View Filing Data

Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 25, 2010	Jan. 22, 2011	Jun. 26, 2010
Document and Entity Information
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 25, 2010
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	FY
Trading Symbol	odp
Entity Registrant Name	OFFICE DEPOT INC
Entity Central Index Key	0000800240
Current Fiscal Year End Date	--12-25
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		277,167,364
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 1,254,039,687

Consolidated Balance Sheets - USD ($) $ in Thousands	12 Months Ended
Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 25, 2010	Dec. 26, 2009
Current assets:
Cash and cash equivalents	$ 627,478	$ 659,898
Receivables, net of allowances of $28,047 in 2010 and $32,802 in 2009	1,026,500	1,121,160
Inventories	1,233,657	1,252,929
Prepaid expenses and other current assets	203,020	172,342
Total current assets	3,090,655	3,206,329
Property and equipment, net	1,157,013	1,277,655
Goodwill	19,431	19,431
Other intangible assets	21,840	25,333
Deferred income taxes	33,319	81,706
Other assets	330,108	279,892
Total assets	4,652,366	4,890,346
Current liabilities:
Trade accounts payable	1,080,276	1,081,381
Accrued expenses and other current liabilities	1,188,233	1,280,296
Income taxes payable	2,568	6,683
Short-term borrowings and current maturities of long-term debt	72,368	59,845
Total current liabilities	2,343,445	2,428,205
Deferred income taxes and other long-term liabilities	514,218	654,851
Long-term debt, net of current maturities	659,820	662,740
Total liabilities	$ 3,517,483	$ 3,745,796
Commitments and contingencies
Redeemable preferred stock, net (liquidation preference - $368,516 in 2010 and $368,116 in 2009)	$ 355,979	$ 355,308
Office Depot, Inc. stockholders' equity:
Common stock - authorized 800,000,000 shares of $.01 par value; issued and outstanding shares - 283,059,236 in 2010 and 280,652,278 in 2009	2,831	2,807
Additional paid-in capital	1,164,823	1,193,157
Accumulated other comprehensive income	223,807	238,379
Accumulated deficit	(555,303)	(590,195)
Treasury stock, at cost - 5,915,268 shares in 2010 and 2009	(57,733)	(57,733)
Total Office Depot, Inc. stockholders' equity	778,425	786,415
Noncontrolling interest	479	2,827
Total stockholders' equity	778,904	789,242
Total liabilities and stockholders' equity	$ 4,652,366	$ 4,890,346

Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 25, 2010	Dec. 26, 2009	Dec. 27, 2008
Consolidated Statements of Operations
Sales	$ 11,633,094	$ 12,144,467	$ 14,495,544
Cost of goods sold and occupancy costs	8,275,957	8,752,283	10,489,785
Gross profit	3,357,137	3,392,184	4,005,759
Store and warehouse operating and selling expenses	2,684,301	2,907,900	3,322,662
Goodwill and trade name impairments			1,269,893
Other asset impairments	51,295	26,175	222,379
General and administrative expenses	658,832	723,114	743,174
Amortization of deferred gain on sale of building			(7,308)
Operating loss	(37,291)	(265,005)	(1,545,041)
Other income (expense):
Interest income	4,663	2,396	10,013
Interest expense	(58,498)	(65,628)	(68,286)
Miscellaneous income, net	34,451	17,085	23,666
Loss before income taxes	(56,675)	(311,152)	(1,579,648)
Income tax expense (benefit)	(89,985)	287,572	(98,645)
Net earnings (loss)	33,310	(598,724)	(1,481,003)
Less: Net loss attributable to the noncontrolling interest	(1,582)	(2,259)	(2,065)
Net earnings (loss) attributable to Office Depot, Inc.	34,892	(596,465)	(1,478,938)
Preferred stock dividends	37,113	30,506
Net loss attributable to common shareholders	$ (2,221)	$ (626,971)	$ (1,478,938)
Net earnings (loss) per share:
Basic	$ (0.01)	$ (2.3)	$ (5.42)
Diluted	$ (0.01)	$ (2.3)	$ (5.42)

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	12 Months Ended
	Dec. 25, 2010	Dec. 26, 2009	Dec. 27, 2008
Statement [Line Items]
Beginning Balance	$ 789,242	$ 1,367,833	$ 3,099,408
Acquisition of majority-owned subsidiaries			5,995
Disposition of majority-owned subsidiaries	2,523
Purchase of subsidiary shares from noncontrolling interest	(19,689)	(105)	(14,295)
Net loss	33,310	(598,724)	(1,481,003)
Foreign currency translation adjustments	(32,224)	25,769	(248,591)
Change in deferred pension	19,942	(7,523)	(24,128)
Amortization of gain on cash flow hedge	(1,659)	(1,659)	(1,659)
Change in deferred cash flow hedge	(51)	4,657	(4,657)
Other	(246)	246
Comprehensive income (loss), net of tax	19,072	(577,234)	(1,760,038)
Preferred stock dividends	(37,113)	(30,506)
Acquisition of treasury stock			(944)
Forfeiture of restricted stock	(2)	(4)	(4)
Share-based payments (including income tax benefits and withholding)		(4,096)
Exercise of stock options (including income tax benefits and withholding)	4,028		(1,221)
Issuance of stock under employee stock purchase plans			(785)
Direct stock purchase plans		35	133
Amortization of long-term incentive stock grant	20,843	33,319	39,584
Ending Balance	778,904	789,242	1,367,833
Common Stock [Member]
Statement [Line Items]
Beginning Balance	$ 2,807	$ 2,808	$ 4,288
Beginning Balance, shares	280,652,278	280,800,135	428,777,625
Comprehensive income (loss), net of tax
Retirement of treasury stock			$ (1,499)
Retirement of treasury stock, shares			(149,940,718)
Grant of long-term incentive stock	$ 2	$ 3	$ 23
Grant of long-term incentive stock, shares	223,762	258,074	2,307,993
Forfeiture of restricted stock	$ (2)	$ (4)	$ (5)
Forfeiture of restricted stock, shares	(236,512)	(405,931)	(465,175)
Exercise of stock options (including income tax benefits and withholding)	$ 24		$ 1
Exercise of stock options (including income tax benefits and withholding), shares	2,419,708		109,744
Issuance of stock under employee stock purchase plans, shares			10,666
Ending Balance	$ 2,831	$ 2,807	$ 2,808
Ending Balance, shares	283,059,236	280,652,278	280,800,135
Additional Paid-in Capital [Member]
Statement [Line Items]
Beginning Balance	$ 1,193,157	$ 1,194,622	$ 1,784,184
Purchase of subsidiary shares from noncontrolling interest	(16,066)
Comprehensive income (loss), net of tax
Preferred stock dividends	(37,113)	(30,506)
Retirement of treasury stock			(626,889)
Grant of long-term incentive stock	(2)	(3)	(23)
Forfeiture of restricted stock			1
Share-based payments (including income tax benefits and withholding)		(4,096)
Exercise of stock options (including income tax benefits and withholding)	4,004		(1,222)
Issuance of stock under employee stock purchase plans			(785)
Direct stock purchase plans		(179)	(228)
Amortization of long-term incentive stock grant	20,843	33,319	39,584
Ending Balance	1,164,823	1,193,157	1,194,622
Comprehensive Income (Loss) [Member]
Statement [Line Items]
Net loss	33,310	(598,724)	(1,481,003)
Foreign currency translation adjustments	(32,224)	25,769	(248,591)
Change in deferred pension	19,942	(7,523)	(24,128)
Amortization of gain on cash flow hedge	(1,659)	(1,659)	(1,659)
Change in deferred cash flow hedge	(51)	4,657	(4,657)
Other	(246)	246
Comprehensive income (loss), net of tax	19,072	(577,234)	(1,760,038)
Accumulated Other Comprehensive Income (Loss) [Member]
Statement [Line Items]
Beginning Balance	238,379	217,197	495,916
Foreign currency translation adjustments	(32,558)	25,461	(248,275)
Change in deferred pension	19,942	(7,523)	(24,128)
Amortization of gain on cash flow hedge	(1,659)	(1,659)	(1,659)
Change in deferred cash flow hedge	(51)	4,657	(4,657)
Other	(246)	246
Ending Balance	223,807	238,379	217,197
Retained Earnings (Accumulated Deficit) [Member]
Statement [Line Items]
Beginning Balance	(590,195)	6,270	3,783,805
Net loss	34,892	(596,465)	(1,478,938)
Retirement of treasury stock			(2,298,597)
Ending Balance	(555,303)	(590,195)	6,270
Treasury Stock [Member]
Statement [Line Items]
Beginning Balance	(57,733)	(57,947)	(2,984,349)
Comprehensive income (loss), net of tax
Acquisition of treasury stock			(944)
Retirement of treasury stock			2,926,985
Direct stock purchase plans		214	361
Ending Balance	(57,733)	(57,733)	(57,947)
Noncontrolling Interest [Member]
Statement [Line Items]
Beginning Balance	2,827	4,883	15,564
Acquisition of majority-owned subsidiaries			5,995
Disposition of majority-owned subsidiaries	2,523
Purchase of subsidiary shares from noncontrolling interest	(3,623)	(105)	(14,295)
Net loss	(1,582)	(2,259)	(2,065)
Foreign currency translation adjustments	334	308	(316)
Ending Balance	$ 479	$ 2,827	$ 4,883

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 25, 2010	Dec. 26, 2009	Dec. 27, 2008
Cash flows from operating activities:
Net earnings (loss)	$ 33,310	$ (598,724)	$ (1,481,003)
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation and amortization	208,319	224,115	254,099
Charges for losses on inventories and receivables	57,824	80,178	140,058
Net earnings from equity method investments	(30,635)	(30,579)	(37,113)
Dividends received		13,931
Goodwill and trade name impairments			1,269,893
Other asset impairments	51,295	26,175	222,379
Compensation expense for share-based payments	20,840	33,316	39,561
Deferred income taxes and valuation allowances on deferred tax assets	15,551	325,886	(108,099)
Loss (gain) on disposition of assets	8,709	7,655	(13,443)
Other operating activities	11,501	7,199	(5,547)
Changes in assets and liabilities:
Decrease (increase) in receivables	(2,440)	126,131	133,162
Decrease (increase) in inventories	(87,724)	37,583	249,849
Net decrease (increase) in prepaid expenses and other assets	(17,694)	28,165	(16,986)
Net increase (decrease) in accounts payable, accrued expenses and other long-term liabilities	(69,144)	15,408	(178,554)
Total adjustments	166,402	895,163	1,949,259
Net cash provided by operating activities	199,712	296,439	468,256
Cash flows from investing activities:
Capital expenditures	(169,452)	(130,847)	(330,075)
Acquisitions, net of cash acquired, and related payments	(32,738)		(102,752)
Purchase of assets held for sale and sold			(38,537)
Proceeds from disposition of assets and other	35,393	150,131	120,632
Restricted cash for pending transaction	(46,509)		(6,037)
Release of restricted cash		6,037	18,100
Net cash provided by (used in) investing activities	(213,306)	25,321	(338,669)
Cash flows from financing activities:
Net proceeds from exercise of stock options and sale of stock under employee stock purchase plans	1,011	35	503
Tax benefit from employee share-based exercises	3,414		89
Treasury stock additions from employee related plans			(944)
Debt issuance costs	(4,688)		(40,793)
Proceeds from issuance of redeemable preferred stock, net		324,801
Dividends on redeemable preferred stock	(27,639)
Proceeds from issuance of borrowings	52,488	24,321	139,098
Payments on long- and short-term borrowings	(30,284)	(175,863)	(284,204)
Net cash provided by (used in) financing activities	(5,698)	173,294	(186,251)
Effect of exchange rate changes on cash and cash equivalents	(13,128)	9,099	(10,545)
Net increase (decrease) in cash and cash equivalents	(32,420)	504,153	(67,209)
Cash and cash equivalents at beginning of period	659,898	155,745	222,954
Cash and cash equivalents at end of period	$ 627,478	$ 659,898	$ 155,745

Summary of Significant Accounting Policies	12 Months Ended
Summary of Significant Accounting Policies	Dec. 25, 2010
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies	NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business: Office Depot, Inc. ("Office Depot") is a global supplier of office products and services under the Office Depot^® brand and other proprietary brand names. As of December 25, 2010, we sold to customers in 53 countries throughout North America, Europe, Asia and Latin America. We operate wholly-owned entities, majority-owned entities or participate in other ventures covering 41 countries and have alliances in an additional 12 countries. Basis of Presentation: The consolidated financial statements of Office Depot and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany transactions have been eliminated in consolidation. In addition to wholly owned subsidiaries, we consolidate entities where we control financial and operating policies but do not have total ownership. Noncontrolling interests are presented in the Consolidated Balance Sheets and Consolidated Statements of Stockholders' Equity as a component of total stockholders' equity and in the Consolidated Statements of Operations as a specific allocation of net earnings (loss). The equity method of accounting is used for our investments in which we do not control but we either share control equally or have significant influence. During 2010 , we amended the shareholders' agreement related to our venture in India such that control is now shared equally. The venture has been deconsolidated and is now accounted for under the equity method. We also participate in a joint venture selling office products and services in Mexico and Central and South America that is accounted for using the equity method with its results presented in miscellaneous income, net in the Consolidated Statements of Operations. See Note Q for information on our investment in Mexico. The December 26, 2009 balance sheet has been modified to combine short term deferred income taxes with prepaid expenses and other current assets, to conform to the December 25, 2010 presentation. Fiscal Year: Fiscal years are based on a 52- or 53-week period ending on the last Saturday in December. All years presented are based on 52 weeks. Fiscal year 2011 will include 53 weeks. Estimates and Assumptions: Preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported in the financial statements and related notes. For example, estimates are required for, but not limited to, facility closure costs, asset impairments, amounts earned under vendor programs, contingencies and valuation allowances on deferred tax assets. Actual results may differ from those estimates. Foreign Currency: Assets and liabilities of international operations are translated into U.S. dollars using the exchange rate at the balance sheet date. Revenues, expenses and cash flows are translated at average monthly exchange rates. Translation adjustments resulting from this process are recorded in stockholders' equity as a component of accumulated other comprehensive income ("OCI"). Monetary assets and liabilities denominated in a currency other than a consolidated entity's functional currency result in transaction gains or losses from the remeasurement at spot rates at the end of the period. Foreign currency gains and losses are recorded in miscellaneous income, net in the Consolidated Statements of Operations. Cash Equivalents: All short-term highly liquid securities with maturities of three months or less from the date of acquisition are classified as cash equivalents. Approximately $53 million and $7 million of restricted cash held on deposit was included in other current assets at December 25, 2010 and December 26, 2009, respectively. Approximately $47 million of restricted cash at the end of the year 2010 relates to an agreement to purchase an entity that is pending regulatory approval. Cash Management: Our cash management process generally utilizes zero balance accounts which provide for the settlement of the related disbursement accounts and cash concentration on a daily basis. Accounts payable and accrued expenses as of December 25, 2010 and December 26, 2009 included $64 million and $77 million, respectively, of amounts not yet presented for payment drawn in excess of disbursement account book balances, after considering existing offset provisions. We may borrow on a cost effective basis during the period, which may result in higher levels of borrowings and invested cash within the period. At the end of the period, cash may be used to minimize borrowings outstanding at the balance sheet date. Receivables: Trade receivables, net, totaled $687.4 million and $770.1 million at December 25, 2010 and December 26, 2009, respectively. An allowance for doubtful accounts has been recorded to reduce receivables to an amount expected to be collectible from customers. The allowance recorded at December 25, 2010 and December 26, 2009 was $28.0 million and $32.8 million, respectively. We do not own, but have recourse for private label credit card receivables generated under our private label credit card program. The estimated fair value liability associated with risk of loss is included in accrued expenses. Our exposure to credit risk associated with trade receivables is limited by having a large customer base that extends across many different industries and geographic regions. However, receivables may be adversely affected by an economic slowdown in the U.S. or internationally. No single customer accounted for more than 10% of our total sales in 2010, 2009 or 2008. Other receivables are $339.1 million and $351.1 million as of December 25, 2010 and December 26, 2009, respectively, of which $198.3 million and $225.4 million 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 physical counts. In-bound freight is included as a cost of inventories. Also, certain vendor allowances that are related to inventory purchases are considered to reduce the product cost. The weighted average method is used to determine the cost of our inventory in North America and the first-in-first-out method is used for inventory held within our international operations. Income Taxes: Income tax expense is recognized at applicable U.S. or international tax rates. Certain revenue and expense items may be recognized in one period for financial statement purposes and in a different period's income tax return. The tax effects of such differences are reported as deferred income taxes. Valuation allowances are recorded for periods in which realization of deferred tax assets does not meet a more likely than not standard. See Note G for additional information on deferred income taxes. Property and Equipment: Property and equipment additions are recorded at cost. Depreciation and amortization is recognized over their estimated useful lives 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, fixtures and equipment. Computer software is amortized over three years for common office applications, five years for larger business applications and seven years for certain enterprise-wide systems. Leasehold improvements are amortized over the shorter of the estimated economic lives of the improvements or the terms of the underlying leases, including renewal options considered reasonably assured at inception of the leases. Goodwill and Other Intangible Assets: Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired. Accounting rules require that we test at least annually for possible goodwill impairment. Unless conditions warrant earlier action, we perform our test in the fourth quarter of each year using a discounted cash flow analysis that requires that certain assumptions and estimates be made regarding industry economic factors and future profitability. During 2008, we recognized an impairment charge of $1,213.3 million related to goodwill, which is reflected in goodwill and trade name impairments in the Consolidated Statements of Operations. Unless conditions warrant earlier action, intangible assets with indefinite lives are tested annually for impairment during the fourth quarter and written down to fair value as required. During 2008, a charge of approximately $56.6 million was recorded to impair non-amortizing trade name intangibles. This impairment charge is included in goodwill and trade name impairments in the Consolidated Statements of Operations. We amortize the cost of other intangible assets over their estimated useful lives. Amortizable intangible assets are reviewed at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization. During 2008, we concluded that the value of certain amortizing intangible assets was impaired, and we recognized a charge of $10.9 million to fully impair the customer list intangible assets in our International Division. This impairment charge is included in other asset impairments in the Consolidated Statements of Operations. See Note C for information related to goodwill and other intangible asset impairment charges recognized in 2008. Impairment of Long-Lived Assets: Long-lived assets with identifiable cash flows are reviewed for possible impairment annually or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impairment is assessed at the lowest level of identifiable cash flows, considering the estimated undiscounted cash flows over the asset's remaining life. If estimated cash flows are insufficient to recover the investment, an impairment loss is recognized equal to the estimated fair value of the asset less its carrying value and any costs of disposition. Impairment losses of $2.3 million, $3.5 million and $97.7 million were recognized in 2010, 2009 and 2008, respectively, relating to certain under-performing retail stores. For additional discussion of material asset impairment charges recogn ized in 2008, see Note C. Facility Closure Costs: We regularly review store performance against expectations and close stores not meeting our performance requirements. Costs associated with store or other facility closures, principally lease cancellation costs, are recognized when the facility is no longer used in an operating capacity or when a liability 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 anticipated sublease benefits and discounted at the company's risk-adjusted rate at the time of closing. We recorded charges relating to facilities closed totaling $5 million, $126 million and $10 million in 2010, 2009 and 2008, respectively. Additionally, we recognized charges to terminate existing commitments and to adjust remaining commitments to current market values. These charges totaled $5 million and $9 million in 2009 and 2008, respectively. The accrued balance relating to our future commitments under operating leases for our closed facilities was $133 million and $181 million at December 25, 2010 and December 26, 2009, respectively. The short-term and long-term components of this liability are included in accrued expenses and other long-term liabilities, respectively, on the Consolidated Balance Sheets. Fair Value of Financial Instruments: The estimated fair values of financial instruments recognized in the Consolidated Balance Sheets or disclosed within these Notes to Consolidated Financial Statements have been determined using available market information, information from unrelated third-party financial institutions and appropriate valuation methodologies, primarily discounted projected cash flows. However, considerable judgment is required when interpreting market information and other data to develop estimates of fair value. See Note J for additional information on fair value. Accounting for Stock-Based Compensation: We account for stock-based compensation using the fair value method of expense recognition. We use the Black-Scholes valuation model and recognize compensation expense on a straight-line basis over the requisite service period of the grant. We consider alternative models if grants have characteristics that cannot be reasonably estimated using this model. Accrued Expenses: Included in accrued expenses and other current liabilities in our Consolidated Balance Sheets are accrued payroll-related amounts of approximately $273 million and $294 million at December 25, 2010 and December 26, 2009, respectively. Revenue Recognition: Revenue is recognized at the point of sale for retail transactions and at the time of successful delivery for contract, catalog and internet sales. Sales taxes collected are not included in reported sales. We use judgment in estimating sales returns, considering numerous factors including historical sales return rates. Although we consider our sales return accruals to be adequate and proper, changes from historical customer patterns could require adjustments to the provision for returns. We also record reductions to our revenues for customer programs and incentive offerings including special pricing agreements, certain promotions and other volume-based incentives. Revenue from sales of extended warranty service plans is either recognized at the point of sale or over the warranty period, depending on the determination of legal obli gor status. All performance obligations and risk of loss associated with such contracts are transferred to an unrelated third-party administrator at the time the contracts are sold. Costs associated with these contracts are recognized in the same period as the related revenue. We recognize a liability for future performance when gift cards are sold and recognize the related revenue when gift cards are redeemed as payment for our products. We recognize as revenue the unused portion of the gift card liability when historical data indicates that additional redemption is unlikely. Franchise fees, royalty income and the sales of products to our franchisees and licensees are included in sales, while product costs are included in cost of goods sold and occupancy costs in the Consolidated Statements of Operations. Shipping and Handling Fees and Costs: Income generated from shipping and handling fees is classified as revenues for all periods presented. Freight costs incurred to bring merchandise to stores and warehouses are included as a component of inventory and costs of goods sold. Freight costs incurred to ship merchandise to customers are recorded as a component of store and warehouse operating and selling expenses. Shipping costs, combined with warehouse handling costs, totaled $747.1 million in 2010, $767.6 million in 2009 and $911.2 million in 2008. Advertising: Advertising costs are charged either to expense when incurred or, in the case of direct marketing advertising, capitalized and amortized in proportion to the related revenues over the estimated life of the material, which range from several months to up to one year. Advertising expense recognized was $469.5 million in 2010, $453.3 million in 2009 and $525.7 million in 2008. Prepaid advertising costs were $40.9 million as of December 25, 2010 and $37.3 million as of December 26, 2009. Pre-opening Expenses: Pre-opening expenses related to opening new stores and warehouses or relocating existing stores and warehouses are expensed as incurred and included in store and warehouse operating and selling expenses. Self-Insurance: Office Depot is primarily self-insured for workers' compensation, auto and general liability and employee medical insurance programs. Self-insurance liabilities are based on claims filed and estimates of claims incurred but not reported. These liabilities are not discounted. Comprehensive Income (Loss): Comprehensive income (loss) represents the change in stockholders' equity from transactions and other events and circumstances arising from non-stockholder sources. Comprehensive income consists of net earnings (loss), foreign currency translation adjustments, realized or unrealized gains (losses) on investment securities that are available-for-sale, deferred pension gains (losses), and elements of qualifying cash flow hedges, net of applicable income taxes. As of December 25, 2010, and December 26, 2009, our Consolidated Balance Sheet reflected OCI in the amount of $224 million and $238 million, which consisted of $214 million and $247 million in foreign currency translation adjustments, $4 million and $6 million in unamortized gain on hedge and $6 million in deferred pension gain and $15 million in def erred pension loss, respectively. Vendor Arrangements: We enter into arrangements with substantially all of our significant vendors that provide for some form of consideration to be received from the vendors. Arrangements vary, but generally specify volume rebate thresholds, advertising support levels, as well as terms for payment and other administrative matters. The volume-based rebates, supported by a vendor agreement, are estimated throughout the year and reduce the cost of inventory and cost of goods sold during the year. This estimate is regularly monitored and adjusted for current or anticipated changes in purchase levels and for sales activity. Other promotional consideration received is event-based or represents general support and is recognized as a reduction of cost of goods sold or inventory, as appropriate based on the type of promotion and the agreement with the vendor. Some arrangements may meet the specific, incremental, identifiable criteria that allow for direct operating expense offset, but such arrangements are not significant. New Accounting Standards: There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

Redeemable Preferred Stock

12 Months Ended

Dec. 25, 2010

Redeemable Preferred Stock

Redeemable Preferred Stock

NOTE B — REDEEMABLE PREFERRED STOCK

On June 23, 2009, Office Depot, Inc. issued 274,596 shares of 10.00% Series A Redeemable Convertible Participating Perpetual Preferred Stock, par value $0.01 per share ("Series A Preferred Stock"), and 75,404 shares of 10.00% Series B Redeemable Conditional Convertible Participating Perpetual Preferred Stock, par value $0.01 per share ("Series B Preferred Stock"), to funds advised by BC Partners, Inc. (the "Investors"), for $350 million (collectively, the "Preferred Stock"). The issued shares are out of 280,000 authorized shares of Series A Preferred Stock and 80,000 authorized shares of Series B Preferred Stock. Approval of conversion and voting rights for these shares was received at a special shareholders' meeting on October 14, 2009.

The initial liquidation value of $1,000 per preferred share and the conversion rate of $5.00 per common share allow the two series of preferred stock to be initially convertible into 70 million shares of common stock. The conversion rate is subject to anti-dilution adjustments. Until converted or otherwise redeemed, the Preferred Stock is recorded outside of permanent equity on the Consolidated Balance Sheets because certain redemption conditions are not solely within the control of Office Depot. The balance is presented inclusive of accrued dividends and net of approximately $25 million of fees, including issuance costs paid for investment banking, legal and accounting fees, and $3.5 million paid to BC Partners, approximately $2.8 million of which was returned to the investing funds as a portion of a transaction funding fee.

Dividends are payable quarterly and will be paid in-kind or, in cash, only to the extent that the company has funds legally available for such payment and a cash dividend is declared by the company's board of directors and allowed by credit facilities. If not paid in cash, an amount equal to the cash dividend due will be added to the liquidation preference and measured for accounting purposes at fair value. After the third anniversary of issuance, the dividend rate will be reduced to:

(i)

7.87% if at any time after June 23, 2010, the closing price of the company's common stock is greater than or equal to $6.62 per share for a period of 20 consecutive trading days, or

(ii)

5.75% if at any time after June 23, 2010, the closing price of the company's common stock is greater than or equal to $8.50 per share for a period of 20 consecutive trading days.

The Preferred Stock also may participate in dividends on common stock, if declared. However, if the closing price of the common stock on the record date for a dividend payment is less than $45.00 per share, the company may not declare or pay a cash dividend on the common stock per share for any fiscal quarter in excess of the Preferred Stock dividend amounts.

The board of directors approved cash dividends on the Preferred Stock for each of the quarterly periods of 2010. Dividends were accrued and paid in-kind for the quarterly periods of 2009. The stated-rate of those in-kind dividends were added to the liquidation preference of the respective Series A and Series B Preferred Stock. For accounting purposes, the dividends were measured at fair value using a binomial simulation model This technique resulted in a fair value estimate of approximately $30.5 million, or approximately $12.4 million above the increase in the liquidation preference amounts of the Preferred Stock. The liquidation preference and carrying value of the Preferred Stock was $368.5 million and $356.0 million at December 25, 2010 and $368.1 million and $355.3 million at December 26, 2009, respectively.

The Preferred Stock is redeemable, in whole or in part, at the option of the company at any time after June 23, 2012, subject to the right of the holder to first convert the preferred stock the company proposes to redeem. The redemption price is initially 107% of the liquidation preference amount plus any accrued but unpaid dividends and decreases by 1% each year until reaching 100% after June 23, 2019. At any time after June 23, 2011, if the closing price of the common stock is greater than or equal to $9.75 per share for a period of 20 consecutive trading days, the Preferred Stock is redeemable at 100% of the liquidation preference amount plus any accrued but unpaid dividends, in whole or in part, at the option of the company, subject to the right of the holder to first convert the Preferred Stock the company proposes to redeem. The Preferr ed Stock is redeemable at the option of the holder at 101% of the liquidation preference in the event of certain fundamental change provisions (as defined in the Certificate of Designations for each series), including sale, bankruptcy or delisting of our common stock.

In connection with the transaction, the company entered into an Investor Rights Agreement. Subject to certain exceptions, for so long as the Investors' ownership percentage is equal to or greater than 10%, the approval of at least one of the directors designated to the company's board of directors by the Investors is required for the company to incur any indebtedness for borrowed money in excess of $200 million in the aggregate during any fiscal year. In addition, at the current ownership percentage level, the Investors are entitled to nominate up to three members of the board of directors. Declining ownership percentages reduce the Investors' board representation rights. Three directors designated by the Investors are current members of the company's board of directors.

Asset Impairments, Exit Costs and Other Charges

12 Months Ended

Dec. 25, 2010

Asset Impairments, Exit Costs and Other Charges

Asset Impairments, Exit Costs and Other Charges

NOTE C — ASSET IMPAIRMENTS, EXIT COSTS AND OTHER CHARGES

Each of our three operating segments has been adversely affected by the downturn in the global economy in recent years. The company has taken actions to adapt to the changing and increasingly competitive conditions including closing stores and distribution centers ("DCs"), consolidating functional activities and disposing of businesses and assets. During 2010, 2009 and 2008, we have recognized significant charges from reorganization efforts and asset impairments. The charges recognized in 2009 and 2008 that related to a strategic review (the "Charges") were managed at the corporate level and were excluded from measurement of Division operating profit.

In the fourth quarter of 2010, the company initiated additional activities to increase future operating performance, change the ownership structure of certain international investments and eliminate non-productive corporate assets. The 2010 charges included termination benefits and lease obligations accrued in Europe of approximately $6 million and $5 million respectively, a pre-tax loss on the sale of two operating subsidiaries in the International Division of approximately $11 million, a $51 million charge for the abandonment of software under development that will not be implemented and approximately $13 million associated with severance, accelerated vesting of share-based awards and compensation-related costs following the departure of the former CEO. The operations of the two subsidiaries sold were not material to the operations of the company. The loss on subsidi ary sales and the severance and lease obligation accruals recognized in 2010 are included in Store and warehouse operating and selling expenses on the Consolidated Statements of Operations and are included in the measurement of segment operating profit for the International Division. The software impairment charge is presented on a separate line and the executive compensation costs are included in unallocated general and administrative expenses.

A summary of the Charges recognized during 2009 and 2008 and the line item presentation of these amounts in our accompanying Consolidated Statements of Operations is as follows.


(Dollars in millions, except per share amounts)	2009		2008
Cost of goods sold and occupancy costs	$	13	$	16
Store and warehouse operating and selling expenses		188		52
Goodwill and trade name impairments		—		1,270
Other asset impairments		26		114
General and administrative expenses		26		17

Total pre-tax Charges	$	253	$	1,469

The primary components of Charges include:

•

Retail Store Initiatives — We closed 126 stores in North America (six of which were closed in the fourth quarter of 2008, the remainder in 2009) and 27 stores in Japan. The stores closed were underperforming or stores that were no longer a strategic fit for the company. The Charges totaled $122 million and $104 million in 2009 and 2008, respectively. The 2009 Charges were primarily related to lease accruals, inventory write downs, severance expenses and other facility closure costs. The 2008 Charges related primarily to asset impairments, inventory write downs and lease accruals.

•

Supply Chain Initiatives — During 2009, we closed five DCs and six crossdock facilities in North America and consolidated our DCs in Europe. Charges related to these actions totaled approximately $57 million in 2009 and related primarily to lease accruals, inventory write downs, severance expenses and other facility closure costs. The 2008 Charges totaled approximately $22 million and consisted primarily of accelerated depreciation, severance related costs and lease accruals.

•

Asset Sales and Sale-Leaseback Transactions — As a result of the strategic review and to enhance liquidity, we entered into multiple sale and sale-leaseback transactions. Total proceeds from these transactions were approximately $150 million and are included in the investing section on our Consolidated Statement of Cash Flows. Losses on these transactions are included in the Charges and totaled approximately $22 million in 2009. Gains have been deferred and will reduce rent expense over the related leaseback periods.

•

Headcount Reductions and Other Restructuring Activities — Severance and termination benefit costs associated with actions to centralize activities and eliminate geographic redundancies totaled approximately $22 million and $13 million during 2009 and 2008, respectively. During 2009, we also recorded Charges for contract terminations on certain leased assets totaling approximately $17 million and for other restructuring activities totaling approximately $7 million. Additionally, we recognized a non-cash loss of approximately $6 million in conjunction with the disposition of other assets during 2009. Charges for other restructuring activities in 2008 totaled approximately $60 million and related primarily to asset write downs and costs associated with the restructuring of our back office operations and call centers in Europe.

Although we do not expect to recognize new Charges under the 2009 and earlier programs, positive and negative adjustments to previously accrued amounts as well as accretion on discounted long-term accruals such as lease obligations will continue to impact our results in future periods. We currently estimate accretion of approximately $10 million for 2011 and declining amounts in subsequent periods. All such amortizations and settlements or adjustments to related accruals will be included in store and warehouse operating and selling expenses and recognized at the corporate level, outside of Division operating profit.

Exit cost accruals related to the activities described above are as follows:


(Dollars in millions)	Beginning Balance		Charges Incurred		Cash Payments			Non-cash settlements			Currency and Other Adjustments			Ending Balance
2010
Termination benefits	$	13	$	6	$	(12	)	$	—		$	(3	)	$	4
Asset impairments and accelerated depreciation		—		1		—			(1	)		—			—
Lease and contract obligations		162		5		(64	)		14			(4	)		113

Total	$	175	$	12	$	(76	)	$	13		$	(7	)	$	117

2009
Cost of goods sold	$	—	$	13	$	—		$	(13	)	$	—		$	—
Termination benefits		14		34		(33	)		—			(2	)		13
Asset impairments and accelerated depreciation		—		39		—			(39	)		—			—
Lease and contract obligations		33		149		(57	)		36			1			162
Other associated costs		—		18		(12	)		(7	)		1			—

Total	$	47	$	253	$	(102	)	$	(23	)	$	—		$	175

Lease accruals on closed facilities reflect the company's best estimate of its obligations under these long-term arrangements, net of sublease assumptions, discounted at the company's estimated unsecured borrowing rate at the time of each location closure. This accrued liability may be adjusted in future periods as actual sublease activity is better or worse than estimated. It is currently expected that any such adjustments, as well as accretion of this liability will be reflected as a component of store and warehouse operating and selling expenses and recognized at the corporate level, outside of Division operating profit, in future periods.

Other asset impairments

In addition to the exit costs discussed above, during 2008, we recognized other material charges because of the downturn in our business. Those charges include goodwill and trade name impairment charges, as well as material asset impairments relating to stores and charges to impair amortizing customer relationship intangible assets.

We perform our annual review of goodwill and other non-amortizing intangible assets during the fourth quarter. As a result of this review for 2008, we recorded non-cash charges of $1,213 million to write down goodwill and $57 million related to the impairment of trade names. Our recoverability assessment of these non-amortizing intangible assets considered company-specific projections, assumptions about market participant views and the company's overall market capitalization around the testing period.

At least annually, we review our stores for possible impairment. Our impairment analysis is based on a cash flow model at the individual store level, beginning with recent store performance and forecasting the anticipated future results based on chain-wide and individual store initiatives. If the anticipated undiscounted cash flows of a store cannot support the carrying amount of the store's assets, an impairment charge to bring the assets to estimated fair value is recorded to operations as a component of store and warehouse operating and selling expenses. Because of the downturn in our business in late 2008, we recorded store asset impairment charges totaling approximately $98 million in 2008. Store impairment charges totaled approximately $2 million and $3 million in 2010 and 2009, respectively.

We review our amortizing intangible assets at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization. In developing forecasts for our assessment of goodwill in 2008, we concluded that the value of certain amortizing intangible assets was impaired. Accordingly, during 2008, we incurred a charge of approximately $11 million to fully impair the customer list intangible assets in our International Division.

Goodwill and Other Intangible Assets

12 Months Ended

Dec. 25, 2010

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

NOTE E — GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

During the fourth quarter of 2008, we performed our annual goodwill impairment testing, which indicated that the goodwill in four of our five reporting units was fully impaired. This resulted in impairment charges totaling $1,213.3 million, most of which was related to acquisitions made in our International and North American Business Solutions Divisions. Approximately $19.4 million of goodwill was not impaired during the fourth quarter of 2008. This remaining goodwill is associated with our North American Business Solutions Division, and the balance has remained constant since December 27, 2008. The components of goodwill by segment are provided in the following table:


(Dollars in thousands)	North American Retail Division			North American Business Solutions Division			International Division			Total
Balance as of December 27, 2008
Goodwill	$	1,842		$	367,790		$	863,134		$	1,232,766
Accumulated impairment losses		(1,842	)		(348,359	)		(863,134	)		(1,213,335	)

		—			19,431			—			19,431
2009 Changes		—			—			—			—

Balance as of December 26, 2009
Goodwill		1,842			367,790			863,134		$	1,232,766
Accumulated impairment losses		(1,842	)		(348,359	)		(863,134	)		(1,213,335	)

		—			19,431			—			19,431
2010 Changes

Balance as of December 25, 2010
Goodwill		1,842			367,790			863,134		$	1,232,766
Accumulated impairment losses		(1,842	)		(348,359	)		(863,134	)		(1,213,335	)

	$	—		$	19,431		$	—		$	19,431

Other Intangible Assets

Indefinite-lived intangible assets related to acquired trade names were $5.6 million and $6.2 million, at December 25, 2010 and December 26, 2009, respectively, and are included in other intangible assets in the Consolidated Balance Sheets. Indefinite-lived intangibles are not subject to amortization. Instead, they are tested for impairment at least annually. The change in the balance during 2010 resulted from changes in foreign currency rates.

Amortizing intangible assets, which are included in other intangible assets in the Consolidated Balance Sheets, include the following:

December 25, 2010

December 26, 2009

(Dollars in thousands)

Gross

Carrying Value

Accumulated

Amortization

Gross

Carrying Value

Accumulated

Amortization

Customer lists

28,000

$ (11,773)

28,000

$ (9,228)

Other

2,600

(2,600)

2,600

(2,302)

Total

30,600

$ (14,373)

30,600

$ (11,530)

We review our amortizing intangible assets at least annually to determine whether events and circumstances warrant a revision to the remaining period of amortization.

Amortization of intangible assets was $2.9 million in 2010, $3.1 million in 2009, and $9.0 million in 2008 (at average foreign currency exchange rates).

The weighted average amortization period for the remaining finite-lived intangible assets is 6.4 years. Estimated future amortization expense for the next five years at December 25, 2010 is as follows:


(Dollars in thousands)
2011			2,545
2012			2,545
2013			2,545
2014			2,545
2015			2,545

Debt

12 Months Ended

Dec. 25, 2010

Debt

Debt

NOTE F — DEBT

Debt consists of the following:


(Dollars in thousands)	December 25, 2010		December 26, 2009
Short-term borrowings and current maturities of long-term debt:
Short-term borrowings	$	53,729	$	44,121
Capital lease obligations		16,361		14,646
Current maturities of long-term debt		2,278		1,078

	$	72,368	$	59,845

Long-term debt, net of current maturities:
$400 million senior notes	$	400,067	$	400,172
Capital lease obligations		239,476		243,502
Other		20,277		19,066

	$	659,820	$	662,740

On September 26, 2008, the company entered into a Credit Agreement (the "Agreement") with a group of lenders, which provides for an asset based, multi-currency revolving credit facility (the "Facility") of up to $1.25 billion. The amount that can be drawn on the Facility at any given time is determined based on percentages of certain accounts receivable, inventory and credit card receivables (the "Borrowing Base"). At December 25, 2010, the company was eligible to borrow approximately $845 million of the Facility based on the December borrowing base certificate. The Facility includes a sub-facility of up to $250 million which is available to certain of the company's European subsidiaries (the "European Borrowers"). Certain of the company's domestic subsidiaries (the "Domestic Guarantors") guaranty the obligations under the Facility. The Agreement also provides for a letter of credit sub-facility of up to $400 million. All loans borrowed under the Agreement may be borrowed, repaid and reborrowed from time to time until September 26, 2013 (or, in the event that the company's existing 6.25% Senior Notes are not repaid, then February 15, 2013), on which date the Facility matures.

All amounts borrowed under the Facility, as well as the obligations of the Domestic Guarantors, are secured by a lien on the company's and such Domestic Guarantors' accounts receivables, inventory, cash and deposit accounts. All amounts borrowed by the European Borrowers under the Facility are secured by a lien on such European Borrowers' accounts receivable, inventory, cash and deposit accounts, as well as certain other assets. At the company's option, borrowings made pursuant to the Agreement bear interest at either, (i) the alternate base rate (defined as the higher of the Prime Rate (as announced by the Agent) and the Federal Funds Rate plus 1/2 of 1%) or (ii) the Adjusted LIBOR Rate (defined as the LIBOR Rate as adjusted for statutory revenues) plus, in either case, a certain margin based on the aggregate average availability under the Facility. The Agreement also contains representations, warranties, affirmative and negative covenants, and default provisions which are conditions precedent to borrowing. The most significant of these covenants and default provisions include a capital expenditure limitation of $500 million in any fiscal year and limitations in certain circumstances on acquisitions, dispositions, share repurchases and the payment of cash dividends.

On March 26, 2010, the company executed a second amendment to its asset based credit facility. This second amendment amends the facility by, among other things, allowing the company to make certain restricted payments, including the payment of cash dividends on preferred stock and make share repurchases, in an aggregate amount of $50 million per fiscal year, subject to the maintenance of certain minimum liquidity conditions, removing the ability of the company to elect one- or two-month interest periods with respect to its LIBOR borrowings, making certain technical amendments to permit the company to issue unsecured or subordinated convertible debt securities, allowing the company and its subsidiaries to enter into certain internal tax restructuring transactions subject in certain circumstances to various conditions, and waiving certain technical events of def ault, including written notice of certain events to JP Morgan Chase Bank, N.A. (the "Agent") under the asset based credit facility and certain related security agreements. The company was in compliance with all applicable financial covenants at December 25, 2010.

The company has never declared or paid cash dividends on its common stock. All 2010 dividends on its preferred stock were paid in cash as permitted under this agreement.

The Facility also includes provisions whereby if the global availability is less than $218.8 million, or the European availability is below $37.5 million, the company's cash collections go first to the Agent to satisfy outstanding borrowings. Further, if total availability falls below $187.5 million, a fixed charge coverage ratio test is required which, based on current forecasts, could effectively eliminate additional borrowing under the Facility. Any event of default that is not cured within the permitted period, including non-payment of amounts when due, any debt in excess 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 person or group, could result in a termination of the Facility and all amounts outstanding becoming immediately due and payable.

At December 25, 2010, the company had approximately $674 million of available credit under the Facility. At December 25, 2010, $52.5 million was outstanding under the Facility and there were letters of credit outstanding under the Facility totaling approximately $119 million. An additional $0.2 million of letters of credit were outstanding under separate agreements. Average borrowings under the Facility in the fourth quarter of 2010 were approximately $33.9 million at an average interest rate of 3.56%. We did not borrow under the Facility during the first three quarters of 2010.

At December 25, 2010, we had short-term borrowings of $1.2 million. These borrowings primarily represent outstanding balances under various local currency credit facilities for our international subsidiaries that had an effective interest rate at the end of the year of approximately 6%. The majority of these short-term borrowings represent outstanding balances on uncommitted lines of credit, which do not contain financial covenants.

In August 2003, we issued $400 million senior notes due August 2013. These notes are not callable and bear interest at the rate of 6.25% per year, to be paid on February 15 and August 15 of each year. The notes contain provisions that, in certain circumstances, place financial restrictions or limitations on us. Simultaneous with completing the offering, we liquidated a treasury rate lock. The proceeds are being amortized over the term of the issue, reducing the effective interest rate to 5.86%. During 2004, we entered into a series of fixed-to-variable interest rate swap agreements as fair value hedges on the $400 million of notes. The swap agreements were terminated during 2005.

Capital lease obligations primarily relate to buildings and equipment as indicated in Note D.

Aggregate annual maturities of long-term debt and capital lease obligations are as follows:


(Dollars in thousands)
2011	$	89,808
2012		33,546
2013		432,383
2014		31,518
2015		31,915
Thereafter		250,312

Total		869,482
Less amount representing interest on capital leases		137,294

Total		732,188
Less current portion		72,368

Total long-term debt	$	659,820

Income Taxes

12 Months Ended

Dec. 25, 2010

Income Taxes

Income Taxes

NOTE G — INCOME TAXES

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


(Dollars in thousands)	2010			2009			2008
Current:
Federal	$	(107,793	)	$	(41,997	)	$	(16,430	)
State		1,408			2,228			6,622
Foreign		849			1,455			19,262
Deferred :
Federal		—			233,398			(125,945	)
State		(64	)		46,845			18,606
Foreign		15,615			45,643			(760	)

Total income tax expense (benefit)	$	(89,985	)	$	287,572		$	(98,645	)

The components of earnings (loss) before income taxes consisted of the following:


(Dollars in thousands)	2010		2009			2008
North America		(114,231)	$	(271,520	)	$	(733,342	)
International		57,556		(39,632	)		(846,306	)

Total		$ (56,675)	$	(311,152)		$	(1,579,648	)

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


(Dollars in thousands)	December 25, 2010			December 26, 2009
Foreign and state net operating loss carryforwards	$	282,165		$	343,343
Deferred rent credit		107,673			104,292
Vacation pay and other accrued compensation		71,496			85,912
Accruals for facility closings		41,896			54,122
Inventory		17,165			23,912
Self-insurance accruals		20,622			19,387
Deferred revenue		10,764			13,787
State credit carryforwards, net of Federal benefit		12,739			10,698
Allowance for bad debts		9,005			9,475
Accrued rebates		14,591			6,058
Other items, net		65,768			75,553

Gross deferred tax assets		653,884			746,539
Valuation allowance		(586,156	)		(656,943	)

Deferred tax assets		67,728			89,596

Internal software		1,003			23,857
Basis difference in fixed assets		53,391			17,098

Deferred tax liabilities		54,394			40,955

Net deferred tax assets	$	13,334		$	48,641

As of December 25, 2010, we had approximately $826 million of foreign and $1 billion of state net operating loss carryforwards. Of the foreign carryforwards, $640 million can be carried forward indefinitely, $15 million will expire in 2011, and the balance will expire between 2012 and 2030. Of the state carryforwards, $26 million will expire in 2011, and the balance will expire between 2012 and 2030. Additionally, the company has $1.73 billion of foreign capital loss carryforwards ($468 million tax-effected) that resulted from a 2010 internal restructuring transaction that can be carried forward indefinitely. Under the tax laws of the jurisdiction, the capital loss carryforward may only offset a future capital gain resulting from an intercompany transaction between the specific subsidiaries of the company involved in the 2010 transaction. Because the company b elieves that it is remote that the capital loss carryforward will be realized in the foreseeable future, a full valuation allowance has been established against the asset and the company has chosen to exclude the attribute from the above tabular rendition of deferred tax assets and liabilities.

U.S. income taxes have not been provided on the undistributed earnings of foreign subsidiaries, which were approximately $715 million as of December 25, 2010. We have reinvested such earnings overseas in foreign operations indefinitely and expect that future earnings will also be reinvested overseas indefinitely.

Valuation allowances have been established to reduce our deferred asset to an amount that is more likely than not to be realized and is based upon the uncertainty of the realization of certain deferred tax assets related to net operating loss carryforwards and other tax attributes. Because of the downturn in our performance during this recessionary period, as well as the significant restructuring activities and charges we have taken in response, during the third quarter of 2009, the company established valuation allowances totaling $321.6 million, with $279.1 million related to domestic deferred tax assets and $42.5 million related to foreign deferred tax assets. The establishment of valuation allowances and development of projected annual effective tax rates requires significant judgment and is impacted by various estimates. Both positive and negative evidence, as wel l as the objectivity and verifiability of that evidence, is considered in determining the appropriateness of recording a valuation allowance on deferred tax assets. An accumulation of recent pre-tax losses is considered strong negative evidence in that evaluation. The charge to establish the valuation allowance followed the third quarter 2009 condition of reaching or nearly reaching a 36 month cumulative loss position in certain taxing jurisdictions. While the company believes positive evidence exists with regard to the realizability of these deferred tax assets, it is not considered sufficient to outweigh the objectively verifiable negative evidence, including the cumulative 36 month pre-tax loss history. Deferred tax assets without valuation allowances remain in certain foreign tax jurisdictions where supported by the evidence.


(Dollars in millions)	Beginning Balance		Additions		Deductions			Ending Balance
Valuation allowances at:
December 25, 2010	$	657.0	$	—	$	(70.8	)	$	586.2
December 26, 2009		242.5		414.5		—			657.0

The following is a reconciliation of income taxes at the Federal statutory rate to the provision (benefit) for income taxes:


(Dollars in thousands)	2010			2009			2008
Federal tax computed at the statutory rate	$	(19,836	)	$	(108,903	)	$	(552,877	)
State taxes, net of Federal benefit		1,434			1,951			(3,838	)
Foreign income taxed at rates other than Federal		(15,926	)		(21,882	)		(29,684	)
Non-deductible goodwill and other impairments		—			—			356,138
Increase (reduction) in valuation allowance		(29,522	)		387,735			47,874
Non-deductible foreign interest		5,094			13,198			40,166
Change in uncertain tax positions		(32,283	)		5,526			3,661
Disposition of Foreign Affiliates		(8,562	)		—			—
Other items, net		9,616			9,947			39,915

Income tax expense (benefit)	$	(89,985	)	$	287,572		$	(98,645	)

The significant tax jurisdictions related to the line item foreign income taxed at rates other than Federal include the UK, the Netherlands and France.

The following table summarizes the activity related to our unrecognized tax benefits during 2010:


(Dollars in thousands)	2010			2009			2008
Beginning Balance	$	141,125		$	119,626		$	110,407
Additions based on tax positions related to the current year		3,436			5,505			10,767
Additions for tax positions of prior years		24,936			19,149			17,720
Reductions for tax positions of prior years		(32,572	)		(2,820	)		(19,035	)
Statute expirations		(17	)		(335	)		(233	)
Settlements		(26,368	)		—			—

Ending Balance	$	110,540		$	141,125		$	119,626

Included in the balance of $110.5 million at December 25, 2010, are $78.3 million of net unrecognized tax benefits that, if recognized, would affect the effective tax rate. The difference of $32.2 million primarily results from positions which if sustained would be fully offset by a valuation allowance.

We file a U.S. federal income tax return and other income tax returns in various states and foreign jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations for years before 2007. Our U.S. federal filings for the years 2007 and 2009 are under routine examination, and it is reasonably possible that audits for some of these periods will be closed prior to the end of 2011. Additionally, the U.S. federal tax return for 2010 is under concurrent year review. Significant international tax jurisdictions include the UK, the Netherlands, France and Germany. Generally, we are subject to routine examination for years 2006 and forward in these jurisdictions. It is reasonably possible that certain of these audits will close within the next 12 months, which could result in a decrease of as much as $87.4 million or an increase of as much as $14.3 million to our accrued uncertain tax positions. Additionally, we anticipate that it is reasonably possible that new issues will be raised or resolved by tax authorities that may require changes to the balance of unrecognized tax benefits, however, an estimate of such changes cannot reasonably be made.

We recognize interest related to unrecognized tax benefits in interest expense and penalties in the provision for income taxes. Because of the settlement reached with certain taxing authorities, we recognized a net interest credit of $6.7 million during 2010. We recognized expense from interest and penalties of approximately $4.4 million in 2009. We had approximately $47.4 million accrued for the payment of interest and penalties as of December 25, 2010.

In connection with the expensing of the fair value of employee stock options, we have elected to calculate our pool of excess tax benefits under the alternative or "short-cut" method. At adoption, this pool of benefits was approximately $55.3 million and was approximately $104.5 million as of December 25, 2010. This pool may increase in future periods if tax benefits realized are in excess of those based on grant date fair values or may decrease if used to absorb future tax deficiencies determined for financial reporting purposes.

Commitments and Contingencies

12 Months Ended

Dec. 25, 2010

Commitments and Contingencies

Commitments and Contingencies

NOTE H — COMMITMENTS AND CONTINGENCIES

Operating Leases: We lease retail stores and other facilities and equipment under operating lease agreements with initial lease terms expiring in various years through 2032. In addition to minimum rentals, there are certain executory costs such as real estate taxes, insurance and common area maintenance on most of our facility leases. Many lease agreements contain tenant improvement allowances, rent holidays, and/or rent escalation clauses. For purposes of recognizing incentives and minimum rental expenses on a straight-line basis over the terms of the leases, we use the date of initial possession to begin amortization.

We recognize a deferred rent liability for tenant improvement allowances and rent holidays and amortize these amounts over the terms of the related leases as a reduction of rent expense. Rent related accruals totaled approximately $267 million and $270 million at December 25, 2010 and December 26, 2009, respectively. The short-term and long-term components of these liabilities are included in accrued expenses and other long-term liabilities, respectively, on the Consolidated Balance Sheets. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy, we record minimum rental expenses on a straight-line basis over the terms of the leases.

Certain leases contain provisions for additional rent to be paid if sales exceed a specified amount, though such payments have been immaterial during the years presented.

The table below shows future minimum lease payments due under the non-cancelable portions of our leases as of December 25, 2010. These minimum lease payments include facility leases that were accrued as store closure costs. Additional information including optional lease renewals follows this table.


(Dollars in thousands)
2011	$	483,233
2012		422,257
2013		364,767
2014		296,775
2015		233,266
Thereafter		682,826

		2,483,124
Less sublease income		52,111

Total	$	2,431,013

We determine the lease term at inception to be the non-cancelable rental period plus any renewal options that are considered reasonably assured. Leasehold improvements are depreciated over the shorter of their estimated useable lives or the identified lease term. Lease payments for the next five years and thereafter that include both the non-cancelable amounts from above, plus the renewal options included in our projected lease term are, $488 million for 2011; $441 million for 2012; $401 million for 2013; $360 million for 2014; $328 million for 2015 and $1,592 million thereafter, for a total of $3,610 million, $3,558 million net of sublease income.

Rent expense, including equipment rental, was $469.4 million, $498.6 million and $525.8 million in 2010, 2009, and 2008, respectively. Rent expense was reduced by sublease income of $2.8 million in 2010, $2.9 million in 2009 and $3.1 million in 2008.

Indemnification of Private Label Credit Card Receivables: Office Depot has a private label credit card program that is managed by a third-party financial services company. We transfer the credit card receivable balance each business day, with the difference between the transferred amount and the amount received recognized in store and warehouse operating and selling expense. At December 25, 2010, the outstanding balance of credit card receivables transferred was approximately $124 million. The company's estimated liability associated with risk of loss totaled approximately $14 million and $16 million at December 25, 2010 and December 26, 2009, respectively. This accrual is included in accrued expenses on the Consolidated Balance Sheets. Backing the liability is a letter of credit in the amount of $17.5 million. The company' s arrangement with this third party financial services company is scheduled for renewal during 2011. We anticipate successfully renewing or replacing this arrangement.

Legal Matters: We are involved in litigation arising in the normal course of our business. While, from time to time, claims are asserted that make demands for a large sum of money (including, from time to time, actions which are asserted to be maintainable as class action suits), we do not believe that contingent liabilities related to these matters, either individually or in the aggregate, will materially affect our financial position, results of our operations or cash flows.

As previously disclosed, on October 21, 2010, the company reached a final settlement of an investigation that has been conducted by the SEC. In connection with the settlement, the company, without admitting or denying the SEC's allegations, agreed to pay a civil penalty in the amount of $1 million and consented to a cease and desist order from committing or causing violations of Section 13(b) of the Securities Exchange Act of 1934 (and related rules), which requires the maintenance of accurate books and records and internal controls, and Section l3(a) of the Securities Exchange Act of 1934 and Regulation FD. Regulation FD is a rule regarding communication with analysts and investors. In addition, the Company's former Chief Executive Officer also reached a civil settlement with the SEC related to Regulation FD. Under the settlement, without admitting o r denying the SEC's allegations, he agreed to an SEC order requiring future compliance with Regulation FD and agreed to pay a civil penalty. The settlement concludes for the company and its former Chief Executive Officer all matters arising from the SEC investigation.

On December 13, 2010, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal with prejudice of the Consolidated Lawsuit (defined below). As background, in early November 2007, two putative class action lawsuits were filed against the Company and certain of its executive officers alleging violations of the Securities Exchange Act of 1934. The allegations made in these lawsuits primarily related to the accounting for vendor program funds. Each of the foregoing lawsuits was filed in the United States District Court for the Southern District of Florida and captioned as follows: (1) Nichols v. Office Depot, Inc., Steve Odland and Patricia McKay filed on November 6, 2007 and (2) Sheet Metal Worker Local 28 Pension Fund v. Office Depot, Inc., Steve Odland and Patricia McKay filed on November 5, 2007. On March 21, 2008, the district court entered an Order consolidating the class action lawsuits (the "Consolidated Lawsuit"). Lead plaintiff in the Consolidated Lawsuit, the New Mexico Educational Retirement Board, filed its Consolidated Amended Complaint on July 2, 2008, and its Second Consolidated Amended Complaint on April 20, 2009. On January 14, 2010, the district court dismissed the Second Consolidated Amended Complaint with prejudice, which led to the aforementioned appeal.

In addition, in the ordinary course of business, our sales to and transactions with government customers may be subject to investigations, audits and review by governmental authorities and regulatory agencies, with which we cooperate. Many of these investigations, audits and reviews are resolved without incident. While claims in these matters may at times assert large demands, we do not believe that contingent liabilities related to these matters, either individually or in the aggregate, will materially affect our financial position, results of our operations or cash flows. Among such matters, during the first quarter of 2011, we were notified that the United States Department of Justice has commenced an investigation into certain pricing practices related to an expired agreement that was in place between January 2, 2006 and January 1, 2011, pursuant t o which state, local and non-profit agencies could purchase office supplies.

Employee Benefit Plans

12 Months Ended

Dec. 25, 2010

Employee Benefit Plans

Employee Benefit Plans

NOTE I — EMPLOYEE BENEFIT PLANS

Long-Term Incentive Plan

During 2007, the company's board of directors adopted, and the shareholders approved, the Office Depot, Inc. 2007 Long-Term Incentive Plan (the "Plan"). The Plan permits the issuance of stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based, and other equity-based incentive awards. The 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 stock on the date the option is granted. Options granted under the Plan become exercisable from one to five years after the date of grant, provided that the individual is continuously employed with the company. All options granted expire no more than ten years following the date of grant. Our employee share-based awards are generally issued in the first quarter of the year.

Long-Term Incentive Stock Plan

During 2010, the company implemented a one-time voluntary stock option exchange program that had been approved by the board of directors and the company's shareholders. The fair value exchange program resulted in the tender of 3.8 million shares of eligible options in exchange for approximately 1.4 million of newly-issued options. No additional compensation expense resulted from this value-for-value exchange. The new options have an exercise price of $5.13, which was the closing price of Office Depot, Inc. common stock on the date of the exchange, and the majority of the options will vest over three years. The fair value of the exchanged shares was $2.97 per share. The new options are listed separately in the tables below.

A summary of the activity in our stock option plans for the last three years is presented below.


	2010					2009					2008
	Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price		Shares			Weighted Average Exercise Price
Outstanding at beginning of year		24,202,715		$	11.81		14,479,141		$	22.78		13,594,302		$	23.86
Granted		5,140,900			8.11		11,901,752			0.93		3,185,511			10.56
Granted – option exchange		1,350,709			5.13		—			—		—			—
Canceled		(4,510,682	)		21.57		(2,178,178	)		15.99		(2,190,928	)		21.48
Cancelled – option exchange		(3,739,557	)		22.85		—			—		—			—
Exercised		(2,423,041	)		0.95		—			—		(109,744	)		10.36

Outstanding at end of year		20,021,044		$	7.49		24,202,715		$	11.81		14,479,141		$	22.78

The weighted-average grant date fair values of options granted during 2010, 2009, and 2008 were $3.89, $0.69, and $4.64, respectively, using the following weighted average assumptions for grants:

•

Risk-free interest rates of 2.3% for 2010, 2.1% for 2009, and 2.7% for 2008

•

Expected lives of 4.5 years for 2010, 4.5 years for 2009, and 4.4 years for 2008

•

A dividend yield of zero for all three years

•

Expected volatility ranging from 64% to 73% for 2010, 70% to 118% for 2009, 43% to 65% for 2008

•

Forfeitures are anticipated at 5% and are adjusted for actual experience over the vesting period

The following table summarizes information about options outstanding at December 25, 2010.


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price
$0.85 $5.12		8,807,048		5.17	$	1.08		2,353,445		4.91	$	1.11
5.13 (option exchange)		1,315,278		6.45		5.13		250		0.24		5.13
5.14 10.00		5,089,187		5.06		8.28		1,411,177		2.24		8.31
10.01 15.00		1,290,388		3.74		11.33		982,456		3.60		11.36
15.01 25.00		2,965,129		1.52		19.94		2,965,129		1.52		19.94
25.01 33.61		554,014		2.17		32.18		552,987		2.17		32.17

$0.85 $33.61		20,021,044		4.51	$	7.49		8,265,444		2.90	$	12.39

The intrinsic value of options exercised in 2010 and 2008, was $11.9 million, and $0.3 million, respectively. There were no option exercises in 2009.

As of December 25, 2010, there was approximately $16 million of total stock-based compensation expense that has not yet been recognized relating to non-vested awards granted under our option plans. This expense, net of forfeitures, is expected to be recognized over a weighted-average period of approximately 2.0 years. Of the 11.8 million unvested shares, the company estimates that 11.2 million, or 95%, will vest. The number of exercisable shares was 8.3 million shares of common stock at December 25, 2010, 11.9 million shares of common stock at December 26, 2009, and 8.9 million shares of common stock at December 27, 2008.

Restricted Stock

Restricted stock grants typically vest annually over a three-year service period, however, grants made to the company's board of directors vest immediately and are free of restrictions. In 2010, we granted 173,387 shares of restricted stock with a weighted average fair value of $8.01 based on the grant date market price. As of December 25, 2010, all of the shares granted in 2010 had vested. In 2009, we granted approximately 22,000 shares of restricted stock with a weighted average fair value of $0.85 based on the grant date market price. In 2008, we granted to employees approximately 2.7 million shares of time-based restricted stock with annual vesting over a three-year service period valued at the grant date market price of $11.24 per share. A summary of the status of the company's nonvested shares as of December 25, 2010, and changes during the year ended December 25, 2010 is presented below.


	2010					2009					2008
	Shares			Weighted Average Grant-Date Price		Shares			Weighted Average Grant-Date Price		Shares			Weighted Average Grant-Date Price
Nonvested at beginning of year		1,318,162		$	13.21		2,663,216		$	14.06		850,115		$	30.67
Granted		173,387			8.01		21,628			0.85		2,651,737			11.24
Vested		(741,007	)		14.19		(1,230,397	)		14.60		(543,068	)		24.22
Forfeited		(254,483	)		11.31		(136,285	)		15.24		(295,568	)		17.81

Nonvested at end of year		496,059		$	10.39		1,318,162		$	13.21		2,663,216		$	14.06

As of December 25, 2010, there was approximately $1 million of total unrecognized compensation cost related to nonvested restricted stock. The remaining 0.5 million nonnvested awards represent the last vesting tranche of our 2008 annual restricted stock grant. The $1 million unrecognized compensation cost, net of forfeitures, is expected to be recognized over a period of 2 months in 2011. The company expects the forfeiture rate of these remaining awards to be minimal. The total grant date fair value of shares vested during 2010 was approximately $11 million.

Retirement Savings Plans

Eligible company employees may participate in the Office Depot, Inc. Retirement Savings Plan (401(k) Plan), which was approved by the board of directors. This plan allows those employees to contribute a percentage of their salary, commissions and bonuses in accordance with plan limitations and provisions of Section 401(k) of the Internal Revenue Code. Prior to the end of 2008, employer matching contributions were equivalent to 50% of the first 6% of an employee's contributions, subject to the limits of the plan. Company matching contributions were suspended by the compensation and benefits committee of the board of directors during 2009 and 2010. The committee reinstated the company matching provisions at 50% of the first 4% of an employee's contributions, subject to the limits of the plan, effective with the first pay period beginning in 2011. Matchi ng contributions are invested in the same manner as the participants' pre-tax contributions. The plan also allows for a discretionary matching contribution in addition to the normal match contributions if approved by the board of directors.

Office Depot also sponsors the Office Depot, Inc. Non-Qualified Deferred Compensation Plan that, until December 2009, permitted eligible highly compensated employees, who were limited in the amount they could contribute to the 401(k) Plan, to alternatively defer a portion of their salary, commissions and bonuses up to maximums and under restrictive conditions specified in this plan and to participate in company matching provisions. The matching contributions to the deferred compensation plan were allocated to hypothetical investment alternatives selected by the participants. The compensation and benefits committee of the board of directors amended the plan to eliminate the predetermined matching contributions effective with the first payroll period beginning in 2009. Prior to the end of 2008, all deferred compensation plan participants were given the opportunity to tak e advantage of the transition election rules provided under the final 409A regulations of the Internal Revenue Code to modify distribution elections previously elected for plans years 2005 through 2008. In October 2009, the compensation and benefits committee amended the plan to no longer accept new deferrals.

During 2010, 2009, and 2008, $80.2 thousand, $1.1 million, $12.6 million, respectively, was recorded as compensation expense for company contributions to these programs and certain international retirement savings plans.

Pension Plan

The company has a defined benefit pension plan covering a limited number of employees in Europe. During 2008, curtailment of that plan was approved by the trustees and future service benefits ceased for the remaining employees, resulting in a curtailment gain of $11.4 million. The 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 to amounts recognized on our balance sheets:


(Dollars in thousands)	December 25, 2010			December 26, 2009
Changes in projected benefit obligation:
Obligation at beginning of period	$	192,131		$	154,840
Service cost		—			—
Interest cost		10,466			9,006
Member contributions		—			—
Benefits paid		(4,426	)		(5,041	)
Actuarial loss (gain)		(14,651	)		18,107
Curtailment (gain)		—			—
Currency translation		(6,325	)		15,219

Obligation at valuation date		177,195			192,131

Changes in plan assets:
Fair value at beginning of period		120,383			84,454
Actual return on plan assets		14,959			22,898
Company contributions		5,105			5,166
Member contributions		—			—
Benefits paid		(4,426	)		(5,041	)
Currency translation		(3,999	)		12,906

Plan assets at valuation date		132,022			120,383

Benefit obligation in excess of plan assets		(45,173	)		(71,748	)

Net liability recognized at end of period	$	(45,173	)	$	(71,748	)

The net unfunded amount is classified as a non-current liability in the caption deferred taxes and other long-term liabilities on the Consolidated Balance Sheets. Included in OCI was a deferred gain of $5.5 million and a deferred loss of $14.5 million at December 25, 2010 and December 26, 2009, respectively. A valuation allowance has been recognized in the relevant jurisdiction, resulting in no tax benefit. The deferred gain is not expected to be amortized into income during 2011. The plan's accumulated benefit obligations were approximately $177.2 million and $192.1 million at the 2010 and 2009 valuation dates, respectively.

The components of net periodic expense are presented below:


(Dollars in thousands)	2010			2009			2008
Service cost	$	—		$	—		$	1,708
Interest cost		10,466			9,006			13,434
Expected return on plan assets		(8,039	)		(6,291	)		(11,629	)
Curtailment and settlement		—			—			(11,437	)

Net periodic pension (credit) cost	$	2,427		$	2,715		$	(7,924	)

Assumptions used in calculating the funded status included:


	2010		2009		2008
Long-term rate of return on plan assets		6.77%		6.89%		6.62%
Discount rate		5.40%		5.70%		5.50%
Salary increases		—		—		—
Inflation		3.40%		3.80%		3.10%

The plan's investment policies and strategies are to ensure assets are available to meet the obligations to the beneficiaries and to adjust plan contributions accordingly. The plan trustees are also committed to reducing the level of risk in the plan over the long term, while retaining a return above that of the growth of liabilities.

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 proportion of 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 appropriate duration. Funds invested in corporate bonds are assumed to return equal to a 15 year AA bond index. Allowance is made for expenses of 0.5% of assets. At December 25, 2010, the long-term UK government securities yield was 4.24%.

The allocation of assets is as follows:


	Percentage of Plan Assets						Target Allocation
	2010		2009		2008
Equity securities		73%		71%		76%		60% - 95%
Debt securities		27%		27%		16%		0% - 30%
Real estate		0%		0%		1%		0% - 10%
Other		0%		2%		7%		0% - 10%

Total		100%		100%		100%

The fair value of plan assets by asset category is as follows:


(Dollars in thousands)			Fair Value Measurements at December 25, 2010
Asset Category	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	—	$	—	$	—	$	—
Equity securities		95,699		95,699		—		—
Debt securities		36,323		36,323		—		—

Total	$	132,022	$	132,022	$	—	$	—

Anticipated benefit payments, at December 25, 2010 exchange rates, are as follows:


(Dollars in thousands)
2011	$	3,583
2012		3,793
2013		4,284
2014		4,548
2015		4,896
Next five years		31,415

The pension plan was part of an entity acquired in 2003. The purchase and sale agreement included a provision whereby the seller is required to pay to the company an amount of unfunded benefit obligation as measured based on certain 2008 data. The company is in the process of resolving this uncertainty with the seller. We currently cannot predict the outcome of this matter. The after-tax effect of the payment from the seller, if any, will be recognized as a credit to income when all associated uncertainties are resolved.

The company has been in discussions with the plan trustees on reducing the unfunded balance. It is expected that the company will contribute amounts received from the seller to the plan and that the contribution will effectively lower or eliminate other company contribution requirements over the next three years. The amount to be contributed during 2011 currently cannot be determined but is likely to be no less than the amount contributed during 2010.

Fair Value Measurements

12 Months Ended

Dec. 25, 2010

Fair Value Measurements

Fair Value Measurements

NOTE J — FAIR VALUE MEASUREMENTS

The company measures fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly 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 valuation techniques such as discounted cash flows or option pricing models using our own estimates and assumptions or those expected to be used by market participants.

The fair values of cash and cash equivalents, short-term investments, receivables, accounts payable and accrued expenses and other current liabilities approximate their carrying values because of their short-term nature.

The fair values of our interest rate swaps, foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current interest rates, exchange rates and commodity prices. The values are based on market-based inputs or unobservable inputs that are corroborated by market data. There were no interest rate swap agreements in place at the end of 2010 and the amounts receivable or payable under foreign currency and fuel contracts were not significant at the end of 2010. See Note K for additional information on our derivative instruments and hedging activities.

Fair value estimates may be required to measure certain assets and liabilities on a nonrecurring basis for asset impairments and exit cost valuations.

The following table summarizes the company's financial liabilities measured at fair value on a recurring basis:


	December 25, 2010
			Fair Value Measurement Category
(In thousands)	Total		Level 1		Level 2		Level 3
Assets
Commodity contracts — fuel	$	253	$	—	$	253	$	—

Liabilities:
Foreign exchange contracts	$	434	$	—	$	434	$	—

The company records its senior notes payable at par value, adjusted for amortization of a fair value hedge which was cancelled in 2005. The fair value of the senior notes indicated in the following table was determined based on quoted market prices.

2010

2009

(In thousands)

Carrying

Value

Fair

Value

Carrying

Value

Fair

Value

$400 million senior notes

400,067

398,000

400,172

345,966

There were no significant differences between the carrying values and fair values of our financial instruments as of December 25, 2010 and December 26, 2009, except as disclosed above.

Derivative Instruments and Hedging

12 Months Ended

Dec. 25, 2010

Derivative Instruments and Hedging

Derivative Instruments and Hedging

NOTE K — DERIVATIVE INSTRUMENTS AND HEDGING

As a global supplier of office products and services we are exposed to risks associated with changes in foreign currency exchange rates, commodity prices and interest rates. Our foreign operations are typically, but not exclusively, conducted in the currency of the local environment. We are exposed to the risk of foreign currency exchange rate changes when we make purchases, sell products, or arrange financings that are denominated in a currency different from the entity's functional currency. Depending on the settlement timeframe and other factors, we may enter into foreign currency derivative transactions to mitigate those risks. We may designate and account for such qualifying arrangements as hedges. Gains and losses on these cash flow hedging transactions are deferred in OCI and recognized in earnings in the same period as the hedged item. Transactions that are not designated as cash flow hedges are marked to market at each period with changes in value included in earnings. Historically, we have not entered into transactions to hedge our net investment in foreign operations but may in future periods.

We also are exposed to the risk of changing fuel prices from inbound and outbound transportation arrangements. The structure of many of these transportation arrangements, however, precludes applying hedge accounting. In those circumstances, we may enter into derivative transactions to offset the risk of commodity price changes, and the value of the derivative contract is marked to market at each reporting period with changes recognized in earnings. To the extent fuel arrangements qualify for hedge accounting, gains and losses are deferred in OCI until such time as the hedged item impacts earnings. At the end of the 2010, the company had entered into contracts for approximately 9.6 million gallons of fuel that will be settled monthly through December 2011.

Interest rate changes on our obligations may result from external market factors, as well as changes in our credit rating. We manage our exposure to interest rate risks at the corporate level. Interest rate sensitive assets and liabilities are monitored and assessed for market risk. Currently, no interest rate related derivative arrangements are in place. At December 25, 2010 and December 26, 2009, OCI included the deferred gain from a hedge contract terminated in a prior period. This deferral is being amortized to interest expense through 2013.

In certain markets, we may contract with third parties for our future energy needs. Such arrangements are not considered derivatives because they are within the ordinary course of business and are for physical delivery. Accordingly, these arrangements are not included in the tables below.

Financial instruments authorized under the company's established risk management policy include spot trades, swaps, options, caps, collars, forwards and futures. Use of derivative financial instruments for speculative purposes is expressly prohibited.

The following tables provide information on our hedging and derivative positions and activity.


Fair value of derivative instruments
(Dollars in thousands)	Balance sheet location		2010		2009
Derivatives designated as hedging instruments:
Foreign exchange contracts		Other current liabilities	$	317	$	266
Derivatives not designated as hedging instruments:
Foreign exchange contracts		Other current liabilities		117		—

Total liabilities			$	434	$	266

Commodity contracts — fuel		Other current assets	$	253		—

Total assets			$	253	$	—


Derivatives not designated as hedging instruments	Location of gain/(loss) recognized in earnings	Amount of gain/ (loss) recognized in earnings
(Dollars in thousands)		2010			2009
Commodity contracts — fuel	Cost of goods sold and occupancy costs & Store and warehouse operating and selling expenses*	$	253		$	111
Foreign exchange contracts	Cost of goods sold and occupancy costs		(117	)		(7,707	)

Total		$	136		$	(7,596	)


Derivatives designated as cash flow hedges:	Amount of gain/(loss) recognized in OCI							Location of gain/(loss) reclassified from OCI into earnings	Amount of gain/ (loss) reclassified from OCI into earnings
(Dollars in thousands)	2010			2009					2010				2009
Commodity contracts — fuel		$	—		$	2,919		Cost of goods sold and occupancy costs & Store and warehouse operating and selling expenses*		$	—			$	(6,800	)
Foreign exchange contracts			(1,982)			(266	)	Cost of goods sold and occupancy costs			(2,229	)			—

Total		$	(1,982)		$	2,653				$	(2,229	)		$	(6,800	)

*	Approximately 60% of the amounts for 2010 and 2009 are reflected in cost of goods sold and occupancy costs. The remaining 40% of the amounts are reflected in store and warehouse operating and selling expenses.

As of December 25, 2010, there were no hedging arrangements requiring collateral. However, we may be required to provide collateral on certain arrangements in the future. The fair values of our foreign currency contracts and fuel contracts are the amounts receivable or payable to terminate the agreements at the reporting date, taking into account current exchange rates. The values are based on market-based inputs or unobservable inputs that are corroborated by market data.

Earnings Per Share

12 Months Ended

Dec. 25, 2010

Earnings Per Share

Earnings Per Share

NOTE M — EARNINGS PER SHARE

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


(In thousands, except per share amounts)	2010			2009			2008
Basic Earnings Per Share
Numerator:
Net loss attributable to common shareholders	$	(2,221	)	$	(626,971	)	$	(1,478,938	)

Denominator:
Weighted-average shares outstanding		275,557			272,828			272,776
Basic earnings (loss) per share	$	(0.01	)	$	(2.30	)	$	(5.42	)


Diluted Earnings Per Share
Numerator:
Net earnings (loss) attributable to Office Depot, Inc.	$	34,892		$	(596,465	)	$	(1,478,938	)

Denominator:
Weighted-average shares outstanding		275,557			272,828			272,776
Effect of dilutive securities:
Stock options and restricted stock		5,300			3,836			289
Redeemable preferred stock		73,676			36,418			—

Diluted weighted-average shares outstanding		354,533			313,082			273,065
Diluted earnings (loss) per share		N/A			N/A			N/A

Awards of options and nonvested shares representing an additional 13.0 million, 14.7 million and 15.4 million shares of common stock were outstanding for the years ended December 25, 2010, December 26, 2009 and December 27, 2008, respectively, but were not included in the computation of diluted weighted-average shares outstanding because their effect would have been antidilutive. The diluted share amounts for 2010, 2009 and 2008 are provided for informational purposes, as the net loss for the periods causes basic earnings per share to be the most dilutive.

Following the company's issuance of the redeemable preferred stock in 2009, basic earnings per share is computed after consideration of preferred stock dividends. The preferred stock has certain participation rights with common stock resulting in application of the two-class method for computing earnings per share. In periods of sufficient earnings, this method assumes an allocation of undistributed earnings to both participating stock classes. For the third quarter of 2010, but not for the full year of 2010, the two-class method impacted the EPS calculation. For that period, the earnings per share attributable to the preferred share holders totaling $0.18 per share, comprised of $0.13 per share distributed and $0.05 per share undistributed. The portion attributable to common shares was an undistributed amount of $0.18 per share. The calculation was not applicable for any other period.

The 2010 preferred stock dividends were paid in cash. Prior dividends were paid in-kind and a separate determination of fair value above the stated dividend rate was required for those periods. The valuation reduced basic earnings per share in the respective periods, but because the company reported losses, it was antidilutive in the diluted earnings per share calculation and therefore not applicable. Should the company pay dividends on preferred shares in-kind during future periods, the reported earnings per share attributable to preferred and common shareholders may be different.

The weighted average share calculation used to measure diluted earnings per share includes an assumed tax benefit for certain unexercised stock awards. Because the company has valuation allowances and limited carryback capabilities in certain tax jurisdictions, some of the assumed tax benefit in this calculation may not be available after 2010 until the valuation allowances reverse. If all assumed tax benefits were eliminated at December 2010, the effect of dilutive securities would be an increase of approximately 2.0 million shares.

Segment Information

12 Months Ended

Dec. 25, 2010

Segment Information

Segment Information

NOTE O — SEGMENT INFORMATION

Office Depot operates in three segments: North American Retail Division, North American Business Solutions Division, and International Division. Each of these segments is managed separately primarily because it serves a different customer group. The accounting policies for each segment are the same as those described in the summary of significant accounting policies (see Note A). Our measure of Division operating profit is based on the measure of performance reported internally to manage the business and for resource allocation. This measure allocates to the respective Divisions those general and administrative expenses considered directly or closely related to their operations. Remaining G&A expenses and Charges that are managed at the corporate level are not allocated to the Divisions for measurement of Division operating profit. See Note C for discussion of Charges. Other companies may charge more or less of these items to their segments and our results may not be comparable to similarly titled measures used by other entities.

The following is a summary of our significant accounts and balances by segment, reconciled to our consolidated totals.


(Dollars in thousands)		North American Retail Division			North American Business Solutions Division		International Division		Eliminations and Other*		Consolidated Total
Sales	2010	$	4,962,838		$	3,290,430	$	3,379,826	$	—	$	11,633,094
	2009	$	5,113,553		$	3,483,724	$	3,547,190	$	—	$	12,144,467
	2008		6,112,335			4,142,146		4,241,063		—		14,495,544

Division operating profit (loss)	2010	$	127,504		$	96,474	$	110,781	$	—	$	334,759
	2009	$	105,542		$	98,163	$	119,604	$	—	$	323,309
	2008		(29,221	)		119,766		157,232		—		247,777

Capital expenditures	2010	$	67,172		$	38,588	$	27,637	$	36,055	$	169,452
	2009	$	40,600		$	21,145	$	20,281	$	48,821	$	130,847
	2008		103,973			9,215		77,859		139,028		330,075

Depreciation and amortization	2010	$	86,657		$	15,005	$	24,712	$	81,945	$	208,319
	2009	$	90,973		$	15,471	$	29,032	$	88,639	$	224,115
	2008		126,212			19,745		30,744		77,398		254,099

Charges for losses on receivables and inventories	2010	$	37,681		$	8,463	$	11,680	$	—	$	57,824
	2009	$	41,740		$	16,932	$	21,506	$	—	$	80,178
	2008		80,354			36,471		23,233		—		140,058

Net earnings from equity method investments	2010	$	—		$	—	$	30,635	$	—	$	30,635
	2009	$	—		$	—	$	30,579	$	—	$	30,579
	2008		—			—		37,113		—		37,113

Assets	2010	$	1,604,274		$	663,049	$	1,425,855	$	959,188	$	4,652,366
	2009	$	1,619,854		$	726,296	$	1,493,985	$	1,050,211	$	4,890,346

*	Amounts included in "Eliminations and Other" consist of assets (including all cash and equivalents) and depreciation related to corporate activities.

A reconciliation of the measure of Division operating profit to consolidated earnings from continuing operations before income taxes follows.


(Dollars in thousands)	2010			2009			2008
Division operating profit	$	334,759		$	323,309		$	247,777
(Add)/subtract:
Charges (see Note C)		—			253,383			1,468,684
Unallocated general, administrative and corporate expenses (excluding Charges)		372,050			334,931			324,134
Interest expense		58,498			65,628			68,286
Interest income		(4,663	)		(2,396	)		(10,013	)
Miscellaneous income, net		(34,451	)		(17,085	)		(23,666	)

Earnings (loss) before income taxes	$	(56,675	)	$	(311,152	)	$	(1,579,648	)

As of December 25, 2010, we sold to customers in 53 countries throughout North America, Europe, Asia and Latin America. We operate wholly-owned entities, majority-owned entities or participate in other ventures covering 41 countries and have alliances in an additional 12 countries. There is no single country outside of the United States in which we generate 10% or more of our total revenues. Geographic financial information relating to our business is as follows (in thousands).


	Sales						Property and Equipment
	2010		2009		2008		2010		2009
United States	$	8,189,642	$	8,476,404	$	10,083,984	$	980,426	$	1,059,236
International		3,443,452		3,668,063		4,411,560		176,587		218,419

Total	$	11,633,094	$	12,144,467	$	14,495,544	$	1,157,013	$	1,277,655

Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 25, 2010

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

NOTE R — QUARTERLY FINANCIAL DATA (UNAUDITED)

(In thousands, except per share amounts)

First Quarter

Second Quarter⁽¹⁾

Third Quarter⁽²⁾

Fourth Quarter⁽³⁾

Fiscal Year Ended December 25, 2010

Net sales

3,071,970

2,699,475

2,899,717

2,961,932

Gross profit

913,731

766,688

829,183

847,535

Net earnings (loss) attributable to Office Depot, Inc.

29,468

(9,485

)

63,497

(48,588

)

Net earnings (loss) available to common shareholders

19,993

(18,698

)

54,287

(57,803

)

Net loss per share*:

Basic

0.07

(0.07

)

0.18

(0.21

)

Diluted

0.07

(0.07

)

0.18

(0.21

)

*	Due to rounding, the sum of the quarterly earnings per share amounts may not equal the reported earnings per share for the year.

⁽¹⁾	Net loss for the quarter includes approximately $13 million discrete tax benefits from the release of a valuation allowance in Europe and a favorable settlement with certain taxing authorities.

⁽²⁾	Net earnings for the quarter includes approximately $32 million of discrete tax benefits from the settlement of certain tax positions relating to open years as well as approximately $13 million of related interest benefits.

⁽³⁾	Net loss for the quarter includes approximately $12 million related to pre-tax charges for severance and facility closures, $11 million loss on the sale of operating entities, $51 million from software write off, and $13 million severance and related costs for departing executive officer.


	First Quarter			Second Quarter			Third Quarter⁽¹⁾			Fourth Quarter⁽²⁾
Fiscal Year Ended December 26, 2009
Net sales	$	3,225,264		$	2,824,141		$	3,029,207		$	3,065,855
Gross profit		910,262			764,048			860,123			857,751
Net loss attributable to Office Depot, Inc.		(54,739	)		(82,072	)		(398,034	)		(61,620	)
Net loss available to common shareholders		(54,739	)		(82,558	)		(412,965	)		(76,709	)
Net loss per share*:
Basic	$	(0.20	)	$	(0.31	)	$	(1.51	)	$	(0.28	)
Diluted		(0.20	)		(0.31	)		(1.51	)		(0.28	)

*	Due to rounding, the sum of the quarterly earnings per share amounts may not equal the reported earnings per share for the year.

⁽¹⁾	Net loss for the quarter includes a charge of approximately $322 million to establish valuation allowances on certain deferred tax assets. For additional information see Note G.

⁽²⁾	Net loss for the quarter includes pretax Charges of approximately $58 million (aggregate of $253 million through the four quarters of 2009). For additional information on the Charges, see Note C.

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 25, 2010	Dec. 26, 2009
Consolidated Balance Sheets
Receivables, allowances	$ 28,047	$ 32,802
Redeemable preferred stock, liquidation preference	$ 368,516	$ 368,116
Common stock, authorized shares	800,000,000	800,000,000
Common stock, par value	$ 0.01	$ 0.01
Common stock, issued shares	283,059,236	280,652,278
Common stock, outstanding shares	283,059,236	280,652,278
Treasury stock, shares	5,915,268	5,915,268

Capital Stock	12 Months Ended
Capital Stock	Dec. 25, 2010
Capital Stock
Capital Stock	NOTE L — CAPITAL STOCK Preferred Stock As of December 25, 2010, there were 1,000,000 shares of $0.01 par value preferred stock authorized of which none were issued or outstanding. Treasury Stock During 2008, the company retired approximately 150 million shares of treasury stock. The par value of the retired shares was charged against common stock, and the excess of purchase price over par value was allocated between additional paid-in capital and retained earnings using a pro rata method. The impact of this transaction on the Consolidated Balance Sheet was to reduce common stock, additional paid-in capital, retained earnings and treasury stock by approximately $1.5 million, $626.9 million, $2,298.6 million and $2,927.0 million, respectively. Approximately 6 million shares of treasury stock remain after this cancellation. Common stock repurchases are currently prohibited under our asset based credit facility and, in certain circumstances, require prior approval under our Preferred Stock agreements.

Dispositions and Acquisitions	12 Months Ended
Dispositions and Acquisitions	Dec. 25, 2010
Dispositions and Acquisitions
Dispositions and Acquisitions	NOTE P — DISPOSITIONS AND ACQUISITIONS In December 2010, the company sold the stock of its operating entities in Israel and Japan and entered into licensing agreements with the respective buyers of those companies. A loss on disposition of approximately $11 million has been reflected in the operating income of the International Division and included in store and warehouse operating and selling expenses in the Consolidated Statement of Operations. Additionally in December 2010, the company entered into an amended shareholders' agreement related to its venture in India such that financial and operating policies are now shared and equity capital balances are equal. The revenues and expenses of these entities have been included through the date of sale or deconsolidation in the Consolidated Statement of Operations and the assets and liabilities of each of these entities have been removed from the year end Conso lidated Balance Sheet. The investment in India will now be accounted for under the equity method, with our share of results being presented in Miscellaneous income, net in future periods. During 2010, the company acquired the remaining noncontrolling interests of an entity operating in Sweden. During 2008, the company acquired a majority interest in that entity, as well as remaining noncontrolling interest shares of our joint ventures in Israel and China.