Staples 2005 Annual Report Download

Download and view the complete annual report

Please find the complete 2005 Staples annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 124

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124

2005 ANNUAL REPORT
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
1986
STAPLES 2005 ANNUAL REPORT

Table of contents

  • Page 1
    2 0 0 5 ANNUAL REPORT N O T I C E O F A N N U A L M E E T I N G A N D P R O XY S TAT E M E N T 19 8 6

  • Page 2
    ...it easy to buy a wide range of offi ce products, including supplies, technology, furniture, and business services. With 2005 sales of $16.1 billion, Staples serves consumers and businesses ranging from home-based businesses to Fortune 500 companies in 21 countries throughout North and South America...

  • Page 3
    ... a powerful brand and valued partner to Chicago communities. We began to sell office products through new channels, with a Staples branded aisle in more than 850 grocery stores. Our copy and print centers achieved double digit sales growth and helped to drive traffic and customer service scores...

  • Page 4
    ... Easy Mobile Tech program helps small businesses solve their technology problems. We've enjoyed great customer response to our Easy Rebates program that has processed more than 8 million rebates to date. We're making it easy to buy ink with our in-stock guarantee, a great assortment of Staples brand...

  • Page 5
    ... position in core markets, and investing in customer service programs. We also invested in several new growth ideas, including selling office products in grocery stores, building our Easy Mobile Tech business, and testing a copy center store concept in Canada. North American Delivery In 2005...

  • Page 6
    ..., Staples' associates are building our brand both through products and services that make it easy for our customers, driving retail growth platforms like our copy and print business and new market entries, improving our supply chain, gaining market share rapidly in our Delivery businesses, leading...

  • Page 7
    ... new products and services, promoting new operational efficiencies, attracting and retaining customers and associates, and mitigating business risks. PERFORMANCE SUMMARY To measure the success of our corporate responsibility efforts, Staples has identified performance metrics in four areas: Ethics...

  • Page 8
    ... for our SmileMakers subsidiary where this information is not tracked. Diversity information for Business Depot and our international operations is not currently available. Senior management includes all Staples key management associates (job titles equal or equivalent to Director and above). 2

  • Page 9
    ... program also holds our vendors and suppliers to high ethical standards through the terms of our contracts and our Supplier Code of Conduct. Through these initiatives, we strengthen our brand and ensure that our associates will continue to act in the best interests of Staples and our shareholders...

  • Page 10
    ...success as a company. We distribute resources to nonprofit organizations that provide educational opportunities for all people, with a special emphasis on disadvantaged youth. Staples assists the communities where our customers and associates live and work through the Staples Foundation for Learning...

  • Page 11
    ..., Staples Distribution and Fulfillment Centers provide much needed supplies to organizations such as SHOPA Kids in Need Resource Centers and Crayons to Computers. Diversity Staples fosters a diverse and inclusive work environment, providing our 69,000 associates with the support they need to learn...

  • Page 12
    ... four program areas include: Ethics x x x Continue to expand and refine ethics training for associates in North America and globally to address key business needs and risks. Continue to drive awareness of customer privacy and implement strategies where needed to promote sound information-protection...

  • Page 13
    ... sale within the constraints of market conditions, demand, and cost considerations. x x x Community x x x Continue to build the global partnership between Staples Foundation for Learning and Ashoka. Expand associate involvement in the communities where our customers and associates live and work...

  • Page 14
    (This page intentionally left blank.)

  • Page 15
    .... Stockholders of record at the close of business on April 10, 2006 will be entitled to notice of and to vote at the meeting or any adjournment thereof. The stock transfer books will remain open. By Order of the Board of Directors, Jack A. VanWoerkom, Secretary Framingham, Massachusetts April...

  • Page 16
    (This page intentionally left blank.)

  • Page 17
    ... Annual Report on Form 10-K for the 2005 fiscal year as filed with the Securities and Exchange Commission, except for exhibits, will be furnished without charge to any stockholder upon written or oral request to Staples, Inc., Attention: Corporate Secretary, 500 Staples Drive, Framingham, MA 01702...

  • Page 18
    ... in "street name" by a bank or brokerage firm, your bank or brokerage firm, as the record holder of your shares, is required to vote your shares according to your instructions. Your bank or broker will send you directions on how to vote those shares. Under the rules of the New York Stock Exchange...

  • Page 19
    ...documents 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 receiving...

  • 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
    ... ownership of voting common stock and the execution of the shareholders' voting agreement, members of the Johnson family may be deemed to form a controlling group with respect to FMR. Neither FMR nor Johnson has the sole power to vote or direct the voting of the shares owned directly by the Fidelity...

  • Page 22
    ... 2006, 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 23
    ... served as Chief Operating Officer of The Feld Group, Inc., a technology management firm, from July 2000 until its acquisition by EDS in January 2004. Prior to that, Mr. Schuckenbrock led several technology organizations within PepsiCo, Inc., including serving as Chief Information Officer of PepsiCo...

  • Page 24
    ... to stockholders the name, address and number of shares of Staples' voting securities held by the proponent upon receiving an oral or written request. FOR THE REASONS SET FORTH BELOW IN OUR BOARD'S STATEMENT IN OPPOSITION TO THE SHAREHOLDER PROPOSAL, OUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST...

  • Page 25
    ... groups over the respective benefits and disadvantages of the proposal's standard and questions remain as to the feasibility and desirability of U.S. public companies adopting the proposal's majority voting standard. We believe that our Directors' Corporate Governance Guidelines are the best means...

  • Page 26
    ... of our business and stockholders. You can learn more about our current corporate governance principles and review our Directors' Corporate Governance Guidelines, committee charters, Corporate Political Contributions Policy Statement, and Code of Ethics at www.staples.com in the Corporate Governance...

  • Page 27
    ...communications between other independent directors and the Chairperson of the Board and Chief Executive Officer, (3) chairing the annual performance review of the Chief Executive Officer and (4) consulting with the Chairperson of the Board and Chief Executive Officer on matters relating to corporate...

  • Page 28
    ...and Chief Executive Officer of AMB Group, LLC, a business management company, since February 2001 and Chairman of The Arthur M. Blank Family Foundation since it was founded in 1995. Mr. Blank is a co-founder of The Home Depot, Inc., a home improvement retailer, served as its Co-Chairman of the Board...

  • Page 29
    ...for director. Mr.Walsh was the Chief Executive Officer of Clareon Corporation, a privately held electronic payments provider, from March 2000 to September 2002. In October 2002, to facilitate its acquisition by Fleet Boston Corp., Clareon Corporation filed for Chapter 11 bankruptcy protection. Board...

  • Page 30
    ... setting the compensation levels of directors and executive officers, including the Chief Executive Officer, reviewing and providing recommendations to our Board regarding compensation programs, administering our equity incentive, stock purchase and other employee benefit plans and authorizing...

  • Page 31
    ... in our Directors' 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 our Board. The principal...

  • Page 32
    ... to our Board should address such communications to The Board of Directors, c/o Corporate Secretary, Staples, Inc., 500 Staples Drive, Framingham, Massachusetts 01702. Director Compensation Our non-employee directors ("Outside Directors") are compensated through a combination of cash payments and...

  • Page 33
    ... on March 4, 2005, a copy of which is available at the Company's public web site at www.staples.com in the Corporate Governance section of the About Staples webpage. The members of the Audit Committee are independent Directors, as defined by its charter and the rules of the Securities and Exchange...

  • Page 34
    ... of approximately $62,000 and $211,000 in fiscal years 2005 and 2004, respectively, for services related to assistance with internal control reporting, acquisition due diligence, employee benefit plan audits, accounting consultation and compliance with regulatory requirements. Tax Fees Ernst & Young...

  • Page 35
    ... and Related Transactions We have retained the services of the law firm DLA Piper Rudnick Gray Cary US LLP, of which Senator Mitchell is a partner. The Nominating and Corporate Governance Committee of our Board of Directors reviewed and approved this relationship. See also "Director Compensation...

  • Page 36
    ... Chief Executive Officer and the four other most highly compensated executive officers of Staples during the 2005 fiscal year (the "Senior Executives"). SUMMARY COMPENSATION TABLE Annual Compensation Other Annual Compensation Salary ($) Bonus ($) (1) (2) ($) Long Term Compensation Restricted Stock...

  • Page 37
    ... Instead, we are continuing life insurance coverage for our executive officers under a bonus plan under which premium payments and related tax gross-up payments are being treated as additional compensation. In addition, we continue to report the actuarial equivalent benefit of the premiums that were...

  • Page 38
    ...of long-term incentives for our executive leadership team going forward to reflect an even greater focus on pay for performance. The Compensation Committee has adopted a new compensation plan providing our executive leadership team with a combination of stock options, time based restricted stock and...

  • Page 39
    ... of Employment and Changein-Control Agreements with Senior Executives." (2) The exercise price is equal to the fair market value per share of Staples common stock on the date of grant. (3) The estimated present values at grant date have been calculated using a binomial option pricing model, based...

  • Page 40
    ..., 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 Remaining Available for Future Issuance under...

  • Page 41
    ... Share Option Plan In August 1997, our Board of Directors adopted the 1997 United Kingdom Savings Related Share Option Plan (the "UK Savings Plan"), pursuant to which an aggregate of 1,687,500 shares of common stock may be issued to eligible associates whose employment relationship with Staples...

  • Page 42
    ... any particular person or group. 1997 United Kingdom Company Share Option Plan In August 1997, our 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...

  • Page 43
    ...officers are reviewed by the full Board. Since 2002, we have retained a national compensation consulting firm, reporting to the Committee, to provide independent advice regarding executive compensation. This report is submitted by the Committee and addresses our compensation policies for fiscal 2005...

  • Page 44
    ... target for earnings per share and return on net assets and fell slightly below target on customer satisfaction. • Long-Term Stock Incentives: In addition to base salary and cash bonuses, Staples' executives have been annually granted performance-based long-term incentives represented by stock...

  • Page 45
    ... to certain executive officers for reimbursement of tax/financial planning services. Retirement Benefits In 2005, the Committee amended all of the Company's non-qualified award based benefit plans to provide that the prior service of any board member who subsequently becomes a Company associate will...

  • Page 46
    ... and full value for restricted stock on the grant date, c) tax preparation services, d) Company matches for the Supplemental Executive Retirement and 401(k) Plans, and e) Company paid premiums for Executive Life Insurance and Long Term Care. A substantial majority of Total Annual Compensation is...

  • Page 47
    .... The life insurance and survivor death benefit payouts are not liabilities of the Company. Tax Considerations Under Section 162(m) of the Internal Revenue Code of 1986, as amended, certain executive compensation in excess of $1 million paid to a public company's chief executive officer and four...

  • Page 48
    ... member of our Board of Directors or 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 Exchange...

  • Page 49
    ... & Poor's Retail Index, and assumes dividends are reinvested. Measurement points are February 2, 2002, February 1, 2003, January 31, 2004, January 29, 2005 and January 28, 2006 (Staples' last five fiscal year ends). Dividends Reinvested TOTAL RETURN TO STOCKHOLDERS $250.00 $200.00 $150.00 $100...

  • Page 50
    (This page has been left blank intentionally.)

  • Page 51
    ... part, or new by-laws made, by the board of directors except with respect to any provision hereof which by law, the certificate of incorporation of or these by-laws requires action by the stockholders. Notwithstanding the foregoing, the affirmative vote of the holders of shares of stock representing...

  • Page 52
    (This page has been left blank intentionally.)

  • Page 53
    ...the registrant, based on the last sale price of Staples' common stock on July 29, 2005, as reported by Nasdaq, was approximately $16.6 billion. In determining the market value of nonaffiliate voting stock, shares of Staples' common stock beneficially owned by each executive officer and director have...

  • Page 54
    ... in both retail and delivery to improve the customer experience, infused the new brand personality in all of our marketing vehicles and stores, actively promoted our new advertising tagline, "that was easy", and increased the quality and value of our Staples brand products. For example, to respond...

  • Page 55
    ... in our stores. Customers can pay for these purchases at the register or through our Staples.com Internet access points and have the product delivered to their home or business. In 2005, we continued to deliver on our "Easy" brand promise with the rollout of our easy mobile tech service and the...

  • Page 56
    ...day delivery for most office supply orders in major metropolitan areas. Our Internet sites provide complete transaction processing for the purchase of over 50,000 office products and services. We market Staples Business Delivery through direct mail catalogs, a telesales group generating new accounts...

  • Page 57
    ... our key categories: ink and toner, paper, business machines and copy and print services. Our product offering includes Staples, Quill and other proprietary branded products which represented approximately 18% of our total sales in 2005. Staples brand products offer great value to our customers with...

  • Page 58
    ...to locate stores more closely to our target customers. We continually work with our vendors to improve vendor reliability. We offer a web site for our vendors, StaplesPartners.com, which provides suppliers with access to important supplier information, including supplier metrics, purchase order data...

  • Page 59
    ..." brand promise and are consistently communicating the brand across all channels and customer touch points, including our signage, television commercials, catalogs, web sites, circulars, direct marketing and store uniforms. Associates and Training We have a strong corporate culture that values high...

  • Page 60
    ... office supplies that are in-stock and easy to find; fast checkout; easy to use web sites; reliability and speed of order shipment; convenient store locations; hassle-free returns and fair prices. Trademarks In connection with our North American Retail business, we have registered the marks "Staples...

  • Page 61
    ... and earnings per share; • expected future revenues, operations, expenditures and cash needs; • payment of annual cash dividends; • the projected number, timing and cost of new store openings; • estimates of the potential markets for our products and services, including the anticipated...

  • Page 62
    ... to us in terms of pricing strategy and product selection, as well as mass merchants such as Wal-Mart, warehouse clubs such as Costco, computer and electronics superstores such as Best Buy and other discount retailers. In addition, both our retail stores and delivery operations compete with numerous...

  • Page 63
    ...or investors' expectations. Factors that could cause these quarterly fluctuations include the following: the extent to which sales in new stores result in the loss of sales in existing stores; the mix of products sold; pricing actions of competitors; the level of advertising and promotional expenses...

  • Page 64
    ... offering of proprietary branded products may not improve our financial performance and may expose us to product liability claims. Our product offering includes Staples, Quill and other proprietary branded products which represented approximately 18% of our total sales in fiscal 2005. While we have...

  • Page 65
    ...Florida ...Georgia ...Illinois ...Indiana...Kansas ...Maryland ...Massachusetts ...Minnesota ...New Jersey ...New York ...North Carolina...Ohio ... 4 1 2 2 2 2 1 1 1 1 1 1 2 1 1 Oregon Pennsylvania ...South Carolina ...Texas ...Canada Alberta...British Columbia...Ontario...Quebec ...United Kingdom...

  • Page 66
    ... symbol "SPLS". At February 24, 2006, the number of holders of record of our common stock was 7,283. The following table sets forth for the periods indicated the high and low sales prices per share of our common stock on the NASDAQ National Market, as reported by NASDAQ and reflecting the three-for...

  • Page 67
    ...of fiscal 2005 of equity securities that are registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934. Issuer Purchases of Equity Securities Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Approximate Dollar Value of Shares that May...

  • Page 68
    ... financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company's principal executive and principal financial officers and effected by the company's board of directors, management...

  • Page 69
    ... reporting as of January 28, 2006, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Staples, Inc. as of January 28, 2006 and January 29, 2005, and the related...

  • Page 70
    ... executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. Our code of ethics, which also applies to our directors and all of our officers and employees, can be found on our web site, which is located at www.staples.com...

  • Page 71
    ... January 29, 2005, and January 31, 2004. • Notes to Consolidated Financial Statements. 2. Financial Statement Schedules. • Schedule II-Valuation and Qualifying Accounts All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission...

  • Page 72
    ..., on February 27, 2006. STAPLES, INC. By: /s/ RONALD L. SARGENT Ronald L. Sargent, Chairman and Chief Executive Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 73
    ...F. Walsh Director February 27, 2006 /s/ JOHN J. MAHONEY John J. Mahoney Vice Chairman and Chief Financial Officer (Principal Financial Officer) February 27, 2006 /s/ CHRISTINE T. KOMOLA Christine T. Komola Senior Vice President and Corporate Controller (Principal Accounting Officer) February...

  • Page 74
    ...the form of a common stock dividend distributed on April 15, 2005. (2) Results of operations for this period include the acquired businesses since the relevant acquisition date and Staples China since becoming a majority-owned subsidiary of the Company during the first quarter of 2005. See Note C to...

  • Page 75
    ... products 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 our Contract operations (Staples National Advantage and Staples Business...

  • Page 76
    .... Our positive performance in 2005 reflects the continued execution of our strategy of driving profitable sales growth, improving profit margins and increasing asset productivity. This includes delivering on our "Easy" brand promise to make buying office products easy for our customers in order to...

  • Page 77
    ...our expanded Contract sales force, more efficient targeted marketing spend among our catalogs, web sites and retail stores as well as the continued success of our customer acquisition and retention efforts resulting from improved service levels in our North American delivery businesses. Gross Profit...

  • Page 78
    ...598,907 $ 12,967,022 2005 % of Sales 8.6% 17.8% 8.7% 11.3% 2004 % of Sales 8.6% 13.4% 20.5% 11.4% 2003 % of Sales Business Unit Income 2005 (Amounts in thousands) 2004 2003 North American Retail...North American Delivery...International Operations ...Consolidated Staples ... $ 816,512 485,114...

  • Page 79
    ... our "Easy" brand promise, customer service and our Staples brand products, as we believe that these are key to our success. We expect that we will continue to expand our copy and print center business and enter new major markets as well as explore new growth ideas including selling office products...

  • Page 80
    ... successful in North America. Our business unit income also benefited from the positive impact of foreign exchange rates in 2004. 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...

  • Page 81
    ... Standards Board ("FASB") issued Statement No. 123 (revised 2004), "Share Based Payment" ("SFAS No. 123R"), which is a revision of Statement No. 123, "Accounting for StockBased Compensation" ("SFAS No. 123"). SFAS No. 123R supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees" and...

  • Page 82
    ...-term investments. During fiscal 2005, we also issued letters of credit in the ordinary course of business to satisfy certain vendor contracts. At January 28, 2006, we had $68.1 million of open letters of credit, which reduces the available amounts under our revolving credit facility. We finance...

  • Page 83
    ... of the base rate or the swing line rate. Under the Credit Facility, we pay a facility fee, payable quarterly, at rates that range from 0.090% to 0.250% depending on our credit rating and fixed charge coverage ratio, and when applicable, a utilization fee. Payments under the Credit Facility are...

  • Page 84
    ...establish a presence in eastern Europe and Denmark; our purchase of Officenet SA, a mail order and internet business operating in Brazil and Argentina, representing our entry in the South American market; and our investment in Staples China, a mail order and internet company in the People's Republic...

  • Page 85
    ..., thereby strengthening our credit profile. To use this excess cash to benefit our stockholders, in 2004 we implemented a $1.0 billion share repurchase program and paid an annual cash dividend. Under the repurchase program, we repurchased approximately $500 million of common stock during 2004 and...

  • Page 86
    ... 8 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPENDIX C Page Report of Independent Registered Public Accounting Firm...Consolidated Balance Sheets-January 28, 2006 and January 29, 2005 ...Consolidated Statements of Income-Fiscal years ended January 28, 2006, January 29, 2005 and January 31, 2004...

  • Page 87
    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 28, 2006 and January 29, 2005, and the related consolidated statements of income, ...

  • Page 88
    STAPLES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Dollar Amounts in Thousands, Except Share Data) January 28, 2006 January 29, 2005 ASSETS Current assets: Cash and cash equivalents ...Short-term investments ...Receivables, net...Merchandise inventories, net ...Deferred income tax asset ...

  • Page 89
    STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollar Amounts in Thousands, Except Share Data) January 28, 2006 Fiscal Year Ended January 29, 2005 January 31, 2004 Sales...Cost of goods sold and occupancy costs ...Gross profit ...Operating and other expenses: Operating and ...

  • Page 90
    ... of treasury shares...Balances at January 29, 2005 ...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 under Employee Stock Purchase Plan ...Issuance of Performance...

  • Page 91
    ...Proceeds from the exercise of stock options and the sale of stock under employee stock purchase plans...Proceeds from borrowings ...Payments on borrowings ...Repayments under receivables securitization agreement...Cash dividends paid ...Purchase of treasury stock, net ...Net cash (used in) provided...

  • Page 92
    ... products 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 the Company's Contract operations (Staples National Advantage and Staples...

  • Page 93
    ...of Significant Accounting Policies (Continued) Merchandise Inventories: Merchandise inventories are valued at the lower of weighted-average cost or market value. Private Label Credit Card: Staples offers a private label credit card which is managed by a financial services company. Under the terms of...

  • Page 94
    ... Pre-opening Costs: Pre-opening costs, which consist primarily of salaries, supplies, marketing and distribution costs, are expensed as incurred. Stock Option Plans: Staples accounts for its stock-based plans under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees...

  • Page 95
    ... the employees' purchase rights. Staples' pro forma information follows (in thousands, except for per share information): Fiscal Year Ended January 28, 2006 Fiscal Year Ended January 29, 2005 Fiscal Year Ended January 31, 2004 Net income as reported ...Add: Stock based compensation, net of related...

  • Page 96
    ... the administrative cost of tracking the actual related expenses, to determine whether the Company meets the restrictive conditions required by Issue 02-16, would exceed the benefit. To record the impact of including cooperative advertising and other performance based rebates in inventory at the...

  • Page 97
    ... of these accounting principles as of February 1, 2003 (in thousands, except per share data): As Reported 52 Weeks Ended January 28, 2006 January 29, 2005 January 31, 2004 Sales...Cost of goods sold and occupancy costs ...Gross profit ...Operating and other expenses: Operating and selling...

  • Page 98
    ... in the United Kingdom. In connection with this acquisition, Staples accrued approximately $17.2 million for merger-related and integration costs, reflecting costs associated with planned Office World store closures, a distribution center closure, severance and transaction related costs. As of...

  • Page 99
    ... are as follows (in thousands): January 28, 2006 January 29, 2005 Taxes ...Employee related ...Acquisition and store closure reserves ...Advertising and marketing ...Other...Total ...NOTE E Debt and Credit Agreements The major components of debt outstanding are as follows (in thousands): $ 318...

  • Page 100
    ... Agreement with a group of commercial banks to finance a portion of the purchase price of the European mail order businesses that the Company acquired in October 2002. The Term Loan was repaid in its entirety on May 2, 2003. Staples had $125.0 million available under lines of credit, which had an...

  • Page 101
    ... years 2005, 2004 and 2003, foreign currency losses, net of taxes of $11.5 million, $13.4 million and $23.1 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...

  • Page 102
    ... course of business through major financial institutions as required by certain vendor contracts. As of January 28, 2006, Staples had open letters of credit totaling $50.9 million. The Company is involved from time to time in litigation arising from the operation of its business. Various class...

  • Page 103
    ...29, 2005 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 on...

  • Page 104
    ... of the Company. Under both plans, participating employees may purchase shares of common stock at 85% of its fair market value at the beginning or end of an offering period, whichever is lower, through payroll deductions in an amount not to exceed 10% of an employee's annual base compensation. C-19

  • Page 105
    ... ten years after the grant date, subject to earlier termination in the event of employment termination. Stock Options Information with respect to stock options granted under the above plans is as follows: Number of Shares Weighted Average Exercise Price Per Share Outstanding at February 1, 2003...

  • Page 106
    ... Financial Statements (Continued) NOTE I Employee Benefit Plans (Continued) The following table summarizes information concerning currently outstanding and exercisable options for common stock: Options Outstanding Weighted Average Remaining Weighted Contractual Average Life (Years) Exercise Price...

  • Page 107
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) NOTE I Employee Benefit Plans (Continued) 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 ...

  • Page 108
    ... for fiscal years 2005, 2004 and 2003, 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 109
    ...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 110
    ... accounts and balances by reportable segment for fiscal years 2005, 2004 and 2003 (in thousands): Year Ended January 28, 2006 Year Ended January 29, 2005 Year Ended January 31, 2004 Sales: North American Retail...North American Delivery ...International Operations ...Consolidated ...Business Unit...

  • Page 111
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Continued) NOTE L Segment Reporting (Continued) January 28, 2006 January 29, 2005 Assets: North American Retail...North American Delivery...International Operations ...Total ...Elimination of intercompany receivables ......

  • Page 112
    ... LLC, Staples the Office Superstore East, Inc., Staples Contract & Commercial, Inc., and Staples the Office Superstore, Limited Partnership, all of which are wholly owned subsidiaries of Staples (the "Guarantor Subsidiaries"). The term of guarantees is equivalent to the term of the related debt. The...

  • Page 113
    ...071,448 $ Condensed Consolidating Statement of Income For the year ended January 28, 2006 (in thousands) Staples, Inc. (Parent Co.) Guarantor Subsidiaries NonGuarantor Subsidiaries Consolidated Sales...Cost of goods sold and occupancy costs ...Gross profit (loss) ...Operating and other expenses...

  • Page 114
    ... (Continued) Condensed Consolidating Statement of Income For the year ended January 29, 2005 (in thousands) Staples, Inc. (Parent Co.) Guarantor Subsidiaries NonGuarantor Subsidiaries Consolidated Sales...Cost of goods sold and occupancy costs ...Gross profit (loss) ...Operating and other expenses...

  • Page 115
    ...Acquisition of businesses, net of cash acquired ...Investment in joint venture ...Purchase of short-term investments...Proceeds from the sale of short-term investments...Cash used in investing activities ...Financing activities: Payments on borrowings ...Purchase of treasury shares ...Cash dividends...

  • Page 116
    ... ended January 29, 2005 (in thousands) Staples, Inc. (Parent Co.) Guarantor Subsidiaries NonGuarantor Subsidiaries Consolidated Net cash provided by operating activities ...Investing activities: Acquisition of property, equipment and lease rights ...Acquisition of businesses, net of cash acquired...

  • Page 117
    ... period include the results of acquisitions since their acquisition dates (see Note C). (2) All share and per share amounts reflect, or have been restated to reflect, the three-for-two common stock split that was effected in the form of a common stock dividend distributed on April 15, 2005. C-32

  • Page 118

  • Page 119

  • Page 120

  • Page 121

  • Page 122
    ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀G ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀ ฀฀ ฀ ฀฀ ฀ ฀ ฀ ฀ ฀ ฀ ...

  • Page 123
    ...500 Staples Drive Framingham, MA 01702 Telephone: 1- 508- 253- 5000 Internet address: www.staples.com The following table sets forth, for the periods indicated, the high and low sale prices per share of Staples, Inc. common stock on the NASDAQ National Market, as reported by NASDAQ. All sale prices...

  • Page 124
    Printed on recycled paper. sm