Staples 2007 Annual Report Download

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2007 Annual Report
Notice of Annual Meeting and Proxy Statement

Table of contents

  • Page 1
    2007 Annual Report Notice of Annual Meeting and Proxy Statement

  • Page 2
    ...from home-based businesses to Fortune 500 companies in 22 countries throughout North and South America, Europe and Asia. Headquartered outside of Boston, Staples operates more than 2,000 office superstores and also serves its customers through mail-order catalogs, e-commerce and contract businesses...

  • Page 3
    ...2005 and South Florida in 2006, Staples entered the Denver market in 2007. At the end of the year we operated 12 stores in Denver, and we are excited about our early success in this market. In 2008 we plan to open approximately 100 new stores in North America. While almost half of our stores feature...

  • Page 4
    ... industry leading profitability in both Fortune 1000 and mid-market customers. Customer retention requires great service, and in 2007 we opened new fulfillment centers in Denver and Nova Scotia to support rapid growth while improving our service metrics in our North American Delivery businesses...

  • Page 5
    ... the acquisition of Pei Pei, the largest office products retailer in the Jiangsu province, and also opened the first two Staples UPS Express stores which combine office supplies and document processing services from Staples with packaging and international shipping services from UPS. Staples ended...

  • Page 6
    Summary of Staples 2007 Corporate Responsibility Report Staples Soul moves us to operate our business with integrity and in an environmentally sustainable manner, to support the communities where we live and work, and to reflect the face of our customers and associates through our commitment to ...

  • Page 7
    ... related procedures to provide better oversight of the types of ethics concerns that are raised and how they are handled across the company. Transforming the way we manage information risks. Developed a new global Privacy and Information Management Program to secure customer, associate and business...

  • Page 8
    ... ethics and compliance program. ENVIRONMENT • • Move the majority of paper products offered for sale to FSC-certified paper by the end of 2010, based on availability of supply and market conditions. Launch new Web site functionality and catalog offerings in 2008 to make it easier for customers...

  • Page 9
    ... in Staples-supported community causes and giving. DIVERSITY Spread our culture of inclusion and enhance our commitment to diversity each time we grow through new store openings and acquisitions. Create opportunities to increase diversity awareness globally. Give qualified diverse office products...

  • Page 10
    ...to vote at the meeting or any adjournment thereof. The stock transfer books will remain open. By Order of the Board of Directors, 17APR200822553667 Kristin A. Campbell, Corporate Secretary Framingham, Massachusetts April 28, 2008 IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL MEETING...

  • Page 11
    ... statement reflecting your stock ownership in Staples as of the record date. You may obtain directions to the location of our 2008 Annual Meeting by writing, emailing or calling our Investor Relations department at 500 Staples Drive, Framingham, Massachusetts 01702, email: [email protected]...

  • Page 12
    ... complete, sign and return your proxy card, it will be voted as you direct. If no choice is specified on a signed proxy card, the persons named as proxies will vote (1) for the election of all director nominees (and any substitute nominees selected by our Board of Directors if any present nominees...

  • Page 13
    ... properly presented at the Annual Meeting, the proxy for the Annual Meeting confers upon the persons named in the proxy and designated to vote the shares discretionary authority to vote, or otherwise act, with respect to any such matter in accordance with their best judgment. Our Board of Directors...

  • Page 14
    ... may do at any time by following the procedures described at the website listed above. If you have questions about electronic delivery, please write, email or call our Investor Relations department at 500 Staples Drive, Framingham, Massachusetts 01702, email: [email protected], or telephone: (800...

  • Page 15
    ... outstanding shares of our common stock, (2) by each current director and nominee for director, (3) by each of the named executive officers listed in the Summary Compensation Table included elsewhere in this proxy statement, and (4) by all current directors and executive officers as a group: Number...

  • Page 16
    ... above. Fidelity International Limited (''FIL''), with offices at Pembroke Hall, 42 Crow Lane, Hamilton, Bermuda, and various foreign-based subsidiaries provide investment advisory and management services to a number of non-U.S. investment companies and certain institutional investors. FIL, which...

  • Page 17
    ... and management services company, since 1992. 2001 18APR200512031699 1993 18APR200512044836 Justin King, age 46 Chief Executive Officer and Chairman of the Operating Board of J. Sainsbury plc, a food retailer, since March 2004. Prior to that, Mr. King served as director of the Food business unit...

  • Page 18
    ...Inc., a retail store chain, from 1998 to 1999 and in other positions at the company from 1985 to 1998. Mr. Nakasone is also a director of Hormel Foods Corporation. Ronald L. Sargent, age 52 Chief Executive Officer of Staples since February 2002 and Chairman of the Board of Directors of Staples since...

  • Page 19
    ...was acquired by Fidelity National Information Services in September 2007. Mr. Walsh also has been the owner and Chief Executive Officer of PFW Management, LLC, a consulting company, since February 2008. 1990 18APR200512045777 OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH...

  • Page 20
    ... Awards will be expressed as a percentage of the actual base salary paid to the executive officer during that Plan Year. The percentages will be determined by the Compensation Committee based upon the executive officer's job level and responsibilities and may vary for different officers and business...

  • Page 21
    ... specific performance objectives for the payment of bonus awards for that Plan Year. The performance objectives for each Plan Year 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. These performance...

  • Page 22
    ... the potential impact to our equity program of our proposal to acquire all of the outstanding ordinary shares of Corporate Express, NV, a Dutch office products distributor with operations in North America, Europe, Australia and New Zealand and approximately 18,000 employees. If the amendment is not...

  • Page 23
    ...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 determine that special one-time or extraordinary gains or losses should or should not be...

  • Page 24
    ... the number or type of awards to be granted in the future to any particular person or group. On April 14, 2008, the last reported sale price of our common stock on the NASDAQ Global Select Market was $21.75 per share. Since the Equity Plan was adopted, Staples has granted the following options to...

  • Page 25
    ... by our Board and any applicable limitations contained in the Equity Plan, our Board selects the recipients of awards and determines (1) the number of shares of our common stock covered by options and the dates upon which such options become exercisable, (2) the exercise price of options (which may...

  • Page 26
    ...proxy statement. This summary assumes that all awards granted under the Equity Plan are exempt from, or comply with, the rules under Section 409A of the Code related to nonqualified deferred compensation. Changes to these laws could alter the tax consequences described below. Incentive Stock Options...

  • Page 27
    ... minimum tax. A participant will have income upon the sale of the stock acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price). The type of income will depend on when the participant sells the stock. If a participant sells the stock more than two years...

  • Page 28
    ... Annual Meeting if the proponent, or a qualified representative, is present at the meeting and submits the proposal for a vote. Following the shareholder proposal is our statement in opposition. We will provide promptly to stockholders the name, address and number of shares of our voting securities...

  • Page 29
    ...a matter cannot wait until the next Annual Meeting, our by-laws permit the president or our Board to call a special meeting. The current by-law provision is appropriate for a public company of our size because it requires the directors and senior management, rather than a single minority stockholder...

  • Page 30
    ... Chairman of the Board and Chief Executive Officer, (3) chairing the annual performance review of our Chief Executive Officer and (4) consulting with the Chairman of the Board and Chief Executive Officer on matters relating to corporate governance and Board performance. The Lead Director is elected...

  • Page 31
    ...family members is a partner of our independent registered public accounting firm or was a partner or employee of such firm who worked on our audit during the past three years. • None of our executive officers is on the compensation committee of the board of directors of a company that has employed...

  • Page 32
    ... three years, we have had business relationships involving the purchase or sale of products or services or leasing of real property with the following companies at which certain of our independent directors serve, or during 2007 served, as executive officers, partners or directors: AMB Group, LLC...

  • Page 33
    ... public accounting firm, management and our internal auditors. The members of the Audit Committee are independent directors, as defined by its charter and the rules of the Securities and Exchange Commission and NASDAQ Stock Market. The Audit Committee met four times in person and three times...

  • Page 34
    ... 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 qualification of a director is the ability to act effectively on behalf of...

  • Page 35
    ... options to purchase 4,500 shares of our common stock (subject to an annual limit of 22,500 shares) and 600 restricted shares of our common stock (subject to an annual limit of 3,000 shares). Within two business days after our Board's regularly scheduled meeting in December 2007, the Lead Director...

  • Page 36
    ... reporting purposes and then dividing that number by the closing price of our common stock on the date of grant. Stock options will have an exercise price equal to the fair market value of our common stock on the date of grant. Upon a change-in-control of Staples or upon a director leaving our Board...

  • Page 37
    ... end of our 2007 fiscal year. Fair Values and Outstanding Director Awards Number of Shares Awarded in FY 2007 Total Options and Unvested Shares as of 2007 FYE Name Grant Date Award Type Grant Date Fair Value ($) Basil L. Anderson ... Brenda C. Barnes^ ... 3/8/2007 6/13/2007 9/13/2007 12/13/2007...

  • Page 38
    Name Grant Date Award Type Number of Shares Awarded in FY 2007 Grant Date Fair Value ($) Total Options and Unvested Shares as of 2007 FYE Arthur M. Blank ... Mary Elizabeth Burton ... Gary L. Crittenden^ ...Justin King ... Carol Meyrowitz ...Rowland T. Moriarty ... Robert C. Nakasone ... ...

  • Page 39
    ... is available at our 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 Commission and NASDAQ Stock Market. The Audit...

  • Page 40
    ... aggregate of approximately $64,000 and $20,000 in fiscal years 2007 and 2006, respectively, for services related to assistance with internal control reporting, acquisition due diligence and employee benefit plan audits. Tax Fees Ernst & Young LLP billed us an aggregate of approximately $1.0 million...

  • Page 41
    ... issues. Our Code of Ethics provides the following guidelines for certain types of commercial relationships: • Executive officers must not work or consult for a company that is one of our vendors or customers, but may serve as a director of such company if (1) such company's annual sales to or...

  • Page 42
    ... Staples of our named executive officers is 13 years and by the below table showing how Staples' compounded annual growth rate in total stockholder return (share price increase plus annual dividends) has exceeded market performance over the past five years. Total Return to Shareholders (2003 - 2007...

  • Page 43
    ...next highest paid named executive officer, and the total annual targeted direct compensation for the Chief Executive Officer was slightly greater than two times that of the next highest paid named executive officer; • The market for executive talent continues to tighten and become more competitive...

  • Page 44
    ... officers. Enables total cash compensation to remain competitive within the marketplace for executive talent. • • • • • Long term equity incentives • Rewards the achievement of long term business objectives that benefit our stockholders. Retains a successful management team...

  • Page 45
    ...targeted annual total direct compensation for our 2007 fiscal year, with a focus on highlighting ''at risk'' compensation. The performance share component of the long term equity incentives and the bonus earned under our Executive Officer Incentive Plan are performance based plans and represent ''at...

  • Page 46
    ... Performance Shares Stock Options 4APR200813231519 * Each of the compensation elements is expressed as a percentage of targeted total direct compensation, which is comprised of year ending base salary, annual target bonus under our Executive Officer Incentive Plan, the value of stock options at...

  • Page 47
    ... payment of bonus awards for that plan year. Under the Executive Officer Incentive Plan, the performance objectives for each plan year are 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...

  • Page 48
    ..., the Compensation Committee believes that Staples performed well against high goals in a difficult economic and business environment. 2007 Executive Officer Incentive Plan - Actual Performance % of target Total Company EPS 30% Weight Maximum RONA 30% Weight Sales 20% Weight Customer Service 20...

  • Page 49
    ... Internal Revenue Code. Beginning with the 2007 annual equity awards to all associates, including the named executive officers, the Compensation Committee changed its equity grant practice from awarding a fixed number of shares to a fixed value of shares to each associate based on salary grade level...

  • Page 50
    ... Award to CEO In March 2007, we awarded a retention grant to our Chief Executive Officer under our Amended and Restated 2004 Stock Incentive Plan. The terms and conditions of Mr. Sargent's grant, including the applicable performance objectives described below, were determined by the Compensation...

  • Page 51
    reward the achievement of long term business objectives and to help us retain a successful and tenured management team. In deciding to award this retention grant to Mr. Sargent, our Board considered the following additional factors: • During Mr. Sargent's term as Chief Executive Officer, our stock...

  • Page 52
    ...tax a recipient must pay on the reimbursement. The Compensation Committee annually reviews the amounts paid under this policy for compliance. The Compensation Committee's Processes The Compensation Committee has established a number of processes to help ensure that our executive compensation program...

  • Page 53
    ...of each year, the Compensation Committee reviews compensation for our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer relative to marketplace norms and practices by comparing current proxy statement data. The compensation of our other named executive officers is reviewed...

  • Page 54
    ... general industry companies with annual revenues of between $15 and $30 billion. In terms of total cash compensation, the fact that this amount approximated the median for both the Chief Executive Officer and Chief Financial Officer was generally to be expected given our compensation program design...

  • Page 55
    ... reviews all components of compensation for our Chief Executive Officer and the other named executive officers, including salary, bonus, current value of all stock options and restricted shares outstanding, the dollar value and cost to us of all perquisites and benefits and the projected payout...

  • Page 56
    ...'s next quarterly meeting. All of the awards from the annual pool that were granted by the Chairman and Chief Executive Officer in 2007 were subsequently ratified by the Compensation Committee. Related Policies and Considerations Employment, Termination of Employment and Change-In-Control Agreements...

  • Page 57
    ... compensation programs that support attraction and retention of key executives. Cash bonuses paid under the Executive Officer Incentive Plan for our 2003 through 2007 fiscal years, which was approved by stockholders at our 2003 Annual Meeting, stock options awarded under our stock option plans...

  • Page 58
    ...Officer, our Chief Financial Officer and the three other most highly compensated executive officers of Staples at the end of our 2007 fiscal year, who we refer to collectively as the ''named executive officers.'' Stock Awards ($) (1)(3) Option Awards ($) (2)(3) Non-Equity Incentive Plan Compensation...

  • Page 59
    ... program. The table below sets forth the dollar amounts that we paid for each applicable item listed above. All Other Compensation Dividend Equivalents Executive Life Insurance LongTerm Disability LongTerm Care Split Dollar Tax Services Name Year 401(k) SERP Physical Ronald L. Sargent ...2007...

  • Page 60
    ... sets forth summary information regarding grants of plan-based awards made to the named executive officers for our 2007 fiscal year. All Other Stock Awards: Estimated Possible Payouts Estimated Future Payouts Number Under Non-Equity Incentive Under Equity Incentive of Shares Plan Awards* Plan Awards...

  • Page 61
    ...of the named executive officers as of the end of our 2007 fiscal year. Option Awards Stock Awards Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (4) 2,324,560 6,730,313 2,972,106 Name Ronald L. Sargent ... Number of Securities...

  • Page 62
    Option Awards Stock Awards Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) (4) 1,061,104 1,356,831 Name John J. Mahoney ... Number of Securities Underlying Unexercised Options (#) Exercisable 0 57,712 75,000 112,500 150,000 ...

  • Page 63
    ... price and the fair market value of our common stock on the date of exercise. (2) Represents the fair market value of the stock award on the date of vesting. NONQUALIFIED DEFERRED COMPENSATION FOR 2007 FISCAL YEAR The following table sets forth summary information with respect to each of the named...

  • Page 64
    ... determined at the time of an actual termination of employment and would vary from those listed below. The estimated amounts listed below are in addition to any retirement, welfare and other benefits that are available to associates generally. Fiscal 2007 Termination and Change-in-Control Scenarios...

  • Page 65
    ... vesting of equity compensation listed in the table above represents unvested restricted stock and stock option awards and unearned shares covered by performance share awards held by Mr. Mahoney. The named executive officer's benefits under our Supplemental Executive Retirement Plan (SERP), which...

  • Page 66
    ... by us and the named executive officer and any investment gains, generally will be paid in accordance with the plan provisions and any predefined distribution schedule based on the requirements of Section 409A of the Internal Revenue Code. The continuation of benefits listed in the tables above...

  • Page 67
    ... of equity compensation listed in the tables above represent unvested restricted stock and stock option awards held by the named executive officers and the unearned shares covered by their performance share awards. The named executive officer may exercise any vested options within three years of the...

  • Page 68
    ... of Plan-Based Awards for 2007 Fiscal Year table earlier in this proxy statement. The values of accelerated vesting of equity compensation listed in the tables above represent unvested restricted stock and stock option awards held by the named executive officers and the unearned shares covered by...

  • Page 69
    ... to save money and purchase shares of our common stock at a discounted price. We filed the UK Savings Plan with the Securities and Exchange Commission as an exhibit to our Annual Report on Form 10-K for the fiscal year ended February 1, 2003. Each associate, including an officer or director who...

  • Page 70
    ... have outstanding awards under the UK Savings Plan. 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 our common stock...

  • Page 71
    ... DC 20549. If you would like to receive a copy of our Annual Report on Form 10-K for our 2007 fiscal year, or any of the exhibits listed therein, please call or submit a request in writing to Investor Relations, Staples, Inc., 500 Staples Drive, Framingham, MA 01702, telephone (800) 468-7751, and we...

  • Page 72
    ...pre-established company financial objectives. Bonus awards are intended to provide a reward to Plan Participants and supplement the base salary program. II. Term of Plan The Incentive Plan will cover five fiscal years, beginning with the 2008 fiscal year (beginning February 3, 2008) and ending with...

  • Page 73
    ... specific performance objectives for the payment of bonus awards for that Plan Year. The performance objectives for each Plan Year 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. These performance...

  • Page 74
    ... Awards will be expressed as a percentage of the actual base salary paid to the Plan Participant during the Plan Year. The percentages will be determined by the Committee based on the Plan Participant's job level and responsibilities and may vary for different officers or business units. At the end...

  • Page 75
    ...based on the last sale price of Staples' common stock on August 3, 2007, as reported by NASDAQ, was approximately $16.5 billion. In determining the market value of non-affiliate voting stock, shares of Staples' common stock beneficially owned by each executive officer and director have been excluded...

  • Page 76
    ... low prices, a broad selection of products, high quality and innovative Staples brand products, convenient store locations, easy to use web sites, reliable and fast order delivery, and excellent customer service. Our strategy is to maintain our leadership in the office products industry through...

  • Page 77
    ... retail or mail order business. Through our Contract sales force, we offer customized pricing and payment terms, usage reporting, the stocking of certain proprietary items, and full service account management. Our strategies for North American Delivery focus on customer service, customer acquisition...

  • Page 78
    ... China supports our own brand strategy by ensuring high quality and timely delivery, driving lower costs, and bringing new products to market more quickly. We also offer an array of services, including high-speed, color and self-service copying, other printing services, faxing and pack and ship. The...

  • Page 79
    ... of our retail copy and print business, we began to leverage our sales force and delivery network to offer copy services to our Contract customers. We operate seven dedicated copy facilities to service the copy and print needs of corporate accounts, and we plan to open more Contract copy facilities...

  • Page 80
    ... customer touch points, including our signage, television commercials, product placement on national television programs, catalogs, web sites, circulars, direct marketing, and store uniforms. Our retail, catalog and Staples.com marketing efforts generally focus on small businesses and home offices...

  • Page 81
    ... on the business customer and home office; our tenured management team's ability to respond to the dynamic markets in which we operate and the changing needs of our customers; courteous, helpful and knowledgeable associates focused on making it easy for customers to buy office products and services...

  • Page 82
    ... income, comparable store sales, earnings and earnings per share, inventory turns, operating margin and own brand product sales; • expected future cash needs and credit profile; • payment of cash dividends and share repurchases; • the projected number, timing and cost of new store openings; 8

  • Page 83
    ... and print businesses such as FedEx Kinko's, ink cartridge specialty stores, and other discount retailers. Our retail stores and delivery operations also compete with numerous mail order firms, contract stationer businesses, electronic commerce distributors, regional and local dealers, and direct...

  • Page 84
    ... part of our business plan is to increase our number of stores and enter new geographic markets. We currently plan to open approximately 115 new stores in North America, Europe and Asia during the 2008 fiscal year. For our growth strategy to be successful, we must identify favorable store sites...

  • Page 85
    ... offering includes Staples, Quill and other proprietary branded products, which together represented approximately 22% of our total sales in fiscal 2007. Our proprietary branded products compete with other manufacturers' branded items that we offer. As we continue to increase the number and types...

  • Page 86
    ... operations. Our information security may be compromised. Through our sales and marketing activities, we collect and store certain personal information that our customers provide to purchase products or services, enroll in promotional programs, register on our website, or otherwise communicate and...

  • Page 87
    ... in Germany and in The Netherlands, Portugal, Belgium and China. As of that same date, we also operated 63 distribution and fulfillment centers in 21 states in the United States, 5 provinces in Canada, 2 regions in the United Kingdom, 2 regions in France, and in Austria, Belgium, Denmark, Germany...

  • Page 88
    ...leased by us with initial lease terms expiring on dates between 2008 and 2027. In most instances, we have renewal options at increased rents. Leases for 187 of the existing stores provide for contingent rent based upon sales. Our Framingham, Massachusetts corporate office is owned by us and consists...

  • Page 89
    ... retain earnings for use in the operation and expansion of our business, in 2004 we decided to return cash to our stockholders by initiating a cash dividend. During our two most recent fiscal years, we paid an annual cash dividend of $0.22 per share of our outstanding common stock on April 20, 2006...

  • Page 90
    ... 2007 fiscal year to satisfy minimum statutory tax withholding obligations in connection with the vesting of restricted stock awards granted pursuant to our equity incentive plans. (2) Average price paid per share includes commissions paid in connection with our publicly announced share repurchase...

  • Page 91
    ... stock market opening on July 9, 2007. The June 2007 share repurchase program has no expiration date. Other Information For information regarding securities authorized for issuance under our equity compensation plans, please see Note H in the Notes to the Consolidated Financial Statements contained...

  • Page 92
    ... acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Staples' internal control system was designed to provide reasonable assurance to the Company's management and Board of Directors regarding the preparation and fair presentation...

  • Page 93
    ... related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended February 2, 2008 of Staples, Inc. and our report dated March 3, 2008 expressed an unqualified opinion thereon. /s/ Ernst & Young Ernst & Young Boston, Massachusetts March...

  • Page 94
    ... 2008 Annual Meeting of Stockholders (the ''Proxy Statement''), which we will file with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Report. Item 10. Directors, Executive Officers and Corporate Governance Certain information required...

  • Page 95
    ...Flows-Fiscal years ended February 2, 2008, February 3, 2007, and January 28, 2006. • 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...

  • Page 96
    ...on March 3, 2008. STAPLES, INC. By: /s/ RONALD L. SARGENT Ronald L. Sargent, Chairman of the Board 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...

  • Page 97
    ... F. Walsh Director March 2, 2008 /s/ JOHN J. MAHONEY John J. Mahoney Vice Chairman and Chief Financial Officer (Principal Financial Officer) March 3, 2008 /s/ CHRISTINE T. KOMOLA Christine T. Komola Senior Vice President and Corporate Controller (Principal Accounting Officer) March 3, 2008...

  • Page 98
    ...''Accounting by a Customer (Including a Reseller) for Certain Consideration Received from a Vendor''. The Company's fiscal year is the 52 or 53 weeks ending the Saturday closest to January 31. Results of operations include the results of acquired businesses since the relevant acquisition date. A-1

  • Page 99
    ... of the 53rd week. • We opened 120 new stores in North America and 7 new stores in Europe, and added 32 new stores in China. We also entered India, opening our first store under a joint venture agreement with Future Group. We now operate 2,038 stores worldwide. • Operating cash flow increased...

  • Page 100
    ... Operations (Continued) office products easy for our customers in order to differentiate us from our competitors. Our commitment to customer service, focus on higher margin Staples brand products, strong results in our copy and print center business, the continued success of our customer acquisition...

  • Page 101
    ... customers, and includes Staples Business Delivery, Quill, and Contract. 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 in 20 countries in Europe, Asia and South America...

  • Page 102
    ... 53rd week in 2006, partially offset by decreased variable compensation, an increase in product margin rate, including increased sales in higher margin categories such as Staples brand products and copy and print services, as well as our focus on expense control. The increase in business unit income...

  • Page 103
    ... delivery businesses through our customer acquisition, product penetration, and customer retention initiatives. We plan to focus on continuing to drive profit improvements through our supply chain programs, service improvements and our own brand initiatives. International Operations: Sales increased...

  • Page 104
    ...a store level for retail operations and an operating unit level for our other operations. If actual market conditions are less favorable than management's projections, future write-offs may be necessary. Impairment of Goodwill and Indefinite Lived Intangible Assets: Statement of Financial Accounting...

  • Page 105
    ... debt agreement. In connection with our annual cash dividend, we paid shareholders $207.6 million in 2007, $160.9 million in 2006, and $123.4 million in 2005. To repurchase shares of our common stock under our share repurchase program, we paid $750.0 million in 2007, $749.9 million in 2006, and $649...

  • Page 106
    ... the majority of our stores and certain equipment with operating leases. As of February 2, 2008, the balances available under credit agreements, debt outstanding and principal payments due on our outstanding debt, operating lease obligations and purchase obligations are presented below (amounts in...

  • Page 107
    ... share repurchase program. We currently plan to spend approximately $500 million to $550 million on capital expenditures during fiscal 2008 related to new store openings and continued investments in information systems and distribution centers to improve operational efficiencies and customer service...

  • Page 108
    ...million additional pre-tax charge or credit to our statement of operations. As more fully described in Note E in the Notes to the Consolidated Financial Statements, we are exposed to foreign exchange risks through subsidiaries or investments in Canada, Europe, Asia and South America. We have entered...

  • Page 109
    ...8 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS APPENDIX C Page Report of Independent Registered Public Accounting Firm ...Consolidated Balance Sheets-February 2, 2008 and February 3, 2007 ...Consolidated Statements of Income-Fiscal years ended February 2, 2008, February 3, 2007 and January 28, 2006...

  • Page 110
    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 February 2, 2008 and February 3, 2007, and the related consolidated statements of income, ...

  • Page 111
    ..., Except Share Data) February 2, 2008 February 3, 2007 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 112
    STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollar Amounts in Thousands, Except Share Data) Fiscal Year Ended February 3, 2007 February 2, 2008 January 28, 2006 Sales ...Cost of goods sold and occupancy costs ...Gross profit ...Operating and other expenses: Operating and ...

  • Page 113
    ...Issuance of common stock for stock options exercised ...Tax benefit on exercise of options ...Stock-based compensation ...Sale of common stock under Employee Stock Purchase Plan . . Stock split and cash paid in lieu of fractional shares ...Net income for the year ...Common stock dividend ...Foreign...

  • Page 114
    ... ...Financing activities: Proceeds from the exercise of stock options and the sale of stock under stock purchase plans ...Proceeds from borrowings ...Payments on borrowings ...Cash dividends paid ...Excess tax benefits from stock-based compensation arrangements ...Purchase of treasury stock, net...

  • Page 115
    ... customers, and includes Staples Business Delivery, Quill and Contract. 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 in 20 countries in Europe, Asia and South America...

  • Page 116
    ... goodwill during the year ended February 2, 2008 are as follows (in thousands): Goodwill At February 3, 2007 2007 Net Additions 2007 Foreign Exchange Fluctuations Goodwill At February 2, 2008 North American Retail ...North American Delivery ...International Operations ...Consolidated ... $ 36,306...

  • Page 117
    ... Financial Statements (Continued) NOTE A Summary of Significant Accounting Policies (Continued) 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. The Company offers its customers various...

  • Page 118
    ... tax positions related to acquired businesses. SFAS No. 141(R) is effective for all business combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not permitted. The Company will adopt this statement as of February 1, 2009. Management...

  • Page 119
    ... trade names and customer related intangible assets that will be amortized over a weighted average life of 8.1 years. NOTE C Accrued Expenses and Other Current Liabilities The major components of accrued liabilities are as follows (in thousands): February 2, 2008 February 3, 2007 Taxes ...Employee...

  • Page 120
    ... due in August 2007. On August 15, 2007, the Company repaid the $200.0 million Senior Notes and paid $83.3 million to settle foreign currency swaps that matured on that date. The swaps that matured on August 15, 2007 were designated as a foreign currency hedge on Staples net investment in Canadian...

  • Page 121
    ...as specified in the applicable competitive bid. Swing line loans bear interest that is the lesser of the base rate or the swing line rate as quoted by the administrative agent under the terms of the Credit Agreement. Under the Credit Agreement, Staples agrees to pay a facility fee, payable quarterly...

  • Page 122
    ... fiscal years 2007, 2006 and 2005, foreign currency gains (losses), net of taxes of $24.6 million, $5.6 million and $(11.5) million, respectively, were recorded in the cumulative translation adjustment line. NOTE F Commitments and Contingencies Staples leases certain retail and support facilities...

  • Page 123
    ... (in thousands): February 2, 2008 February 3, 2007 Deferred tax assets: Deferred rent ...Foreign tax credit carryforwards ...Net operating loss carryforwards ...Insurance ...Employee benefits ...Merger related and store closure charges Inventory ...Unrealized loss on hedge instruments ...Deferred...

  • Page 124
    ... tax rate in any year is impacted by the geographic mix of earnings. The tax impact of the unrealized gain or loss on instruments designated as hedges of net investments in foreign subsidiaries is reported in the cumulative translation adjustment line in stockholders' equity. The Company operates...

  • Page 125
    ...Except as disclosed above, options outstanding under these plans have an exercise price equal to the fair market value of the common stock on the date of grant. Options outstanding are exercisable at various percentages of the total shares subject to the option starting one year after the grant. All...

  • Page 126
    STAPLES, INC. AND SUBSIDIARIES Notes To Consolidated Financial Statements (Continued) NOTE H Employee Benefit Plans (Continued) 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 Aggregate ...

  • Page 127
    ...the end of five years. Such vesting date was subject to acceleration if Staples achieved certain compound annual earnings per share growth over a certain number of interim years. No PARS were outstanding as of February 2, 2008. PARS issued in fiscal year 2005 had a weighted-average fair market value...

  • Page 128
    ... share for fiscal 2007, 2006 and 2005, respectively. NOTE K Segment Reporting Staples has three reportable segments: North American Retail, North American Delivery and International Operations. Staples' North American Retail segment consists of the U.S and Canadian business units that operate office...

  • Page 129
    ...Segment Reporting (Continued) 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 Contract. The International Operations segment...

  • Page 130
    ...minority interest ... February 2, 2008 February 3, 2007 January 28, 2006 Assets: North American Retail ...North American Delivery ...International Operations ...Total ...Elimination of net intercompany receivables ...Total consolidated assets ...Geographic Information: $3,554,465 2,521,384 2,973...

  • Page 131
    STAPLES, INC. AND SUBSIDIARIES Notes To Consolidated Financial Statements (Continued) NOTE L Guarantor Subsidiaries (Continued) Investments in subsidiaries are accounted for by the Parent Company on the equity method for purposes of the supplemental consolidating presentation. Earnings of ...

  • Page 132
    ... Statement of Income For the year ended February 3, 2007 (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 ...Income (loss) before income taxes...

  • Page 133
    ...year ended February 2, 2008 (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 and investments...

  • Page 134
    ...year ended February 3, 2007 (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 and investments...

  • Page 135
    ... year ended January 28, 2006 (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 and investment...

  • Page 136
    ...14 weeks. NOTE N Subsequent Event (Unaudited) On February 19, 2008, the Company announced that it had made a proposal to Corporate Express NV (NYSE: CXP), a Dutch office products distributor with operations in North America, Europe, Australia and New Zealand, to acquire all of the outstanding shares...

  • Page 137
    ... account information related to operations is as follows (in thousands): Balance at Beginning of Period Additions Charged to Expense Additions from Acquisition Deductions- Write-offs, Payments and Other Adjustments Balance at End of Period Fiscal year ended: January 28, 2006 ...February 3, 2007...

  • Page 138
    ...'s Form 10-K for the fiscal year ended January 29, 2005. - Executive Officer Incentive Plan. Filed as Exhibit 10.4 to the Company's Form 10-K for the fiscal year ended February 1, 2003. - Non-Management Director Compensation Summary. Filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter...

  • Page 139
    ... - Amended and Restated 1990 Director Stock Option Plan, as amended. 10.23*^ - 1997 United Kingdom Company Share Option Scheme. Filed as Exhibit 10.3 to the Company's Form 10-K for the fiscal year ended January 31, 1998. 10.24*^ - 1997 UK Savings Related Share Option Scheme. Filed as Exhibit 10.5 to...

  • Page 140
    ... and Support Services John J. Mahoney Vice Chairman and Chief Financial Officer Steven F. Mastrogiacomo Senior Vice President, Merchandise Planning and Inventory Management Steven E. Matyas President, Staples Business Depot - Canada Carole E. McFarland Senior Vice President, Advertising Mark...

  • Page 141
    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 BNY Mellon Shareowner Services is the Transfer Agent and Registrar for Staples, Inc. common stock and maintains ...

  • Page 142
    ® Staples, Inc., 500 Staples Drive, Framingham, MA 01702 508-253-5000 | www.staples.com Printed on recycled paper. This report was printed on paper made from recycled post-consumer content. The carbon emissions associated with its production have been offset through the purchase of renewable ...