NOTE 3. MERGER, RESTRUCTURING, AND OTHER ACCRUALS

In recent years, the Company has taken actions to adapt to changing and competitive conditions. These actions include closing facilities, consolidating functional activities, eliminating redundant positions, disposing of businesses and assets, and taking actions to improve process efficiencies. In 2013, the OfficeMax merger (the “Merger”) was completed and integration activities similar to the actions described above began. The Company also assumed certain restructuring liabilities previously recorded by OfficeMax. In mid-2014, the Company’s real estate strategy (the “Real Estate Strategy”) identified at least 400 retail stores for closure through 2016 along with planned changes to the supply chain. Also in 2014, the European restructuring plan was approved by the Company to realign the organization from a geographic-focus to a business channel-focus (the “European Restructuring Plan”). In 2015, the Staples Acquisition was announced. Significant expenses have been recognized associated with these activities, as discussed below.

Merger, restructuring, and other operating expenses, net

The Company presents Merger, restructuring and other operating expenses, net on a separate line in the Condensed Consolidated Statements of Operations to identify these activities apart from the expenses incurred to sell to and service its customers. These expenses are not included in the determination of Division operating income. The table below and narrative that follows summarize the major components of Merger, restructuring and other operating expenses, net.


	First Quarter
(In millions)	2016		2015
Merger related expenses
Severance, retention, and relocation	$	1	$	5
Transaction and integration		11		24
Facility closure, contract termination and other costs, net		2		(14	)

Total Merger related expenses		14		15

International restructuring and certain other expenses
Severance and retention		4		5
Integration		—		2
Other related expenses		1		6

Total International restructuring and certain other expenses		5		13

Staples Acquisition expenses:
Retention		3		6
Transaction		22		9

Total Staples Acquisition expenses		25		15

Total Merger, restructuring and other operating expenses, net	$	44	$	43

Merger related expenses

Severance, retention, and relocation reflect expenses incurred for the integration of staff functions and includes termination benefits for certain retail and supply chain closures. Such benefits are being accrued through the anticipated facility closure date. Severance calculations consider factors such as the expected timing of store closures, terms of existing severance plans, expected employee turnover and attrition. As the integration progresses and additional decisions about the identity and timing of closures are made, more current information will be available and assumptions used in estimating the termination benefits accrual may change.

Transaction and integration expenses include integration-related professional fees, incremental temporary contract labor, salary and benefits for employees dedicated to the Merger activity, travel costs, non-capitalizable software integration costs, and other direct costs to combine the companies. Such costs are being recognized as incurred.

Facility closure, contract termination and other costs primarily relate to facility closure accruals, contract termination cost, gains and losses on asset dispositions, and accelerated depreciation. Facility closure expenses include amounts incurred by the Company to close retail stores in the United States as part of the Real Estate Strategy, as well as supply chain facilities. The Company closed nine retail stores in the first quarter of 2016 and expects to close more than 50 stores in fiscal year 2016. During the first quarter of 2015, the Company recognized gains of $19 million from the sale of warehouse facilities that had been classified as assets held for sale. The gains are included in Merger, restructuring and other operating expenses, net, as the dispositions were part of the supply chain integration associated with the Merger.

International restructuring and certain other expenses

Expenses include charges related to restructuring activities, including severance and retention, professional integration fees, facility closure and other restructuring costs.

Staples Acquisition expenses

Expenses include retention accruals, and transaction costs, including costs associated with regulatory filings and professional fees. The prior and current period accruals for retention were paid in the first quarter of 2016.

Asset impairments are not included in the table above. Refer to Note 9 for further information.

Merger and Restructuring Accruals

The activity in the merger and restructuring accruals is presented in the table below. Of the total $44 million Merger, restructuring and other expenses incurred in the first quarter of 2016 Condensed Consolidated Statement of Operations, $6 million relates to Merger and restructuring liabilities and are included as Charges incurred in the table below. The remaining $38 million is excluded from the table below because these items are expensed as incurred, non-cash, or otherwise not associated with Merger and restructuring balance sheet accounts (see further discussion below).


(In millions)	Beginning Balance		Charges Incurred			Cash Payments			Currency, Lease Accretion and Other Adjustments			Ending Balance
2016
Termination benefits
Merger related accruals	$	16	$	2		$	(3	)	$	(2	)	$	13
European restructuring plan		42		1			(7	)		1			37
Other restructuring accruals		1		3			(1	)		1			4
Lease and contract obligations, accruals for facilities closures and other costs
Merger related accruals		77		(1	)		(18	)		3			61
European restructuring plan		1		—			—			—			1
Other restructuring accruals		25		—			(4	)		3			24
Acquired entity accruals		25		(2	)		—			—			23
Staples Acquisition related accruals		72		3			(75	)		—			—

Total	$	259	$	6		$	(108	)	$	6		$	163

The short-term and long-term components of these liabilities are included in Accrued expenses and other current liabilities and Deferred income taxes and other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheets.

The remaining $38 million is comprised of $11 million Merger transaction and integration expenses, $22 million Staples Acquisition transaction expenses, and $5 million primarily related to fixed assets and rent expenses.