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”).

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 the $500 million 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.

In the first quarter of 2014, the Company approved the closure of 112 specific retail stores, which included 16 stores that were closed in the first quarter of 2014, 80 stores that were closed in the second quarter of 2014 and the planned closure of 16 stores in the second half of 2014 and fiscal 2015.

In the second quarter of 2014, the Company approved the closure of an additional 25 retail stores, which includes one store that closed in the second quarter of 2014 and 17 stores and seven stores planned for closure in the third and fourth quarters of 2014, respectively. Also in the second quarter of 2014, pursuant to the Company's efforts to improve efficiencies in its delivery fulfillment operations, the Company approved the closure of two fulfillment centers, with one facility that closed in the second quarter of 2014 and the other closure planned for the third quarter of 2014.

As a result of these actions, the Company recorded pre-tax charges of $100.9 million and $143.9 million in the second quarter and first half of 2014, respectively. The table below provides a summary of the charges recorded in the second quarter and first half 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 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
	Second quarter of 2014		First half of 2014		Third quarter of 2014	Fourth quarter of 2014
Employee related costs	$	4.4	$	12.2	$10-15	$15-30
Contractual obligations	76.5		76.5		20-35	25-40
Other associated costs	7.5		10.3		Less than 5	Less than 5
Total restructuring charges	88.4		99.1		$30-55	$40-75
Impairment of long-lived assets and accelerated depreciation	7.3		29.1		5-10	5-10
Inventory write-downs	5.1		15.7		5-10	Less than 5
Total charges	$	100.9	$	143.9	$40-75	$45-90
			—
North American Stores & Online	$	89.8	$	124.3	$20-30	$10 - 20
North American Commercial	8.8		17.3		15-25	20 - 35
International Operations	2.3		2.3		5-20	15 - 35
Total charges	$	100.9	$	143.9	$40 - 75	$45 - 90

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 other 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 $5.2 million and $27.0 million of fixed asset impairment charges recorded during the second quarter and first half of 2014, respectively. The Company also recorded $2.1 million of accelerated depreciation in the second quarter of 2014 related to the closure of the two fulfillment centers. The $15.7 million of inventory write-downs recognized in the first half 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 approved in the first half of 2014. The inventory write-downs 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 half of 2014 and the related liability balances as of August 2, 2014 for each major type of cost associated with the 2014 Plan (in thousands):



	2014 Plan
	Employee Related			Contractual Obligations			Other			Total
Accrued restructuring balance as of February 1, 2014	$	—		$	—		$	—		$	—
Charges	12,204			76,529			10,342			99,075
Cash payments	(4,081		)	(4,353		)	(3,549		)	(11,983		)
Foreign currency translations	(9		)	(25		)	(4		)	(38		)
Accrued restructuring balance as of August 2, 2014	$	8,114		$	72,151		$	6,789		$	87,054

Of the $99.1 million of restructuring charges incurred in the first half of 2014 related to the 2014 Plan, approximately $92.8 million relates to North American Stores & Online, $5.5 million relates to North American Commercial and $0.8 million relates to International Operations. For the restructuring liabilities associated with the 2014 Plan, $50.1 million of contractual obligations costs are included within 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 August 2, 2014. The Company expects that payments related to employee related liabilities associated with the 2014 Plan will be substantially completed by the middle of fiscal 2015. The Company anticipates that payments related to facility lease obligations will be complete by fiscal year 2025. The Company plans to complete the actions related to this plan by the end of 2015.

The restructuring charges related to the 2014 Plan are presented within Restructuring charges in the Company's condensed consolidated statement of comprehensive income. The table below shows how the $99.1 million of restructuring charges would have been allocated if the Company had recorded the expenses within the functional departments of the restructured activities (in thousands):



	13 Weeks Ended		26 Weeks Ended
	August 2, 2014
Cost of goods sold and occupancy costs	$	76,386	$	76,386
Selling, general and administrative	12,041		22,689
Total	$	88,427	$	99,075

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, during 2013 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	(7,093		)	(1,327		)	(8,420		)
Adjustments	5,477			(1,243		)	4,234
Foreign currency translations	(726		)	38			(688		)
Accrued restructuring balance as of August 2, 2014	$	60,147		$	—		$	60,147

For the restructuring liabilities associated with the 2013 Plan, all of the balances are included within Accrued expenses and other current liabilities in the Company's condensed consolidated balance sheet as of August 2, 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	(9,546		)	(5,521		)	—			(15,067		)
Adjustments	(428		)	(800		)	(179		)	(1,407		)
Foreign currency translations	(31		)	770			—			739
Accrued restructuring balance as of August 2, 2014	$	18,676		$	8,236		$	—		$	26,912

The Company expects that payments related to employee related liabilities associated with the 2012 Plan will be substantially completed by the end 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, $7.0 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 August 2, 2014.