Restructuring Charges

2014 Restructuring Plan

In 2014 the Company announced a plan to close at least 225 retail stores in North America by the end of fiscal year 2015 (the “Store Closure Plan”). The Company closed 169 stores in 2014 and 43 stores in the first half of 2015. The Company currently expects to close at least 15 additional stores in the second half of 2015.

In addition, in 2014 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 plans to reinvest some of the savings in its strategic initiatives. In the first half of 2015, the Company incurred liabilities for severance and contractual obligations related to the restructuring of its North American delivery operations, its European sales and customer care operations and retail store management team, and its information technology group and other functional areas.

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 second quarter and first half of 2015, the Company recorded pre-tax charges of $24 million and $72 million, respectively, related to the 2014 plan. The table below provides a summary of the charges recorded in the second quarter and first half of 2015 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 2015 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 2015		First half of 2015		Second half of 2015
Employee related costs	$	12	$	20	$5 - $10
Contractual obligations	9		40		$5 - $30
Other associated costs	2		6		$5 - $15
Total restructuring charges	23		66		$15 - $55
Impairment of long-lived assets and accelerated depreciation	1		6		Up to $10
Inventory write-downs	—		—		Up to $5
Total pre-tax charges	$	24	$	72	$15 - $70

North American Stores & Online	$	7	$	45	$5 - $30
North American Commercial	7		13		$5 - $20
International Operations	10		14		$5 - $20
Total charges	$	24	$	72	$15 - $70

The Company's estimates of future charges could change as the Company's plans evolve and become finalized.

The Company recorded fixed asset impairment charges of $1 million in the first half of 2015 related to the Store Closure Plan - see Note D - Impairment of Long-Lived Assets for additional information.

The Company recorded accelerated depreciation of $1 million and $5 million in the second quarter and first half of 2015, primarily related to the closure of facilities supporting the Company's North American delivery operations.

The table below shows the restructuring charges recorded during the first half of 2015 and the related liability balances as of August 1, 2015 for each major type of cost associated with the 2014 Plan (in millions):



	2014 Plan
	Employee Related			Contractual Obligations			Other			Total
Accrued restructuring balance as of January 31, 2015	$	31		$	83		$	2		$	116
Charges	20			40			6			66
Cash payments	(17		)	(31		)	(6		)	(54		)
Accrued restructuring balance as of August 1, 2015	$	34		$	92		2			128

In addition to the contractual obligations shown in table above, the Company also has a related liability of $7 million recorded on the condensed consolidated balance sheet as of August 1, 2015, which primarily represents amounts previously accrued to reflect rent expense on a straight-line basis for leased properties which the Company has now ceased using.

For the restructuring liabilities associated with the 2014 Plan, $57 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 1, 2015. The Company expects that payments related to employee related liabilities associated with the 2014 Plan will be substantially completed by the second quarter of fiscal 2016. The Company anticipates that payments related to facility lease obligations will be completed by the end of fiscal year 2025.

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 $66 million of restructuring charges would have been allocated if the Company had recorded the expenses within the functional departments of the restructured activities (in millions):



	13 Weeks Ended		26 Weeks Ended
	August 1, 2015
Cost of goods sold and occupancy costs	$	9	$	40
Selling, general and administrative	14		26
Total	$	23	$	66

During the first half of 2014, the Company recorded a total of $99 million of restructuring charges related to the 2014 Plan, including $77 million for lease obligations and $12 million of severance costs primarily related to the closure of North American retail stores, and $10 million of consulting fees and other associated costs. These charges primarily related to the Company's North American Stores & Online segment.

In the second quarter and first half of 2014, the Company recorded fixed asset impairment charge of $5 million and $27 million related to the 2014 Plan - see Note D Impairment of Long-Lived Assets for additional information. The Company also recorded $2 million of accelerated depreciation in the second quarter of 2014 related to the closure of the delivery fulfillment centers. In addition, the Company recorded inventory write-downs of $5 million and $16 million in the second quarter and first half of 2014, respectively, related to the Company's restructuring of its North American delivery operations and the closure of North American retail stores. The inventory write-downs were included in Cost of goods sold and occupancy costs in the condensed consolidated statement of comprehensive income.

2013 Restructuring Plan

In 2013 the Company initiated a restructuring plan to streamline its operations and general and administrative functions (the "2013 Plan”). Pursuant to the 2013 Plan, certain distributed general and administrative functions are being centralized and certain operational resources are being consolidated. As a result of this plan, the Company recorded pre-tax restructuring charges of $78 million in 2013, including $75 million for employee severance costs and $3 million for other associated costs. Of these amounts, $63 million related to the Company's International Operations segment and $16 million related to the Company’s corporate headquarters and North American operations. The Company expects to substantially complete the actions required under the 2013 Plan by the first quarter of fiscal 2016.

During the second quarter of 2015, the Company did not record any material adjustments to the 2013 Plan. The Company does not expect to incur material costs in future periods related to the 2013 Plan.

The table below shows a reconciliation of the beginning and ending liability balance for employee-related costs incurred under the 2013 Plan (in millions):



	2013 Plan
	Employee Related Costs
Accrued restructuring balance as of January 31, 2015	$	36
Cash payments	(10		)
Adjustments	(2		)
Foreign currency translations	(1		)
Accrued restructuring balance as of August 1, 2015	$	23

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 1, 2015. The Company expects that the payments related to the employee related liabilities will be substantially completed by the end of the first quarter of fiscal 2016.