Staples 2004 Annual Report Download

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2004฀ANNUAL฀REPORT
NOTICE฀OF฀A NN UA L฀ M EETING฀A ND ฀ PR OXY ฀STATEMENT
We฀make฀buying฀office฀products฀easy.

Table of contents

  • Page 1
    2 0 0 4 ฀ A N N U A L ฀ R E P O R T N O T ICE ฀O F฀A N N UA L฀ ME E T IN G฀A N D ฀ P ROX Y฀S TAT E ME N T We฀make฀buying฀office฀products฀easy.

  • Page 2
    ...฀฀ business฀services.฀฀With฀2004฀ sales฀of฀$14.4฀billion,฀Staples฀ serves฀consumers฀and฀฀ businesses฀ranging฀from฀฀ home-based฀businesses฀to฀ Fortune฀500฀companies฀in฀21฀ countries฀throughout฀North฀and฀ South฀America,฀Europe฀and...

  • Page 3
    ... around the world. We made solid progress on our multi-year, company-wide initiatives: improving customer service by making it easy for our customers to shop, making supply chain a competitive weapon, taking Staples brand development to the next level, and developing new growth opportunities. We...

  • Page 4
    ... in 2004, and we plan to continue to grow sales of Staples brand product each year, while improving margins and driving customer loyalty. Market Leadership: The third pillar of our success is striving to attain market leadership wherever we operate. Initiatives in our core businesses to drive market...

  • Page 5
    ..., and customer interaction models. Strong execution of key growth platforms like Staples brand products and our expanding copy and print business drove both the top line and margin improvement. Store operations, marketing, and merchandising teams worked together to drive record sales and earnings...

  • Page 6
    ... 3.5% of sales. On the Retail side, we acquired 59 Office World stores in the United Kingdom, significantly strengthening our market position. In our Delivery business, we acquired Pressel and Malling Beck, two mail order businesses that provide growth platforms in six new countries in Europe. We...

  • Page 7
    ...built a thriving business and a strong team, and inspired us to emulate his passion, his drive, and his appetite for innovation. Although he has decided to leave our Board of Directors to devote his time to a new career in the venture capital world, Tom's legacy lives on at Staples. Never complacent...

  • Page 8
    ... REPORT VISION STATEMENT: Staples' corporate soul is centered on a rock solid belief in social responsibility and the desire to make a positive impact on our associates, customers, and the world. We act responsibly and with integrity, conducting our global business as a great employer, corporate...

  • Page 9
    ...which includes copy paper and printer paper, is 31.6%. We continue to increase recycled content in paper used in internal operations, such as marketing, shipping, and packaging of Staples brand products. Staples actively participates with our suppliers, environmental non-government organizations and...

  • Page 10
    ... the world, as well as members of our Board of Directors. We implemented a Code of Ethics more than a decade ago, but in 2004 we made a renewed effort to build awareness of our standards and make it easier for associates to do the right thing. We created a new role of Vice President, Business Ethics...

  • Page 11
    ... that non-management members of the board own a minimum level of equity in the company worth at least $200,000. The new guidelines also call for minimum equity ownership levels for all senior executives, including the CEO, who must own equity worth at least five times his salary. Going forward...

  • Page 12
    ... sharing opportunities. Staples' Employee Stock Purchase Plan gives all associates a chance to share in Staples' long-term success. We also offer a performance based bonus program to our store associates for team performance that drives high customer service and sales results. Our diversity strategy...

  • Page 13
    ... best business practices report for inner city businesses, mayors and staff involved in economic development • Began an advisory board of minority CEOs to help fuel ideas for ICIC programs Earth Force Staples Foundation for Learning awarded a grant to Earth Force to support its National GREEN...

  • Page 14
    ... members nationwide in 2004, a 150% increase from 2003. Staples Business Depot in the Community Staples Business Depot is committed to building a stronger, more caring community through various programs throughout Canada. Staples Business Depot has been a proud national sponsor of Special Olympics...

  • Page 15
    Each year, Staples Business Depot organizes the National Writing Challenge to promote children's literacy and raise money for Canadian schools. Winners' stories are published in the annual Staples Business Depot short story book, which is sold in stores for a limited time each year. Staples Business...

  • Page 16
    ... local time, to consider and act upon the following matters: (1) To elect four Class 2 Directors to serve for a three-year term expiring at the 2008 Annual Meeting of Stockholders. (2) To approve Staples' Amended and Restated 2004 Stock Incentive Plan increasing the total number of shares of common...

  • Page 17
    ... stockholders of record at the close of business on the record date, April 19, 2005, are entitled to receive notice of the Annual Meeting and to vote their shares of Staples common stock at the meeting, or any postponement or adjournment of the meeting. Holders of Staples common stock are entitled...

  • Page 18
    ... of shares of Staples common stock representing a majority of the shares of Staples common stock voting on the matter is required for the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for the current fiscal year. A properly executed proxy...

  • Page 19
    ... of the document to you if you write or call our Corporate Secretary at the following address or phone number: 500 Staples Drive, Framingham, Massachusetts 01702, telephone (508) 253-5000. If you want to receive separate copies of the annual report and proxy statement in the future, or if you are...

  • Page 20
    ...for Directors and executive officers as a group: Number of shares beneficially owned (1) Shares acquirable within 60 days (2) Percentage of common stock beneficially owned (3) Name of beneficial owner 5% Stockholders FMR Corp...82 Devonshire Street Boston, MA 02109 Directors, Nominees for Director...

  • Page 21
    ... B shares. Accordingly, through their ownership of voting common stock and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed, under the Investment Company Act of 1940, to form a controlling group with respect to FMR. This is based on FMR's Schedule 13G...

  • Page 22
    ... Director of New York Times Company. Mary Elizabeth Burton, age 53 Chairman and Chief Executive Officer of BB Capital, Inc., a retail advisory and management services company, since July 1992. Ms. Burton was Chief Executive Officer of the Cosmetic Center, Inc., a chain of 250 specialty retail stores...

  • Page 23
    ...provide stock compensation to associates, executive management and directors based on level of responsibility, company performance and other factors. Our Board of Directors believes that Staples' future success depends, in large part, upon our ability to maintain a competitive position in attracting...

  • Page 24
    ...and accounting and tax consequences to Staples. At the time we sought stockholder approval of the Existing Plan, our Board believed that the total number of shares authorized for issuance thereunder would be sufficient to cover awards through the end of fiscal 2006. This belief was based on a number...

  • Page 25
    ... unit award intended to so qualify for purposes of Section 162(m) of the Code will be based on one or more of the following measures: sales, earnings per share, return on net assets, return on equity, and customer service levels. The Compensation Committee may also determine that special one-time...

  • Page 26
    ... stock or awards otherwise based upon Staples common stock or other property, including without limitation rights to purchase shares of Staples common stock, having such terms and conditions as the Board of Directors may determine. Eligibility to Receive Awards. Our associates, officers, directors...

  • Page 27
    .... Subject to any applicable delegation by the Board of Directors and any applicable limitations contained in the Restated Plan, the Board of Directors selects the recipients of awards and determines (1) the number of shares of Staples common stock covered by options and the dates upon which such...

  • Page 28
    ... under the Restated Plan. This summary is based on the tax laws in effect as of the date of this proxy statement. This summary assumes that all awards granted under the Restated Plan are exempt from, or comply with, the rules under Section 409A of the Internal Revenue Code related to nonqualified...

  • Page 29
    ... to the limitations of Section 162(m) of the Code. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE STAPLES' AMENDED AND RESTATED 2004 STOCK INCENTIVE PLAN. PROPOSAL 3 - RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Audit Committee of...

  • Page 30
    ... For instance in 2004 it was reported (and concerns are inserted): • The Corporate Library, an independent investment research firm in Portland, Maine, rated our company: ''D'' in Board Composition ''D'' in Accounting • Our key Audit Committee met only 4-times in a full year - commitment concern...

  • Page 31
    ... rights plan policy is available in the ''Corporate Governance'' section of the Company's corporate website at http://www.staples.com. A copy of this policy may also be obtained, free of charge, by mailing a request in writing to: Secretary, Staples, Inc., 500 Staples Drive, Framingham, MA...

  • Page 32
    ...the Company to adopt policies prohibiting (i) executive officers from retaining our independent registered public accounting firm to provide personal tax or other services, and (ii) us, without first obtaining the Committee's approval, from filling an officer level position in the finance department...

  • Page 33
    .... We have adopted a policy prohibiting us from lending money to executive officers and Directors. You are invited to visit our web site at www.staples.com/about for more details regarding our corporate governance practices. Directors of Staples Set forth below are the names and certain information...

  • Page 34
    ... 2005, Chief Operating Officer from November 1998 to February 2002, President-North American Operations from October 1997 to November 1998, and President-Staples Contract & Commercial from June 1994 to October 1997. Mr. Sargent is also a Director of Yankee Candle Corporation, Aramark Corporation and...

  • Page 35
    ...by Bank Boston Capital and Berkshire Partners. From February 1995 to September 1998, Mr. Walsh was President and CEO of Wright Express Corporation, an information and financial services company. March 2004 1987 18APR200512043859 1990 18APR200512045777 Our Chairman of the Board of Directors and...

  • Page 36
    ... certain reports from the independent registered public accounting firm. In addition, the Committee discusses the Company's risk management policies and reviews and discusses with management and the independent registered public accounting firm the Company's annual and quarterly financial statements...

  • Page 37
    ... in the Company's Director's Corporate Governance Guidelines. These criteria include diversity, age and skills such as understanding of the retail industry, the office products market, finance, accounting, marketing, technology, international business and other knowledge needed on the Board. The...

  • Page 38
    ... Board of Directors, c/o Corporate Secretary, Staples, Inc., 500 Staples Drive, Framingham, MA 01702. Director Compensation Our non-employee directors (''Outside Directors'') are compensated through a combination of cash payments and equity grants under our 2004 Stock Incentive Plan based on meeting...

  • Page 39
    ...6, 2004, in the form of Staples common stock, the receipt of which he elected to defer. In connection with service on the Board in 2004, our Outside Directors received the following equity awards in 2004: Fair Market Value of the Award (per share) as of Award Date Outside Director Award Date Type...

  • Page 40
    ... shares of restricted stock issued under the 2004 Stock Incentive Plan were and will be issued without the payment of any cash purchase price by the recipient. Report of the Audit Committee of the Board of Directors The Audit Committee of the Company's Board of Directors is composed of three members...

  • Page 41
    ... the Board approved, that the Company's audited financial statements be included in the Annual Report on Form 10-K for the year ended January 29, 2005 for filing with the SEC. Audit Committee: Paul F. Walsh, Chairman Mary Elizabeth Burton Gary Crittenden Independent Registered Public Accounting Firm...

  • Page 42
    ... registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee. All services provided to the Company by Ernst & Young LLP in each of fiscal years 2004 and 2003 were approved in accordance with this policy...

  • Page 43
    ... received under our Tax Services Reimbursement Program and Aircraft Policy is not required to be reported by us. No Senior Executive used our leased aircraft for personal use during the fiscal year ended January 29, 2005. (3) In March 2004 and February 2005, we announced that we will pay an annual...

  • Page 44
    ... of the 262,500 shares of unvested restricted stock held by Mr. Mahoney had a total value of $5,624,482. See ''Performance Accelerated Restricted Stock Awards.'' (10) Reflects $59,039 for Executive Life Insurance premiums that we paid in 2004 and 2003 and $516 for Long Term Care Insurance premiums...

  • Page 45
    ...,447. See ''Performance Accelerated Restricted Stock Awards.'' (19) 13,500 of these shares were granted to Mr. Anderson for service as an Outside Director in fiscal year 2001 prior to becoming an executive officer of the Company. (20) Reflects an award of 37,500 shares of PARS to Mr. Doody at a per...

  • Page 46
    ... of the Senior Executives. OPTION GRANTS IN LAST FISCAL YEAR Grant Date Value Name Number of Securities Underlying Options Granted (1) Individual Grants Percent of Total Options Exercise Granted to Price per Employees in Share Fiscal Year (2) Expiration Date Grant Date Present Value (3) Ronald...

  • Page 47
    ... awards consist of the 2004 Stock Incentive Plan, the Amended and Restated 1998 Employee Stock Purchase Plan, the Amended and Restated International Employee Stock Purchase Plan, and the 1997 United Kingdom Savings Related Share Option Plan. EQUITY COMPENSATION PLAN INFORMATION Number of Securities...

  • Page 48
    ... of Inland Revenue of the United Kingdom in December 1997, is designed to encourage eligible associates to save money and purchase shares of Staples common stock at a discounted price. We filed the UK Savings Plan with the SEC as an exhibit to our Annual Report on Form 10-K for the fiscal year ended...

  • Page 49
    ... Board of Directors adopted the 1997 United Kingdom Company Share Option Plan (the ''UK Option Plan''), pursuant to which stock options for up to 1,687,500 shares of Staples common stock could be granted to our associates and our subsidiaries' associates, other than executive officers and directors...

  • Page 50
    ...of the executive officers' responsibilities, their effectiveness in leading our initiatives to increase earnings per share, return on net assets, customer satisfaction and growth, and their success in creating a culture of integrity and compliance with applicable law and our ethics policies. We also...

  • Page 51
    ... in Staples' Executive Officer Incentive Plan in fiscal 2004 (the ''Bonus Plan''). The Bonus Plan provided for the payment of a range of cash bonuses to executive officers based on pre-established objectives relating to company-wide earnings per share, return on net assets, and customer satisfaction...

  • Page 52
    ... pre-retirement survivors' benefit plan, long-term care insurance benefit, and new executive life insurance plan were implemented, effective October 1, 2004. These improvements to our retirement programs cover approximately 330 senior executives. The Company's total maximum annual after-tax cost for...

  • Page 53
    ... as a Director or member of our Compensation Committee. Section 16(a) Beneficial Ownership Reporting Compliance Based solely on our review of copies of reports filed by the Directors and the executive officers required to file such reports pursuant to Section 16(a) under the Securities and Exchange...

  • Page 54
    ... in Staples common stock, the Standard & Poor's 500 Composite Index and the Standard & Poor's Retail Index, and assumes dividends are reinvested. Measurement points are February 3, 2001, February 2, 2002, February 1, 2003, January 31, 2004 and January 29, 2005 (Staples' last five fiscal year ends...

  • Page 55
    ... shall elect a Chair by majority vote. Compensation. The compensation of Audit Committee members shall be as determined by the Board of Directors. No member of the Audit Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its...

  • Page 56
    ...by the Company's management and the independent auditor, in accordance with its business judgment. Management is responsible for the preparation, presentation, and integrity of the Company's financial statements and for the appropriateness of the accounting principles and reporting policies that are...

  • Page 57
    ...the Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K. Audit Committee Report. The Audit Committee shall prepare for inclusion in a proxy or information statement of the Company relating to an annual meeting of security holders...

  • Page 58
    ...'s disclosure controls and procedures on behalf of the Board of Directors. The Audit Committee shall receive and review the reports of the CEO and CFO required by Rule 13a-14 of the Exchange Act. 16. Risk Management. The Audit Committee shall discuss the Company's policies with respect to risk...

  • Page 59
    ... authority to request any officer, employee or advisor of the Company to meet with the Audit Committee or any advisors engaged by the Audit Committee. Funding. The Audit Committee is empowered, without further action by the Board of Directors, to cause the Company to pay the ordinary administrative...

  • Page 60
    ... Drive, Framingham, Massachusetts 01702 (Address of principal executive offices and zip code) 508-253-5000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Staples Common...

  • Page 61
    ...this Annual Report on Form 10-K. Business Strategy We view the office products market as a large, diversified market for office supplies and services, business machines and related products, computers and related products, and office furniture. Although there are no clear demarcations among customer...

  • Page 62
    ... organizations, the number of home offices, household income levels, the availability of quality real estate locations, competition and other factors. We plan to open approximately 95 new stores in North America in 2005, compared to 77 new stores in 2004 and 67 new stores in 2003. The growth program...

  • Page 63
    ... Business Delivery sales force into the Staples Business Advantage sales organization to better serve these customers. Staples Business Delivery: Our Staples Business Delivery operations combine the efforts of our direct mail catalog business, operating since 1990, and our Staples.com web site...

  • Page 64
    ...' long-term growth. We believe there is significant potential in the South American office products market, and in 2004, we acquired Officenet S.A. to gain access to Brazil and Argentina through a delivery business that shares Staples' commitment to best-in-class customer service and operational...

  • Page 65
    ...Internet access points in our North American retail stores. In order to minimize unit costs and selling prices, we sell many products in multi-unit packages. Our product offering includes Staples, Quill and other proprietary branded products which represented more than 15% of our total sales in 2004...

  • Page 66
    ... all channels and customer touch points, including our signage, television commercials, catalogs, web sites, circulars, direct marketing and store uniforms. We also have a naming rights agreement for the Staples Center, a state of the art sports and entertainment complex in downtown Los Angeles...

  • Page 67
    ... in computer-based, multi-media training programs to upgrade associates' selling skills and improve customer service at our retail stores and delivery operations. Much of the training we provide targets sales of capital goods such as fax machines, copiers, furniture and computers. Store management...

  • Page 68
    ...as Executive Vice President-Finance and Chief Financial Officer of Campbell Soup Company from April 1996 to April 2000. Joseph G. Doody, age 52 Mr. Doody has served as President-Staples North American Delivery since March 2002. Prior to that, he served as President-Staples Contract & Commercial from...

  • Page 69
    ...terms expiring on dates between 2005 and 2025. In most instances, we have renewal options at increased rents. Leases for 172 of the existing stores provide for contingent rent based upon sales. Our Framingham, Massachusetts corporate office is owned by us and consists of approximately 650,000 square...

  • Page 70
    ...fourth quarter of fiscal 2004. PART II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is traded on the NASDAQ National Market under the symbol ''SPLS.'' At February 22, 2005, the number of holders of record of...

  • Page 71
    ... Securities Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(2) Fiscal Period Total Number of Shares Purchased Average Price Paid per Share(1) October 31, 2004-November...

  • Page 72
    ...of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment, we believe that, as of January 29, 2005, the Company's internal control over financial reporting is effective based on those criteria. Staples' Independent Registered Public Accounting Firm has issued a report on...

  • Page 73
    ... of the Independent Registered Public Accounting Firm Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Staples, Inc. We have audited management's assessment, included in the accompanying Management's Annual Report over Financial Reporting, that Staples, Inc...

  • Page 74
    ... the heading ''Executive Officers of the Registrant'' in Part I of this Annual Report on Form 10-K. Other information required by this Item will appear under the headings ''Proposal 1-Election of Directors'' and ''Corporate Governance-Directors of Staples'' in our Proxy Statement, which sections are...

  • Page 75
    .... The following financial statements and schedules of Staples, Inc. are included as Appendix C of this Report: • Consolidated Balance Sheets-January 29, 2005 and January 31, 2004. • Consolidated Statements of Income-Fiscal years ended January 29, 2005, January 31, 2004, and February 1, 2003...

  • Page 76
    ... the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ RONALD L. SARGENT Ronald L. Sargent President, Chief Executive Officer and Director (Principal...

  • Page 77
    ... MAHONEY John J. Mahoney Executive Vice President, Chief Administrative Officer and Chief Financial Officer (Principal Financial Officer) February 22, 2005 /s/ CHRISTINE T. KOMOLA Christine T. Komola Senior Vice President and Corporate Controller (Principal Accounting Officer) February 22, 2005...

  • Page 78
    ... performance based rebates in inventory as required by EITF Issue No. 02-16, ''Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor'' (see Note B and MD&A). (4) Results of operations for this period include a tax benefit of $29.0 million related to Staples...

  • Page 79
    ...Staples Business Delivery, Quill, and our Contract operations (Staples National Advantage and Staples Business Advantage). The International Operations segment consists of operating units that operate office products stores and that sell and deliver office products and services directly to customers...

  • Page 80
    ... net income grew 28% for fiscal 2004 and 32% for fiscal 2003. Our positive performance reflects the continued execution of our Back to Brighton strategy of driving profitable sales growth, improving profit margins and increasing asset productivity. This includes delivering on our ''Easy'' brand B-2

  • Page 81
    ... store labor, supply chain, marketing and Staples brand products. Our goal is to expand our existing businesses and develop new growth opportunities such as: growing our copy and print center and Contract businesses; entering major new geographic markets in North America; expanding our multi-channel...

  • Page 82
    ...(Continued) and home offices, our continued focus on higher margin Staples brand products, strong results in our copy center business and supply chain initiatives which lower the cost of moving the product from our vendors through to our customers. The increase in the pro forma gross profit rate for...

  • Page 83
    ... The American Jobs Creation Act of 2004, which was signed into law on October 22, 2004, did not have a material impact on our effective tax rate for fiscal 2004. Segment Performance: The following tables provide a summary of our sales and business unit income by reportable segment and store activity...

  • Page 84
    ... Contract sales force; the positive results of marketing among our catalogs, web sites and retail stores; more efficient marketing driving higher sales per marketing dollar; and the continued success of our customer acquisition and retention efforts resulting from improved service levels. Business...

  • Page 85
    ...Back to Brighton strategies. These results were primarily offset by the costs associated with the integration of the Office World stores and the related impact of five planned Staples store closures in the United Kingdom, the integration of our two delivery businesses in the United Kingdom, a slight...

  • Page 86
    ... SFAS No. 123R, companies must calculate and record in the income statement the cost of equity instruments, such as stock options, awarded to employees for services received; pro forma disclosure is no longer permitted. The cost of the equity instruments is to be measured based on the fair value...

  • Page 87
    ... fiscal 2004, we also issued letters of credit in the ordinary course of business to satisfy certain vendor contracts. At January 29, 2005, we had $71.0 million of open letters of credit, which reduces the available amounts under our revolving credit facility. We finance the majority of our stores...

  • Page 88
    ... were outstanding under the Credit Facility, however $71.0 million of letters of credit were issued under the facility. Prior to December 2003, we utilized a 364-day accounts receivable securitization agreement for the purpose of providing us with additional low cost short-term working capital...

  • Page 89
    ... have a presence and in new geographic markets that could become significant to our business in future years. This growth strategy is evidenced by our August 2004 purchase of Globus Office World plc, an office products company operating in the United Kingdom, representing a significant expansion in...

  • Page 90
    ... 2004 and currently plan to open approximately 110 new stores in fiscal 2005, with a major new market entry in Chicago, Illinois. For our growth strategy to be successful, we must identify and lease favorable store sites, hire and train associates and adapt management and operational systems to meet...

  • Page 91
    .... In addition to our recently expanding operations in Europe and our new operations in South America, we have a significant presence in Canada through The Business Depot Ltd. As evidenced by our recent entry into the South American and Asian markets, we may also seek to expand further into other...

  • Page 92
    ... INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPENDIX C Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets-January 29, 2005 and January 31, 2004 ...Consolidated Statements of Income-Fiscal years ended January 29, 2005, January 31, 2004, and February 1, 2003...

  • Page 93
    Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders Staples, Inc. We have audited the accompanying consolidated balance sheets of Staples, Inc. and subsidiaries as of January 29, 2005 and January 31, 2004 and the related consolidated statements of income, ...

  • Page 94
    ... Except Share Data) January 29, 2005 January 31, 2004 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Receivables, net ...Merchandise inventories, net ...Deferred income tax asset ...Prepaid expenses and other current assets . Property and equipment: Land and buildings...

  • Page 95
    ... (Dollar Amounts in Thousands, Except Share Data) Fiscal Year Ended January 31, 2004 January 29, 2005 February 1, 2003 Sales ...Cost of goods sold and occupancy costs ...Gross profit ...Operating and other expenses: Operating and selling ...Pre-opening ...General and administrative . Amortization...

  • Page 96
    ... Fiscal Years Ended January 29, 2005, January 31, 2004 and February 1, 2003 Common Stock Balances at February 2, 2002 ...Issuance of common stock for stock options exercised ...Tax benefit on exercise of options ...Contribution of common stock to Employees' 401(K) Savings Plan Sale of common stock...

  • Page 97
    STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Dollar Amounts in Thousands) Fiscal Year Ended January 31, February 1, 2004 2003 January 29, 2005 Operating activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation...

  • Page 98
    ... and services directly to customers, and includes Staples Business Delivery, Quill and the Company's Contract operations (Staples National Advantage and Staples Business Advantage). The International Operations segment consists of operating units that operate office products stores and that sell and...

  • Page 99
    ... of Significant Accounting Policies (Continued) Private Label Credit Card: Staples offers a private label credit card which is managed by a financial services company. Under the terms of the agreement, Staples is obligated to pay fees which approximate the financial institution's cost of processing...

  • Page 100
    ... accounting. Revenue Recognition: Revenue is recognized at the point of sale for the Company's retail operations and at the time of shipment for its delivery sales. We offer our customers various coupons, discounts and rebates, which are treated as a reduction of revenue. Sales of extended service...

  • Page 101
    ... the employees' purchase rights. Staples' pro forma information follows (in thousands, except for per share information): Fiscal Year Ended January 29, 2005 Fiscal Year Ended January 31, 2004 Fiscal Year Ended February 1, 2003 Net income as reported ...Add: Stock based compensation, net of related...

  • Page 102
    ... offered directly to consumers (e.g., coupons). Beginning with the first quarter of fiscal 2004, vendor consideration received in the form of sales incentives is now recorded as a reduction of cost of goods sold when recognized, rather than as a component of sales. In addition, the Company has...

  • Page 103
    ... application of these accounting principles as of February 2, 2002 (in thousands, except per share data): As Reported 52 Weeks Ended January 29, 2005 January 31, 2004 February 1, 2003 Sales ...Cost of goods sold and occupancy costs ...Gross profit ...Operating and other expenses: Operating...

  • Page 104
    ...expand Staples' delivery business into Eastern Europe and Denmark and strengthen the Company's business in western Europe through access to new customers and product categories. On August 4, 2004, the Company acquired the United Kingdom office products company Globus Office World plc (''Office World...

  • Page 105
    ... American Delivery for segment reporting. MAP is a leading direct marketer of specialized printed office products and practice-related supplies to medical offices. The acquisition of MAP provides an opportunity to sell traditional office products to MAP's customer base and expand Quill's and Staples...

  • Page 106
    ... trade names and trademarks, which have indefinite lives and are not subject to amortization and $0.6 million was assigned to customer-related intangible assets that are being amortized over 10 years. Pro forma results of operations assuming the 2004 acquisitions, the European mail order acquisition...

  • Page 107
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) NOTE E Debt and Credit Agreements The major components of debt outstanding are as follows (in thousands): January 29, 2005 January 31, 2004 Notes due October 2012 (see below) ...Senior Notes due August 2007 (see ...

  • Page 108
    ... $71.0 million of letters of credit were issued under the facility. On October 4, 2002, the Company entered into a $325 million 364-Day Term Loan Agreement with a group of commercial banks to finance a portion of the purchase price of the European mail order acquisition. The Term Loan was repaid in...

  • Page 109
    ... fiscal years 2004, 2003 and 2002, foreign currency gains (losses), net of taxes of $(13.4) million, $(23.1) million and $0.1 million, respectively were recorded in the cumulative translation adjustment line. NOTE G Commitments and Contingencies Staples leases certain retail and support facilities...

  • Page 110
    ...course of business through major financial institutions as required by certain vendor contracts. As of January 29, 2005, Staples had open letters of credit totaling $37.3 million. The Company is involved from time to time in litigation arising from the operation of its business. The Company does not...

  • Page 111
    ..., 2004 Deferred tax assets: Deferred rent ...Capitalized vendor money ...Foreign tax credit carryforwards ...Net operating loss carryforwards ...Insurance ...Employee benefits ...Merger related charges ...Store closure charge ...Capital losses and asset write-downs . . Inventory ...Unrealized loss...

  • Page 112
    ...the cumulative translation adjustment line in stockholders' equity. The Company operates in multiple jurisdictions and could be subject to audit in these jurisdictions. These audits can involve complex issues that may require an extended period of time to resolve and may cover multiple years. In the...

  • Page 113
    ... and restated 1990 Director Stock Option Plan (the ''1990 Plan''). Unexercised options under both the 1992 Plan and the 1990 Plan remain outstanding. Under the 2004 Plan, Staples may issue up to 23 million shares of common stock to management and employees using various forms of awards, including...

  • Page 114
    ... common stock at January 31, 2004 and 31.3 million shares of common stock at February 1, 2003. Restricted Stock In 2003, the Company began granting restricted shares in lieu of special grants of stock options in order to better align management and shareholder interests. All shares underlying awards...

  • Page 115
    ... for fiscal years 2004, 2003 and 2002, respectively. Employees' 401(k) Savings Plan Staples' Employees' 401(k) Savings Plan (the ''401(k) Plan'') is available to all United States based employees of Staples who meet minimum age and length of service requirements. Company contributions are based upon...

  • Page 116
    ...that operate office supply stores. The North American Delivery segment consists of the U.S. and Canadian business units that sell and deliver office products and services directly to customers, and includes Staples Business Delivery, Quill and Staples' Contract operations (Staples National Advantage...

  • Page 117
    ... accounts and balances by reportable segment for fiscal years 2004, 2003 and 2002 (in thousands): Year Ended January 29, 2005 Year Ended January 31, 2004 Year Ended February 1, 2003 Sales: North American Retail ...North American Delivery ...International Operations ...Consolidated ...Business Unit...

  • Page 118
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) NOTE L Segment Reporting (Continued) The following is a reconciliation of business unit income to income before income taxes for fiscal years ended 2004, 2003 and 2002 (in thousands): Year Ended January 29, 2005 ...

  • Page 119
    ... to Consolidated Financial Statements (Continued) NOTE M Guarantor Subsidiaries (Continued) guarantor subsidiaries represent more than an inconsequential portion of the consolidated assets and revenues of Staples. Investments in subsidiaries are accounted for by the Parent Company on the equity...

  • Page 120
    ...$(32,253) Condensed Consolidating Statement of Income For the year ended January 31, 2004 (in thousands) Staples, Inc. (Parent Co.) NonGuarantor Subsidiaries Guarantor Subsidiaries Consolidated Sales ...Cost of goods sold and occupancy costs ...Gross profit (loss) ...Operating and other expenses...

  • Page 121
    ... For the year ended January 29, 2005 (in thousands) NonGuarantor Subsidiaries Staples, Inc. (Parent Co.) Guarantor Subsidiaries Consolidated Net cash provided by operating activities ...Investing activities: Acquisition of property, equipment and lease rights Acquisition of businesses, net of...

  • Page 122
    ... For the year ended January 31, 2004 (in thousands) NonGuarantor Subsidiaries Staples, Inc. (Parent Co.) Guarantor Subsidiaries Consolidated Net cash provided by operating activities ...Investing activities: Acquisition of property, equipment and lease rights . Acquisition of businesses, net of...

  • Page 123
    ...reclassification, sales, gross profit and operating and selling expenses decreased, but there was no impact on net income. NOTE O Subsequent Event (Unaudited) On February 22, 2005, the Board of Directors of the Company approved a three-for-two stock dividend to common shareholders of record on March...

  • Page 124
    ...Kingdom Company Share Option Scheme 10.12(6)* - 1997 UK Savings Related Share Option Scheme 10.13*+ - Amended and Restated 1998 Employee Stock Purchase Plan 10.14*+ - Amended and Restated International Employee Stock Purchase Plan 10.15(6)* - Executive Officer Incentive Plan 10.16*+ - Non-Management...

  • Page 125
    ... signed by executive officers of the Company 10.31*+ - Form of Severance Benefits Agreement signed by executive officers of the Company 14.1 (4) - Code of Ethics of the Company 21.1 + - Subsidiaries of the Company 23.1 + - Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm...

  • Page 126
    Staples, Inc. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Accounts Receivable Allowance Valuation and qualifying account information related to operations is as follows (in thousands): Balance at Beginning of Period Additions Charged to Bad Debt Allowance Additions from Acquisitions Deductions ...

  • Page 127
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀Ÿ$฀ ฀ ฀ ฀ ฀Ÿ$฀ ฀฀ ฀ ฀ Ÿ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 128
    Corporate฀Information฀ Corporate฀Offices฀ Staples,฀Inc.฀ 500฀Staples฀Drive฀ Framingham,฀MA฀01702฀ Telephone:฀508-253-5000฀ Internet฀address:฀www.staples.com Transfer฀Agent฀and฀Registrar฀ Mellon฀Investor฀Services฀is฀the฀Transfer฀Agent฀and฀...

  • Page 129
    ...฀combined฀the฀Annual฀Report,฀฀ Notice฀of฀Annual฀Meeting฀and฀Proxy฀Statement฀to฀reduce฀฀ costs฀and฀return฀more฀value฀to฀our฀shareholders. In฀keeping฀with฀our฀commitment฀to฀the฀environment,฀฀ this฀book฀is฀printed฀on฀paper฀made...