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Notice of Annual Meeting and Proxy Statement
2012 Annual Report
Every product your business needs to succeed.

Table of contents

  • Page 1
    Every product your business needs to succeed. 2012 Annual Report Notice of Annual Meeting and Proxy Statement

  • Page 2
    ...breakroom supplies, furniture, copy & print services and a wide range of other product categories. With thousands of associates worldwide dedicated to making it easy for businesses of all sizes, Staples operates throughout North and South America, Europe, Asia, Australia and New Zealand. The company...

  • Page 3
    ... months ago, we combined our North American Retail segment and Staples.com to reorganize around our customers and create a seamless experience that will allow them to shop how and when they want. Fourth, we're accelerating the growth of product-related services. Copy & Print and Technology Services...

  • Page 4
    ... more than 10 million business customers who trust the Staples brand. We have significant buying power and decades of product expertise, including our Staples brand offering. We have world-class delivery capabilities that provide next-day delivery to 98 percent of North America, an expansive retail...

  • Page 5
    ..., corporate charitable giving programs, in-kind donations and cause marketing efforts. Launched the 2 Million & Change program which enabled associates globally to direct more than $2.1 million to 470 organizations they personally care about and support. Led three successful school supply drives in...

  • Page 6
    ... community in several ways. In Australia, Staples partnered with Indigenousowned businesses and offered diversity products to corporate and government customers. Our Diverse Mentorship Program, now in its third year of existence, promotes professional and business development among diverse business...

  • Page 7
    ... product line²Sustainable Earth Brand²was launched across Europe and in Australia in 2012. In North America, we recycled nearly 75 million ink and toner cartridges, and more than 19 million pounds of technology waste, for our customers. In 2012, Staples Advantage and Staples Business Delivery...

  • Page 8
    ... Fortune 500 companies and #6 in the U.S. (as of January 2013). In 2012, Selected as EPA ENERGY STAR® Partner of the Year for Energy Management for second year in a row. Selected as finalist for the 2012 Platts Global Energy Awards, in the Corporate Social Responsibility category. Staples Australia...

  • Page 9
    ... the close of business on April 8, 2013 will be entitled to notice of and to vote at the meeting or any adjournment or postponement thereof. By Order of the Board of Directors, Michael T. Williams Framingham, Massachusetts April 12, 2013 IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE ANNUAL...

  • Page 10
    ... viewing, printing and downloading at www.proxyvote.com. You may request a copy of the materials relating to our annual meeting, including the proxy statement, form of proxy for our 2013 Annual Meeting and the 2012 Annual Report, at www.proxyvote.com, or by sending an email to our Investor Relations...

  • Page 11
    location of our 2013 Annual Meeting by writing, emailing or calling our Investor Relations department at 500 Staples Drive, Framingham, Massachusetts 01702, email: [email protected], or telephone: (800) 468-7751. What constitutes a quorum? The presence at the meeting, in person or by proxy, of a ...

  • Page 12
    ... who intend to present proposals at our 2014 Annual Meeting and want us to include such proposals in our proxy materials relating to that meeting should contact our Corporate Secretary. Such proposals must be received at our principal corporate offices at 500 Staples Drive, Framingham, Massachusetts...

  • Page 13
    ...staples.com, or telephone: (800) 468-7751. Securities and Exchange Commission Filings We file annual, quarterly and current reports, as well as other information with the Securities and Exchange Commission ("SEC"). You may read and copy any document that we file with the SEC at its Internet website...

  • Page 14
    ... 8, 2013 by (1) each current director and nominee for director; (2) each of the named executive officers listed in the Summary Compensation Table included elsewhere in this proxy statement; and (3) by all current directors and executive officers as a group: Number of shares acquirable within 60 days...

  • Page 15
    ... to a number of important policies relating to ethics, community, the environment and diversity. Corporate Governance Outreach Program We have been conducting a formal corporate governance outreach program for many years. In the fall, we solicit feedback from our institutional investors, labor...

  • Page 16
    ..., Staples created a new role of Chief Culture Officer in 2012. This individual is tasked to drive improved associate engagement and to coordinate Staples' approach to corporate responsibility. The person will also champion our approach to ethics, environmental sustainability, community relations...

  • Page 17
    ... worth at least five times his annual salary. ‡ Other Features ‡ Social Accountability. Staples remains committed to responsible corporate conduct. Through our Code of Ethics and ongoing communications and training programs, we make it easy for associates around the world to understand what they...

  • Page 18
    ...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 any of the independent directors, our new nominee or their family members during the...

  • Page 19
    ... year 2012, although we did not have any "related party transactions," we did provide office supply products or related services, such as copying, branding of promotional products or technology services, to companies or organizations affiliated with our directors, our new nominee and our executive...

  • Page 20
    ...committee meeting materials with management in advance of each Board committee meeting. Each of our standing Board committees operates under a written charter adopted by our Board, a copy of which is available at www.staples.com in the Corporate Governance section of the Investor Information webpage...

  • Page 21
    ... risk management strategy and for developing policies, controls, processes and procedures to identify and manage risks. Our Enterprise Risk Committee is composed of leaders from the functional areas of Staples and meets quarterly to coordinate information sharing and mitigation efforts for all types...

  • Page 22
    ... an annual review and risk assessment of the Company's compensation policies and practices for all associates and a risk assessment in connection with any changes to our compensation program. In addition, the Board and the Audit Committee receive presentations throughout the year from management...

  • Page 23
    ... to availability, as such representative of the independent directors. Stockholders who wish to send communications on any topic to our Board should address such communications to The Board of Directors, c/o Corporate Secretary, Staples, Inc., 500 Staples Drive, Framingham, Massachusetts 01702. 14

  • Page 24
    ... in our Corporate Governance Guidelines. These criteria include diversity, age and skills such as understanding of the office products market, the retail industry, finance, accounting, marketing, technology, risk management, international business and other operational and business knowledge needed...

  • Page 25
    ..., as Managing Director of Häagen Dazs UK and having spent much of his early career with Mars Confectionery and Pepsi International. He also served on the Prime Minister's Business Advisory Group from November 2010 to December 2012. Mr. King brings to the Board both strategic sales and marketing...

  • Page 26
    ... company to Fidelity National Information Services in 2007. Among many qualifications, Mr. Nakasone brings to the Board extensive executive level public company experience, international business development expertise, as well as strategic planning and skills relating to compensation and corporate...

  • Page 27
    ... brings to the Board deep experience in strategy, marketing and sales, as well as significant experience in corporate finance and financial reporting developed in her executive level roles where her responsibilities have included direct financial oversight of multinational companies with multiple...

  • Page 28
    .... Sulentic has been a member of the CBRE Board since December 2012. He previously served as President of the company's Development Services business from December 2006 to April 2011. Mr. Sulentic previously served as Chief Financial Officer of CBRE from March 2009 and Group President from July 2009...

  • Page 29
    ...-sized companies in our general industry. The Compensation Committee annually reviews an extensive analysis of marketplace practices for Outside Director pay conducted by management and reviewed by the Compensation Committee's independent advisor. Consistent with our equity program for associates...

  • Page 30
    ...Mr. Sargent, our CEO, who does not receive compensation for his services as director and whose compensation as a named executive officer is reported in the Summary Compensation Table included in this proxy statement. (1) The amounts shown in the Stock Awards column represent the aggregate grant date...

  • Page 31
    ... directors during our 2012 fiscal year and (2) the total number of stock options, unvested restricted shares and outstanding restricted stock units held by our directors as of February 2, 2013, the end of our 2012 fiscal year. Number of Shares/Units Awarded in FY 2012 Name Grant Date Award Type...

  • Page 32
    ... "at risk" pay. Staples is the world's largest office products company and second largest internet retailer. We operate a highly complex, multi-channel business and we currently serve businesses of all sizes and consumers in 26 countries. In September 2012, Staples announced a strategic plan to...

  • Page 33
    ... the following changes to our 2013 executive compensation program: ‡ To support our growth strategy, our annual cash bonus plan performance metrics will be 50% earnings per share (EPS) and 50% sales. The sales component is weighted 25% total company sales and 25% sales beyond office supplies. For...

  • Page 34
    ... stock 2013 Compensation Program ‡ long term incentive is 100% performance-based ‡ annual grants of stock options eliminated ‡ annual grants of time vested restricted stock eliminated ‡ annual cash bonus awards: EPS, total company sales and sales beyond office supplies ‡ new performance shares...

  • Page 35
    ... price at exercise must exceed the original fair market value grant price in order to provide any value to the executive. CEO pay decreased substantially in 2012. Total CEO compensation for 2012 as reported in our summary compensation table decreased 27% from 2011. This decrease is due to lower...

  • Page 36
    ... and the value of stock options awarded over the relevant period as determined by subtracting the grant price from the closing price of $11.52 on October 31, 2012. (2) Includes the impact of special equity awards. Our executive compensation program is aligned with long term performance. As part of...

  • Page 37
    ..., in connection with our 2011 fourth quarter and year-end earnings press release, we issued guidance for 2012 that EPS was expected "to increase in the high single-digits versus adjusted diluted earnings per share of $1.37 achieved in 2011" and that we expected "full year sales to increase in the...

  • Page 38
    ... relatively high pay and poor results yielding relatively low pay. Salaries and incentives are targeted to median of our peer group. Pay Mix The table below summarizes the core elements of our 2012 compensation program for our NEOs. Base Salary Principal Contributions to Compensation Objectives...

  • Page 39
    ... 2012 performance. The table below sets forth the target award and payout for our 2012 fiscal year under the Executive Officer Incentive Plan. Threshold and maximum levels are disclosed in the "Grants of Plan-Based Awards for 2012 Fiscal Year" table in this proxy statement. NEO Ronald L. Sargent...

  • Page 40
    Changes to the 2013 Performance-Based Annual Cash Bonus Beginning in fiscal 2013, the performance objectives will be EPS (50%), total company sales (25%) and sales beyond office supplies (25%). The metrics are directly linked to our strategy for growing sales, particularly beyond our core categories...

  • Page 41
    ... % of Target Changes to the 2013 Long Term Incentives Beginning in fiscal 2013, for our executives, long term cash awards, and annual grants of time based restricted shares and stock options will be replaced entirely with performance shares. The performance shares will be granted with a three year...

  • Page 42
    ... for tax planning services for senior officers. Most recently, the Committee adopted a policy prohibiting gross up payments to cover taxes triggered by a change in control in any future compensation, severance, or employment-related agreement. Aircraft Policy. Under our aircraft policy, our CEO is...

  • Page 43
    ... was intended to inform the Committee as to whether any changes to the executive compensation program were needed. The Committee evaluated, relative to the 2011 and three year (2009-2011, CEO, CFO and Chief Operating Officer ("COO") only) proxy statement data for the peer group, the competitiveness...

  • Page 44
    ... Summary. The table below reflects our findings, relative to our peers, of how our CEO, CFO, and NAC and NAS&O Presidents' base salary, total cash compensation, realizable TDC and TDC as reported in our proxy statement compared, over the 2011 period, to total shareholder return, EPS growth, revenue...

  • Page 45
    ...TDC is the sum of base salary, annual cash bonus paid and the realizable value of equity, which is the sum of the market value on October 31, 2012 (the date of the analysis) of restricted stock grants awarded during the period and the value of stock options awarded during the period as determined by...

  • Page 46
    ... fiscal 2013 grant. The annual pool is designed to be used between quarterly Committee meetings to facilitate making new hire and retention grants and to reward special accomplishments and achievements of associates. Awards from the annual pool are granted on the earlier of the first business day of...

  • Page 47
    ... no other services for the Company Our significant policies are located in the Corporate Governance section of our website, www.staples.com. Tax and Accounting Implications Under Section 162(m) of the Internal Revenue Code, certain executive compensation in excess of $1 million paid to our CEO and...

  • Page 48
    ...maintaining compensation programs that support attraction and retention of key executives. All annual cash bonus awards, long term cash awards, stock options and performance shares awarded to our NEOs are paid pursuant to plans approved by our stockholders and are potentially deductible for us. Time...

  • Page 49
    SUMMARY COMPENSATION TABLE The following table sets forth, at the end of our 2012 fiscal year, certain information concerning the compensation of our CEO, CFO, and the three other most highly compensated executive officers, as well as our former CFO, who we refer to collectively as the "named ...

  • Page 50
    ... 6, 2012. (7) Effective February 2, 2013, Mr. Miles resigned as President and Chief Operating Officer of the Company. All Other Compensation The table below sets forth the dollar amounts that we paid for each applicable item listed above. Name Year 401(k) SERP Dividend Equivalents Executive...

  • Page 51
    ...Financial Statements contained in our Annual Report on Form 10-K for our 2012 fiscal year. (4) In March 2012, the Compensation Committee established the performance objectives for fiscal year 2012 under the Executive Officer Incentive Plan, as well as the threshold, target and maximum payment levels...

  • Page 52
    ...long term cash award based on the number of days employed during the performance cycle. Prorated awards will only be paid out if the Compensation Committee certifies achievement of the objectives and the payouts at the end of the performance cycle. Termination for "Cause" by Staples. All annual cash...

  • Page 53
    ... only be paid out if the Compensation Committee certifies achievement of the objectives and the payouts at the end of the performance period. ‡ Change-in-Control. A change-in-control would entitle a named executive officer at the end of the performance cycle to a long term cash award payment equal...

  • Page 54
    ... summary information regarding the outstanding equity awards held by each of the named executive officers as of the end of our 2012 fiscal year. Option Awards Number of Securities Underlying Unexercised Options (#) Unexercisable (1) 824,068 647,259 322,792 162,356 Stock Awards Market Value of Shares...

  • Page 55
    ... Plan-Based Awards for 2012 Fiscal Year table above. (4) Based on the fair market value of our common stock on February 2, 2013 ($13.51 per share). (5) Performance shares were paid out in March 2013 based on achievement of the performance objectives for fiscal years 2010 through 2012. Awarded shares...

  • Page 56
    ...fair market value of the stock award on the date of vesting. NON-QUALIFIED DEFERRED COMPENSATION FOR 2012 FISCAL YEAR The following table sets forth summary information with respect to each of the named executive officers regarding contributions to our Supplemental Executive Retirement Plan ("SERP...

  • Page 57
    ... would be paid to any named executive officer can only be 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...

  • Page 58
    ... the only executive with this benefit and, in March 2011, the Committee adopted a policy that, unless required by law, prohibits Staples from entering into any future compensation, severance or employment related agreement that provides for a gross up payment to cover taxes triggered by a change in...

  • Page 59
    ...under a group long-term care insurance plan. The amounts listed are estimates based on the current policies in place after applying a reasonable benefit cost trend. Change-in-Control Only The "Change-in-Control Only" column includes: ‡ Value of Accelerated Vesting of Incentive Compensation. For all...

  • Page 60
    ... his long-term cash awards as disclosed in the Summary Compensation Table in prior years and for shares paid out under his 2010 Special Performance and Retention Award as disclosed in the Outstanding Equity Awards at 2012 Fiscal Year End. Beginning on February 3, 2013, Mr. Miles will be employed on...

  • Page 61
    ... the UK Option Plan to compensate associates working in our United Kingdom businesses. Associates working in our United Kingdom businesses were also eligible to receive options under our stockholder-approved equity plans. We filed the UK Option Plan with the SEC as an exhibit to our Annual Report on...

  • Page 62
    ... of a merger, consolidation, sale of all or substantially all of the assets, or liquidation of Staples. As of February 2, 2013, approximately 8 associates have outstanding awards under the UK Option Plan. Compensation Committee Interlocks and Insider Participation During our 2012 fiscal year, Ms...

  • Page 63
    ... the following changes to our 2013 executive compensation program: ‡ To support our growth strategy, our annual cash bonus plan performance metrics will be 50% earnings per share (EPS) and 50% sales. The sales component is weighted 25% total company sales and 25% sales beyond office supplies. For...

  • Page 64
    ... provides independent, objective oversight of Staples' financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the preparation, presentation and integrity of Staples' financial statements and for maintaining an adequate system of disclosure...

  • Page 65
    ... of approximately $222,000 and $359,000 in fiscal years 2012 and 2011, respectively, for services related to assistance with internal control reporting, other reports required to satisfy regulatory requirements and employee benefit plan audits. Tax Fees Ernst & Young LLP billed us an aggregate...

  • Page 66
    ...more of Staples' outstanding common stock continuously for at least 1 year before the nomination is submitted; (2) give Staples written notice not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders of (a) all information...

  • Page 67
    ... low. The proposal would allow any stockholder (or group of stockholders) who collectively owned 1% of the Company's common stock for one year to have their director nominees included in the Company's proxy materials. As of December 31, 2012, Staples had 20 stockholders who held more than 1% by...

  • Page 68
    ..., an enhanced political contributions policy, a compensation recoupment policy and Staples Soul, which reflects our commitment to a number of important policies relating to ethics, community, the environment and diversity. ‡ ‡ Our Board has been highly responsive over the years, and we believe...

  • Page 69
    ... Also "High Concern" for director qualifications and "Concern" in Executive Pay - $9 million for our CEO Ronald Sargent. Plus our high level of executive pay received only 46% support from our shares outstanding. The only equity pay given to our highest paid executives consisted of stock options and...

  • Page 70
    ..., nominated to the committees by the Nominating and Corporate Governance Committee. Our directors have complete access to Staples' senior management and are encouraged to make regular contact. The Board and each of the Board's committees also have the authority to retain independent advisors...

  • Page 71
    ... Hundred Staples Drive, Framingham, MA 01702 (Address of principal executive office and zip code) 04-2896127 (I.R.S. Employer Identification No.) 508-253-5000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Common...

  • Page 72
    ... by each executive officer and director have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The registrant had 668,351,385 shares of common stock, par value $0.0006, outstanding as of March 4, 2013. Documents Incorporated By...

  • Page 73
    ... serve businesses of all sizes and consumers in North America, Europe, Australia, South America and Asia. Our delivery businesses account for a majority of our sales and many of our delivery customers place their orders online, making Staples one of the largest Internet resellers in the world. We...

  • Page 74
    ...online or mail order business. Through our contract sales force we offer full service account management, customized pricing and payment terms, usage reporting, the stocking of certain proprietary items and a wide assortment of environmentally friendly products and services. Quill.com is an Internet...

  • Page 75
    ... customer awareness and differentiate our offering. The following table shows our sales by each major category as a percentage of total sales for the periods indicated: Fiscal Year Ended February 2, 2013 January 28, 2012 January 29, 2011 Office supplies Services Office machines and related products...

  • Page 76
    ... systems enable our store associates to spend more time on customer service and store presentation. Since our distribution centers maintain backup inventory, our in-store inventory requirements are reduced, allowing us to more efficiently operate our retail stores. In Europe, we are in the process...

  • Page 77
    ..., helpful and knowledgeable associates focused on making it easy for customers to buy office products and services; a wide assortment of products and services that are in-stock and easy to find, either in stores or on our websites; fast checkout; easy to use web sites; reliability and speed of order...

  • Page 78
    ... Controller, Vice President of Planning, Margin and Control and Chief Financial Officer of Staples.com. Demos Parneros, age 50 Mr. Parneros has served as President-North American Stores & Online since January 2013. Previously, Mr. Parneros served as President- U.S. Stores since April 2002. Prior...

  • Page 79
    ...retailers and online and traditional retailers, dealers and distributors for customers, associates, locations, products, services, and other important aspects of our business. In most of our geographic markets, we compete with other high-volume office supply providers such as Office Depot, OfficeMax...

  • Page 80
    .... In addition, for our strategy to be successful, we must hire and train qualified associates and adapt management and operational systems to meet the needs of our expanded operations. If we are unable to enter new markets as efficiently as we planned, our future sales and profits may be adversely...

  • Page 81
    ... of our "Easy" brand strategy is a positive customer service experience. Accordingly, our performance depends on attracting, training, engaging and retaining a large number of qualified associates. We face intense competition for qualified associates, particularly in tight labor markets in emerging...

  • Page 82
    ... and associates. For example, we handle, collect and store personal information in connection with our customers purchasing products or services, enrolling in our promotional or rewards programs, registering on our web site or otherwise communicating or interacting with us. We also process payment...

  • Page 83
    ... of key products, including paper, ink, toner and technology. Some of the products we offer are supplied to us on an exclusive basis and may be difficult to replace in a timely manner. Additionally, we may not be able to source products that we want to offer for sale on acceptable terms, or at...

  • Page 84
    ... in Canada, and in Austria, Belgium, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, the United Kingdom, China, Argentina, Brazil and Australia. The following table sets forth the locations of our facilities as of February 2, 2013: RETAIL STORES...

  • Page 85
    ...by us with initial lease terms expiring between 2013 and 2026. In most instances, we have renewal options at increased rents. Leases for 150 of the existing stores provide for contingent rent based upon sales. We own our Framingham, Massachusetts corporate office, which consists of approximately 650...

  • Page 86
    ... is traded on the NASDAQ Global Select Market under the symbol "SPLS". The following table sets forth for the periods indicated the high and low sales prices per share of our common stock on the NASDAQ Global Select Market, as reported by NASDAQ. High Low Fiscal Year Ended February 2, 2013 First...

  • Page 87
    ..., 2011, we announced that our Board of Directors approved the repurchase of up to $1.5 billion of common stock in both open market and privately negotiated transactions. Our repurchase program has no expiration date and may be suspended or discontinued at any time. Other Information For information...

  • Page 88
    ... unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Staples' internal control system is designed to provide reasonable assurance to the Company's management and Board regarding the preparation and fair presentation of...

  • Page 89
    ... statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Our management...

  • Page 90
    ...of February 2, 2013 and January 28, 2012 and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended February 2, 2013 of Staples, Inc. and our report dated March 6, 2013 expressed an unqualified opinion...

  • Page 91
    ... 2013 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 92
    ... of Staples, Inc. are included as Appendix C of this Report: 1 2. ‡ Financial Statements. Consolidated Balance Sheets - February 2, 2013 and January 28, 2012; Consolidated Statements of Income - Fiscal years ended February 2, 2013, January 28, 2012 and January 29, 2011; Consolidated Statements of...

  • Page 93
    ..., on March 6, 2013. 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 94
    ... the Board and Chief Executive Officer (Principal Executive Officer) Director Director Director Director Director Director Director Director Director Director Director March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March 6, 2013 March...

  • Page 95
    ... share: Continuing operations attributed to Staples, Inc. Discontinued operations attributed to Staples, Inc. Net income (loss) attributed to Staples, Inc. Dividends Statistical Data: Stores open at end of period Balance Sheet Data: Working capital (1) Total assets Total long-term debt, less current...

  • Page 96
    ... for the Company's European Printing Systems Division business ("PSD"), which was acquired in 2008 in conjunction with the Corporate Express N.V. ("Corporate Express") acquisition, are being reported in Loss from discontinued operations, net of income taxes in the Company's consolidated statement of...

  • Page 97
    ... of our strategic reinvention; our focus on growing our online sales and on reducing costs should have an impact on both the top and bottom line throughout 2013. In addition, we expect the reduction in square footage in North American Stores, the consolidation of sub-scale businesses in Europe, the...

  • Page 98
    ... non-GAAP measures to the most directly comparable GAAP measures for 2012 and 2011 are shown below (amounts in thousands, except for per share data): 53 Weeks Ended February 2, 2013 Impairment of goodwill & long lived assets Accelerated trade-name amortization Loss on early extinguishment of debt...

  • Page 99
    ...from stores opened in the last twelve months and growth in our online businesses. Declines in computers, technology accessories and software were partly offset by growth in facilities and breakroom supplies, tablets and other mobile technology, and copy and print services. Gross Profit: Gross profit...

  • Page 100
    ... of certain operations in our Europe Retail and Europe Catalog reporting units. Excluding the impact of these items, our effective tax rate was 32.5% in 2012. Our tax rate in 2011 reflected a tax benefit of $20.8 million related to a refund due to Corporate Express from the Italian government that...

  • Page 101
    ...loss in 2012 includes $20.1 million of restructuring charges related to severance and benefit costs associated with a plan to restructure PSD's operations in connection with our ongoing effort to sell this business, as well as $4.5 million of incremental tax expense related to the planned sale. 2011...

  • Page 102
    ... stores with Staples.com, our North American online store, to provide a more integrated and consistent shopping experience for our small business and home office customers who often shop across both channels. The new North American Stores and Online segment sells office-related products and services...

  • Page 103
    ...other mobile technology, facilities and breakroom supplies and copy and print services. The decline in comparable store sales reflects a decrease in customer traffic and flat average order size. Business unit income as a percentage of sales decreased to 8.3% for 2012 from 8.7% for 2011. The decrease...

  • Page 104
    ...severance and other associated costs primarily related to the closure of the retail stores and the consolidation of the sub-scale delivery businesses in Europe. ‡ ‡ 2011 Compared with 2010 Sales increased 4.0% for 2011 compared to 2010. This increase was driven by the positive impact of foreign...

  • Page 105
    ... Business unit income as a percentage of sales decreased to 2.1% for 2011 from 3.7% for 2010, primarily reflecting deleverage of fixed costs and expenses associated with our system investments in Australia, and deleverage of fixed costs in our European retail businesses. Critical Accounting Policies...

  • Page 106
    ...and stem losses in Europe. In connection with the development of this plan, we analyzed each of our European businesses in light of ongoing industry trends, economic conditions, and long-term sales and profit projections. The Company's management and board of directors concluded a strategic shift in...

  • Page 107
    ... delivery businesses in Europe in connection with the strategic plan we announced in September 2012. As a result of these actions, we recorded long-lived asset impairment charges of $29.6 million and $5.1 million related to our International Operations and North American Stores and Online segments...

  • Page 108
    ... from 2010 to 2011 is primarily related to the $500 million repayment of the April 2011 Notes and increased purchases under our share repurchase program, offset by the prior year purchase of additional shares of Corporate Express Australia Limited ("Corporate Express Australia"). During 2011, we...

  • Page 109
    ...Notes") from time to time. The November 2014 Revolving Credit Facility serves as a backstop to the Commercial Paper Program. Maturities of the Notes vary but may not exceed 397 days from the date of issue. In 2012 we borrowed under our Commercial Paper Program to support our seasonal working capital...

  • Page 110
    ... the Consolidated Financial Statements for information related to the carrying value of these obligations as of February 2, 2013. (7) As of February 2, 2013, Staples had open standby letters of credit totaling $111.1 million. (8) We plan to repay the remaining balance of the January 2014 Notes upon...

  • Page 111
    ... markets that could become significant to our business in future years. We do not expect to rely on acquisitions to achieve our targeted growth plans. We consider many types of acquisitions for their strategic and other benefits. We paid quarterly dividends of $0.11 per share on April 12, 2012...

  • Page 112
    ... value. We had no interest rate swap agreements outstanding as of February 2, 2013. Foreign Currency Risk We are exposed to foreign exchange risks through our business operations and investments in subsidiaries in Canada, Europe, Australia, South America and Asia. The currencies for which we have...

  • Page 113
    ... FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets - February 2, 2013 and January 28, 2012 Consolidated Statements of Income - Fiscal years ended February 2, 2013, January 28, 2012 and January 29, 2011 Consolidated Statements of...

  • Page 114
    ... as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Staples, Inc.'s internal control over financial reporting as of February 2, 2013, based on...

  • Page 115
    ...value, 2,100,000,000 shares authorized; issued and outstanding 932,246,614 and 669,182,785 shares at February 2, 2013 and 922,126,579 shares and 695,743,547 shares at January 28, 2012, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Less: Treasury stock...

  • Page 116
    STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollar Amounts in Thousands, Except Share Data) Fiscal Year Ended February 2, 2013 January 28, 2012 January 29, 2011 Sales Cost of goods sold and occupancy costs Gross profit Operating expenses: Selling, general and administrative ...

  • Page 117
    ...) Fiscal Year Ended February 2, 2013 January 28, 2012 January 29, 2011 Consolidated net (loss) income Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Changes in the fair value of derivatives, net Deferred pension and other post-retirement benefit costs, net...

  • Page 118
    ... Sale of common stock under Employee Stock Purchase Plan and International Savings Plan Net income for the year Common stock dividend Foreign currency translation adjustments Changes in the fair value of derivatives (net of taxes of $7.5 million) Deferred pension and other post-retirement benefit...

  • Page 119
    ... Units, net of forfeitures Tax benefit on exercise of options Stock-based compensation Sale of common stock under Employee Stock Purchase Plan and International Savings Plan Net loss for the year Common stock dividend Foreign currency translation adjustments Changes in the fair value of derivatives...

  • Page 120
    ... of stock options and the sale of stock under employee stock purchase plans Proceeds from borrowings Payments on borrowings Early settlement of debt Purchase of noncontrolling interest Cash dividends paid Excess tax benefits from stock-based compensation arrangements Repurchase of common stock Net...

  • Page 121
    ... and includes Staples Advantage and Quill.com. The International Operations segment consists of business units that operate stores and that sell and deliver office products and services directly to customers in 23 countries in Europe, Australia, South America and Asia. Basis of Presentation: The...

  • Page 122
    ... management assumptions and estimates regarding industry economic factors and the future profitability of the Company's businesses. It is the Company's policy to allocate goodwill and conduct impairment testing at a reporting unit level based on its most current business plans, which reflect changes...

  • Page 123
    ... on the closing market price of the Company's common stock price on the date of grant, less the present value of dividends expected to be paid on the underlying shares but foregone during the vesting period. The Company recognizes stock-based compensation costs as expense on a straight-line basis...

  • Page 124
    ... the productivity of its stores in North America. Pursuant to the Plan, during 2012 the Company took the following actions: closed 46 retail stores in Europe and accelerated the closure of 15 retail stores in the United States; closed and consolidated certain sub-scale delivery businesses in Europe...

  • Page 125
    ... an interim goodwill impairment analysis for its Europe Retail and Europe Catalog reporting units, both of which are included in the Company's International Operations segment. In September 2012, management presented, and the Board of Directors approved, a strategic plan to accelerate growth C-13

  • Page 126
    ... losses in Europe. In connection with the development of this plan, the Company analyzed each of its European businesses in light of ongoing industry trends, economic conditions, and long-term sales and profit projections. The Company's management and board of directors concluded a strategic shift...

  • Page 127
    ... as discussed above. During 2012, the Company closed 46 retail stores in Europe and 15 retail stores in the United States and consolidated several sub-scale delivery businesses in Europe (see Note B - Restructuring Charges). As a result of these planned actions, the Company recorded long-lived asset...

  • Page 128
    ... as a disposal group and accounted for the group as heldfor-sale in the Company's consolidated balance sheet as of February 2, 2013. Given that the Company expects to complete the sale within one year, the Company has presented the disposal group within current assets and current liabilities on the...

  • Page 129
    ...to sell PSD, the Company incurred restructuring charges of approximately $20.1 million in 2012 for employee severance and benefit costs associated with a plan to restructure PSD's operations. The Company also incurred $4.5 million of incremental tax expense in 2012 related to the planned sale. These...

  • Page 130
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) process, the Company acquired the final outstanding shares of Corporate Express Australia for cash consideration of AUD $5.60 per share, bringing the Company's ownership of this business to 100% for an aggregate ...

  • Page 131
    ...of the Company's outstanding debt are as follows (in thousands): February 2, 2013 January 28, 2012 October 2012 Notes January 2014 Notes January 2018 Notes January 2023 Notes Other lines of credit Capital lease obligations and other notes payable Less: current portion Net long-term debt $ - $ 879...

  • Page 132
    ... time to time. The November 2014 Revolving Credit Facility serves as a backstop to the Commercial Paper Program. The Company typically uses the proceeds from the Notes for general purposes, including working capital, capital expenditures, acquisitions and share repurchases. During 2012 the Company...

  • Page 133
    ...as agreed upon from time to time by the dealers under the Commercial Paper Program and the Company. The Commercial Paper Program contains customary events of default with corresponding grace periods. In 2012, the weighted-average amount outstanding under the Commercial Paper Program was $7.3 million...

  • Page 134
    ... comparable properties and an assessment of current market conditions. The Company has also classified these measurements as Level 3 within the fair value hierarchy. Refer to Note C - Goodwill and Long-Lived Assets for further detailed information related to the significant unobservable inputs. Note...

  • Page 135
    ... of the January 2014 Notes. In connection with Staples' acquisition of Corporate Express, the Company assumed interest rate swaps designed to convert Corporate Express' variable rate credit facilities into fixed rate obligations. On May 5, 2011, the Company repaid the outstanding balance on these...

  • Page 136
    ... statement of income in 2011 related to ineffectiveness associated with this cash flow hedge. Upon maturity of the agreement in August 2011, Staples paid 76.4 million Australian dollars and recognized a gain of $0.9 million. In August 2011, the Company entered into a foreign currency swap designed...

  • Page 137
    ... of the payment. On February 29, 2012, after the Company had filed its Annual Report on Form 10-K for the year ended January 28, 2012 with the Securities and Exchange Commission, Staples was notified that the arbitration tribunal had issued its final ruling ordering Staples to pay Corely/Lyreco...

  • Page 138
    ... Financial Statements (continued) At the time the Corporate Express tender offer was fully settled on July 23, 2008, Staples had acquired more than 99% of the outstanding capital stock of Corporate Express. Staples worked diligently to acquire the remaining capital stock of Corporate Express by...

  • Page 139
    ... before tax by location and the components of income tax expense by taxing jurisdiction are not directly related. The 2012 effective tax rate was unfavorably impacted by the goodwill impairment charges recorded in 2012 relating to the Company's Europe Retail and Europe Catalog reporting units (see...

  • Page 140
    ... 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. Prior to January 1, 2012, the Company offered its associates the opportunity to purchase shares under similar terms...

  • Page 141
    ...of employment termination. Stock Options Information with respect to stock options granted under the above plans is as follows: Weighted-Average Remaining Contractual Term in Years Number of Shares Weighted-Average Exercise Price Per Share Aggregate Intrinsic Value (1) (in thousands) Outstanding...

  • Page 142
    ... 2010, subject to vesting over a three year period. In 2010, the Company switched from granting annual performance share awards and introduced a performance based long term cash incentive plan based on meeting minimum performance targets. The expense associated with these awards is reflected as part...

  • Page 143
    ...tables present a summary of the total net cost recorded in the consolidated statement of income for the pension and post-retirement life insurance benefit plans for 2012, 2011 and 2010 (in thousands): 2012 Pension Plans U.S. Plans International Plans Total Post-retirement Benefit Plan Total Service...

  • Page 144
    ... table presents the net periodic cost recorded in the consolidated statement of comprehensive income for 2012, 2011 and 2010 related to discontinued operations pension plans only (in thousands): Discontinued Operations Pension Plans 2012 2011 2010 Service cost Interest cost Expected return on plan...

  • Page 145
    ...following table presents the changes in pension plan assets for each of the defined benefit pension plans during 2011 and 2012 (in thousands): International Plans U.S. Plans Total Fair value of plan assets at January 29, 2011 Actual return on plan assets Employer's contributions Plan participants...

  • Page 146
    ...expected return on plan assets, rate of compensation increases, interest rates and mortality rates. The following table presents the assumptions used to measure the net periodic cost and the year-end benefit obligations for the defined benefit pension and post-retirement benefit plans for 2012, 2011...

  • Page 147
    ... Pension Plans U.S. Plans International Plans Post-retirement Benefit Plan Weighted-average assumptions used to measure net periodic pension cost: Discount rate Expected return on plan assets Rate of compensation increase Weighted-average assumptions used to measure benefit obligations at year-end...

  • Page 148
    ... to be returned to the Company during 2013. Information on Fair Value of Plan Assets The fair values of the Company's pension plan assets at February 2, 2013 and January 28, 2012 by asset category are as follows (in thousands): February 2, 2013 U.S. Pension Plans Quoted Prices in Active Markets for...

  • Page 149
    ...: U.S. Plans International Plans Balance at January 28, 2012 Reclassification into Level 3 Actual Return on Plan Assets: Relating to assets still held at the reporting date Relating to assets sold during the period Purchases, sales and settlements Translation adjustments Balance at February 2, 2013...

  • Page 150
    ...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. Contributions by the Company to the 401(k) Plan are made in cash and vest ratably over a five year period. The Supplemental Executive Retirement Plan...

  • Page 151
    ... been approved by the Board of Directors in September 2011 (the "2011 Repurchase Plan"). Under the 2011 Repurchase Plan, the Company is authorized to repurchase up to $1.5 billion of common stock in both open market and privately negotiated transactions. The program has no expiration date and may be...

  • Page 152
    ... stores with Staples.com, its North American online store, to provide a more integrated and consistent shopping experience for its small business and home office customers who often shop across both channels. The new North American Stores and Online segment sells office-related products and services...

  • Page 153
    ... summary of significant accounting policies in Note A Summary of Significant Accounting Policies. Staples' North American Stores & Online and North American Commercial segments are managed separately because the way they sell and market products is different and the classes of customers they service...

  • Page 154
    ... table shows the Company's sales by each major category as a percentage of total sales for the periods indicated: Fiscal Year Ended February 2, 2013 January 28, 2012 January 29, 2011 Office supplies Services Office machines and related products Computers and related products Office furniture...

  • Page 155
    ...to this presentation. The following table summarizes quarterly information for 2012 and 2011 (in thousands, except for per share data): (In thousands, except per share amounts) First Quarter Second Quarter Third Quarter (1) Fourth Quarter (2)(4) Fiscal Year Ended February 2, 2013 Sales Gross profit...

  • Page 156
    ... tax benefit related to a refund due to Corporate Express from the Italian government that was previously deemed uncollectible, which was recorded as a discrete item. (4) The Company's fourth quarter of fiscal 2012 includes 14 weeks of operating results, while all other quarterly periods presented...

  • Page 157
    ... End of Period Fiscal year ended: January 29, 2011 January 28, 2012 February 2, 2013 $ 63,024 55,348 45,962 $ 20,679 23,622 34,167 $ 28,355 33,008 46,584 $ 55,348 45,962 33,545 (1) Amount for 2012 includes $14.7 million relating to the Company's European Printing Systems Division business...

  • Page 158
    ... as Exhibit 4.2 to the Company's Form 8-K filed on January 13, 2013. Credit Agreement, dated November 4, 2010, by and among Staples, Inc., the lenders named therein, Bank of America, N.A., as Administrative Agent, Barclays Capital and HSBC Bank USA, National Association, as Co-Syndication Agents...

  • Page 159
    ... Plan. Filed as Exhibit 10.23 to the Company's Form 10-K for the fiscal year ended January 28, 2012. Non-Management Director Compensation Summary. Filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended April 30, 2011. Form of Severance Benefits Agreement signed by executive officers...

  • Page 160
    ..., dated March 13, 2006, by and between the Company and Ronald L. Sargent. Filed as Exhibit 10.37 to the Company's Form 10-K for the fiscal year ended January 31, 2009. Long Term Care Insurance Plan Summary. Filed as Exhibit 10.39 to the Company's Form 10-K for the fiscal year ended January 29, 2011...

  • Page 161
    ... report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. b) Date: March 6, 2013 /s/ Ronald L. Sargent Ronald L. Sargent Chairman and Chief Executive...

  • Page 162
    ... necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in...

  • Page 163
    ... with the annual report on Form 10-K of Staples, Inc. (the "Company") for the period ended February 2, 2013 as filed with the Securities and Exchange Commission on or about the date hereof (the "Report"), the undersigned, Ronald L. Sargent, Chief Executive Officer of the Company, hereby certifies...

  • Page 164
    ... with the annual report on Form 10-K of Staples, Inc. (the "Company") for the period ended February 2, 2013 as filed with the Securities and Exchange Commission on or about the date hereof (the "Report"), the undersigned, Christine T. Komola, Chief Financial Officer of the Company, hereby certifies...

  • Page 165
    .... Investor Relations Investor inquiries may be directed to: Christopher Powers, Director, Investor Relations Telephone: 800-468-7751 Email: [email protected] General Information Members of the media or others seeking general information about Staples should contact the Corporate Communications...

  • Page 166
    Staples, Inc., 500 Staples Drive, Framingham, MA 01702 | 508-253-5000 | staples.com®