Restructuring and Management Transition
|12 Months Ended|
Feb. 01, 2014
|Restructuring and Related Activities [Abstract]|
|Restructuring and Management Transition||
Restructuring and Management Transition
The composition of restructuring and management transition charges was as follows:
As a result of consolidating and streamlining our supply chain organization as part of a restructuring program that began in 2011, we recorded charges of $19 million and $41 million in 2012 and 2011, respectively, related to increased depreciation, termination benefits and unit closing costs. Increased depreciation resulted from shortening the useful lives of assets related to the closing and consolidating of selected facilities. This restructuring activity was completed during the third quarter of 2012.
Catalog and catalog outlet stores
In the fourth quarter of 2010, we announced our plan to exit our catalog outlet stores, and, in October 2011, we sold the assets related to this operation. We sold fixed assets and inventory with combined net book values of approximately $31 million, for a total purchase price of $7 million, which resulted in a loss of $24 million. During 2011, we also recorded $10 million of severance costs related to the sale of our outlet stores. This restructuring activity was completed in 2011.
Home office and stores
During 2013, 2012 and 2011, we recorded $48 million, $109 million and $41 million, respectively, of costs to reduce our store and home office expenses. During the first three quarters of 2013, we recorded $26 million of employee termination benefits for both store and home office associates. In addition, in January 2014, we announced a strategic initiative to close 33 underperforming stores as part of our turnaround efforts. In conjunction with this initiative, during the fourth quarter of 2013, we incurred charges of $21 million related to asset impairments and $1 million of employee termination benefit costs.
In 2012, charges of $116 million associated with employee termination benefits for both store and home office associates were offset by a net curtailment gain of $7 million (see Note 15) related to our retirement benefit plans, which was incurred during the third quarter of 2012 when substantially all employee exits related to 2012 were completed, for a net charge of $109 million. In 2011, we recorded $41 million of employee termination benefits.
Software and systems
During 2012, we recorded a charge of $36 million related to the disposal of software and systems that based on our evaluation no longer supported our operations. This amount included $3 million of consulting fees related to that evaluation.
During 2013, we recorded a total charge of $55 million related to store fixtures which consisted of $37 million of increased depreciation as a result of shortening the useful lives of department store fixtures that were replaced throughout 2013, $11 million of charges for the impairment of certain store fixtures related to our former shops strategy that had been used in our prototype department store and a $7 million asset write down of store fixtures related to the renovations in our home department.
During 2012, we recorded a total charge of $78 million related to store fixtures which consisted of a $53 million asset write-off related to the removal of store fixtures in our department stores and $25 million of increased depreciation as a result of shortening the useful lives of department store fixtures that were replaced throughout 2013 with the build out of additional shops.
During 2013, 2012 and 2011, we implemented several changes within our management leadership team that resulted in management transition costs of $37 million, $41 million and $130 million, respectively, for both incoming and outgoing members of management. Ronald B. Johnson became Chief Executive Officer in November 2011, succeeding Myron E. Ullman, III. Mr. Ullman was Executive Chairman of the Board of Directors until January 27, 2012, at which time he retired from the Company until his return in April 2013 when he replaced Mr. Johnson as Chief Executive Officer. During 2011, we incurred transition charges of $53 million and $29 million related to Mr. Johnson and Mr. Ullman, respectively. In October 2011, Michael R. Francis was appointed President until his departure in June 2012; in November 2011, Michael W. Kramer and Daniel E. Walker were appointed Chief Operating Officer and Chief Talent Officer, respectively, until their departures in April 2013. Collectively, in 2011 these three officers were paid sign-on bonuses of $24 million as part of their employment packages. In 2013, 2012 and 2011, we recorded $37 million, $41 million and $24 million, respectively, of management transition charges related to other members of senior management.
As a part of several restructuring and cost-savings initiatives designed to reduce salary and related costs across the Company, in August of 2011 we announced a VERP which was offered to approximately 8,000 eligible employees. In the third quarter of 2011, we incurred a total charge of $179 million related to the VERP. Charges included $176 million related to enhanced retirement benefits for the approximately 4,000 employees who accepted the VERP, $1 million related to curtailment charges for our non-qualified supplemental pension plans as a result of the reduction in the expected years of future service related to these plans, and $2 million of costs associated with administering the VERP. This restructuring activity was completed in 2011.
During 2013, 2012 and 2011, we recorded miscellaneous restructuring charges of $75 million, $15 million and $26 million, respectively. The charges during 2013 were primarily related to contract termination costs and other costs associated with our previous marketing and shops strategy, including a non-cash charge of $36 million during the third quarter related to the return of shares of Martha Stewart Living Omnimedia, Inc. (MSLO) previously acquired by the Company, which was accounted for as a cost investment (see Note 6). The 2012 and 2011 charges were primarily related to the closing and consolidating of facilities related to optimizing our custom decorating operations, the exit of our specialty websites CLAD™ and Gifting Grace™ and the closure of our Pittsburgh, Pennsylvania customer call center.
Activity for the restructuring and management transition liability for 2013 and 2012 was as follows:
Non-cash amounts represent charges that do not result in cash expenditures including increased depreciation and write-off of store fixtures and IT software and systems, stock-based compensation, non-cash charge for the return of shares of MSLO and curtailment gains related to our retirement benefit plans.