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MERGER AND DISPOSITIONS | 12 Months Ended
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Dec. 27, 2014
MERGER AND DISPOSITIONS | NOTE 2. MERGER AND DISPOSITIONS Merger On November 5, 2013, the Company completed its previously announced merger of equals transaction with OfficeMax. In connection with the Merger, each former share of OfficeMax common stock, par value $2.50 per share, issued and outstanding immediately prior to the effective time of the Merger was converted to 2.69 shares of Office Depot common stock. The Company issued approximately 240 million shares of Office Depot, Inc. common stock to former holders of OfficeMax common stock, representing approximately 45% of the approximately 530 million total shares of Company common stock outstanding on the Merger date. Additionally, OfficeMax employee stock options and restricted stock were converted into mirror awards exercisable or earned in Office Depot, Inc. common stock. The value of these awards was apportioned between total Merger consideration and unearned compensation and is being recognized over the remaining original vesting periods of the awards. Office Depot was determined to be the accounting acquirer. In this all-stock transaction only Office Depot common stock was transferred, the Office Depot shareholders received approximately 55% of the voting interest of the combined company and other factors were equally shared between the two former companies, including representation on the combined entity’s Board of Directors, or were further indicators of the Company being the accounting acquirer. Like Office Depot, OfficeMax is a leader in both business-to-business and retail office products distribution. OfficeMax had operations in the U.S., Canada, Mexico, Australia, New Zealand, the U.S. Virgin Islands and Puerto Rico. The Merger was intended to create a more efficient global provider of these products and services that is better able to compete in a changing office supply industry. OfficeMax’s results since the Merger date are included in the Consolidated Statement of Operations. The merged business contributed sales of $939 million and a Net loss of $39 million in 2013. The following unaudited consolidated pro forma summary has been prepared by adjusting the Company’s historical data to give effect to the Merger as if it had occurred on January 1, 2012:
|  | Pro Forma – Unaudited |
(In millions, except per share amounts) |  | Year Ended December 28, 2013 |  |  | Year Ended December 29, 2012 |
Sales |  | $ | 16,879 |  |  | $ | 17,640 |
Net income |  | $ | 33 |  |  | $ | 262 |
Net income attributable to common stockholders |  | $ | 31 |  |  | $ | 258 |
Earnings per share available to common stockholders |  |  |  |  |  |  |  |
Basic |  | $ | 0.06 |  |  | $ | 0.50 |
Diluted |  | $ | 0.06 |  |  | $ | 0.49 |
The unaudited consolidated pro forma financial information was prepared in accordance with the acquisition method of accounting under existing standards and is not necessarily indicative of the results of operations that would have occurred if the Merger had been completed on the date indicated, nor is it indicative of the future operating results of the Company. The unaudited pro forma results have been adjusted with respect to certain aspects of the Merger to reflect:
| • |  | additional depreciation and amortization expenses that would have been recognized assuming fair value adjustments to the existing OfficeMax assets acquired and liabilities assumed, including property and equipment, favorable and unfavorable lease values, the Timber Notes and Non-recourse debt, and share-based compensation awards;
| • |  | valuation allowances on U.S. deferred tax assets limited deferred tax benefit recognition;
| • |  | elimination of the OfficeMax recognition of deferred gain in 2013 of $138 million from the disposition of a portion of its investment in Boise Cascade Holdings and elimination of the OfficeMax recognition of pension settlement charges in 2012 of $56 million as the related deferred values were removed in purchase accounting; and
| • |  | inclusion in the pro forma year 2012 of $79 million Merger transaction costs incurred by both companies through year end 2013.
The unaudited pro forma results do not reflect future events that either have occurred or may occur after the Merger, including, but not limited to, the anticipated realization of ongoing savings from operating synergies in subsequent periods. They also do not give effect to certain charges that the Company expects to incur in connection with the Merger, including, but not limited to, additional professional fees, employee integration, retention and severance costs, facility closure costs, potential asset impairments, accelerated depreciation and amortization or product rationalization charges. The Merger was an all-stock transaction. The following table summarizes the consideration transferred.
(In millions, except for share exchange ratio and price) |  |  |
OfficeMax common shares outstanding as of November 5, 2013 |  |  | 88 |
OfficeMax share-based awards exchanged |  |  | 3 |
OfficeMax Series D preferred shares, as converted |  |  | 1 |
OfficeMax common shares exchanged |  |  | 92 |
Exchange ratio |  |  | 2.69 |
Office Depot common stock issued for consideration |  |  | 246.9 |
Office Depot common stock per share price on November 5, 2013 |  | $ | 5.65 |
Total fair value of consideration transferred |  | $ | 1,395 |
The following table summarizes the allocation of the consideration to the assets and liabilities at November 5, 2013, as adjusted through the measurement period.
(In millions) |
Cash and cash equivalents |  | $ | 460 |
Receivables |  |  | 521 |
Inventories |  |  | 766 |
Prepaid expenses and other current assets |  |  | 106 |
Property and equipment |  |  | 521 |
Favorable leases |  |  | 44 |
Definite-lived intangible assets, primarily customer relationships and trade names |  |  | 57 |
Investment in Boise Cascade Holdings |  |  | 80 |
Timber notes receivable |  |  | 948 |
Other noncurrent assets |  |  | 51 |
Accounts payable |  |  | (527 | )
Other current liabilities (a) |  |  | (471 | )
Unfavorable leases |  |  | (54 | )
Non-recourse debt |  |  | (863 | )
Recourse debt |  |  | (228 | )
Pension and other postretirement obligations |  |  | (180 | )
Deferred income taxes and other long-term liabilities and Noncontrolling interest |  |  | (230 | )
Total identifiable net assets |  |  | 1,001 |
Goodwill (b) |  |  | 394 |
Total |  | $ | 1,395 |
(a) | Includes accrued expenses and other current liabilities and income taxes payable
(b) | Includes $24 million of goodwill allocated to Grupo OfficeMax that was sold in 2014
Receivables are recorded at fair value which represents the amount expected to be collected. Contractual amounts are higher by $14 million. Receivables include trade receivables of approximately $343 million and vendor and other receivables of $178 million. The goodwill attributable to the Merger will not be amortizable or deductible for tax purposes. Goodwill is considered to represent the value associated with the workforce and synergies the two companies anticipate realizing as a combined company. Refer to Note 5 for further details on goodwill allocation to the reporting units. Noncontrolling interest relating to the joint venture in Mexico was valued, using the same fair value measurement methodologies applied to all assets acquired and liabilities assumed in the Merger and a fair value estimate based on market multiples. The disposition of the joint venture in 2014 resulted in no gain or loss other than transaction costs and foreign currency impacts. Merger and integration costs are not included as components of consideration transferred but are accounted for as expenses in the period in which the costs are incurred. Transaction-related expenses are included in the Merger, restructuring, and other operating expenses, net line in the Consolidated Statements of Operations. Refer to Note 3 for additional information about the costs incurred and Note 9 for discussion of the income tax impacts of the Merger. Dispositions Grupo OfficeMax In August 2014, the Company completed the sale of its 51% capital stock interest in Grupo OfficeMax, the former OfficeMax business in Mexico, to its joint venture partner for net cash proceeds of approximately $43 million. The loss associated with the disposed business amounted to approximately $2 million, which resulted primarily from the release of the net foreign currency remeasurement differences from investment to the disposition date recorded in other comprehensive income (cumulative translation adjustment) and fees incurred to complete the transaction. The loss on disposition is included in Merger, restructuring, and other operating expenses, net in the Consolidated Statements of Operations. This disposition will not have a major effect on the Company’s operations and financial results, therefore, the transaction does not meet the discontinued operations criteria under the recently issued and early adopted accounting standards disclosed in Note 1. The amounts included in the 2014 Consolidated Statements of Operations for this business through the date of sale are as follows:
(In millions) |  |  |
Sales |  | $ | 155 |
Income before income taxes |  |  | 6 |
Income attributable to Office Depot, before income taxes |  |  | 4 |
Office Depot de Mexico In the third quarter of 2013, the Company sold its 50 percent investment in Office Depot de Mexico, S.A. de C.V. (“Office Depot de Mexico”) to its joint venture partner, Grupo Gigante, S.A.B. de C.V. (“Grupo Gigante”). The transaction generated cash proceeds of the Mexican Peso amount of 8,777 million in cash (approximately $680 million at then-current exchange rates). A pretax gain of $382 million was recognized in 2013 as Gain on the disposition of joint venture in Other income (expense) in the Consolidated Statement of Operations. The gain is net of third party fees, as well as recognition of $39 million of cumulative translation losses released from Other comprehensive income because the subsidiary holding the joint venture investment was substantially liquidated following the disposition. The investment in this joint venture was accounted for under the equity method of accounting; accordingly, the disposition is not reflected as discontinued operations. Refer to Note 6 for additional information on this former joint venture. The disposition of this asset from the International Division and return of sale proceeds to the Company’s U.S. parent resulted in the fair value of the related reporting unit falling below its carrying value. Refer to Notes 5 and 9 for further information on the goodwill impairment recorded in 2013 and income tax impacts of the sale, respectively.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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