Staples 2004 Annual Report Download - page 109

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STAPLES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Continued)
NOTE F Derivative Instruments and Hedging Activities (Continued)
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 the 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 agreements is
accrued and recognized as an adjustment to interest expense over the life of the agreements. At January 29, 2005, the
new interest rate swap agreements had a fair value gain of $7.2 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 January 29, 2005, the
interest rate swap agreement had a fair value gain of $0.4 million, which was included in other assets.
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 were recorded as
cumulative translation adjustments in stockholders’ equity. At January 29, 2005, the currency swap had a fair value loss of
$42.4 million, which was included in other long-term obligations. During 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 under long-term non-cancelable lease agreements. Most lease
agreements contain renewal options and rent escalation clauses and, in some cases, allow termination within a certain
number of years with notice and a fixed payment. Certain agreements provide for contingent rental payments based on
sales.
Other long-term obligations at January 29, 2005 include $97.5 million relating to future rent escalation clauses and
lease incentives under certain existing store operating lease arrangements. These rent expenses are recognized on a
straight-line basis over the respective terms of the leases. Future minimum lease commitments due for retail and support
facilities (including lease commitments for 66 retail stores not yet opened at January 29, 2005) and equipment leases
under non-cancelable operating leases are as follows (in thousands):
Fiscal Year: Total
2005 ............................................................ $ 576,207
2006 ............................................................ 554,824
2007 ............................................................ 521,271
2008 ............................................................ 482,996
2009 ............................................................ 454,170
Thereafter ....................................................... 2,445,075
$5,034,543
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