Restructuring Charges

2014 Restructuring Plan

The performance of the Company’s North American retail stores has fallen short of management’s expectations over the past few years, and the Company continues to see customer demand shifting to online channels, which has led the Company to increase its focus on growing its online businesses. As a result, in March 2014 the Company announced that its Board of Directors (the “Board”) had approved the closure of up to 225 retail stores in North America by the end of fiscal year 2015 (the “Store Closure Plan”). The Company expects that these closures will improve the overall performance of its retail portfolio. In the first quarter of 2014, the Company approved the closure of 112 specific retail stores, which includes 16 stores that were closed in the first quarter and the planned closure of 80 stores in the second quarter of 2014 and 16 stores in the second half of 2014 and fiscal 2015. The Company expects to close approximately 140 stores in total in 2014.

In addition, as part of the Company’s continuing efforts to transform its business, the Company initiated a cost savings plan to generate annualized pre-tax savings of approximately $500 million by the end of fiscal 2015. The Company expects the savings to come from global supply chain, retail store closures and labor optimization, non-product related costs, IT hardware and services, marketing, sales force, and customer service. The Company plans to reinvest some of the savings in its strategic initiatives. The actions to be taken related to this cost savings plan, together with the actions to be taken related to the Store Closure Plan, are herein referred to as the "2014 Plan". The Company expects to substantially complete the actions required under the 2014 Plan by the end of 2015.

As a result of actions taken under the 2014 Plan, the Company recorded pre-tax charges of $43.0 million in the first quarter of 2014. These charges primarily relate to the 112 retail store closures approved by management in the first quarter of 2014. The table below provides a summary of the charges recorded in the first quarter of 2014 for each major type of cost associated with the 2014 Plan, as well as the Company's current estimates of the amount of charges expected to be incurred globally during the remainder of 2014 in connection with the 2014 Plan. The table also summarizes the costs incurred and expected to be incurred by reportable segment (in millions).



	2014 Plan
	Actual costs incurred		Estimated Costs to be incurred
	First quarter of 2014		Second quarter of 2014	Second half of 2014
Employee related costs	$	7.8	$10 - $15	$25 - $45
Lease obligations	—		80 - 110	45 - 80
Other associated costs	2.9		5 - 10	5 - 10
Total restructuring charges	10.6		$95 - $135	$75 - $135
Impairment of long-lived assets	21.8		5 - 10	10 - 15
Inventory write-downs related to restructuring activities	10.6		5 - 10	5 - 10
Total charges	$	43.0	$105 - $155	$90 - $160

North American Stores & Online	$	34.5	$90 - $130	$25 - $50
North American Commercial	8.5		10 - 20	35 - 60
International Operations	—		Less than 5	30 - 50
Total charges	$	43.0	$105 - $155	$90 - $160

The Company's estimates of future charges could change as the Company's plans evolve and become finalized. The actual amount of charges recognized during the remainder of 2014 will depend on which specific additional retail stores are approved for closure during the remainder of the fiscal year, as well as the timing of such closures. The actual amount of charges recognized during the remainder of 2014 will also depend on the nature and timing of the specific actions to be taken related to the $500 million costs savings plan. At this time the Company cannot reliably estimate the costs to be incurred in fiscal 2015 related to the 2014 Plan, given the degree of uncertainty related to the timing and nature of the specific actions to be taken next year.

See Note D - Impairment of Long-Lived Assets for additional information related to the $21.8 million of fixed asset impairment charges recorded during the first quarter of 2014. The $10.6 million of inventory write-downs recognized in the first quarter of 2014 primarily relate to the rationalization of certain SKU's pursuant to the Company's efforts to improve efficiencies in its delivery fulfillment operations, as well as the retail store closures in the first and second quarters of 2014. The inventory write-downs recognized in the first quarter of 2014 are included in Cost of goods sold and occupancy costs in the condensed consolidated statement of comprehensive income.

The table below shows the restructuring charges recorded during the first quarter of 2014 and the related liability balances as of May 3, 2014 for each major type of cost associated with the 2014 Plan (in thousands):



	2014 Plan
	Employee Related			Other			Total
Accrued restructuring balance as of February 1, 2014	$	—		$	—		$	—
Charges	7,793			2,855			10,648
Cash payments	(1,204		)	(1,884		)	(3,088		)
Accrued restructuring balance as of May 3, 2014	$	6,589		$	971		$	7,560

Of the $10.6 million of restructuring charges incurred in the first quarter of 2014 related to the 2014 Plan, approximately $8.8 million relates to North American Stores and Online and $1.9 million relates to North American Commercial. All of the restructuring liabilities related to the 2014 Plan are included within Accrued expenses and other current liabilities in the Company's condensed consolidated balance sheet as of May 3, 2014. The Company expects that the payments related to these liabilities will be substantially completed by the end of 2014.

The $10.6 million of restructuring charges related to the 2014 Plan are presented within Restructuring charges in the Company's condensed consolidated statement of comprehensive income. If the Company had recorded the expenses within the functional departments of the restructured activities, the charges would have been presented in Selling, general and administrative expenses.

2013 Restructuring Plan

In the third quarter of 2013, as part of the Company's continuing efforts to cut costs, the Company initiated a restructuring plan (the "2013 Plan”) to streamline its operations and general and administrative functions. Pursuant to the 2013 Plan, certain distributed general and administrative functions are being centralized, which the Company believes will help drive additional synergies across business units. In addition, certain operational resources are being consolidated, which the Company believes will result in increased efficiencies, without negatively impacting customer service.

As a result of actions initiated under the 2013 Plan, the Company recorded pre-tax restructuring charges of $78.3 million, including $75.5 million for employee severance costs related to the elimination of positions throughout the organization and $2.8 million for other associated costs. Of these amounts, $62.7 million related to the Company's International Operations segment and $15.6 million related to the Company’s corporate headquarters and North American operations. The Company does not expect to incur material costs in future periods related to the 2013 Plan. The Company expects to substantially complete the actions required under the 2013 Plan by the first half of fiscal 2015.

During the first quarter of 2014, the Company recorded adjustments to increase the employee-related liability associated with the 2013 Plan by $5.5 million and to decrease the liability for other associated costs by $1.2 million. The adjustment to the employee-related liability stemmed from changes in estimates regarding the number of headcount reductions and the amount of severance benefits per associate primarily related to the closure of a distribution center in Europe and the Company's restructuring of its European marketing and merchandising organizations. The adjustment to the liability for other associated costs resulted from changes in estimates related to professional fees incurred in connection with the 2013 Plan.

The table below shows a reconciliation of the beginning and ending liability balances related to each major type of cost incurred under the 2013 Plan (in thousands):



	2013 Plan
	Employee Related			Other			Total
Accrued restructuring balance as of February 1, 2014	$	62,489		$	2,532		$	65,021
Cash payments	(3,848		)	(319		)	(4,167		)
Adjustments	5,477			(1,243		)	4,234
Foreign currency translations	1,336			58			1,394
Accrued restructuring balance as of May 3, 2014	$	65,454		$	1,028		$	66,482

For the restructuring liabilities associated with the 2013 Plan, $3.7 million of the employee severance costs are included in Other long-term obligations and the remaining balances are included within Accrued expenses and other current liabilities in the Company's condensed consolidated balance sheet as of May 3, 2014. The Company expects that the payments related to the employee related liabilities will be substantially completed by the middle of fiscal 2015.

2012 Restructuring Plan

In 2012, the Company initiated a strategic plan (the “2012 Plan”) aimed at accelerating growth, particularly in the Company's online businesses. Elements of the 2012 Plan included more fully integrating the Company's retail and online offerings, restructuring its International Operations segment and improving the productivity of its stores in North America. Pursuant to the 2012 Plan, the Company took the following actions:


▪	closed 46 retail stores in Europe and accelerated the closure of 15 retail stores in the United States;


▪	closed and consolidated certain sub-scale delivery businesses in Europe;


▪	disposed of PSD;


▪	reorganized certain general and administrative functions in Europe; and


▪	rebranded its business in Australia from the Corporate Express tradename to the Staples tradename.

As a result of the actions taken under the 2012 Plan, during 2012 the Company recorded pre-tax restructuring charges of $207.0 million related to continuing operations. Of this amount, approximately $177 million related to the Company's International Operations segment and $30 million related to the North American Stores & Online segment. The Company does not expect to incur material costs in the future in connection with the 2012 Plan. The actions required under the 2012 Plan were substantially complete by the end of fiscal 2013.

The table below shows a reconciliation of the beginning and ending liability balances related to each major type of cost incurred under the 2012 Plan (in thousands):



	2012 Plan
	Contractual Obligation			Employee Related			Other			Total
Accrued restructuring balance as of February 1, 2014	$	28,681		$	13,787		$	179		$	42,647
Cash payments	(2,267		)	(2,790		)	—			(5,057		)
Adjustments	(428		)	(800		)	(179		)	(1,407		)
Foreign currency translations	338			983			—			1,321
Accrued restructuring balance as of May 3, 2014	$	26,324		$	11,180		$	—		$	37,504

The Company expects that payments related to employee related liabilities associated with the 2012 Plan will be substantially completed by the middle of fiscal 2014. The Company anticipates that payments related to facility lease obligations will be complete by fiscal year 2024.

For the restructuring liabilities associated with the 2012 Plan, $10.4 million of the contractual obligations are included in Other long-term obligations and the remaining balances are included within Accrued expenses and other current liabilities in the Company's condensed consolidated balance sheet as of May 3, 2014.