Strategic Initiatives, Restructuring and Related Charges

Restructuring Initiatives Related to Staples 20/20 Strategic Plan

In May 2016 the Company announced a strategic plan ("20/20 Plan") under which it plans to:

•accelerate mid-market growth


•	increase its focus on growth categories, referred to by the Company as "Pro Categories", which include janitorial and sanitation supplies, breakroom products, business machines, computers and accessories, print and promotional materials, shipping and packing supplies, and other products beyond core office supplies


•	preserve profitability and rationalize excess capacity in its North American Retail stores


•	drive profit improvement and cost reduction across the company


•	narrow its geographic focus to North America

In connection with the 20/20 Plan, the Company also announced a new multi-year cost savings plan which is expected to generate approximately $300 million of annualized pre-tax cost savings by the end of 2018, primarily by reducing end-to-end product costs, continuing to evolve promotional strategies, increasing the mix of Staples Brand products, driving savings in supply chain, eliminating fixed costs in retail stores, and generating additional efficiency savings across the entire organization.

In connection with its plan to preserve profitability in its North American retail stores, the Company expects to close approximately 70 North American retail stores in 2017. Pursuant to this plan the Company has closed 33 stores through the second quarter of 2017. The Company does not expect to incur material charges in 2017 related to these closures. The Company expects to incur charges in 2017 and beyond related to other initiatives under the 20/20 Plan. The nature and timing of such charges will depend upon the actions that are taken, and cannot be reasonably estimated at this time.

In the second quarter of 2017, the Company recorded restructuring charges of $3 million for severance benefits associated with efforts to reorganize the business to support the new business strategy. These charges primarily relate to the North American Delivery segment.

In connection with the 20/20 Plan, in the first half of 2017 the Company recorded restructuring charges of $2 million primarily related to the closure of retail stores in the U.S. and exiting certain contractual vendor arrangements. These charges primarily relate to the North American Retail segment.

The table below shows a reconciliation of the beginning and ending liability balances related to continuing operations for each major type of cost associated with the 20/20 Plan (in millions):



	20/20 Plan
	Employee-Related			Contractual Obligations			Other			Total
Accrued restructuring balance as of January 28, 2017	$	20		$	—		$	—		$	20
Charges	3			1			1			5
Cash payments	(12		)	(1		)	(1		)	(14		)
Accrued restructuring balance as of July 29, 2017	$	11		$	—		$	—		$	11

Of the $11 million restructuring liability accrued, $10 million is included within Accrued expenses and other current liabilities and the remaining balance is included within Other long-term obligations on the condensed consolidated balance sheet at July 29, 2017. The Company expects that payments related to these liabilities will be substantially completed by the end of 2018.

In the second quarter of 2016, the Company incurred charges of $5 million for severance and related benefits related to the termination of the Company's previous chief executive officer, and charges of $6 million related to exiting certain product categories in its North American retail stores, of which $4 million is included in Cost of goods sold and occupancy costs and $2 million is included in Impairment of long-lived assets.

2014 Restructuring Plan

In 2014 the Company announced a plan to close at least 225 retail stores in North America. Pursuant to this plan, the Company closed 290 stores from 2014 to 2016.

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 reinvested some of the savings in its strategic initiatives.

The actions taken related to the $500 million cost savings plan, together with the actions taken related to the store closure Plan, are referred to as the "2014 Plan". This plan is substantially complete.

During the second quarter and first half of 2017, the Company recorded restructuring charges of approximately $1 million and $4 million, respectively, primarily related to ongoing expenses associated with closed retail stores. These charges relate to the North American Retail segment. Also during the second quarter of 2017, the Company recorded an adjustment to reduce the liability for contractual obligations by $3 million as a result of the execution of lease terminations and changes in sublease estimates.

The table below shows a reconciliation of the beginning and ending liability balances for each major type of cost associated with the 2014 Restructuring Plan (in millions):



	2014 Plan
	Employee-Related			Contractual Obligations			Other			Total
Accrued restructuring balance as of January 28, 2017	$	6		$	48		$	—		$	54
Charges	—			—			4			4
Adjustments	—			(3		)	—			(3		)
Cash payments	(2		)	(14		)	(2		)	(18		)
Accrued restructuring balance as of July 29, 2017	$	4		$	31		$	2		$	37

In addition to the contractual obligations shown in the table above, the Company also has a related liability of $15 million and $12 million recorded on the condensed consolidated balance sheet as of July 29, 2017 and January 28, 2017, 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 Restructuring Plan, $18 million of contractual obligations 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 July 29, 2017. The Company expects that payments related to employee related liabilities associated with the 2014 Plan will be substantially completed by the end of fiscal year 2017. The Company anticipates that payments related to facility lease obligations will be completed by the end of fiscal year 2026.

During the second quarter and first half of 2016, the Company recorded restructuring charges of $4 million and $14 million, respectively, related to the 2014 Restructuring Plan, primarily related to lease obligations for closed retail stores. These charges relate to the Company's North American Retail segment. During the first half of 2016, the Company also recorded adjustments to reduce the employee-related liabilities by $5 million due to changes in estimates, and to reduce liabilities for contractual obligations by $4 million primarily as a result of lease termination agreements executed during the period.