Discontinued Operations

During 2016 the Company announced its Staples 20/20 strategic plan, under which the Company plans to focus on growth opportunities in North America. In connection with this plan, in the fourth quarter of 2016 the Company disposed of its retail business in the United Kingdom and entered into an agreement to sell a controlling interest in its remaining European operations. The Company closed on the sale of this controlling interest in February 2017. The Company has presented its combined European operations as discontinued operations in the Company’s consolidated financial statements. The European operations were a component of the Company’s former International Operations segment.

Disposal of retail store business in the United Kingdom

On November 18, 2016 the Company completed the sale of 100% of the outstanding shares of the entities operating to its retail stores business in the United Kingdom (“UK Retail”) for total consideration of one pound sterling. Upon completion of the transaction, Staples delivered the UK Retail business to the buyer with approximately $28 million (£23 million) of unrestricted cash on-hand. The Company recognized a $114 million loss on sale related to this transaction, which is included in Loss on sale related to discontinued operations in the consolidated statement of income for 2016.

The $114 million loss on sale is inclusive of $34 million related to the fair value of the Company’s liability related to certain lease obligations which the Company will continue to guarantee after completion. The total amount of lease obligations for which the Company is a guarantor is approximately $160 million (£127 million). The related leases expire at various dates through 2027, with a weighted average remaining term of 5.7 years, and the terms may not be extended. The Company would be required to make payment under these arrangements in the event a settlement is negotiated and agreed upon with the applicable landlord and a release of the corresponding lease obligations is obtained, or upon a default by the buyer. The fair value of the guarantee liability was derived using the income approach, incorporating Level 3 inputs as defined in ASC 820. Key inputs and assumptions included probability of default, market rental rates, costs to obtain a release from future lease obligations, and discount rates.

Other than with respect to the Company's obligations related to the guarantees, the Company does not expect to have significant continuing involvement with UK Retail after completion.

Disposal of remaining European Operations subsequent to the end of fiscal 2016

On December 7, 2016, the Company entered into an agreement ("Signing Protocol") with an affiliate of Cerberus Capital Management, L.P. (“Cerberus”), pursuant to which Cerberus made a binding offer to purchase the Shares (defined below) related to the Company’s remaining European operations (“European Operations”). Appended to the Signing Protocol was a form of the share purchase agreement ("SPA") which incorporates the key term and conditions of the sale. The Company’s acceptance of the offer and its entry into the SPA was subject to completion of certain European works council consultation procedures and applicable waiting periods required by relevant European legislation and practice.

On February 2, 2017, following the completion of these consultation procedures and waiting periods, Staples and Cerberus executed the SPA, which was amended on February 23, 2017, and on February 27, 2017 the parties completed the transaction. Following the closing, Staples will provide certain customary transitional services during a period of up to 36 months, and will partner with the disposed operations on managing certain global customer accounts. Commercial transactions between the parties following the closing of the transaction are not expected to be significant.

Under the terms of the SPA, as amended, the Company sold to Cerberus 85% of the common shares and 100% of the preferred shares in the Company's subsidiary holding the European Operations (collectively, the “Shares”) for total consideration of €50 million ($53 million). The purchase consideration also provides the divested business with a perpetual, royalty-free license to use the Staples trade name on the European continent, with exclusivity within that territory. Staples will retain 15% of the common shares, which the Company plans to account for using the cost method of accounting. The preferred shares provide for a liquidation preference equal to €50 million and a 10% cumulative preferred dividend. Upon completion of the transaction, Staples delivered the European Operations with approximately €166 million ($175 million) related to a preliminary estimate of the requisite unrestricted cash, which is equal to (i) €20 million, plus (ii) €146 million relating to indebtedness, underfunded pension liabilities, working capital, and certain other adjustments, plus an additional €6 million ($7 million) related to other obligations outlined in the SPA. The preliminary estimate of the unrestricted cash amount is subject to adjustment based on finalization of the completion accounts, which is to occur no later than 90 days following closing. The preliminary unrestricted cash amount may vary significantly from the actual amount calculated as of completion.

The European Operations are classified as held for sale at January 28, 2017. As a result of this classification, the Company recorded an impairment charge of $231 million during the fourth quarter of 2016, related to $226 million of property plant and equipment and $5 million related to intangible assets. These charges are included in Loss from discontinued operations in the consolidated statement of income. In the first quarter of 2017, the Company expects to record additional losses in connection with the closing of this transaction, which are currently estimated to be between $800-900 million, including the release of cumulative translation losses and the write-off of deferred pension costs recorded as a component of accumulated other comprehensive income.

The table below provides a reconciliation of the carrying amounts of the major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the consolidated balance sheets. The carrying amounts as of January 30, 2016 include balances related to UK Retail, whereas the amounts as of January 28, 2017 do not since the business had been divested as of that date.




	January 28, 2017			January 30, 2016
Receivables, net	$	294		$	356
Merchandise inventories	188			287
Property, plant and equipment	226			300
Goodwill	—			621
Intangible assets	5			39
Other assets	86			87
Loss recognized on classification as held for sale	(231		)	—
Assets of discontinued operations	568			1,690

Accounts payable	174			209
Accrued expenses and other current liabilities	145			193
Other liabilities	83			69
Liabilities of discontinued operations	$	402		$	471

The following table provides the major classes of line items constituting the results of operations for discontinued operations for 2016, 2015, and 2014. This table includes the results of operations for UK Retail through November 18, 2016, the date of its disposition.



	Fiscal year ended
	January 28, 2017			January 30, 2016			January 31, 2015
Sales	$	1,970		$	2,295		$	2,808
Cost of goods sold and occupancy costs	1,451			1,688			2,045
Gross profit	519			607			763

Operating expenses:
Selling, general and administrative	524			606			720
Impairment of goodwill and long-lived assets	686			14			1
Restructuring costs	—			46			13
Amortization of intangibles	7			13			14
Total operating expenses	1,217			679			748

Gain (loss) on sale of businesses and assets, net	1			—			(2		)

Operating (loss) income	(697		)	(72		)	13

Interest and other, net	(3		)	—			2

Pretax operating (loss) income of discontinued operations	(700		)	(72		)	15
Loss recognized on classification as held for sale	(231		)	—			—
Loss on sale of discontinued operations	(114		)	—			—
Total pretax (loss) income of discontinued operations	(1,045		)	(72		)	15
Income tax (benefit) expense	(7		)	11			5
(Loss) income of discontinued operations	$	(1,038	)	$	(83	)	$	10

The following table summarizes depreciation and capital expenditures for discontinued operations for 2016, 2015, and 2014.



	Fiscal year ended
	January 28, 2017		January 30, 2016		January 31, 2015
Depreciation	$	39	$	41	$	48
Acquisition of property & equipment	28		50		55