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 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 identified at least 400 retail stores for closure through 2016 along with planned changes to the supply chain. In 2014, the Company approved a plan to realign the European 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 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 summarizes the major components of Merger, restructuring and other operating expenses, net.


(In millions)	2015		2014		2013
Merger related expenses:
Severance, retention, and relocation	$	15	$	148	$	92
Transaction and integration		81		124		80
Facility closure, contract termination, and other expenses, net		44		60		8

Total Merger related expenses		140		332		180

International restructuring and certain other expenses:
Severance and retention		63		55		17
Integration		6		9		—
Other related expenses		12		7		4

Total International restructuring and certain other expenses		81		71		21

Staples Acquisition expenses:
Retention		72		—		—
Transaction		39		—		—

Total Staples Acquisition expenses		111		—		—

Total Merger, restructuring and other operating expenses, net	$	332	$	403	$	201

Merger related expenses

Severance, retention, and relocation expenses include amounts incurred by Office Depot in 2013 and by the combined companies since the date of the Merger, and reflect integration throughout the staff functions. Since the second quarter of 2014, the Real Estate Strategy has been sufficiently developed to provide a basis for estimating termination benefits for certain retail and supply chain closures that are expected to be substantially complete by the end of 2017. Such benefits are being accrued through the anticipated facility closure dates. Severance calculations consider factors such as the expected timing of facility 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. Expenses in 2013 primarily relate to legal, accounting, and pre-merger integration activities incurred by Office Depot.

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 168 and 181 retail stores in 2014 and 2015, respectively, and expects to close more than 50 additional stores in 2016. During 2015, the Company recognized gains of $36 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

International restructuring and certain other expenses in 2015 and 2014 include charges related to the European Restructuring Plan, including severance and retention, professional integration fees, facility closure and other restructuring costs. Additionally, charges related to international organizational changes and facility closures which were started prior to the European Restructuring Plan are presented in this caption. Accruals related to the European Restructuring Plan were substantially completed during 2015.

Staples Acquisition expenses

Staples Acquisition expenses recognized in 2015 include retention accruals, transaction costs, including costs associated with regulatory filings and professional fees. The retention amounts will be paid in the first quarter of 2016 regardless of whether the transaction is approved.

Asset impairments are not included in the table above. Refer to Note 15 for further information.

Merger and Restructuring Accruals

The activity in the merger and restructuring accruals in 2015 and 2014 is presented in the table below. Of the total $332 million and $403 million Merger, restructuring and other expenses incurred in 2015 and 2014, respectively, $241 million and $266 million are related to merger or restructuring liabilities and are included as Charges incurred in the table below. The remaining $91 million and $137 million in 2015 and 2014, respectively, are excluded from the table above because these items are expensed as incurred, non-cash, or otherwise not associated with the 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
2015
Termination benefits:
Merger-related accruals	$	31	$	16	$	(31	)	$	—		$	16
European Restructuring Plan		26		53		(32	)		(5	)		42
Other restructuring accruals		8		7		(14	)		—			1
Lease and contract obligations, accruals for facilities closures and other costs:
Merger-related accruals		71		76		(70	)		—			77
European Restructuring Plan		—		10		(10	)		1			1
Other restructuring accruals		35		4		(17	)		3			25
Acquired entity accruals		36		3		(15	)		1			25
Staples acquisition related accruals		—		72		—			—			72

Total merger and restructuring accruals	$	207	$	241	$	(189	)	$	—		$	259

2014
Termination benefits:
Merger-related accruals	$	23	$	99	$	(91	)	$	—		$	31
European Restructuring Plan		—		26		—			—			26
Other restructuring accruals		5		23		(21	)		1			8
Acquired entity accruals		4		—		(2	)		(2	)		—
Lease and contract obligations, accruals for facilities closures and other costs:
Merger-related accruals		25		111		(65	)		—			71
European Restructuring Plan		—		2		(2	)		—			—
Other restructuring accruals		62		5		(33	)		1			35
Acquired entity accruals		59		—		(25	)		2			36

Total merger and restructuring accruals	$	178	$	266	$	(239	)	$	2		$	207

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 Consolidated Balance Sheets.

The remaining $91 million incurred in 2015 is comprised of $81 million Merger transaction and integration expenses, $6 million European restructuring integration expenses, $39 million Staples Acquisition transaction expenses, and $1 million associated primarily to fixed assets and rent related expenses, partially offset by the $36 million gain on the disposition of the warehouse facilities associated with the supply chain integration. The remaining $137 million incurred in 2014 is comprised of $124 million Merger transaction and integration expenses, $9 million European restructuring integration expenses, $5 million employee non-cash equity compensation expenses, and $1 million net credit associated primarily to fixed assets and rent related items.