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ACQUISITION, MERGER AND RESTRUCTURING | 9 Months Ended
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Sep. 24, 2016
ACQUISITION, MERGER AND RESTRUCTURING | NOTE 2. ACQUISITION, MERGER AND RESTRUCTURING Merger and Restructuring 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 400 retail stores for closure and integration of the supply chain. During the second quarter of 2016, the Company completed the retail store closures under this program. The changes to the supply chain are anticipated to be complete in 2017. Staples Acquisition and Merger Agreement Termination On February 4, 2015, Staples, Inc. (“Staples”) and the Company announced that the companies entered into a definitive merger agreement (the “Staples Merger Agreement”), under which Staples would acquire all of the outstanding shares of Office Depot and the Company would become a wholly owned subsidiary of Staples (the “Staples Acquisition”). On December 7, 2015, the United States Federal Trade Commission (the “FTC”) informed Office Depot and Staples that it intended to block the Staples Acquisition. On the same date, Office Depot and Staples announced their intent to contest the FTC’s decision to challenge the transaction. On May 10, 2016, the U.S. District Court for the District of Columbia granted the FTC’s request for a preliminary injunction against the proposed acquisition, and as a result, the companies terminated the Staples Merger Agreement on May 16, 2016. Per the terms of the termination agreement, Staples paid Office Depot a fee of $250 million in cash on May 19, 2016 (“Termination Fee”), which is included in Merger, restructuring and other operating (income) expenses, net in the Condensed Consolidated Statements of Operations and in Net cash provided by operating activities of continuing operations in the Condensed Consolidated Statements of Cash Flows. Comprehensive Business Review During August 2016, the Company announced the results of a comprehensive business review and strategy (the “Comprehensive Business Review”), which, among other things, includes a plan to close approximately 300 additional retail stores in North America over the next three years, and to lower operating and general and administrative expenses through efficiencies and organizational optimization. The significant components of the cost saving programs activities are discussed below. Additionally, the Company indicated that as part of this process, it would continue exploration of strategic alternatives regarding the European business that had been initiated by Staples as part of their attempt to get European Union regulatory approval of the Staples Acquisition. Merger, restructuring, and other operating (income) expenses, net The Company presents Merger, restructuring and other operating (income) expenses, net on a separate line in the Condensed Consolidated Statements of Operations to identify these activities apart from the activities to sell to and service its customers. These expenses and income are not included in the determination of Division operating income. The table below and narrative that follows provides the major components of Merger, restructuring and other operating (income) expenses, net.
|  | Third Quarter |  |  | Year-to-Date |
(In millions) |  | 2016 |  |  | 2015 |  |  | 2016 |  |  | 2015 |
Merger related expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Severance, retention, and relocation |  | $ | — |  |  | $ | 4 |  |  | $ | — |  |  | $ | 15 |
Transaction and integration |  |  | 8 |  |  |  | 16 |  |  |  | 30 |  |  |  | 69 |
Facility closure, contract termination, and other costs, net |  |  | 4 |  |  |  | 18 |  |  |  | 21 |  |  |  | 32 |
Total Merger related expenses |  |  | 12 |  |  |  | 38 |  |  |  | 51 |  |  |  | 116 |
Staples Acquisition (income) expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Retention |  |  | — |  |  |  | 26 |  |  |  | 15 |  |  |  | 58 |
Transaction |  |  | 4 |  |  |  | 15 |  |  |  | 43 |  |  |  | 30 |
Termination Fee |  |  | — |  |  |  | — |  |  |  | (250 | ) |  |  | — |
Total Staples Acquisition (income) expenses |  |  | 4 |  |  |  | 41 |  |  |  | (192 | ) |  |  | 88 |
Comprehensive Business Review expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Severance |  |  | 9 |  |  |  | — |  |  |  | 13 |  |  |  | — |
Other related expenses |  |  | 6 |  |  |  | — |  |  |  | 6 |  |  |  | — |
Total Comprehensive Business Review expenses |  |  | 15 |  |  |  | — |  |  |  | 19 |  |  |  | — |
Total Merger, restructuring and other operating (income) expenses, net |  | $ | 31 |  |  | $ | 79 |  |  | $ | (122 | ) |  | $ | 204 |
Merger related expenses Severance, retention, and relocation reflect expenses incurred for the integration of staff functions and include 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. 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, net 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. During year-to-date 2016 the Company recognized gains of $1 million from the sale of warehouse facilities that had been classified as assets held for sale. During the third quarter and year-to-date 2015, the Company recognized gains of $6 million and $25 million, respectively, from the sale of warehouse facilities that had been classified as assets held for sale. The gains are included in Merger, restructuring and other operating (income) expenses, net, as the dispositions were part of the supply chain integration associated with the Merger. Staples Acquisition (income) expenses Expenses include retention accruals and transaction costs, including costs associated with regulatory filings and professional fees, offset by the Termination Fee income. Comprehensive Business Review expenses Expenses include severance, facility closure costs, contract termination and accelerated depreciation associated with the announced closure of approximately 300 retail store locations through 2018, as well as severance and reorganization costs associated with reductions in staff functions. Severance costs are being accrued through the anticipated facility closure or termination date and consider timing, terms of existing severance plans, expected employee turnover and attrition. Asset impairments related to the restructuring initiatives are not included in the table above. Refer to Note 9 for further information. Merger and Restructuring Accruals The activity in the merger and restructuring accruals is presented in the table below. The total $122 million income presented in Merger, restructuring and other operating (income) expenses, net in the year-to-date 2016 Condensed Consolidated Statement of Operations, includes the $250 million Termination Fee. Excluding the Termination Fee, expenses of $128 million were incurred in the year-to-date 2016, of which $41 million relate to Merger and restructuring liabilities and are included as Charges incurred in the table below. The remaining $87 million expense is comprised of $43 million Staples Acquisition transaction expenses, $30 million Merger transaction and integration expenses and $14 million in other expenses. These amounts are excluded from the table below because they are recorded as incurred or earned, non-cash, or otherwise not associated with Merger and restructuring balance sheet accounts.
|  |  |  |  | Year-to-Date 2016 |  |  |  |
(In millions) |  | December 26, 2015 |  |  | Charges Incurred |  |  | Cash Payments |  |  | Lease Accretion and Other Adjustments |  |  | September 24, 2016 |
Termination benefits |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Merger related accruals |  | $ | 16 |  |  | $ | — |  |  | $ | (6 | ) |  | $ | (2 | ) |  | $ | 8 |
Comprehensive Business Review |  |  | — |  |  |  | 13 |  |  |  | (5 | ) |  |  | — |  |  |  | 8 |
Lease and contract obligations, accruals for facilities closures and other costs |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Merger related accruals |  |  | 77 |  |  |  | 16 |  |  |  | (51 | ) |  |  | 3 |  |  |  | 45 |
Other restructuring accruals |  |  | 14 |  |  |  | (1 | ) |  |  | (7 | ) |  |  | 1 |  |  |  | 7 |
Acquired entity accruals |  |  | 25 |  |  |  | (2 | ) |  |  | (6 | ) |  |  | 3 |  |  |  | 20 |
Staples Acquisition related accruals |  |  | 64 |  |  |  | 15 |  |  |  | (79 | ) |  |  | — |  |  |  | — |
Total |  | $ | 196 |  |  | $ | 41 |  |  | $ | (154 | ) |  | $ | 5 |  |  | $ | 88 |
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. Assets held for sale Certain facilities identified for closure through integration and other activities have been accounted for as assets held for sale. Assets held for sale primarily consist of supply chain facilities, and are presented in Prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets. The assets held for sale activity in the year-to-date 2016 is presented in the table below.
(In millions) |  |  |
Balance as of December 26, 2015 |  | $ | 30 |
Additions |  |  | 6 |
Dispositions |  |  | (7 | )
Balance as of September 24, 2016 |  | $ | 29 |
Gains on dispositions associated with Merger or restructuring activities will be recognized at the Corporate level and included when realized in Merger, restructuring and other operating (income) expenses, net in the Condensed Consolidated Statements of Operations. Losses, if any, are recognized when classified as held for sale. Gains or losses associated with dispositions of properties not associated with Merger or restructuring activities will be presented as a component of operations when the related accounting criteria are met.

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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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