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 400 retail stores for closure over three years along with planned changes to the supply chain that currently are anticipated to be complete in 2017. During the second quarter of 2016, the Company completed the retail store closures under this program. 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”). Additionally, during 2015 and through the second quarter of 2016, expenses were incurred and the Termination Fee received associated with the Staples Acquisition. The significant components of these activities are discussed below.

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 summarize the major components of Merger, restructuring and other operating (income) expenses, net.


	Second Quarter					First Half
(In millions)	2016			2015		2016			2015
Merger related expenses
Severance, retention, and relocation	$	—		$	6	$	—		$	11
Transaction and integration		11			29		22			53
Facility closure, contract termination, and other costs, net		14			29		17			15

Total Merger related expenses		25			64		39			79

International restructuring and certain other expenses
Severance and retention		1			20		5			25
Integration		—			2		—			4
Other related expenses		3			—		4			6

Total International restructuring and certain other expenses		4			22		9			35

Staples Acquisition (income) expenses
Retention		15			29		18			35
Transaction		19			5		41			14
Termination Fee		(250	)		—		(250	)		—

Total Staples Acquisition (income) expenses		(216	)		34		(191	)		49

Total Merger, restructuring and other operating (income) expenses, net	$	(187	)	$	120	$	(143	)	$	163

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.

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 51 retail stores in the first half of 2016, completing the 400 store closures announced in 2014. During the second quarter of 2016 and first quarter of 2015, the Company recognized gains of $1 million and $19 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.

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 (income) expenses

Expenses include retention accruals, and transaction costs, including costs associated with regulatory filings and professional fees, offset by the Termination Fee income (refer to Note 2 for further information). The prior period accruals for retention were paid in the first quarter of 2016. Current period retention accruals will be paid in the third 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. The total $143 million income presented in Merger, restructuring and other operating (income) expenses, net in the first half of 2016 Condensed Consolidated Statement of Operations, includes the $250 million Termination Fee. Excluding the Termination Fee, expenses of $107 million were incurred in the first half of 2016, of which $36 million relate to Merger and restructuring liabilities and are included as Charges incurred in the table below. The remaining $71 million expense is comprised of $41 million Staples Acquisition transaction expenses, $22 million Merger transaction and integration expenses and $8 million in other transactions 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.


			First Half 2016
(In millions)	December 26, 2015		Charges Incurred			Cash Payments			Currency, Lease Accretion and Other Adjustments			June 25, 2016
Termination benefits
Merger related accruals	$	16	$	—		$	(4	)	$	(2	)	$	10
European restructuring plan		42		—			(16	)		2			28
Other restructuring accruals		1		4			(4	)		—			1
Lease and contract obligations, accruals for facilities closures and other costs
Merger related accruals		77		14			(37	)		3			57
European restructuring plan		1		—			—			—			1
Other restructuring accruals		25		1			(8	)		1			19
Acquired entity accruals		25		(2	)		(3	)		2			22
Staples Acquisition related accruals		72		19			(75	)		(1	)		15

Total	$	259	$	36		$	(147	)	$	5		$	153

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.