Staples 2003 Annual Report Download - page 81

STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G Derivative Instruments and Hedging Activities (Continued)
Upon termination of the swaps, Staples realized a gain of $18.0 million, which is being amortized over the remaining
term of the underlying hedged debt instrument, as an adjustment to interest expense. Simultaneous to the termination of
these interest rate swaps, Staples entered into another $200 million of interest rate swaps whereby Staples is entitled to
receive semi-annual interest payments at a fixed rate of 7.125% and is obligated to make semi-annual interest payments
at a floating rate based on LIBOR. These swap agreements, scheduled to terminate on August 15, 2007, are designated
as fair value hedges of the Senior Notes and the differential to be paid or received on the interest rate swap agreement is
accrued and recognized as an adjustment to interest expense over the life of the agreement. At February 1, 2003, the new
interest rate swap agreements had a fair value gain of $15.1 million, which was included in other assets.
On November 15, 1999, Staples entered into an interest rate swap, for an aggregate notional amount of 150 million
Euros, designed to turn Staples’ fixed rate Euro Notes, issued on that same day, into a variable rate obligation. The swap
agreement, scheduled to terminate on November 15, 2004, is designated as a fair value hedge of the Euro Notes. Under
the interest rate swap agreement, Staples is entitled to receive annual interest payments at a fixed rate of approximately
5.875% and is required to make quarterly interest payments at a floating rate of the one month EURIBOR plus
1.1175%. The interest rate swap agreement is being accounted for as a fair value hedge and the differential to be paid or
received on the interest rate swap agreement is accrued and recognized as an adjustment to interest expense over the life
of the agreement. At February 1, 2003, the interest rate swap agreement had a fair value gain of $6.2 million, which was
included in other assets.
On January 10, 2003, Staples entered into an interest rate swap, for an aggregate notional amount of $325 million,
designed to convert Staples’ Notes into a variable rate obligation. The swap agreement, scheduled to terminate on
October 1, 2012, is designated as a fair value hedge of the Notes. Under the interest rate swap agreement, Staples is
entitled to receive semi-annual interest payments at a fixed rate of 7.375% and is required to make semi-annual interest
payments at a floating rate equal to the 6 month LIBOR plus 3.088%. The interest rate swap agreement is being
accounted for as a fair value hedge and the differential to be paid or received on the interest rate swap agreement is
accrued and recognized as an adjustment to interest expense over the life of the agreement. At February 1, 2003, the
interest rate swap agreement had a fair value loss of $2.7 million, which was included in long-term debt.
Foreign Currency Swaps: During fiscal year 2000, Staples entered into a currency swap, for an aggregate notional
amount of $200 million. Upon maturity of the agreement, scheduled for August 15, 2007, or earlier termination thereof,
Staples is entitled to receive $200 million and is obligated to pay 298 million in Canadian dollars. Staples is also entitled
to receive semi-annual payments on $200 million at a fixed rate of 7.125% and is obligated to make semi-annual interest
payments on 298 million Canadian dollars at a fixed rate of 6.445%. This swap has been designated as a foreign currency
hedge on Staples’ net investment in Canadian dollar denominated subsidiaries and gains or losses will be recorded in the
cumulative translation adjustment line in stockholders’ equity. At February 1, 2003, the currency swap had a fair value
gain of $20.6 million, which was included in other assets. The corresponding foreign currency gain of $20.6 million, less
$7.6 million in taxes, has been recorded in the cumulative translation adjustment line at February 1, 2003.
In September 2002, Staples entered into a currency swap, for an aggregate notional amount of 120 million Canadian
dollars. The agreement provides for maturity of the currency swap in two stages. Upon the first maturity date, in
March 2003, Staples is obligated to pay $19.0 million and will receive 30 million Canadian dollars. Upon maturity of the
remaining portion of the agreement, scheduled for July 2003, or earlier termination thereof, Staples is obligated to pay
$56.3 million and is entitled to receive 90 million Canadian dollars. This swap has been designated as a foreign currency
hedge of a short-term intercompany loan with a Canadian dollar denominated subsidiary. Gains and losses on this
foreign currency hedge will be recorded to interest and other expense over the life of the agreement, which will offset the
gains and losses of the underlying hedged item. At February 1, 2003, the currency swap had a fair value gain of
$3.1 million, which was included in other assets.
In November 2002, Staples entered into a currency swap, for an aggregate notional amount of 30 million Canadian
dollars. Upon maturity of the agreement, which was in February 2003, Staples paid $18.9 million and received 30 million
Canadian dollars. This swap was designated as a foreign currency hedge of a short-term intercompany loan with a
Canadian dollar denominated subsidiary. Gains and losses on this foreign currency hedge were recorded to interest and
other expense over the life of the agreement, which offset the gains and losses of the underlying hedged item. At
February 1, 2003, the currency swap had a fair value gain of $0.7 million, which was included in other assets.
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