DIVISION INFORMATION

9 Months Ended

Sep. 27, 2014

DIVISION INFORMATION

NOTE 12. DIVISION INFORMATION

As a result of the Merger, the Company is in a period of transition as it relates to organizational alignment and management reporting which could impact segment reporting in future periods. At September 27, 2014, the Company had the following three reportable segments: North American Retail Division, North American Business Solutions Division, and International Division. Following the date of the Merger, the former OfficeMax U.S. Retail business is included in the North American Retail Division. The former OfficeMax United States contract and Canadian businesses are included in the North American Business Solutions Division. The former OfficeMax businesses in Australia and New Zealand are included in the International Division. The former OfficeMax business in Mexico is presented as Other. The integration of this business into the International Division was suspended in the second quarter of 2014 due to the sale, and it was managed and reported independently of the Company’s other international businesses, through the date of the sale. Prior period segment information has been recast to reflect this change in the reporting structure. The office supply products and services offered across all operating segments are similar. Division operating income is determined based on the measure of performance reported internally to manage the business and for resource allocation. This measure charges to the respective Divisions those expenses considered directly or closely related to their operations and allocates support costs. Other companies may charge more or less of these items to their segments and results may not be comparable to similarly titled measures used by other entities.

During the fourth quarter of 2013, the Company modified its measure of business segment operating income for management reporting purposes to exclude from the determination of segment operating results the impact related to asset impairments, Merger and integration, restructuring and other charges and credits. Oversight of these activities starting in fourth quarter of 2013 was provided at the Corporate level. Prior period operating expenses have been recast to conform to the current period presentation for the change in measurement of Division operating results.

The following is a summary of Sales and Division operating income by each of the Divisions, reconciled to consolidated totals.

	Sales
	Third Quarter				Year-to-Date
(In millions)	2014		2013		2014		2013
North American Retail Division	$	1,722	$	1,128	$	4,989	$	3,211
North American Business Solutions Division		1,522		811		4,554		2,408
International Division		797		680		2,565		2,137
Other		28		—		155		—
Total	$	4,069	$	2,619	$	12,263	$	7,756

	Division Operating Income
	Third Quarter				Year-to-Date
(In millions)	2014		2013		2014		2013
North American Retail Division	$	79	$	15	$	110	$	16
North American Business Solutions Division		67		39		165		96
International Division		10		6		25		8
Total	$	156	$	60	$	300	$	120

A reconciliation of the measure of Division operating income to Consolidated income (loss) before income taxes is as follows:

	Third Quarter						Year-to-Date
(In millions)	2014			2013			2014			2013
Total Division operating income	$	156		$	60		$	300		$	120
Add/(subtract):
Other operating income		1			—			8			—
Asset impairments		(6	)		(49	)		(77	)		(58	)
Merger, restructuring, and other operating expenses, net		(72	)		(44	)		(276	)		(90	)
Legal accrual		(1	)		—			(81	)		—
Unallocated expenses		(29	)		(19	)		(88	)		(60	)
Interest income		6			1			18			1
Interest expense		(25	)		(15	)		(65	)		(48	)
Gain on disposition of joint venture		—			381			—			382
Other income (expense), net		1			—			(1	)		14
Income (loss) before income taxes	$	31		$	315		$	(262	)	$	261

The gross amount of goodwill and the amount of accumulated impairment losses as of September 27, 2014 are provided in the following table:

(In millions)	North American Retail Division			North American Business Solutions Division			International Division			Corporate			Total
Goodwill	$	2		$	370		$	907		$	377		$	1,656
Accumulated impairment losses		(2	)		(349	)		(907	)		—			(1,258	)
Balance as of December 28, 2013		—			21			—			377			398
2014 Changes Related to Merger:
Measurement period fair value adjustments		—			—			—			(7	)		(7	)
Allocation to reporting units		78			277			15			(370	)		—
Balance as of September 27, 2014	$	78		$	298		$	15		$	—		$	391

As the Company finalized the purchase price allocation from the Merger, certain preliminary values have been adjusted as additional information became available. Goodwill of $24 million was allocated to the Grupo OfficeMax business and was removed following the August 2014 sale of that business. Initial amounts allocated to certain international property and equipment accounts decreased by $16 million and tax account adjustments were $1 million, resulting in a net $7 million reduction in total goodwill through the end of the third quarter of 2014.

In the third quarter of 2014, the goodwill associated with the Merger was allocated to the reporting units for the purposes of the annual goodwill impairment test. The estimated fair value of each reporting unit exceeds its carrying value at the test date. The reporting unit of Australia and New Zealand, which was not combined with any existing Office Depot businesses, has an estimated fair value approximately 10% above its carrying value. Goodwill in that reporting unit is $15 million. The estimated fair value of this reporting unit includes projected cash outflows related to certain restructuring activities. Should these restructuring activities not result in the anticipated future period benefits, or if there is a downturn in performance, a potential future goodwill impairment could result. However, the Company believes, based on these projections, that there are no current indicators of impairment in this reporting unit. The estimated fair values of the other reporting units, which were combined with existing Office Depot businesses, were substantially in excess of their carrying values.