Staples 2013 Annual Report Download

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2013 Annual Report I Notice of Annual Meeting and Proxy Statement
Any product for any business.

Table of contents

  • Page 1
    Any product for any business. 2013 Annual Report I Notice of Annual Meeting and Proxy Statement

  • Page 2
    ..., and copy and print services. Staples has been making it easy for businesses for 27 years with thousands of associates worldwide. Headquartered outside of Boston, Staples operates throughout North and South America, Europe, Asia, Australia and New Zealand. More information about Staples (Nasdaq...

  • Page 3
    ..., and our new team-based selling model has received very positive customer feedback. Copy and print sales in North American stores and online were up in the mid single-digits in 2013. We continue to drive growth online, in our retail stores and with our outside sales force as we meet the evolving...

  • Page 4
    ..., non-product-related costs, IT hardware and services, as well as marketing. We're also kicking off projects to drive savings across our contract sales force and customer service organizations, which will be key contributors to our cost reduction in 2015. In addition to our plans to improve store...

  • Page 5
    ... world through Staples Foundation, corporate charitable giving programs, in-kind donations and cause marketing efforts. Through the 2 Million & Change program, enabled more than 7,000 associates globally to direct $2.5 million to more than 1,000 organizations they personally care about and support...

  • Page 6
    ...• Globally, we offer more than 10,000 products and counting with environmental attributes in our stores and online, representing nearly $3 billion in annual sales. We have industry leading customer recycling programs for ink and toner cartridges and electronics in many of our markets. In fact, we...

  • Page 7
    ... Planet program. Staples Advantage Canada received the Excellence in Corporate Responsibility (ECR) Award from Green Living Enterprises. For the fourth consecutive year, Staples Advantage Canada received the Community Leadership Award of Excellence from the Canadian Office Products Association (COPA...

  • Page 8
    ... members of the Board of Directors to hold office until the 2015 Annual Meeting of Stockholders or until their respective successors have been elected or appointed. (2) To approve the Staples, Inc. 2014 Stock Incentive Plan. (3) To approve, on an advisory basis, named executive officer compensation...

  • Page 9
    ...Board ITEM 1: ELECTION OF DIRECTORS DIRECTOR COMPENSATION ITEM 2: APPROVE 2014 STOCK INCENTIVE PLAN EXECUTIVE COMPENSATION Compensation Discussion and Analysis ("CD&A") Compensation Committee Report Summary Compensation Table Grants of Plan-Based Awards for 2013 Fiscal Year Outstanding Equity Awards...

  • 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 2014 Annual Meeting and the 2013 Annual Report, at www.proxyvote.com, or by sending an email to our Investor Relations...

  • Page 11
    ... a copy of a brokerage statement reflecting your stock ownership in Staples as of the record date to be allowed into the meeting. You may obtain directions to the location of our 2014 Annual Meeting by writing, emailing or calling our Investor Relations department at 500 Staples Drive, Framingham...

  • Page 12
    ... Internet or by telephone. Can I change my proxy after I return my proxy card? Yes. Any proxy may be revoked by a stockholder at any time before it is exercised at the Annual Meeting by delivering to our Corporate Secretary a written notice of revocation or a duly executed proxy bearing a later date...

  • Page 13
    ...you if you write, email or call our Investor Relations department at 500 Staples Drive, Framingham, Massachusetts 01702, email: [email protected], or telephone: (800) 468-7751. If you want to receive separate copies of the proxy statement, annual report or notice of Internet availability of proxy...

  • Page 14
    ...electronic delivery or access, please write, email or call our Investor Relations department at 500 Staples Drive, Framingham, Massachusetts 01702, email: [email protected], or telephone: (800) 468-7751. Securities and Exchange Commission Filings We file annual, quarterly and current reports, as...

  • Page 15
    ...of April 7, 2014 by each person who is known by us to beneficially own more than 5% of the outstanding shares of our common stock, and as of April 7, 2014 by (1) each current director and nominee for director; (2) each of the named executive officers listed in the Summary Compensation Table included...

  • Page 16
    ....staples.com in the Corporate Governance section of the Investor Information portion of our website. We comply with the corporate governance requirements imposed by the Sarbanes-Oxley Act, SEC and NASDAQ Stock Market. We will continue to modify our policies and practices to meet ongoing developments...

  • Page 17
    ...directors meet in executive sessions, coordinates the annual performance review of our CEO, and works with the Chairperson of the Board to establish the agenda and review materials for each Board meeting. Additional information about the responsibilities of our Independent Lead Director can be found...

  • Page 18
    ...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 any...

  • Page 19
    ...For fiscal year 2013, 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 and our executive officers...

  • Page 20
    ... We also paid approximately $9.2 million for customized delivery boxes to a privately held company for which one of our directors serves as a board member. In all instances, whether we provided the products/services or received the services, no director or executive officer of the affiliated company...

  • Page 21
    ...registered 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 SEC and NASDAQ Stock Market. The Audit Committee met four times in person and three times by telephone during our 2013...

  • Page 22
    ... Contributions Policy Statement. The members of the Nominating and Corporate Governance Committee are independent directors, as defined by its charter and the rules of the NASDAQ Stock Market. The Nominating and Corporate Governance Committee met four times in person during our 2013 fiscal year...

  • Page 23
    ... and trends as necessary. This year, the General Counsel provided the Board with a detailed presentation of the Ethics & Compliance program, policies, oversight and enforcement actions. At each Board meeting, the Chairman and CEO addresses in a directors only session matters of particular importance...

  • Page 24
    ... 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. 15

  • Page 25
    ..., products and services and historical growth strategies with fresh perspectives and exposure to alternative approaches to business process, which promotes lively Board discussion and effective oversight and problem solving. Many of the nominees are either current or former chief executive officers...

  • Page 26
    ...qualifications, Dr. Faust brings to the board extensive leadership and management experience and skills related to recruiting top talent, capital planning, financial oversight, risk management, technology and strategy. 2012 Justin King, age 52 Chief Executive Officer of J Sainsbury plc, a food and...

  • Page 27
    ... 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 governance matters. 1986 Ronald L. Sargent, age 58 Chief Executive Officer of Staples, Inc. since...

  • Page 28
    ... 57 Chief Executive Officer of CBRE, Inc., a global commercial real estate services company, since December 2012 and President since March 2010. Mr. 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...

  • Page 29
    ...years. All Outside Directors are subject to a stock ownership guideline of five times the annual Board cash retainer and have five years after joining the Board to meet such ownership guideline. During fiscal year 2013, on the second business day following the first regularly scheduled Board meeting...

  • Page 30
    ... units vest on the date of each of the four regularly scheduled quarterly Board meetings that such Independent Lead Director or chairperson holds such position and are paid in shares on the one year anniversary of the award. The number of shares of restricted stock or restricted stock units to be...

  • Page 31
    ..., Compensation Committee, Nominating and Corporate Governance Committee and Finance Committee vest ratably on the date of each of the four regularly scheduled quarterly Board meetings that such Lead Director or chairperson held such position and are paid on the one year anniversary of the award...

  • Page 32
    ... 800 in 2013. In addition, the Compensation Committee and the Board of Directors considered that the current compensation program for executive officers includes one long term incentive in the form of performance shares as discussed in the CD&A section of this proxy statement. At the time of grant...

  • Page 33
    ... the 2014 Plan. The following is a brief description of the 2014 Plan. A copy of the 2014 Plan is attached as Appendix A to this proxy statement. Types of Awards The 2014 Plan provides for the grant of incentive stock options intended to qualify under Section 422 of the Code and non-statutory stock...

  • Page 34
    ...grant of Awards under the 2014 Plan. Shares of Common Stock repurchased by the Company on the open market using the proceeds from the exercise of an Award shall not increase the number of shares available for the future grant of Awards under the 2014 Plan. Types of Awards Incentive Stock Options and...

  • Page 35
    ...by the participant. Eligibility to Receive Awards Employees, officers, directors, consultants and advisors of the Company and its present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Code, and any other business venture (including, without limitation, joint...

  • Page 36
    ... Annual Meeting. The granting of Awards under the 2014 Plan is discretionary, and we cannot now determine the number or type of Awards to be granted in the future to any particular person or group. On April 7 2014, the last reported sale price of our Common Stock on the NASDAQ Global Select Market...

  • Page 37
    ... rights of the Company with respect to outstanding Restricted Stock will inure to the benefit of the Company's successor and shall, unless the Board of Directors determines otherwise, apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant...

  • Page 38
    ... of an incentive stock option if the participant has been employed by the Company or its corporate parent or 50% or more-owned corporate subsidiary at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant...

  • Page 39
    ... year and otherwise will be short-term. Restricted Stock A participant will not have income upon the grant of Restricted Stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a timely 83(b) election is made, then a participant will have compensation...

  • Page 40
    ...cost savings Eliminated 15% of directors and vice presidents in North America Restructured contract sales force and retail store organization Streamlined our European organization to improve productivity: Reduced pan-European headcount by 20% over a two year period Divested non-core Printing Systems...

  • Page 41
    ... 2013, we simplified our executive compensation program to include three elements: base salary, annual performance-based cash incentive and long term stock incentive comprised of 100% performance shares that are earned based on company performance over fiscal years 2013-2015. The company's strategic...

  • Page 42
    ... at last year's annual meeting with a 98% approval vote. Review of 2013 Pay for Performance 2013 CEO Compensation and Long Term Performance Total CEO compensation for 2013 as reported in our Summary Compensation Table was $10,767,880, including the grant date fair value of the performance shares (76...

  • Page 43
    ... Summary Compensation Table. Realizable total direct compensation includes base salary, annual bonus earned and the current value (as of the end of the performance cycle) of any equity and long term cash awards granted in 2010-2012. Our executive compensation program is designed to promote long term...

  • Page 44
    ... our incentive programs within the first 90 days of the fiscal year. Target performance goals are generally based on our fiscal year operating plan and outlook for the upcoming year. For example, in March 2013, in connection with our 2012 fourth quarter and year-end earnings press release, we issued...

  • Page 45
    ... 2012-2014 Long Term Cash Awards (3 year cumulative) 2013-2014 Long Term Cash Awards (1 year goals over 2 year performance period) 2013-2015 Performance Share Awards (1 year goals over 3 year performance period) Description of Overall Executive Compensation Program Pay Philosophy It is the company...

  • Page 46
    ... the General Counsel. Our significant policies are located in the Corporate Governance section of our website, www.staples.com. Pay Elements and Pay Mix The table below summarizes the core elements of our 2013 compensation program for our NEOs. Base Salary Principal Contributions Attracts, retains...

  • Page 47
    ...our annual and long term performance. Annual Cash Bonus Awards Each of the NEOs was eligible to participate in our Amended and Restated Executive Officer Incentive Plan during our 2013 fiscal year. Target awards for the annual cash bonus incentive are granted as a percentage of base salary. For 2013...

  • Page 48
    ... by 25% based on the company's three-year TSR relative to the returns generated by the S&P 500 companies. The Committee selected RONA% (50%) and Sales Growth (50%) as the 2013 performance objectives because these metrics are linked to the execution of our reinvention strategy and are indicators of...

  • Page 49
    ... Incentive Plan. In March 2013, the Committee granted a one-time 2013-2014 performance-based long term cash award to certain officers of the company, including the NEOs other than Mr. Wilson, in recognition that the three year cumulative RONA goal under the outstanding 2012-2014 long term cash award...

  • Page 50
    ... 2015. 2012-2014 Long Term Cash Award. For the outstanding 2012-2014 long term cash awards, in response to stockholder feedback at the time, the Committee established a cumulative three year RONA $ goal rather than setting annual goals each year over the three year performance period. At the end...

  • Page 51
    ...and actual payout for each NEO, as certified in March 2014 by the Committee. 3 Year Performance Period Achievement Named Executive Officer 2011 (EPS, Sales and RONA) (2011 - 2013) 2012 (EPS, Sales and Operating Income) Target Award 2013 (EPS, Sales and Sales Outside the Core) 14.34% 14.34% 14.34% 14...

  • Page 52
    ... for good reason following a change in control of Staples. Mr. Sargent is the only executive with this benefit. The Committee's Processes The Committee has established a number of processes to help ensure that our executive compensation program meets its objectives and is consistent with the...

  • Page 53
    ... in relation to the Company's performance measured by one year and three year TSR, EPS, revenue growth, and ROIC relative to peer company results. The principal consultant from Exequity met with the Committee in executive session, without the presence of management to review CEO compensation. The...

  • Page 54
    ... the Executive Summary. The tables below reflects our findings, relative to our peers, of how our CFO and NAC and NAS&O Presidents' base salary, total target cash compensation, and total target compensation compared, over the 2012 period, to total shareholder return, EPS growth, revenue growth, and...

  • Page 55
    ... business day of the month that follows appropriate approval or two business days after the Committee's ratification of the award. Related Policies and Considerations Risk Assessment In December 2013, the Committee conducted its annual risk assessment of our executive officer compensation programs...

  • Page 56
    ...goal of utilizing compensation programs that attract and retain key executives and align with stockholder interests. All annual cash bonus awards, except the Reinvention Cash Award, long term cash awards, stock options and performance shares awarded to our NEOs are paid pursuant to plans approved by...

  • Page 57
    ... Position Year Salary ($) Bonus ($)(2) Total ($) Ronald L. Sargent 2013 Chairman & CEO Christine T. Komola CFO(6) Joseph G. Doody President, NA Commercial Demos Parneros President, NA Stores & Online John Wilson President Staples Europe 2012 2011 2013 2012 2013 2012 2011 2013 2012 2011 2013...

  • Page 58
    ... Benefit Only, providing for Staples to pay his beneficiary upon his death. In fiscal year 2013, annual premiums paid under our long-term disability plans for Messrs. Sargent and Parneros were $16,836 and $3,590, respectively. • Tax preparation services. • Executive physical and registry program...

  • Page 59
    ... performance shares granted in 2013 vest based on achievement of performance objectives over the performance period covering fiscal years 2013 through 2015. In addition, the following provisions apply: • Termination of Employment by Staples, Retirement or Resignation. If a named executive officer...

  • Page 60
    ... objectives over the fiscal year 2010-2012 performance period. 33% of such shares vested in March 2013, 33% vested in March 2014 and 34% vested in March 2015 based on continued service to Staples. In addition, the following provisions apply: • Termination of Employment by Staples. The 2010 Special...

  • Page 61
    ... service to Staples is equal to or greater than 65), then the named executive officer is eligible for (i) a prorated annual cash bonus award based on the number of days the named executive officer was employed during the plan year; and (ii) a prorated long term cash award based on the number of days...

  • Page 62
    ... executive officers as of the end of our 2013 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) 8,218,762 Name Ronald L. Sargent Grant Date/ Performance Share Period 2/3/2013 2/1/2014...

  • Page 63
    ... of Plan-Based Awards for 2013 Fiscal Year table above. (4) Based on the fair market value of our common stock on February 1, 2014 ($13.16 per share). (5) The shares in the Equity Incentive Plan Awards column represent performance share awards based on target share payout as of the grant date. 54

  • Page 64
    ... value of the stock award on the date of vesting. NON-QUALIFIED DEFERRED COMPENSATION FOR 2013 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") for our...

  • Page 65
    ... Long Term Cash Incentive Plan payments; however, they will not receive matching contributions from us. Potential Payments Upon Termination or Change-in-Control The tables below show the estimated incremental value transfer to each current named executive officer under various scenarios relating to...

  • Page 66
    .... Mr. Sargent is 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...

  • Page 67
    ... 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. Termination Following Change-in-Control Under our severance benefits agreements with the named executive officers, if we terminate the...

  • Page 68
    ... of the award attributable to the 2014 plan year and (iii) with respect to the 2012-2014 long term cash award, the target value of the award for the three year performance period (for disability, the named executive officer is eligible for a prorated award based on number of days employed during the...

  • Page 69
    ... on our Compensation Committee or our Board of Directors. Section 16(a) Beneficial Ownership Reporting Compliance Based solely on our review of copies of reports filed during fiscal year 2013 by the directors, executive officers and beneficial owners of more than 10% of our common stock required to...

  • Page 70
    ..., stock options and time-based restricted stock) Objective Support our growth strategy Emphasize long term stockholder value creation Enhance pay for performance alignment Simplify the program The company conducted its fifth annual corporate governance outreach program during the fall of 2013...

  • Page 71
    ... the Rule 10A-3 of the Securities Exchange Act of 1934 and the applicable rules of the NASDAQ Global Select Market. The Audit Committee provides independent, objective oversight of Staples' financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for...

  • Page 72
    ... recommended to Staples' Board of Directors, and the Board approved, that Staples' audited consolidated financial statements and related schedules be included in Staples' Annual Report on Form 10-K for the year ended February 1, 2014 for filing with the Securities and Exchange Commission. Audit...

  • Page 73
    ... U.S. companies in 2013 including 73%support at Netflix. This topic is particularly important for Staples because we had long-tenured directors on our board, which is supposed to serve a checks and balances role in regard to our Chairman/CEO Ronald Sargent. Long tenure of 10 to 15-years detracts...

  • Page 74
    ... improvable corporate governance performance as reported in 2013: GMI Ratings, an independent investment research firm, was concerned with our executive pay which provided $10 million for Ronald Sargent. Staples did not disclose specific performance objectives for Mr. Sargent. Our CEO's equity pay...

  • Page 75
    ... to shareholders on Staples' website within six months of Staples' 2014 Annual Meeting of Shareholders. Supporting Statement As long-term shareholders, we favor policies and practices protecting and enhancing the value of our investments. There is increasing recognition that company risks related to...

  • Page 76
    ... to report any information under the section entitled, "Labor/management relations." "Staples, Inc. GRI Content Index," available at (http://www.staples.com/sbd/cre/marketing/staples_soul/documents/staples-incgri-index-application-level-b.pdf). We urge shareholders to vote for this proposal. BOARD...

  • Page 77
    ...of the annual meeting could be costly and burdensome. Diverting resources to create such a program would not provide a significant benefit to stockholders, particularly when the company is currently focused on executing against its reinvention strategy to better compete in the marketplace. OUR BOARD...

  • Page 78
    ...the interests of such persons with those of the Company's stockholders. Except where the context otherwise requires, the term "Company" shall include any of the Company's present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as...

  • Page 79
    ... Plan as of the date of the Company's 2014 Annual Meeting of Stockholders and (y) the number of shares of Common Stock subject to awards granted under the Existing Plan which awards expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original...

  • Page 80
    ... Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows: (1) in cash or by check, payable to the order of the Company; (2) except as may otherwise be provided in the applicable Option agreement or approved by the Board, by (i) delivery of...

  • Page 81
    ... therefor new Awards under the Plan (other than Awards granted pursuant to Section 4(c)) covering the same or a different number of shares of Common Stock and having an exercise price per share lower than the then-current exercise price per share of the cancelled option, (3) cancel in exchange for...

  • Page 82
    ... with the right to receive an amount equal to any dividends or other distributions declared and paid on an equal number of outstanding shares of Common Stock ("Dividend Equivalents"). Dividend Equivalents may be paid currently or credited to an account for the Participant, may be settled in cash and...

  • Page 83
    ..., operating profit before or after discontinued operations and/or taxes, sales, sales growth, earnings growth, gross margins, stock price, market share, improvement of financial ratings, achievement of balance sheet or income statement objectives, total stockholder return or customer service levels...

  • Page 84
    ... by the Board. Without limiting the generality of the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to an outstanding Option are adjusted as of the date of the distribution of the...

  • Page 85
    ... number of shares of common stock of the acquiring or succeeding corporation (or an affiliate thereof) that the Board determined to be equivalent in value (as of the date of such determination or another date specified by the Board) to the per share consideration received by holders of outstanding...

  • Page 86
    ... more than 12 months from the date of grant and (2) it may not be exercised or settled (or otherwise result in the issuance of Common Stock) prior to such stockholder approval. (e) Authorization of Sub-Plans (including for Grants to non-U.S. Employees). The Board may from time to time establish one...

  • Page 87
    ... Award) agrees that he or she is bound, such portion of the payment, compensation or other benefit shall not be paid before the day that is six months plus one day after the date of "separation from service" (as determined under Section 409A of the Code) (the "New Payment Date"), except as Section...

  • Page 88
    ... 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 Stock...

  • Page 89
    ...based on the last sale price of Staples' common stock on August 3, 2013, as reported by NASDAQ, was approximately $11.1 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 90
    ..., 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 operate three business segments: North American Stores & Online...

  • Page 91
    ...order business. Through our contract sales force we offer full service account management, free delivery, 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 92
    ...provide through our "EasyTech" business in North American Stores and Online. The market for these services is highly fragmented, and we believe we have a significant opportunity to offer these services to existing customers and acquire new customers. The following table shows our sales by each major...

  • Page 93
    ... direct marketing and customer loyalty programs to drive higher sales across all our channels. Supply Chain We operate two networks to fulfill the majority of our replenishment and delivery needs in North America. Our network of 65 delivery fulfillment centers supports our North American Commercial...

  • Page 94
    ... the dynamic markets in which we operate and the changing needs of our customers; courteous, helpful and knowledgeable associates focused on making shopping easy for customers; a wide assortment of products and services to meet every business need, either in stores or on our websites; fast checkout...

  • Page 95
    ... Vice President and Corporate Controller since August 2012. Prior to joining Staples, Mr. Bacica served as the Senior Vice President and Chief Accounting Officer of MCG Capital Corporation, a business development company, from May 2008 until November 2008, and served as its Executive Vice President...

  • Page 96
    ... efforts to transform our business, we recently announced a plan to reduce costs by $500 million on an annualized basis by the end of fiscal year 2015. We also announced a plan to close up to 225 of our retail stores in North America by the end of 2015. The success of our plans is subject to both...

  • Page 97
    ..., many of our competitors have increased their presence in our markets in recent years by expanding their assortment of office products and services, opening new stores near our existing stores, and offering direct delivery of office products. Intense competitive pressures from one or more of our...

  • Page 98
    ... 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 accept payments using a variety of methods, including debit and credit cards, gift cards, electronic transfer...

  • Page 99
    ...and technology to sell and deliver our products and services and operate our business, including systems to track inventory, to process and record transactions, to generate financial reports and to communicate with our associates, vendors and customers. As we continue to accelerate our growth online...

  • Page 100
    ... our information security. Although we continue to invest in our technology, if we are unable to continually add software and hardware, effectively manage or upgrade our systems and network infrastructure, and develop effective system availability, disaster recovery plans and protection solutions...

  • Page 101
    ... Employee Retirement Income Security Act ("ERISA"), securities laws, import and export laws (including customs regulations), privacy and information security regulations, unclaimed property laws, and many others. The complexity of the regulatory environment in which we operate and the related cost...

  • Page 102
    The following table sets forth the locations of our facilities as of February 1, 2014: RETAIL STORES Country/State/Province/ Region/Territory Number of Stores Country/State/Province/ Region/Territory Number of Stores Country/State/Province/ Region/Territory Number of Stores United States Alabama ...

  • Page 103
    ...by us with initial lease terms expiring between 2014 and 2026. In most instances, we have renewal options at increased rents. Leases for 148 of the existing stores provide for contingent rent based upon sales. We own our Framingham, Massachusetts corporate office, which consists of approximately 650...

  • Page 104
    ... stock 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 1, 2014...

  • Page 105
    ... Equity Securities 2013: The following table provides information about our purchases of our common stock during the fourth quarter of fiscal Fiscal Period Total Number of Shares Purchased(1) Average Price Paid per Share (2) Total Number of Shares Purchased as Part of Publicly Announced Plans or...

  • Page 106
    ... 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 regarding securities authorized for issuance under our equity compensation plans, please...

  • Page 107
    ... 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 108
    ... 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 1, 2014 of Staples, Inc. and our report dated March 6, 2014 expressed an unqualified opinion thereon. /s/ Ernst & Young LLP Boston...

  • Page 109
    ... with respect to our 2014 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...

  • Page 110
    ... years ended February 1, 2014, February 2, 2013 and January 28, 2012; and Notes to Consolidated Financial Statements. Financial Statement Schedules. Schedule II-Valuation and Qualifying Accounts. All schedules for which provision is made in the applicable accounting regulations of the Securities...

  • Page 111
    ..., on March 6, 2014. 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 112
    ... Officer) Director Director Director Director Director Director Director Director Director Director Director Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President and Corporate Controller (Principal Accounting Officer) March 6, 2014 March 6, 2014...

  • Page 113
    ... Thousands, Except Per Share Data) Fiscal Year Ended February 1, 2014 (1) (52 Weeks) February 2, 2013 (2)(3) (53 Weeks) January 28, 2012(4) (52 Weeks) January 29, 2011(5) (52 weeks) January 30, 2010(6) (52 weeks) Statement of Income Data: Sales Gross profit Income (loss) from continuing operations...

  • Page 114
    ... for this period reflects an $80.9 million preliminary loss on disposal related to the sale of the Company's European Printing Systems Division business ("PSD"). (2) Working capital in 2012 excludes the current assets and current liabilities of discontinued operations. (3) Income from continuing...

  • Page 115
    ... generate annualized pre-tax cost savings of approximately $500 million by the end of 2015. The savings are expected to come from supply chain, retail store closures and labor optimization, non-product related costs, IT hardware and services, marketing, sales force, and customer service. We plan to...

  • Page 116
    ... compensate for these limitations by considering GAAP as well as non-GAAP results. For the non-GAAP measures related to results of operations, reconciliations to the most directly comparable GAAP measures are shown below (amounts in thousands, except per share data): 52 Weeks Ended February 1, 2014...

  • Page 117
    ... tax rate Per share (loss) income from continuing operations attributed to Staples, Inc: Basic earnings per common share Diluted earnings per common share Weighted average common shares outstanding Effect of dilutive securities Weighted average common shares outstanding assuming dilution $ 510...

  • Page 118
    ... 2013 52 weeks ended February 1, 2014 53 weeks ended February 2, 2013 53rd week 2012 52 weeks ended January 26, 2013 Year-over-year sales growth Compared to the 53 weeks ended February 2, 2013 Compared to the 52 weeks ended January 26, 2013 North American Stores & Online North American Commercial...

  • Page 119
    ...American Stores & Online. These charges related to a strategic plan to accelerate growth through the integration of our retail and online offerings, the restructuring of our International Operations segment and the reduction of our footprint to improve the productivity of our stores in North America...

  • Page 120
    ... sales in International Operations and North American Stores & Online. The lower product margins reflect inflationary pressures on core office supplies, investments to drive sales and customer loyalty and, with respect to International Operations, adverse product and customer mix in Europe. Selling...

  • Page 121
    ... includes Staples Advantage and Quill.com. The International Operations segment consists of businesses that sell and deliver products and services directly to consumers and businesses in 23 countries in Europe, Australia, South America and Asia. Additional geographic information about our sales is...

  • Page 122
    ...Segment Reporting in the Notes to the Consolidated Financial Statements. (Amounts in thousands) Sales: 2013 2012 2011 2013 Decrease From Prior Year 2012 Increase (Decrease) From Prior Year North American Stores & Online North American Commercial International Operations Total segment sales Business...

  • Page 123
    ... product margins, increased labor expenses, and investments to optimize our pricing, profit improvement and sourcing strategies. These expenses were partially offset by a reduction in incentive compensation and marketing expense. North American Commercial 2013 Compared with 2012 Sales decreased...

  • Page 124
    ... eight year model, while in our emerging market businesses we used a twelve year model which reflects management's expectations of the development time for these growth-oriented businesses. In general, our reporting units' fair values are most sensitive to our sales growth and operating profit rate...

  • Page 125
    ...• Our Australia reporting unit, which has $362.5 million of goodwill as of the end of 2013, reported declines in revenue and operating profits during 2012 and 2013 as a result of a weak economy and the loss of certain significant customers, and our near-term projections for this business are below...

  • Page 126
    ... commitment to close up to 225 stores in North America by the end of 2015, may result in material impairment charges. Pension Benefits: Our pension costs and obligations are dependent on various assumptions. Our major assumptions primarily relate to expected long-term rates of return on plan assets...

  • Page 127
    ... paid in 2011. Sources of Liquidity To cover seasonal fluctuations in cash flows and to support our various initiatives, we utilize cash generated from operations and borrowings available under various credit facilities and a commercial paper program. On May 31, 2013, we entered into a new credit...

  • Page 128
    ... Post-Retirement Benefit Plans in the Notes to the Consolidated Financial Statements for details about these future contributions. (3) The operating lease payments reported above do not include common area maintenance or real estate taxes, which are expected to approximate 25% to 28% of the related...

  • Page 129
    ...of acquisitions for their strategic and other benefits. In addition to investing in our existing businesses and pursuing strategic acquisitions and partnerships, we also expect to continue to return capital to our shareholders through a cash dividend program and our share repurchase program. We paid...

  • Page 130
    ... value. We had no interest rate swap agreements outstanding as of February 1, 2014. 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 131
    STAPLES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) offset by a corresponding decrease or increase in the fair value of the hedged underlying loans. As of February 1, 2014, we have no outstanding foreign currency derivative...

  • Page 132
    ... Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets - February 1, 2014 and February 2, 2013 Consolidated Statements of Income - Fiscal years ended February 1, 2014, February 2, 2013 and January 28, 2012 Consolidated Statements of Comprehensive Income - Fiscal years...

  • Page 133
    Report of Independent Registered Public Accounting Firm The Board of Directors and Shareholders of Staples, Inc. We have audited the accompanying consolidated balance sheets of Staples, Inc. and subsidiaries as of February 1, 2014 and February 2, 2013, and the related consolidated statements of ...

  • Page 134
    ...,246,614 shares and 669,182,785 shares at February 2, 2013, respectively Additional paid-in capital Accumulated other comprehensive loss Retained earnings Less: Treasury stock at cost, 285,862,651 shares at February 1, 2014 and 263,063,829 shares at February 2, 2013 Total Staples, Inc. stockholders...

  • Page 135
    STAPLES, INC. AND SUBSIDIARIES Consolidated Statements of Income (Dollar Amounts in Thousands, Except Share Data) Fiscal Year Ended February 1, 2014 February 2, 2013 January 28, 2012 Sales Cost of goods sold and occupancy costs Gross profit Operating expenses: Selling, general and administrative ...

  • Page 136
    ... 1, 2014 February 2, 2013 January 28, 2012 Consolidated net income (loss) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments Disposal of foreign business, net Changes in the fair value of derivatives, net Deferred pension and other post-retirement benefit costs...

  • Page 137
    ... 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 income (loss) for the year Common stock dividend Foreign currency translation adjustments Changes in the fair value of...

  • Page 138
    ... 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 139
    ... of stock options and 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 140
    ... and Quill.com. The International Operations segment consists of business units that sell and deliver products and services directly to customers in 23 countries in Europe, Australia, South America and Asia. Basis of Presentation: The consolidated financial statements include the accounts of Staples...

  • Page 141
    ... and at the time of shipment for its delivery sales. The Company offers its customers various coupons, discounts and rebates, which are treated as a reduction of revenue. The Company evaluates whether it is appropriate to record the gross amount of product and service sales and related costs or the...

  • Page 142
    ... 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. For awards with service conditions only, the Company recognizes stock-based compensation costs...

  • Page 143
    ... associated costs. Of these amounts, $62.7 million relates to the Company's International Operations segment and $15.6 million relates to the Company's corporate headquarters and North American operations. The Company does not expect to incur material costs in future periods related to the 2013 Plan...

  • Page 144
    ...segment and $30 million related to the North American Stores & Online segment. The Company does not expect to incur material costs in future periods in connection with the 2012 Plan. The actions required under the 2012 Plan were substantially complete by the end of fiscal 2013. The table below shows...

  • Page 145
    ... instability in Europe, declining sales and profits, a sustained decline of the Company's stock price, and revised outlooks for its European businesses. In September 2012, management presented, and the Board of Directors approved, a strategic plan to accelerate growth across the Company and to...

  • Page 146
    ... sub-scale delivery businesses in Europe (see Note B - Restructuring Charges). As a result of these actions, the Company recorded long-lived asset impairment charges of $29.6 million and $5.1 million related to the Company's International Operations and North American Stores and Online segments...

  • Page 147
    ... losses associated with the defined benefit pension plans related to PSD. The following table details PSD's results of operations for 2013, 2012 and 2011, which have been reported in discontinued operations (in thousands): 35 Weeks Ended October 5, 2013 53 Weeks Ended February 2, 2013 52 Weeks Ended...

  • Page 148
    ... Consolidated Financial Statements (continued) During the fourth quarter of 2013, the Company classified certain assets and liabilities of one of its business units as a disposal group and accounted for the group as held-for-sale in the consolidated balance sheet as of February 1, 2014. The results...

  • Page 149
    ... major components of the Company's outstanding debt are as follows (in thousands): February 1, 2014 February 2, 2013 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 - 498,919...

  • Page 150
    ... the end of 2012. The Company did not borrow under the Commercial Paper Program during 2013. Other Lines of Credit: The Company had $160.5 million in borrowing capacity under various other lines of credit as of February 1, 2014 with outstanding borrowings of $100.1 million and outstanding letters of...

  • Page 151
    ... values because of their short-term nature. The following table shows the difference between the financial statement carrying value and fair value of the Company's debt obligations (see Note F - Debt and Credit Agreements) as of February 1, 2014 and February 2, 2013 (in thousands). The fair values...

  • Page 152
    ... whether the maturity date of the derivative contract is within or beyond one year from the balance sheet date. The cash flows from derivatives are classified in the Company's consolidated statement of cash flows in the same category as the item being hedged. The table below presents the fair value...

  • Page 153
    ... 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 154
    ... October 2013, had collected $720 million and paid 750 million Canadian dollars per the terms of the contracts. The forward agreements were accounted for as a fair value hedge. In 2012, the Company settled 500 million Canadian dollars of the notional amount relating to this forward, realizing a loss...

  • Page 155
    .... Expected payments related to such purchase obligations are as follows (in thousands): Fiscal Year: Total 2014 2015 2016 2018 2019 Thereafter $ $ 429,991 42,516 30,911 16,852 11,744 32,748 564,762 Letters of credit are issued by Staples during the ordinary course of business through major...

  • Page 156
    ...including those related to discontinued operations, are as follows (in thousands): February 1, 2014 February 2, 2013 Deferred income tax assets: Deferred rent Foreign tax credit carryforwards Net operating loss carryforwards Capital loss carryforwards Employee benefits Bad debts Inventory Insurance...

  • Page 157
    ... for the losses from discontinued operations before income taxes and related income taxes reported in 2013, 2012 and 2011. All pre-tax income presented in discontinued operations is related to foreign operations. A reconciliation of the federal statutory tax rate to Staples' effective tax...

  • Page 158
    ... $2.6 million in 2013, 2012 and 2011, respectively. The Company had $46.7 million and $37.7 million accrued for gross interest and penalties as of February 1, 2014 and February 2, 2013, respectively. Note K - Equity Based Employee Benefit Plans Staples offers its associates share ownership through...

  • Page 159
    ... 2013 by replacing annual grants of time-based stock options and restricted stock awards with stock-based awards now consisting exclusively of performance shares. The Company has entered into long-term performance share agreements with certain executives relating to fiscal years 2013, 2014 and 2015...

  • Page 160
    ... At February 1, 2014, 52.9 million shares of common stock were reserved for issuance under Staples' 2004 Plan, 401(k) Plan and employee stock purchase plans. Note L - Pension and Other Post-Retirement Benefit Plans The company sponsors pension plans that cover certain employees in Europe and the...

  • Page 161
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The following 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 2013, 2012 and 2011 (in thousands):...

  • Page 162
    ... Statements (continued) The following table presents the changes in benefit obligations during 2012 and 2013 (in thousands): Pension Plans U.S. Plans International Plans Total Post-retirement Benefit Plans Total Projected benefit obligation at January 28, 2012 Service cost Interest cost Plan...

  • Page 163
    ... Statements (continued) The following table presents the changes in pension plan assets for each of the defined benefit pension plans during 2012 and 2013 (in thousands): U.S. Plans International Plans Total Fair value of plan assets at January 28, 2012 Actual return on plan assets Employer...

  • Page 164
    ...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 2013, 2012 and 2011: 2013 Pension Plans U.S. Plans...

  • Page 165
    ... level of risk depending on the funded status of each plan. The majority of the plans' investment managers employ active investment management strategies with the goal of outperforming the broad markets in which they invest. Risk management practices include diversification across asset classes and...

  • Page 166
    ...deployed. Staples acts in a consulting and governance role via its board representatives in reviewing investment strategy, with final decisions on asset allocation and investment managers made by local trustees. The Company's pension plans' actual and target asset allocations at February 1, 2014 and...

  • Page 167
    ... Financial Statements (continued) Information on Fair Value of Plan Assets The fair values of the Company's pension plan assets at February 1, 2014 and February 2, 2013 by asset category are as follows (in thousands): February 1, 2014 U.S. Pension Plans Quoted Prices in Active Markets for...

  • Page 168
    ... plans. The 2014 expected benefit payments to plan participants not covered by the respective plan assets (that is, underfunded plans) represent a component of other long-term obligations in the consolidated balance sheet. The following table presents, based on current assumptions, the Company...

  • Page 169
    ... other comprehensive loss related to the Company's cash flow hedges and minimum pension and other post-retirement liabilities are recorded net of the related income tax effects. The following table details the changes in accumulated other comprehensive loss for 2013, 2012 and 2011 (in thousands...

  • Page 170
    ... 2011. On September 13, 2011, the Company announced a new repurchase program that had 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...

  • Page 171
    ... products and services directly to consumers and businesses in 23 countries in Europe, Australia, South America and Asia. Staples evaluates performance and allocates resources based on profit or loss from operations before goodwill and longlived asset impairment charges, restructuring costs, stock...

  • Page 172
    STAPLES, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (continued) The following is a summary of sales, business unit income, and significant accounts and balances by reportable segment (in thousands): 2013 2012 2011 Sales: North American Stores & Online North American Commercial...

  • Page 173
    ... plan to generate annualized pre-tax savings of approximately $500 million by the end of fiscal 2015. The Company expects the savings to come from supply chain, retail store closures and labor optimization, nonproduct related costs, IT hardware and services, marketing, sales force, and customer...

  • Page 174
    ... Quarter Summary (Unaudited) The following table summarizes quarterly information for 2013 and 2012 (in thousands, except for per share data): (In thousands, except per share amounts) First Quarter Second Quarter Third Quarter (1) Fourth Quarter Fiscal Year Ended February 1, 2014 Sales Gross profit...

  • Page 175
    ... in India. (4) The Company's fourth quarter of fiscal 2012 includes 14 weeks of operating results, while other quarterly periods presented include 13 weeks. (5) The sum of the quarterly earnings per common share may not tie to the year-to-date earnings per common share due to rounding. C-44

  • Page 176
    ... End of Period Fiscal year ended: January 28, 2012 February 2, 2013 February 1, 2014 55,348 45,962 33,545 23,622 34,167 23,292 33,008 46,584 26,015 45,962 33,545 30,822 (1) Amount for fiscal year 2012 includes $14.7 million relating to the Company's European Printing Systems Division business...

  • Page 177
    ... as co-documentation agents for the lenders. (Including schedules and exhibits). Filed as Exhibit 10.1 to the Company's Form 8-K filed June 4, 2013. Amended and Restated Commercial Paper Dealer Agreement, dated as of August 6, 2008, among the Company, and Banc of America Securities LLC. Filed as...

  • Page 178
    ... 10-K for the fiscal year ended January 28, 2012. Non-Management Director Compensation Summary. Filed as Exhibit 10.2 to the Company's Form 10-Q for the quarter ended November 2, 2013. Form of Severance Benefits Agreement signed by executive officers of the Company. Filed as Exhibit Exhibit 10.23...

  • Page 179
    ... to Fixed Charges. Code of Ethics. Filed as Exhibit 14.1 to the Company's 10-Q for the quarter ended on May 4, 2013. Subsidiaries of the Company. Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm. Principal Executive Officer-Certification pursuant to Section 302 of the...

  • Page 180
    ... information; and b) 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. Date: March 6, 2014 /s/ Ronald L. Sargent Ronald L. Sargent Chairman and Chief Executive Officer...

  • Page 181
    ... and report financial information; and b) 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. Date: March 6, 2014 /s/ Christine T. Komola Christine T. Komola Executive Vice...

  • Page 182
    ...-K of Staples, Inc. (the "Company") for the period ended February 1, 2014 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, pursuant to 18 U.S.C. Section 1350...

  • Page 183
    ... of Staples, Inc. (the "Company") for the period ended February 1, 2014 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, pursuant to 18 U.S.C. Section 1350...

  • Page 184
    ...Internet Address: computershare.com/investor Financial Information To request financial documents such as this Annual Report, which contains Staples' Form 10-K for the fiscal year ended February 1, 2014, as filed with the Securities and Exchange Commission, please visit Staples' Web site, staples...

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