Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 30, 2013

Basis of Presentation

Basis of Presentation: Office Depot, Inc., including consolidated subsidiaries (“Office Depot” or the “Company”), is a global supplier of office products and services. The Condensed Consolidated Balance Sheet at December 29, 2012 has been derived from audited financial statements at that date. The Condensed Consolidated Financial Statements as of March 30, 2013 (also referred to as “the first quarter of 2013”) and March 31, 2012 (also referred to as “the first quarter of 2012”) are unaudited. However, in our opinion, these financial statements reflect all adjustments of a normal recurring nature necessary to provide a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented.

During the first quarter of 2013, the Company modified its measure of business segment operating income for management reporting purposes to allocate to the Company’s three segments, North American Retail Division, North American Business Solutions Division and International Division (the “Divisions”), additional General and administrative and other expenses, as well as to allocate to the Divisions additional assets, capital expenditures and related depreciation expense. No changes have been made to the composition of these reportable segments. Additionally, the Company changed its accounting principle of presenting shipping and handling expenses in Operating and selling expenses (previously Store and warehouse operating and selling expenses) to a preferable accounting principle of presenting such expenses in Costs of goods sold and occupancy costs. The Company considers this presentation preferable because it includes costs associated with revenues in the calculation of gross profit and provides better comparability to industry peers. Prior period results have been reclassified to conform to the current period presentation for both the change in accounting principle and the change in measurement of Division operating income (loss).

These changes result in the decrease in Gross profit in the Condensed Consolidated Statements of Operations and revised measure of Division operating income in Note H. Since adopting the preferable accounting principle at the beginning of the first quarter of 2013, we estimate Costs of goods sold and occupancy costs include and Operating and selling expenses exclude $176.7 million of shipping and handling expenses. Because of the changes to underlying systems, such amounts are estimated. For purposes of comparability, the shipping and handling expenses for the first quarter of 2012 have been reclassified, resulting in an increase in Costs of goods sold and occupancy costs of $188.8 million with a corresponding decrease in Operating and selling expenses. Operating income for the three Divisions has been revised to include $63.1 million of General and administrative and other expenses that previously were considered Corporate costs, and to reflect other Divisional cost allocations that have been revised to conform to allocation rates used in the current period. Neither the change in accounting principle, nor the change in Division operating income (loss) impacted Consolidated Operating income (loss), Net earnings (loss), or Earnings (loss) per share for the periods presented.

Additionally, prior period amounts in the Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows for the first quarter of 2012 have been reclassified to correspond to the 2013 disclosure of asset impairments. We have included the balance sheet from March 31, 2012 to assist in analyzing the Company.

These interim results are not necessarily indicative of the results that should be expected for the full year. For a better understanding of the Company and its Condensed Consolidated Financial Statements, we recommend reading these Condensed Consolidated Financial Statements in conjunction with the audited financial statements which are included in the Annual Report on Form 10-K for the year ended December 29, 2012, filed on February 20, 2013 with the U.S. Securities and Exchange Commission (“SEC”), as updated with subsequent current reports in 2013.

Cash Management

Cash Management: The 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 March 30, 2013, December 29, 2012 and March 31, 2012 included $46 million, $53 million and $57 million, respectively, of amounts not yet presented for payment drawn in excess of disbursement account book balances, after considering offset provisions. The Company may borrow to meet working capital and other needs throughout any given quarter, which may result in higher levels of borrowings and invested cash within the period. At the end of the quarter, excess cash may be used to minimize borrowings outstanding at the balance sheet date. Approximately $141 million of cash and cash equivalents was held outside the U.S. at March 30, 2013.

Receivables under Factoring Agreement

Receivables under Factoring Agreement: The Company sells selected accounts receivables on a non-recourse basis to an unrelated financial institution under a factoring agreement in France. The Company accounts for this transaction as a sale of receivables, removes receivables sold from its financial statements, and records cash proceeds when received by the Company as cash provided by operating activities in the Statement of Cash Flows. The financial institution makes available 80% of the face value of the receivables to the Company and retains the remaining 20% as a guarantee until the receipt of the proceeds associated with the factored invoices. The Company activated the arrangement in the fourth quarter of 2012. In the first quarter of 2013, the Company sold receivables totaling $120.4 million, of which the Company withdrew $74.7 million and settled in cash. For the remaining receivables sold in the first quarter of $45.7 million, the Company did not obtain cash directly from the financial institution. A retention guarantee of $14.2 million and $12.7 million are included in Prepaid expenses and other current assets as of March 30, 2013 and December 29, 2012, respectively. A receivable from the financial institution related to factored receivables of $9.6 million and $50.9 million are included in Receivables as of March 30, 2013 and December 29, 2012, respectively.

New Accounting Pronouncements

New Accounting Pronouncements: There are no recently issued accounting standards that are expected to have a material effect on the Company’s financial condition, results of operations or cash flows.