10.  Restructuring and Management Transition

 

The composition of restructuring and management transition charges was as follows:    

 

 

 

Supply chain

As a result of consolidating and streamlining our supply chain organization as part of a restructuring program that began in 2011, during the three months ended October 27, 2012 and October 29, 2011, we recorded charges of $3 million and $16 million, respectively, related to increased depreciation, termination benefits and unit closing costs. During the nine months ended October 27, 2012 and October 29, 2011, we recorded charges of $19 million and $31 million, respectively. This program was completed during the third quarter of 2012.    

 

Catalog and catalog outlet stores

On October 16, 2011, we sold the assets related to the operations of our catalog outlet stores.  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 the three and nine months ended October 29, 2011, we recorded $6 million and $10 million, respectively, of severance costs related to the sale of our outlet stores. This restructuring activity was completed in 2011.

 

Home office and stores

During the three months ended October 27, 2012 and October 29, 2011, we recorded $4 million and $12 million, respectively, of net charges associated with employee termination benefits for actions to reduce our store and home office expenses.  During the third quarter of 2012, when substantially all employee exits were completed, we recorded a net curtailment gain of $7 million (see Note 9).  The net curtailment gain was more than offset by charges associated with employee termination benefits of $11 million.  During the nine months ended October 27, 2012 and October 29, 2011, we recorded net charges of $105 million and $17 million, respectively.  For the remainder of 2012 we do not anticipate incurring significant charges related to this restructuring activity.

 

Software and systems

During the nine months ended October 27, 2012, we recorded a charge of $36 million related to the disposal of software and systems that based on our evaluation no longer support our new strategy.  Included in this amount is $3 million of consulting fees related to that evaluation.

 

 

Store fixtures

During the three months ended October 27, 2012, we recorded $11 million of charges related to the removal of store fixtures in our department stores. In addition, we recorded $7 million of increased depreciation as a result of shortening the useful lives of fixtures in our department stores that are expected to be replaced throughout 2013 with the build out of additional shops.  During the nine months ended October 27, 2012, we recorded charges of $60 million related to the write-off and increased depreciation for store fixtures that were replaced or are expected to be replaced with the new store shop fixtures.  As we continue to design and implement new shops in conjunction with our efforts to re-organize our department stores, we anticipate additional store fixture write-offs and increased depreciation.

 

Management transition

We implemented several changes within our management leadership team that resulted in management transition costs of $36 million and $29 million for the nine months ended October 27, 2012 and October 29, 2011, respectively, for both incoming and outgoing members of management.     

 

VERP

As a part of several restructuring and cost-savings initiatives designed to reduce salary and related costs across the Company, 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.

 

Other

During the three months ended October 27, 2012 and October 29, 2011, we recorded miscellaneous restructuring charges of $3 million and $1 million, respectively.  During the nine months ended October 27, 2012 and October 29, 2011, we recorded miscellaneous restructuring charges of $13 million and $7 million, respectively.  These charges were primarily related to the exit of our specialty websites CLAD^TM and Gifting Grace^TM and the closure of our Pittsburgh, Pennsylvania customer call center.  

 

Activity for the restructuring and management transition liability for the nine months ended October 27, 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 and curtailment gains on pension plans.