Exit Activities

12 Months Ended

Jan. 31, 2020

Restructuring and Related Activities [Abstract]

During fiscal years 2019 and 2018, the Company has incurred costs associated with an ongoing strategic reassessment of its business to drive an increased focus on its core home improvement operations and to improve overall operating performance and profitability. As a result of this reassessment, the Company decided to exit certain activities and close certain locations as further described below. Expenses associated with long-lived asset impairment, discontinued projects, severance, and lease obligations, are included in SG&A expense in the consolidated statements of earnings. Expenses associated with accelerated depreciation are included in depreciation and amortization expense in the consolidated statements of earnings. Inventory adjustments to net realizable value are included in cost of sales in the consolidated statements of earnings.

2019 Canada Restructuring

During the third quarter of fiscal 2019, the Company began a strategic review of its Canadian operations, and as a result, recognized pre-tax charges of $53 million associated with long-lived asset impairment. Subsequent to the end of the Company’s third quarter of fiscal 2019, a decision was made to close 34 under-performing stores in Canada and take additional restructuring actions to improve future sales and profitability of the Canadian operations. A summary of the significant charges associated with the 2019 strategic review of the Canadian operations, are as follows:



	Year Ended
(In millions)	January 31, 2020
Long-lived asset impairment	53
Accelerated depreciation and amortization	23
Severance costs	17
Other closing costs	15
Total	$	108

Orchard Supply Hardware (Orchard)

On August 17, 2018, the Company approved plans to exit its Orchard operations by closing all 99 Orchard stores, which are located in California, Oregon and Florida, as well as the distribution facility that services the Orchard stores, and the Orchard corporate office. All facilities were closed by the end of fiscal year 2018. A summary of the significant charges associated with the exit of the Orchard operations is as follows:



	Year Ended
(In millions)	February 1, 2019
Lease obligation costs for closed locations	$	217
Long-lived asset impairment	206
Accelerated depreciation and amortization	103
Discontinued project write-offs	24
Severance costs	11
Total	$	561

U.S. and Canada Location Closings

On October 31, 2018, the Company committed to closing 20 U.S. home improvement stores and 31 locations in Canada, including 27 stores. The store closings were completed in the fourth quarter of fiscal 2018. A summary of the significant charges associated with the closure of these stores is as follows:



	Year Ended
(In millions)	February 1, 2019
Long-lived asset impairment	$	90
Lease obligation costs for closed locations	89
Accelerated depreciation and amortization	50
Severance costs	32
Discontinued project write-offs	10
Total	$	271

Mexico Operations

On November 9, 2018, management and the Board of Directors decided to pursue an exit of the Company’s Mexico operations. A summary of the significant charges incurred as a result of the exit of the Company’s Mexico operations is as follows:



	Year Ended
(In millions)	February 1, 2019
Long-lived asset impairment	$	244
Total	$	244

Other Non-Core Activities

During the third quarter ended November 2, 2018, the Company decided to pursue an exit of certain non-core activities within its U.S. home improvement business. A summary of the significant charges incurred as a result of these decisions is as follows:



	Year Ended
(In millions)	February 1, 2019
Other closing costs	$	34
Severance costs	16
Long-lived asset impairment	9
Total	$	59

Prior to the adoption of ASU 2016-02, Leases (Topic 842), as of February 2, 2019, when locations under operating leases were closed, a liability was recognized for the fair value of future contractual obligations, including future minimum lease payments, property taxes, utilities, common area maintenance, and other ongoing expenses, net of estimated sublease income and other recoverable items. Subsequent changes to the liabilities, including a change resulting from a revision to either the timing or the amount of estimated cash flows, were recognized in the period of change.

The following table summarizes store closing lease obligations activity during the twelve months ended January 31, 2020 and February 1, 2019:



(In millions)	Lease obligations
Accrual for exit activities, balance at February 2, 2018	$	60
Additions to the accrual - net	365
Cash payments	(86		)
Adjustments ¹	22
Accrual for exit activities, balance at February 1, 2019	$	361
ASU 2016-02 adoption impact ²	(168		)
Cash payments	(43		)
Adjustments ¹	(62		)
Accrual for exit activities, balance at January 31, 2020	$	88


¹	Adjustments represents lease terminations and changes in estimates around sublease assumptions.

Upon adoption of ASU 2016-02, Leases (Topic 842), rent liabilities previously recognized in connection with leases were included in the determination of right-of-use assets at transition.