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MERGER, RESTRUCTURING AND OTHER ACTIVITY | 9 Months Ended
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Sep. 25, 2021
Merger Restructuring And Other Activity [Abstract] |
MERGER, RESTRUCTURING AND OTHER ACTIVITY | NOTE 3. MERGER, RESTRUCTURING AND OTHER ACTIVITY Since 2017, the Company has taken actions to optimize its asset base and drive operational efficiencies. These actions include acquiring profitable businesses, closing underperforming retail stores and non-strategic distribution facilities, consolidating functional activities, eliminating redundant positions and disposing of non-strategic businesses and assets. The expenses and any income recognized directly associated with these actions are included in Merger, restructuring and other operating expenses, net on a separate line in the Condensed Consolidated Statements of Operations in order to identify these activities apart from the expenses incurred to sell to and service customers. These expenses are not included in the determination of Division operating income. The table below summarizes the major components of Merger, restructuring and other operating expenses, net.
|  | Third Quarter |  |  | Year-to-Date |
(In millions) |  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Merger and transaction related expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Transaction and integration |  | $ | (1 | ) |  | $ | — |  |  |  | — |  |  |  | 5 |
Total Merger and transaction related expenses |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | 5 |
Restructuring expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Severance |  |  | (1 | ) |  |  | 2 |  |  |  | (2 | ) |  |  | 39 |
Professional fees |  |  | — |  |  |  | 10 |  |  |  | 1 |  |  |  | 21 |
Facility closure, contract termination, and other expenses, net |  |  | 5 |  |  |  | 12 |  |  |  | 14 |  |  |  | 24 |
Total Restructuring expenses, net |  |  | 4 |  |  |  | 24 |  |  |  | 13 |  |  |  | 84 |
Other operating expenses |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Professional fees |  |  | 10 |  |  |  | — |  |  |  | 24 |  |  |  | — |
Total Other operating expenses |  |  | 10 |  |  |  | — |  |  |  | 24 |  |  |  | — |
Total Merger, restructuring and other operating expenses, net |  | $ | 13 |  |  | $ | 24 |  |  | $ | 37 |  |  | $ | 89 |
MERGER AND TRANSACTION RELATED EXPENSES In the third quarter of 2021, the Company did not incur any transaction and integration expenses. The $1 million income represents the impact of earnout adjustments on acquisitions made in prior periods. Year-to-date 2021, the Company did not incur any transaction and integration expenses. Year-to-date 2020, the Company incurred $5 million of merger and transaction related expenses. These expenses include legal, accounting, and other third-party expenses incurred in connection with acquisitions and business integration activities. RESTRUCTURING EXPENSES Maximize B2B Restructuring Plan In May 2020, the Company’s Board of Directors approved a restructuring plan to realign the Company’s operational focus to support its “business-to-business” solutions and IT services business units and improve costs (“Maximize B2B Restructuring Plan”). Implementation of the Maximize B2B Restructuring Plan is expected to be substantially completed by the end of 2023. The Maximize B2B Restructuring Plan aims to generate savings through optimizing the Company’s retail footprint, removing costs that directly support the Retail business and additional measures to implement a company-wide low-cost business model, which will then be invested in accelerating the growth of the Company’s business-to-business platform. The plan is broader than restructuring programs the Company has implemented in the past and includes closing and/or consolidating retail stores and distribution facilities and the reduction of up to 13,100 employee positions by the end of 2023. The Company is evaluating the number and timing of retail store and distribution facility closures and/or consolidations. However, it is generally understood that closures will approximate the store’s lease termination date. The Company closed 6 and 67 retail stores under the Maximize B2B Restructuring Plan during the third quarter and year-to-date 2021, respectively. The Company had closed 70 retail stores and two distribution facilities in 2020 under the Maximize B2B Restructuring Plan. It is anticipated that additional retail stores will be closed in 2021. Total estimated restructuring costs related to the Maximize B2B Restructuring Plan are expected to be up to $115 million, comprised of:
| (a) | severance costs of approximately $53 million;
| (b) | facility closure costs of approximately $34 million, which are mainly related to retail stores; and
| (c) | other costs, including contract termination costs, to facilitate the execution of the Maximize B2B Restructuring Plan of approximately $28 million.
The total costs of up to $115 million above are less than the Company’s estimate of total costs for this restructuring plan when it commenced, mainly as a result of the reduction in the number of expected retail store and distribution facility closures based upon the Company’s most recent evaluation of economic factors that influence expected store closures. There could be further fluctuations in the estimate of total expected costs in the future and timing of such costs as a result of an assessment of general market conditions and changes in the Company’s business strategy, including the Separation described in Note 1 above. In addition, the reduction of employee positions may also be impacted as a result of fewer retail store closures and the changes in the Company’s business strategy. The $115 million of total costs are expected to be incurred as cash expenditures through 2023 and funded primarily with cash on hand and cash from operations. The Company incurred $94 million in restructuring expenses to implement the Maximize B2B Restructuring Plan since its inception in 2020 and through year-to-date 2021, of which $46 million were cash expenditures. Of these amounts, $6 million of restructuring expenses and $2 million of cash expenditures were related to the CompuCom Division which is now presented in discontinued operations. In the third quarter of 2021, the Company incurred $4 million, net, in restructuring expenses associated with the Maximize B2B Restructuring Plan, which consisted of $5 million of facility closure, contract termination and other costs, partially offset by $1 million in reversal of employee severance accruals due to changes in estimates. Year-to-date 2021, the Company incurred $13 million in restructuring expenses associated with the Maximize B2B Restructuring Plan, which consisted of $1 million in third-party professional fees, $15 million of facility closure, contract termination and other costs, partially offset by $2 million in reversal of employee severance accruals due to changes in estimates and a $1 million gain on sale of retail store assets. The facility closure costs were mainly related to retail store closure accruals and accelerated depreciation. Of these amounts, $2 million and $17 million were cash expenditures in the third quarter and year-to-date 2021, respectively. In the third quarter of 2020, the Company incurred $17 m illion in restructuring expenses associated with the Maximize B2B Restructuring Plan, which consisted of $1 million in severance, $7 million in third-party professional fees, and $9 million of retail store and facility closure costs and other that were mainly related to closure accruals, gains and losses on asset dispositions, and accelerated depreciation. Of these amounts, $12 million were cash expenditures in the third quarter of 2020. Year-to-date 2020, the Company incurred $62 million in restructuring expenses associated with the Maximize B2B Restructuring Plan which consisted of $39 million in severance, $7 million in third-party professional fees, and $16 million of retail store and facility closure costs and other that were mainly related to facility closure accruals, gains and losses on asset dispositions, and accelerated depreciation. Of these amounts, $15 million were cash expenditures year-to-date 2020. Other Included in restructuring expense in the third quarter and year-to-date 2020 were $6 million and $19 million, respectively, of costs incurred in connection with the Business Acceleration Program. These costs included third-party professional fees, retail and facility closure costs and other costs. The Business Acceleration Program was announced in 2019 and largely concluded at the end of 2020. OTHER OPERATING EXPENSES USR Parent, Inc. proposals During the first quarter of 2021, the Company received two proposals from USR Parent, Inc., the parent company of Staples Inc. and a portfolio company of Sycamore Partners, to acquire 100% of the Company’s issued and outstanding stock or certain assets of the Company. After careful review and consideration of the proposals and in consultation with the Company’s financial and legal advisors, the Company’s Board of Directors unanimously concluded that the transactions described in the proposals were not in the best interest of the Company and its shareholders, and that there was a more compelling path forward to create value. The Company filed statements on Schedule 14D-9 with the SEC on January 19, 2021 and March 15, 2021 containing its Board of Directors’ recommendation. Also, on March 31, 2021, USR Parent, Inc. publicly announced that it decided to defer the March 2021 launch of a tender offer for the Company’s common stock while reserving the right to commence one in the future. During the second quarter of 2021, the Company received a third proposal from USR Parent, Inc. to acquire the Company’s consumer business, including its retail stores, and reiterated its intention to commence a tender offer if negotiations for an alternative transaction are not successful. The Company’s Board of Directors is carefully reviewing the third proposal with the assistance of its financial and legal advisors to determine the course of action that it believes is in the best interests of the Company and its shareholders. The Company incurred $1 million and $4 million in third-party professional fees related to the evaluation of USR Parent, Inc.’s proposals in the third quarter and year-to-date 2021, respectively, including expenses incurred in connection with a Civil Investigative Demand (“CID”) from the U.S. Federal Trade Commission (“FTC”), which is conducting an investigation of USR Parent, Inc.’s proposals. In order to relieve the Company from the continuation of a costly and burdensome process, the FTC has agreed to defer requiring further responses from the Company unless and until USR Parent, Inc. formally launches a tender offer or the parties execute a negotiated agreement. Additionally, on May 4, 2021 the Canadian Competition Bureau (the “Bureau”) advised the Company that it has determined that USR Parent, Inc.’s proposed acquisition of the Company would likely result in a substantial lessening or prevention of competition in the sale of business essentials to enterprise customers in Canada. While it is not known for certain what the Bureau would do if USR Parent, Inc. actually launches a tender offer in the future, the Bureau’s determination signals that the Bureau would likely challenge the acquisition. The Company cannot be certain that USR Parent, Inc. will not commence a tender offer in the future. The Company a nticipates that it will incur additional significant legal and other expenses in the future if USR Parent, Inc. pursues a tender offer. Planned Separation of Consumer Business In May 2021, the Company’s Board of Directors unanimously approved a plan to pursue a separation of the Company into two independent, publicly traded companies, as further described in Note 1 above. The Company expects to incur significant costs in connection with the Separation, which are expected to primarily be third-party professional fees related to investment banking, accounting, legal, consulting and other similar types of services associated with the Separation transaction, as well as costs associated with the operational separation of the two companies, such as those related to human resources, brand management, real estate and IT infrastructure. Separation costs also may include the costs associated with bonuses and restricted stock grants awarded to certain employees for retention through the Separation. The Company incurred $9 million and $20 million in third-party professional fees associated with the Separation in the third quarter and year-to-date 2021, respectively, related to the Separation, and expects to continue to incur additional Separation costs in the remainder of 2021 and in 2022 until the Separation is completed. The Company currently estimates that such additional costs will exceed $100 million, although such estimate is subject to a number of assumptions and uncertainties. MERGER, RESTRUCTURING AND OTHER ACCRUALS The activity in the merger, restructuring and other accruals in year-to-date 2021 is presented in the table below. Certain merger, restructuring and other charges are excluded from the table because they are paid as incurred or non-cash, such as accelerated depreciation and gains and losses on asset dispositions.
|  | Balance as of |  |  |  |  |  |  |  |  |  |  | Balance as of |
|  | December 26, |  |  | Charges (credits) |  |  | Cash |  |  | September 25, |
(In millions) |  | 2020 |  |  | Incurred |  |  | Payments |  |  | 2021 |
Termination benefits: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Maximize B2B Restructuring Plan |  |  | 27 |  |  |  | (2 | ) |  |  | (5 | ) |  |  | 20 |
Business Acceleration Program |  |  | 2 |  |  |  | — |  |  |  | (2 | ) |  |  | — |
Lease and contract obligations, accruals for facilities closures and other costs: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Maximize B2B Restructuring Plan |  |  | 10 |  |  |  | 9 |  |  |  | (9 | ) |  |  | 10 |
Business Acceleration Program |  |  | 1 |  |  |  | — |  |  |  | (1 | ) |  |  | — |
Comprehensive Business Review |  |  | 2 |  |  |  | — |  |  |  | (1 | ) |  |  | 1 |
USR Parent, Inc. proposals |  |  | — |  |  |  | 4 |  |  |  | (4 | ) |  |  | — |
Planned separation of consumer business |  |  | — |  |  |  | 20 |  |  |  | (19 | ) |  |  | 1 |
Total |  | $ | 42 |  |  | $ | 31 |  |  | $ | (41 | ) |  | $ | 32 |
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, in the Condensed Consolidated Balance Sheets.

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