The ODP Annual Report 2016

Plain-text annual report

Table of ContentsUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549FORM 10-K(Mark One) ☒Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934For the fiscal year ended December 31, 2016Or ☐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 ☒ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐Indicate by check mark whether the registrant has submitted electronically 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 ☒ 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. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer” “accelerated filer,”and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer ☒ 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 ☒The aggregate market value of voting stock held by non-affiliates of the registrant as of June 25, 2016 (based on the closing market price on the Composite Tape on June 24, 2016) was approximately$1,829,479,538 (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 28, 2017, there were 514,820,686 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 2017 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 10 Item 1B. Unresolved Staff Comments 19 Item 2. Properties 20 Item 3. Legal Proceedings 21 Item 4. Mine Safety Disclosures 21 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22 Item 6. Selected Financial Data 25 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 49 Item 8. Financial Statements and Supplementary Data 49 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 49 Item 9A. Controls and Procedures 49 PART III Item 10. Directors, Executive Officers and Corporate Governance 52 Item 11. Executive Compensation 52 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 52 Item 13. Certain Relationships and Related Transactions, and Director Independence 53 Item 14. Principal Accountant Fees and Services 53 PART IV Item 15. Exhibits and Financial Statement Schedules 54 Item 16. Form 10-K Summary 54 SIGNATURES 55 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 PartI — 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 considereda statement 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. BusinessThe CompanyOffice Depot provides a broad selection of products and services to consumers and businesses of all sizes. We were incorporated in Delaware in 1986 andopened our first retail store in Fort Lauderdale, Florida. At December 31, 2016, we operated through two reportable segments (or “Divisions”): NorthAmerican Retail Division and North American Business Solutions Division. Following the third quarter 2016 commitment to sell substantially all ofinternational operations outside of North America, the business formerly reported as the International Division has been reclassified to discontinuedoperations.Sales for the Divisions are processed through multiple channels, consisting of office supply stores, a contract sales force, internet sites, an outboundtelephone account management sales force, direct marketing catalogs and call centers, all supported by a network of supply chain facilities and deliveryoperations. Office Depot currently operates under the Office Depot and OfficeMax brands and utilizes other proprietary company and product brandnames, including Grand & Toy in Canada.Our primary public website is www.officedepot.com. The Company’s primary brands are discussed in the “Intellectual Property” section below.Additional information regarding our Divisions and operations in geographic areas is presented in Part II — Item 7. MD&A and in Note 16, “SegmentInformation,” of the Consolidated Financial Statements located in Part IV — Item 15. “Exhibits and Financial Statement Schedules” of this Annual Report. 1™™™Table of ContentsDiscontinued OperationsOn September 23, 2016, we announced that we had received an irrevocable offer from The AURELIUS Group to acquire substantially all of the business inEurope (the “OD European Business”). The transaction was structured as an equity sale with the buyer acquiring the OD European Business with its operatingassets and liabilities. We retained the assets and obligations of a frozen defined benefit pension plan in the United Kingdom.On December 31, 2016 we completed the sale of the OD European Business to The AURELIUS Group.In addition to the sale of the OD European Business, we are actively marketing for sale the businesses in South Korea, mainland China, Australia and NewZealand (collectively the “International Sale Group”) and expect to complete the dispositions during 2017. The assets and liabilities of the entities expectedto be sold are classified as held for sale and included in discontinued operations. We currently anticipate retaining the sourcing and trading operations of theformer International Division, which are presented as Other in Note 16, “Segment Information,” of the Consolidated Financial Statements. Refer to Note 3,“Discontinued Operations” of the Consolidated Financial Statements for additional information.Termination of Staples AcquisitionOn February 4, 2015, Staples, Inc. (“Staples”) and the Company entered into a definitive merger agreement, under which Staples was to acquire all of theoutstanding shares of Office Depot and we would become a wholly owned subsidiary of Staples.On December 7, 2015, the United States Federal Trade Commission (the “FTC”) informed Office Depot and Staples that it intended to block the StaplesAcquisition. On the same date, Office Depot and Staples announced their intent to contest the FTC’s decision to challenge the transaction.On May 10, 2016, the U.S. District Court for the District of Columbia granted the FTC’s request for a preliminary injunction against the proposed acquisition,and as a result, the companies announced the termination of the Staples Merger Agreement. Per the terms of the termination agreement, Staples paid OfficeDepot a fee of $250 million in cash on May 19, 2016.MergerOn November 5, 2013, the Company merged with OfficeMax Incorporated (“OfficeMax”).Refer to Note 2, “Merger, Acquisition Termination, and Restructuring Activity” for additional discussion of this merger (the “Merger”) and termination of theStaples acquisition.Fiscal YearOur fiscal year results are based on a 52- or 53-week retail calendar ending on the last Saturday in December. Fiscal year 2016 had 53 weeks and ended onDecember 31, 2016. Fiscal years 2015 and 2014 consisted of 52 weeks and ended on December 26, 2015 and December 27, 2014, respectively. TheCompany’s business in Canada follows calendar periods with December 31 year-ends. The difference in reporting periods does not have a significant impacton the Company’s reported results.North 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. The retail stores operate under their legacy banners of Office Depot or OfficeMax, though systems,processes and offerings have 2Table of Contentsconverged. We currently offer products and services in the following categories: supplies, technology, and furniture and other. Refer to the “Merchandising”section below for additional product information. Most retail stores also offer copy and print services, as discussed in the “Copy & Print Depot” sectionbelow.At the end of 2016, the North American Retail Division operated 1,441 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,California, and Florida. The majority of our retail stores are located in leased facilities that currently average over 20,000 square feet.As part of the integration of the Office Depot and OfficeMax stores, we announced our Real Estate Strategy in 2014, which included the planned closure of400 stores in North America. During the second quarter of 2016, the Company completed the retail store closures under this program. In execution of thisstrategy, we closed 51 stores in 2016, 181 stores in 2015 and 168 stores in 2014. Closures included both Office Depot and OfficeMax locations.Implementation of this strategy resulted in charges for facility closures, termination costs, and asset impairments. In August 2016, we announced theComprehensive Business Review that, among other things, included the anticipated closing of an additional 300 stores over the next three years. We closed72 stores under this program during 2016 (for a total of 123 stores closed in 2016 under both programs) and anticipate closing approximately 75 during 2017and the remainder in 2018. Refer to Part II — Item 7. “MD&A” for additional information on the store activity.Concurrent with announcement of the Comprehensive Business Review, we announced the launch of our “Store of the Future” concept. These convertedstores have been redesigned to enhance the customer experience through a curated assortment of products, better product adjacencies, easier navigation andsignage and increased space dedicated to expanded services offerings. Many of these stores are approximately 15,000 square feet, which is lower than theexisting average. Through the end of 2016, we have converted 25 locations to this new format and anticipate having about 100 stores converted by the endof 2017. We continue to adapt the design for features that have shown to be particularly valuable to shoppers.To better serve our customers any way they choose to shop, we have embraced an omni-channel focus in our retail, contract and direct channels. For example,we now have a Buy Online-Pickup in Store offering in all locations and have added Buy Online-Ship from Store capability to over half of our locations.These features help provide products to our customers faster and enable us to better manage inventory across the Company. Store delivery is offered in selectmarkets. Sales under these programs are serviced by store employees and fulfilled with store inventory and therefore are reported in the North America RetailDivision results, including the computation of comparable store sales.Refer to the “North American Supply Chain” discussion below for additional information about 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’ products and services to customers in the United States,including Puerto Rico, and the U.S. Virgin Islands, and Canada. Office Depot customers are primarily served through a dedicated sales force, catalogs,telesales, and electronically through our internet sites. Refer to the “Merchandising” section below for additional product information. The North AmericanBusiness Solutions Division also offers copy and print services, as discussed in the “Copy & Print Depot” 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. Our contract business customers also include various 3™™Table of Contentsschools and local, state and national governmental agencies. We also enter into agreements with consortiums to sell to various entities and across industries,including governmental and non-profit entities, for non-exclusive buying arrangements. Sales to our contract customers that are fulfilled at Office Depotretail locations are included in the results of our North American Retail Division, while honoring their contract pricing, as applicable. Migration of the legacyOfficeMax customers to Office Depot systems is well underway and progresses with the integration of the supply chain. Customer conversion is anticipated tobe substantially complete by the end of 2017, but will continue into 2018.Our direct sales channel primarily serves small- to medium-sized customers. Direct customers can order products through our public websites, from ourcatalogs, or by phone. Website functionality provides customers the convenience of using the loyalty program and offers suggestions by product ratings,pricing, and brand, among other features. Customer orders are fulfilled through our common supply chain; refer to the “North American Supply Chain”discussion below for additional information on our supply chain network.Copy & Print DepotOffice Depot Copy & Print Depot provides printing, digital imaging, reproduction, mailing, shipping through FedEx and the U.S. Postal Service, and otherservices. We also maintain nationwide availability of personal computer support and network installation service that provides our customers with in-home,in-office and in-store support for their technology needs. Sales are recognized by the respective Division based on how the customer order is serviced.North American Supply ChainWe operate a network of distribution centers (or “DCs”) and crossdock facilities across the United States, Puerto Rico, and Canada. Our DCs operate to fulfillcustomer orders while crossdocks are smaller flow-through facilities where merchandise is sorted for distribution and shipped to fulfill the inventory needs ofour retail locations. The DC and crossdock facilities’ costs, including real estate, technology, labor and inventory, are allocated to the North American RetailDivision and North American Business Solutions Division based on the relative services provided.Through the end of 2016, the Merger integration has resulted in the closure of 14 DCs and crossdock facilities. The changes to the supply chain related to themerger, including remaining planned closures and system conversions, are anticipated to be completed before the end of 2017.We believe that inventory held in our DCs is at levels sufficient to meet current and anticipated customer needs. Certain purchases are sent directly from 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 31, 2016, we operated 38 DC and crossdock facilities in the United States and Canada. Refer to Item 2. “Properties” for further information.Out-bound delivery and inbound direct import operations are currently provided by us and third-party carriers. We have increased the number of our ownedvehicles during 2016.MerchandisingOur merchandising strategy is to meet our customers’ needs by offering a broad selection of branded office products, as well as our own branded products andservices. The selection of our own branded products has increased in breadth and level of sophistication over time. We currently offer products under variouslabels, including Office Depot, OfficeMax, Foray, Ativa, TUL, Realspace, WorkPro, Brenton Studio, Highmark, Grand & Toy and Viking OfficeProducts. 4™™®®®®®®®®®®®Table of ContentsWe generally classify our products into three broad categories: (1) supplies, (2) technology, and (3) furniture and other. The supplies category includesproducts such as paper, writing instruments, office supplies, cleaning and breakroom items. The technology category includes products such as toner and ink,computers, tablets and accessories, printers, electronic storage, as well as services for technology products. The furniture and other category includes productssuch as desks, seating, and luggage, as well as sales in our copy and print centers.Total Company sales by product group were as follows: 2016 2015 2014 Supplies 45.2% 44.4% 43.6% Technology 38.9% 40.2% 41.2% Furniture and other 15.9% 15.4% 15.2% 100.0% 100.0% 100.0% We 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 the United States and Canada. Each group is responsible for selecting, purchasing, managing the product lifecycle of our inventory, and managing pricing primarily for retail and direct selling channels. Organizationally, they are aligned under the same Corporateleadership. In recent years, we have increasingly used global offerings across the regions to further reduce our product cost while maintaining productquality.We operate a global sourcing office in Shenzhen, China, which allows us to better manage our product sourcing, logistics and quality assurance. This officeconsolidates our purchasing power with Asian factories and, in turn, helps us to increase the scope of our own branded offerings.Sales and MarketingThe Company regularly assesses consumer shopping behaviors which will help refine our strategy to identify and offer desired product assortment, shoppingenvironment and purchasing methods. Identifying the most desirable and effective way to reach our customers and allowing them to shop through whicheverchannel they prefer will continue to be a priority in the future. These efforts have impacted the design of our Store of the Future, the extent, format andvehicles we use to advertise to and reach customers, our web page design, promotions and product offerings.Our marketing programs are designed to attract and retain customers, drive frequency of customer visits, and increase customers’ spend in our stores andwebsites. We regularly advertise in major newspapers in most of our North American markets. We also advertise through local and national radio, networkand cable television advertising campaigns, and direct marketing efforts, such as the internet and social networking. We have shifted some of our marketingefforts in recent periods to digital programs that enhance personalized offerings and promote customer satisfaction.Our customer loyalty program provides customers with rewards that can be applied to future purchases or other incentives. These programs enable us tomarket more effectively to our customers and may change as customer preferences shift.We perform periodic competitive pricing analyses to monitor each market, and prices are adjusted as necessary to further our competitive positioning. Wegenerally target our everyday pricing to be competitive with other resellers of office products. 5Table of ContentsOur customer acquisition efforts regularly shift to vehicles and formats found to be most productive for reaching the targeted class of customer. We acquirecustomers through e-mail and social media campaigns, online affiliate connections, on-premises sales calls, outbound sales calls, and catalogs, among others.No single customer in any one Division accounts for more than 10% of our total sales or accounts receivable.SeasonalityOur 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. Certain working capital components maybuild and recede during the year reflecting established selling cycles. Business cycles can and have impacted our operations and financial position whencompared 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 BusinessSolutions.Intellectual PropertyWe currently operate under the Office Depot, OfficeMax, and Grand & Toy brand names. We hold trademark registrations domestically and worldwide andhave numerous other applications pending worldwide for the names “Office Depot,” “Viking,” “Ativa,” “Foray,” “Realspace,” “OfficeMax,” “TUL,”“WorkPro,” “Brenton Studio,” “Highmark” and others. As with all domestic trademarks, our trademark registrations in the United States are for a ten yearperiod and are renewable every ten years, prior to their respective expirations, as long as the trademarks are used in the regular course of trade. We also holdissued patents and pending patent applications domestically for certain private brand products, such as shredders, binders, and writing instruments.Industry and CompetitionWe operate in a highly competitive environment. We compete with office supply stores, wholesale clubs, discount stores, mass merchandisers, onlineretailers, food and drug stores, computer and electronics superstores and direct marketing companies. These companies compete with us in substantially all ofour current markets. Increased competition in the office products markets, together with increased advertising, and internet-based search tools, has heightenedprice awareness among end-users. Such heightened price awareness has led to margin pressure on office products and impacted our results. In addition toprice, we also compete based on customer service, the quality and extent of product selection and convenience. Other office supply retail companies marketsimilarly to us in terms of store format, pricing strategy, product selection and product availability in the markets where we operate. Some of our competitorsare larger than us and have greater financial resources, which provide them with greater purchasing power, increased financial flexibility and more capitalresources for expansion and improvement, which may enable them to compete more effectively. We anticipate that in the future we will continue to face highlevels of competition from these companies.We believe our customer service and the efficiency and convenience for our customers from our combined contract and direct distribution channels help 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 convenience, location, the quality of our customer service, our store formats, therange and depth of our merchandise offering and our pricing.EmployeesAs of January 28, 2017, we had approximately 38,000 employees in continuing operations. 6®®®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.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. We have been commended for our leadership position for ourfacility design, recycling efforts, and ‘green’ product offerings. Additional information on our achievements and green product offerings can be found atwww.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, andCorporate Governance and Nominating Committees, and our code of ethical behavior may be found under the “Investor Relations” section of our website,www.officedepot.com. 7Table of ContentsOur Executive OfficersMichael Allison — Age: 59Mr. 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, the direct sales arm of Victoria’s SecretStores, from February 2001 to September 2005. Prior to Victoria’s Secret, he was Senior Vice President of Human Resources for Bank One, and Senior VicePresident and Director of Human Resources for National City Bank.Tim Beauchamp — Age: 61Mr. Beauchamp was appointed as our Executive Vice President, Supply Chain in February 2016. Between July 2015 and February 2016, he was OfficeDepot’s interim head of Supply Chain, working as a consultant for Execution Specialist Group, a consulting firm. Mr. Beauchamp was retired between 2013and 2015. Prior to that, Mr. Beauchamp served as Chief Logistics Officer at US Food Service from April 2011 to December 2012. Prior to joining US FoodService, Mr. Beauchamp spent more than 15 years in the office products industry where he held a number of leadership roles in operations and logistics atCorporate Express and Staples.Steve Calkins — Age: 46Mr. Calkins was appointed as our Executive Vice President, Chief Legal Officer and Corporate Secretary in August 2016. Mr. Calkins previously served asExecutive Vice President, Contract Sales from December 2013 to August 2016, during which time he was responsible for our contract business, Canadianoperations, print and services and customer service. Prior to this role, Mr. Calkins served as Senior Vice President, North American Business Solutions fromApril 2011 to December 2013, Vice President, Deputy General Counsel from March 2010 to April 2011, and Vice President, Associate General Counsel fromFebruary 2007 to March 2010. Between 2003 and 2007, Mr. Calkins held various leadership positions in the Company’s legal department. Before OfficeDepot, Mr. Calkins was an attorney with Kilpatrick Townsend & Stockton LLP.Stephen Hare — Age: 63Mr. 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.Rob Koch — Age: 52Mr. Koch was appointed as our Executive Vice President of Business Development in August 2016. Previously, Mr. Koch served as Senior Vice President ofReal Estate from December 2013 to August 2016 and Senior Vice President of Merchandising from 2012 to 2013. Since joining Office Depot in 1994,Mr. Koch has held various positions at the Company with increasing responsibility, including serving as Vice President of North America Retail Finance andVice President of Financial Planning and Corporate Development. 8Table of ContentsRonald Lalla — Age: 58Mr. Lalla was appointed as our Executive Vice President and Chief Merchandising Officer in December 2013. Mr. Lalla previously served as Executive VicePresident and Chief Merchandising Officer for OfficeMax from March 2012 to December 2013. Prior to joining OfficeMax, Mr. Lalla served as ChiefMerchandising Officer and Chief Technology Officer for Katz Group, a privately-owned Canadian enterprise with operations in sports and entertainment, realestate and public and private investment, from 2008 to 2011. Mr. Lalla served as Executive Vice President, Global Merchandising at Corporate Express from2003 to 2008. Prior to joining Corporate Express, Mr. Lalla held various positions with Kmart Corporation from 1990 to 2002.Troy Rice — Age: 53Mr. Rice was appointed our Executive Vice President, Chief Operating Officer in August 2016. Mr. Rice has responsibility for our Business SolutionsDivision, Marketing and Retail. Mr. Rice joined Office Depot in April 2014 as Executive Vice President of Retail. Before joining Office Depot, Mr. Riceserved as Executive Vice President of Stores and Services for Toys “R” Us where he worked from 2006 to 2014. Prior to Toys “R” Us, Mr. Rice worked forThe Home Depot from 1990 to 2006 where he held a number of leadership roles, leaving as Division President, Northern Division.Gerry P. Smith — Age 53Mr. Smith was appointed to serve as Chief Executive Officer and a director of the Company effective February 27, 2017. Prior to joining the Company,Mr. Smith was at Lenovo Group Limited, a $45 billion leading global technology company (“Lenovo”), since 2006. Most recently, Mr. Smith served asExecutive Vice President and Chief Operating Officer of Lenovo since 2016 where he was responsible for all operations across Lenovo’s global productportfolio. Prior to assuming this role, also in 2016, Mr. Smith was Executive Vice President and President, Data Center Group. From 2015 to 2016, he servedas Chief Operating Officer of the Personal Computing Group and Enterprise Business Group, and from 2013 to 2015 he served as President of the Americas. Inthese roles, Mr. Smith oversaw Lenovo’s fast-growing enterprise business worldwide and Lenovo’s overall business in the America’s region. Prior to that,Mr. Smith was President, North America and Senior Vice President, Global Operations of Lenovo from 2012 to 2013, and Senior Vice President of GlobalSupply Chain of Lenovo from 2006 until 2012 where he was responsible for end-to-end supply chain management. Prior to Lenovo, Mr. Smith held a numberof executive positions at Dell Inc. from 1994 until 2006, as the company became a global leader in personal computers. 9Table 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 AcquisitionThe terminated Staples Acquisition has adversely affected and may continue to adversely affect our business, results of operations and financial condition.The pendency of the Staples Acquisition of our company contributed to uncertainty surrounding our business, including affecting our relationships with ourexisting and future customers, suppliers and employees, which had an adverse effect on our business, results of operations and financial condition. Inaddition, we allocated significant management resources towards the completion of the transaction. The Staples Merger Agreement was terminated onMay 10, 2016 and Staples paid a termination fee to the Company, as required under that Agreement. However, the Company may continue to experience lossof customers, suppliers and employees as a result of that failed merger and attempts to add new customers, suppliers and employees could also be adverselyaffected. The impact of this terminated transaction could continue to adversely affect our business and results of operations.Risks Related to Our BusinessOur ongoing business is subject to certain risks related to our merger with OfficeMax and other 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. The combined company is expected tocapture more than $750 million in synergy benefits when the integration is fully implemented. We anticipate completing substantially all of the integrationactivities by the end of 2017.Additionally, in response to economic and competitive factors in our industry, we may, from time to time, undertake certain restructuring activities within ourbusiness divisions to improve our performance. During 2016, we announced the Comprehensive Business Review that, among other things, included theanticipated closure of 300 retail stores over the next three years and certain planned restructuring activity to lower operating costs. During the first quarter of2017, we implemented the Corporate restructuring portion of the plan. Also as part of the Comprehensive Business Review we decided to pursue strategicalternatives for our international businesses and in the third quarter 2016, committed to a plan to sell substantially all of the business formerly reported as theInternational Division.We may not be able to fully achieve the expected Merger synergies or restructuring benefits due to certain risks, among other things, risks that: • the continued integration of the businesses of Office Depot and OfficeMax may take longer, be more difficult, time-consuming or costly to accomplishthan expected; • we may experience business disruption during periods of restructuring activities, including adverse effects on employee retention and loss of employeefocus during periods 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 those under the Comprehensive Business Review; 10Table of Contents • 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; • 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 decline in purchasing power from reduced sales, store closures and business dispositions may impact our relationships with vendors. We may notbe able to receive volume discounts similar to past periods, obtain favorable product selection and availability, negotiate with landlords for favorablelease terms and other variable costs of doing business may be adversely impacted; • there may be unanticipated downturns in business relationships with customers; • there may be competitive pressures on the combined Company’s sales and pricing; • the benefits of any restructuring activity 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 and the Comprehensive Business Review will result in the realizationof the full benefits of synergies, innovation and operational efficiencies that we currently expect; (ii) these benefits will be achieved within the anticipatedtimeframe: (iii) we will be able to fully and accurately measure any such synergies; or (iv) we will be able to implement new strategies to transform thecombined Company. Failure to successfully integrate the businesses and realize the projected synergies, innovation and operational efficiencies may have amaterial adverse effect on our business 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 resellers, 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 11Table of Contentsneeds; (ii) continuously stock products that are up-to-date and among the latest trends in the rapidly changing technological environment; (iii) differentiateourselves from other retailers who sell similar products; and (iv) effectively compete, our sales and financial performance could be negatively impacted.Failure to execute effective advertising efforts may adversely impact the Company’s financial performance.Effective advertising and marketing efforts play a crucial role in maintaining high customer traffic. The Company focuses on developing new marketinginitiatives and maintaining effective promotional strategies that target further growth in the Company’s business. Failure to execute effective advertisingefforts to attract new customers or retain existing customers may adversely impact the Company’s financial performance.If we are unable to successfully maintain a relevant omni-channel 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. Omni-channel 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 contract third parties with the specialized skillsneeded to support our omni-channel platforms, or are unable to implement improvements to our customer-facing technology in a timely manner, our abilityto compete and our results of operations could be adversely affected. In addition, if our website and our other customer-facing technology systems do notfunction as designed, the customer experience could be negatively affected, resulting in a loss of customer confidence and satisfaction, and lost sales, whichcould 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 12Table of Contentsemployees of third-party vendors, faulty password management, misappropriation of data by employees, vendors or unaffiliated third-parties, or otherirregularity, and result in persons obtaining unauthorized access to our data or accounts. Despite instituted safeguards for the protection of such information,we cannot be certain that all of our systems and those of our vendors and unaffiliated third-parties are entirely free from vulnerability to attack or compromisegiven that the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently. During the normal course ofour business, we have experienced and we expect to continue to experience attempts to breach our systems, and we may be unable to protect sensitive dataand the integrity of our systems or to prevent fraudulent purchases. Moreover, an alleged or actual security breach that affects our systems or results in theunauthorized 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.We 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 governmental entities, government agencies and non-profit organizations, such as purchasingconsortiums. Contracting with U.S. state and local governments is highly competitive, subject to federal and state procurement laws, requires more restrictivecontract terms and can be expensive and time-consuming. Bidding such contracts often requires that we incur significant upfront time and expense withoutany assurance that we will win a contract. Our ability to compete successfully for and retain business with the federal and various state and local governmentsis highly dependent on cost-effective performance. Our business with governmental entities and agencies is also sensitive to changes in national andinternational priorities and their respective budgets, which in the current economy continue to decrease. We also service a substantial amount of businessthrough agreements with purchasing consortiums and other sole- or limited-source distribution arrangements. If we are unsuccessful in retaining thesecustomers, or if there is a significant reduction in sales under any of these arrangements, it could adversely impact our business 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 economic conditions and their impact on business and consumer spending. In the past, thedecline in business and consumer spending has caused our comparable store sales to decline from prior periods. Our business and financial performance maycontinue to be adversely affected by current and future economic conditions, including, without limitation, the level of consumer debt, high levels ofunemployment, higher interest rates and the ability of our customers to obtain credit, which may cause a continued or further decline in business andconsumer spending.Increases in fuel and other commodity prices could have an adverse impact on our earnings.We operate a large network of stores, delivery centers, and delivery vehicles. As such, we purchase significant amounts of fuel needed to transport products toour stores and customers as well as shipping costs to import products from overseas. While we may hedge our anticipated fuel purchases, the underlyingcommodity costs 13Table of Contentsassociated with this transport activity may be volatile and disruptions in availability of fuel could cause our operating costs to rise significantly to the extentnot covered by our hedges. Additionally, other commodity prices, such as paper, may increase and we may not be able to pass along such costs to ourcustomers. Fluctuations in the availability or cost of our energy and other commodity 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 several 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 flow and result in severe stress on our liquidity. Borrowings under our existing credit facility could reach maximumlevels under such circumstances, causing us to seek alternative liquidity measures, but we may not be able to meet our obligations as they become due untilwe 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 customers when desired and at attractive prices could have an adverse effect on ourbusiness and our results of operations. In addition, a material interruption in service by the carriers that ship goods within our supply chain may adverselyaffect our sales. Many of our vendors are small or medium sized businesses which are impacted by current macroeconomic conditions, both in the U.S., Asiaand other locations. We may have no warning before a vendor fails, which may have an 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 14Table of Contentsrecent years, we have substantially increased the number and types of products that we sell under our own brands including Office Depot , OfficeMax andother proprietary brands. While we have focused on the quality of our proprietary branded products, we rely on third-parties to manufacture these products.Such third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may vary from our expectations and standards, suchproducts may not meet applicable regulatory requirements which may require us to recall those products, or such products may infringe upon the intellectualproperty rights of third-parties. Moreover, as we seek indemnities from the manufacturers of these products, the uncertainty of realization of any suchindemnity and the lack of understanding of U.S. product liability laws in certain foreign jurisdictions make it more likely that we may have to respond toclaims or complaints from our customers.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- and restructuring-related costs have been significant between 2013 and 2016, historically, we have generated positive cash flow fromoperating activities and have had access to broad financial markets that provide the liquidity we need to operate our business. Together, these sources havebeen used to fund operating and working capital needs, as well as invest in business expansion through new store openings, capital improvements andacquisitions. Deterioration in our financial results or the impact of significant Merger, integration and restructuring costs could negatively impact our creditratings, our liquidity and our access to the capital markets. If we need to refinance all or a portion of that indebtedness, there is no assurance that we will beable to secure such refinancing at the same or more favorable terms than the 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 if the Company does nothave the required liquidity. The agreement governing our credit facility (the “Amended Credit Agreement” as defined in Note 7, “Debt,” of the ConsolidatedFinancial Statements) also contains representations, warranties, affirmative and negative covenants, and default provisions. A breach of any of thesecovenants could result in a default under our Amended Credit Agreement. Upon the occurrence of an event of default under our Amended Credit Agreement,the lenders could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If thelenders were to accelerate the repayment of borrowings, we may not have sufficient assets to repay our asset based credit facility and our other indebtedness.Also, should there be an event of default, or a need to obtain waivers following an event of default, we may be subject to higher borrowing costs and/or morerestrictive covenants in future periods. Acceleration of our obligations under our credit facilities would permit the holders of our other material debt toaccelerate their obligations.We have incurred significant impairment charges and we continue to incur 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 andthe Comprehensive Business Review. We regularly assess past performance and make estimates and projections of future performance at an individual storelevel. Reduced sales, our shift in strategy to be less promotional, as well as competitive factors and changes in consumer spending habits resulted in adownward adjustment of anticipated future cash flows for the individual stores that resulted in the impairment. We foresee challenges in the market andeconomy that could adversely impact our operations. To the extent that forward-looking sales and operating assumptions are not achieved and aresubsequently reduced, or if we commit to a more aggressive store downsizing strategy, including allocating capital to further modify store formats, additionalimpairment charges may result. We have also recognized non-cash asset impairment charges from the abandonment of assets identified as not to be used in 15® ®Table of Contentsthe post-Merger organization and from certain lease-related intangible assets that were deemed unrecoverable based on the Comprehensive Business Review.Additional asset impairments may be recognized based on future decisions and conditions.Changes in the numerous variables associated with the judgments, assumptions and estimates we make, in assessing the appropriate valuation of ourgoodwill, including changes resulting from macroeconomic, or disposition of components within reporting units, could in the future require a reduction ofgoodwill and recognition of related non-cash impairment charges. If we were required to further impair our store assets, our goodwill or intangible assets, itcould 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 pricing behavior of our competitors; the types and mix of products sold; thelevel of advertising and promotional expenses; severe weather; macroeconomic factors that affect consumer confidence; and the other risk factors describedin this section. Most of our operating expenses, such as occupancy costs and associate salaries, are not variable, and so short term adjustments to reflectquarterly results are difficult. As a result, if sales in certain quarters are significantly below expectations, we may not be able to proportionately reduceoperating expenses for that quarter, and therefore such a sales shortfall would have 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 resultsOfficeMax sponsors defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active employees (the“Pension Plans”). The Pension Plans are frozen and do not allow new entrants, however, they are under-funded and we may be required to make contributionsin subsequent years in order to maintain required funding levels. Required future contributions could have an adverse impact on our cash flows and ourfinancial results. Additional future contributions to the Pension Plans, financial market performance and Internal Revenue Service (“IRS”) fundingrequirements could materially change these expected payments.As part of the sale of our business in Europe, we have retained responsibility for the defined benefit plan covering certain employees in the United Kingdom.While the plan is in an asset position at the end of the year 2016, changes in assumptions and actual experience could result in that plan being consideredunderfunded in the future. Additionally, we have agreed to make contributions to the plan as required by the trustees. Financial performance of the plan andfuture valuation assumptions could materially change the expected payments. In addition, as part of the sale transaction, the purchaser shall indemnify andhold the Company harmless in connection with any guarantees in place as of September 23, 2016, and given by Company in respect of the liabilities orobligations of the OD European Business. Further, if the purchaser wishes to terminate any such guarantee or cease to comply with any underlying obligationwhich is subject to such a guarantee, the purchaser shall obtain an unconditional and irrevocable release of the guarantee. However, the Company iscontingently liable in the event of a breach by the purchaser of any such obligation.In connection with OfficeMax’s sale of its paper, forest products and timberland assets in 2004, OfficeMax agreed to assume responsibility for 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. 16Table of ContentsChanges in tax laws in any of the jurisdictions in which we operate can cause fluctuations in our overall tax rate impacting our reported earnings.Our tax rate is derived from a combination of applicable tax rates in the various domestic and international jurisdictions in which we operate. While we havedisposed of certain international businesses and are actively marketing for sale other international businesses, we remain subject to international taxes inother businesses. Depending upon the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the tax filingpositions we take in these jurisdictions, our overall tax rate may fluctuate significantly from other companies or even our own past tax rates. At any givenpoint in time, we base our estimate of an annual effective tax rate upon a calculated mix of the tax rates applicable to our Company and to estimates of theamount of income likely to be generated in any given geography. The loss of or modification to one or more agreements with taxing jurisdictions, whether asa result of a third party challenge, negotiation, or otherwise, a change in the mix of our business from year to year and from country to country, changes inrules related to accounting for income taxes, changes in tax laws in any of the multiple jurisdictions in which we operate, changes in valuation allowances, oradverse outcomes from the tax audits that regularly are in process in any of the jurisdictions in which we operate could result in substantial volatility,including an unfavorable change in our overall tax rate and/or our effective tax rate.Failure to attract and retain key personnel could have an adverse impact on our business.We depend on our executive management team and other key personnel, and the recruitment and retention of certain personnel could adversely affect ourperformance and result in the loss of management continuity and institutional knowledge. We depend heavily upon our retail labor force to identify newcustomers and provide desired products and personalized customer service to existing customers. The market for qualified employees, with the right talentand competencies, is highly competitive, and may subject us to increased labor costs during periods of low unemployment. The loss of the services of keyemployees or the inability to attract additional qualified managers for our retail stores and other lines of business may adversely affect our ability to conductoperations in accordance with the standards that we have set.Although 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 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 17Table of Contentsventure, strategic alliances and franchise arrangements may also add complexity to our processes, and may require unanticipated operational adjustments inthe future that could adversely impact our business 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.Until the disposition of our International Sale Group is complete, we remain subject to various international risks. Additionally, we have operations inCanada and certain global sourcing operations in Asia. Sales from our operations outside the U.S. are denominated in local currency, which must betranslated into U.S. dollars for reporting purposes and therefore our consolidated earnings can be significantly impacted by fluctuations in world currencymarkets. We are required to comply with multiple foreign laws and regulations that may differ substantially from country to country, requiring significantmanagement attention and cost. In addition, the business cultures in certain areas of the world are different than those that prevail in the U.S., and we may beat a competitive disadvantage against other companies that do not have to comply with standards of financial controls or business integrity that we arecommitted to maintaining as a U.S. publicly traded company.We may be unable to realize intended benefits from our efforts to divest the International Sale Group.In order to operate more efficiently, control costs and simplify our business, we intend to sell substantially all of our remaining international businessoperations located in South Korea, mainland China, Australia and New Zealand during 2017; however, we may not be able to sell one or more of thesebusinesses within the anticipated timeline or at all. We also cannot be sure that the divestitures will be successful in reducing our overall expenses and theexpected efficiencies, benefits and cost savings might be delayed or not realized.Changes in the regulatory environment may increase our expenses and may negatively impact our business.We are subject to regulations relating to our corporate conduct and the conduct of our business, including securities laws, consumer protection laws, traderegulations, advertising regulations, privacy and cybersecurity laws, and wage and hour regulations and anti-corruption legislation. Certain jurisdictionshave taken a particularly aggressive stance with respect to such matters and have implemented new initiatives and reforms, including more stringentregulations, disclosure and compliance requirements. For example, we purchase product both directly and indirectly from sources outside of the UnitedStates. As a consequence, trade restrictions, including new or increased tariffs, quotas, embargoes, sanctions, safeguards and customs restrictions, couldincrease our cost of goods sold or reduce the supply of the products available to us. There is no assurance that any such increased costs could be passed on toour customers, or that we could find alternative products from other sources at comparable prices. To the extent that we are subject to more challengingregulatory environments and enhanced legal and regulatory requirements, such exposure could have a material adverse effect on our business, including theadded cost of increased compliance measures that we may determine to be necessary.We 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. 18Table of ContentsIncreases in the cost of employee health benefits could impact the Company’s financial results and cash flow.The Company’s expenses relating to employee health benefits are significant. Healthcare costs have risen significantly in recent years, and recent legislativeand private sector initiatives regarding healthcare reform have resulted and could continue to result in significant changes to the U.S. healthcare system.Unfavorable changes in the cost of such benefits could have a material adverse effect on the Company’s financial results and cash flow.Our business could be disrupted due to 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.The Company’s stock price has been and may continue to be subject to volatility, and this and other factors may affect elements of the Company’s capitalallocation strategy such as share repurchases and dividends.The Company’s stock price has experienced volatility over time and this volatility may continue, in part due to factors mentioned in this Item 1A. Stockvolatility in itself may adversely affect shareholder confidence as well as elements of the Company’s capital allocation strategy.As part of its capital allocation strategy, the Company’s Board of Directors authorized a stock repurchase program of up to $100 million of our outstandingcommon stock and in July 2016, the Board of Directors authorized increasing the share repurchase program to $250 million of our outstanding commonstock. In addition, the Board of Directors has also authorized a quarterly dividend program. Decisions regarding share repurchases and dividends are withinthe discretion of the Board of Directors, and will be influenced by a number of factors, including the price of the Company’s common stock, general businessand economic conditions, the Company’s financial condition and operating results, the emergence of alternative investment or acquisition opportunities,changes in business strategy and other factors. Changes in, or the elimination of, the Company’s share repurchase programs or its dividend could have anadverse effect on the price of the Company’s common stock.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. 19Table of ContentsItem 2. Properties.As of December 31, 2016, our wholly-owned entities operated in the following location.STORESNorth American Retail Division State # State #UNITED STATES: Alabama 27 Montana 5Alaska 5 Nebraska 10Arizona 35 Nevada 22Arkansas 12 New Jersey 4California 149 New Mexico 11Colorado 46 New York 20District of Columbia 1 North Carolina 49Florida 145 North Dakota 4Georgia 62 Ohio 52Hawaii 9 Oklahoma 17Idaho 8 Oregon 22Illinois 62 Pennsylvania 20Indiana 24 Puerto Rico 12Iowa 9 South Carolina 20Kansas 13 South Dakota 3Kentucky 18 Tennessee 33Louisiana 39 Texas 181Maine 1 Utah 14Maryland 18 U.S. Virgin Islands 2Massachusetts 5 Virginia 40Michigan 41 Washington 39Minnesota 35 West Virginia 5Mississippi 19 Wisconsin 34Missouri 36 Wyoming 3 TOTAL 1,441The 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. The following tables set forth the locations of our principal supply chainfacilities as of December 31, 2016.DCs and Crossdock Facilities (United States) # State #Arizona 1 Maine 1California 3 Minnesota 1Colorado 1 Mississippi 1Florida 3 Ohio 2Georgia 2 Pennsylvania 3Hawaii 1 Puerto-Rico 1Illinois 2 Texas 3Kansas 1 Washington 2 TOTAL 28 20Table of ContentsDCs and Crossdock Facilities (Canada) Country # Canada 10 Our corporate office in Boca Raton, FL consists of approximately 625,000 square feet. This facility is considered to be in good condition, adequate for itspurpose and suitably utilized according to the individual nature and requirements of the relevant operations. Although we own a small number of our retailstore locations, most of our facilities are leased or subleased.Item 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.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, OfficeMax is named a defendant in a number of lawsuits, claims, and proceedings arising out of the operation of certain paperand forest products assets prior to those assets being sold in 2004, for which OfficeMax agreed to retain responsibility. Also, as part of that sale, OfficeMaxagreed to retain responsibility for all pending or threatened proceedings and future proceedings alleging asbestos-related injuries arising out of the operationof the paper and forest products assets prior to the closing of the sale. The Company has made provision for losses with respect to the pending proceedings.Additionally, as of December 31, 2016, the Company has made provision for environmental liabilities with respect to certain sites where hazardoussubstances or other contaminants are or may be located. For these environmental liabilities, our estimated range of reasonably possible losses wasapproximately $10 million to $25 million. The Company regularly monitors its estimated exposure to these liabilities. As additional information becomesknown, these estimates may change, however, the Company does not believe any of these OfficeMax retained proceedings are material to the Company’sfinancial position, results of operations or cash flowsItem 4. Mine Safety Disclosures.Not applicable. 21Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.The Company’s common stock is traded on the NASDAQ Global Select Market under the ticker symbol ODP.The following table sets forth, for the periods indicated, the high and low sale prices of our common stock and cash dividends paid. These stock prices do notinclude retail mark-ups, markdowns or commission. Sales Price CashDividends High Low 53 weeks year ended December 31, 2016 First Quarter $7.20 $4.83 $— Second Quarter $7.91 $3.18 $— Third Quarter $3.86 $3.11 $0.025 Fourth Quarter $5.22 $3.01 $0.025 52 weeks year ended December 26, 2015 First Quarter $9.77 $7.40 $— Second Quarter $9.41 $8.80 $— Third Quarter $8.98 $6.64 $— Fourth Quarter $7.99 $5.24 $— HoldersAs of the close of business on January 27, 2017, there were 9,313 holders of record of our common stock. The last reported sale price of the common stock onthe NASDAQ on January 27, 2017 was $4.31.Cash DividendAny decision to pay future cash dividends will be at the direction of the Board of Directors and will depend on our operating results, earnings, financialcondition and other factors. Payment of dividends is permitted under our existing credit facilities provided that the Company has the required minimumliquidity or fixed charge ratio but may be limited if the Company does not meet the necessary requirements.Issuer Purchase of Equity SecurityIn May 2016, our Board of Directors authorized a stock repurchase program of up to $100 million of our outstanding common stock. The stock repurchaseauthorization permits the Company to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiatedtransactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. In July 2016, the Board of Directorsauthorized increasing the share repurchase program to $250 million of our outstanding common stock. The authorization extends to the end of 2018 and maybe suspended or discontinued at any time. 22Table of ContentsThe following table summarizes our common stock repurchases during the fourth quarter of 2016. Period TotalNumberof SharesPurchased(In thousands) AveragePrice Paidper Share(a) Total Number ofShares Purchased asPart of a PubliclyAnnounced Plan orProgram(In thousands) Approximate DollarValue of Shares thatMay Yet BePurchased Underthe RepurchasePrograms(b)(In millions) September 25 — October 22, 2016 4,600 $3.50 4,600 $153 October 23 — November 19, 2016 6,168 $3.35 6,168 $132 November 20 — December 31, 2016 2,895 $4.88 2,895 $118 Total 13,663 The exact number and timing of share repurchases will depend on market conditions and other factors, and will be funded through existing liquidity.We purchased zero, 7 million, 16 million and 14 million shares during the first, second, third and fourth quarters of fiscal 2016, respectively, at an averageweighted price of $3.58 per common share. For the year 2016, we purchased approximately 37 million common shares for total consideration of$132 million. At December 31, 2016, approximately $118 million remains available for additional purchases under the approved program. 23Table of ContentsOffice Depot Stock Comparative Performance GraphThe information contained in the this Office Depot Comparative Performance Graph section shall not be deemed to be filed as part of this Annual Reportand does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other filing of the Company under theSecurities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate the graph byreference.The following graph below compares the five-year cumulative total shareholder return on our common stock with the cumulative total returns of theStandard & Poor’s 500 Index (“S&P 500”) of which we are component and the Standard & Poor’s Specialty Stores Index (“S&P Specialty Stores”) of whichwe are also a component.The graph assumes an investment of $100 at the close of trading on December 31, 2011 the last trading day of fiscal year 2011, in our common stock, theS&P 500 and the S&P Specialty Stores. 12/31/11 12/29/12 12/28/13 12/27/14 12/26/15 12/31/16 Office Depot, Inc. 100.00 152.09 241.40 411.16 260.47 212.77 S&P 500 100.00 116.00 153.58 174.60 177.01 198.18 S&P Specialty Stores 100.00 88.30 121.79 135.12 113.59 114.21 The stock price performance included in this graph is not necessarily indicative of future stock price performance. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among Office Depot, Inc., the S&P 500 Index and the S&P Specialty Stores Index * $100 invested on 12/31/11 in stock or index, includingreinvestment of dividends. Indexes calculated on month-end basis. 24Table 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 31, 2016. 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.The Company has accounted for actual and planned disposition of substantially all of the business formerly presented as the International Division asdiscontinued operations beginning in 2016. All data for prior periods have been recast. (In millions, except per share amounts and statistical data) 2016 2015 2014 2013 2012 Statements of Operations Data: Sales $11,021 $11,727 $12,710 $8,246 $7,680 Net income (loss) from continuing operations $679 $92 $(293) $(251) $(32) Discontinued operations, net of tax $(150) $(84) $(59) $231 $(45) Net income (loss) $529 8 $(352) $(20) $(77) Net income (loss) attributable to Office Depot, Inc. $529 $8 $(354) $(20) $(77) Net income (loss) available to common shareholders $529 $8 $(354) $(93) $(110) Net earnings (loss) per share: Basic: Continuing Operations $1.26 $0.17 $(0.55) $(1.02) $(0.23) Discontinued Operations $(0.28) $(0.15) $(0.11) $0.73 $(0.16) Net basic earnings (loss) per share $0.98 $0.01 $(0.66) $(0.29) $(0.39) Diluted: Continuing Operations $1.24 $0.16 $(0.55) $(1.02) $(0.23) Discontinued Operations $(0.27) $(0.15) $(0.11) $0.73 $(0.16) Net diluted earnings (loss) per share $0.96 $0.01 $(0.66) $(0.29) $(0.39) Cash dividends declared per common share $0.05 $— $— $— $— Statistical Data: Facilities open at end of period: United States: Office supply stores 1,441 1,564 1,745 1,912 1,112 Distribution centers and crossdock facilities 28 33 66 81 15 Other: Office supply stores — — — 19 — Distribution centers and crossdock facilities 10 12 12 10 — Call centers — — — 1 — Total square footage — North American Retail Division (in millions) 32.4 35.4 39.6 43.6 25.5 Percentage of sales by segment: North American Retail Division 50.8% 51.2% 52.0% 56.3% 58.0% North American Business Solutions Division 49.0% 48.7% 47.9% 43.6% 41.9% Other 0.2% 0.1% 0.1% 0.1% 0.1% Balance Sheet Data: Total assets $5,540 6,442 $6,757 $7,365 $3,966 Long-term recourse debt, net of current maturities 358 628 662 681 467 Redeemable preferred stock, net — — — — 386 Includes 53 weeks in accordance with our 52 — 53 week reporting convention. 25(1)(5) (2)((3)(4)(5)(6) (2)((3)(4)(5)(6) (2)((3)(4)(5)(6) (7)(1)Table of Contents Fiscal year 2016 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders include$15 million of asset impairment charges, $80 million income of Merger, restructuring, and other operating (income) expenses, net, including$250 million received from Staples as the Termination Fee, and the reversal of $382 million of valuation allowances on deferred tax assets. Refer toMD&A for additional information. Fiscal year 2015 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders include$13 million of asset impairment charges and $242 million of Merger-related, restructuring, and other operating expenses. Refer to MD&A foradditional information. Fiscal year 2014 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders include$56 million of asset impairment charges, $334 million of Merger-related, restructuring, and other operating expenses, and $81 million of Legal accrual.Refer to MD&A for additional information. 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 $846 million from OfficeMax operations. Additionally, fiscal year Net income (loss), Net income attributable to Office Depot, Inc., andNet income available to common shareholders includes $26 million of asset impairment charges, and $179 million of Merger-related, restructuring, andother operating expenses. Net income (loss) available to common shareholders includes $45 million of dividends related to the redemption of theredeemable preferred stock. Fiscal year 2012 Net income (loss), Net income attributable to Office Depot, Inc., and Net income available to common shareholders include$123 million of asset impairment charges, $63 million net gain on purchase price recovery and $17 million of charges related to closure costs andprocess improvement activity. Includes Canadian office supply stores, distribution centers and crossdock facilities. Fiscal year 2013 includes 19 stores in Canada operated by ourNorth American Business Solutions Division. These Canadian stores were closed in 2014. 26(2)(3)(4)(5)(6)(7)Table of ContentsItem 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide information to assist readers inbetter understanding and evaluating our financial condition and results of operations. We recommend reading this MD&A in conjunction with ourConsolidated Financial Statements and Notes thereto included in this Form 10-K.RESULTS OF OPERATIONSOVERVIEWOur business is comprised of two reportable segments (or “Divisions”) at year end 2016. The North American Retail Division includes our retail stores in theUnited States, including Puerto Rico and the U.S. Virgin Islands, which offer office supplies, technology products and solutions, business machines andrelated supplies, facilities products, and office furniture. Most stores also have a copy and print center offering printing, reproduction, mailing and shipping.The North American Business Solutions Division sells office supply products and services in the United States, including Puerto Rico and the U.S. VirginIslands, and Canada. North American Business Solutions Division customers are served through dedicated sales forces, through catalogs, telesales, andelectronically through our internet sites. During September 2016 we announced the plan to sell substantially all of our foreign business operations that madeup the former International Division. On December 31, 2016, the European business of our former International Division was sold. The remaininginternational operations in South Korea, mainland China, Australia and New Zealand are being actively marketed for sale and have been included indiscontinued operations in our Consolidated Financial Statements. Certain operations previously included in the International Division did not meet thecriteria as held for sale at December 31, 2016, and have been presented as Other, pending resolution on how these operations will be managed in futureperiods.Staples AcquisitionOn February 4, 2015, Staples and the Company entered into the Staples Merger Agreement, under which Staples would acquire all of the outstanding sharesof Office Depot and the Company would become a wholly owned subsidiary of Staples.On December 7, 2015, the FTC informed Office Depot and Staples that it intended to block the Staples Acquisition. On the same date, Office Depot andStaples announced their intent to contest the FTC’s decision to challenge the transaction. On May 10, 2016, the U.S. District Court for the District ofColumbia granted the FTC’s request for a preliminary injunction against the proposed acquisition, and as a result, the companies terminated the StaplesMerger Agreement on May 16, 2016. Pursuant to the terms of the termination agreement, Staples paid Office Depot a Termination Fee of $250 million in cashon May 19, 2016. The Termination Fee more than offset the expenses incurred during the protracted approval consideration process, but not necessarily thebusiness disruption impacts.Refer to Note 2. “Merger, Acquisition Termination, and Restructuring Activity” in Notes to the Consolidated Financial Statements for additionalinformation.Comprehensive Business ReviewDuring August 2016, the Company announced the results of a comprehensive business review and strategy (the “Comprehensive Business Review”), which,among other things, included an anticipation of closing approximately 300 additional retail stores in North America over the next three years, anticipatedrestructuring initiatives to lower operating and general and administrative expenses, and continued exploration of strategic alternatives regarding theEuropean business that had been initiated by Staples as part of their attempt to get European Union regulatory approval of the Staples Acquisition. 27Table of ContentsDisposition of the International Division — Discontinued OperationsIn September 2016, the Company announced that it had received an irrevocable offer to purchase the European business (the “OD European Business”) and,in November 2016, we entered into a definitive sale and purchase agreement (“SPA”) with The AURELUIS Group to sell the OD European Business. OnDecember 31, 2016, the Company closed the transaction contemplated by the SPA, as amended to complete the sale. The Company will retain responsibilityfor the defined benefit pension plan in the United Kingdom. In addition to approving the sale of the OD European Business, the Company’s Board ofDirectors in September 2016 approved a plan to sell substantially all of the remaining international operations in South Korea, mainland China, Australia andNew Zealand. Actual sales of these disposal groups may be for amounts different from current estimates and recognition of then-current cumulativetranslation adjustment amounts will likely result in variability in the amounts reported as Discontinued operations, net of taxes in future periods. Theseremaining operations are included in discontinued operations at year end 2016. We reclassified the financial results of the International Sale Group toDiscontinued operations, net of tax in the Consolidated Statements of Operations for all periods presented. The Company also reclassified the related assetsand liabilities as current and non-current assets and liabilities of discontinued operations on the accompanying Consolidated Balance Sheets as ofDecember 31, 2016 and December 26, 2015. Cash flows from the Company’s discontinued operations are presented in the Consolidated Statements of CashFlows for all periods presented.Refer to Note 3. “Discontinued Operations,” in Notes to the Consolidated Financial Statements for additional information.MergerOn November 5, 2013, the Company finalized its Merger with OfficeMax. Through the end of 2016, substantial progress has been made on Mergerintegration activity. During 2016, we completed the store closure program announced under the Real Estate Strategy; store closures under this program were51, 181, and 168 in 2016, 2015 and 2014, respectively. Through the end of 2016, we have closed 14 distribution centers and cross dock facilities. Supplychain integration is expected to be complete before the end of 2017. Since the Merger date, all retail stores have been converted to common point of salesystems, we successfully launched the co-branded public website (www.officedepot.com), combined operating support functions, transitioned certaincontract customers from the OfficeMax to the Office Depot platform, and made significant progress on identifying customer preferences and developingmethods to service their needs. The North American Business Solutions customer migrations follow completion of the supply chain integration and areanticipated to be substantially complete by the end of 2017, with some activity in 2018. We estimate we have achieved over $700 million in annual run ratesynergy benefits from the OfficeMax integration through the end of 2016. 28Table of ContentsContinuing OperationsA summary of certain factors impacting operating results from continuing operations for the 53-week period ended December 31, 2016 (also referred to as“2016”) and the 52-week period ended December 26, 2015 (also referred to as “2015”) is provided below.Sales reported for 2016 compared to the prior year were significantly affected by the retail store closures in the North American Retail Division and theprolonged Staples Acquisition attempt in the contract channel of the North American Business Solutions Division. The 53 week in 2016 increased totalCompany sales by approximately $143 million and increased operating income by approximately $15 million. (In millions) 2016 2015 Change Sales North American Retail Division $5,603 $6,004 (7)% Change in comparable store sales (2)% North American Business Solutions Division 5,400 5,708 (5)% Change in constant currencies (5)% Other 18 15 20% Total $11,021 $11,727 (6)% Other Significant Factors Impacting Total Company Results and Liquidity • Gross margin increased 16 basis points in 2016 compared to 2015, with increases in both the North American Retail Division and the North AmericanBusiness Solution Division. • Total Company Selling, general and administrative expenses decreased in 2016 compared to 2015, reflecting the closure of stores in North America, lowerpayroll and advertising expenses, operational efficiencies and synergies. As a percentage of sales, total Selling, general and administrative expensesdecreased in 2016 compared to 2015 by 34 basis points. • Merger, restructuring and other operating (income) expense, net in 2016, amounted to income of $(80) million compared to expenses of $242 million in2015. In 2016, this line item includes $64 million of expenses related to Merger activities, a net credit of $(192) million related to the Staples Acquisition,reflecting the $250 million termination fee payment received from Staples, and $48 million of expenses associated with the Comprehensive BusinessReview that was initiated in August 2016. Additional integration and restructuring expenses are expected to be incurred through 2017. Refer to Note 2.“Merger, Acquisition Termination, and Restructuring Activity” in the Notes to the Consolidated Financial Statements for additional information. • The effective tax rate for 2016 was (48)%, primarily impacted by the reversal of a substantial portion of our U.S. federal and state valuation allowance aswe concluded that it was more likely than not that a benefit from the related deferred tax assets would be realizable. This conclusion was based on adetailed evaluation of all available positive and negative evidence, and the weight of such evidence, the current financial position and results ofoperations for the current and preceding years, and the expectation of continued earnings. We determined that approximately $382 million of our U.S.federal and state valuation allowance should be reversed in 2016. • Diluted earnings per share from continuing operations was $1.24 in 2016 compared to $0.16 in 2015. • Diluted earnings per share from discontinued operations was a loss of $0.27 in 2016 compared to a loss of $0.15 in 2015. • Net diluted earnings per share was $0.96 in 2016 compared to $0.01 in 2015. 29rdTable of Contents• At December 31, 2016, we had $763 million in cash and cash equivalents and $1.0 billion available under the Amended Credit Agreement. Cash providedby operating activities of continuing operations was $492 million for 2016 compared to $138 million for 2015. • During 2016, we paid a cash dividend on our common stock of $0.025 per share in both the third and fourth quarters of 2016, resulting in an aggregatecash payment during 2016 of $26 million. • During 2016, we redeemed the $250 million, 9.75% senior secured notes due 2019 at a price equal to 104.875% of the principal amount for a totalconsideration of $262 million plus accrued interest of $12 million. The premium paid, along with the expensing of remaining unamortized issue costs,resulted in a $15 million loss on extinguishment of debt. • During 2016, we purchased 37 million shares of Office Depot common stock under our share repurchase program, resulting in returning $132 million toshareholders. • Fiscal year 2016 is a 53-week year under our retail calendar. Our fourth quarter included 14 weeks and ended on December 31, 2016.OPERATING 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) 2016 2015 2014 Sales $5,603 $6,004 $6,528 % change (7)% (8)% 41% Division operating income $299 $310 $126 % of sales 5% 5% 2% Comparable store sales (decline) (2)% —% (2)% Sales in our North American Retail Division decreased 7% and 8% in 2016 and 2015, respectively, and increased 41% in 2014. During the second quarter of2016, we completed our 400 store closure program associated with the 2014 Real Estate Strategy. In August 2016, we announced plans to close an additional300 retail locations through 2018 as part of the Comprehensive Review. Store closure activity is shown in the table below. Of the sales decline in Fiscal2016, 6% was driven by closed stores and a 2% decline in comparable store sales. These factors were partially offset by a 1% increase in sales due to 2016including one additional fiscal week as compared to Fiscal 2015. Comparable store sales declines include the sales transfer benefit from closed stores intostores that remained open. The sales decline during 2015 was largely due to our store closure program. The 41% increase in sales during 2014 reflects the firstfull year of sales following the OfficeMax Merger.Our comparable store sales relate to stores that have been open for at least one year. Stores are removed from the comparable sales calculation one month priorto closing, as sales during that period are largely non-comparable clearance activity, and during periods of store remodeling and if significantly downsized.Our measure of comparable store sales has been applied consistently across periods, but may differ from measures used by other companies.Comparable store sales in 2016 decreased 2%, reflecting flat average order value, lower store traffic and transaction counts compared to prior year, partiallyoffset by higher conversion rates. Comparable store sales decreased in ink, toner, computers and technology products. Sales increased in furniture, copy andprint services, 30Table of Contentsand cleaning/breakroom products. The North American Retail Division continued to benefit from the increasing trend of omni-channel transactions wherecustomers order online for pick up in the stores. The Buy Online-Pickup in Store sales increased over 50% to approximately $115 million in 2016 comparedto the prior year. During 2016, the Company also began offering Buy Online-Ship from Store. These sales are included the North American Retail Divisionsales, including our comparable store calculations, as they are fulfilled with store inventory and serviced by Retail Division employees. We expect theseactivities and trends to continue in 2017. Additionally, comparable store sales calculations continue to be positively affected from customers transferringfrom closed to nearby stores which remained open, although the impact decreases after the one year anniversary of the store closure. The average sales transferrate achieved to date under the store closure programs is estimated to be over 30%. Future store closures under the Comprehensive Business Review mayhave lower sales transfer rates as the distance between stores being closed to stores remaining open increases.Comparable store sales in 2015 were flat. As we implemented the Real Estate Strategy, comparable store sales calculations were positively affected fromcustomers transferring from closed to nearby stores which remained open. The 2015 results reflected increases in supplies, furniture, copy and print services,ink and toner and declines in computer and related technology products. In 2015, transaction counts increased and average order values decreased comparedto prior year. The increase in transaction counts resulted from increased traffic in the stores due to sales transfers resulting from store closures andimprovements in customer in-store experience. Additionally 2015 sales include an increase in online sales picked up by customers in stores. The decrease inaverage order values in 2015 reflect, in part, declines in technology sales, as customers continue to reduce purchases in this overall category partially offsetby the increase in average sale prices on furniture products.The North American Retail Division reported operating income of $299 million in 2016, compared to $310 million in 2015 and $126 million in 2014.Division operating income in 2015 included benefits from favorable legal settlements of $16 million relating to labor matters and $23 million relating tocertain product manufacturers’ pricing practices. Excluding those items, Division operating income improved in 2016 compared to 2015, reflecting a slightincrease in gross margin and lower occupancy costs, as well as lower selling, general and administrative expenses, from both store closures and increasedefficiency. The 53 week also positively impacted Division results by approximately $14 million.Store closures contributed to declines in 2015 of occupancy, payroll and other store operating costs. Beyond the impact from store closures, operating costsdecreased from lower advertising and payroll expenses, as well as continued synergy impacts from the Merger. Additionally, the 2015 division operatingincome was favorably affected by an increase in gross margin rates and the favorable legal settlements referred to above.At the end of 2016, we operated 1,441 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 Closed Opened Open atEndof Period 2014 1,912 168 1 1,745 2015 1,745 181 — 1,564 2016 1,564 123 — 1,441 Charges associated with store closures under the Real Estate Strategy and the Comprehensive Business Review will be reported as appropriate in Assetimpairments and Merger, restructuring and other operating (income) expenses, net in the Consolidated Statements of Operations. These charges will bereflected in Corporate reporting, and not included in the determination of Division income in future periods. Refer to “Corporate and other” discussion belowfor additional information of expenses incurred to date. 31rdTable of ContentsNORTH AMERICAN BUSINESS SOLUTIONS DIVISION (In millions) 2016 2015 2014 Sales $5,400 $5,708 $6,013 % change (5)% (5)% 68% Division operating income $265 $226 $232 % of sales 5% 4% 4% Sales in our North American Business Solutions Division in U.S. dollars decreased by 5% in 2016 and 5% in 2015 and increased 68% in 2014. The increasein 2014 reflects the first full year of sales following the OfficeMax Merger. Fiscal year 2016 included 53 weeks under our retail calendar which added$56 million when compared to the 52 weeks of the prior year. In 2016 and 2015, on a constant currency basis, sales decreased 5% and 4%, respectively,representing decreases in both contract and direct channels. Changes in constant currencies are computed by excluding the impact of foreign currencyexchange rates fluctuations. In future periods, Division results will continue to be impacted by changes in foreign currency exchange rates associated withthe Canadian business.The decline in the contract channel sales continues to reflect the impact of customer attrition and fewer customer additions during the period of businessdisruption related to the prolonged Staples Acquisition attempt, as well as competitive pressures in certain supplies and technology categories. Changes tothe sales model and future product offerings expansion are aimed at reducing the rate of sales decline, but the impact of the Staples Acquisition attemptdisruption will continue to affect prior year comparisons until lost accounts are replaced. Additionally, new customers typically require an integration periodbefore reaching their buying potential and having a positive impact on sales trends. In the direct channel, the ongoing reduction in catalog and call centersales contributed to the Division’s overall decline. Also, the decommissioning of legacy OfficeMax e-commerce sites contributed to the direct channeldecline but had a positive impact on overall operating income. Sales placed online but picked up in stores continued to increase in 2016 and are reported assales in the North American Retail Division. On a product category basis for the North American Business Solutions Division, sales increased incleaning/breakroom, were essentially flat in copy and print, and decreased in furniture and across the other primary product categories. Sales of paper, toner,and ink continued to trend lower over the three years.Sales in 2014 increased in the contract and direct channels and were primarily due to the addition of OfficeMax sales. Direct channel sales also increasedduring 2014, reflecting efforts to enhance the internet shopping offering and experience. The increased online sales were partially offset by reduced callcenter sales. Sales in the merged business in Canada declined in the second half of 2014 compared to the first half of 2014, in part reflecting the closing ofGrand & Toy retail stores during the second quarter of 2014.Division operating income was $265 million in 2016, $226 million in 2015, and $232 million in 2014. Division operating income as a percentage of saleswas 5% in 2016 and 4% in 2015 and 2014. The increase in operating income was primarily the result of lower selling, general and administrative expenses,including payroll and integration synergy benefits, which, together with an increased gross margin rate, more than offset the negative flow through impact ofthe decline in sales. The 53 week also positively impacted Division results by approximately $4 million.In 2014, the Company closed 19 Grand & Toy stores in Canada that were added as part of the Merger. These locations primarily serviced small businesscustomers and, accordingly, were included in results of the North America Business Solutions Division.OTHER (In millions) 2016 2015 2014 Sales $18 $15 $14 Other operating income $1 $3 $1 32rdTable of ContentsGlobal sourcing operations of the Asia/Pacific region did not meet the held for sale criteria at December 31, 2016, and are presented as continuing operations.The operations primarily relate to the sale of products to former joint venture partners. Intercompany transactions are eliminated. The future prospects andreporting of this business are being evaluated.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) 2016 2015 2014 Asset impairments $15 $13 $56 Merger, restructuring, and other operating (income) expenses, net (80) 242 334 Legal accrual — — 81 Total charges and credits impact on Operating income (loss) $(65) $255 $471 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.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, eliminating redundant positions, disposing of businesses and assets, and taking actions to improve process efficiencies.These actions have resulted in significant charges associated with the Merger, Real Estate Strategy, the Staples Acquisition and the Comprehensive BusinessReview. Certain of these activities are expected to continue in future periods and result in additional charges.Asset impairmentsAsset impairment charges are comprised of following: (In millions) 2016 2015 2014 North America stores $8 $12 $26 Software — — 25 Intangible assets 7 1 5 Total Asset impairments $15 $13 $56 North America storesThe impairment of store assets reflects the impact of shortening the anticipated use periods of certain retail store locations in accordance with theComprehensive Business Review, as well as lower anticipated cash flows, primarily from lower future sales projections.As a result of declining sales in recent periods and adoption of our Real Estate Strategy in 2014 and the Comprehensive Business Review in 2016, theCompany has regularly conducted a detailed store impairment analysis. The analysis includes estimates of store-level sales, gross margins, direct expenses,exercise of future 33Table of Contentslease renewal options where applicable, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact futureperformance. If the anticipated cash flows of a store cannot support the carrying value of its assets, the assets are impaired and written down to estimated fairvalue.The projections prepared for the 2016 analysis assumed declining sales over the forecast period. Gross margin and operating cost assumptions have been heldat levels consistent with recent actual results and planned activities. Estimated cash flows were discounted at 13% in 2016, 12% in 2015 and 13% in 2014.The impairment charges include amounts to bring the location’s assets to estimated fair value based on projected operating cash flows or residual value, asappropriate. The Company continues to capitalize additions to previously-impaired operating stores and tests for subsequent impairment. The 2014 storeimpairment charge also includes $1 million related to the closure of stores in Canada.As implementation of the remaining supply chain integration, which is expected to be complete in 2017, and the Comprehensive Business Review continues,we are likely to experience volatility in results. In addition to charges for severance and facility closure costs that will be recognized as decisions are made,we may experience volatility from the timing of recognition of impairment charges, as well as credits related to capital leases and deferred rent accounts whenthe leases are terminated or modified.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 a $25 million charge to the write off of capitalized software.Intangible assetsFollowing identification of retail stores for closure as part of our Real Estate Strategy and Comprehensive Business Review, the related favorable lease assetsrecorded in the Merger were assessed for accelerated amortization or impairment. Considerations included the projected cash flows discussed above, plannedclosures and the likelihood of sublease under renewal options or returning the property to the landlord. Impairment of $7 million, $1 million, and $5 millionwere recognized during 2016, 2015, and 2014, respectively, when the intangible asset could not be recovered by projected cash flows.OverallThe 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 performance is as anticipated, additional impairment chargesmay result. However, at the end of 2016, the impairment analysis reflects the Company’s best estimate of future performance. 34Table of ContentsMerger, restructuring and other operating (income) expenses, netThe table below summarizes the major components of Merger, restructuring and other operating (income) expenses, net. (In millions) 2016 2015 2014 Merger expenses Severance, retention, and relocation $— $15 $148 Transaction and integration 37 81 124 Facility closure, contract termination, and other expenses, net 27 44 62 Total Merger related expenses 64 140 334 Staples Acquisition (income) expenses Retention 15 65 — Transaction 43 37 — Termination Fee (250) — — Total Staples Acquisition (income) expenses (192) 102 — Comprehensive Business Review expenses Severance 22 — — Facility closure, contract termination, professional fees and other expenses, net 26 — — Total Comprehensive Business Review expenses 48 — — Total Merger, restructuring and other operating (income) expenses, net $(80) $242 $334 Merger related expensesSeverance, retention, relocation in 2015 and 2014 reflect expenses incurred for the integration of staff functions and includes termination benefits for certainretail and supply chain closures. Such benefits were accrued through the anticipated facility closure date. Severance calculations considered factors such asthe expected timing of store closures, terms of existing severance plans, expected employee turnover and attrition.Transaction and integration expenses include integration-related professional fees, incremental temporary contract labor, salary and benefits for employeesdedicated to Merger activity, travel costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Such costs are beingrecognized as incurred.Facility closure, contract termination, and other costs, net primarily relate to facility closure accruals, contract termination cost, gains and losses on assetdispositions, and accelerated depreciation. Facility closure expenses include amounts incurred by the Company to close retail stores in the United States aspart of the Real Estate Strategy, as well as supply chain facilities. During 2016 and 2015, the Company recognized gains of $1 million and $36 million,respectively, from the sale of warehouse facilities that had been classified as assets held for sale. The gains are included in Merger, restructuring and otheroperating (income) expenses, net, as the dispositions were part of the supply chain integration associated with the Merger.We expect that Merger-related expenses to be substantially completed in 2017.Staples Acquisition (income) expensesExpenses include retention accruals and transaction costs, including costs associated with regulatory filings and professional fees, offset by the TerminationFee income. 35Table of ContentsComprehensive Business Review expensesExpenses associated with implementing the Comprehensive Business Review include severance, facility closure costs, contract termination, accelerateddepreciation, professional fees, relocation and disposal gains and losses, as well as other costs associated with the store closures. The Company has closed 72stores since announcing this initiative. Restructuring expenses also include severance and reorganization costs associated with reductions in staff functionsthat continued into the first quarter of 2017. Severance costs are being accrued through the anticipated facility closure or termination date and considertiming, terms of existing severance plans, expected employee turnover and attrition.Refer to Note 2, “Merger, Acquisition Termination, and Restructuring Activity” in Notes to the Consolidated Financial Statements for additionalinformation.Legal AccrualIn June 2014, the Company participated in a non-binding, voluntary mediation in which the Company negotiated a potential settlement to resolve theSherwin lawsuit. During 2014, the Company recorded an $81 million legal accrual which included the potential settlement, as well as attorneys’ fees andother related legal matters. On December 19, 2014, Office Depot and the plaintiffs executed a Settlement Agreement to resolve the lawsuit. Pursuant to theterms of the Settlement Agreement, the Company agreed to pay the plaintiffs $68 million to settle the matter (the “Settlement Amount”), as well as $9 millionin legal fees, costs, and expenses. In exchange for, and in consideration of, the Company’s agreement to pay the Settlement Amount, the plaintiffs agreed todismiss their action against the Company with prejudice. In February 2015, the court entered orders approving the settlement and dismissing the case withprejudice. The Settlement Amount and the related fees were paid during the second quarter of 2015.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. Additionally, the European pension plan that has been retained by the Company, as well as certain general and administrative costspreviously allocated to the International Division that have been excluded from the discontinued operations measurement, have been included in Corporateunallocated costs in all periods presented. Unallocated costs were $99 million, $101 million, and $124 million in 2016, 2015, and 2014, respectively. Thedecreases in 2016 and 2015 resulted primarily from synergies achieved at the corporate functional level following the Merger, including the integration ofthe corporate headquarters and lower software amortization, partially offset by costs associated with executive transition and $3 million of costs associatedwith the 53 week in 2016.Other Income and Expense (In millions) 2016 2015 2014 Interest income $22 $22 $22 Interest expense (80) (91) (87) Loss on extinguishment of debt (15) — — Other income, net 1 1 2 Interest income includes $20 million in 2016 and $21 million in 2015 and 2014, related to OfficeMax Timber Notes, including amortization of the fair valueadjustment recorded in purchase accounting. Interest expense 36rdTable of Contentsincludes non-recourse debt interest, including amortization of the fair value adjustment recorded in purchase accounting, amounting to $19 million in 2016and 2015 compared to $20 million in 2014, Refer to Note 6, “Timber Notes/Non-Recourse Debt,” in Notes to Consolidated Financial Statements foradditional information. Interest expense in 2014 also includes a $9 million reversal of previously accrued interest expense on uncertain tax positionsfollowing resolution of the related matter.The Company redeemed $250 million of 9.75% Senior Notes due 2019 in the third quarter of 2016. Loss on extinguishment of debt includes the earlyredemption premium of 4.875% of the principal amount and the current recognition of deferred debt costs. The redemption is expected to lower future annualinterest expense by approximately $24 million.Discontinued OperationsRefer to Note 3. “Discontinued Operations,” in Notes to the Consolidated Financial Statements.Income Taxes (In millions) 2016 2015 2014 Income tax expense (benefit) $(220) $23 $2 Effective income tax rate* (48)% 20% (1)% *Income taxes as a percentage of income (loss) from continuing operations before income taxes.The decrease in income tax expense from 2015 to 2016 is primarily related to the reversal of a substantial portion of our U.S. federal and state valuationallowance. The increase in income tax expense from 2014 to 2015 is primarily related to increased profitability in the U.S. resulting in increased current taxprovision. The impact of the increased profitability was partially offset by incurred charges related to certain Staples Acquisition expenses that are notdeductible for tax purposes, which increased the effective tax rate for 2015. With the termination of the Staples Merger Agreement in 2016, a large portion ofthese expenses became deductible in 2016, resulting in a lower effective tax rate for 2016. In addition, the 2015 effective tax rate includes income taxexpense on a foreign exchange gain associated with the restructuring of certain intercompany financing.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 certainnon-deductible expenses, including foreign interest expense.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 fully released.The Company has significant deferred tax assets in the U.S. against which valuation allowances have been established to reduce such deferred tax assets tothe amount that is more likely than not to be realized. The establishment of valuation allowances requires significant judgment and is impacted by variousestimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriatenessof recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strong negative evidence in that evaluation.As of the third quarter of 2016, the Company concluded that it was more likely than not that a benefit from a substantial portion of its U.S. federal and statedeferred tax assets would be realized. This conclusion was based on a detailed evaluation of all available positive and negative evidence and the weight ofsuch evidence, the current financial position and 37Table of Contentsresults of operations for the current and preceding years, and the expectation of continued earnings. The Company determined that approximately$382 million of its U.S. federal and state valuation allowance should be reversed in 2016.Due to the completion of the Internal Revenue Service (“IRS”) examination for 2014, the Company’s balance of unrecognized tax benefits decreased by$4 million during 2016, which did impact income tax expense by $3 million due to an offsetting change in valuation allowance. During 2015, the IRSexamination of the OfficeMax 2012 U.S. federal income tax return concluded, which resulted in a $6 million decrease in tax credit carryforwards. Suchdecrease had no impact on income tax expense due to an offsetting change in valuation allowance. It is not reasonably possible that certain tax positions willbe resolved within the next 12 months, which would decrease the Company’s balance of unrecognized tax benefits. Additionally, the Company anticipatesthat it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized taxbenefits; however, an estimate of such changes cannot reasonably be made.Refer to Note 8, “Income Taxes,” in the Notes to Consolidated Financial Statements for additional tax discussion.LIQUIDITY AND CAPITAL RESOURCESLiquidityAt December 31, 2016, we had $763 million in cash and equivalents and another $1.0 billion available under the Amended Credit Agreement (as defined inNote 7, “Debt,” of the Consolidated Financial Statements) based on the December 2016 borrowing base certificate, for a total liquidity of $1.8 billion. Wecurrently believe that our cash on hand, availability of funds under the Amended Credit Agreement, and full year cash flows generated from operations willbe sufficient to fund our working capital, capital expenditures, debt repayment, common stock purchases, cash dividends on common stock, and Mergerintegration and restructuring expenses for at least the next twelve months.No amounts were drawn under the Amended Credit Agreement during 2016 and there were no amounts outstanding at December 31, 2016. There were lettersof credit outstanding under the Amended Credit Agreement at the end of the year totaling $83 million.The Company was in compliance with all applicable financial covenants at December 31, 2016.We have incurred significant expenses associated with the Merger, integration and restructuring actions and expect to incur an additional $45 million in2017. Additionally, in August 2016, we announced plans to lower operating costs under the Comprehensive Business Review. The Company expects todeliver over $250 million in annual benefits by the end of 2018 with about half of those benefits anticipated to be realized in 2017. In addition, theCompany estimates it will incur up to approximately $125 million in costs and capital expenditures to implement the cost savings programs, with themajority of those costs incurred through 2017.In 2017, the Company expects capital expenditures to be approximately $200 million, including investments to support the Company’s critical priorities andthe Store of the Future test format. These expenditures will be funded through available cash and operating cash flows.The Company expects total sales in 2017 to be lower than 2016, primarily due to the impact of store closures, period year contract customer losses, one lessselling week and continued challenging market conditions.On May 16, 2016, Staples and Office Depot terminated the Staples Merger Agreement. Pursuant to the terms of the termination agreement, Staples paid OfficeDepot a Termination Fee of $250 million in cash on May 19, 2016. 38Table of ContentsOn May 27, 2016 the Board of Directors authorized a stock repurchase program of up to $100 million of our outstanding common stock, par value $0.01 pershare. On July 28, 2016, the Board of Directors authorized increasing the current common stock repurchase program from $100 million to $250 million. Thestock repurchase authorization permits us to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiatedtransactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The program extends through the end of2018 and may be suspended or discontinued at any time. The exact number and timing of share repurchases will depend on market conditions and otherfactors, and will be funded through existing liquidity.Under the $250 million stock repurchase program, during 2016, the Company purchased approximately 37 million shares at cost of $132 million As ofDecember 31, 2016, $118 million remained available for future purchases.In February 2017, we provided our draft working capital calculation to the Purchaser of the OD European Business and have recorded a $70 million payableas of December 31, 2016. The Purchasers has 20 days to review the draft calculation and accept or provide written notice and details of reasons for notaccepting. If the parties do not agree on the amount within 15 days of that notice, the SPA provides for a dispute resolution process. If there is no dispute, theworking capital payment is to be paid within 15 days of the Purchaser’s acceptance of the draft calculation.On February 14, 2017, the Company announced that its Board of Directors declared a cash dividend on the Company’s common stock of $0.025 per share,payable on March 15, 2017, to shareholders of record at the close of business on March 3, 2017.Cash FlowsCash provided by (used in) operating, investing and financing activities of continuing operations is summarized as follows: (In millions) 2016 2015 2014 Operating activities $492 $138 93 Investing activities (84) (58) (5) Financing activities (475) (26) 17 Operating Activities from Continuing OperationsDuring 2016, cash provided by operating activities of continuing operations was $492 million compared to $138 million during 2015. Operating activitiesinclude outflows related to Merger, restructuring, integration and Staples Acquisition activities in 2016 and 2015, as well as the receipt of the $250 millionTermination Fee.Changes in net working capital for 2016 resulted in a $279 million use of cash as compared to $303 million in 2015 and $38 million in 2014. The 2016period includes a discretionary funding of approximately $24 million to receive trustee approval to transfer the UK pension plan retained as part of the sale ofthe OD European Business. After this transfer, the plan was in a $48 million net asset position at December 31, 2016. Additionally, 2016 reflects a greaterdecrease in inventory compared to the prior year offset by a greater decrease in accounts payable and other accrued liabilities. Fiscal year 2016 includespayment of retention awards associated with the Staples Acquisition attempt, Merger and integration-related payments, as well as accrued incentives. Theworking capital factors in 2015 includes $77 million settlement payment of the Legal Accrual, the payment of the 2014 accrued incentive pay, and a net useof cash in integration related activities. Additionally, inventory levels were higher at year-end 2015 when compared to the 2014 period, impacted by thesupply chain integration.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 39Table of Contentsproduction planning, new product introductions and working capital management. For our accounting policy on cash management, refer to Note 1,“Summary of Significant Accounting Policies,” of the Consolidated Financial Statements.Investing Activities from Continuing OperationsCash used in investing activities of continuing operations were $84 million and $58 million in 2016 and 2015, respectively. During 2016 and 2015, capitalexpenditures were $111 million and $144 million, respectively. During 2015, $9 million was used for acquisition of an interior furniture business. Theseoutflows for 2016 and 2015 were partially offset by $27 million and $95 million, respectively, of the disposition of assets and other, primarily, the sale ofwarehouse facilities that previously were classified as held for sale. The use of cash in 2014 reflects $96 million of capital expenditures, partially offset by$43 million proceeds from the disposition of Grupo OfficeMax, $43 million proceeds from the sale of Boise Cascade Company common stock, and$5 million proceeds from the disposition of assets and other.Financing Activities from Continuing OperationsCash used in financing activities of continuing operations was $475 million in 2016 compared to $26 million in 2015. During 2016, we used $132 million torepurchase our common stock and $26 million to pay cash dividends to our shareholders. We also redeemed the $250 million, 9.75% Senior Secured Notesdue in 2019. The redemption resulted in a $15 million loss on the extinguishment of debt, including $12 million of cash premium paid and $3 million indeferred debt issue costs. We also made net payments on short-and long-term debt of $49 million in 2016. During 2015, payments on short- and long-termborrowings were $32 million, partially offset by employee share-based transactions of $7 million. The 2014 source of cash resulted from net proceeds fromexercise of employee share-based transactions of $39 million and proceeds from borrowings of $4 million. Payments on long and short-term borrowings were$26 million during 2014.Discontinued OperationsCash provided by (used in) operating, investing and financing activities of discontinued operations is summarized as follows: (In millions) 2016 2015 2014 Operating activities of discontinued operations $(122) $(12) $62 Investing activities of discontinued operations (70) (16) (22) Financing activities of discontinued operations 5 1 (2) Until individual disposal groups are sold, cash may move between discontinued operations entities and continuing operations entities. Intercompanytransactions are eliminated in consolidation and balances are satisfied on or before closings.Off-Balance Sheet ArrangementsAs of December 31, 2016, we lease retail stores and other facilities and equipment under operating lease agreements, which are included in the table below. Inaddition, Note 15, “Commitments and Contingencies,” of the Consolidated Financial Statements describes certain of our arrangements that containindemnifications. 40Table of ContentsContractual ObligationsThe following table summarizes our contractual cash obligations at December 31, 2016, 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 2017 2018-2019 2020-2021 Thereafter Contractual Obligations Recourse debt: Long-term debt obligations $333 $15 $30 $39 $249 Capital lease obligations 219 38 65 53 63 Non-recourse debt 868 40 80 748 — Operating lease obligations 1,587 486 644 284 173 Purchase obligations 51 47 4 — — Total contractual cash obligations $3,058 $626 $823 $1,124 $485 Long-term obligations consist primarily of expected payments (principal and interest) on our $186 million of revenue bonds at various interest rates. The present value of these obligations is included on our Consolidated Balance Sheets. Refer to Note 7, “Debt,” of the Consolidated FinancialStatements for additional information about our capital lease obligations. 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 31, 2016. 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$31 million. Some lease agreements provide us with the option to renew the lease or purchase the leased property. Our future operating leaseobligations would change if we exercised these renewal options and if we entered into additional operating lease agreements. Our operating leaseobligations are described in Note 9, “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 isnon-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, thedollar amount 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 included theamount of the termination fee or the amount that would be paid over the “notice period.” As of December 31, 2016, purchase obligations include marketingservices, outsourced accounting services, certain fixed assets and software licenses, service and maintenance contracts for information technology andcommunication. Contracts that can be unilaterally terminated without a penalty have not been included. 41(1)(2)(3)(4)(5)(1)(2)(3)(4)(5)Table of ContentsOur Consolidated Balance Sheet as of December 31, 2016 includes $361 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 2,“Merger, Acquisition Termination, and Restructuring Activity,” for a discussion of our restructuring accruals and Note 8, “Income Taxes,” of theConsolidated Financial Statements for additional information regarding our deferred tax positions and accruals for uncertain tax positions.Our Consolidated Balance Sheet as of December 31, 2016 also includes $143 million of current and non-current pension and postretirement obligations,which is also excluded from the table above, as the timing of the cash payments is uncertain. Our estimate is that payments in future years will total$222 million. This estimate represents the minimum contributions required per Internal Revenue Service funding rules and the Company’s estimated futurepayments under pension and postretirement plans. Actuarially-determined liabilities related to pension and postretirement benefits are recorded based onestimates and assumptions. Key factors used in developing estimates of these liabilities include assumptions related to discount rates, rates of return oninvestments, healthcare cost trends, benefit payment patterns and other factors. Changes in assumptions related to the measurement of funded status couldhave a material impact on the amount reported.In addition to the above, we have outstanding letters of credit totaling $83 million at December 31, 2016.CRITICAL 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 2016 to the methodologies used in preparing the estimates discussed below.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. 42Table of ContentsVendor 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 vendors are generally known soon after year-end. Substantially all vendor program receivablesoutstanding at the end of the year are settled within the three months following year-end. We believe that our historical collection rates of these receivablesprovide a sound basis for our estimates of anticipated vendor payments throughout the year.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 access recovery of the asset or asset groups using estimates of cashflows directly associated with the future use and eventual disposition of the asset or asset groups. If undiscounted cash flows are insufficient to recover theasset, impairment is measured as the difference between the asset’s estimated fair value (generally, the discounted cash flows or its salvage value) and itscarrying value, and any costs of disposition. Factors that could trigger an impairment assessment include, among others, a significant change in the extent ormanner in which an asset is used or the business climate that could affect the value of the asset. As restructuring activities continue, the Company mayidentify 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 and subsequently in 2016 the ComprehensiveBusiness Review, store assets have been reviewed periodically throughout the year for recoverability of their asset carrying amounts. The frequency of thistest may change in future periods if performance warrants. The analysis uses input from retail store operations and the Company’s accounting and financepersonnel that organizationally report to the chief financial officer. These projections are based on management’s estimates of store-level sales, gross margins,direct expenses, and resulting cash flows and, by their nature, include judgments about how current initiatives will impact future performance. If theanticipated cash flows of a store cannot support the carrying value of its assets, the assets are written down to estimated fair value. Store asset impairmentcharges of $8 million, $12 million and $26 million for 2016, 2015 and 2014, respectively, are included in Asset impairments in the Consolidated Statementsof Operations. Based on the fourth quarter 2016 analysis, a 100 basis point further decrease in next year sales, combined with a 50 basis point decrease ingross margin from the rates utilized in our analysis, would have increased the impairment charge by $2 million. Further, a 100 basis point decrease in sales forall periods would have increased the impairment charge by $5 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.Goodwill and other intangible assets — Indefinite-lived intangible assets, such as goodwill, are tested at least annually for impairment and definite-livedintangible assets are reviewed to ensure the remaining useful lives are appropriate. An impairment analysis may be conducted between annual tests if eventsor circumstances suggest an intangible asset may not be recoverable.The Company elected to perform its 2016 goodwill impairment test using a quantitative discounted cash flow analysis supplemented with marketcomparison data. Goodwill at one reporting unit included in discontinued operations was fully impaired based on this analysis. However, the estimated fairvalue of each reporting unit in continuing operations substantially exceeded its carrying value at the test date, which was the first day of the third quarter.Other intangible assets primarily include favorable lease assets and customer relationship values. The favorable lease assets were established in the Merger forindividual leases with rental rates below current market rates for comparable properties and assumed renewal of all available options. The favorable leaseassets are being 43Table of Contentsamortized over the same periods. Should the Company decide to close a facility prior to the full contemplated term, recovery of the intangible asset will besubject to then-current sublease prospects. During 2016, the Company recognized $7 million of impairment of favorable lease assets because of closureactivity.At December 31, 2016, the net carrying amount of customer relationships in the North America contract channel totaled $21 million, primarily related to theMerger. The original valuation assumed continuation of attrition rates previously experienced with the contract business and synergy benefits from theMerger. If the Company experiences an unanticipated decline in sales or profitability associated with these customers, the remaining useful life will bereassessed and either acceleration of amortization or impairment could result. Additionally, intangible assets associated with favorable lease agreements atthe Merger date totaled $12 million at December 31, 2016. To the extent the Company decides to close these locations prior to the end of the lease term andsuitable sublease arrangements are not secured, these assets may be impaired in future periods. The Company regularly reviews these assets for eitheracceleration of amortization or impairment.Closed store accruals — During 2014, the Company developed the Real Estate Strategy that included closing of at least 400 retail stores in the United Statesthrough 2016. During the third quarter of 2016, we announced the Comprehensive Business Strategy which includes closing an additional 300 retail storelocations through 2018. At the point of closure, we recognize a liability for the remaining costs related to the property, reduced by an estimate of anysublease 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 tothe Company are discounted at the credit-adjusted discount rate at the time of each location closure. With assistance from independent third parties to assessmarket conditions, we periodically review these judgments and estimates and adjust the liability accordingly. Future fluctuations in the economy and themarket demand for commercial properties could result in material changes in this liability.Costs associated with facility closures that are related to Merger and restructuring activities are presented in Merger, restructuring and other operatingactivities, net in our Consolidated Statements of Operations. Costs associated with facility closures that are deemed operational are included in Selling,general and administrative expenses.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. The Company has significant deferred tax assets in the U.S. against which valuation allowances have been established toreduce such deferred tax assets to the amount that is more likely than not to be realized. The establishment of valuation allowances requires significantjudgment and is impacted by various estimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, isconsidered in determining the appropriateness of recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses isconsidered strong negative evidence in that evaluation. As of the third quarter of 2016, the Company concluded that it was more likely than not that a benefitfrom a substantial portion of its U.S. federal and state deferred tax assets would be realized. This conclusion was based on a detailed evaluation of allavailable positive and negative evidence and the weight of such evidence, the current financial position and results of operations for the current andpreceding years, and the expectation of continued earnings. The Company determined that approximately $382 million of its U.S. federal and state valuationallowance should be reversed in 2016. The remaining change in valuation allowance was offset by changes in the uncertain tax positions.In addition to judgments associated with valuation allowances, our current tax provision can be affected by our mix of income and identification orresolution of uncertain tax positions. Because income from domestic and 44Table of Contentsinternational sources may be taxed at different rates, the shift in mix during a year or over years can cause the effective tax rate to change. We base our rateduring 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 anticipatedannual rate reflected in the tax provision of that period. Such changes can result in significant interim reporting volatility. This volatility can result fromchanges in our projected earnings levels, the mix of income, the impact of valuation allowances in certain jurisdictions and the interim accounting rulesapplied to entities expected to pay taxes on a full year basis, but recognizing losses in an interim period.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 home office merchandise, attractingadditional back-to-school customers and year-round casual shoppers. Warehouse clubs have expanded beyond their in-store assortment by adding catalogsand websites from which a much broader assortment of products may be ordered. We also face competition from other office supply stores that competedirectly with us in numerous markets. This competition is likely to result in increased competitive pressures on pricing, product selection and servicesprovided. Many of these retail competitors, including discounters, warehouse clubs, and drug stores and grocery chains, carry basic office supply products.Some of them also feature technology products. Many of them may price certain of these offerings lower than we do, but they have not shown an indicationof greatly expanding their somewhat limited product offerings at this time. This trend towards a proliferation of retailers offering a limited assortment ofoffice products is a potentially serious trend in our industry that could shift purchasing away from office supply specialty retailers and adversely impact ourresults.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 and Walmart that offer a full assortment of office products throughdirect sales and, in the case of Amazon, acting as a “storefront” for other specialty office product providers. Another trend in our industry has beenconsolidation, as competitors in office supply stores and the copy/print channel have been acquired and consolidated into larger, well-capitalizedcorporations. This trend towards consolidation, coupled with acquisitions by financially strong organizations, is potentially a significant trend in ourindustry that could impact our results.Additionally, consumers are utilizing more technology and purchasing less paper, ink and toner, physical file storage and general office supplies.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 and certain of our customers in the North American Business Solutions Divisionare predominantly small and home office businesses. Accordingly, spending by these customers is affected by macroeconomic conditions, such as changes inthe housing market and commodity costs, credit availability and other factors. The downturn in the global economy experienced in recent years negativelyimpacted our sales and profits.Liquidity Factors — Our cash flow from operating activities, available cash and cash equivalents, and access to broad financial markets provides 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 $1.2 billionasset based credit facility to provide liquidity, subject to availability as specified in the agreement. 45Table of ContentsMARKET 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, debt obligations, and defined benefit pension and other postretirement plans.The impact on cash and cash equivalents held at December 31, 2016 from a hypothetical 10% decrease in interest rates would be a decrease in interestincome of less than $1 million. 46Table of ContentsThe following table provides information about our debt portfolio outstanding as of December 31, 2016, 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.defined benefit pension plans covering certain terminated employees, vested employees, retirees, and some active employees. These plans were acquired inthe Merger transaction and had been frozen since 2004. Our active employees and all inactive participants who are covered by these plans are no longeraccruing additional benefits. However, the pension plans obligations are still subject to change due to fluctuations in long-term interest rates as well asfactors impacting actuarial valuations, such as retirement rates and pension plan participants’ increased life expectancies. In addition to changes in pensionplan obligations, the amount of plan assets available to pay benefits, contribution levels and expense are also impacted by the return on the pension planassets. The pension plan assets include U.S. equities, international equities, global equities and fixed-income securities, the cash flows of which change asequity prices and interest rates vary. The risk is that market movements in equity prices and interest rates could result in assets that are insufficient over timeto cover the level of projected obligations. This in turn could result in significant changes in pension expense and funded status, further impacting futurerequired contributions. Management, together with the trustees who act on behalf of the pension plan beneficiaries, assess the level of this risk using reportsprepared by independent external actuaries and investment advisors and take action, where appropriate, in terms of setting investment strategy and agreedcontribution levels. In addition, as part of the disposition of the OD European Business, we retained the frozen defined pension covering a limited number ofemployees in Europe. This plan is in a net funded position at December 31, 2016 but is subject to risks similar to those discussed above with regard to theU.S. defined benefit plan. 2016 2015 (In millions) CarryingValue FairValue RiskSensitivity CarryingValue FairValue RiskSensitivity Financial assets: Timber notes receivable $885 $ 884 $13 $905 $909 $17 Financial liabilities: Recourse debt: Senior Secured Notes, due 2019 $— $— $— $250 $265 $4 7.35% debentures, due 2016 $— $— $— $18 $18 $— Revenue bonds, due in varying amounts periodically through 2029 $186 $181 $6 $186 $186 $6 American & Foreign Power Company, Inc. 5% debentures, due 2030 $14 $12 $1 $14 $13 $1 Non-recourse debt $798 $800 $11 $819 $825 $15 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 Canada where their functional currency is the Canadian dollar. We continue to assess our exposure to foreigncurrency fluctuations against the U.S. dollar. As of December 31, 2016, a 10% change in the applicable foreign exchange rates would have resulted in anincrease or decrease in our pretax earnings of $1 million. 47Table of ContentsCommodities RiskWe operate a large network of stores and delivery centers. As such, we purchase fuel needed to transport products to our stores and customers as well as payshipping costs to import products from overseas. We are exposed to potential changes in the underlying commodity costs associated with this transportactivity.We enter into economic hedge transactions for a portion of our anticipated fuel consumption. These arrangements are marked to market at each reportingperiod. Some of these arrangements may not be designated as hedges for accounting purposes and changes in value are recognized in current earningsthrough the Cost of goods sold and occupancy costs line on the Consolidated Statements of Operations. Those that are designated as hedges for accountingpurposes are also marked to market at each reporting period, with the change in value deferred in accumulated other comprehensive income until the relatedfuel is consumed. At December 31, 2016, we had entered into contracts for approximately 2 million gallons of fuel that will be settled in January 2017.Currently, these economic hedging transactions are not considered material. As of December 31, 2016, excluding the impact of any hedge transaction, a 10%change in domestic commodity costs would have resulted in an increase or decrease in our operating profit of less than $1 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 fourthquarter. Certain working capital components may build and recede during the year reflecting established selling cycles. Business cycles can and haveimpacted our operations and financial position when compared to other periods.NEW ACCOUNTING STANDARDSIn May 2014, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update that supersedes most current revenuerecognition guidance and modifies the accounting for certain costs associated with revenue generation. The core principle of this guidance is that an entityshould recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entityexpects to be entitled in exchange for those goods or services. The guidance provides a number of steps to apply to achieve that principle and requiresadditional disclosures. The standard was originally to be effective for the Company’s first quarter of 2017. In July 2015, the FASB approved a one yearextension to the required implementation date but also permitted companies to adopt the standard at the original effective date of 2017. Adoption before theoriginal effective date of 2017 is not permitted. The new standard may be applied retrospectively to each prior period presented or retrospectively with acumulative effect recognized as of the date of adoption.The Company continues to assess the impact this new standard will have on its Consolidated Financial Statements and has not yet decided on whichadoption alternative to apply upon adoption in the first quarter of 2018. Based on its ongoing assessment, the Company expects that the new standard will atleast impact the following areas: • the loyalty programs will be presented as a reduction of revenue, rather than as cost accruals as is permitted under existing accounting rules; • costs associated with product catalogs will be expensed as incurred, rather than capitalized and amortized over the anticipated benefit period; 48Table of Contents • the timing of revenue recognition will be accelerated for items where the Company’s performance obligation is complete, such as certain commissionarrangements, and delayed where performance obligations remain, such as certain coupons and incentives offered from time-to-time.The Company has not yet quantified these expected impacts; however, the loyalty program charged to cost of goods sold in 2016 were approximately$60 million and would lower sales under the new standard by approximately $75 million, with approximately 75% related to retail sales and the remainderdirect channel sales. The potential timing impacts of the change in expense recognition for catalog costs would impact the North America Business SolutionsDivision.In February 2016, the FASB issued an accounting standards update which will require lessees to recognize most leases on their balance sheets related to therights and obligations created by those leases. The accounting treatment for lessors will remain relatively unchanged. The accounting standards update alsorequires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance iseffective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Lessees and lessors arerequired to use a modified retrospective transition method for existing leases and accordingly, apply the new accounting model for the earliest year presentedin the financial statements. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated FinancialStatements but anticipates it will result in significant right of use assets and related liabilities associated with our operating leases. Substantially all of theCompany’s retail store locations and supply chain facilities are subject to operating lease arrangements. The Company has not yet decided on the period ofadoption. Refer to Note 7, “Debt,” and Note 9, “Leases,” of the Consolidated Financial Statements for additional information.In March 2016, the FASB issued an accounting standards update as part of its simplification initiative. The new standard will modify several aspects of theaccounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operationsand cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period.The new standard is effective for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. The Company anticipates thenew standard will result in volatility to income tax expense upon the prospective recognition of excess tax benefit and tax deficiency related to share-basedpayments. Prior period amounts associated with these components have not been significant; however, similar future period impacts cannot be assured.Item 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 31, 2016, the Company’s CEO and CFO 49Table of Contentsconcluded 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 information required to be disclosed by the Company in reports that theCompany files or submits under the Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and thatsuch information is accumulated and communicated to the Company’s management, including the CEO and CFO, to allow timely decisions regardingrequired 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 31, 2016.Our internal control over financial reporting as of December 31, 2016, has been audited by Deloitte & Touche LLP, an independent registered publicaccounting firm, as stated in their report provided below. 50Table 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 31, 2016, 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 31, 2016, 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 as of and for the fiscal year ended December 31, 2016 of the Company and our report dated March 1, 2017 expressed an unqualified opinion onthose financial statements./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaMarch 1, 2017 51Table 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 2017 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 securities authorized for issuance under the Company’s equity compensation plans is contained in the ProxyStatement under the heading “Equity Compensation Plan Information” and is incorporated herein by reference in this Annual Report.Information required by this item with respect to security ownership of certain beneficial owners and management will be contained in the Proxy Statementunder the heading “Stock Ownership Information” and is incorporated by reference in this Annual Report. 52Table 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. 53Table 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.All other financial statements are omitted because the required information is not applicable, or because the information is included inthe “Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.” 3.The exhibits listed in “Index to Exhibits.”Item 16. Form 10-K Summary.None. 54Table 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 1st day of March 2017. OFFICE DEPOT, INC.By: /s/ GERRY P. SMITH Gerry P. 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 March 1, 2017. Signature Capacity/s/ GERRY P. SMITHGerry P. Smith Chief Executive Officer (Principal Executive Officer)/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/ JOSEPH S. VASSALLUZZOJoseph S. Vassalluzzo Chairman, Board of Directors/s/ WARREN BRYANTWarren Bryant Director/s/ KRISTIN A. CAMPBELLKristin A. Campbell 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 55Table of ContentsINDEX TO FINANCIAL STATEMENTS PageReport of Independent Registered Public Accounting Firm 57Consolidated Statements of Operations 58Consolidated Statements of Comprehensive Income (Loss) 59Consolidated Balance Sheets 60Consolidated Statements of Cash Flows 61Consolidated Statements of Stockholders’ Equity 62Notes to Consolidated Financial Statements 63 56Table 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 31, 2016 andDecember 26, 2015, 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 31, 2016. 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 31, 2016 and December 26, 2015, and the results of their operations and their cash flows for each of the three fiscal years in the period endedDecember 31, 2016, 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 31, 2016, 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 March 1, 2017 expressed an unqualified opinion on theCompany’s internal control over financial reporting./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaMarch 1, 2017 57Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In millions, except per share amounts) 2016 2015 2014 Sales $11,021 $11,727 $12,710 Cost of goods sold and occupancy costs 8,313 8,864 9,734 Gross profit 2,708 2,863 2,976 Selling, general and administrative expenses 2,242 2,425 2,733 Asset impairments 15 13 56 Merger, restructuring, and other operating (income) expenses, net (80) 242 334 Legal accrual — — 81 Operating income (loss) 531 183 (228) Other income (expense): Interest income 22 22 22 Interest expense (80) (91) (87) Loss on extinguishment of debt (15) — — Other income, net 1 1 2 Income (loss) from continuing operations before income taxes 459 115 (291) Income tax expense (benefit) (220) 23 2 Net income (loss) from continuing operations 679 92 (293) Discontinued operations, net of tax (150) (84) (59) Net income (loss) 529 8 (352) Less: Results attributable to the noncontrolling interests — — 2 Net income (loss) attributable to Office Depot, Inc. $529 $8 $(354) Basic earnings(loss) per common share Continuing operations $1.26 $0.17 $(0.55) Discontinued operations (0.28) (0.15) (0.11) Net basic earnings (loss) per common share $0.98 $0.01 $(0.66) Diluted earnings (loss) per common share Continuing operations $1.24 $0.16 $(0.55) Discontinued operations (0.27) (0.15) (0.11) Net diluted earnings (loss) per common share $0.96 $0.01 $(0.66) Dividends per common share $0.05 $— $— The accompanying notes to consolidated financial statements are an integral part of these statements 58Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)(In millions) 2016 2015 2014 Net income (loss) $529 $8 $(352) Other comprehensive income (loss), net of tax, where applicable: Foreign currency translation adjustments (11) (78) (78) Reclassification of foreign currency translation adjustments realized upon disposal of business (164) — — Change in deferred pension, net of $14 million, $1 million and $1 million of deferred income taxes in 2016, 2015 and 2014,respectively 16 1 (87) Total other comprehensive (loss), net of tax, where applicable (159) (77) (165) Comprehensive income (loss) 370 (69) (517) Comprehensive income attributable to the noncontrolling interest — — 2 Comprehensive income (loss) attributable to Office Depot, Inc. $370 $(69) $(519) The accompanying notes to consolidated financial statements are an integral part of these statements. 59Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED BALANCE SHEETS(In millions, except shares and par value) December 31,2016 December 26,2015 ASSETS Current assets: Cash and cash equivalents $763 $860 Receivables, net 687 746 Inventories 1,279 1,406 Prepaid expenses and other current assets 102 92 Current assets of discontinued operations 142 956 Total current assets 2,973 4,060 Property and equipment, net 601 665 Goodwill 363 363 Other intangible assets, net 33 53 Timber notes receivable 885 905 Deferred income taxes 466 11 Other assets 219 203 Non-current assets of discontinued operations — 182 Total assets $5,540 $6,442 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Trade accounts payable $893 $987 Accrued expenses and other current liabilities 1,002 1,074 Income taxes payable 3 9 Short-term borrowings and current maturities of long-term debt 29 51 Current liabilities of discontinued operations 104 622 Total current liabilities 2,031 2,743 Deferred income taxes and other long-term liabilities 361 421 Pension and postretirement obligations, net 140 182 Long-term debt, net of current maturities 358 628 Non-recourse debt 798 819 Non-current liabilities of discontinued operations — 46 Total liabilities 3,688 4,839 Commitments and contingencies Stockholders’ equity: Common stock — authorized 800,000,000 shares of $.01 par value; issued shares — 557,892,568 atDecember 31, 2016 and 554,835,306 at December 26, 2015 6 6 Additional paid-in capital 2,618 2,607 Accumulated other comprehensive income (loss) (129) 30 Accumulated deficit (453) (982) Treasury stock, at cost — 42,802,998 shares at December 31, 2016 and 5,915,268 shares at December 26, 2015 (190) (58) Total stockholders’ equity 1,852 1,603 Total liabilities and stockholders’ equity $5,540 $6,442 The accompanying notes to consolidated financial statements are an integral part of these statements. 60Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In millions) 2016 2015 2014 Cash flows from operating activities of continuing operations: Net income (loss) $529 $8 $(352) Loss from discontinued operations, net of tax (150) (84) (59) Net income from continuing operations 679 92 (293) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 181 253 277 Charges for losses on inventories and receivables 78 53 52 Asset impairments 15 13 56 Compensation expense for share-based payments 40 41 35 Loss on extinguishment of debt 15 — — Deferred income taxes and deferred tax asset valuation allowances (231) 1 (1) Loss (gain) on disposition of assets (9) (36) 7 Other 3 24 (2) Changes in assets and liabilities: Decrease (increase) in receivables 55 55 (20) Decrease (increase) in inventories 56 (99) (8) Net decrease (increase) in prepaid expenses and other assets (51) 20 23 Net decrease in trade accounts payable, accrued expenses and other current and other long-term liabilities (339) (279) (33) Total adjustments (187) 46 386 Net cash provided by operating activities of continuing operations 492 138 93 Cash flows from investing activities of continuing operations: Capital expenditures (111) (144) (96) Proceeds from sale of joint ventures, net — — 43 Proceeds from sale of available for sale securities — — 43 Acquisition, net of cash acquired — (9) — Proceeds from disposition of assets and other 27 95 5 Net cash used in investing activities of continuing operations (84) (58) (5) Cash flows from financing activities of continuing operations: Net proceeds from employee share-based transactions — 7 39 Debt retirement (250) — — Debt related fees (6) (1) — Cash used in extinguishment of debt (12) — — Cash dividends on common stock (26) — — Proceeds from issuance of borrowings — — 4 Net payments on long and short-term borrowings (49) (32) (26) Repurchase of common stock for treasury (132) — — Net cash (used in) provided by financing activities of continuing operations (475) (26) 17 Cash flows from discontinued operations: Operating activities of discontinued operations (122) (12) 62 Investing activities of discontinued operations (70) (16) (22) Financing activities of discontinued operations 5 1 (2) Net cash used in discontinued operations (187) (27) 38 Effect of exchange rate changes on cash and cash equivalents (8) (29) (27) Net increase (decrease) in cash and cash equivalents (262) (2) 116 Cash and cash equivalents at beginning of period 1,069 1,071 955 Cash and cash equivalents at end of period 807 1,069 1,071 Cash and cash equivalents of discontinued operations (44) (209) (247) Cash and cash equivalents at the end of period — continued operations $763 $860 $824 Supplemental information on operating, investing, and financing activities Cash interest paid, net of amounts capitalized and Timber notes/Non-recourse debt $63 $67 $68 Cash taxes paid (refunded) $48 $— $(20) Non-cash asset additions under capital leases $9 $25 $19 The accompanying notes to consolidated financial statements are an integral part of these statements. 61Table of ContentsOFFICE DEPOT, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In millions, except share amounts) CommonStockShares CommonStockAmount AdditionalPaid-in Capital AccumulatedOtherComprehensiveIncome AccumulatedDeficit TreasuryStock NoncontrollingInterest TotalEquity Balance at December 28, 2013 536,629,760 $5 $2,480 $272 $(636) $(58) $1 $2,064 Decrease in subsidiary shares from noncontrollinginterests — — — — — — (1) (1) Net loss — — — — (354) — — (354) Other comprehensive loss — — — (165) — — — (165) Forfeiture of restricted stock (742,823) — — — — — — — Exercise and release of incentive stock (includingincome tax benefits and withholding) 15,210,600 1 38 — — — — 39 Amortization of long-term incentive stock grants — — 38 — — — — 38 Balance at December 27, 2014 551,097,537 $6 $2,556 $107 $(990) $(58) $— $1,621 Net income — — — — 8 — — 8 Other comprehensive loss — — — (77) — — — (77) Forfeiture of restricted stock (80,170) — — — — — — — Exercise and release of incentive stock (includingincome tax benefits and withholding) 3,817,939 — 7 — — — — 7 Amortization of long-term incentive stock grants — — 44 — — — — 44 Balance at December 26, 2015 554,835,306 $6 $2,607 $30 $(982) $(58) $— $1,603 Net income — — — — 529 — — 529 Other comprehensive loss — — — (159) — — — (159) Forfeiture of restricted stock (6,945) — — — — — — — Exercise and release of incentive stock (includingincome tax benefits and withholding) 3,064,207 — (2) — — — — (2) Amortization of long-term incentive stock grants — — 39 — — — — 39 Dividends paid on common stock — — (26) — — — — (26) Repurchase of common stock — — — — — (132) — (132) Balance at December 31, 2016 557,892,568 $6 $2,618 $(129) $(453) $(190) $— $1,852 The accompanying notes to consolidated financial statements are an integral part of these statements. 62Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESNature of Business: Office Depot, Inc. including consolidated subsidiaries (“Office Depot” or the “Company”) is a global supplier of office products andservices. The Company currently operates under several banners, including Office Depot and OfficeMax and utilizes several proprietary company andproduct brand names. The Company’s common stock is traded on the NASDAQ Global Select Market under the ticker symbol ODP. Office Depot currentlyoperates through wholly-owned entities and participates in other ventures and alliances. The Company’s corporate headquarters is located in Boca Raton, FL,and the Company’s primary website is www.officedepot.com.At December 31, 2016, the Company sold to customers through two reportable segments (or “Divisions”): North American Retail Division and NorthAmerican Business Solutions Division. In September 2016, the Company’s Board of Directors committed to a plan to sell substantially all of the operationsformerly presented as the International Division. Accordingly, that business is presented herein as discontinued operations. Refer to Note 3 for DiscontinuedOperations information and Note 16 for Segment information.On February 4, 2015, Staples, Inc. (“Staples”) and the Company announced that the companies entered into a definitive merger agreement (the “StaplesMerger Agreement”), under which Staples would acquire all of the outstanding shares of Office Depot and the Company would become a wholly ownedsubsidiary of Staples (the “Staples Acquisition”). On December 7, 2015, the United States Federal Trade Commission (the “FTC”) informed Office Depot andStaples that it intended to block the Staples Acquisition. On the same date, Office Depot and Staples announced their intent to contest the FTC’s decision tochallenge the transaction. On May 10, 2016, the U.S. District Court for the District of Columbia granted the FTC’s request for a preliminary injunctionagainst the proposed acquisition, and as a result, the companies terminated the Staples Merger Agreement on May 16, 2016.On November 5, 2013, the Company merged with OfficeMax Incorporated (“OfficeMax”); refer to Note 2 for additional discussion of this merger (the“Merger”).Basis of Presentation: The consolidated financial statements of Office Depot include the accounts of all wholly owned and financially controlledsubsidiaries prior to disposition. Also, the 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 6 for additional information. The Company owns 88% of a subsidiarythat formerly owned assets in Cuba, which were confiscated by the Cuban government in the 1960’s. Due to various asset restrictions, the fair value of thisinvestment is not determinable and no amounts are included in the consolidated financial statements. Intercompany transactions have been eliminated inconsolidation.Fiscal Year: Fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. Fiscal year 2016 includes 53 weeks and fiscal years2015 and 2014 include 52 weeks. Certain international locations operate on a calendar year basis; however, the reporting difference had no impact in 2016and is not considered significant in other periods.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. 63 ®®Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Discontinued Operations: In September 2016, the Company’s Board of Directors committed to a plan to sell substantially all of the international operationsformerly reported as the International Division. The planned dispositions represented a strategic shift that would have a major impact on the Company’soperations and financial results and accordingly, the Company presented these operations as discontinued operations beginning in the third quarter of 2016.The Company applied held for sale accounting criteria and measured the four individual disposal groups at the lower of carrying value of fair value less coststo sell. The OD European Business was sold on December 31, 2016. Refer to Note 3 for additional disclosures about the discontinued operations.In December 2016, while preparing for and performing the controls associated the disposition of the Company’s business in Europe, we identified an error,which was not material to the overall presentation, in the loss on classification of certain foreign businesses as discontinued operations in the Company’sthird quarter 2016 interim condensed consolidated financial statements. The unaudited Quarterly Financial Data included in Note 17 have been revised toreflect correction of the error described above. Refer to Note 17 for additional information.Foreign Currency: International operations use local currencies as their functional currency. Assets and liabilities are translated into U.S. dollars using theexchange rate at the balance sheet date. Revenues, expenses and cash flows are translated at average monthly exchange rates, or rates on the date of thetransaction for certain significant items. Translation adjustments resulting from this process are recorded in Stockholders’ equity as a component ofAccumulated other comprehensive income (loss).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. Foreign currency transaction gains or losses related to discontinued operations in Note 3 arepresented in the loss on sale or held for sale classifications.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 $58 million and $32 million at December 31, 2016 and December 26, 2015,respectively, are presented in Trade accounts payable and Accrued expenses and other current liabilities.At December 31, 2016, cash and cash equivalents from continuing operations but held outside the United States amounted to $84 million. Additionally,$44 million of cash held outside the United States was included in current assets of discontinued operations.Receivables: Trade receivables, net, totaled $415 million and $471 million at December 31, 2016 and December 26, 2015, respectively. An allowance fordoubtful accounts has been recorded to reduce receivables to an amount expected to be collectible from customers. The allowance at December 31, 2016 andDecember 26, 2015 was $12 million and $9 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 2016, 2015 or 2014. 64Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other receivables were $272 million and $275 million at December 31, 2016 and December 26, 2015, respectively, of which $223 million and $233 million,respectively, are amounts due from vendors under purchase rebate, cooperative advertising and various other marketing programs.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.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 8 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 to 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.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 annual review period for the goodwill is as of the first day of the third quarter. The Company elected to conduct a quantitative assessment ofpossible goodwill impairment in 2016. In periods that a quantitative test is used, the Company estimates the reporting unit’s fair value using discounted cashflow analysis and market-based evaluations, when available. If the reporting unit’s carrying value exceeds its fair value, an impairment charge is recognizedto the extent that the carrying amount of goodwill exceeds its implied fair value. This method of estimating fair value requires assumptions, judgments andestimates of future performance. The Company may assess goodwill for possible impairment in future periods by considering qualitative factors, rather thanthis quantitative test.Amortizable intangible assets are periodically reviewed to determine whether events and circumstances warrant a revision to the remaining period ofamortization or asset impairment. Certain locations identified for closure resulted in impairment of favorable lease assets.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. Because of recent operating results, implementation of the post-Merger real estate strategy (the “Real Estate Strategy”) and the Comprehensive Business Review initiated in the third quarter of fiscal 2016, 65Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) retail store long-lived assets have been regularly reviewed for impairment indicators. Impairment is assessed at the individual store level which is the lowestlevel of identifiable cash flows, and considers the estimated undiscounted cash flows over the asset’s remaining life. If estimated undiscounted cash flows areinsufficient to recover the investment, an impairment loss is recognized equal to the difference between the estimated fair value of the asset and its carryingvalue, net of salvage, and any 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. During 2014, the Company implemented the Real Estate Strategy which among other initiatives included closing 400 retail store locations; thestore closures were completed in 2016. During the third quarter of 2016, the Company initiated the Comprehensive Business Review and announced theclosure of approximately 300 retail stores locations to be completed by 2018. Refer to Note 2 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 in the Consolidated Statements of Operations in Selling, general andadministrative expenses if the related facility was closed as part of ongoing operations or in Merger, restructuring and other operating (income) expenses, net,if the related facility was closed as part of the Merger, Real Estate Strategy or Comprehensive Business Review. Refer to Note 2 for additional information onaccrued expenses relating to closed facilities. The short-term and long-term components of this liability are included in Accrued expenses and other currentliabilities 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, incremental one-time employee benefit costs are recognized when the key terms of the arrangements have beencommunicated to affected employees. Amounts are recognized when communicated or over the remaining service period, based on the terms of thearrangements.Accrued Expenses: Included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets are accrued payroll-related amounts of$176 million and $221 million at December 31, 2016 and December 26, 2015, 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. 66Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The fair values of cash and cash equivalents, receivables, trade accounts payable and accrued expenses and other current liabilities approximate theircarrying values because of their short-term nature. Refer to Note 14 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. The Company recognizes theestimated portion of the gift card program liability that will not be redeemed, or the breakage amount, in proportion to usage.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 (Income) Expenses, net: Merger, restructuring, and other operating (income) expenses, net in theConsolidated Statements of Operations includes amounts related to the Merger, the Staples Acquisition and the Comprehensive Business Review. The lineitems include charges and, 67Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) where applicable, credits for components such as: employee termination and retention, transaction and integration-related professional fees, facility closurecosts, gains and losses on asset dispositions, and other incremental costs directly related to these activities, which are offset by termination fees. Thispresentation is used to separate these significant and unusual impacts from captions that are more directly related to ongoing operations. Changes inestimates and accruals related to these activities are also reflected on this line.Merger, restructuring, and other operating (income) expenses, net are not included in the measure of Division operating income. Refer to Note 2 foradditional information.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 $272 million in 2016, $285 million in 2015 and $350 million in 2014. Prepaid advertising costs were $11 million as ofDecember 31, 2016 and December 26, 2015, and $16 million as of December 27, 2014.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.Share-based awards with market conditions, such as total shareholder return, are valued using a Monte Carlo simulation as measured on the grant date.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 primarily through accumulated other comprehensive income (loss), net of tax, in the year in which the changesoccur. Actuarially-determined liabilities related to pension and postretirement benefits are recorded based on estimates and assumptions. Factors used indeveloping estimates of these liabilities include assumptions related to discount 68Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) rates, rates of return on investments, healthcare cost trends, benefit payment patterns and other factors. The Company also updates periodically itsassumptions about employee retirement factors, mortality, and turnover. Refer to Note 12 for additional 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.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.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 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 extendsthrough the non-cancellable period and any option or renewal periods management believes are reasonably assured of being exercised. Rent abatements andescalations are considered in the calculation of minimum lease payments in the Company’s lease classification assessment and in determining straight-linerent expense for operating leases. Straight-line rent expense is also adjusted to reflect any allowances or reimbursements provided by the lessor. Whenrequired under lease agreements, estimated costs to return facilities to original condition are accrued over the lease period.Derivative Instruments and Hedging Activities: The Company records derivative instruments on the balance sheet at fair value. Changes in the fair value ofderivative 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. At December 31, 2016 andDecember 26, 2015, the fair value of derivative instruments were not considered material and the Company had no material hedge transactions in 2016, 2015or 2014.New Accounting Standards: In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that supersedes mostcurrent revenue recognition guidance and modifies the accounting for certain costs associated with revenue generation. The core principle of this guidance isthat an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to whichthe entity expects to be entitled in exchange for those goods or services. The guidance provides a number of steps to apply to achieve that principle andrequires additional disclosures. The standard was originally to be effective for the Company’s first quarter of 2017. In July 2015, the FASB approved a oneyear extension to the required implementation date but also permitted companies to adopt the standard at the original effective date of 2017. Adoption beforethe original effective date of 2017 is not permitted. The new revenue standard may be applied retrospectively to each prior period presented orretrospectively with the cumulative effect recognized as of the date of adoption. 69Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The Company continues to assess the impact this new standard will have on its Consolidated Financial Statements and has not yet decided on whichadoption alternative to apply upon adoption in the first quarter of 2018. However, based on this ongoing assessment, the Company expects that the newstandard will require the impacts of its loyalty programs to be presented as a reduction of revenue, rather than as cost accruals as is permitted under existingaccounting rules. Also, costs associated with catalogs will be expensed as incurred, rather than capitalized and amortized over the anticipated benefit period.Additionally, the timing of revenue recognition will be accelerated for items where the Company’s performance obligation is complete, such as certaincommission arrangements, and delayed where performance obligations remain, such as certain coupons and incentives offered from time-to-time.In February 2016, the FASB issued an accounting standards update which will require lessees to recognize most leases on their balance sheets related to therights and obligations created by those leases. The accounting treatment for lessors will remain relatively unchanged. The accounting standards update alsorequires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. The guidance iseffective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. Lessees and lessors arerequired to use a modified retrospective transition method for existing leases and accordingly, apply the new accounting model for the earliest year presentedin the financial statements. The Company is currently evaluating the impact the adoption of this new standard will have on its Consolidated FinancialStatements but anticipates it will result in significant right of use assets and related liabilities associated with our operating leases. Substantially all of theCompany’s retail store locations and supply chain facilities are subject to operating lease arrangements. Refer to Note 7 for existing capital lease balancesand Note 9 for the undiscounted amount of non-cancelable minimum lease payments of operating leases that will be subjected to this new accountingstandard. The Company currently anticipates adopting the standard in the first quarter of 2019.In March 2016, the FASB issued an accounting standards update as part of its simplification initiative. The new standard will modify several aspects of theaccounting and reporting for employee share-based payments and related tax accounting impacts, including the presentation in the statements of operationsand cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period.The new standard is effective for fiscal years beginning after December 15, 2016 and will be adopted by the Company in the first quarter of 2017. TheCompany anticipates the new standard will result in volatility to income tax expense upon the prospective recognition of excess tax benefit and taxdeficiency related to share-based payments. Prior period amounts associated with these components have not been significant; however, similar future periodimpacts cannot be assured.NOTE 2. MERGER, ACQUISITION TERMINATION, AND RESTRUCTURING ACTIVITYIn 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.MergerIn 2013, the OfficeMax merger was completed and integration activities similar to the actions described above began. The Company also assumed certainrestructuring liabilities previously recorded by OfficeMax. In mid-2014, the Company’s Real Estate Strategy identified 400 retail stores for closure andintegration of the supply chain. During the second quarter of 2016, the Company completed the retail store closures under this program. The changes to thesupply chain are anticipated to be complete in 2017. 70Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Staples Acquisition and Merger Agreement TerminationOn February 4, 2015, Staples and the Company announced that the companies had entered into the Staples Merger Agreement, under which Staples wouldacquire all of the outstanding shares of Office Depot and the Company would become a wholly owned subsidiary of Staples.On December 7, 2015, the FTC informed Office Depot and Staples that it intended to block the Staples Acquisition. On the same date, Office Depot andStaples announced their intent to contest the FTC’s decision to challenge the transaction. On May 10, 2016, the U.S. District Court for the District ofColumbia granted the FTC’s request for a preliminary injunction against the proposed acquisition, and as a result, the companies terminated the StaplesMerger Agreement on May 16, 2016. Per the terms of the termination agreement, Staples paid Office Depot a Termination Fee of $250 million in cash onMay 19, 2016, which is included in Merger, restructuring and other operating (income) expenses, net in the Consolidated Statements of Operations and inNet cash provided by operating activities of continuing operations in the Consolidated Statements of Cash Flows.Comprehensive Business ReviewDuring August 2016, the Company announced the results of a comprehensive business review and strategy (the “Comprehensive Business Review”), which,among other things, included an anticipation of closing approximately 300 additional retail stores in North America over the next three years, anticipatedrestructuring initiatives to lower operating and general and administrative expenses, and continued exploration of strategic alternatives regarding theEuropean business that had been initiated by Staples as part of their attempt to get European Union regulatory approval of the Staples Acquisition. 71Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Merger, Restructuring, and Other Operating (Income) Expenses, netThe Company presents Merger, restructuring and other operating (income) expenses, net on a separate line in the Consolidated Statements of Operations toidentify these 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 (income) expenses, net. (In millions) 2016 2015 2014 Merger expenses: Severance, retention, and relocation $— $15 $148 Transaction and integration 37 81 124 Facility closure, contract termination, and other expenses, net 27 44 62 Total Merger related expenses 64 140 334 Staples Acquisition (income) expenses: Retention 15 65 — Transaction 43 37 — Termination Fee (250) — — Total Staples Acquisition (income) expenses (192) 102 — Comprehensive Business Review expenses: Severance 22 — — Facility closure, contract termination, professional fees and other expenses, net 26 — — Total Comprehensive Business Review expenses 48 — — Total Merger, restructuring and other operating (income) expenses, net $(80) $242 $334 Merger related expensesSeverance, retention, and relocation expenses include amounts incurred for the integration of staff functions and include termination benefits for certain retailand supply chain closures. Such benefits are being accrued through the anticipated facility closure dates. Severance calculations consider factors such as theexpected timing of facility closures, terms of existing severance plans, expected employee turnover and attrition.Transaction and integration expenses include integration-related professional fees, incremental temporary contract labor, salary and benefits for employeesdedicated to the Merger activity, travel costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Such costs arebeing recognized as incurred.Facility closure, contract termination and other expenses, net primarily relate to facility closure accruals, contract termination costs, gains and losses on assetdispositions, and accelerated depreciation. Facility closure expenses include amounts incurred by the Company to close retail stores in the United States aspart of the Real Estate Strategy, as well as supply chain facilities. The Company closed 51, 181 and 168 retail stores in 2016, 2015 and 2014, respectively.During 2016 and 2015, the Company recognized gains of $1 million and $36 million, respectively, from the sale of warehouse facilities that had beenclassified as assets held for sale. The gains are included in Merger, restructuring and other operating (income) expenses, net, as the dispositions were part ofthe supply chain integration associated with the Merger. 72Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Staples Acquisition (income) expenseExpenses include retention accruals, transaction costs, including costs associated with regulatory filings and professional fees and are offset by theTermination Fee income.Comprehensive Business Review expensesExpenses associated with implementing the Comprehensive Business Review include severance, facility closure costs, contract termination, accelerateddepreciation, professional fees, relocation and disposal gains and losses, as well as other costs associated with the store closures. The Company has closed 72stores since announcing this initiative. Restructuring expenses also include severance and reorganization costs associated with reductions in staff functionsthat continued into the first quarter of 2017. Severance costs are being accrued through the anticipated facility closure or termination date and considertiming, terms of existing severance plans, expected employee turnover and attrition.Asset impairments related to the restructuring initiatives are not included in the table above. Refer to Note 14 for further information. 73Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Merger and Restructuring AccrualsActivity in the merger and restructuring accruals in 2016 and 2015 is presented in the table below. The total of $(80) million in income presented in Merger,restructuring and other operating (income) expenses, net in the 2016 Consolidated Statements of Operation, includes the $250 million Termination Feeincome. There were $170 million of expense incurred in 2016 of which $70 million relate to Merger and restructuring liabilities and are included as Chargesincurred in the table below. The remaining $100 million expense is comprised of $43 million for Staples Acquisition transactions expenses, $37 million ofMerger transaction and integration expenses and $20 million in property expenses, professional fees, non-cash items and other expenses. For 2015, of thetotal $242 million Merger, restructuring and other expenses incurred, $158 million is related to merger or restructuring liabilities and are included as Chargesincurred in the table below. The remaining $84 million incurred in 2015 is comprised of $81 million Merger transaction and integration expenses,$37 million Staples Acquisition transaction expenses, and $2 million associated primarily with fixed assets and rent related expenses, partially offset by the$36 million gain on the disposition of the warehouse facilities which resulted from the supply chain integration. These charges are excluded from the tablebelow because they are expensed as incurred, non-cash, or otherwise not associated with the merger and restructuring balance sheet accounts. (In millions) BeginningBalance ChargesIncurred CashPayments LeaseAccretionand OtherAdjustments EndingBalance 2016 Termination benefits: Merger-related accruals $16 $— $(9) $(2) $5 Comprehensive Business Review — 19 (11) — 8 Lease and contract obligations, accruals for facilities closures and other costs: Merger-related accruals 77 22 (62) 3 40 Comprehensive Business Review — 19 (6) — 13 Other restructuring accruals 14 (2) (8) 1 5 Acquired entity accruals 25 (3) (7) 3 18 Staples acquisition related accruals 64 15 (79) — — Total $196 $70 $(182) $5 $89 2015 Termination benefits: Merger-related accruals $31 $16 $(31) $— $16 Lease and contract obligations, accruals for facilities closures and other costs: Merger-related accruals 71 76 (70) — 77 Other restructuring accruals 23 (1) (10) 2 14 Acquired entity accruals 36 3 (15) 1 25 Staples acquisition related accruals — 64 — — 64 Total merger and restructuring accruals $161 $158 $(126) $3 $196 The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilities and Deferred income taxes andother long-term liabilities, respectively, on the Consolidated Balance Sheets. 74Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3. DISCONTINUED OPERATIONSIn the second quarter of 2016, following termination of the Staples Agreement, the Company disclosed its intention to explore strategic alternativesregarding its European business of the International Division.On September 23, 2016, the Company announced that it had received an irrevocable offer from Aurelius Rho Invest DS GmbH, a subsidiary of TheAURELIUS Group (the “Purchaser”) to acquire the Company’s European business operations (the “OD European Business”). The transaction was structuredas an equity sale with the Purchaser acquiring the OD European Business with its operating assets and liabilities.In addition to approving the sale of the OD European Business in the third quarter of 2016, the Company’s Board of Directors approved a plan to sellsubstantially all of the remaining operations of the International Division. On December 31, 2016, the Company closed the sale of the OD European Businesscontemplated by the Sale and Purchase Agreement dated November 22, 2016 as amended to complete the sale (the “SPA”). Approximately $70 million hasbeen accrued at December 31, 2016 under a working capital adjustment provision. The draft working capital adjustment submitted by the Company to thePurchaser is subject to a dispute resolution provision as provided for in the SPA. The Company is actively marketing for sale the businesses in South Korea,mainland China, Australia and New Zealand and expects to complete the dispositions within the one year period associated with held for sale assets.Collectively, the OD European Business sale and other planned dispositions represent a strategic shift that has a major impact on the Company’s operationsand financial results and has been accounted for as discontinued operations. The retained sourcing and trading operations of the former InternationalDivision are presented as Other in Note 16, Segment Information.The Company has presented the operating results of the OD European Business as well as the entities to be sold within discontinued operations, net of tax inthe Consolidated Statements of Operations for all periods presented. The related assets and liabilities of the disposal groups are presented as current andnon-current assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of December 31, 2016 and December 26, 2015. Cash flowsfrom the Company’s discontinued operations are presented in the Consolidated Statements of Cash Flows for all periods. Certain portions of the formerInternational Division assets and operations are being retained or did not meet the held for sale criteria at December 31, 2016 and, therefore, remain incontinuing operations.The loss on classification as discontinued operations relating to the remaining entities was measured at the lower of carrying value or estimated fair value lesscosts to sell and is included in the valuation allowance in the balance sheet as shown below. Completion of the sale of the remaining international operationsmay be for amounts different from the current estimates and will be evaluated each reporting period until the dispositions are complete.In accordance with the Company’s annual goodwill impairment test $15 million of goodwill in the Australia/New Zealand reporting unit was consideredimpaired in the third quarter of 2016 based on a decrease in the long-term projected cash flows and related estimated terminal value of that business.Restructuring charges incurred by the International Division that previously had been presented as part of Corporate costs have been included in themeasurement and presentation of discontinued operations in all periods presented.The SPA contains customary warranties of the Company and the Purchaser, with the Company’s warranties limited to an aggregate of EUR 10 million. TheCompany will provide various transition and product sourcing services to the Purchaser for a period of six to 24 months under a separate agreement after theclosing. Also, as part of the disposition, the Company retained responsibility for the frozen defined benefits pension plan in the United Kingdom. 75Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) As part of the OD European Business sale transaction, the Purchaser shall indemnify and hold the Company harmless in connection with any guarantees inplace as of September 23, 2016 and given by Company in respect of the liabilities or obligations of the OD European Business. Further, if the Purchaserwishes to terminate any such guarantee or cease to comply with any underlying obligation which is subject to such a guarantee, the Purchaser shall obtain anunconditional and irrevocable release of the guarantee. However, the Company is contingently liable in the event of a breach by the Purchaser of any suchobligation. The Company does not believe it is probable it would be required to perform under any of these guarantees or such underlying obligations.The major components of Discontinued operations, net of tax presented in the Consolidated Statements of Operations for the years ended December 31, 2016,December 26, 2015 and December 27, 2014 include the following. (In millions) 2016 2015 2014 Sales $2,564 $2,758 $3,386 Cost of goods sold and occupancy costs 2,019 2,119 2,586 Operating expenses 573 617 746 Asset impairments 90 — 32 Restructuring charges 11 90 69 Interest income 1 2 2 Interest expense (5) (2) (2) Other income (expense), net (2) — (2) Loss on sale or held for sale classification (223) — — Income tax expense (benefit) (208) 16 10 Discontinued operations, net of tax $(150) $(84) $(59) Disposition of the OD European Business on December 31, 2016 resulted in a pre-tax loss on sale of $108 million and is included in the table above. The taxbenefit associated with discontinued operations differs from the statutory rate due to the mix of earnings and loss in the various jurisdictions, the impact ofvarious permanent items and other factors. 76Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Assets and liabilities of discontinued operations presented in the Consolidated Balance Sheets at December 31, 2016, and December 26, 2015 are included inthe following table. As the sale of the OD European Business was completed before year end 2016, accordingly, the assets and liabilities of that business arenot included as of December 31, 2016. (In millions) 2016 2015 Assets Cash and cash equivalents $44 $209 Receivables, net 88 420 Inventories 82 292 Prepaid expenses and other current assets 4 35 Property and equipment, net 31 — Other assets 6 — Valuation allowance (113) — Current assets of discontinued operations $142 $956 Property and equipment, net $— $119 Goodwill — 15 Other assets — 48 Non-current assets of discontinued operations $— $182 Liabilities Trade accounts payable $60 $331 Accrued expenses and other current liabilities 27 282 Income taxes payable 2 4 Short-term borrowings and current maturities of long-term debt 9 5 Deferred income taxes and other long-term liabilities 6 — Current liabilities of discontinued operations $104 $622 Deferred income taxes and other long-term liabilities $— $40 Long-term debt, net of current maturities — 6 Non-current liabilities of discontinued operations $— $46 Cash flows from discontinued operations included depreciation and amortization of $19 million, $30 million, and $36 million for the years endedDecember 31, 2016, December 26, 2015 and December 27, 2014 respectively, as well as capital expenditures of $9 million, $19 million, and $27 million forthe years ended December 31, 2016, December 26, 2015 and December 27, 2014, respectively.NOTE 4. PROPERTY AND EQUIPMENTProperty and equipment consists of: (In millions) December 31,2016 December 26,2015 Land $46 $50 Buildings 279 284 Leasehold improvements 685 695 Furniture, fixtures and equipment 1,155 1,099 2,165 2,128 Less accumulated depreciation (1,564) (1,463) Total $601 $665 77Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The above table of property and equipment includes assets held under capital leases as follows: (In millions) December 31,2016 December 26,2015 Buildings $191 $192 Furniture, fixtures and equipment 85 80 276 272 Less accumulated depreciation (165) (141) Total $111 $131 Depreciation expense was $124 million in 2016, $172 million in 2015, $183 million in 2014.Included in furniture, fixtures and equipment above are capitalized software costs of $476 million and $443 million at December 31, 2016 and December 26,2015, respectively. The unamortized amounts of the capitalized software costs are $89 million and $96 million at December 31, 2016 and December 26,2015, respectively. Amortization of capitalized software costs totaled $47 million, $67 million and $76 million in 2016, 2015 and 2014, respectively.Software development costs that do not meet the criteria for capitalization are expensed as incurred.Estimated future amortization expense related to capitalized software at December 31, 2016 is as follows: (In millions) 2017 $35 2018 25 2019 15 2020 9 2021 5 The weighted average remaining amortization period for capitalized software is 2.8 years.Other assets held for saleCertain facilities that are part of continuing operations, but have been identified for closure through integration and other activities, have been accounted foras assets held for sale. Assets held for sale primarily consist of supply chain facilities and are presented in Prepaid expenses and other current assets in theConsolidated Balance Sheets. The assets held for sale activity in 2016 is presented in the table below. (In millions) Balance as of December 26, 2015 $30 Additions 6 Dispositions (13) Balance as of December 31, 2016 $23 Gain on dispositions associated with the Merger or restructuring activities will be recognized at the Corporate level and included when realized in Merger,restructuring and other operating (income) expenses, net in the Consolidated Statements of Operations. Losses, if any, are recognized when classified as heldfor sale. Gains or losses associated with dispositions of properties not associated with Merger or restructuring activities will be presented as a component ofoperations when the related accounting criteria are met. Refer to Note 2 for further information on Merger, restructuring and other operating (income)expenses, net, including gains realized related to disposition of held for sale assets. 78Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETSGoodwillThe components of goodwill by segment are provided in the following table: (In millions) NorthAmericanRetailDivision NorthAmericanBusinessSolutionsDivision Corporate Total Balance as of December 26, 2015 $78 $285 $— $363 Balance as of December 31, 2016 $78 $285 $— $363 Goodwill in the North American Business Solutions Division in the table above is net of $349 million of accumulated impairment loss recognized in 2008.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 and the ComprehensiveBusiness Review, the Company recognized impairment charges associated with favorable leases at closing locations in 2016, 2015 and 2014 totaling$7 million, $1 million and $5 million, respectively. These impairment charges are presented in Asset impairments in the Consolidated Statements ofOperations. Refer to Note 14 for additional information on fair value measurement.Definite-lived intangible assets, which are included in Other intangible assets, net in the Consolidated Balance Sheets, are as follows: December 31, 2016 (In millions) GrossCarrying Value AccumulatedAmortization NetCarrying Value Customer relationships $74 $(53) $21 Favorable leases 18 (6) 12 Total $92 $(59) $33 December 26, 2015 (In millions) GrossCarrying Value AccumulatedAmortization NetCarrying Value Customer relationships $74 $(44) $30 Favorable leases 30 (7) 23 Trade names 8 (8) — Total $112 $(59) $53 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 and favorable leases are 5 years, and 16 years, respectively. 79Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Amortization of intangible assets was $10 million in 2016, $13 million in 2015 and $18 million in 2014. Intangible assets amortization expenses areincluded in the Consolidated Statements of Operations in Selling, general and administrative expenses. Amortization of favorable leases is included in rentexpense. Refer to Note 9 for further detail.Estimated future amortization expense for the intangible assets is as follows: (In millions) 2017 $7 2018 5 2019 4 2020 4 2021 4 Thereafter 9 Total $33 NOTE 6. 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 $885 million and $905 million at December 31, 2016 and December 26, 2015, 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 $798 million and $819 million at December 31, 2016 and December 26, 2015, 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 7 for additional information. 80Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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.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 31, 2016, there is a deferredtax liability of $260 million related to the Installment Notes that will become due upon maturity.NOTE 7. DEBTDebt consists of the following: (In millions) December 31,2016 December 26,2015 Recourse debt: Short-term borrowings and current maturities of long-term debt: Capital lease obligations $27 $29 7.35% debentures, due 2016 — 18 Other current maturities of long-term debt 2 4 Total $29 $51 Long-term debt, net of current maturities: Senior Secured Notes, due 2019 $— $250 Unamortized debt issuance cost — (3) Senior Secured Notes, due 2019, net — 247 Revenue bonds, due in varying amounts periodically through 2029 186 186 American & Foreign Power Company, Inc. 5% debentures, due 2030 14 14 Capital lease obligations 146 169 Other 12 12 Total $358 $628 Non-recourse debt: 5.42% Securitization Notes, due 2019 — Refer to Note 6 $735 $735 Unamortized premium 63 84 Total $798 $819 The Company was in compliance with all applicable financial covenants of existing loan agreements at December 31, 2016.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, March 2013, November 2013, May 2015, May 2016 and December2016 (the Amended and Restated Credit Agreement including all amendments is referred to as the “Amended Credit Agreement”). The Amended CreditAgreement provides for an asset based, multi-currency revolving credit facility of up to $1.2 billion (the “Facility”). The Amended Credit Agreement alsoprovides that the Facility may 81Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) be increased by up to $250 million, subject to certain terms and conditions, including obtaining increased commitments from existing or new lenders. Theamount that can be drawn on the Facility at any given time is determined based on percentages of certain accounts receivable, inventory and credit cardreceivables (the “Borrowing Base”). The Facility includes a sub-facility of up to $200 million which is available to the Company and certain of theCompany’s European and Canadian subsidiaries (the “European Borrowers”). Certain of the Company’s domestic subsidiaries guaranty the obligations underthe Facility (the “Domestic Guarantors”). The Amended Credit Agreement also provides for a letter of credit sub-facility of up to $400 million, as well as aswingline 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 EuropeanBorrowers. All loans borrowed under the Facility may be borrowed, repaid and reborrowed from time to time until the maturity date of May 13, 2021 asprovided in the Amended Credit Agreement.In conjunction with the sale of the OD European business on December 31, 2016, the European parties to the facility were removed from the agreement andall first priority liens on related European assets were released.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. All amounts borrowed by the European Borrowers under theFacility are secured by a lien on such European Borrowers’ accounts receivable, inventory, cash, cash equivalents and deposit accounts, as well as certainother 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 thePrime Rate (as announced by the Agent), the Federal Funds Rate plus 1/2 of 1% and the one month Adjusted LIBO Rate (defined below) and 1%) or (ii) theAdjusted LIBO Rate (defined as the LIBO Rate as adjusted for statutory revenues) plus, in either case, a certain margin based on the aggregate averageavailability 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 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.At December 31, 2016, the Company had $1.0 billion of available credit under the Facility based on the December 2016 Borrowing Base certificate. AtDecember 31, 2016, no amounts were outstanding under the Facility. Letters of credit outstanding under the Facility totaled $83 million. There were noborrowings under the Facility during 2016.Senior Secured NotesOn September 15, 2016, the Company redeemed its outstanding 9.75% Senior Secured Notes due 2019 (the “Senior Secured Notes”) which had an aggregateprincipal outstanding of $250 million. The Notes were redeemed for cash at the outstanding principal amount plus a $12 million premium calculated as4.875% of the principal amount. The total payment amounted to $262 million, plus accrued interest. The premium and 82Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) recognition of the remaining deferred debt issue costs totaled $15 million and are presented as Loss on extinguishment of debt in the ConsolidatedStatements of Operations for 2016. The $12 million cash premium paid is reported in financing activities in the Consolidated Statements of Cash Flows.Other Short- and 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, which werepaid in full at maturity in February 2016, (ii) Revenue bonds, due in varying amounts periodically through 2029, and (iii) American & Foreign PowerCompany, Inc. 5% debentures, due 2030.Capital Lease ObligationsCapital lease obligations primarily relate to buildings and equipment.Refer to Note 6 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) 2017 $39 2018 35 2019 33 2020 38 2021 28 Thereafter 260 Total 433 Less amount representing interest on capital leases (46) Total 387 Less: Current portion (29) Total long-term debt $358 NOTE 8. INCOME TAXESThe components of income (loss) from continuing operations before income taxes consisted of the following: (In millions) 2016 2015 2014 United States $445 $122 $(286) Foreign 14 (7) (5) Total income (loss) from continuing operations before income taxes $459 $115 $(291) 83Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The income tax expense related to income (loss) from continuing operations consisted of the following: (In millions) 2016 2015 2014 Current: Federal $17 $18 $(2) State 6 4 (1) Foreign 3 1 3 Deferred : Federal (210) (1) — State (37) 2 3 Foreign 1 (1) (1) Total income tax expense (benefit) $(220) $23 $2 The following is a reconciliation of income taxes at the U.S. Federal statutory rate to the provision for income taxes: (In millions) 2016 2015 2014 Federal tax computed at the statutory rate $160 $40 $(102) State taxes, net of Federal benefit (20) 5 1 Foreign income taxed at rates other than Federal — 6 8 Increase (decrease) in valuation allowance (349) (46) 85 Non-deductible Merger expenses — 11 — Other non-deductible expenses 3 4 13 Non-taxable income and additional deductible expenses (13) (2) (2) Change in unrecognized tax benefits (3) — — Tax expense from intercompany transactions — 6 — Subpart F and dividend income, net of foreign tax credits 2 1 2 Other items, net — (2) (3) Income tax expense (benefit) $(220) $23 $2 The effective tax rate for 2016 was primarily impacted by the change in the Company’s U.S. federal and state valuation allowance. In 2016, the Companyexperienced a lower than expected effective rate due to the realization of certain deferred tax assets during the year whose benefits were limited in priorperiods due to the valuation allowance. In addition, the Company recognized a discrete non-cash income tax benefit for the reversal of the majority of theremaining U.S. federal and state valuation allowance. The effective tax rate for 2016 was also impacted by the deductibility of certain formerlynon-deductible expenses primarily related to the Staples Acquisition. In 2015, the Company incurred charges related to certain Staples Acquisition expensesthat are not deductible for tax purposes, which increased the effective tax rate for 2015. With the termination of the merger agreement in 2016, a large portionof these expenses became deductible in 2016, resulting in a lower effective tax rate for 2016. In addition, the 2015 effective tax rate includes U.S. income taxexpense on a foreign exchange gain associated with the restructuring of certain intercompany financing. In 2014, the Company recognized income taxexpense on a pretax loss due to deferred tax benefits not being recognized on pretax losses in certain tax jurisdictions with valuation allowances, whileincome tax expense was recognized in tax jurisdictions with pretax income.The Company operates in several foreign jurisdictions with income tax rates that differ from the U.S. Federal statutory rate, which resulted in an expense forall years presented in the effective tax rate reconciliation. Significant foreign tax jurisdictions for which the Company realized such expense are Canada andPuerto Rico after the sale of the other international operations. 84Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Due to valuation allowances against the Company’s deferred tax assets, no income tax benefit was initially recognized in the 2015 or 2014 ConsolidatedStatement of Operations related to stock-based compensation expense due to the Company’s inability to utilize them to offset current income taxes payable.However, due to the profitable tax-paying position in the U.S. in 2015, the Company realized an income tax benefit of $3 million for the utilization of netoperating loss carryforwards that had resulted from excess stock-based compensation deductions for which no benefit was previously recorded. The Companyalso realized an income tax benefit of $2 million for excess stock-based compensation deductions resulting from the exercise and vesting of equity awardsduring 2016 and $7 million for excess stock-based compensation deductions resulting from the exercise and vesting of equity awards during 2015. Theseincome tax benefits were recorded as increases to additional paid-in capital in 2015 and 2016.The components of deferred income tax assets and liabilities consisted of the following: (In millions) December 31,2016 December 26,2015 U.S. and foreign loss carryforwards $275 $79 Deferred rent credit 61 68 Pension and other accrued compensation 134 200 Accruals for facility closings 29 43 Inventory 20 19 Self-insurance accruals 29 33 Deferred revenue 24 45 U.S. and foreign income tax credit carryforwards 197 223 Allowance for bad debts 5 12 Accrued expenses 28 32 Basis difference in fixed assets 69 73 Other items, net 5 — Gross deferred tax assets 876 827 Valuation allowance (140) (522) Deferred tax assets 736 305 Internal software 5 5 Installment gain on sale of timberlands 260 263 Deferred Subpart F income — 27 Undistributed foreign earnings 8 2 Deferred tax liabilities 273 297 Net deferred tax assets $463 $8 As of December 31, 2016 and December 26, 2015, deferred income tax liabilities amounting to $3 million and $2 million, respectively, are included inDeferred income taxes and other long-term liabilities.As of December 31, 2016, the Company has utilized all of its U.S. Federal net operating loss (“NOL”) carryforwards. The Company has $91 million of foreignand $1.2 billion of state NOL carryforwards. Of the foreign NOL carryforwards, $35 million can be carried forward indefinitely, none will expire in 2017 andthe remaining balance will expire between 2018 and 2036. Of the state NOL carryforwards, $37 million will expire in 2017, and the remaining balance willexpire between 2018 and 2036. The Company has capital loss carryover available to offset future capital gains generated of $555 million which expires in2021. The Company also has $89 million of U.S. Federal alternative minimum tax credit carryforwards, which can be used to reduce future regular federalincome tax, if any, over an indefinite period. Additionally, the Company has $96 million of U.S. 85Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Federal foreign tax credit carryforwards, which expire between 2019 and 2026, and $13 million of state and foreign tax credit carryforwards, $3 million ofwhich can be carried forward indefinitely, and the remaining balance will expire between 2023 and 2027.As of December 31, 2016, the Company has not triggered an “ownership change” as defined in Internal Revenue Code Section 382 or other similarprovisions that would limit the use of NOL and tax credit carryforwards. However, if the Company were to experience an ownership change in future periods,the Company’s deferred tax assets and income tax expense may be negatively impacted. Deferred income taxes have been provided on all undistributedearnings of foreign subsidiaries.The following summarizes the activity related to valuation allowances for deferred tax assets: (In millions) 2016 2015 2014 Beginning balance $522 $571 $448 Additions, charged to expense — — 123 Reductions (382) (49) — Ending balance $140 $522 $571 The Company has significant deferred tax assets in the U.S. against which valuation allowances have been established to reduce such deferred tax assets tothe amount that is more likely than not to be realized. The establishment of valuation allowances requires significant judgment and is impacted by variousestimates. Both positive and negative evidence, as well as the objectivity and verifiability of that evidence, is considered in determining the appropriatenessof recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strong negative evidence in that evaluation.As of the third quarter of 2016, the Company concluded that it was more likely than not that a benefit from a substantial portion of its U.S. federal and statedeferred tax assets would be realized. This conclusion was based on a detailed evaluation of all available positive and negative evidence and the weight ofsuch evidence, the current financial position and results of operations for the current and preceding years, and the expectation of continued earnings. TheCompany determined that approximately $382 million of its U.S. federal and state valuation allowance should be reversed in 2016.After the 2016 reversal, the Company will have a U.S. valuation allowance for certain U.S. federal credits and certain state tax attributes. The remainingvaluation allowances relate to deferred tax assets that require certain types of income or for income to be earned in certain jurisdictions in order to be realized.It is reasonably possible that a portion of the remaining valuation allowance may be released in the future based upon continued profitability. The Companywill continue to assess the realizability of its deferred tax assets in the U.S. and remaining foreign jurisdictions in future periods.The Company’s total valuation allowance decreased by $382 million during 2016. The Company recognized income tax benefit of $349 million associatedwith the release of valuation allowances in the U.S. federal and state jurisdictions in 2016 because the realizability of the related deferred tax assets was morelikely than not. 86Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes the activity related to unrecognized tax benefits: (In millions) 2016 2015 2014 Beginning balance $18 $22 $15 Increase related to current year tax positions 1 1 6 Increase related to prior year tax positions — 1 4 Decrease related to prior year tax positions — (5) (2) Decrease related to lapse of statute of limitations — (1) — Decrease related to settlements with taxing authorities (5) — (1) Ending balance $14 $18 $22 Due to the completion of the Internal Revenue Service (“IRS”) examination for 2014, the Company’s balance of unrecognized tax benefits decreased by$4 million during 2016, which did impact income tax expense by $3 million due to an offsetting change in valuation allowance. Included in the balance of$14 million at December 31, 2016, are $7 million of unrecognized tax benefits that, if recognized, would affect the effective tax rate. The difference of$7 million primarily results from tax positions which if sustained would be offset by changes in valuation allowance. It is not anticipated that certain taxpositions will be resolved within the next 12 months, which would decrease the Company’s balance of unrecognized tax benefits. Additionally, theCompany anticipates that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance ofunrecognized tax benefits; however, an estimate of such changes 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 interest and penalty expense of $3 million and $2 million in 2016 and 2015, respectively. The Company recognized a net interest and penaltybenefit of $9 million in 2014 due to settlements reached with certain taxing authorities. The Company had approximately $6 million accrued for the paymentof interest and penalties as of December 31, 2016, 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 2014 and 2009, respectively. During 2015, the IRSexamination of the OfficeMax 2012 U.S. federal income tax return concluded, which resulted in a $6 million decrease in tax credit carryforwards. Suchdecrease had no impact on income tax expense due to an offsetting change in valuation allowance. The acquired OfficeMax U.S. consolidated group is nolonger subject to U.S. federal and state and local income tax examinations for years before 2013 and 2006, respectively. The U.S. federal income tax returnsfor 2015 are currently under review. Generally, the Company is subject to routine examination for years 2008 and forward in its international taxjurisdictions.NOTE 9. LEASESThe Company leases retail stores and other facilities, vehicles, and equipment under operating lease agreements. Facility leases typically are for a fixednon-cancellable term with one or more renewal options. In addition to minimum rentals, the Company is required to pay certain executory costs such as realestate taxes, insurance and common area maintenance on most of the facility leases. Many lease agreements contain tenant improvement allowances, rentholidays, and/or rent escalation clauses. Certain leases contain provisions for additional rent to be paid if sales exceed a specified amount, though suchpayments have been immaterial during the years presented. 87Table 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 leases as a reduction of rent expense. Rent related accruals totaled $196 million and $221 million at December 31, 2016 and December 26, 2015,respectively. The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilities and Deferred incometaxes and other long-term liabilities, respectively, on the Consolidated Balance Sheets.Rent expense, including equipment rental, was $484 million, $513 million, $602 million in 2016, 2015 and 2014, respectively. Rent expense was reducedby sublease income of $2 million in 2016, $4 million in 2015 and $5 million in 2014.Future minimum lease payments due under the non-cancelable portions of leases as of December 31, 2016 include facility leases that were accrued as storeclosure costs and are as follows: (In millions) 2017 $486 2018 369 2019 275 2020 180 2021 104 Thereafter 173 1,587 Less sublease income (31) Total $1,556 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 31, 2016 and December 26, 2015, unfavorable lease deferred credit for store leases with terms above market value amounted to $10 millionand $18 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 Strategyor Comprehensive Business Review. In 2016, 2015 and 2014, the net amortization of favorable and unfavorable lease values reduced rent expense by$4 million, $6 million and $7 million, respectively. Refer to Note 5 for further information favorable leases.The Company has capital lease obligations primarily related to buildings and equipment. Refer to Note 7 for further details on amounts due related to capitallease obligations.NOTE 10. STOCKHOLDERS’ EQUITYPreferred StockAs of December 31, 2016 and December 26, 2015, there were 1,000,000 shares of $0.01 par value preferred stock authorized; no shares were issued andoutstanding. 88Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Treasury StockIn May 2016, the Company’s Board of Directors authorized a stock repurchase program of up to $100 million of its outstanding common stock. During July2016, the Board of Directors authorized increasing the share repurchase program to $250 million of its outstanding common stock. The stock repurchaseauthorization permits the Company to repurchase stock from time-to-time through a combination of open market repurchases, privately negotiatedtransactions, 10b5-1 trading plans, accelerated stock repurchase transactions and/or other derivative transactions. The authorization extends through the endof 2018 and may be suspended or discontinued at any time. The exact timing of share repurchases will depend on market conditions and other factors, andwill be funded through existing liquidity.Under the stock repurchase program, the Company purchased approximately 37 million shares at a cost of $132 million. As of December 31, 2016,$118 million remains available for repurchase under the current authorization.At December 31, 2016, there were 43 million common shares held in treasury. The Company’s Amended Credit Facility includes certain covenants onrestricted payments which include common stock repurchases, based on the Company’s liquidity and borrowing availability. The restrictions include thefollowing: the Company may not acquire any equity interests in an aggregate amount exceeding approximately $125 million during any fiscal year providedthat; (i) no default or event of default shall have occurred and be continuing, and; (ii) liquidity shall be at least $500 million, including aggregateavailability of at least $400 million. There were no repurchases of common stock in 2015. Refer to Note 7 for additional information.Accumulated Other Comprehensive IncomeWith the disposition of the OD European Business on December 31, 2016, the CTA balance associated with that business was recognized in earnings.Balances associated with the remaining disposal groups in discontinued operations will be recognized in earrings during the period in which thosedispositions are completed. Accumulated other comprehensive income activity, net of tax, where applicable, is provided in the following tables: (In millions) ForeignCurrencyTranslationAdjustments Change inDeferredPension Total Balance at December 26, 2015 $108 $(78) $30 Other comprehensive income (loss) activity before reclassifications (11) 30 19 Reclassification of foreign currency translation adjustments realized upon disposal of business (164) — (164) Tax impact — (14) (14) Net year-to-date other comprehensive income (175) 16 (159) Balance at December 31, 2016 $(67) $(62) $(129) Amounts in parentheses indicate an increase to earnings. 89 (a)(a)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (In millions) ForeignCurrencyTranslationAdjustments Change inDeferredPension Total Balance at December 27, 2014 $186 $(79) $107 Other comprehensive income (loss) activity before reclassifications (78) 2 (76) Reclassification of foreign currency translation adjustments realized upon disposal of business — — — Tax impact — (1) (1) Net year-to-date other comprehensive income (78) 1 (77) Balance at December 26, 2015 $108 $(78) $30 Amounts in parentheses indicate an increase to earnings.The component balances are net of immaterial tax impacts, where applicable.NOTE 11. STOCK-BASED COMPENSATIONLong-Term Incentive PlansDuring 2015, the Company’s Board of Directors adopted, and the shareholders approved, the Office Depot, Inc. 2015 Long-Term Incentive Plan (the “Plan”).The Plan replaces the Office Depot, Inc. 2007 Long-Term Incentive Plan, as amended, and the 2003 OfficeMax Incentive and Performance Plan (both referredto as the “Prior Plans”). No additional awards were granted under the Prior Plans effective April 27, 2015, the effective date of the Plan. The Plan permits theissuance of stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, and other equity-based incentive awards. Employee share-based awards are generally issued in the first quarter of the year.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 Prior Plans have vesting periods ranging from one to five years and from one to three years afterthe date of grant, provided that the individual is continuously employed with the Company. Following the date of grant, all options granted under the PriorPlans expire in no more than ten years. No stock options were granted in 2016, 2015 or 2014.A summary of the activity in the stock option awards for the last three years is presented below. 2016 2015 2014 Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Shares WeightedAverageExercisePrice Outstanding at beginning of year 5,779,597 $4.53 8,602,626 $4.53 22,702,534 $4.48 Granted — — — — — — Forfeited (108,818) 5.04 (574,967) 9.29 (1,323,664) 10.46 Exercised (1,614,243) 1.89 (2,248,062) 3.34 (12,776,244) 3.83 Outstanding at end of year 4,056,536 $5.56 5,779,597 $4.53 8,602,626 $4.53 90 (a)(a)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table summarizes information about stock options outstanding and exercisable at December 31, 2016. Options Outstanding Options Exercisable Range ofExercise Prices NumberOutstanding Weighted AverageRemainingContractual Life(in years) WeightedAverageExercisePrice NumberExercisable Weighted AverageRemainingContractual Life(in years) WeightedAverageExercisePrice $0.83—$3.00 183,862 1.71 1.64 183,862 1.71 1.64 3.01—5.12 569,901 1.02 4.34 569,901 1.02 4.34 5.13 183,993 0.43 5.13 183,993 0.43 5.13 5.14—8.00 2,806,280 5.05 5.64 2,806,280 5.05 5.64 8.01—11.27 312,500 0.18 9.64 312,500 0.18 9.64 $0.83—$11.27 4,056,536 3.76 5.56 4,056,536 3.76 5.56 The intrinsic value of options exercised in 2016, 2015 and 2014, was $5 million, $12 million and $27 million, respectively. The aggregate intrinsic value ofoptions outstanding and exercisable at December 31, 2016 was $0.7 million and $0.7 million, respectively.At December 31, 2016, all outstanding stock options were vested and all related compensation expense had been recognized. The number of exercisableoptions was 4.1 million and 5.1 million shares of common stock at December 31, 2016 and December 26, 2015, respectively.Restricted Stock and Restricted Stock UnitsIn 2016, the Company granted 10.1 million shares of restricted stock and restricted stock units to eligible employees which included 0.4 million sharesgranted to the Board of Directors. The Board of Directors are granted restricted stock units as part of their annual compensation which vest immediately onthe grant date with distribution to occur following their separation from service with the Company. Restricted stock grants to Company employees typicallyvest annually over a three-year service period. A summary of the status of the Company’s nonvested shares and changes during 2016, 2015 and 2014 ispresented below. 2016 2015 2014 Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Outstanding at beginning of year 9,588,889 $6.07 10,708,372 $4.65 10,207,546 $4.76 Granted 10,099,481 3.53 2,886,640 9.43 5,809,821 4.33 Vested (3,521,765) 5.31 (3,370,569) 4.46 (4,179,789) 4.75 Forfeited (3,418,814) 4.51 (635,554) 5.94 (1,129,206) 3.65 Outstanding at end of year 12,747,791 $4.41 9,588,889 $6.07 10,708,372 $4.65 As of December 31, 2016, 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 12.7 million include3.1 million granted to members of the Board of Directors that have vested but will not be issued until separation from service and 9.6 million unvested sharesgranted to employees. Of the 9.6 million unvested shares at year end, the Company estimates that 9.2 million shares will vest. The total fair value of shares atthe time they vested during 2016 was $19 million. 91Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 three years from thegrant date.A summary of the activity in the performance-based long-term incentive program since inception is presented below. 2016 2015 2014 Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Shares WeightedAverageGrant-DatePrice Outstanding at beginning of the year 8,589,114 $5.95 6,808,964 $4.43 3,076,292 $4.45 Granted 9,635,184 3.37 2,745,303 9.45 5,289,047 4.55 Vested (161,408) 4.32 (283,244) 3.98 (1,246,006) 3.74 Forfeited (4,320,506) 5.69 (681,909) 5.67 (310,369) 4.16 Outstanding at end of the year 13,742,384 4.66 8,589,114 $5.95 6,808,964 $4.43 As of December 31, 2016, there was approximately $29 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 1.9 years. Forfeitures in thetable above include adjustments to the share impact of anticipated performance achievement. Of the 13.7 million shares outstanding at year end, theCompany estimates that 12.9 million shares will vest. The total fair value of shares at the time they vested during 2016 was $0.7 million.NOTE 12. 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 Company sponsors these defined benefit pension plans covering certainterminated employees, vested employees, retirees and some active employees. In 2004 or earlier, OfficeMax’s pension plans were closed to new entrants andthe benefits of eligible participants were frozen. Under the terms of these plans, the pension benefit for employees was based primarily on the employees’years of service and benefit plan formulas that varied by plan. The Company’s general funding policy is to make contributions to the plans in amounts thatare within the limits 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 the U.S. and Canada (referred to as “Other Benefits” in the tables below). The type of retiree benefits and the extent ofcoverage vary based on employee classification, date of retirement, location, and other factors. All of these postretirement medical plans are unfunded. TheCompany explicitly reserves the right to amend or terminate its retiree medical and life insurance plans at any time, subject only to constraints, if any,imposed by the terms of collective bargaining agreements. Amendment or termination may significantly affect the amount of expense incurred. 92Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Obligations and Funded StatusThe following table provides a reconciliation of changes in the projected benefit obligation and the fair value of plans assets, as well as the funded status ofthe plans to amounts recognized on the Company’s Consolidated Balance Sheets. Pension plans with benefit obligations and accumulated benefitobligations exceed plan assets in all individual plans. Pension Benefits Other Benefits (In millions) 2016 2015 2016 2015 Changes in projected benefit obligation: Obligation at beginning of period $1,094 $1,218 $13 $17 Service cost 7 3 — — Interest cost 45 46 1 1 Actuarial (gain) loss (8) (78) — (2) Currency exchange rate change — — — (2) Benefits paid (138) (95) (1) (1) Obligation at end of period $1,000 $1,094 $13 $13 Change in plan assets: Fair value of plan assets at beginning of period $922 $1,039 $— $— Actual return (loss) on plan assets 84 (30) — — Employer contribution 2 8 1 1 Benefits paid (138) (95) (1) (1) Fair value of plan assets at end of period 870 922 — — Net liability recognized at end of period $(130) $(172) $(13) $(13) 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) 2016 2015 2016 2015 Noncurrent assets $— $— $— $— Current liabilities (2) (3) (1) (1) Noncurrent liabilities (128) (169) (12) (12) Net amount recognized $(130) $(172) $(13) $(13) Components of Net Periodic Cost (Benefit)The components of net periodic cost (benefit) are as follows: Pension Benefits Other Benefits (In millions) 2016 2015 2014 2016 2015 2014 Service cost $7 $3 $3 $— $— $— Interest cost 45 46 52 1 1 1 Expected return on plan assets (55) (56) (62) — — — Net periodic cost (benefit) $(3) $(7) $(7) $1 $1 $1 93Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Other changes in plan assets and benefit obligations recognized in other comprehensive loss (income) are as follows: Pension Benefits Other Benefits (In millions) 2016 2015 2014 2016 2015 2014 Accumulated other comprehensive loss (income) at beginning of year $76 $67 $(26) $(1) $1 $— Net loss (gain) (38) 9 93 — (2) 1 Accumulated other comprehensive loss (income) at end of year $38 $76 $67 $(1) $(1) $1 Less than $1 million of the accumulated other comprehensive loss is expected to be recognized as components of net periodic cost during 2017.Accumulated other comprehensive loss (income) as of year-ends 2016 and 2015 consist of net losses (gains).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 2016 2015 2014 2016 2015 2014 2016 2015 2014 Discount rate 4.11% 4.33% 3.91% 3.60% 3.70% 3.40% 3.80% 4.00% 4.00% The following table presents the weighted average assumptions used in the measurement of net periodic benefit: Other Benefits Pension Benefits United States Canada 2016 2015 2014 2016 2015 2014 2016 2015 2014 Discount rate 4.33% 3.91% 4.84% 3.70% 3.40% 4.00% 4.00% 4.00% 4.80% Expected long-term rate of return on plan assets 6.00% 5.85% 6.50% —% —% —% —% —% —% For pension benefits, the selected discount rates (which is required to be the rates at which the projected benefit obligations could be effectively settled as ofthe measurement date) are based on the rates of return for a theoretical portfolio of high-grade corporate bonds (rated AA- or better) with cash flows thatgenerally match expected benefit payments in future years. In selecting bonds for this theoretical portfolio, the Company focuses on bonds that match cashflows to benefit payments and limit the concentration of bonds by issuer. To the extent scheduled bond proceeds exceed the estimated benefit payments in agiven period; the yield calculation assumes those excess proceeds are reinvested at an assumed forward rate. The implied forward rate used in the bond modelis based 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 rates of return on plan assets assumptions are based on the weighted average of expected returns for the major asset classes in whichthe plans’ 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 2017 is 5.76%. 94Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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: 2016 2015 2014 Weighted average assumptions as of year-end: Healthcare cost trend rate assumed for next year 5.90% 6.20% 6.40% Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 4.50% 4.50% 4.50% Year that the rate reaches the ultimate trend rate 2022 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 end2016, adopting the most applicable mortality tables and improvement factors released in 2016 by The Society of Actuaries’ Retirement Plan ExperienceCommittee. As a result of this assumption change, pension and other postretirement benefit plan obligations decreased by $19 million and less than$1 million, respectively. As a result of the mortality assumption change in 2015, pension and other postretirement benefit plan obligations decreased by$25 million and less than $1 million, respectively.Plan AssetsThe allocation of pension plan assets by category at year-ends is as follows: 2016 2015 Money market funds 3% 2% Equity securities 11 9 Fixed-income securities 50 57 Mutual funds 36 31 Other — 1 100% 100% The Employee Benefit Committee is responsible for establishing and overseeing the implementation of the investment policy for the Company’s pensionplans. The investment policy is structured to optimize growth of the pension plan trust assets, while minimizing the risk of significant losses, in order toenable 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 13% to 23%, an international equity range of 8% to 18%, a global equity range of 5%to 15% and a fixed-income range of 53% to 63%. 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 95Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) prices. Investments in certain restricted stocks are valued at the quoted market price of the issuer’s unrestricted common stock less an appropriate discount. Ifa quoted market price for unrestricted common stock of the issuer is not available, restricted common stocks are valued at a multiple of current earnings lessan appropriate discount. The multiple chosen is consistent with multiples of similar companies based on current market prices.The following table presents the pension plan assets by level within the fair value hierarchy at year-ends. (In millions) Fair Value Measurements 2016 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 29 29 — — U.S. small and mid-cap 4 4 — — International 60 60 — — Total equity securities 93 93 — — Fixed-income securities Corporate bonds 407 — 407 — Government securities 14 — 14 — Other fixed-income 16 — 16 — Total fixed-income securities 437 — 437 — Other Mutual funds 312 — 312 — Other, including plan receivables and payables 3 3 — — Total other 315 3 312 — $870 $96 $774 $— 96Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Fair Value Measurements 2015 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $19 $— $19 $— Equity securities U.S. large-cap 25 25 — — U.S. small and mid-cap 4 4 — — International 58 58 — — Total equity securities 87 87 — — Fixed-income securities Corporate bonds 485 — 485 — Government securities 10 — 10 — Other fixed-income 24 — 24 — Total fixed-income securities 519 — 519 — Other Equity mutual funds 290 — 290 — Other, including plan receivables and payables 7 7 — — Total other 297 7 290 — $922 $94 $828 $— Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on theex-dividend date.Cash FlowsPension plan contributions include required statutory minimum amounts and, in some years, additional discretionary amounts. In 2016, the Companycontributed $3 million to these pension plans. Pension contributions for the full year of 2017 are estimated to be $3 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 2017 $87 $1 2018 85 1 2019 82 1 2020 80 1 2021 77 1 Next five years 346 4 Pension Plan — UKThe Company has a frozen defined benefit pension plan covering a limited number of employees in the United Kingdom. As part of the disposition of the ODEuropean Business in 2016, the Company retained responsibility for this plan. The European entity contributed GBP 20 million to the plan prior to thetransfer. 97Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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) 2016 2015 Changes in projected benefit obligation: Obligation at beginning of period $210 $239 Service cost — — Interest cost 7 9 Benefits paid (6) (7) Actuarial (gain) loss 59 (20) Currency translation (40) (11) Obligation at end of period 230 210 Changes in plan assets: Fair value of plan assets at beginning of period 240 257 Actual return on plan assets 62 2 Company contributions 29 — Benefits paid (6) (7) Currency translation (47) (12) Fair value of plan assets at end of period 278 240 Net asset recognized at end of period $48 $30 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) 2016 2015 2014 Service cost $— $— $— Interest cost 7 9 10 Expected return on plan assets (10) (14) (14) Net periodic pension benefit $(3) $(5) $(4) Included in Accumulated other comprehensive income were deferred losses of $1 million in 2016 and deferred gains of $7 million in 2015. The deferred lossis not expected to be amortized into income during 2017.AssumptionsAssumptions used in calculating the funded status and net periodic benefit included: 2016 2015 2014 Expected long-term rate of return on plan assets 4.07% 4.78% 5.55% Discount rate 2.70% 3.90% 3.80% Inflation 3.20% 3.00% 3.10% 98Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. A return equal to a 15 year AA bond index is assumed for funds invested in corporate bonds. Allowance is made for expenses of 0.5% of assets.Plan AssetsThe allocation of Plan assets is as follows: 2016 2015 Cash 9% —% Equity securities 21% 50% Fixed-income securities 70% 50% 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 31, 2016, 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. 99Table 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 Measurements2016 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash $25 $25 $— $— Equity securities Developed market equity funds 19 19 — — Emerging market equity funds 7 7 — — Mutual funds real estate 7 — — 7 Mutual funds 27 — 27 — Total equity securities 60 26 27 7 Fixed-income securities UK debt funds 62 — 62 — Liability term matching debt funds 109 — 109 — Emerging market debt fund 2 — 2 — High yield debt 20 — 20 — Total fixed-income securities 193 — 193 — Total $278 $51 $220 $7 (In millions) Fair Value Measurements2015 Asset Category Total Quoted Pricesin ActiveMarkets forIdenticalAssets(Level 1) SignificantObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Cash $— $— $— $— Equity securities Developed market equity funds 70 70 — — Emerging market equity funds 15 15 — — Mutual funds real estate 8 — — 8 Mutual funds 27 — 27 — Total equity securities 120 85 27 8 Fixed-income securities UK debt funds 25 — 25 — Liability term matching debt funds 71 — 71 — Emerging market debt fund 8 — 8 — High yield debt 16 — 16 — Total fixed-income securities 120 — 120 — Total $240 $85 $147 $8 100Table 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 2016, 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 26, 2015 $8 Currency translation (1) Balance at December 31, 2016 $7 Cash FlowsAnticipated benefit payments for the European pension plan, at 2016 year-end exchange rates, are as follows: (In millions) BenefitPayments 2017 $6 2018 6 2019 6 2020 7 2021 7 Next five years 36 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 Plans (a plan for U.S. employees and a plan for Puerto Rico employees). All of the Company’s defined contribution plans (the “401(k)Plans”) allow eligible employees to contribute a percentage of their salary, commissions and bonuses in accordance with plan limitations and provisions ofSection 401(k) of the Internal Revenue Code and the Company makes partial matching contributions to each plan subject to the limits of the respective401(k) Plans. Matching contributions are invested in the same manner as the participants’ pre-tax contributions. The 401(k) Plans also allow for adiscretionary matching contribution in addition to the normal match contributions if approved 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 2016, 2015 and 2014, $20 million, $20 million and $14 million, respectively, were recorded as compensation expense for the Company’scontributions to these plans. 101Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13. EARNINGS PER SHAREThe following table presents the calculation of net earnings (loss) per common share — basic and diluted: (In millions, except per share amounts) 2016 2015 2014 Basic Earnings Per Share Numerator: Net income (loss) from continuing operations $679 $92 $(293) Loss from discontinued operations, net of tax (150) (84) (59) Less: Results attributable to the noncontrolling interests — — 2 Net income (loss) to Office Depot, Inc. $529 $8 $(354) Denominator: Weighted-average shares outstanding 539 547 535 Basic earnings (loss) per share: Continuing operations $1.26 $0.17 $(0.55) Discontinued operations (0.28) (0.15) (0.11) Net earnings (loss) $0.98 $0.01 $(0.66) Diluted Earnings Per Share Numerator: Net income (loss) from continuing operations $679 $92 $(293) Loss from discontinued operations, net of tax (150) (84) (59) Less: Results attributable to the noncontrolling interests — — 2 Net income (loss) to Office Depot, Inc. $529 $8 $(354) Denominator: Weighted-average shares outstanding 539 547 535 Effect of dilutive securities: Stock options and restricted stock 10 8 — Diluted weighted-average shares outstanding 549 555 535 Diluted earnings (loss) per share Continuing operations $1.24 $0.16 $(0.55) Discontinued operations (0.27) (0.15) (0.11) Net earnings (loss) $0.96 $0.01 $(0.66) Potentially dilutive stock options and restricted stock of 8 million shares were excluded from the diluted loss per share calculation in 2014 because of the netloss in the periods.Awards of options and nonvested shares representing an additional 6 million, 4 million and 9 million shares of common stock were outstanding for the yearsended December 31, 2016, December 26, 2015 and December 27, 2014, respectively, but were not included in the computation of diluted weighted-averageshares outstanding because their effect would have been antidilutive.NOTE 14. 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, 102Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) settlement timeframe and other factors, the Company may enter into derivative transactions to mitigate those risks. Financial instruments authorized underthe Company’s established risk management policy include spot trades, swaps, options, caps, collars, forwards and futures. Use of derivative financialinstruments for speculative purposes is expressly prohibited by the Company’s policies. The Company may designate and account for such qualifyingarrangements as hedges or reflect current mark-to-market impacts of non-qualifying economic hedge arrangements currently in earnings. As of December 31,2016, the foreign exchange contracts extend through December 2017 and fuel contracts extended through January 2017.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. Amounts associated with derivative instruments were not significant. At December 31, 2016 and December 26,2015, Accrued expenses and other liabilities in the Consolidated Balance Sheets included less than $1 million and $2 million related to derivative fuelcontracts. The Company’s foreign currency risk will be substantially reduced upon completion of the sale of the discontinued operations.Financial InstrumentsThe fair values of cash and cash equivalents, receivables, trade accounts payable and accrued expenses and other current liabilities approximate theircarrying values because of their short-term nature.The following table presents information about financial instruments at the balance sheet dates indicated. 2016 2015 (In millions) CarryingValue FairValue CarryingValue FairValue Timber notes receivable $885 $884 $905 $909 Company-owned life insurance 89 89 88 88 Financial liabilities: Recourse debt: 9.75% Senior Secured Notes, due 2019 — — 250 265 7.35% debentures, due 2016 — — 18 18 Revenue bonds, due in varying amounts periodically through 2029 186 181 186 186 American & Foreign Power Company, Inc. 5% debentures, due 2030 14 12 14 13 Non-recourse debt 798 800 819 825 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). • Company-owned life insurance: The fair value of the company-owned life insurance policies is derived using determinable net cash surrendervalue (Level 2 measure). • 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). 103Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) • 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 and the Comprehensive Business Review in 2016, theCompany has conducted a detailed store impairment analysis multiple times each year. The analysis uses input from retail store operations and theCompany’s accounting and finance personnel that organizationally report to the chief financial officer. These Level 3 projections are based on management’sestimates of store-level sales, gross margins, direct expenses, exercise of future lease renewal options where applicable, and resulting cash flows and, by theirnature, include judgments about how current initiatives will impact future performance. If the anticipated cash flows of a store cannot support the carryingvalue of its assets, the assets are impaired and written down to estimated fair value using Level 3 measure. The Company recognized store asset impairmentcharges of $8 million, $12 million and $26 million in 2016, 2015 and 2014, respectively.The projections prepared for the 2016 analysis assumed declining sales over the forecast period. Gross margin and operating cost assumptions have been heldat levels consistent with recent actual results and planned activities. Estimated cash flows were discounted at 13% in 2016, 12% in 2015 and 13% in 2014.The impairment charges include amounts to bring the location’s assets to estimated fair value based on projected operating cash flows or residual value, asappropriate. Assets added to previously impaired locations, whether for Division-wide enhancements or specific location betterments, are capitalized andsubsequently tested for impairment. For the fourth quarter 2016 calculation, a 100 basis point decrease in next year sales combined with a 50 basis pointdecrease in next year gross margin would have increased the impairment by approximately $2 million. Further, a 100 basis point decrease in sales for allfuture periods would increase the impairment by $5 million.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, additional impairment charges may result. However, at the end of 2015, the impairment analysisreflects the Company’s best estimate of future performance.Intangible AssetsDefinite-lived intangible assets — Following identification of retail stores for closure as part of the Real Estate Strategy and Comprehensive BusinessReview, the related favorable lease assets were assessed for accelerated amortization or impairment. Considerations included the Level 3 projected cash flowsdiscussed above, the net book value of operating assets and favorable lease assets and likely sublease over the option period after closure or return ofproperty to landlords. Impairment charges of $7 million, $1 million and $5 million were recognized during 2016, 2015 and 2014, respectively.Asset impairment charges for 2014 include $25 million resulting from a decision to convert certain websites to a common platform and to write offcapitalized software following certain information technology platform decisions related to the Merger. 104Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Indefinite-lived intangible assets — Goodwill associated with the Merger has been allocated to the reporting units for the purposes of the annual goodwillimpairment test. The estimated fair values of the reporting units in continuing operations at the 2016 test date were substantially in excess of their carryingvalues.NOTE 15. 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 $585 million in 2016, $612 million in 2015 and $647 million in 2014.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 31, 2016, 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.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, OfficeMax is named a defendant in a number of lawsuits, claims, and proceedings arising out of the operation of certain paperand forest products assets prior to those assets being sold in 2004, for which OfficeMax agreed to retain responsibility. Also, as part of that sale, OfficeMaxagreed to retain responsibility for all pending or threatened proceedings and future proceedings alleging asbestos-related injuries 105Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) arising out of the operation of the paper and forest products assets prior to the closing of the sale. The Company has made provision for losses with respect tothe pending proceedings. Additionally, as of December 31, 2016, the Company has made provision for environmental liabilities with respect to certain siteswhere hazardous substances or other contaminants are or may be located. For these environmental liabilities, our estimated range of reasonably possiblelosses was approximately $10 million to $25 million. The Company regularly monitors its estimated exposure to these liabilities. As additional informationbecomes known, these estimates may change, however, the Company does not believe any of these OfficeMax retained proceedings are material to theCompany’s financial position, results of operations or cash flowsNOTE 16. SEGMENT INFORMATIONFollowing the application of discontinued operations accounting for substantially all of the businesses formerly presented as the International Division, theCompany has two reportable segments: North American Retail Division and North American Business Solutions Division. The North American RetailDivision includes retail stores in the United States, including Puerto Rico and the U.S. Virgin Islands, which offer office supplies, technology products andsolutions, business machines and related supplies, facilities products, and office furniture. Most stores also have a copy and print center offering printing,reproduction, mailing and shipping. The North American Business Solutions Division sells office supply products and services throughout North America,including the United States, Puerto Rico, the U.S. Virgin Islands and Canada. North American Business Solutions Division customers are served throughdedicated sales forces, through catalogs, telesales, and electronically through its internet sites.The retained operations previously included in the International Division are not significant at December 31, 2016 and have been presented as Other,pending management assessment of the future of this business and how it will be managed.The office supply products and services offered across all operating segments are similar. The Company’s two operating segments are the two reportablesegments. The North American Retail Division and North American Business Solutions Division are managed separately, primarily because of the waycustomers are reached and served. Due to the sale of the Company’s interest in Grupo OfficeMax in August 2014, the joint venture’s results have beenreported as the Corporate level to align with how this information was presented for management reporting. The accounting policies for each segment are thesame as those described in Note 1. Division operating income is determined based on the measure of performance reported internally to manage the businessand for resource allocation. This measure charges to the respective Divisions those expenses considered directly or closely related to their operations andallocates support costs. Certain operating expenses and credits are not allocated to the Divisions including Asset impairments, Merger, restructuring andother operating (income) expenses, net, and Legal accrual, as well as expenses and credits retained at the Corporate level, including certain management costsand legacy pension and environmental matters. Other companies may charge more or less of these items to their segments and results may not be comparableto similarly titled measures used by other entities. 106Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) A summary of significant accounts and balances by segment, reconciled to consolidated totals, after the elimination of discontinued operations for all periodsis as follows. (In millions) NorthAmericanRetail NorthAmericanBusinessSolutions Other Corporate,Eliminations,andDiscontinuedOperations* ConsolidatedTotal Sales 2016 $5,603 $5,400 $18 $— $11,021 2015 6,004 5,708 15 — 11,727 2014 6,528 6,013 14 155 12,710 Division operating income 2016 299 265 1 — 565 2015 310 226 3 — 539 2014 126 232 1 — 359 Capital expenditures 2016 58 42 — 11 111 2015 56 70 — 18 144 2014 44 29 — 23 96 Depreciation and amortization 2016 90 69 — 22 181 2015 130 82 — 41 253 2014 140 85 — 52 277 Charges for losses on receivables and inventories 2016 58 20 — — 78 2015 42 11 — — 53 2014 48 4 — — 52 Assets 2016 1,542 1,713 4 2,281 5,540 2015 1,625 1,607 4 3,206 6,442 2014 1,736 1,687 4 3,330 6,757 *Amounts included in “Corporate, Eliminations, and Discontinued Operations” consist of (i) assets (including all cash and cash equivalents) anddepreciation related to corporate activities of continuing operations, (ii) assets of discontinued operations amounting to $142 million, $1.1 billion and$1.2 billion for the years ended December 31, 2016, December 26, 2015 and December 27, 2014, respectively, and (iii) accounts and balancesassociated with Grupo OfficeMax prior to disposition.A reconciliation of the measure of Division operating income to Consolidated income (loss) from continuing operations before income taxes is as follows: (In millions) 2016 2015 2014 Division operating income $565 $539 $359 Add/(subtract): Other operating income (loss) — — 8 Asset impairments (15) (13) (56) Merger, restructuring, and other operating income (expenses), net 80 (242) (334) Legal accrual — — (81) Unallocated expenses (99) (101) (124) Interest income 22 22 22 Interest expense (80) (91) (87) Loss on extinguishment of debt (15) — — Other income (expense), net 1 1 2 Income (loss) from continuing operations before income taxes $459 $115 $(291) 107Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) There is no single customer that accounts for 10% or more of the Company’s total sales.The Company classifies products into three broad categories: (1) supplies, (2) technology, and (3) furniture and other. The supplies category includesproducts such as paper, writing instruments, office supplies, cleaning and breakroom items. The technology category includes products such as toner and ink,computers, tablets and accessories, printers, electronic storage, as well as services for technology products. The furniture and other category includes productssuch as desks, seating, and luggage, as well as sales in our copy and print centers.Total Company sales by product category were as follows: 2016 2015 2014 Supplies 45.2% 44.4% 43.6% Technology 38.9% 40.2% 41.2% Furniture and other 15.9% 15.4% 15.2% 100.0% 100.0% 100.0% As of December 31, 2016, goodwill totaled $363 million, of which $78 million was recorded in the North American Retail Division and $285 million in theNorth American Solutions Division.NOTE 17. QUARTERLY FINANCIAL DATA (UNAUDITED) (In millions, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended December 31, 2016* Net sales $2,876 $2,583 $2,836 $2,725 Gross profit 715 613 726 653 Operating income 85 271 117 57 Net income from continuing operations 62 232 330 55 Discontinued operations, net of tax (16) (22) (137) 25 Net income (loss) 46 210 193 80 Basic earnings (loss) per share Continuing operations $0.11 $0.42 $0.62 $0.11 Discontinued operations $(0.03) $(0.04) $(0.26) $0.05 Basic earnings per share $0.08 $0.38 $0.36 $0.15 Diluted earnings (loss) per share Continuing operations $0.11 $0.41 $0.61 $0.10 Discontinued operations $(0.03) $(0.04) $(0.25) $0.05 Diluted earnings per share $0.08 $0.38 $0.35 $0.15 *Due to rounding, the sum of the quarterly amounts may not equal the reported amounts for the year. The first quarter and second quarter amounts reflectapplication of discontinued operations accounting that was effective in the third quarter. In the first, second, third and fourth quarters of 2016, captions include pre-tax Merger, restructuring, and other operating expenses, net totaling$40 million, $(193) million, $31 million and $43 million, respectively, and asset impairments of $0 million, $0 million, $9 million and $6 million,respectively. The second quarter of 2016 Merger, restructuring and other operating expenses, net includes $250 million Termination Fee receivedpursuant to termination of the Staples Merger Agreement. The third quarter and fourth quarters include non-cash tax benefits of approximately$240 million and $140 million, respectively, from the release of valuation allowances on deferred tax assets. 108(3)(1)(2)(2)(1)Table of ContentsOFFICE DEPOT, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The sum of the quarterly earnings per share does not equal the annual earnings per share due to differences in quarterly and annual weighted-averageshares outstanding. The amounts in the table above for the third quarter 2016 are as corrected to adjust for an error that was not material to the overall presentation. Whenthe Company committed to a plan to sell substantially all of the business formerly reported as the International Division, it provided reference to thecumulative translation adjustment (“CTA”) balance that existed at the end of the third quarter 2016, but did not include CTA in its impairmentanalysis. As a result, the loss amount of Discontinued operations, net of tax was overstated. The measurement has been corrected for the full year 2016amounts. This correcting adjustment is provided below and would impact the same captioned line items in various portions of the third quarterfinancial statements by the same amount, as well as the current assets of discontinued operations, accumulated deficit and totals including thoseaccounts. Third Quarter 2016 Year-to-Date Third Quarter 2016 ($ in Millions, except per share) AsReported Adjustment AsCorrected AsReported Adjustment AsCorrected Discontinued operations, net of tax $(286) $149 $(137) $(324) $149 $(175) Net income (loss) $44 $149 $193 $300 $149 $449 Basic earnings (loss) per share Discontinued operations $(0.54) $0.28 $(0.26) $(0.60) $0.28 $(0.32) Net earnings (loss) $0.08 $0.28 $0.36 $0.55 $0.27 $0.82 Diluted earnings per share Discontinued operations $(0.54) $0.29 $(0.25) $(0.60) $0.28 $(0.32) Net earnings (loss) $0.08 $0.27 $0.35 $0.54 $0.27 $0.81 (In millions, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year Ended December 26, 2015* Net sales $3,131 $2,784 $3,046 $2,767 Gross profit 761 659 787 656 Operating income (loss) 88 (27) 81 42 Net income (loss) from continuing operations 49 (31) 42 31 Discontinued operations, net of tax (4) (27) (36) (16) Net income (loss) 45 (58) 6 15 Basic earnings (loss) per share Continuing operations $0.09 $(0.06) $0.08 $0.06 Discontinued operations $(0.01) $(0.05) $(0.07) $(0.03) Basic earnings per share $0.08 $(0.11) $0.01 $0.03 Diluted earnings (loss) per share Continuing operations $0.09 $(0.06) $0.08 $0.06 Discontinued operations $(0.01) $(0.05) $(0.07) $(0.03) Diluted earnings per share $0.08 $(0.11) $0.01 $0.03 *Due to rounding, the sum of the quarterly amounts may not equal the reported amounts for the year. The amounts reflect application of discontinuedoperations accounting. In the first, second, third and fourth quarters of 2015, captions include pre-tax Merger, restructuring, and other operating expenses, net totaling$29 million, $96 million, $79 million and $38 million, respectively, and asset impairments of $5 million, $4 million, $1 million and $3 million,respectively. The sum of the quarterly earnings per share does not equal the annual earnings per share due to differences in quarterly and annual weighted-averageshares outstanding. 109(2)(3)(1)(1)(2)(2)(1)(2)Table of ContentsINDEX TO EXHIBITS FOR OFFICE DEPOT 10-K ExhibitNumber Exhibit 2.1 Agreement and Plan of Merger, dated February 20, 2013, by and among Office Depot, Inc., Dogwood Merger Sub LLC, MaplebyHoldings Merger Corporation, Mapleby Merger Corporation and OfficeMax Incorporated (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on February 22, 2013). 2.2 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). 2.3 Agreement and Plan of Merger, dated as of February 4, 2015, by and among Office Depot, Inc., Staples, Inc. and Staples AMS, Inc.(Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed with the SEC on February 4, 2015). 2.4 Termination Agreement, dated as of May 16, 2016, by and among Office Depot, Inc., Staples, Inc. and Staples AMS, Inc. (Incorporatedby reference from Office Depot Inc.’s Current Report on Form 8-K, filed with the SEC on May 17, 2016). 2.5 Sale and Purchase Agreement Relating to the Transfer of the Partnership Interests in Office Depot (Netherlands) C.V., dated as ofNovember 22, 2016, by and among Office Depot Foreign Holdings LP, LLC, Office Depot Foreign Holdings GP, LLC, Office Depot,Inc., Aurelius Rho Invest NL DS B.V. and Aurelius Rho Invest NL Two B.V. (Incorporated by reference from Office Depot Inc.’s CurrentReport on Form 8-K, filed with the SEC on January 5, 2017). 2.6 Amendment Agreement Relating to the Transfer of the Partnership Interests in Office Depot (Netherlands) C.V., dated as ofDecember 31, 2016, by and among Office Depot Foreign Holdings LP, LLC, Office Depot Foreign Holdings GP, LLC, Office Depot,Inc., Aurelius Rho Invest NL DS B.V. and Aurelius Rho Invest NL Two B.V. (Incorporated by reference from Office Depot Inc.’s CurrentReport on Form 8-K, filed with the SEC on January 5, 2017). 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 Amendment to the Amended and Restated Bylaws of Office Depot, Inc. (Incorporated by reference from Office Depot Inc.’s CurrentReport on Form 8-K, filed with the SEC on October 30, 2015). 3.3 Amended and Restated Bylaws of Office Depot, Inc. (Incorporated by reference from Office Depot Inc.’s Current Report on Form 8-K,filed with the SEC on August 2, 2016). 3.4 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). 3.5 Amendment to Restated Certificate of Incorporation (Incorporated by reference from Office Depot, Inc.’s Quarterly Report on Form10-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). 110(1)Table of ContentsExhibitNumber Exhibit 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 StatementNo. 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). 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 referencefrom Office Depot, Inc.’s Annual Report on Form 10-K, filed with the SEC on February 24, 2009).10.3 Office Depot, Inc. 2015 Long-Term Incentive Plan (Incorporated by reference from Office Depot, Inc.’s Registration Statement on FormS-8, filed with the SEC on June 19, 2015).10.4 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).*10.5 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).* 111(2)Table of ContentsExhibitNumber Exhibit10.6 Office Depot Corporate Annual Bonus Plan (Incorporated by reference from Office Depot, Inc.’s Current Report on Form 8-K, filed withthe SEC on June 22, 2015).10.7 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).*10.8 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).*10.9 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).*10.10 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).*10.11 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).*10.12 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).*10.13 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).*10.14 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).10.15 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).*10.16 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).**10.17 Form of Second Amended and Restated Credit Agreement, dated as of May 13, 2016, 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 Current Report on Form 8-K, filed with the SEC on May 17, 2016).10.18 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).* 112Table of ContentsExhibitNumber Exhibit10.19 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).*10.20 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).*10.21 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).10.22 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).*10.23 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).*10.24 Form of Restricted Stock Award Agreement (Incorporated by reference from Office Depot, Inc.’s Registration Statement on Form S-8,filed with the SEC on June 19, 2015).10.25 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).10.26 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).10.27 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).*10.28 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).*10.29 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).*10.30 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).*10.31 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).*10.32 First Amendment to Employment 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 August 22, 2016).* 113Table of ContentsExhibitNumber Exhibit10.33 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).*10.34 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).*10.35 Employment Agreement between the Company and Gerry P. Smith (Incorporated by reference from Office Depot Inc.’s Current Report onForm 8-K, filed with the SEC on January 30, 2017).*10.36 2017 Non-Qualified Stock Option Award Agreement between the Company and Gerry P. Smith (Incorporated by reference from OfficeDepot, Inc.’s Current Report on Form 8-K, filed with the SEC on January 30, 2017).*10.37 2017 Restricted Stock Unit Award Agreement between the Company and Gerry P. Smith (Incorporated by reference from Office Depot,Inc.’s Current Report on Form 8-K, filed with the SEC on January 30, 2017).*10.38 Form of Restricted Stock Unit Award Agreement (Incorporated by reference from Office Depot, Inc.’s Registration Statement on FormS-8, filed with the SEC on June 19, 2015).10.39 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).*10.40 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).*10.41 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).*10.46 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).*10.47 Amendment to the Change in Control Agreement between Office Depot, Inc. and Steven M. Schmidt, dated April 7, 2015 (Incorporatedby reference from Office Depot Inc.’s Annual Report on Form 10-K/A, filed with the SEC on April 22, 2016).*10.48 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).*10.49 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). 114Table of ContentsExhibitNumber Exhibit10.50 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).10.51 Form of Fourth Amendment, dated as of May 1, 2015, 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, the SecondAmendment to the Amended and Restated Credit Agreement, dated as of March 4, 2013 and the Third Amendment to the Amended andRestated Credit Agreement, dated as of November 1, 2013, among Office Depot, Inc., and certain of its European subsidiaries asBorrowers, JPMorgan Chase Bank, N.A., as Administrative Agent and U.S. Collateral Agent, JPMorgan Chase Bank N.A., LondonBranch, as European Administrative and European Collateral Agent, and the other lenders referred to therein (Incorporated by referencefrom Office Depot, Inc’s Quarterly Report on Form 10-Q, filed with the SEC on May 5, 2015).10.52 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).**10.54 Retention Agreement between Office Depot, Inc. and Mr. Steven M. Schmidt dated April 7, 2015 (Incorporated by reference from OfficeDepot Inc.’s Annual Report on Form 10-K/A, filed with the SEC on April 22, 2016).*10.55 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).10.56 Form of Agreement For Cash Settled Short-Term Performance Award For Executive Officers (Incorporated by reference from Office DepotInc.’s Quarterly Report on Form 10-Q, filed with the SEC on August 4, 2015.)10.57 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).10.58 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).10.59 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).10.60 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).10.61 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). 115Table of ContentsExhibitNumber Exhibit10.62 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).10.63 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).10.64 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).10.65 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).10.66 Form of Settlement Agreement (Incorporated by reference from Office Depot’s Current Report on Form 8-K, filed with the SEC onDecember 23, 2014)10.67 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).10.68 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).*10.69 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).*10.70 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).*10.71 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).*10.72 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).*10.73 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).*10.74 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).*10.75 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).*10.76 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).* 116Table of ContentsExhibitNumber Exhibit10.77 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).*10.78 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).*10.79 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).*10.80 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).*10.81 Form of 2012 Performance Unit Award Agreement (Incorporated by reference from OfficeMax Incorporated’s Current Report on Form8-K, filed with the SEC on February 22, 2012).*10.82 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).*10.83 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).**10.84 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).10.85 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).*10.86 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).*10.87 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).* 10.88 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 Subsidiaries 23.1 Consent of Independent Registered Public Accounting Firm 31.1 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 of2002(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 117(3)Table of ContentsExhibitNumber Exhibit(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. 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. 118(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. 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 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 DelawareOffice Depot Pension Finance LLC DelawareOfficeMax Southern Company LouisianaOfficeMax Nevada Company NevadaOMX, Inc. NevadaOfficeMax North America, Inc. OhioNorth American Card and Coupon Services, LLC Virginia 119Foreign Subsidiaries of the Company: Name Jurisdiction of IncorporationOfficeMax Australia Limited AustraliaClearfield Insurance Limited BermudaOffice Depot Overseas Holding Limited BermudaOffice 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 Asia Holding Limited Hong KongOffice Depot Global Sourcing Ltd (f.k.a. Office Supply Solutions (Hong Kong) Ltd.) Hong KongOffice Depot Korea Co., Ltd. Korea (South)OM Luxembourg Holdings S.à r.l. LuxembourgOfficeMax New Zealand Limited New ZealandOffice Depot Puerto Rico, LLC Puerto RicoGuilbert UK Pension Trustees Ltd United KingdomOffice Depot UK Pension Sponsor Limited United Kingdom *Ownership may consist of one subsidiary or any combination of subsidiaries, which may include Office Depot, Inc. 120Exhibit 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, 333-192185 and 333-205084 on Form S-8 of our reports dated March 1, 2017 relating to theconsolidated financial statements of Office Depot, Inc. and subsidiaries (the “Company”), and the effectiveness of the Company’s internal control overfinancial reporting, appearing in this Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2016./s/ DELOITTE & TOUCHE LLPCertified Public AccountantsBoca Raton, FloridaMarch 1, 2017 121Exhibit 31.1Rule 13a-14(a)/15d-14(a) CertificationI, Gerry P. 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/ GERRY P. SMITHName: Gerry P. SmithTitle: Chief Executive OfficerDate: March 1, 2017 122Exhibit 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: March 1, 2017 123Exhibit 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 31, 2016 as filed with theSecurities and Exchange Commission on the date hereof (the “Report”), Gerry P. 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/ GERRY P. SMITHName: Gerry P. SmithTitle: Chief Executive OfficerDate: March 1, 2017/s/ STEPHEN E. HAREName: Stephen E. HareTitle: Chief Financial OfficerDate: March 1, 2017A 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). 124

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