7 million of unrecognized tax benefits that, ifrecognized, would affect the effective tax rate. The difference of $16 million primarily results from tax positions which if sustained would be offset bychanges in valuation allowance. It is reasonably possible that certain tax positions will be resolved within the next 12 months, which the Company does notbelieve would result in a material change in its unrecognized tax benefits. Additionally, the Company anticipates that it is reasonably possible that newissues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits; however, an estimate of suchchanges cannot reasonably be made.The Company recognizes interest related to unrecognized tax benefits in interest expense and penalties in the provision for income taxes. The Companyrecognized a net interest and penalty benefit of $9 million in 2014 due to settlements reached with certain taxing authorities. The Company recognizedinterest and penalty expense of $1 million and $2 million in 2013 and 2012, respectively. The Company had approximately $1 million accrued for thepayment of interest and penalties as of December 27, 2014, which is not included in the table above.The Company files a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, theCompany is no longer subject to U.S. federal and state and local income tax examinations for years before 2013 and 2009, respectively. The acquiredOfficeMax U.S. consolidated group is no longer subject to U.S. federal and state and local income tax examinations for years before 2010 and 2006,respectively. The U.S. federal income tax return for 2013 is under concurrent year review. Generally, the Company is subject to routine examination for years2008 and forward in its international tax jurisdictions.NOTE 10. LEASESThe Company leases retail stores and other facilities, vehicles, and equipment under operating lease agreements. Facility leases typically are for a fixed non-cancellable term with one or more renewal options. In addition to minimum rentals, the Company is required to pay certain executory costs such as real estatetaxes, insurance and common area maintenance on most of the facility leases. Many lease agreements contain tenant improvement allowances, rent holidays,and/or rent escalation clauses. Certain leases contain provisions for additional rent to be paid if sales exceed a specified amount, though such payments havebeen immaterial during the years presented. 94Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) For tenant improvement allowances, scheduled rent increases, and rent holidays, a deferred rent liability is recognized and amortized over the terms of therelated lease as a reduction of rent expense. Rent related accruals totaled approximately $275 million and $324 million at December 27, 2014 andDecember 28, 2013, respectively. The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilitiesand Deferred income taxes and other long-term liabilities, respectively, on the Consolidated Balance Sheets.Rent expense, including equipment rental, was $682 million, $458 million and $429 million in 2014, 2013, and 2012, respectively. Rent expense wasreduced by sublease income of $6 million in 2014, $4 million in 2013, and $5 million in 2012.Future minimum lease payments due under the non-cancelable portions of leases as of December 27, 2014 include facility leases that were accrued as storeclosure costs and are as follows. (In millions) 2015 $697 2016 558 2017 424 2018 309 2019 211 Thereafter 454 2,653 Less sublease income 43 Total $2,610 These minimum lease payments do not include contingent rental payments that may be due based on a percentage of sales in excess of stipulated amounts.As of December 27, 2014 and December 28, 2013, unfavorable lease deferred credit for store leases with terms above market value amounted to $33 millionand $52 million, respectively, and are included in Deferred income taxes and other long-term liabilities in the Consolidated Balance Sheets. The unfavorablelease values are amortized on a straight-line basis over the lives of the leases, unless the facility has been identified for closure under the Real Estate Strategy.In 2014, the net amortization of favorable and unfavorable lease values reduced rent expense by approximately $9 million. Refer to Note 5 for further detailson favorable leases.Unfavorable leases estimated future amortization is as follows: (In millions) 2015 $12 2016 9 2017 6 2018 4 2019 1 Thereafter 1 Total $33 The Company has capital lease obligations primarily related to buildings and equipment. Refer to Note 8 for further details on amounts due related to capitallease obligations. 95Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 11. REDEEMABLE PREFERRED STOCKIn 2009, Office Depot issued an aggregate of 350,000 shares of 10.00% Series A Redeemable Convertible Participating Perpetual Preferred Stock, par value$0.01 per share, and 10.00% Series B Redeemable Conditional Convertible Participating Perpetual Preferred Stock, par value $0.01 per share, for $350million (collectively, the “Redeemable Preferred Stock”). The Redeemable Preferred Stock was initially convertible into 70 million shares of Companycommon stock and classified outside of permanent equity on the Consolidated Balance Sheets because certain redemption conditions were not solely withinthe control of Office Depot.Dividends on the Redeemable Preferred Stock were declared quarterly and paid in cash or in-kind as approved by the Board of Directors. For accountingpurposes, dividends paid-in-kind were measured at fair value. Refer to Note 16 for additional fair value measurement information. Reported dividendscalculated on a per share basis were $221.50 and $94.10 for 2013 and 2012, respectively.In accordance with certain Merger-related agreements, which the Company entered into with the holders of the Company’s preferred stock concurrently withthe execution of the Merger Agreement, in both July and November 2013, the Company redeemed 50 percent of the preferred stock outstanding. A total of$431 million in cash was paid for the full redemption of the preferred stock in 2013, included the liquidation preference of $407 million and redemptionpremium of $24 million measured at 6% of the liquidation preference.Preferred stock dividends included in the Consolidated Statement of Operations for 2013 were $73 million, including $28 million of contractual dividendsand $45 million related to the redemptions. The $45 million is comprised of a $24 million redemption premium and $21 million representing the differencebetween liquidation preference and carrying value of the preferred stock. The liquidation preference exceeded the carrying value because of initial issuancecosts and prior period paid-in-kind dividends recorded for accounting purposes at fair value. The $63 million indicated as Dividends on redeemable preferredstock on the Consolidated Statement of Cash Flows is derived from the $73 million of 2013 dividends per the Consolidated Statement of Operations, reducedby the $21 million non-cash difference between liquidation preference and carrying value, plus the payment of dividends accrued at the end of 2012.NOTE 12. STOCKHOLDERS’ EQUITYPreferred StockAs of December 27, 2014 and December 28, 2013, there were 1,000,000 shares of $0.01 par value preferred stock authorized; no shares were issued andoutstanding.Treasury StockAt December 27, 2014, there were 5,915,268 common shares held in treasury. The Company’s Senior Secured Notes and the Facility include restrictions onadditional common stock repurchases, based on the Company’s liquidity and borrowing availability. There were no repurchases of common stock in 2014 or2013. 96Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Accumulated Other Comprehensive IncomeAccumulated other comprehensive income activity, net of tax, where applicable, is provided in the following tables: (In millions) ForeignCurrencyTranslationAdjustments Change inDeferredPension Total Balance at December 28, 2013 $264 $8 $272 Other comprehensive loss activity before reclassifications (79) (88) (167)Amounts reclassified from Accumulated other comprehensiveincome to Net loss) 1 — 1 Tax impact — 1 1 Net year-to-date other comprehensive income (78) (87) (165)Balance at December 27, 2014 $186 $(79) $107 (In millions) ForeignCurrencyTranslationAdjustments Change inDeferredPension Change inDeferredCash FlowHedge Total Balance at December 29, 2012 $217 $(4) $— $213 Other comprehensive income activity before reclassifications 11 22 2 35 Amounts reclassified from Accumulated other comprehensive income to Net loss 36 — (2) 34 Tax impact — (10) — (10) Net year-to-date other comprehensive income 47 12 — 59 Balance at December 28, 2013 $264 $8 $— $272 Amounts in parentheses indicate an increase to earnings. Includes $3 million gain included in Merger, restructuring and other operating expenses, net and $39 million loss, which is a component of Gain ondisposition of joint venture. Included in the $(2) million are $(1) million recorded in Cost of goods sold and occupancy costs and $(1) million included in Other income (expense),net, respectively.Because of valuation allowances in U.S. and several international taxing jurisdictions, items other than deferred pension amounts generally have little or notax impact. The component balances are net of immaterial tax impacts, where applicable.NOTE 13. STOCK-BASED COMPENSATIONLong-Term Incentive PlansDuring 2007, the Company’s Board of Directors adopted, and the shareholders approved, the Office Depot, Inc. 2007 Long-Term Incentive Plan (the “Plan”).The Plan permits the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based, and other equity-basedincentive awards. Employee share-based awards are generally issued in the first quarter of the year. 97 (a)(b)(c)(a)(a)(b)(c)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) In addition, the Company assumed the share issuance plan formerly related to OfficeMax employee grants, the 2003 OfficeMax Incentive and PerformancePlan (the “2003 Plan”). Eight types of awards may be granted under the 2003 Plan, including stock options, stock appreciation rights, restricted stock,restricted stock units, performance units, performance shares, annual incentive awards and stock bonus awards. Awards granted under this plan are of OfficeDepot, Inc. common stock.Each option to purchase OfficeMax common stock outstanding immediately prior to the effective time of the Merger was converted into an option topurchase Office Depot common stock, on the same terms and conditions adjusted by the 2.69 exchange ratio provided for in the Merger Agreement. The fairvalue of those options was measured using an option pricing model with the following assumptions: risk-free rate 0.42%; expected life 2.34; dividend yieldof zero; expected volatility 52.18% and forfeiture rate of 5%.Similarly, each previously-existing OfficeMax restricted stock and restricted stock unit outstanding immediately prior to the effective time of the Merger wasconverted into an Office Depot restricted stock or restricted stock unit, as appropriate, at the 2.69 exchange ratio. The fair value of these awards was allocatedto consideration and unearned compensation, based on the past and future service conditions. The assumed awards related to the Merger have beenidentified, as applicable, in the tables that follow.Stock OptionsThe Company’s stock option exercise price for each grant of a stock option shall not be less than 100% of the fair market value of a share of common stockon the date the option is granted. Options granted under the Plan and the 2003 Plan have vesting periods ranging from one to five years and from one to threeyears after the date of grant, respectively, provided that the individual is continuously employed with the Company. Following the date of grant, all optionsgranted under the Plan and the 2003 Plan expire no more than ten years and seven years, respectively. No stock options were granted in 2014.A summary of the activity in the stock option plans for the last three years is presented below. 2014 2013 2012 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Outstanding at beginning of year 22,702,534 $4.48 12,578,071 $5.25 19,059,176 $6.90 Granted — — 2,003,000 5.24 82,000 3.22 Assumed — Merger — — 13,142,351 3.62 — — Forfeited (1,323,664) 10.46 (2,072,560) 8.83 (4,512,372) 14.51 Exercised (12,776,244) 3.83 (2,948,328) 1.40 (2,050,733) 0.88 Outstanding at end of year 8,602,626 $4.53 22,702,534 $4.48 12,578,071 $5.25 The weighted-average grant date fair values of options granted during 2013 and 2012 were $3.00 and $1.86, respectively, using the following weightedaverage assumptions for grants: • Risk-free interest rates of 1.69% for 2013 and 0.94% for 2012 • Expected lives of six years for 2013 and 4.5 years for 2012 • A dividend yield of zero for both years • Expected volatility ranging from 61% to 69% for 2013 and 72% to 74% for 2012 • Forfeitures are anticipated at 5% and are adjusted for actual experience over the vesting period 98Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes information about options outstanding and exercisable at December 27, 2014. Options Outstanding Options Exercisable Range ofExercise Prices NumberOutstanding Weighted AverageRemainingContractual Life(in years) WeightedAverageExercisePrice NumberExercisable Weighted AverageRemainingContractual Life(in years) WeightedAverageExercisePrice $0.83 $3.00 2,715,238 2.74 $1.42 2,220,878 2.43 $1.33 3.01 5.12 1,456,050 2.92 4.37 1,399,176 2.90 4.39 5.13 301,034 2.45 5.13 301,034 2.45 5.13 5.14 8.00 3,331,826 6.34 5.73 1,998,492 4.64 6.05 8.01 11.27 798,478 1.05 10.19 798,478 1.05 10.19 $0.83 $11.27 8,602,626 4.00 $4.53 6,718,058 3.02 $4.60 The intrinsic value of options exercised in 2014, 2013, and 2012, was $27 million, $10 million, and $4 million, respectively. The aggregate intrinsic value ofoptions outstanding and exercisable at December 27, 2014 were $38 million and $30 million, respectively.As of December 27, 2014, there was approximately $4.1 million of total stock-based compensation expense that has not yet been recognized relating to non-vested awards granted under option plans. This expense is expected to be recognized over a weighted-average period of approximately 1.8 years. TheCompany estimates that all of the 1.9 million unvested options will vest. The number of exercisable options was 6.7 million shares of common stock atDecember 27, 2014 and 16.9 million shares of common stock at December 28, 2013.Restricted Stock and Restricted Stock UnitsIn 2014, the Company granted 5.8 million shares of restricted stock and restricted stock units to eligible employees. In addition, 0.3 million shares weregranted to the Board of Directors as part of their annual compensation and vested immediately on the grant date with distribution to occur following theirseparation from service with the Company. Restricted stock grants to Company employees typically vest annually over a three-year service period. Asummary of the status of the Company’s nonvested shares and changes during 2014, 2013, and 2012 is presented below. 2014 2013 2012 Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Outstanding at beginning of year 10,207,546 $4.76 5,459,900 $3.52 2,612,876 $3.96 Granted 5,809,821 4.33 4,884,848 4.54 4,018,253 3.26 Assumed — Merger — — 6,426,968 3.46 — — Vested (4,179,789) 4.75 (5,788,992) 4.49 (695,751) 3.45 Forfeited (1,129,206) 3.65 (775,178) 4.01 (475,478) 3.79 Outstanding at end of year 10,708,372 $4.65 10,207,546 $4.76 5,459,900 $3.52 As of December 27, 2014, there was approximately $27 million of total unrecognized compensation cost related to nonvested restricted stock. This expense,net of forfeitures, is expected to be recognized over a weighted-average period of approximately 2 years. Total outstanding shares of 10.7 million include1.7 million granted to members of the Board of Directors that have vested but will not be issued until separation from service and nine 99Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) million unvested shares granted to employees. Of the 9 million unvested shares at year end, the Company estimates that 8.6 million shares will vest. The totalgrant date fair value of shares vested during 2014 was approximately $20 million.Performance-Based Incentive ProgramThe Company has a performance-based long-term incentive program consisting of performance stock units. Payouts under this program are based onachievement of certain financial targets set by the Board of Directors and are subject to additional service vesting requirements, generally of three years fromthe grant date.A summary of the activity in the performance-based long-term incentive program since inception is presented below. 2014 2013 2012 Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Outstanding at beginning of the year 3,076,292 $4.45 1,030,753 $3.25 — $— Granted 5,289,047 4.55 4,317,314 4.55 2,073,628 3.25 Vested (1,246,006) 3.74 (261,095) 3.63 — — Forfeited (310,369) 4.16 (2,010,680) 4.15 (1,042,875) 3.32 Outstanding at end of the year 6,808,964 $4.43 3,076,292 $4.45 1,030,753 $3.25 As of December 27, 2014, there was approximately $22 million of total unrecognized compensation expense related to the performance-based long-termincentive program. This expense, net of forfeitures, is expected to be recognized over a weighted-average period of approximately 2.2 years. Of the6.8 million unvested shares at year end, the Company estimates that 6.2 million shares will vest. The total grant date fair value of shares vested during 2014was approximately $6.3 million.NOTE 14. EMPLOYEE BENEFIT PLANSPension and Other Postretirement Benefit PlansPension and Other Postretirement Benefit Plans — North AmericaThe Company has retirement obligations under OfficeMax’s U.S. pension plans (the “U.S. Plans”). The Company sponsors these noncontributory definedbenefit pension plans covering certain terminated employees, terminated vested employees, retirees and some active employees, primarily in the NorthAmerican Business Solutions Division. In 2004 or earlier, OfficeMax’s qualified pension plans were closed to new entrants and the benefits of eligibleparticipants were frozen. Under the terms of these qualified plans, the pension benefit for employees was based primarily on the employees’ years of serviceand benefit plan formulas that varied by plan. The Company’s general funding policy is to make contributions to the plans in amounts that are within thelimits of deductibility under current tax regulations, and not less than the minimum contribution required by law.Additionally, under previous OfficeMax arrangements, the Company has responsibility for sponsoring retiree medical benefit and life insurance plansincluding plans related to operations in Canada (referred to as “Other Benefits” in the tables below). The type of retiree benefits and the extent of coveragevary based on employee classification, date of retirement, location, and other factors. All of these postretirement medical plans are 100Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) unfunded. The Company explicitly reserves the right to amend or terminate its retiree medical and life insurance plans at any time, subject only toconstraints, if any, imposed by the terms of collective bargaining agreements. Amendment or termination may significantly affect the amount of expenseincurred.The impact of these assumed plans is included in the consolidated financial statements from the date of the Merger with OfficeMax.Obligations and Funded StatusThe following table provides a reconciliation of changes in the projected benefit obligation and the fair value of plan assets, as well as the funded status ofthe plan to amounts recognized on the Company’s Consolidated Balance Sheet. The 2013 amounts relate to the period between the Merger date and year-end. Pension Benefits Other Benefits (In millions) 2014 2013 2014 2013 Changes in projected benefit obligation: Obligation at beginning of period $1,122 $1,135 $17 $17 Service cost 3 — — — Interest cost 52 7 1 — Actuarial (gain) loss 138 (12) 1 — Currency exchange rate change — — (1) — Benefits paid (97) (8) (1) — Obligation at end of period $1,218 $1,122 $17 $17 Change in plan assets: Fair value of plan assets at beginning of period $986 $972 $— $— Actual return on plan assets 107 22 — — Employer contribution 43 — 1 — Benefits paid (97) (8) (1) — Fair value of plan assets at end of period 1,039 986 — — Net liability recognized at end of period $(179) $(136) $(17) $(17) The following table shows the amounts recognized in the Consolidated Balance Sheets related to the Company’s North America defined benefit pension andother postretirement benefit plans as of year-ends: Pension Benefits Other Benefits (In millions) 2014 2013 2014 2013 Noncurrent assets $— $10 $— $— Current liabilities (3) (3) (1) (1) Noncurrent liabilities (176) (143) (16) (16) Net amount recognized $(179) $(136) $(17) $(17) Amounts recognized in accumulated other comprehensive loss (income) consist of: Pension Benefits Other Benefits (In millions) 2014 2013 2014 2013 Net loss (gain) $67 $(26) $1 $— Prior service cost (credit) — — — — Total $67 $(26) $1 $— 101Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Information for pension plans with benefit obligations and accumulated benefit obligations in excess of plan assets is as follows: Pension Benefits (In millions) 2014 2013 Projected benefit obligation $(1,218) $(785) Accumulated benefit obligation (1,218) (785) Fair value of plan assets $1,039 $639 Components of Net Periodic Cost (Benefit)The components of net periodic cost (benefit) are as follows: Pension Benefits Other Benefits (In millions) 2014 2013 2014 2013 Service cost $3 $— $— $— Interest cost 52 7 1 — Expected return on plan assets (62) $(8) — — Net periodic cost (benefit) $(7) $(1) $1 $— Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) are as follows: Pension Benefits Other Benefits (In millions) 2014 2013 2014 2013 Accumulated other comprehensive loss (income) at beginning of year $(26) $— $— $— Net loss (gain) 93 (26) 1 — Accumulated other comprehensive loss (income) at end of year $67 $(26) $1 $— No accumulated other comprehensive loss is expected to be recognized as components of net periodic cost during 2015.AssumptionsThe assumptions used in accounting for the Company’s plans are estimates of factors including, among other things, the amount and timing of future benefitpayments. The following table presents the key weighted average assumptions used in the measurement of the Company’s benefit obligations as of year-ends: Other Benefits Pension Benefits United States Canada 2014 2013 2014 2013 2014 2013 Discount rate 3.91% 4.84% 3.40% 4.00% 4.00% 4.80% 102Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the weighted average assumptions used in the measurement of net periodic benefit: Other Benefits Pension Benefits United States Canada 2014 2013 2014 2013 2014 2013 Discount rate 4.84% 4.76% 4.00% 3.80% 4.80% 4.60% Expected long-term rate of return on plan assets 6.50% 6.60% —% —% —% —% For pension benefits, the selected discount rate (which is required to be the rate at which the projected benefit obligation could be effectively settled as of themeasurement date) is based on the rates of return for a theoretical portfolio of high-grade corporate bonds (rated AA or better) with cash flows that generallymatch expected benefit payments in future years. In selecting bonds for this theoretical portfolio, the Company focuses on bonds that match cash flows tobenefit payments and limit the concentration of bonds by issuer. To the extent scheduled bond proceeds exceed the estimated benefit payments in a givenperiod, the yield calculation assumes those excess proceeds are reinvested at an assumed forward rate. The implied forward rate used in the bond model isbased on the Citigroup Pension Discount Curve as of the last day of the year. The selected discount rate for other benefits is from a discount rate curvematched to the assumed payout of related obligations.The expected long-term rate of return on plan assets assumption is based on the weighted average of expected returns for the major asset classes in which theplans’ assets are held. Asset-class expected returns are based on long-term historical returns, inflation expectations, forecasted gross domestic product andearnings growth, as well as other economic factors. The weights assigned to each asset class are based on the Company’s investment strategy. The weightedaverage expected return on plan assets used in the calculation of net periodic pension cost for 2015 is 5.85%.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: 2014 2013 Weighted average assumptions as of year-end: Healthcare cost trend rate assumed for next year 6.40% 6.70% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 4.50% 4.50% Year that the rate reaches the ultimate trend rate 2022 2022 A 1% change in the assumed healthcare cost trend rates would impact operating income by less than $1 million.The Company reassessed the mortality assumptions to measure the North American pension and other postretirement benefit plan obligations at year end2014, adopting the most applicable mortality tables based on the tables released in 2014 by The Society of Actuaries’ Retirement Plan ExperienceCommittee. As a result of this assumption change, pension and other postretirement benefit plan obligations increased by $36 million and $1 million,respectively. 103Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Plan AssetsThe allocation of pension plan assets by category at year-ends is as follows: 2014 2013 Money market funds 2% 3% Equity securities 8% 8% Fixed-income securities 64% 53% Equity mutual funds 25% 36% Other 1% — 100% 100% A retirement funds investment committee is responsible for establishing and overseeing the implementation of the investment policy for the Company’spension plans. The investment policy is structured to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses, in orderto enable the plans to satisfy their benefit payment obligations over time. The Company uses benefit payments and Company contributions as its primaryrebalancing mechanisms to maintain the asset class exposures within the guideline ranges established under the investment policy.The current asset allocation guidelines set forth an U.S. equity range of 9% to 19%, an international equity range of 6% to 16%, a global equity range of 4%to 14% and a fixed-income range of 61% to 71%. Asset-class positions within the ranges are continually evaluated and adjusted based on expectations forfuture returns, the funded position of the plans and market risks. Occasionally, the Company may utilize futures or other financial instruments to alter thepension trust’s exposure 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 reference to published market prices. Investments in certain restricted stocks are valued at the quoted market price ofthe issuer’s unrestricted common stock less an appropriate discount. If a quoted market price for unrestricted common stock of 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 similarcompanies based on current market prices. 104Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the pension plan assets by level within the fair value hierarchy at year-ends. (In millions) Fair Value Measurementsat December 27, 2014 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $18 $— $18 $— Equity securities U.S. large-cap 24 24 — — U.S. small and mid-cap 4 4 — — International 58 58 — — Total equity securities 86 86 — — Fixed-income securities Corporate bonds 612 — 612 — Government securities 19 — 19 — Other fixed-income 39 — 39 — Total fixed-income securities 670 — 670 — Other Equity mutual funds 255 — 255 — Other, including plan receivables and payables 10 10 — — $1,039 $96 $943 $— (In millions) Fair Value Measurementsat December 28, 2013 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $25 $25 $— $— Equity securities U.S. large-cap 18 18 — — U.S. small and mid-cap 4 4 — — International 56 56 — — Total equity securities 78 78 — — Fixed-income securities Corporate bonds 459 — 459 — Government securities 18 — 18 — Other fixed-income 41 — 41 — Total fixed-income securities 518 — 518 — Other Equity mutual funds 353 — 353 — Other, including plan receivables and payables 12 12 — — $986 $115 $871 $— 105Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.Cash FlowsPension plan contributions include required statutory minimum amounts and, in some years, additional discretionary amounts. In 2014, the Companycontributed $43 million to these pension plans. Pension contributions for a full year of 2015 are estimated to be $9 million. The Company may elect at anytime to make additional voluntary contributions.Qualified pension benefit payments are paid from the assets held in the plan trust, while nonqualified pension and other benefit payments are paid by theCompany. Anticipated benefit payments by year are as follows: (In millions) PensionBenefits OtherBenefits 2015 $94 $1 2016 91 1 2017 89 1 2018 87 1 2019 85 1 Next five years 393 4 Pension Plan — EuropeThe 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 approved by the trustees and future service benefits ceased for the remaining employees.The sale and purchase agreement (“SPA”) associated with the 2003 European acquisition included a provision whereby the seller was required to pay anamount to the Company if the acquired pension plan was determined to be underfunded based on 2008 plan data. The unfunded obligation amountcalculated by the plan’s actuary based on that data was disputed by the seller. In accordance with the SPA, the parties entered into arbitration to resolve thismatter and, in March 2011, the arbitrator found in favor of the Company. The seller pursued an annulment of the award in French court. In November 2011,the seller paid GBP 5.5 million ($8.8 million, measured at then-current exchange rates) to the Company to allow for future monthly payments to the pensionplan, pending a court ruling on their cancellation request. That money was placed in an escrow account with the pension plan acting as trustee. On January 6,2012, the Company and the seller entered into a settlement agreement that settled all claims by either party for this and any other matter under the originalSPA. The seller paid an additional GBP 32 million (approximately $50 million, measured at then-current exchange rates) to the Company in February 2012.Following this cash receipt in February 2012, the Company contributed the GBP 38 million (approximately $58 million at then-current exchange rates) tothe pension plan, resulting in the plan changing to a net asset position since December 29, 2012. There are no additional funding requirements while the planis in a surplus position.This pension provision of the SPA was disclosed in 2003 and subsequent periods as a matter that would reduce goodwill when the plan was remeasured andcash received. However, all goodwill associated with this transaction was impaired in 2008, and because the remeasurement process had not yet begun, noestimate of the potential payment to the Company could be made at that time. Consistent with disclosures subsequent to the 2008 goodwill impairment,resolution of this matter in the first quarter of 2012 was reflected as a credit to operating expense. The cash received from the seller, reversal of an accruedliability as a result of the settlement 106Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) agreement, fees incurred in 2012, and fee reimbursement from the seller have been reported in Recovery of purchase price in the Consolidated Statement ofOperations for 2012, totaling $68 million. An additional expense of $5 million of costs incurred in prior periods related to this arrangement is included inMerger, restructuring and other operating expenses, net, in the Consolidated Statement of Operations, resulting in a net increase in operating profit for 2012of $63 million. Similar to the presentation of goodwill impairment in 2008, this recovery and related charge is reported at the corporate level, not part ofInternational Division operating income.The cash payment from the seller was received by a subsidiary of the Company with the Euro as its functional currency and the pension plan funding wasmade by a subsidiary with Pound Sterling as its functional currency, resulting in certain translation differences between amounts reflected in theConsolidated Statement of Operations and the Consolidated Statement of Cash Flows for 2012. The receipt of cash from the seller is presented as a source ofcash in investing activities. The contribution of cash to the pension plan is presented as a use of cash in operating activities.Obligations and Funded StatusThe following table provides a reconciliation of changes in the projected benefit obligation, the fair value of plan assets and the funded status of the plan toamounts recognized on the Company’s Consolidated Balance Sheets. (In millions) December 28, 2014 December 29, 2013 Changes in projected benefit obligation: Obligation at beginning of period $224 $208 Service cost — — Interest cost 10 9 Benefits paid (6) (4)Actuarial loss 25 6 Currency translation (14) 5 Obligation at end of period 239 224 Changes in plan assets: Fair value of plan assets at beginning of period 232 216 Actual return on plan assets 47 14 Benefits paid (6) (4)Currency translation (16) 6 Fair value of plan assets at end of period 257 232 Net asset recognized at end of period $18 $8 In the Consolidated Balance Sheets, the net funded amounts are classified as a non-current asset in the caption Other assets.Components of Net Periodic BenefitThe components of net periodic benefit are presented below: (In millions) 2014 2013 2012 Service cost $— $— $— Interest cost 10 9 9 Expected return on plan assets (14) (13) (11)Net periodic pension benefit $(4) $(4) $(2) 107Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Included in Accumulated other comprehensive income were deferred losses of $1 million and $8 million at December 27, 2014 and December 28, 2013,respectively. The deferred loss is not expected to be amortized into income during 2015.AssumptionsAssumptions used in calculating the funded status included: 2014 2013 2012 Expected long-term rate of return on plan assets 5.55% 6.33% 6.00% Discount rate 3.80% 4.60% 4.40% Inflation 3.10% 3.40% 3.00% The long-term rate of return on assets assumption has been derived based on long-term UK government fixed income yields, having regard to the proportionof assets in each asset class. The funds invested in equities have been assumed to return 4.0% above the return on UK government securities of appropriateduration. Funds invested in corporate bonds are assumed to return equal to a 15 year AA bond index. Allowance is made for expenses of 0.5% of assets.Plan AssetsThe allocation of Plan assets is as follows: 2014 2013 Cash 1% 1% Equity securities 53% 54% Fixed-income securities 46% 45% Total 100% 100% A committee, comprised of representatives of the Company and of this plan, is responsible for establishing and overseeing the implementation of theinvestment policy for this plan. The plan’s investment policy and strategy are to ensure assets are available to meet the obligations to the beneficiaries and toadjust plan contributions accordingly. The plan trustees are also committed to reducing the level of risk in the plan over the long term, while retaining areturn above that of the growth of liabilities. The investment strategy is based on plan funding levels, which determine the asset target allocation intomatching or growth investments. Matching investments are intended to provide a return similar to the increase in the plan liabilities. Growth investments areassets intended to provide a return in excess of the increase in liabilities. At December 27, 2014, the asset target allocation was in accordance with theinvestment strategy. Asset-class allocations within the ranges are continually evaluated and adjusted based on expectations for future returns, the fundedposition of the plan and market risks. 108Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table presents the pension plan assets by level within the fair value hierarchy. (In millions) Fair Value Measurementsat December 27, 2014 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash $1 $1 $— $— Equity securities Developed market equity funds 81 81 — — Emerging market equity funds 27 27 — — Mutual funds real estate 7 — — 7 Mutual funds 17 — 17 — Total equity securities 132 108 17 7 Fixed-income securities UK debt funds 21 — 21 — Liability term matching debt funds 80 — 80 — Emerging market debt fund 9 — 9 — High yield debt 14 — 14 — Total fixed-income securities 124 — 124 — Total $257 $109 $141 $7 (In millions) Fair Value Measurementsat December 28, 2013 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash $1 $1 $— $— Equity securities Developed market equity funds 77 69 8 — Emerging market equity funds 16 14 2 — Mutual funds real estate 8 — 1 7 Mutual funds 22 — 22 — Total equity securities 123 83 33 7 Fixed-income securities UK debt funds 19 — 19 — Liability term matching debt funds 73 — 73 — Emerging market debt fund 9 — 9 — High yield debt 7 — 7 — Total fixed-income securities 108 — 108 — Total $232 $84 $141 $7 109Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following is a reconciliation of the change in fair value of the pension plan assets calculated based on Level 3 inputs; during 2014, there was no changein the fair value of the pension plan assets or transfers of assets valued based on Level 3 inputs. (In millions) Total Balance at December 29, 2012 $— Purchases, sales, and settlements 7 Balance at December 28, 2013 $7 Cash FlowsAnticipated benefit payments for the European pension plan, at December 27, 2014 exchange rates, are as follows: (In millions) BenefitPayments 2015 $6 2016 6 2017 6 2018 6 2019 6 Next five years $34 Retirement Savings PlansThe Company also sponsors defined contribution plans for most of its employees. Eligible Company employees may participate in the Office Depot, Inc.Retirement Savings Plan. In connection with the Merger, certain employees still participate in one of two contributory defined contribution savings plansthat OfficeMax had in place for most of its salaried and hourly employees: a plan for U.S. employees and a plan for Puerto Rico employees. All of theCompany’s existing and assumed OfficeMax defined contribution plans (the “401(k) Plans”) allow eligible employees to contribute a percentage of theirsalary, commissions and bonuses in accordance with plan limitations and provisions of Section 401(k) of the Internal Revenue Code and the Company makesmatching contributions to each plan subject to the limits of the respective 401(k) Plans. Matching contributions are invested in the same manner as theparticipants’ pre-tax contributions. The 401(k) Plans also allow for a discretionary matching contribution in addition to the normal match contributions ifapproved by the Board of Directors.Office Depot and OfficeMax previously sponsored non-qualified deferred compensation plans that allowed certain employees, who were limited in theamount they could contribute to their respective 401(k) plans, to defer a portion of their earnings and receive a Company matching amount. Both plans areclosed to new contributions.During 2014, 2013, and 2012, $16 million, $9 million, and $7 million, respectively, were recorded as compensation expense for the Company’scontributions to these programs and certain international retirement savings plans. Additionally, nonparticipating annuity premiums were paid for benefits incertain European countries totaling $4 million, $4 million, and $5 million in 2014, 2013, and 2012, respectively. 110Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. EARNINGS PER SHAREThe following table presents the calculation of net loss per common share — basic and diluted: (In millions, except per share amounts) 2014 2013 2012 Basic Earnings Per Share Numerator: Net loss attributable to common stockholders $(354) $(93) $(110)Denominator: Weighted-average shares outstanding 535 318 280 Basic loss per share $(0.66) $(0.29) $(0.39)Diluted Earnings Per Share Numerator: Net loss attributable to Office Depot, Inc. $(354) $(20) $(77)Denominator: Weighted-average shares outstanding 535 318 280 Diluted loss per share $(0.66) $(0.29) $(0.39)Shares issued related to the Merger impact the weighted average share calculation for the years of 2014 and 2013. The 2013 impact is from the Mergerclosing date to December 28, 2013. The following potentially dilutive stock options and restricted stock were excluded from the diluted loss per sharecalculation because of the net loss in the periods. (In millions, except per share amounts) 2014 2013 2012 Potentially dilutive securities: Stock options and restricted stock 8 7 5 Redeemable preferred stock — 56 78 Awards of options and nonvested shares representing an additional 9 million, 6 million and 15 million shares of common stock were outstanding for the yearsended December 27, 2014, December 28, 2013, and December 29, 2012, respectively, but were not included in the computation of diluted weighted-averageshares outstanding because their effect would have been antidilutive. For the three years presented, no tax benefits have been assumed in the weightedaverage share calculation in jurisdictions with valuation allowances.Shares of the redeemable preferred stock were fully redeemed in 2013. Following the July 2013 shareholder approval of the transactions contemplated by theMerger Agreement, 50 percent of the outstanding preferred stock was redeemed and the remaining 50 percent was redeemed in November 2013 in connectionwith the Merger closing. In periods in which the redeemable preferred stock were outstanding, basic earnings (loss) per share (“EPS”) was computed afterconsideration of preferred stock dividends. The redeemable preferred stock had equal dividend participation rights with common stock that requiredapplication of the two-class method for computing earnings per share. In periods of sufficient earnings, this method assumes an allocation of undistributedearnings to both participating stock classes. The two-class method impacted the computation of earnings for the first quarter of 2012 and third quarter of2013, but was not applicable to the full year 2012 or full year 2013 because it would have been antidilutive. The preferred stockholders were not required tofund losses. Refer to Note 11 for further redemption details. 111Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 16. DERIVATIVE INSTRUMENTS AND FAIR VALUE MEASUREMENTSDerivative Instruments and Hedging ActivitiesAs a global supplier of office products and services the Company is exposed to risks associated with changes in foreign currency exchange rates, fuel andother commodity prices and interest rates. Depending on the exposure, settlement timeframe and other factors, the Company may enter into derivativetransactions to mitigate those risks. Financial instruments authorized under the Company’s established risk management policy include spot trades, swaps,options, caps, collars, forwards and futures. Use of derivative financial instruments for speculative purposes is expressly prohibited. The Company maydesignate and account for such qualifying arrangements as hedges. As of December 27, 2014, the foreign exchange contracts extend through March 2015 andfuel contracts extended through January 2016.The fair values of the Company’s foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements at thereporting date, taking into account current interest rates, exchange rates and commodity prices. The values are based on market-based inputs or unobservableinputs that are corroborated by market data. At December 27, 2014, Accrued expenses and other liabilities in the Consolidated Balance Sheet includes $6million related to derivative fuel contracts payable.Financial InstrumentsThe following table presents information about financial instruments at the balance sheet dates indicated. 2014 2013 (In millions) CarryingValue FairValue CarryingValue FairValue Financial assets: Timber notes receivables $926 $930 $945 $933 Boise investment — — 46 47 Financial liabilities: Recourse debt: 9.75% Senior Secured Notes 250 280 250 290 7.35% debentures, due 2016 18 18 18 19 Revenue bonds, due in varying amounts periodically through 2029 186 185 186 186 American & Foreign Power Company, Inc. 5% debentures, due 2030 14 13 13 13 Non-recourse debt 839 845 859 851 The following methods and assumptions were used to estimate the fair value of each class of financial instruments: • Timber notes receivable: Fair value is determined as the present value of expected future cash flows discounted at the current interest rate forloans of similar terms with comparable credit risk (Level 2 measure). • Boise Investment: Fair value at December 28, 2013 was calculated as the sum of the market value of the Company’s indirect investment in BoiseCascade, the primary investment of Boise Cascade Holdings, plus the Company’s portion of any cash held by Boise Cascade Holdings as of thebalance sheet date (together, Level 2 measure). The Company’s indirect investment in Boise Cascade was calculated using the number of sharesthe Company indirectly held in Boise Cascade multiplied by its closing stock price as of the last trading day prior to the balance sheet date. Theinvestment in Boise Cascade Holdings was fully disposed of in 2014. Refer to Note 6 for further details. 112Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • Recourse debt: Recourse debt for which there were no transactions on the measurement date was valued based on quoted market prices near themeasurement date when available or by discounting the future cash flows of each instrument using rates based on the most recently observabletrade or using rates currently offered to the Company for similar debt instruments of comparable maturities (Level 2 measure). • Non-recourse debt: Fair value is estimated by discounting the future cash flows of the instrument at rates currently available to the Company forsimilar instruments of comparable maturities (Level 2 measure).Fair Value Estimates Used in Impairment AnalysesAll impairment charges discussed in the sections below are presented in Asset impairments in the Consolidated Statements of Operations.Retail StoresBecause of declining sales in recent periods and adoption of the Real Estate Strategy in 2014, the Company has conducted a detailed quarterly storeimpairment analysis. The analysis uses input from retail store operations and the Company’s accounting and finance personnel that organizationally report tothe Chief Financial Officer. These Level 3 projections are based on management’s estimates of store-level sales, gross margins, direct expenses, exercise offuture lease renewal options where applicable, and resulting cash flows and, by their nature, include judgments about how current initiatives will impactfuture performance. If the anticipated cash flows of a store cannot support the carrying value of its assets, the assets are impaired and written down toestimated fair value using Level 3 measure. The Company recognized store asset impairment charges of $25 million, $26 million, and $124 million in 2014,2013, and 2012, respectively.Following the Merger, the asset group tested for impairment included the retail store operating assets, as well as any favorable lease intangible asset. Theimpairment results of this analysis are addressed in the following paragraph for the operating assets and in the Intangible Assets, Software and Definite-livedintangible assets sections, respectively.The 2014 analysis incorporated the probability assessment of which stores will be closed through 2016, as well as projected cash flows through the base leaseperiod for stores identified for ongoing operations. The projections assumed flat sales for one year, decreasing thereafter. Gross margin assumptions have beenheld constant at current actual levels and operating costs have been assumed to be consistent with recent actual results and planned activities. For the fourthquarter 2014 impairment analysis, identified locations were reduced to estimated fair value of $1 million based on their projected cash flows, discounted at13% or estimated salvage value of $2 million, as appropriate. The Company continues to capitalize additions to previously-impaired operating stores andtests for subsequent impairment. A 100 basis point decrease in next year sales combined with a 50 basis point decrease in next year gross margin would haveincreased the impairment by approximately $1 million. Further, a 100 basis point decrease in sales for all future periods would increase the impairment byapproximately $1 million. The 2014 store impairment charge also includes $1 million related to the closure of stores in Canada.The store impairment analysis for 2013 projected sales declines for several years, then stabilizing. Gross margin and operating cost assumptions wereconsistent with actual results and planned activities. For the 2013 impairment analysis, identified locations were reduced to estimated fair value of $10million based on their projected cash flows, discounted at 13% or estimated salvage value of $7 million, as appropriate. 113Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A review of the North American Retail portfolio during 2012 concluded with a plan for each location to maintain its current configuration, downsize to eithersmall or mid-size format, relocate, remodel, renew or close at the end of the base lease term. The asset impairment analysis previously had assumed at leastone optional lease renewal. Additionally, projected sales trends included in the impairment calculation model in prior periods were reduced. These changes,and continued store performance, served as a basis for the Company’s asset impairment review for 2012.The Company will continue to evaluate initiatives to improve performance and lower operating costs. To the extent that forward-looking sales and operatingassumptions are not achieved and are subsequently reduced, or in certain circumstances, even if store performance is as anticipated, additional impairmentcharges may result. However, at the end of 2014, the impairment analysis reflects the Company’s best estimate of future performance.Intangible AssetsIndefinite-lived intangible assets — During 2014, the Company reassessed its use of a private brand trade name used internationally, that previously hadbeen assigned an indefinite life. The expected change in profile and life of this brand, along with assigning an estimated life of three years, resulted in animpairment charge of $5 million. This charge is not included in determination of Division operating income. The estimated fair value was calculated basedon a discounted relief from royalty method using Level 3 inputs.Goodwill associated with the Merger has been allocated to the reporting units for the purposes of the annual goodwill impairment test. The estimated fairvalue of each reporting unit exceeds its carrying value at the test date. The reporting unit of Australia and New Zealand, which was not combined with anyexisting Office Depot businesses, has an estimated fair value approximately 10% above its carrying value. Goodwill in that reporting unit is $15 million. Theestimated fair value of this reporting unit includes projected cash outflows related to certain restructuring activities. Should these restructuring activities notresult in the anticipated future period benefits, or if there is a downturn in performance, a potential future goodwill impairment could result. However, theCompany believes, based on these projections, that there are no current indicators of impairment in this reporting unit. The estimated fair values of the otherreporting units, which were combined with existing Office Depot businesses, were substantially in excess of their carrying values.As of December 29, 2012, goodwill of $45 million (at then-current exchange rates) was included in the International Division in a reporting unit comprised ofwholly-owned operating subsidiaries in Europe and ownership of the joint venture operating in Mexico. The total estimated fair value of the reporting unitexceeded its carrying value by approximately 30%, however, a substantial majority of that excess value was associated with the joint venture. In 2013, whenthe reporting unit sold its investment in the joint venture and distributed essentially all of the after tax proceeds to its U.S. parent, the fair value fell below itscarrying value. Because the investment was accounted for under the equity method, no goodwill was allocated to the gain on disposition of joint venturecalculation. However, concurrent with the sale and gain recognition, a goodwill impairment charge of $44 million was recognized.Software and Definite-lived intangible assets — Asset impairment charges for 2014 include $12 million resulting from a decision to convert certain websitesto a common platform, $28 million related to the abandonment of a software implementation project in Europe, and $13 million write off of capitalizedsoftware following certain information technology platform decisions related to the Merger.Following identification of retail stores for closure as part of the Real Estate Strategy, the related favorable lease assets were assessed for acceleratedamortization or impairment. Considerations included the Level 3 projected 114Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) cash flows discussed above, the net book value of operating assets and favorable lease assets, and likely sublease over the option period after closure or returnof property to landlords. Impairment of $5 million was recognized during 2014.During 2011, the Company acquired an office supply company in Sweden to supplement the existing business in that market. As a result of slowingeconomic conditions in Sweden after the acquisition, difficulties in the consolidation of multiple distribution centers and the adoption of new warehousingsystems which impacted customer service and delayed or undermined planned marketing activities, the Company re-evaluated remaining balances ofacquisition-related intangible assets of customer relationships and short-lived trade name values. Cash flows related to these acquired customer relationshipswith the updated Level 3 inputs were projected to be negative, then recovering, but were insufficient to recover the intangible assets’ remaining carryingvalues. Accordingly, an impairment charge of approximately $14 million was recognized during the third quarter of 2012.Fair Value Estimates Used for Paid-in-Kind DividendsPrior to redemption of the Company’s Redeemable Preferred Stock in 2013, any dividends paid-in-kind were measured at fair value, using a Level 3 measure.The Company used a binomial simulation to capture the call, conversion, and interest rate reset features as well the optionality of paying the dividend in-kind or in cash. Dividends were paid in kind for the first three quarters of 2012.For dividends paid-in-kind for the three quarters of 2012, the average stock price volatility was 63%, the risk free rate was 3.0% and the risk adjusted rate was14.5%. The aggregate fair value calculated for these three quarters was $22.8 million, $6.3 million below the amount added to the liquidation preference. Forthe dividend paid-in-kind for the third quarter of 2012, a stock price volatility of 55% or 75% would have increased the estimate by $0.7 million or decreasedthe estimate by $0.6 million, respectively. Using a beginning of period stock price of $1.50 or $3.50 would have decreased the estimate by $1.7 million orincreased the estimate by $1.1 million, respectively. Assuming that all future dividends would be paid in cash would have increased the estimate by$1.3 million. Assuming all future dividends would be paid-in-kind had no significant impact. Refer to Note 11 for additional information.There were no significant differences between the carrying values and fair values of the Company’s financial instruments as of December 27, 2014 andDecember 28, 2013, except as disclosed above.NOTE 17. COMMITMENTS AND CONTINGENCIESCommitmentsOn June 25, 2011, OfficeMax, with which the Company merged in November 2013, entered into a paper supply contract with Boise White Paper, L.L.C.(“Boise Paper”), under which OfficeMax agreed to purchase office papers from Boise Paper, and Boise Paper has agreed to supply office paper to OfficeMax,subject to the terms and conditions of the paper supply contract. The paper supply contract replaced the previous supply contract executed in 2004 withBoise Paper. The Company assumed the commitment under a paper supply contract to buy OfficeMax’s North American requirements for office paper, subjectto certain conditions, including conditions under which the Company may purchase paper from paper producers other than Boise Paper. The paper supplycontract’s term will expire on December 31, 2017, followed by a gradual reduction of the Company’s purchase requirements over a two year period thereafter.However, if certain circumstances occur, the agreement may be terminated earlier. If terminated, it will be followed by a gradual reduction of the Company’spurchase requirements over a two year period. Purchases under the agreement were $647 million in 2014 and $87 million in the period from Merger datethrough year-end 2013. 115Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) IndemnificationsIndemnification obligations may arise from the Asset Purchase Agreement between OfficeMax Incorporated, OfficeMax Southern Company, Minidoka PaperCompany, Forest Products Holdings, L.L.C. and Boise Land & Timber Corp. The Company has agreed to provide indemnification with respect to a variety ofobligations. These indemnification obligations are subject, in some cases, to survival periods, deductibles and caps. At December 27, 2014, the Company isnot aware of any material liabilities arising from these indemnifications.Legal MattersThe Company is involved in litigation arising in the normal course of business. While, from time to time, claims are asserted that make demands for a largesum of money (including, from time to time, actions which are asserted to be maintainable as class action suits), the Company does not believe thatcontingent liabilities related to these matters (including the matters discussed below), either individually or in the aggregate, will materially affect theCompany’s financial position, results of operations or cash flows.On February 4, 2015, Staples and Office Depot entered into the Staples Merger Agreement under which the companies would combine in a stock and cashtransaction. On February 9, 2015, a putative class action lawsuit was filed by purported Office Depot shareholders in the Court of Chancery of the State ofDelaware (“Court”) challenging the transaction and alleging that the defendant companies and individual members of Office Depot’s Board of Directorsviolated applicable laws by breaching their fiduciary duties and/or aiding and abetting such breaches. The plaintiffs in David Raul, v. Office Depot, Inc. et al.seek, among other things, injunctive relief and rescission, as well as fees and costs. Subsequently, seven other lawsuits were filed in the Court of Chancery ofthe State of Delaware making similar allegations, namely Beth Koeneke v. Office Depot, Inc. et al., Jamison Miller v. Office Depot, Inc. et al., Eric R. Gilbertv. Office Depot, Inc. et al., The Feivel and Helene Gottlieb Defined Benefit Pension Plan v. Office Depot, et al., Charles Miller v. Office Depot, Inc. et al.,David Max v. Office Depot, Inc. et al., and Steve Renous v. Staples Inc. et al. Two lawsuits were filed in Palm Beach County Circuit Court, namely KenyPetit-Frere v. Office Depot, Inc., et al. and John Sweatman v. Office Depot, Inc., et al. Other lawsuits may be filed with similar allegations.In addition, in the ordinary course of business, sales to and transactions with government customers may be subject to lawsuits, investigations, audits andreview by governmental authorities and regulatory agencies, with which the Company cooperates. Many of these lawsuits, investigations, audits and reviewsare resolved without material impact to the Company. While claims in these matters may at times assert large demands, the Company does not believe thatcontingent liabilities related to these matters, either individually or in the aggregate, will materially affect its financial position, results of operations or cashflows. In addition to the foregoing in 2009, the Sherwin lawsuit was filed in Superior Court for the State of California, Los Angeles County, and unsealed onOctober 16, 2012. The lawsuit asserted claims, including claims under the California False Claims Act, based on allegations regarding certain pricingpractices under now expired agreements that were in place between 2001 and January 1, 2011, pursuant to which governmental agencies purchased officesupplies from the Company. The plaintiffs sought monetary damages and other relief, including trebling of damages and statutory penalties. On June 25,2014, the Company participated in a non-binding, voluntary mediation in which the Company negotiated a potential settlement to resolve the matter. Duringthe second quarter of 2014, the Company recorded an $80 million incremental increase to the legal accrual which included the potential settlement, as wellas attorneys’ fees and other related legal matters. On December 19, 2014, Office Depot and the plaintiffs executed a Settlement Agreement to resolve theSherwin lawsuit. Pursuant to the terms of the Settlement Agreement, the Company agreed to pay the Plaintiffs $68 million to settle the matter (the “SettlementAmount”), as well as $9 million in legal fees, costs, and expenses. In exchange for, and in consideration of, the Company’s agreement to pay the SettlementAmount, the plaintiffs agreed to dismiss their action against the Company with prejudice. In February 2015, the court entered orders approving the settlementand dismissing the case with prejudice. The Settlement Amount was subsequently placed in escrow pursuant to the Settlement Agreement. The funds are to bereleased from escrow and disbursed in accordance with the terms of the court’s orders. 116Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 NewYork in September 2012 as a putative class action alleging violations of the Fair Labor Standards Act and New York Labor Law. The complaint alleges thatOfficeMax misclassified its assistant store managers (“ASMs”) as exempt employees. The Company believes that adequate provisions have been made forprobable losses and such amounts are not material. However, in light of the early stage of the case and the inherent uncertainty of litigation, the Company isunable to estimate a reasonably possible range of loss in the matter. OfficeMax intends to vigorously defend itself in this lawsuit. Further, Kyle Rivet v.Office Depot, Inc., is pending in the United States District Court for the District of New Jersey. The complaint alleges that Office Depot’s use of thefluctuating workweek (FWW) method of pay was unlawful because Office Depot failed to pay a fixed weekly salary and failed to provide its ASMs with aclear and mutual understanding notification that they would receive a fixed weekly salary for all hours worked. The plaintiffs similarly seek unpaid overtime,punitive damages, and attorneys’ fees.” The Company believes in this case that adequate provisions have been made for probable losses and such amountsare not material. However, in light of the early stage of the case and the inherent uncertainty of litigation, the Company is unable to estimate a reasonablypossible range of loss in these matters. Office Depot intends to vigorously defend itself in these lawsuits.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 priorto those assets being sold in 2004, for which OfficeMax agreed to retain responsibility. Also, as part of that sale, OfficeMax agreed to retain responsibility forall pending or threatened proceedings and future proceedings alleging asbestos-related injuries arising out of the operation of the paper and forest productsassets prior to the closing of the sale. As of December 27, 2014, the Company’s estimate of the range of reasonably possible losses for environmentalliabilities was approximately $10 million to $25 million. The Company regularly monitors its estimated exposure to these liabilities. As additionalinformation becomes known, these estimates may change. The Company has made provision for losses with respect to the pending proceedings. However, theCompany does not believe any of these OfficeMax retained proceedings are material to the Company’s business.NOTE 18. SUPPLEMENTAL INFORMATION ON OPERATING, INVESTING AND FINANCING ACTIVITIESAdditional supplemental information related to the Consolidated Statements of Cash Flows is as follows: (In millions) 2014 2013 2012 Cash interest paid, net of amounts capitalized $68 $65 $57 Cash taxes paid (refunded) (10) 139 10 Non-cash asset additions under capital leases 21 10 9 Non-cash paid-in-kind dividends (refer to Note 11) — — 23 Issuance of common stock associated with the Merger (refer to Note 2) $— $1,395 $— NOTE 19. SEGMENT INFORMATIONThe Company has three reportable segments: North American Retail Division, North American Business Solutions Division, and International Division. TheNorth American Retail Division includes retail stores in the United States, including Puerto Rico and the U.S. Virgin Islands, which offer office supplies,technology products and solutions, business machines and related supplies, facilities products, and office furniture. Most stores also have a copy and printcenter offering printing, reproduction, mailing and shipping. The North American Business Solutions Division sells office supply products and services inCanada and the United States, including Puerto Rico and the U.S. Virgin Islands. North American Business Solutions Division customers are 117Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) served through dedicated sales forces, through catalogs, telesales, and electronically through its Internet sites. The International Division sells office productsand services through direct mail catalogs, contract sales forces, Internet sites, and retail stores in Europe and Asia/Pacific.Following the date of the Merger, the former OfficeMax U.S. Retail business is included in the North American Retail Division. The former OfficeMax UnitedStates and Canada Contract business is included in the North American Business Solutions Division. The former OfficeMax businesses in Australia and NewZealand are included in the International Division. Due to the sale of the Company’s interest in Grupo OfficeMax in August 2014, the integration of thisbusiness into the International Division was suspended in the second quarter of 2014 and the joint venture’s results have been removed from the InternationalDivision and reported as Other to align with how this information is presented for management reporting. The Company continues to assess how best to serveits customers as shopping preferences and market conditions evolve. Should organizational alignment and management reporting change in future periods inresponse to these factors, segment reporting in future periods could be impacted.The office supply products and services offered across all operating segments are similar. The Company’s three operating segments are the three reportablesegments. The North American Retail Division and North American Business Solutions Division are managed separately, primarily because of the waycustomers are reached and served. The International Division is managed separately because of the geographical, operational and marketplace differencesoutside of North America. The accounting policies for each segment are the same as those described in Note 1. Division operating income is determinedbased on the measure of performance reported internally to manage the business and for resource allocation. This measure charges to the respective Divisionsthose expenses considered directly or closely related to their operations and allocates support costs. Certain operating expenses and credits are not allocatedto the Divisions including Recovery of purchase price, Asset impairments, Merger, restructuring and other operating expenses, net, and Legal accrual, as wellas expenses and credits retained at the Corporate level, including certain management costs and legacy pension and environmental matters. Other companiesmay charge more or less of these items to their segments and results may not be comparable to similarly titled measures used by other entities. 118Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of significant accounts and balances by segment, reconciled to consolidated totals follows. (In millions) NorthAmericanRetail NorthAmericanBusinessSolutions International Corporate,Eliminations,and Other* ConsolidatedTotal Sales 2014 $6,528 $6,013 $3,400 $155 $16,096 2013 4,614 3,580 3,008 40 11,242 2012 4,458 3,215 3,023 — 10,696 Division operating income 2014 126 232 53 — 411 2013 8 113 36 — 157 2012 24 110 36 — 170 Capital expenditures 2014 44 29 29 21 123 2013 63 24 39 11 137 2012 61 31 25 3 120 Depreciation and amortization 2014 140 85 35 53 313 2013 105 51 29 24 209 2012 103 43 34 23 203 Charges for losses on receivables and inventories 2014 48 4 13 1 66 2013 38 9 12 — 59 2012 40 6 19 — 65 Net earnings from equity method investments 2014 — — — — — 2013 — — 14 — 14 2012 — — 30 — 30 Assets 2014 1,784 1,695 1,179 2,186 6,844 2013 1,847 1,573 1,174 2,883 7,477 2012 $1,189 $670 `$1,312 $840 $4,011 *Amounts included in “Corporate, Eliminations, and Other” consist of (i) assets (including all cash and cash equivalents) and depreciation related tocorporate activities, (ii) accounts and balances associated with Grupo OfficeMax, and (ii) $377 million of goodwill in December 28, 2013, which wasallocated to reporting units in 2014.A reconciliation of the measure of Division operating income to Income (loss) before income taxes follows. (In millions) 2014 2013 2012 Division operating income $411 $157 $170 Add/(subtract): Other operating income (loss) 8 (2) — Recovery of purchase price — — 68 Asset impairments (88) (70) (139)Merger, restructuring, and other operating expenses, net (403) (201) (56)Legal accrual (81) — — Unallocated expenses (122) (89) (74)Interest income 24 5 2 Interest expense (89) (69) (69)Loss on extinguishment of debt — — (12)Gain on disposition of joint venture — 382 — Other income (expense), net — 14 35 Income (loss) before income taxes $(340) $127 $(75)As of December 27, 2014, the Company sold to customers throughout North America, Europe, and Asia/Pacific. The Company operates through wholly-owned entities and participates in other ventures and alliances. There is 119Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) no single country outside of the United States or single customer that accounts for 10% or more of the Company’s total sales. Geographic financialinformation relating to the Company’s business is as follows (in millions). Sales Property and Equipment, Net 2014 2013 2012 2014 2013 2012 United States $12,132 $8,119 $7,671 $757 $977 $707 International 3,964 3,123 3,025 206 332 149 Total $16,096 $11,242 $10,696 $963 $1,309 $856 The Company classifies products into three categories: (1) supplies, (2) technology, and (3) furniture and other. The supplies category includes products suchas paper, binders, writing instruments, and school supplies. The technology category includes products such as desktop and laptop computers, monitors,tablets, printers, ink and toner, cables, software, digital cameras, telephones, and wireless communications products. The furniture and other category includesproducts 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: 2014 2013 2012 Supplies 47.2% 46.6% 45.8% Technology 38.0% 40.6% 41.8% Furniture and other 14.8% 12.8% 12.4% 100.0% 100.0% 100.0% NOTE 20. QUARTERLY FINANCIAL DATA (UNAUDITED) (In millions, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended December 27, 2014* Net sales $4,354 $3,841 $4,069 $3,832 Gross profit 1,015 883 987 891 Net income (loss) (108) (189) 29 (84)Net income (loss) attributable to Office Depot, Inc. (109) (190) 29 (84)Net income (loss) available to common stockholders (109) (190) 29 (84)Net earnings (loss) per share: Basic $(0.21) $(0.36) $0.05 $(0.15)Diluted $(0.21) $(0.36) $0.05 $(0.15) *Due to rounding, the sum of the quarterly earnings amounts may not equal the reported amounts for the year. In the first, second, third and fourth quarters of 2014, captions include pre-tax Merger, restructuring, and other operating expenses, net amounting to$101 million, $103 million, $72 million and $128 million, respectively and asset impairments of $50 million, $22 million, $6 million and $11 million,respectively. The second and third quarters of 2014 include $80 million and $1 million associated to Legal accrual, respectively. 120 (1) (1) (1)(1)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In millions, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended December 28, 2013* Net sales $2,718 $2,419 $2,619 $3,486 Gross profit 660 546 633 787 Net income (loss) (7) (54) 161 (121)Net income (loss) attributable to Office Depot, Inc. (7) (54) 161 (121)Net income (loss) available to common stockholders (17) (64) 133 (144)Net earnings (loss) per share: Basic $(0.06) $(0.23) $0.42 $(0.34)Diluted $(0.06) $(0.23) $0.41 $(0.34) *Due to rounding, the sum of the quarterly earnings amounts may not equal the reported amounts for the year. In the first, second, third and fourth quarters of 2013, captions include pre-tax Merger, restructuring, and other operating expenses amounting to $19million, $26 million, $44 million and $111 million, respectively and asset impairments of $5 million, $4 million, $49 million and $12 million,respectively. Net income available to common stockholders includes an after-tax gain of approximately $235 million resulting from the sale of Office Depot deMexico and preferred stock dividends of $22 million associated to redemption in July 2013. Net income available to common stockholders includes (i) impact of the Merger of $939 million in Sales and $(39) million in Net income (loss); and(ii) preferred stock dividends of $23 million associated to redemption in November 2013. 121 (2) (3) (1) (1) (1)(1)(2)(3)Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholders ofOffice Depot, Inc.Boca Raton, FloridaWe have audited the consolidated financial statements of Office Depot, Inc. and subsidiaries (the “Company”) as of December 27, 2014 and December 28,2013, and for each of the three fiscal years in the period ended December 27, 2014, and the Company’s internal control over financial reporting as ofDecember 27, 2014, and have issued our reports thereon dated February 24, 2015; such consolidated financial statements and reports are included elsewherein this Annual Report on Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in the accompanyingindex at Item 15(a)(2). This consolidated financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express anopinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic financial statementstaken as a whole, presents fairly, in all material respects, the information set forth therein./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaFebruary 24, 2015 122Table of ContentsINDEX TO FINANCIAL STATEMENT SCHEDULES Page Schedule II — Valuation and Qualifying Accounts and Reserves 124 All other schedules have been omitted because they are not applicable, not required or the information is included elsewhere herein. 123Table of ContentsSCHEDULE IIOFFICE DEPOT, INC.VALUATION AND QUALIFYING ACCOUNTS AND RESERVES(In millions) Column A ColumnB Column C Column D Column E Description Balance atBeginningof Period Additions —Charged toExpense Deductions —Write-offs,Payments andOtherAdjustments Balance at Endof Period Allowance for doubtful accounts: 2014 $26 8 16 $18 2013 $23 14 11 $26 2012 $20 15 12 $23 124Table of ContentsINDEX TO EXHIBITS FOR OFFICE DEPOT 10-K ExhibitNumber Exhibit 2.1 Stock Purchase and Transaction Agreement by and among Office Depot, Inc., Office Depot Delaware Overseas Finance No. 1, LLC,Grupo Gigante S.A.B. de C.V. and Hospitalidad y Servicios Especializados Gigante, S.A. de C.V dated as of June 3, 2013 (Incorporatedby reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on July 15, 2013). 3.1 Amended and Restated Bylaws (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC onFebruary 4, 2015). 3.2 Restated Certificate of Incorporation (Incorporated by reference from the respective annex to the Proxy Statement for Office Depot,Inc.’s 1995 Annual Meeting of Stockholders, filed with the SEC on April 20, 1995). 3.3 Amendment to Restated Certificate of Incorporation (Incorporated by reference from Office Depot, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on November 10, 1998). 4.1 Form of Certificate representing shares of Common Stock (Incorporated by reference from the respective exhibit to Office Depot, Inc.’sRegistration Statement No. 33-39473 on Form S-4, filed with the SEC on March 15, 1991). 4.2 Indenture, dated as of March 14, 2012, relating to the $250 million 9.75% Senior Secured Notes due 2019, among Office Depot, Inc.,the Guarantors named therein and U.S. Bank National Association (Incorporated by reference from Office Depot, Inc.’s Current Reporton Form 8-K, filed with the SEC on March 15, 2012). 4.3 Supplemental Indenture, dated as of February 22, 2013, between Office Depot, Inc., eDepot, LLC, the other Guarantors party thereto andU.S. Bank National Association, relating to the 9.75% Senior Notes due 2019 (Incorporated by reference from Office Depot, Inc.’sAnnual Report on Form 10-K, filed with the SEC on February 25, 2014). 4.4 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, Inc., PicaboHoldings, Inc., BizMart, Inc., BizMart (Texas), Inc., OfficeMax Corp., OMX, Inc., the other Guarantors party thereto and U.S. BankNational Association, relating to the 9.75% Senior Notes due 2019 (Incorporated by reference from Office Depot, Inc.’s Annual Reporton Form 10-K, filed with the SEC on February 25, 2014). 4.5 Form of Notes representing $250 million aggregate principal amount of 9.75% Senior Secured Notes due March 15, 2019 (Incorporatedby reference from Office Depot, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on May 1, 2012). 4.6 Trust Indenture between Boise Cascade Corporation (now OfficeMax Incorporated) and Morgan Guaranty Trust Company of New York,Trustee, dated October 1, 1985, as amended (Incorporated by reference from OfficeMax Incorporated’s Registration Statement No. 33-5673 on Form S-3, filed with the SEC on May 13, 1986). 4.7 Indenture dated as of December 21, 2004 by and between OMX Timber Finance Investments I, LLC, as the Issuer and Wells Fargo BankNorthwest, N.A., as Trustee (Incorporated by reference from OfficeMax Incorporated’s Registration Statement No. 333-162866 on FormS-1/A, filed with the SEC on December 14, 2009). 4.8 Installment Note for $559,500,000 between Boise Land & Timber, L.L.C. (Maker) and Boise Cascade Corporation (now OfficeMaxIncorporated) (Initial Holder) dated October 29, 2004 (Incorporated by reference from OfficeMax Incorporated’s Quarterly Report onForm 10-Q, filed with the SEC on November 9, 2004). 125(1)(2)Table of ContentsExhibitNumber Exhibit 4.9 Installment Note for $258,000,000 between Boise Land & Timber, L.L.C. (Maker) and Boise Southern Company (Initial Holder) datedOctober 29, 2004 (Incorporated by reference from OfficeMax Incorporated’s Quarterly Report on Form 10-Q, filed with the SEC onNovember 9, 2004).10.1 Lease Agreement dated November 10, 2006, by and between Office Depot, Inc. and Boca 54 North LLC (Incorporated by reference fromOffice Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 24, 2009).10.2 First Amendment to Lease dated July 3, 2007, by and between Office Depot, Inc. and Boca 54 North LLC (Incorporated by reference fromOffice Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 24, 2009).10.3 Office Depot, Inc. 2007 Long-Term Incentive Plan (Incorporated by reference from the respective appendix to the Proxy Statement forOffice Depot, Inc.’s 2007 Annual Meeting of Shareholders, filed with the SEC on April 2, 2007).*10.4 2008 Office Depot, Inc. Bonus Plan for Executive Management Employees (Incorporated by reference from the respective appendix tothe Proxy Statement for Office Depot, Inc.’s 2008 Annual Meeting of Shareholders, filed with the SEC on March 13, 2008).*10.5 Change of Control Agreement, dated as of December 14, 2007, by and between Office Depot, Inc. and Steven M. Schmidt (Incorporatedby reference from Office Depot, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on July 28, 2009).*10.6 Amendment to Employment Offer Letter Agreement, dated December 31, 2008, by and between Office Depot, Inc. and Steven Schmidt(Incorporated by reference from Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 23, 2010).*10.7 Employment Offer Letter Agreement, dated July 10, 2007, by and between Office Depot, Inc. and Steven Schmidt (Incorporated byreference from Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 23, 2010).*10.8 Office Depot, Inc. Amended Long-Term Incentive Plan (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K,filed with the SEC on April 26, 2010).*10.9 Office Depot, Inc. Amended Long-Term Equity Incentive Plan, as revised and amended effective April 21, 2010 (Incorporated byreference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on April 26, 2010).*10.10 Form of Associate Non-Competition, Confidentiality and Non-Solicitation Agreement between Office Depot, Inc. and certain executives(Incorporated by reference from Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 22, 2011).*10.11 Form of Change in Control Agreement between Office Depot, Inc. and certain executives (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on December 21, 2010).*10.12 Form of Waiver, dated as of March 30, 2011 (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed withthe SEC on April 1, 2011).10.13 First Amendment to the Office Depot, Inc. 2007 Long-Term Incentive Plan (Incorporated by reference from Office Depot, Inc.’s CurrentReport on Form 8-K, filed with the SEC on April 25, 2011).* 126Table of ContentsExhibitNumber Exhibit10.14 Form of Amended and Restated Credit Agreement, dated as of May 25, 2011, among Office Depot, Inc. and certain of its Europeansubsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan Chase Bank N.A.,London Branch, as European Administrative and European Collateral Agent, and the other lenders referred to therein (Incorporated byreference from Office Depot, Inc.’s Quarterly Report on Form 10-Q, filed with the SEC on July 26, 2011).**10.15 Letter Agreement between Office Depot, Inc. and Elisa D. Garcia dated May 15, 2007 (Incorporated by reference from Office Depot, Inc.’sAnnual Report on Form 10-K, filed with the SEC on February 28, 2012).*10.16 Amendment to Letter Agreement between Office Depot, Inc. and Elisa D. Garcia effective December 31, 2008 (Incorporated by referencefrom Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 28, 2012).*10.17 Retention Agreement between Office Depot, Inc. and Elisa D. Garcia dated November 2, 2010 (Incorporated by reference from OfficeDepot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 28, 2012).*10.18 First Amendment, dated February 24, 2012, to the Amended and Restated Credit Agreement, dated as of May 25, 2011, among OfficeDepot, Inc. and certain of its European subsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S.Collateral Agent, JPMorgan Chase Bank N.A., London Branch, as European Administrative and European Collateral Agent, and theother lenders referred to therein (Incorporated by reference from Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC onFebruary 28, 2012).10.19 Form of Restricted Stock Awards for Executives (time vested) (Incorporated by reference from Office Depot, Inc.’s Quarterly Report onForm 10-Q, filed with the SEC on May 1, 2012).*10.20 Form of Restricted Stock Award for Executives (performance/time vested) (Incorporated by reference from Office Depot, Inc.’s QuarterlyReport on Form 10-Q, filed with the SEC on May 1, 2012).*10.21 Financing Agreement by and between Office Depot BS and ABN AMRO Commercial Finance, dated September 24, 2012 (Incorporatedby reference from Office Depot Inc.’s Annual Report on Form 10-K, filed with the SEC on February 20, 2013).10.22 Amendment No. 1 to Financing Agreement by and between Office Depot BS and ABN AMRO Commercial Finance, dated September 24,2012 (Incorporated by reference from Office Depot Inc.’s Annual Report on Form 10-K, filed with the SEC on February 20, 2013).10.23 Letter Agreement between the Company and Stephen E. Hare (Incorporated by reference from Office Depot, Inc.’s Current Report onForm 8-K, filed with the SEC on December 5, 2013).*10.24 2013 Non-Qualified Stock Option Award Agreement between the Company and Stephen E. Hare (Incorporated by reference from OfficeDepot, Inc.’s Current Report on Form 8-K, filed with the SEC on December 5, 2013).*10.25 2013 Restricted Stock Unit Award Agreement between the Company and Stephen E. Hare (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on December 5, 2013).*10.26 2013 Performance Share Award Agreement between the Company and Stephen E. Hare (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on December 5, 2013).* 127Table of ContentsExhibitNumber Exhibit10.27 Employment Agreement between the Company and Roland C. Smith (Incorporated by reference from Office Depot, Inc.’s Current Reporton Form 8-K, filed with the SEC on November 18, 2013).*10.28 2013 Non-Qualified Stock Option Award Agreement between the Company and Roland C. Smith (Incorporated by reference from OfficeDepot, Inc.’s Current Report on Form 8-K, filed with the SEC on November 18, 2013).*10.29 2013 Restricted Stock Unit 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).*10.30 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).*10.31 2003 OfficeMax Incentive and Performance Plan (amended and restated effective as of April 29, 2013) (Incorporated by reference toAppendix A to the Definitive Proxy Statement of OfficeMax filed with the SEC on March 19, 2013).*10.32 Amendment to the 2003 OfficeMax Incentive and Performance Plan dated November 6, 2013 (Incorporated by reference from OfficeDepot, Inc.’s Form S-8, filed with the SEC on November 8, 2013).*10.33 Settlement Agreement, dated August 20, 2013 between Office Depot, Inc. and Starboard Value L.P (and entities listed on Exhibit A of theSettlement Agreement) (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on August21, 2013).10.34 Letter Agreement between Office Depot, Inc. and Neil R. Austrian, dated April 5, 2013 (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on April 11, 2013).*10.35 Restricted Stock Award Agreement between Office Depot, Inc. and Neil R. Austrian, dated April 5, 2013 (Incorporated by reference fromOffice Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on April 11, 2013).*10.36 Restricted Stock Unit Award Agreement between Office Depot, Inc. and Neil R. Austrian, dated April 5, 2013 (Incorporated by referencefrom Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on April 11, 2013).*10.37 Form of Letter Agreement (amending the Change in Control Agreements with each of Michael D. Newman, Elisa D. Garcia and Steve M.Schmidt) (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on February 26, 2013).*10.38 Office Depot Omnibus Amendment to Outstanding Equity and Long-Term Incentive Awards (Incorporated by reference from OfficeDepot, Inc.’s Current Report on Form 8-K, filed with the SEC on February 26, 2013).*10.39 Form of Second Amendment, dated as of March 4, 2013, to the Amended and Restated Credit Agreement dated as of May 25, 2011, asamended by the First Amendment to the Amended and Restated Credit Agreement, dated as of February 24, 2012, among Office Depot,Inc., and certain of its European subsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. CollateralAgent, JPMorgan Chase Bank N.A., London Branch, as European Administrative and European Collateral Agent, and the other lendersreferred to therein (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on March 6,2013). 128Table of ContentsExhibitNumber Exhibit10.40 Form of Third Amendment, dated as of November 5, 2013, to the Amended and Restated Credit Agreement dated as of May 25, 2011, asamended by the First Amendment to the Amended and Restated Credit Agreement, dated as of February 24, 2012 and the SecondAmendment to the Amended and Restated Credit Agreement, dated as of March 4, 2013, among Office Depot, Inc., and certain of itsEuropean subsidiaries as Borrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan ChaseBank N.A., London Branch, as European Administrative and European Collateral Agent, and the other lenders referred to therein(Incorporated by reference from Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 25, 2014).10.41 Paper Purchase Agreement dated June 25, 2011 between Boise White Paper, L.L.C. and OfficeMax Incorporated (Incorporated byreference from OfficeMax Incorporated’s Quarterly Report on Form 10-Q/A, filed with the SEC on October 24, 2011).**10.42 Retention Agreement between Office Depot, Inc. and Ms. Deborah O’Connor dated March 21, 2014 (Incorporated by reference fromOffice Depot’s Current Report on Form 8-K, filed with the SEC on March 24, 2014).10.43 Second Amendment to 2013 Performance Share Award Agreement between Office Depot, Inc. and Roland C. Smith (Incorporated byreference from Office Depot’s Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2014).10.44 Award Agreement for 2014 Cash-Settled Performance Award between Office Depot, Inc. and Roland C. Smith (Incorporated by referencefrom Office Depot’s Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2014).10.45 Second Amendment to 2013 Performance Share Award Agreement between Office Depot, Inc. and Stephen E. Hare (Incorporated byreference from Office Depot’s Quarterly Report on Form 10-Q, filed with the SEC on May 6, 2014).10.46 Form of 2014 Restricted Stock Award Agreement (Incorporated by reference from Office Depot’s Quarterly Report on Form 10-Q, filedwith the SEC on May 6, 2014).10.47 Form of 2014 Performance Share Award Agreement (Incorporated by reference from Office Depot’s Quarterly Report on Form 10-Q, filedwith the SEC on May 6, 2014).10.48 Second Amendment to the Office Depot, Inc. 2007 Long-Term Incentive Plan (Incorporated by reference from Office Depot’s QuarterlyReport on Form 10-Q, filed with the SEC on May 6, 2014).10.49 Letter Agreement between Office Depot, Inc. and Mark Cosby dated July 14, 2014 (Incorporated by reference from Office Depot’sCurrent Report on Form 8-K, filed with the SEC on July 21, 2014).10.50 Sign-On Bonus Agreement between Office Depot, Inc. and Mark Cosby dated July 14, 2014 (Incorporated by reference from OfficeDepot’s Current Report on Form 8-K, filed with the SEC on July 21, 2014).10.51 The Office Depot, Inc. Executive Change in Control Severance Plan effective August 1, 2014 (Incorporated by reference from OfficeDepot’s Current Report on Form 8-K. filed with the SEC on August 7, 2014).10.52 Form of Notice of Selection for Participation in Executive Change in Control Severance Plan and Notice of Non-Renewal of Change inControl Agreement (Incorporated by reference from Office Depot’s Current Report on Form 8-K, filed with the SEC on August 7, 2014).10.53 Form of Settlement Agreement (Incorporated by reference from Office Depot’s Current Report on Form 8-K, filed with the SEC onDecember 23, 2014) 129Table of ContentsExhibitNumber Exhibit10.54 Securityholders Agreement among Boise Cascade Corporation (now OfficeMax Incorporated), Forest Products Holdings, L.L.C., andBoise Cascade Holdings, L.L.C., dated October 29, 2004 (Incorporated by reference from OfficeMax Incorporated’s Quarterly Report onForm 10-Q, filed with the SEC on November 9, 2004).10.55 Director Stock Compensation Plan, as amended through September 26, 2003 (Incorporated by reference from OfficeMax Incorporated’sAnnual Report on Form 10-K, filed with the SEC on March 2, 2004).*10.56 2003 Director Stock Compensation Plan, as amended through September 26, 2003 (Incorporated by reference from OfficeMaxIncorporated’s Annual Report on Form 10-K, filed with the SEC on March 2, 2004).*10.57 Amendment to the OfficeMax Incorporated 2003 Director Stock Compensation Plan (Incorporated by reference from OfficeMaxIncorporated’s Current Report on Form 8-K, filed with the SEC on February 20, 2007).*10.58 Form of 2007 Directors’ Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s CurrentReport on Form 8-K, filed with the SEC on August 1, 2007).*10.59 Form of 2008 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Reporton Form 8-K, filed with the SEC on July 29, 2008).*10.60 Form of 2009 Nonqualified Stock Option Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report onForm 8-K, filed with the SEC on February 18, 2009).*10.61 Form of 2009 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Reporton Form 8-K, filed with the SEC on July 28, 2009).*10.62 Form of 2010 Nonqualified Stock Option Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report onForm 8-K, filed with the SEC on February 16, 2010).*10.63 Form of 2010 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Reporton Form 8-K, filed with the SEC on August 3, 2010).*10.64 Form of 2011 Nonqualified Stock Option Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report onForm 8-K, filed with the SEC on February 15, 2011).*10.65 Form of 2011 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Reporton Form 8-K, filed with the SEC on August 2, 2011).*10.66 Form of 2012 Nonqualified Stock Option Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report onForm 8-K, filed with the SEC on February 22, 2012).*10.67 Form of 2012 Performance-Based RSU Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report onForm 8-K, filed with the SEC on February 22, 2012).*10.68 Form of 2012 Performance Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report on Form 8-K, filed with the SEC on February 22, 2012).*10.69 Form of 2012 Director Restricted Stock Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Reporton Form 8-K, filed with the SEC on July 31, 2012).* 130Table of ContentsExhibitNumber Exhibit10.70 First Amendment to Paper Purchase Agreement dated June 20, 2013 between Boise White Paper, L.L.C. and OfficeMax Incorporated(Incorporated by reference from OfficeMax Incorporated’s Quarterly Report on Form 10-Q, filed with the SEC on August 6, 2013).**10.71 Fourth Amended and Restated Operating Agreement of Boise Cascade Holdings, L.L.C. (Incorporated by reference from OfficeMaxIncorporated’s Current Report on Form 8-K, filed with the SEC on March 4, 2013).10.72 2005 Directors Deferred Compensation Plan (Incorporated by reference from OfficeMax Incorporated’s Current Report on Form 8-K, filedwith the SEC on December 15, 2004).*10.73 Deferred Compensation and Benefits Trust, as amended for the Form of Sixth Amendment dated May 1, 2001 (Incorporated by referencefrom OfficeMax Incorporated’s Quarterly Report on Form 10-Q, filed with the SEC on November 13, 2001).*10.74 2001 Board of Directors Deferred Compensation Plan, as amended through September 26, 2003 (Incorporated by reference fromOfficeMax Incorporated’s Annual Report on Form 10-K, filed with the SEC on March 2, 2004).*10.75 Amendment to OfficeMax Incorporated 2005 Directors Deferred Compensation Plan (Incorporated by reference from OfficeMaxIncorporated’s Quarterly Report on Form 10-Q, filed with the SEC on November 6, 2008).*21 List of Office Depot, Inc.’s Subsidiaries23.1 Consent of Independent Registered Public Accounting Firm23.2 Consent of Independent Auditors31.1 Certification of CEO required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)31.2 Certification of CFO required by Securities and Exchange Commission Rule 13a-14(a) or 15d-14(a)32 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of200299 Financial statements of Office Depot de Mexico, S.A. de C.V. and Subsidiaries as of July 9, 2013 (Unaudited) and December 31, 2012(101.INS) XBRL Instance Document(101.SCH) XBRL Taxonomy Extension Schema Document(101.CAL) XBRL Taxonomy Extension Calculation Linkbase Document(101.DEF) XBRL Taxonomy Extension Definition Linkbase Document(101.LAB) XBRL Taxonomy Extension Label Linkbase Document(101.PRE) XBRL Taxonomy Extension Presentation Linkbase Document *Management contract or compensatory plan or arrangement. **Denotes that confidential portions of this exhibit have been omitted in reliance on Rule 24b-2 of the Securities Exchange Act of 1934. Theconfidential portions have been submitted separately to the Securities and Exchange Commission. 131(3)Table of Contents As noted herein, certain documents incorporated by reference in this Exhibit Index have been filed previously by Office Depot, Inc. with the Securitiesand Exchange Commission, Commission file number 1-10948 and certain documents have been filed previously by OfficeMax Incorporated with theSecurities and Exchange Commission, Commission file number 1-5057. The Trust Indenture between Boise Cascade Corporation (now OfficeMax Incorporated) and Morgan Guaranty Trust Company of New York, Trustee,dated October 1, 1985, as amended, was filed as exhibit 4 in OfficeMax Incorporated’s Registration Statement on Form S-3 No. 33-5673, filed May 13,1986. The Trust Indenture has been supplemented on seven occasions as follows: The First Supplemental Indenture, dated December 20, 1989, wasfiled as exhibit 4.2 in OfficeMax Incorporated’s Pre-Effective Amendment No. 1 to the Registration Statement on Form S-3 No. 33-32584, filedDecember 20, 1989. The Second Supplemental Indenture, dated August 1, 1990, was filed as exhibit 4.1 in OfficeMax Incorporated’s Current Reporton Form 8-K filed on August 10, 1990. The Third Supplemental Indenture, dated December 5, 2001, between Boise Cascade Corporation and BNYWestern Trust Company, as trustee, to the Trust Indenture dated as of October 1, 1985, between Boise Cascade Corporation and U.S. Bank TrustNational Association (as successor in interest to Morgan Guaranty Trust Company of New York) was filed as exhibit 99.2 in OfficeMax Incorporated’sCurrent Report on Form 8-K filed on December 10, 2001. The Fourth Supplemental Indenture dated October 21, 2003, between Boise CascadeCorporation and U.S. Bank Trust National Association was filed as exhibit 4.1 in OfficeMax Incorporated’s Current Report on Form 8-K filed onOctober 20, 2003. The Fifth Supplemental Indenture dated September 16, 2004, among Boise Cascade Corporation, U.S. Bank Trust NationalAssociation and BNY Western Trust Company was filed as exhibit 4.1 to OfficeMax Incorporated’s Current Report on Form 8-K filed on September 22,2004. The Sixth Supplemental Indenture dated October 29, 2004, between OfficeMax Incorporated and U.S. Bank Trust National Association was filedas exhibit 4.1 to OfficeMax Incorporated’s Current Report on Form 8-K filed on November 4, 2004. The Seventh Supplemental Indenture, made as ofDecember 22, 2004, between OfficeMax Incorporated and U.S. Bank Trust National Association was filed as exhibit 4.1 to OfficeMax Incorporated’sCurrent Report on Form 8-K filed on December 22, 2004. Each of the documents referenced in this footnote is incorporated herein by reference. The Deferred Compensation and Benefits Trust, as amended and restated as of December 13, 1996, was filed as exhibit 10.18 in OfficeMaxIncorporated’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996. Amendment No. 4, dated July 29, 1999, to the DeferredCompensation and Benefits Trust was filed as exhibit 10.18 in OfficeMax Incorporated’s Annual Report on Form 10-K for the fiscal year endedDecember 31, 1999. Amendment No. 5, dated December 6, 2000, to the Deferred Compensation and Benefits Trust was filed as exhibit 10.18 inOfficeMax Incorporated’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Amendment No. 6, dated May 1, 2001, to theDeferred Compensation and Benefits Trust was filed as exhibit 10 in OfficeMax Incorporated’s Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2001. Each of the documents referenced in this footnote is incorporated herein by reference. 132(1)(2)(3)Exhibit 21LIST OF OFFICE DEPOT INC.’S SIGNIFICANT SUBSIDIARIESDomestic/US Subsidiaries: Name Jurisdiction of IncorporationThe Office Club, Inc. CaliforniaViking Office Products, Inc. CaliforniaComputers4Sure.com, Inc. ConnecticutSolutions4Sure.com, Inc. ConnecticutOD International, Inc. DelawareOffice Depot Delaware Overseas Finance No. 1, LLC DelawareJapan Office Supplies, LLC DelawareODV France LLC DelawareOD France, LLC Delaware4Sure.com, Inc. DelawareSwinton Avenue Trading Limited, Inc. Delaware2300 South Congress LLC DelawareNeighborhood Retail Development Fund, LLC DelawareHC Land Company LLC DelawareNotus Aviation, Inc. DelawareOD Medical Solutions LLC DelawareOD Brazil Holdings, LLC DelawareOffice Depot N.A. Shared Services LLC DelawareOffice Depot (Netherlands) LLC DelawareOffice Depot Foreign Holdings GP, LLC DelawareOffice Depot Foreign Holdings LP, LLC DelawareeDepot, LLC DelawareMapleby Holdings Merger Corporation DelawareWahkiakum Gas Corporation DelawareReliable Express Corporation DelawarePicabo Holdings, Inc. DelawareOMX Timber Finance Holdings II, LLC DelawareOMX Timber Finance Holdings I, LLC DelawareOfficeMax Incorporated DelawareOfficeMax Southern Company LouisianaOfficeMax Nevada Company NevadaOMX, Inc. NevadaOfficeMax North America, Inc. OhioNorth American Card and Coupon Services, LLC Virginia 133Foreign Subsidiaries of the Company: Name Jurisdiction of IncorporationOfficeMax Australia Limited AustraliaViking Direkt GesmbH AustriaOffice Depot International BVBA BelgiumClearfield Insurance Limited BermudaOffice Depot Overseas Holding Limited BermudaOffice Depot Brasil Limitada (inactive) BrazilOffice Depot Brasil Participacoes Limitada BrazilGrand & Toy Limited Canada (Ontario)AsiaEC.com Limited CaymanOffice Depot Network Technology Ltd. ChinaOffice Depot Merchandising (Shenzhen) Co. Ltd. ChinaOffice Depot s.r.o. Czech RepublicOffice Depot France SNC FranceOD Participations (France) SAS (f.k.a. OD S.N.C.) FranceOffice Depot BS (f.k.a. Guilbert France S.A.S.) FranceOffice Depot (Holding) France SNC FranceOffice Depot Deutschland GMBH GermanyGuilbert Beteiligungsholding GMBH GermanyOffice Depot Service — und BeteiligungsGmbH&Co.KG GermanyOffice Depot Asia Holding Limited Hong KongOffice Depot Global Sourcing Ltd (f.k.a. Office Supply Solutions (Hong Kong) Ltd.) Hong KongOffice Depot Reliance Supply Solutions Private Limited (f.k.a. EOffice Planet India Private Limited) IndiaOffice Depot Private Limited IndiaViking Direct (Ireland) Limited IrelandViking Finance (Ireland) Limited IrelandOffice Depot Ireland Limited IrelandOffice Depot Italia S.r.l. ItalyViking Holding Italia S.r.l (f.k.a. Viking Office Products S.r.l.) ItalyOffice Depot Korea Co., Ltd. Korea (South)Guilbert Luxembourg S.A.R.L. LuxembourgOD International (Luxembourg) Finance S.A.R.L. LuxembourgOM Luxembourg Holdings S.à r.l. LuxembourgGrupo OfficeMax S. de R.L. de C.V. MexicoViking Direct B.V. NetherlandsOffice Depot B.V. (f.k.a. Guilbert Nederland B.V.) NetherlandsOffice Depot International B.V. NetherlandsOffice Depot Latin American Holdings B.V. NetherlandsOffice Depot Finance B.V. (f.k.a. Office Depot NA B.V.) NetherlandsOffice Depot Netherlands B.V. NetherlandsOffice Depot (Netherlands) C.V. NetherlandsHeteyo Holdings BV. NetherlandsGuilbert International B.V. NetherlandsOffice Depot (Operations) Holdings B.V. NetherlandsOffice Depot Coöperatief W.A. NetherlandsOffice Depot Europe B.V. NetherlandsXtreme Office B.V. NetherlandsOfficeMax New Zealand Limited New ZealandOffice Depot Puerto Rico, LLC Puerto Rico 134Name Jurisdiction of IncorporationOffice Depot Service Center SRL RomaniaOffice Depot s.r.o. Slovak Republic (Slovakia)Office Depot S.L. SpainOffice Depot Sweden (Holding) AB SwedenOffice Depot Svenska AB (f.k.a. Frans Svanström & Co AB) SwedenOffice Depot GmbH SwitzerlandOffice Depot Holding GmbH SwitzerlandOffice Depot International (UK) Limited United KingdomViking Direct (Holdings) Limited United KingdomOffice Depot UK Limited United KingdomGuilbert UK Pension Trustees Ltd United KingdomGuilbert UK Holdings Ltd United KingdomNiceday Distribution Centre Ltd United KingdomOffice 1 (1995) Ltd United KingdomOffice 1 Ltd United KingdomReliable UK Ltd United KingdomCurry’s Limited United KingdomOffice Depot (Holdings) Ltd. United KingdomOffice Depot (Holdings) 2 Ltd. United KingdomOffice Depot Europe Holdings Ltd. United KingdomOffice Depot (Holdings) 3 Ltd. United Kingdom *Ownership may consist of one subsidiary or any combination of subsidiaries, which may include Office Depot, Inc. 135Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe consent to the incorporation by reference in Registration Statement Nos. 333-45591, 333-59603, 333-63507, 333-68081, 333-69831, 333-41060, 333-80123, 333-90305, 333-123527, 333-144936, 333-177496, and 333-192185 on Form S-8 of our reports dated February 24, 2015 relating to the consolidatedfinancial statements and financial statement schedule of Office Depot, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internalcontrol over financial reporting, appearing in this Annual Report on Form 10-K of the Company for the fiscal year ended December 27, 2014./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaFebruary 24, 2015 136Exhibit 23.2CONSENT OF INDEPENDENT AUDITORSWe consent to the incorporation by reference in Registration Statements No. 333-45591, No. 333-59603, No. 333-63507, No. 333-68081, No. 333-69831,No. 333-41060, No. 333-80123, No. 333-90305, No. 333-123527, No. 333-144936, and No. 333-177496 on Form S-8 of our report dated February 15, 2013and November 7, 2013 with respect to Note 17, relating to the consolidated financial statements of Office Depot de México, S. A. de C. V. as of December 31,2012 and for the years ended December 31, 2012 and 2011 (which report expresses an unqualified opinion and includes an explanatory paragraph regardingthe fact that Mexican Financial Reporting Standards vary from accounting principles generally accepted in the United States of America, the nature andeffects of which are presented in Note 19 in such consolidated financial statements), appearing in the Annual Report on Form 10-K of Office Depot, Inc. forthe year ended December 27, 2014./s/ Ma. Isabel Romero MirandaGalaz, Yamazaki, Ruiz Urquiza, S.C.Member of Deloitte Touche Tohmatsu LimitedMexico City, MexicoFebruary 24, 2015 137Exhibit 31.1Rule 13a-14(a)/15d-14(a) CertificationI, Roland C. Smith, certify that: 1.I have reviewed this annual report on Form 10-K of Office Depot, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting./s/ ROLAND C. SMITHName: Roland C. SmithTitle: Chief Executive OfficerDate: February 24, 2015 138Exhibit 31.2Rule 13a-14(a)/15d-14(a) CertificationI, Stephen E. Hare, certify that: 1.I have reviewed this annual report on Form 10-K of Office Depot, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly duringthe period in which this report is being prepared;b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles;c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of thedisclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the registrant’s ability to record, process, summarize and report financial information; andb) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting./s/ STEPHEN E. HAREName: Stephen E. HareTitle: Executive Vice President and Chief Financial OfficerDate: February 24, 2015 139Exhibit 32Office Depot, Inc.Certification of CEO and CFO Pursuant to18 U.S.C. Section 1350, as Adopted Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002In connection with the Annual Report on Form 10-K of Office Depot, Inc. (the “Company”) for the fiscal year ended December 27, 2014 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Roland C. Smith, as Chief Executive Officer of the Company, and Stephen E. Hare, asChief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,that, to each officer’s knowledge:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company./s/ ROLAND C. SMITHName: Roland C. SmithTitle: Chief Executive OfficerDate: February 24, 2015/s/ STEPHEN E. HAREName: Stephen E. HareTitle: Chief Financial OfficerDate: February 24, 2015A signed original of this written statement required by Section 1350 of Title 18 of the United States Code has been provided to the Company and will beretained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 1350 of Title 18 of theUnited States Code and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated byreference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date ofthe Report, irrespective of any general incorporation language contained in such filing). 140Exhibit 99Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Financial Statements as ofJuly 9, 2013(Unaudited) and December31, 2012 and for the Period fromJanuary 1, 2013 to July 9, 2013(Unaudited) and for the Years EndedDecember 31, 2012 and 2011Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Financial Statements for the Period fromJanuary 1, 2013 to July 9, 2013 (Unaudited) and forthe Years Ended 2012 and 2011 Table of contents Page Independent Auditors’ Report 1 Consolidated Balance Sheets 3 Consolidated Statements of Comprehensive Income 4 Consolidated Statements of Changes in Stockholders’ Equity 5 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 Independent Auditors’ Report to the Board ofDirectors and Stockholders of Office Depot de México,S. A. de C. V.We have audited the accompanying consolidated financial statements of Office Depot de México, S. A. de C. V. and its subsidiaries (the “Company”), whichcomprise the consolidated balance sheet as of December 31, 2012 and the related consolidated statements of comprehensive income, changes instockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011, and the related notes to the consolidated financial statements.Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Mexican FinancialReporting Standards; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation ofconsolidated financial statements that are free from material misstatement, whether due to fraud or error.Auditors’ ResponsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance withauditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. Theprocedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financialstatements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation andfair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluatingthe appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating theoverall presentation of the consolidated financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Office Depot deMéxico, S. A. de C. V. and its subsidiaries as of December 31, 2012, and the results of their operations and their cash flows for the years then ended inaccordance with Mexican Financial Reporting Standards.MFRS vary in certain significant respects from accounting principles generally accepted in the United States of America (“U.S. GAAP”). Information relatingto the nature and effect of such differences is presented in Note 19 to the accompanying consolidated financial statements.The accompanying consolidated financial statements have been translated into English for the convenience of readers.Galaz, Yamazaki, Ruiz Urquiza, S. C.Member of Deloitte Touche Tohmatsu Limited/s/ C. P. C. Ma. Isabel Romero MirandaFebruary 15, 2013(November 7, 2013 with respect to Note 17)México City, México 2Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Balance SheetsAs of July 9, 2013 (Unaudited) and December 31, 2012(In thousands of Mexican pesos) 09/07/2013 (Unaudited) 31/12/2012 Assets Current assets: Cash and cash equivalents $631,536 $348,761 Accounts receivable and recoverable taxes – Net 933,827 1,033,617 Due from related parties 389 307 Inventories – Net 3,417,622 3,368,349 Prepaid expenses 79,764 94,436 Total current assets 5,063,138 4,845,470 Property, equipment and leasehold improvements – Net 4,246,215 4,327,788 Deferred income taxes 134,117 98,288 Deferred statutory employee profit sharing 808 808 Intangible assets – Net 62,148 78,295 Goodwill 61,648 61,648 Total $9,568,074 $9,412,297 Liabilities and stockholders’ equity Current liabilities: Trade accounts payable $2,144,236 $2,208,524 Office Depot Asia Holding Limited – Related party 20,072 17,309 Accrued expenses 375,501 414,388 Taxes payable 63,441 118,178 Total current liabilities 2,603,250 2,758,399 Employee benefits 45,651 44,951 Total liabilities 2,648,901 2,803,350 Stockholders’ equity: Common stock 1,266,239 1,266,239 Retained earnings 5,561,504 5,204,895 Foreign currency translation 91,430 137,813 Total stockholders’ equity 6,919,173 6,608,947 Total $9,568,074 $9,412,297 See accompanying notes to the consolidated financial statements. 3Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Statements of Comprehensive IncomeFor the period from January 1, 2013 to July 9, 2013 (unaudited) and for the years ended December 31, 2012 and 2011(In thousands of Mexican pesos) 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Revenues: Net sales $7,439,152 $15,086,057 $14,051,901 Other 33,971 47,048 70,722 7,473,123 15,133,105 14,122,623 Costs and expenses: Cost of sales 5,235,562 10,482,201 9,941,600 Selling, administrative and general expenses 1,663,641 3,260,774 2,912,261 6,899,203 13,742,975 12,853,861 Other expenses — (588) (39,334) Net comprehensive financing cost: Bank commissions (74,426) (212,687) (172,290) Interest expense (230) (5,283) (21,580) Interest income 8,018 9,352 10,486 Exchange gain (loss) 696 (7,456) 5,107 Other financial income – Net 35,738 56,873 74,047 (30,204) (159,201) (104,230) Income before income taxes 543,716 1,230,341 1,125,198 Income tax expense 187,107 410,679 396,936 Consolidated net income 356,609 819,662 728,262 Other comprehensive (loss) income for the year Foreign currency translation (loss) gain (46,383) (36,152) 150,899 Total comprehensive income for the year $310,226 $783,510 $879,161 See accompanying notes to the consolidated financial statements. 4Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Statements of Changes in Stockholders’ EquityFor the period from January 1, 2013 to July 9, 2013 (unaudited) and for the years ended December 31, 2012 and 2011(In thousands of Mexican pesos) Common Retained Foreigncurrency Totalstockholders’ stock earnings translation equity Balances as of January 1, 2011 $1,266,239 $4,256,971 $23,066 $5,546,276 Dividends paid ($10.81 pesos per share) — (600,000) — (600,000) Comprehensive income — 728,262 150,899 879,161 Balances as of December 31, 2011 1,266,239 4,385,233 173,965 5,825,437 Comprehensive income — 819,662 (36,152) 783,510 Balances as of December 31, 2012 1,266,239 5,204,895 137,813 6,608,947 Comprehensive income (unaudited) — 356,609 (46,383) 310,226 Balances as of July 9, 2013 (unaudited) $1,266,239 $5,561,504 $91,430 $6,919,173 See accompanying notes to the consolidated financial statements. 5Office Depot de México, S. A. de C. V. and SubsidiariesConsolidated Statements of Cash FlowsFor the period from January 1, 2013 to July 9, 2013 (unaudited) and for the years ended December 31, 2012 and 2011(In thousands of Mexican pesos) 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Operating activities: Income before income taxes $543,716 $1,230,341 $1,125,198 Items related to investing activities: Depreciation and amortization 160,283 329,049 302,872 Loss (gain) on sale of fixed assets 15,815 (1,195) (1,147) Interest income (8,018) (9,352) (10,486) Other — — (708) Items related to financing activities: Interest expense 230 5,283 21,580 712,026 1,554,126 1,437,309 Accounts receivable and recoverable taxes 99,790 (170,697) (51,571) Due to/from related parties – Net (2,681) 17,226 (527) Inventories (49,273) (435,198) (204,088) Prepaid expenses 14,672 11,415 17,365 Trade accounts payable (68,201) 49,430 54,145 Accrued expenses (144,437) (130,535) (88,054) Income taxes paid (172,123) (289,477) (251,339) Other liabilities 5,870 4,176 (20,136) Net cash provided by operating activities 401,005 610,466 893,104 Investing activities: Purchases of equipment and investments in leasehold improvements (85,743) (538,834) (529,491) Proceeds from sale of equipment 2,194 6,556 6,321 Interest received 8,018 9,352 10,486 Net cash used in investing activities (75,531) (522,926) (512,684) Financing activities: Borrowings from related party — 550,000 400,000 Banks borrowings 6,512 — 100,000 Repayments to related party — (550,000) (400,000) Repayments of bank borrowings (2,598) — (100,000) Interest paid (230) (5,283) (21,580) Dividends paid — — (600,000) Net cash provided by (used in) financing activities 3,684 (5,283) (621,580) Net increase (decrease) in cash and cash equivalents 329,158 82,257 (241,160) Effects of exchange rate changes on cash (46,383) (36,152) 150,899 Cash and cash equivalents at beginning of period/year 348,761 302,656 392,917 Cash and cash equivalents at end of period/year $631,536 $348,761 $302,656 See accompanying notes to the consolidated financial statements. 6Office Depot de México, S. A. de C. V. and SubsidiariesNotes to the Consolidated Financial StatementsFor the period from January 1, 2013 to July 9, 2013 (unaudited), and for the years ended December 31, 2012 and 2011(In thousands of Mexican pesos, unless stated otherwise) 1.Nature of businessOffice Depot de México, S. A. de C. V. (“ODM”, a 50% owned subsidiary of Grupo Gigante, S. A. B. de C. V. and 50% owned affiliate of Office DepotDelaware Overseas Finance 1, LLC) and subsidiaries (collectively, the “Company”) is a chain of 215 stores in Mexico, five in Costa Rica, eight inGuatemala, three in El Salvador, two in Honduras, four in Panama, twelve in Colombia, eight distribution centers, a cross dock in Mexico that sellsoffice supplies and electronic goods, and a printing service specializing in the retail and catalogue business for office supplies. 2.Significant eventsOn July 9, 2013, Grupo Gigante, S. A. B. de C. V. (“Grupo Gigante”) acquired 50% of the outstanding shares of the Company, which were previouslyowned by a subsidiary of Office Depot, Inc. As a result of the acquisition, Grupo Gigante owns 100% of the outstanding shares of ODM as of such date.Grupo Gigante issued a bridge loan to finance the acquisition. The bridge loan is guaranteed by ODM and certain of its subsidiaries, as well as certainother subsidiaries of Grupo Gigante. On September 23, 2013, Grupo Gigante pre-paid 50% of the outstanding amount of bridge loan. 3.Basis of presentation a.Comparability – The consolidated financial statements for the period from January 1, 2013 to July 9, 2013 represent the result of operations ofthe Company through that date, which is the date on which Grupo Gigante acquired the remaining 50% of the outstanding shares of theCompany, as discussed in Note 2 above. As that period is less than a full year, the consolidated financial information as of July 9, 2013 and forthe period from January 1, 2013 to July 9, 2013 may not be comparable to the consolidated financial information for the years endedDecember 31, 2012 and 2011. b.Explanation for translation into English - The accompanying consolidated financial statements have been translated from Spanish into Englishfor use outside of Mexico. These consolidated financial statements are presented on the basis of Mexican Financial Reporting Standards(“MFRS”), individually referred to as Normas de Información Financiera or “NIFs”. Certain accounting practices applied by the Company thatconform with MFRS may not conform with accounting principles generally accepted in the country of use. c.Monetary unit of the financial statements—The consolidated financial statements and notes as of July 9, 2013 and December 31, 2012 and2011 and for the period from January 1, 2013 to July 9, 2013and for the years ended December 31, 2012 and 2011, include balances andtransactions denominated in Mexican pesos of different purchasing power. d.Consolidation of financial statements—The consolidated financial statements include the financial statements of ODM and those of itssubsidiaries over which it exercises control. ODM’s shareholding percentage in their capital stock is shown below: 7Company Equity ActivityDirect Subsidiaries: Centro de Apoyo, S. A. de C. V. 99.998000% A Mexican real estate company, which owns properties where severalstores of ODM are located.O. D. G. Caribe, S. A. de C. V. 99.999999% A Mexican holding company of subsidiaries specialized in the retail,catalogue business for office supplies, located in Colombia.Servicios Administrativos Office Depot, S. A. de C. V. 99.840000% Provides administrative services to Mexican related parties, locatedin Mexico.OD Guatemala y Cía. LTDA 99.999900% Operates stores specializing in the sale of services and office supplies,located in Guatemala.Erial BQ, S. A. 100.000000% Operates stores specializing in the sale of services and office supplies,located in Costa Rica.OD El Salvador, LTDA de C. V. 99.990000% Operates stores specializing in the sale of services and office supplies,located in El Salvador.OD Honduras, S. de R. L. 99.999000% Operates stores specializing in the sale of services and office supplies,located in Honduras.OD Panamá, S. A. 100.000000% Operates stores specializing in the sale of services and office supplies,located in Panama.Formas Eficientes, S. A. de C. V. 99.922000% The distribution and handling of office supplies inventories as wellas printed forms, located in Mexico.FESA Formas Eficientes, S. A. 100.000000% The distribution and handling of office supplies inventories as wellprinted forms, located in Costa Rica.Ofixpres, S.A. de C.V. 99.939000% The distribution and handling of office supplies inventories as wellas printed forms, located in El Salvador.Company Equity ActivityIndirect subsidiaries: Centro de Apoyo Caribe S. A. de C. V. 90.000000% The acquisition and leasing of all types of real estate. This companyhas not initiated operations as of the date of these consolidatedfinancial statements (subsidiary of Centro de Apoyo, S. A. de C. V.),located in Mexico.OD Colombia, S. A. S. 89.900000% Stores specializing in the sale of services and office supplies(subsidiary of ODG Caribe, S. A. de C. V.), located in Colombia. 8Company Equity ActivityIndirect subsidiaries: Papelera General, S. A. de C. V. 99.990000% The distribution of office supplies (subsidiary of Formas Eficientes, S.A. de C. V.), located in México.Ofixpres, S. A. S. 100.000000% The distribution and handling of office supplies inventories as wellas fabrication of printed forms, located in Colombia, (subsidiary ofOD Colombia, S. A. S.).OD Peru, S. A. C. 99.000000% This company has not initiated operations as of the date of theseconsolidated financial statements and it is located in Peru.All intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. e.Translation of financial statements of foreign subsidiaries—To consolidate financial statements of foreign subsidiaries, the accounting policiesof the foreign entity are converted to MFRS using the currency in which transactions are recorded.As the functional currency is the same as the currency in which transactions are recorded for all of the Company’s foreign operations, thefinancial statements are subsequently translated to Mexican pesos using the following exchange rates: 1) the closing exchange rate in effect atthe balance sheet date for assets and liabilities; 2) historical exchange rates for stockholders’ equity, and 3) the rate on the date of accrual ofrevenues, costs and expenses. Translation effects are recorded in stockholders’ equity.The currency in which transactions are recorded and the functional currency of foreign operations and the exchange rates used in the differenttranslation processes are as follows: Company Recording currency Functionalcurrency Exchange rate totranslate fromfunctional currencyto Mexican pesos09/07/2013 OD Guatemala y Cía. LTDA Quetzal Quetzal 1.6529 Erial BQ, S. A. Colon Colon 0.0256 FESA Formas Eficientes, S. A. Colon Colon 0.0256 OD El Salvador, LTDA de C. V. US dollars US dollars 12.9267 Ofixpres, S.A. de C.V. US dollars US dollars 12.9267 OD Honduras, S. de R. L. Lempiras Lempiras 0.6333 OD Panamá, S. A. US Dollars US Dollars 12.9267 OD Colombia, S. A. S. Colombian pesos Colombian pesos 0.0067 Ofixpres, S. A. S. Colombian pesos Colombian pesos 0.0067 f.Comprehensive income—Represents changes in stockholders’ equity during the year, for concepts other than capital contributions, reductionsand distributions, and is comprised of the net income (loss) of the year, plus other comprehensive income (loss) items of the same period, whichare presented directly in stockholders’ equity without affecting results. Other comprehensive income (loss) is represented by the effects oftranslation of foreign operations. g.Classification of costs and expenses—Costs and expenses presented within results were classified according to their function. Consequently,cost of sales is presented separately from the other costs and expenses. 94.Summary of significant accounting policiesThe accompanying consolidated financial statements have been prepared in conformity with MFRS, which require that management make certainestimates and use certain assumptions that affect the amounts reported in the consolidated financial statements and their related disclosures; however,actual results may differ from such estimates. The Company’s management, upon applying professional judgment, considers that estimates made andassumptions used were adequate under the circumstances. The significant accounting policies of the Company are as follows: a.Accounting changes -Beginning January 1, 2013, the Company adopted the following new NIFs:NIF B-3, Statement of Comprehensive Income or Loss —Establishes the option of presenting a) a single statement of income or loss andother comprehensive income or loss (statement of comprehensive income or loss) that contains the components of net income or loss andother comprehensive results (OCI) including OCI attributable to other entities accounted for by the equity method or b) two separatestatements that include the statement of income, which should include only the components that make up the net income or loss, and thestatement of other comprehensive results, which should present net income or loss and the components of OCI including OCI attributableto other entities accounted for by the equity method. It also establishes that items should not be presented as non-ordinary in segregatedform, either in the financial statements or in notes to the financial statements.NIF B-4, Statement of Changes in Stockholders’ Equity—Establishes the general standards for the presentation and structure of thestatement of changes in stockholders’ equity, such as presenting retrospective adjustments for accounting changes and error correctionswhich affect the opening balances of each of the components of stockholders’ equity, and presenting comprehensive income or loss in asingle heading, or detailing all items in accordance with NIF B-3.NIF B-6, Statement of Financial Position—Establishes the structure of the statement of financial position and the related presentationand disclosure requirements.The adoption of these new standards did not have material effects in the accompanying consolidated financial statements. b.Recognition of the effects of inflation - Beginning on January 1, 2008, the Company discontinued recognition of the effects of inflation in itsconsolidated financial statements for those entities that do not operate in an inflationary environment, as that term is defined in MFRS. However,assets and stockholders’ equity include the restatement effects recognized by those entities through December 31, 2007. The cumulativeinflation rate in Mexico for the two fiscal years prior to those ended December 31, 2012 and 2011 was 12.26% and 15.19%, respectively, forwhich reason the economic environment continued to be considered non-inflationary in all periods. Inflation rates for the period ended July 9,2013 and for the years ended 2012 and 2011 were 1.30%, 3.57% and 3.82%, respectively. c.Cash and cash equivalents—Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments that a)are highly liquid and easily convertible into cash, b) mature within three months from their acquisition date and c) are subject to low risk ofmaterial changes in value. Cash is stated at nominal value and cash equivalents are valued at fair value; any fluctuations in value are recognizedin comprehensive financing (cost) income of the period d.Concentration of credit risk—The Company sells products to customers primarily in the retail trade in Mexico. The Company conducts periodicevaluations of its customers’ financial condition and generally does not require collateral. The Company does not believe that significant risk ofloss from a concentration of credit risk exists given the large number of customers that comprise its customer base and their geographicaldispersion. The Company also believes that its potential credit risk is adequately covered by the allowance for doubtful accounts. 10 e.Inventories and cost of sales—Inventories are stated at the lower of cost or realizable value. Cost is determined using the average cost method. f.Property, equipment and leasehold improvements—Property, equipment and leasehold improvements are recorded at acquisition cost. Balancesfrom acquisitions made through December 31, 2007, were restated for the effects of inflation by applying factors derived from the NCPI (NationalConsumer Price Index) through that date.Depreciation is calculated using the straight-line method based on the useful lives of the related assets, as follows: Average years Buildings 40 Leasehold improvements 9-25 Furniture and fixtures 4-10 Computers 4 Vehicles 4-8 The useful lives of fixed assets are reviewed at least annually to determine whether events and circumstances warrant a revision. g.Impairment of long-lived assets in use—The Company reviews the carrying amounts of long-lived asset in use, other than goodwill andintangible assets with indefinite useful lives, when an impairment indicator suggests that such amounts might not be recoverable, consideringthe greater of the present value of future net cash flows or the net sales price upon disposal. Impairment is recorded when the carrying amountsexceed the greater of the aforementioned amounts. Impairment indicators considered for these purposes are, among others, operating losses ornegative cash flows in the period if they are combined with a history or projection of losses, depreciation and amortization charged to results,which in percentage terms in relation to revenues are substantially higher than that of previous years, obsolescence, competition and other legaland economic factors. h.Goodwill and intangible assets—Goodwill represents the excess of consideration paid over the fair value of the net assets acquired in subsidiaryshares, as of the date of acquisition. Through December 31, 2007, goodwill was restated for the effects of inflation using the NCPI. Intangibleassets with indefinite useful lives are carried at cost. Goodwill and intangible assets with indefinite useful lives are not amortized and are subjectto impairment tests at least once a year, regardless of the existence of impairment indicators.The Company amortizes the cost of its intangible assets with definite useful lives over such estimated useful lives. These lives are reviewed atleast annually to determine whether events and circumstances warrant a revision. Useful lives are as follows: Years Customer list 5 Non-compete agreement 10 i.Provisions—Provisions are recognized for current obligations that arise from a past event, that are probable to result in the use of economicresources, and that can be reasonably estimated. j.Direct employee benefits—Direct employee benefits are calculated based on the services rendered by employees, considering their most recentsalaries. The liability is recognized as it accrues. These benefits include mainly statutory employee profit sharing (“PTU”) payable, compensatedabsences, such as vacation and vacation premiums, and incentives. 11 k.Employee benefits for termination, retirement and other—Liabilities related to seniority premiums and, severance payments are recognized asthey accrue and are calculated by independent actuaries based on the projected unit credit method using nominal interest rates. l.Statutory employee profit sharing (PTU)—PTU is recorded in the results of the year in which it is incurred and presented under selling,administrative and general expenses within results. Deferred PTU is derived from temporary differences that result from comparing theaccounting and PTU bases of assets and liabilities and is recognized only when it can be reasonably assumed that such difference will generate aliability or benefit, and there is no indication that circumstances will change in such a way that the liabilities will not be paid or benefits will notbe realized. m.Income taxes—Income tax (“ISR”) and the Business Flat Tax (“IETU”) are recorded in the results of the year they are incurred. To recognizedeferred income taxes, based on its financial projections, the Company determines whether it expects to incur ISR or IETU and, accordingly,recognizes deferred taxes based on that expectation. Deferred taxes are calculated by applying the corresponding tax rate to temporarydifferences resulting from comparing the accounting and tax bases of assets and liabilities and including, if any, future benefits from tax losscarryforwards and certain tax credits. Deferred tax assets are recorded only when there is a high probability of recovery.During December 2013, the 2014 Mexican Tax Reform was enacted, which eliminated the concept of IETU. Accordingly, deferred IETUrecognized through the enactment date would require elimination. n.Foreign currency transactions—Foreign currency transactions are recorded at the applicable exchange rate in effect at the transaction date.Monetary assets and liabilities denominated in foreign currency are translated into functional currency amounts at the applicable exchange ratein effect at the balance sheet date. Exchange fluctuations are recorded as a component of net comprehensive financing cost within results. o.Revenue recognition—Revenues are recognized in the period in which the risks and rewards of ownership of the inventories are transferred tothe customers, which generally coincides with the delivery of products to customers in satisfaction of orders.Revenue is recognized at the point of sale for retail transactions and at the time of successful delivery for contract, catalog and internet sales.Sales taxes collected are not included in reported sales. The Company does not charge shipping and handling costs to its customers; such costsare included within selling, administrative and general expenses within results and amounted to $56,207 (unaudited), $124,109 and $118,037for the period from January 1, 2013 to July 9, 2013 and for the years ended in 2012 and 2011, respectively. p.Advertising—Advertising costs are charged to expense when incurred. Advertising expense for the period from January 1, 2013 to July 9, 2013and for the years ended December 31, 2012 and 2011 was $75,005 (unaudited), $239,639 and $203,451, respectively. Prepaid advertising costswere $31,076 (unaudited), $44,723 and $59,936 for the period from January 1, 2013 to July 9, 2013 and for the years ended December 31, 2012and 2011, respectively. 5.Cash and cash equivalents 09/07/2013 (Unaudited) 31/12/2012 Checking accounts $341,914 $258,009 Readily available daily investments 289,622 90,752 $631,536 $348,761 126.Accounts receivable and recoverable taxes 09/07/2013 (Unaudited) 31/12/2012 Trade accounts receivable $647,146 $663,894 Allowance for doubtful accounts (6,053) (5,728) 641,093 658,166 Sundry debtors 29,720 33,263 Recoverable taxes, mainly value-added tax and income tax 263,014 342,188 $933,827 $1,033,617 Movements in the allowance for doubtful accounts for the period from January 1, 2013 to July 9, 2013 and for the years ended December 31, 2012 and2011 are as follows: Balance atbeginning ofperiod Additionalcharged toexpenses Write-offs ofuncollectibleaccounts Balance atending of period 09/07/2013(Unaudited) $5,728 $612 $(287) $6,053 31/12/2012 10,259 (2,042) 2,489 5,728 31/12/2011 4,109 7,556 1,406 10,259 7.Inventories 09/07/2013 (Unaudited) 31/12/2012 Inventories $3,439,069 $3,337,106 Allowance for obsolete inventories (36,545) (19,516) 3,402,524 3,317,590 Goods in-transit 15,098 50,759 $3,417,622 $3,368,349 Movements in the allowance for obsolete inventories for the period from January 1, 2013 to July 9, 2013 and for the years ended December 31, 2012and 2011 are as follows: Balanceatbeginningof period Additionalcharged toexpenses Shrinkage Balanceat endingof period 09/07/2013(Unaudited) $19,516 $22,847 $5,818 $36,545 31/12/2012 12,659 20,712 13,855 19,516 31/12/2011 11,983 16,759 16,083 12,659 138.Property, equipment and leasehold improvements 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 a. Investment Land $1,373,298 $1,378,984 $1,365,260 Buildings 1,871,696 1,803,077 1,713,779 Leasehold improvements 1,584,713 1,600,527 1,476,640 Furniture and fixtures 1,082,554 1,064,491 966,230 Computers 382,090 375,465 314,352 Vehicles 175,922 171,582 160,225 Construction in-progress 34,757 86,554 73,774 $6,505,030 $6,480,680 $6,070,260 b. Accumulated depreciation and amortization Buildings $408,354 $380,134 $325,758 Leasehold improvements 729,871 713,485 644,443 Furniture and fixtures 711,959 675,835 612,433 Computers 286,887 270,329 247,264 Vehicles 121,744 113,109 106,936 $2,258,815 $2,152,892 $1,936,834 $4,246,215 $4,327,788 $4,133,426 Depreciation expense for the period from January 1, 2013 to July 9, 2013 and for the years ended December 31, 2012 and 2011 were $110,426(unaudited), $230,248 and $207,982, respectively.Amortization expense for the period from January 1, 2013 to July 9, 2013 and December 31, 2012 and 2011 was $49,857 (unaudited), $98,801 and$94,890, respectively, which includes amortization of leasehold improvements as well as intangibles detailed in Note 8. 9.Intangible assets 09/07/2013 (Unaudited) 31/12/2012 Intangible assets with finite useful lives: Non-compete agreement $22,473 $22,412 Customer list 101,726 105,908 124,199 128,320 Accumulated amortization (74,552) (63,575) 49,647 64,745 Intangible asset with indefinite useful life: Trademark 12,501 13,550 $62,148 $78,295 14Amortization expense of intangible assets for the period from January 1, 2013 to July 9, 2013 and for the years ended December 31, 2012 and 2011were $10,976 (unaudited), $23,266 and $36,641, respectively. The estimated amortization expense of intangible assets with finite lives for each of thethree following years is as follows: Remaining period of 2013 $ 23,340 2014 23,340 2015 18,065 10.Employee benefits a.The Company pays seniority premium benefits to its employees, which consist of a lump sum payment of 12 days’ wage for each year worked,calculated using the most recent salary, not to exceed twice the minimum wage established by law. The related liability and annual cost of suchbenefits are calculated by an independent actuary on the basis of formulas defined in the plans using the projected unit credit method. b.The Company also provides statutorily mandated severance benefits to its employees terminated under certain circumstances. Such benefitsconsist of a one-time payment of three months wages plus 20 days wages for each year of service payable upon involuntary termination withoutjust cause. c.Present value of these obligations are: 09/07/2013(Unaudited) 31/12/2012 Defined benefit obligation – Underfunded $(45,651) $(45,804) Unrecognized items: Past service costs, change in methodology and changes to the plan — 989 Transition liability — 83 Actuarial gains and losses — (219) Total unrecognized amounts pending amortization — 853 Net projected liability $(45,651) $(44,951) d.Nominal rates used in actuarial calculations are as follows: 09/07/2013 31/12/2012 % % Discount of the projected benefit obligation at present value 8.19 8.19 Salary increase 5.73 5.73 Minimum wage increase rate 4.27 4.27 The transition liability balance generated in 2007 will be amortized over a five-year period. 15 e.Net cost for the period includes the following items: 09/07/2013(Unaudited) 31/12/2012 Service cost $7,645 $10,913 Interest cost 1,504 2,954 Amortization of unrecognized prior service costs 52 208 Amortization of actuarial gains — 1,412 Effect of personnel reduction or early termination (other than a restructuring ordiscontinued operation) — (605) Net cost for the period $9,201 $14,882 f.Changes in present value of the defined benefit obligation are as follows: 09/07/2013(Unaudited) 31/12/2012 Benefit obligation at beginning of year $44,951 $40,775 Service cost 7,645 10,913 Interest cost 1,504 2,954 Amortization of unrecognized prior service costs 52 208 Actuarial gains and losses – Net — 1,412 Benefits paid (8,501) (10,706) Effect of personnel reduction or early termination — (605) Present value of the defined benefit obligation as of December 31, 2012 $45,651 $44,951 g.Under Mexican legislation, the Company must make payments equivalent to 2% of its workers’ daily integrated salary to a defined contributionplan that is part of the retirement savings system. The expense for the period from January 1, 2013 to July 9, 2013 and for the years endedDecember 31, 2012 and 2011 was $8,244 (unaudited), $15,908 and $14,348, respectively. h.Balance of PTU payable is as follows: 09/07/2013(Unaudited) 31/12/2012 PTU: Current $(6,396) $(11,489) Deferred — 5 $(6,396) $(11,485) 1611.Stockholders’ equity a.Common stock at par value (historical pesos) as of July 9, 2013 (unaudited) and December 31, 2012 is as follows: Number of shares Amount Fixed capital: Series A 2,500 $25 Series B 2,500 25 5,000 50 Variable capital: Series A 27,749,159 277,492 Series B 27,749,159 277,492 Total 55,498,318 554,984 55,503,318 $555,034 Common stock consists of common nominative shares at a par value of $10 per share. Series A shares represent 50% of common stock and mayonly be acquired by Mexican citizens. Series B shares represent 50% of common stock and may be freely subscribed. Variable capital isunlimited. b.Pursuant to a resolution at the general ordinary stockholders’ meeting held on April 8, 2011, a dividend was declared out of the net tax incomeaccount (CUFIN) for $600,000. c.During an extraordinary shareholder’s meeting held on January 6, 2014, the shareholders approved the amendment of the Entity’s bylaws in theirentirety to conform them to the provisions of the Ley del Mercado de Valores (Mexican Securities Market Law, or “LMV”) applicable to publiccorporations, thereby, adopting the denomination of a corporation with variable capital public stock (sociedad anónima bursátil de capitalvariable). At that time, they also approved a 15 for 1 stock split, as a result of which, as of such date, the total fixed common stock of the Entityis comprised of 75,000 shares and the total variable common stock of the Entity is comprised of 832,474,770 shares for total ordinary andnominative, no par value shares of 832,549,770. d.Retained earnings include the statutory legal reserve. The General Corporate Law requires that at least 5% of net income of the year betransferred to the legal reserve until the reserve equals 20% of capital stock at par value (historical pesos). The legal reserve may be capitalizedbut may not be distributed unless the entity is dissolved. The legal reserve must be replenished if it is reduced for any reason. At July 9, 2013 andDecember 31, 2012, the legal reserve, in historical pesos, was $111,007. e.Stockholders’ equity, except restated paid-in capital and tax retained earnings will be subject to ISR payable by the Company at the rate in effectupon distribution. Any tax paid on such distribution may be credited against annual and estimated income taxes of the year in which the tax ondividends is paid and the following two fiscal years. f.The balances of the stockholders’ equity tax accounts as of July 9, 2013 and December 31, 2012 are: 09/07/2013(Unaudited) 31/12/2012 Contributed capital account 1,589,641 $1,569,241 Net tax income account (CUFIN) 5,924,445 5,855,646 Total 7,514,086 $7,424,887 1712.Foreign currency balances and transactions a.As of July 9, 2013 and December 31, 2012, the foreign currency monetary position is as follows: 09/07/2013 (Unaudited) 31/12/2012 Thousands of U.S. dollars: Monetary assets $23,734 $27,895 Monetary liabilities (34,289) (35,546) Net monetary liability position (10,555) (7,651) Equivalent in thousands of Mexican pesos $(137,459) $(99,310) b.Transactions denominated in foreign currency were as follows: 09/07/2013 (Thousands of U.S. dollars) (Unaudited) 31/12/2012 31/12/2011 Import purchases 58,427 192,777 183,755 Acquisition of fixed assets 3,772 22,538 18,657 Other expenses 243 822 606 c.Mexican peso exchange rates in effect at the dates of the consolidated balance sheets and the date of issuance of the accompanying consolidatedfinancial statements were as follows: 07/02/2014 (Unaudited) 09/07/2013 31/12/2012 31/12/2011 Mexican pesos per one U. S. dollar $13.22 $12.92 $12.98 $13.98 13.Transactions and balances with related parties a.Transactions with related parties, carried out in the ordinary course of business, were as follows: 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Sales: Restaurantes Toks, S. A. de C. V. $577 $1,142 $1,144 Servicios Gastronómicos Gigante, S. A. de C. V. 96 162 155 Servicios Toks, S. A. de C. V. 77 110 146 Distribuidora Store Home, S. A. de C. V. 42 78 76 Unidad de Servicios Compartidos, S. A. de C. V. 33 118 48 Grupo Gigante, S. A. B. de C. V. 8 32 17 Gigante, S. A. de C. V. 1 6 2 Gigante Grupo Inmobiliario, S. A. de C. V. 13 16 24 Other related parties 1,601 1,989 1,778 Leases and maintenance income: Restaurantes Toks, S. A. de C. V. 6,450 12,943 11,244 Distribuidora Store Home, S. A. de C. V. 1,544 3,350 3,004 Servicios Toks, S. A. de C. V. 1,296 2,393 2,277 Other related parties — 1,210 1,167 18 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Leases, maintenance and other expenses: Gigante Grupo Inmobiliario 23,125 40,142 38,891 Office Depot, Inc. 3,867 1,161 3,088 Gigante, S. A. de C. V. 1,364 2,680 170 Other related parties 3,682 15,558 9,687 Grupo Gigante, S. A. B. de C. V. — 1,957 — Interest expense: Grupo Gigante, S. A. B. de C. V. 4,832 18,899 Acquisition and maintenance of vehicles: Ola Polanco, S. A. de C. V. 954 1,929 2,433 Nami Naucalpan, S. A. de C. V. 897 — — Purchase of inventories: Office Depot Asia Holding Limited 196,739 426,262 269,706 b.Balances due from related parties are as follows: 09/07/2013 (Unaudited) 31/12/2012 Restaurantes Toks, S. A. de C. V. $276 $194 Servicios Toks, S. A. de C. V. 35 12 Grupo Gigante S. A. B. de C. V. — 27 Distribuidora Storehome, S. A. de C. V. 45 18 Servicios Gastronómicos Gigante, S. A. de C. V. 33 30 Gigante, S. A. de C. V. — 7 Other related parties — 19 $389 $307 14.Other expenses a.Detail is as follows: 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Colombian equity tax $— $— $(39,334) Others — 588 — $— $588 $(39,334) 1915.Tax environmentIncome taxes in Mexico -The Company is subject to ISR and IETU and pays the greater of the two.ISR -The rate was 30% in 2013 and 2012 and as a result of the new 2014 ISR law (2014 Law), it will continue at 30% in 2014 and subsequent years.IETU – IETU was eliminated as of 2014; therefore, through December 11, 2013, the enactment date of the 2014 Mexican tax reform, this tax wasincurred based on revenues less deductions and certain tax credits based on cash flows from each year. The respective rate was 17.5%.Based on its financial projections and according to Interpretation of Financial Information Standard (“INIF”) 8, Effects of the Business Flat Tax, theCompany determined that certain subsidiaries will pay ISR while others will pay IETU. Therefore, deferred income taxes are calculated under both taxregimes.Income taxes in other countries -The foreign subsidiaries calculate income taxes on their individual results, in accordance with the regulations of each country.The tax rates applicable in other countries where the Company operates and the period in which tax losses may be applied, are as follows: 09/07/2013 Statutory incometax rate (%) Period of (Unaudited) 31/12/2012 31/12/2011 expiration Colombia 34.0 33.0 33.0 (a) Costa Rica 30.0 30.0 30.0 3 El Salvador 30.0 30.0 25.0 (b) Guatemala 31.0 31.0 31.0 (b) Honduras 30.0 31.0 35.0 4 Panama 25.0 25.0 25.0 5 (a)Tax losses generated in 2006 may be amortized up to 25% in each fiscal year. Beginning 2007, tax losses may be amortized without limitation on thevalue or period.(b)Operating losses are not amortizable. a.Income taxes are as follows: 09/07/2013 31/12/2012 31/12/2011 (Unaudited) ISR: Current $204,810 $446,002 $398,200 Deferred (37,972) (79,600) (41,574) 166,838 366,402 356,626 IETU: Current 20,771 33,660 25,728 Deferred (502) 10,617 14,582 20,269 44,277 40,310 Total $187,107 $410,679 $396,936 20 b.Income taxes and the reconciliation of the statutory and effective ISR rates, expressed in amounts and as a percentage of income before incometaxes, are: 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 % % % Statutory tax rate 30 30 30 Effects of inflation — (1) (2) Non-deductible expenses 1 1 1 Other — (1) 2 IETU 3 4 4 34% 33% 35% c.The main items originating the deferred ISR asset as of July 9, 2013 and December 31, 2012 are: 09/07/2013 (Unaudited) 31/12/2012 Deferred ISR asset: Effect of tax loss carryforwards $97,621 $96,368 Property, equipment and leasehold improvements 164,225 139,298 Accrued expenses 17,196 29,050 Allowance for doubtful accounts 464 342 Other, net 14,412 11,636 Deferred ISR asset 293,918 276,694 Deferred ISR liability: Inventories (5,059) (18,657) Prepaid expenses (14,213) (15,661) Deferred ISR liability (19,272) (34,318) Valuation allowance for deferred ISR asset (93,068) (93,068) Net deferred ISR asset $181,578 $149,308 Movements in the valuation allowance for the deferred ISR asset for the period from January 1, 2013 to July 9, 2013 and for the years endedDecember 31, 2012 and 2011 are as follows: Balance atbeginningof period Additionalcharged toexpenses Amortizationof tax losses Balance atending ofperiod 2013 93,068 — — 93,068 2012 75,587 17,481 — 93,068 2011 79,242 21,147 24,802 75,587 d.As of December 31, the main items that give rise to a deferred IETU liability are: 09/07/2013 (Unaudited) 2012 Deferred IETU liability: Accounts receivable from affiliated companies (60,126) $(62,627) Vehicles (2,527) (2,261) Deferred IETU liability (62,653) (64,888) 21 09/07/2013 (Unaudited) 2012 Deferred IETU asset: Accrued expenses 15,192 13,868 Deferred IETU asset: 15,192 13,868 Total IETU liability (47,461) $(51,020) Deferred income taxes 134,117 $98,288 e.The benefits of restated tax loss carryforwards in Mexico for which the deferred ISR asset has been recognized, can be recovered subject tocertain conditions in different jurisdictions. Restated amounts as of December 31, 2012 and expiration dates are: Year ofExpiration Tax losscarryforwards 2013 $3,568 2014 2,556 2015 2,086 2016 2,001 2017 1,256 2018 995 2019 369 2020 23 2021 22 2022 22 $12,898 In Colombia, tax losses carryforwards of $282,023 as of December 31, 2012 can be recovered without limitation on the value or period. 16.Commitments and ContingenciesCommitmentsThe Company leases retail stores and other facilities under operating lease agreements with initial lease terms expiring in various years through 2040.In addition to minimum rentals, there are certain executory costs such as real estate taxes, insurance and common area maintenance on most of theCompany’s facility leases.The table below shows future minimum lease payments due under the non-cancelable portions of our leases as of July 9, 2013. 2013 $213,663 2014 427,326 2015 427,326 2016 427,326 2017 427,326 Thereafter 2,727,416 $4,650,383 22Rent expense was $207,637 (unaudited) for the period from January 1, 2013 to July 9, 2013, $404,505 in 2012 and $352,185 in 2011.Legal MattersOn August 31, 2005, in an effort to expand operations within Mexico, a sublease agreement with respect to a plot of land was signed between theCompany and a third party, under which the Company would sublease the land and build one of its Office Depot stores. After subsequent analysis, inits own best interest, the Company decided not to proceed with the project and notified the third party of its intent to early terminate the subleasecontract. The third party considered this to be a breach of the sublease contract, which resulted in the Company filing a lawsuit against the sublessor inJuly 2006, seeking the early termination of the contract. The third party filed a counterclaim against the Company seeking mandatory performance bythe Company under the contract.In October 2008, the Company was ordered under the counterclaim to comply with the terms of the sublease agreement, which requires theconstruction of an Office Depot store on the plot of land. The Company filed an appeal in January 2009. On August 19, 2010, the court rejected theCompany’s appeal of January 2009. The Company filed an amparo or appeal (an injunction on constitutional grounds) against the August 19, 2010resolution as result of which (after the corresponding legal steps), the court resolved the case on October 5, 2012 by ratifying the first resolution issuedon October 2008 against the Company.Subsequently, the Company filed another appeal in November 2012.The Company, together with its external counsel, estimated that the accrued rentals and the approximate cost of the construction of the Office Depotstore were approximately $18,000 and a liability was recognized for this amount as of December 31, 2012, which is included in accrued expenses inthe accompanying consolidated financial statements.On February 14, 2013, a negotiated settlement was agreed upon between the Company and the third party, whereby the Company agreed to settle theclaim for $11,600. The adjustment to the provision was recognized, during the period, in the accompanying consolidated financial statements. 17.Subsequent eventsThe Company has evaluated events subsequent to July 9, 2013, 2014 to assess the need for potential recognition or disclosure in the accompanyingconsolidated financial statements. Such events were evaluated through February 25, 2014, the date these consolidated financial statements wereavailable to be reissued. Based upon this evaluation, the following events took place that require disclosure: a.On September 20, 2013, the Entity issued 6.875% Senior Notes in domestic and international markets, for a total of $350 million U.S. dollars,maturing on September 20, 2020. The Entity used the proceeds of the issuance of the Senior Notes to grant Grupo Gigante an unsecured loan for$4,352,543, which expires on September 20, 2020. Such loan will earn annual interest of 7.225%. b.At a shareholder’s meeting held on September 20, 2013, the shareholder approved the declaration of dividends in the amount of $4,352,543,payable within 84 months from September 20, 2013. Any unpaid amount will bear interest at an annual rate of 7.175%. 2318.New accounting principlesDuring 2013, the Mexican Board for the Research and Development of Financial Reporting Standards enacted the following NIFs, which go into effectJanuary 1, 2014, although early application is permitted as follows:NIF B-12 Offsetting of Financial Assets and Financial LiabilitiesNIF C-14 Transfer and Cancellation of Financial AssetsSome of the principal changes established in these standards are:NIF B-12, Offsetting of Financial Assets and Financial Liabilities- Stipulates that the offsetting of financial assets and liabilities should beoffset in the statement of financial position when: a) there is a legal right and obligation to collect or pay an offset amount, and b) the amountresulting from offsetting the financial assets of the financial liability reflects the expected cash flows of the entity when it liquidates two or morefinancial instruments. Furthermore, it establishes that an entity should offset only when the following two conditions are fulfilled: 1) it has alegally enforceable and effective right to offset the financial asset and the financial liability under any circumstances and, in turn; 2) it has theintention of liquidating the financial asset and financial liability on an offset basis or realizing the financial asset and liquidating the financialliability simultaneously.NIF C-14, Transfer and Cancellation of Financial Assets- Establishes the standards related to the accounting recognition of transfers andcancellations of financial assets different from cash and cash equivalents, such as receivables or negotiable financial instruments, as well as thepresentation in the financial statements of such transfers and the related disclosures. In order for a transfer to also qualify as a cancellation, thereshould be a full assignment of the risks and benefits inherent to the financial asset.The transferor of the financial asset will eliminate it from its statement of financial position at the time that it is no longer has rights or is exposedto the future profit or loss, respectively, therefrom. Conversely, the recipient will assume the risks inherent to such financial asset acquired andwill have an additional return if the cash flows originated thereby exceed those originally estimated, or a loss if the cash flows received werelower.At the date of issuance of these consolidated financial statements, the Entity has not finalized its analysis with respect to the effects of these newprovisions on its financial information. 19.Differences between MFRS and accounting principles generally accepted in the United States of America (“U.S. GAAP”)The accompanying consolidated financial statements of the Company are prepared in accordance with MFRS, which may vary in certain significantrespects from U.S. GAAP. Note 3 to the accompanying consolidated financial statements summarizes the accounting policies adopted by the Company.The principal differences between MFRS and U.S. GAAP as they affect the Company’s consolidated net income, consolidated stockholders’ equity,presentation of consolidated financial information and the relevant disclosures are summarized below: 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Consolidated net income under MFRS $356,609 $819,662 $728,262 (i) Elimination of effects of inflation 12,090 24,056 30,570 (ii) Employee retirement obligations (12) 972 (485) (iii) Rent holidays (7,812) (9,251) 411 24 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 (v) Deferred PTU asset — (4) 79 Total U.S. GAAP adjustments 4,266 15,773 30,575 (vi) (vi) Deferred income tax effects on U.S. GAAP adjustments (2,182) (3,569) 22,927 Consolidated net income under U.S. GAAP $358,693 $831,866 $781,764 09/07/2013 31/12/2012 (Unaudited) Consolidated stockholders’ equity under MFRS (1) $6,919,173 $6,608,947 (i) Elimination effects of inflation (408,720) (422,222) (ii) Change in employee retirement obligations 1,339 967 (iii) Rent holidays (56,297) (48,719) (iv) Amortization of goodwill 13,812 13,812 (v) Deferred PTU asset (808) (808) Total U.S. GAAP adjustments $(450,674) $(456,970) (vi) Deferred income tax effects on U.S. GAAP adjustments 136,980 135,183 Consolidated stockholders’ equity under U.S. GAAP $6,605,478 $6,287,160 (1)Individual adjustments to the accompanying reconciliation of stockholders’ equity include the effects of translation of foreign operations whosefunctional currency is different from the Mexican peso. (i)Elimination of the effects of inflation—Through December 31, 2007, MFRS required the recognition of the comprehensive effects ofinflation on consolidated financial information. Beginning January 1, 2008, MFRS only requires the recognition of the effects ofinflation for entities that operate in an inflationary environment (one whose cumulative inflation for the preceding three-year periodsequals or exceeds 26%). Since that date, Mexico has ceased to be an inflationary economic environment. However assets andstockholders’ equity under MFRS include the effects of inflation recognized through December 31, 2007. The elimination of the effectsof inflation on individual line items in the consolidated balance sheets under MFRS are as follows: 09/07/2013 31/12/2012 (Unaudited) Property, equipment and leasehold improvements $394,446 $407,875 Intangible assets 377 450 Goodwill 13,897 13,897 Total adjustment $408,720 $422,222 U.S. GAAP generally requires the use of the historical cost basis of accounting, except when an entity operates in a highly inflationary economy.Accordingly, the comprehensive effects of inflation recognized under MFRS have been eliminated in the accompanying reconciliation ofconsolidated net income and stockholders’ equity to U.S. GAAP. 25 (ii)Employee benefits—Under MFRS, liabilities from seniority premiums, pension plans and severance payment are recognized as theyaccrue determined based on actuarial calculations using the projected unit credit method. The liability recognized under MFRS does notinclude unrecognized items such as actuarial gains and losses and prior service costs, which under MFRS, will be amortized to theliability generally over the remaining service period of the employees.U.S. GAAP requires recognition of the fully overfunded or underfunded status of the liability for defined benefit employee obligations,with an offsetting entry to other comprehensive income. The amounts included in other comprehensive income are reclassified intoresults generally over the remaining service period of the employees. Additionally, for certain termination benefits under MFRS,modifications to a plan and the related prior service costs are recognized within results in the year of modification; under U.S. GAAP,these prior service costs are recognized in other comprehensive income and amortized to results generally over the remaining serviceperiod of the employees. Accordingly, the adjustment in the accompanying reconciliations of consolidated net income and stockholders’equity to U.S. GAAP include (i) the recognition of the fully underfunded status of the obligation under U.S. GAAP within othercomprehensive income and (ii) the difference in recognition of prior service costs related to certain termination benefits, givenmodifications to such benefits in 2010.In addition, U.S. GAAP requires certain additional disclosures as shown below: Employee benefits 09/07/2013 Employee benefits (Unaudited) 31/12/2012 As of December 31: Projected benefit obligation $46,516 $45,804 Change in benefit obligation: Benefit obligation at beginning of year 45,804 41,780 Service cost 7,645 10,913 Interest cost 1,504 2,954 Amortization of transition obligation 64 128 Amortization of prior service cost — 974 Actuarial gain (239) Benefits paid (8,501) (10,706) Benefit obligation at end of year $46,516 $45,804 Employee benefits 09/07/2013 Employee benefits (Unaudited) 31/12/2012 Components of net periodic cost: Service cost $7,645 $10,912 Interest cost 1,504 2,954 Amortization of transition obligation 64 128 Amortization of prior service cost — 112 Effect of personnel reduction or early termination (other thana restructuring or discontinued operation) — — Amortization of net gain — (197) Net periodic cost $9,213 $13,910 The amount in accumulated other comprehensive income expected to be recognized as component of net periodic benefit cost over thefollowing fiscal year is $1,825. 26Weighted-average assumptions used to determine benefit obligations and net periodic benefit cost as of and for the year ended December 31,2012: 09/07/2013 31/12/2012 % % Discount of the projected benefit obligation at present value 8.19 8.19 Salary increase 5.73 5.73 Minimum wage increase rate 4.27 4.27 (iii)Rent holidays—Under MFRS, rental expense is recorded beginning when the related store initiates operations.Under U.S. GAAP, rental expense is recognized on a straight-line basis, or another more appropriate systematic approach, which does notnecessarily depend upon initiation of operations of the related store. (iv)Amortization of goodwill—Under MFRS, goodwill stemming from an acquisition of a business was amortized through 2004.Under U.S. GAAP, amortization of goodwill ceased on January 1, 2002. The adjustment to the reconciliation of consolidatedstockholders’ equity represents the amortization of goodwill which occurred on goodwill from January 1, 2002 to December 31, 2005. (v)Deferred PTU asset—Mexican statutory requirements require Mexican entities to pay statutory PTU to their employees. Current PTU isrecorded in the results of the year in which it is incurred. The recognition of deferred PTU is also required, whether it results in a netliability or net asset position, and is determined considering temporary differences between the accounting and the PTU bases of assetsand liabilities.While U.S. GAAP also contemplates the recognition of a net deferred PTU liability, it does not permit the recognition of a net deferredPTU asset, given that it does not necessarily embody a probable future benefit to contribute directly or indirectly to the future net cashinflows of an entity. Accordingly, the adjustment in the accompanying reconciliation of consolidated net income and stockholders’equity represents the removal of such deferred PTU asset. (vi)Deferred income taxes—The recognition of income taxes, including deferred income taxes, under MFRS considers a methodologysimilar to that required under U.S. GAAP. The adjustments to the accompanying reconciliations of consolidated net income andstockholders’ equity represent the deferred income tax effects of the aforementioned U.S. GAAP adjustments.Under both MFRS and U.S. GAAP, the change in deferred income taxes resulting from the effects of accounting for inflation with respectto the tax values of assets and liabilities is recorded as a component of income tax expense.MFRS requires the classification of the net deferred income tax asset or liability as long-term, while U.S. GAAP requires classificationbased on the current or long-term nature of the asset or liability to which the deferred relates. 27A reconciliation of the net deferred income tax asset from MFRS to U.S. GAAP and the composition of the net deferred income tax assetunder U.S. GAAP is as follows: 09/07/2013 (Unaudited) 31/12/2012 Reconciliation of deferred income tax asset: Net deferred income tax asset under MFRS $134,117 $98,288 Effects of elimination of inflation 123,575 124,058 Effects of employee retirement obligations 213 215 Effects of rent holidays 16,951 14,669 Effects of amortization of goodwill (4,144) (4,144) Effects of actuarial gains in other comprehensive income 385 385 Total U.S. GAAP adjustments to net deferred income tax asset $136,980 $135,183 Net deferred income tax asset under U.S. GAAP 271,097 233,471 Net deferred ISR asset under U.S. GAAP 318,558 284,231 Net deferred IETU asset under U.S. GAAP (47,461) (50,760) Composition of net deferred income tax asset: ISR Current deferred ISR assets (liabilities): Allowance for doubtful accounts $464 $342 Inventories (5,059) (18,657) Accrued liabilities 17,196 28,407 Prepaid expenses (14,213) (15,661) Current deferred ISR liability – Net (1,612) (5,569) Non – current deferred ISR assets (liabilities): Rents holidays 16,951 14,669 Property, equipment and leasehold improvements 284,254 260,195 Effect of tax loss carryforwards 97,621 96,368 Other, net 14,412 11,636 Valuation allowance for deferred ISR asset (93,068) (93,068) Non – current deferred ISR asset – Net 320,170 289,800 Net deferred ISR asset under U.S. GAAP $318,558 $284,231 The effective rate differs from the statutory rate mainly due to the effects of non-deductible expenses as well as different tax rates applicable indifferent tax jurisdiction in which the Company operates. 28 09/07/2013 (Unaudited) 31/12/2012 IETU Current deferred IETU asset/liability: Account receivable from affiliated companies $(60,126) $(62,627) Accrued expenses 15,192 14,128 (44,934) (48,499) Non – current deferred IETU assets – liabilities): Vehicles (2,527) (2,261) Non – current deferred IETU asset – Net (2,527) (2,261) Total IETU liability under U.S. GAAP $(47,461) $(50,760) U.S. GAAP also provides guidance regarding recognition, measurement and disclosure of uncertain tax positions taken by an enterprise. If anentity is unable to conclude that it is not more likely than not that the position it took will be upheld upon examination by the related taxauthorities, all or a portion of the benefit related to such tax position may not be recognized. The Company has not taken any tax position forwhich it does not believe that it is more likely than not that the full amount of the benefit taken will be sustained upon review, based ontechnical merits of the position taken. The tax years that remain subject to examination by tax authorities are 2008 to 2013. (vii)Additional presentation and disclosure differences - (a)Fair value of financial instruments and fair value measurements - Under U.S. GAAP, an entity is required to maximize the use ofobservable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP establishes a fair value hierarchybased on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’scategorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.Inputs used to measure fair value fall within one of the following three levels:Level 1- applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.Level 2—applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liabilitysuch as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets withinsufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs areobservable or can be derived principally from, or corroborated by, observable market data.Level 3—applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to themeasurement of the fair value of the assets or liabilities.The Company’s financial instruments consist principally of cash, accounts receivable, trade accounts payable and accrued expenses. TheCompany believes that the recorded values of these financial instruments approximate their current fair values because of their natureand respective maturity dates or durations. 29 (b)Classification of certain items in the consolidated balance sheets and consolidated statements of income—Under MFRS, theclassification of certain costs and expenses differ from that required by U.S. GAAP. i.Other expense of $0 (unaudited), $588 and $38,266 for the period from January 1, 2013 to July 9, 2013, and for the years endedDecember 31, 2012 and 2011, respectively, is considered other operating expense under U.S. GAAP. ii.Normal bank commissions stemming from credit card transactions are included within comprehensive financing cost within resultsunder MFRS; these amounts are included within selling, administrative and general expenses under U.S. GAAP. The Companyalso incurs additional bank commissions on interest-free sales offered to customers, where such sale is ultimately financed by thebank and not the Company. In those cases, the sale price of the product sold is increased. Those additional commissions areincluded within comprehensive financing cost under MFRS. Under U.S. GAAP, the amounts are a reduction of the additionalrevenue charged to the customers. The amounts reclassified in the period from January 1, 2013 to July 9, 2013 and for the yearsended December 31, 2012 and 2011 are $10,682 (unaudited), $70,618 and $62,309, respectively. iii.Certain items classified within other revenues within results under MFRS are presented within other operating income under U.S.GAAP. Such amounts for the period from January 1, 2013 to July 9, 2013 and for years ended December 31, 2012 and 2011 are$4,724 (unaudited), $12,069 and $9,567, respectively. (c)Consolidated statement of cash flows—Under MFRS, the Company presents a consolidated statement of cash flows similar to thatrequired under U.S. GAAP. However, certain classification differences exist, mainly with respect to interest paid. As well, U.S. GAAPrequires disclosures of non-cash investing and financing activities. 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Net income under U.S. GAAP $358,693 $831,866 $781,764 Depreciation and amortization 149,958 298,277 287,053 Allowance for doubtful accounts (325) 4,531 (6,150) (Gain) loss on sale of fixed assets 15,815 (1,195) (1,147) Deferred income tax (38,010) (65,415) (49,343) Net periodic cost 9,149 13,910 10,235 Unrealized foreign exchange loss (gain) — 2,578 6,095 495,280 1,084,552 1,028,507 Changes in operating assets and liabilities: Accounts receivable and recoverable taxes 115,007 (187,415) (45,421) Due to/from related parties 2,681 17,226 (527) Inventories (49,273) (435,198) (204,088) Trade accounts payable (68,201) 61,564 48,050 Accrued expenses (102,061) 19,834 68,478 Accrued taxes — — — Other liabilities 9,353 52,267 (2,305) Cash flows provided by operating activities 402,786 612,830 892,694 30 09/07/2013 (Unaudited) 31/12/2012 31/12/2011 Cash flows from investing activities: Purchases of equipment and investments in leasehold improvements (85,743) (538,834) (529,491) Proceeds from the sale of equipment 2,194 6,556 6,321 Net cash used in investing activities (83,549) (532,278) (523,170) Cash flows from financing activities: Borrowings from related party 550,000 400,000 Banks borrowings 6,512 — 100,000 Repayments to related party — (550,000) (400,000) Repayments of banks borrowings (2,598) — (100,000) Dividends paid — — (600,000) Net cash used in financing activities 3,914 — (600,000) Effect of exchange rate changes on cash (40,376) (34,447) 140,215 Cash and cash equivalents: Net increase (decrease) for the year 282,775 46,105 (90,261) Beginning of period 348,761 302,656 392,917 End of the period $631,536 $348,761 $302,656 Supplemental disclosures of cash flow informationCash paid during the year for: 09/07/2013(Unaudited) 31/12/2012 31/12/2011 Interest paid $230 $5,283 $21,580 Income taxes paid 172,123 289,477 251,339 Supplemental disclosure of noncash investing activities: 09/07/2013(Unaudited) 31/12/2012 31/12/2011 Fixed assets acquired during the year included in accounts payable $10,940 $13,237 $45,152 31 (viii)New accounting pronouncements under U.S. GAAP:The following are new pronouncements issued under U.S. GAAP which will be effective in future reporting periods:In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-02, ComprehensiveIncome (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The amendments in this Updatesupersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASU 2011-05(issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. The amendments require an entity toprovide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity isrequired to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out ofaccumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S.GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to bereclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provideadditional detail about those amounts. The amended guidance is effective prospectively for reporting periods beginning after December 15,2013.In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830: Parent’s Accounting for the Cumulative TranslationAdjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.This ASU offers guidance on a parent’s accounting for the cumulative translation adjustment upon derecognition of a subsidiary or group ofassets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net incomeonly if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group ofassets had resided. The Company will adopt this ASU prospectively in the 2015 fiscal year.* * * * * * 32

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