10-Q 1 spls10-q072812.htm SPLS 10-Q 072812
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
 
(Mark one)
 
x  Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended:  July 28, 2012
 
o Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from                                to
 
Commission File Number:  0-17586
 
STAPLES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
04-2896127
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
Five Hundred Staples Drive, Framingham, MA  01702
(Address of principal executive office and zip code)
 
508-253-5000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o  No x
 
The registrant had 682,375,141 shares of common stock outstanding as of August 13, 2012.



STAPLES, INC. AND SUBSIDIARIES
FORM 10-Q
July 28, 2012
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
STAPLES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Dollar Amounts in Thousands, Except Share Data)
(Unaudited)
 
July 28,
2012
 
January 28,
2012
ASSETS
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
984,666

 
$
1,264,149

Receivables, net
1,855,933

 
2,033,680

Merchandise inventories, net
2,629,598

 
2,431,845

Deferred income tax assets
297,423

 
305,611

Prepaid expenses and other current assets
354,324

 
255,535

Total current assets
6,121,944

 
6,290,820

 
 
 
 
Property and equipment:
 

 
 

Land and buildings
1,013,859

 
1,034,983

Leasehold improvements
1,320,250

 
1,330,373

Equipment
2,505,464

 
2,462,351

Furniture and fixtures
1,083,612

 
1,084,358

Total property and equipment
5,923,185

 
5,912,065

Less: Accumulated depreciation
3,952,490

 
3,831,704

Net property and equipment
1,970,695

 
2,080,361

 
 
 
 
Intangible assets, net of accumulated amortization
412,266

 
449,781

Goodwill
3,861,584

 
3,982,130

Other assets
626,594

 
627,530

Total assets
$
12,993,083

 
$
13,430,622

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

Accounts payable
$
2,236,141

 
$
2,220,414

Accrued expenses and other current liabilities
1,198,676

 
1,414,721

Debt maturing within one year
498,987

 
439,143

Total current liabilities
3,933,804

 
4,074,278

 
 
 
 
Long-term debt
1,542,550

 
1,599,037

Other long-term obligations
719,976

 
735,094

 
 
 
 
Stockholders’ equity:
 

 
 

Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued

 

Common stock, $.0006 par value, 2,100,000,000 shares authorized; issued and outstanding 929,462,709 and 683,273,551 shares at July 28, 2012 and 922,126,579 shares and 695,743,547 at January 28, 2012, respectfully
558

 
553

Additional paid-in capital
4,633,946

 
4,551,299

Accumulated other comprehensive loss
(514,791
)
 
(319,743
)
Retained earnings
7,358,003

 
7,199,060

Less: Treasury stock at cost, 246,189,158 shares at July 28, 2012 and 226,383,032 shares at January 28, 2012
(4,688,011
)
 
(4,416,018
)
Total Staples, Inc. stockholders’ equity
6,789,705

 
7,015,151

Noncontrolling interests
7,048

 
7,062

Total stockholders’ equity
6,796,753

 
7,022,213

Total liabilities and stockholders’ equity
$
12,993,083

 
$
13,430,622

 
See notes to condensed consolidated financial statements.

2


STAPLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Dollar Amounts in Thousands, Except Per Share Data)
(Unaudited)
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 28,
2012
 
July 30,
2011
 
July 28,
2012
 
July 30,
2011
Sales
$
5,498,496

 
$
5,819,612

 
$
11,603,321

 
$
11,992,550

Cost of goods sold and occupancy costs
4,071,211

 
4,279,232

 
8,566,321

 
8,815,777

Gross profit
1,427,285

 
1,540,380

 
3,037,000

 
3,176,773


 
 
 
 
 
 
 
Operating expenses:
 

 
 

 
 
 
 
Selling, general and administrative
1,192,433

 
1,246,047

 
2,468,834

 
2,516,821

Amortization of intangibles
14,795

 
16,194

 
30,053

 
33,486

Total operating expenses
1,207,228

 
1,262,241

 
2,498,887

 
2,550,307


 
 
 
 
 
 
 
Operating income
220,057

 
278,139

 
538,113

 
626,466


 
 
 
 
 
 
 
Other (expense) income:
 

 
 

 
 
 
 
Interest income
1,450

 
1,519

 
3,101

 
3,978

Interest expense
(41,793
)
 
(41,885
)
 
(84,097
)
 
(90,678
)
Other expense
(1,352
)
 
(369
)
 
(1,698
)
 
(557
)
Consolidated income before income taxes
178,362

 
237,404

 
455,419

 
539,209

Income tax expense
57,967

 
61,104

 
148,011

 
165,227

Consolidated net income
120,395

 
176,300

 
307,408

 
373,982

Loss attributed to the noncontrolling interests
(34
)
 
(138
)
 
(80
)
 
(701
)
Net income attributed to Staples, Inc.
$
120,429

 
$
176,438

 
$
307,488

 
$
374,683


 
 
 
 
 
 
 
Earnings Per Share:
 

 
 

 
 
 
 
Basic earnings per common share
$
0.18

 
$
0.25

 
$
0.45

 
$
0.53

Diluted earnings per common share
$
0.18

 
$
0.25

 
$
0.45

 
$
0.53


 
 
 
 
 
 
 
Dividends declared per common share
$
0.11

 
$
0.10

 
$
0.22

 
$
0.20

 
 
 
 
 
 
 
 
Consolidated comprehensive (loss) income
$
(96,529
)
 
$
59,124

 
$
112,426

 
$
561,177

Comprehensive loss attributed to noncontrolling interests
(115
)
 
(48
)
 
(14
)
 
(495
)
Comprehensive (loss) income attributed to Staples, Inc.
$
(96,414
)
 
$
59,172

 
$
112,440

 
$
561,672

 
See notes to condensed consolidated financial statements.

3


STAPLES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Dollar Amounts in Thousands)
(Unaudited)
 
 
26 Weeks Ended
 
July 28,
2012
 
July 30,
2011
Operating Activities:
 

 
 

Consolidated net income, including loss from the noncontrolling interests
$
307,408

 
$
373,982

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation
201,555

 
211,550

Amortization of intangibles
30,053

 
33,486

Stock-based compensation
63,130

 
81,470

Excess tax benefits from stock-based compensation arrangements
(179
)
 
(942
)
Deferred income tax expense
8,707

 
54,170

Other
(4,363
)
 
9,901

Changes in assets and liabilities:
 
 
 
Decrease in receivables
143,992

 
58,957

Increase in merchandise inventories
(222,872
)
 
(276,649
)
Increase in prepaid expenses and other assets
(104,641
)
 
(38,399
)
Increase in accounts payable
41,570

 
45,794

Decrease in accrued expenses and other liabilities
(216,573
)
 
(264,790
)
Increase in other long-term obligations
8,993

 
13,634

Net cash provided by operating activities
256,780

 
302,164

 
 
 
 
Investing Activities:
 

 
 

Acquisition of property and equipment
(126,220
)
 
(164,149
)
Net cash used in investing activities
(126,220
)
 
(164,149
)
 
 
 
 
Financing Activities:
 

 
 

Proceeds from issuance of commercial paper, net of repayments
49,998

 
254,926

Proceeds from the exercise of stock options
24,259

 
31,559

Proceeds from borrowings
47,243

 
118,174

Payments on borrowings
(75,083
)
 
(698,631
)
Purchase of noncontrolling interest
(4,649
)
 

Cash dividends paid
(148,545
)
 
(140,643
)
Excess tax benefits from stock-based compensation arrangements
179

 
942

Purchase of treasury stock, net
(271,993
)
 
(365,203
)
Net cash used in financing activities
(378,591
)
 
(798,876
)

 
 
 
Effect of exchange rate changes on cash and cash equivalents
(31,452
)
 
22,728


 
 
 
Net decrease in cash and cash equivalents
(279,483
)
 
(638,133
)
Cash and cash equivalents at beginning of period
1,264,149

 
1,461,257

Cash and cash equivalents at end of period
$
984,666

 
$
823,124

 
See notes to condensed consolidated financial statements.

4


STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
 
Note A — Basis of Presentation
 
The accompanying interim unaudited condensed consolidated financial statements include the accounts of Staples, Inc. and its subsidiaries (“Staples” or “the Company”). All intercompany accounts and transactions have been eliminated in consolidation.  The Company accounts for investments in businesses in which it owns between 20% and 50% of the voting interest using the equity method, if the Company has the ability to exercise significant influence over the business. These financial statements are for the period covering the thirteen and twenty-six weeks ended July 28, 2012 (also referred to as the “second quarter of 2012" and the "first half of 2012") and the period covering the thirteen and twenty-six weeks ended July 30, 2011 (also referred to as the “second quarter of 2011” and the "first half of 2011"). 
 
These financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods.  For a more complete discussion of significant accounting policies and certain other information, these financial statements should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.  In the opinion of management, these financial statements reflect all normal recurring adjustments considered necessary to present fairly the financial position and the results of operations and cash flows for the interim periods presented.  The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year.

Note B — Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In May 2011, a pronouncement was issued providing consistent definitions and disclosure requirements of fair value with respect to U.S. GAAP and International Financial Reporting Standards. The pronouncement changed certain fair value measurement principles and enhanced the disclosure requirements, particularly for Level 3 measurements. The changes were effective prospectively for interim and annual periods beginning after December 15, 2011.  The Company adopted this pronouncement on January 29, 2012. The adoption of this guidance did not have a significant impact on the Company's condensed consolidated financial statements.

In June 2011, a pronouncement was issued that amended the guidance relating to the presentation of comprehensive income and its components. The pronouncement eliminates the option to present the components of other comprehensive income as part of the statement of equity and requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this pronouncement on January 29, 2012.  The adoption of this guidance required changes in presentation only and therefore did not have a significant impact on the Company's condensed consolidated financial statements.

In September 2011, a pronouncement was issued that amended the guidance for goodwill impairment testing. The pronouncement allows the entity to perform an initial qualitative assessment to determine whether it is "more likely than not" that the fair value of the reporting unit is less than its carrying amount. This assessment is used as a basis for determining whether it is necessary to perform the two step goodwill impairment test. The methodology for how goodwill is calculated, assigned to reporting units, and the application of the two step goodwill impairment test have not been revised. The pronouncement is effective for fiscal years beginning after December 15, 2011. The Company adopted this pronouncement on January 29, 2012.  As the Company has not yet performed its annual goodwill impairment analysis, which is performed in the fourth quarter, the potential impact of the adoption of this guidance is currently being evaluated. However, it is not expected to have a significant impact on the Company's condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2011, a pronouncement was issued that amended the guidance related to the disclosure of recognized financial instruments and derivative instruments that are either offset on the balance sheet or subject to an enforceable master netting arrangement or similar agreement. The amended provisions are effective for fiscal years beginning on or after January 1, 2013, and are required to be applied retrospectively for all prior periods presented. As this pronouncement relates to disclosure only, the adoption of this amendment is not expected to have a material effect on the Company's condensed consolidated financial statements.

5

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Note C — Acquisition Reserves
 
In connection with the Company’s acquisition of Corporate Express N.V. ("Corporate Express"), acquisition reserves of $181.0 million were originally established.  The activity related to this reserve for fiscal 2011 and 2012 is as follows (in thousands):
 
 
Balance as of
January 29, 2011
 
Utilization
 
Foreign Exchange Fluctuations
 
Balance as of
July 30, 2011
Transaction costs
$
543

 
$
(119
)
 
$

 
$
424

Severance
11,793

 
(2,904
)
 
350

 
9,239

Facility closures
20,287

 
(1,908
)
 
36

 
18,415

Other
9,344

 
(313
)
 
386

 
9,417

Total
$
41,967

 
$
(5,244
)
 
$
772

 
$
37,495


 
Balance as of
January 28, 2012
 
Utilization
 
Adjustments
 
Foreign Exchange Fluctuations
 
Balance as of
July 28, 2012
Severance
$
1,691

 
$
(95
)
 
$

 
$
(99
)
 
$
1,497

Facility closures
15,761

 
(10,404
)
 
(5,000
)
 
(10
)
 
347

Other
6,340

 
(38
)
 

 
(245
)
 
6,057

Total
$
23,792

 
$
(10,537
)
 
$
(5,000
)
 
$
(354
)
 
$
7,901

 
    
Note D — Fair Value Measurements
 
ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement), then the lowest priority to unobservable inputs (Level 3 measurement).
 
The fair values of cash and cash equivalents, receivables, accounts payable, accrued expenses, other current liabilities and short-term debt approximate their carrying values because of their short-term nature. 

The Company has $1.5 billion, 9.75% notes due January 2014 (the “January 2014 Notes”), of which $750 million was hedged from March 2010 to September 2011.  The Company received cash consideration of $30.3 million when the hedge was terminated in September 2011. The Company also has $325 million, 7.375% notes due October 2012 (the “October 2012 Notes”), which were hedged from January 2003 to September 2011. When the hedge was terminated in September 2011, the Company received cash consideration of $12.4 million. The termination of these hedges resulted in gains which are being amortized over the remaining terms of the respective notes, the unamortized portions of which are reflected in the carrying values of the notes.

The fair values of the January 2014 Notes and the October 2012 Notes were determined based on quoted market prices and are classified as Level 1 liabilities.  The following table reflects the difference between the financial statement carrying values and fair values of these notes as of July 28, 2012 and January 28, 2012 (in thousands):
 
July 28, 2012
 
January 28, 2012
 
Carrying Value
 
Fair Value
 
Carrying Value
 
Fair Value
October 2012 Notes
$
326,904

 
$
328,468

 
$
332,617

 
$
339,372

January 2014 Notes
1,518,620

 
1,680,000

 
1,525,003

 
1,721,490


6

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


 
The following table shows the Company’s assets and liabilities as of July 28, 2012 and January 28, 2012 that are measured and recorded in the financial statements at fair value on a recurring basis (in thousands): 
 
July 28, 2012
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
Money market funds
$
377,677

 
$

 
$

Derivative assets

 
7,138

 

Liabilities
 
 
 
 
 
Derivative liabilities

 
(23,487
)
 


 
January 28, 2012
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Other Observable Inputs
 
Unobservable Inputs
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
Money market funds
$
468,913

 
$

 
$

Liabilities
 
 
 
 
 
Derivative liabilities

 
(36,418
)
 


     The fair value of the Company’s money market funds are based on quotes received from third-party banks.  The fair value of the Company’s derivative liabilities are based on quotes received from third-party banks and represent the estimated amount the Company would pay to terminate the agreements taking into consideration current interest and forward exchange rates as well as the creditworthiness of the counterparty.

Note E — Debt and Credit Agreements
 
The Company has a credit agreement with Bank of America, N.A. , as Administrative Agent and other lending institutions named therein (the "November 2014 Revolving Credit Facility"). The November 2014 Revolving Credit Facility provides for a maximum borrowing of $1.0 billion, which pursuant to an accordion feature may be increased to $1.5 billion upon the Company's request and the agreement of the lenders participating in the increase. The Company also has a commercial paper program ("Commercial Paper Program") that allows the Company to issue up to $1.0 billion of unsecured commercial paper notes ("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. Payments under the Commercial Paper Program are unconditionally guaranteed on an unsecured, unsubordinated basis by the Guarantor Subsidiaries (See Note L). On July 12, 2012, the Company resumed the issuance of Notes under the Commercial Paper Program. As of July 28, 2012, $50.0 million Notes were outstanding, with a weighted average remaining maturity of three days and a weighted average interest rate of 0.4%. The maximum amount outstanding under the Commercial Paper Program during the second quarter of 2012 was $100.0 million.

The Company also has various other lines of credit under which we may borrow a maximum of $307.8 million. At July 28, 2012, the Company had $134.0 million of borrowings outstanding under these credit agreements.
    
    

7

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


The major components of the Company’s outstanding debt as of July 28, 2012 and January 28, 2012 are as follows (in thousands):
 
July 28, 2012
 
January 28, 2012
October 2012 Notes
$
326,904

 
$
332,617

January 2014 Notes
1,518,620

 
1,525,003

Commercial Paper Program
49,998

 

Lines of credit
133,982

 
170,745

Capital lease obligations and other notes payable
12,033

 
9,815


2,041,537

 
2,038,180

Less: Current portion
(498,987
)
 
(439,143
)
Net long-term debt
$
1,542,550

 
$
1,599,037

 
Note F — Derivative Instruments and Hedging Activities
 
Staples uses interest rate swaps, foreign currency swaps and foreign currency forward agreements to offset certain operational and balance sheet exposures related to changes in interest or foreign exchange rates.  These agreements are entered into to support transactions made in the normal course of business and accordingly are not speculative in nature.  These derivatives qualify for hedge accounting treatment as the derivatives have been highly effective in offsetting the underlying exposures related to the hedged items.
 
All derivatives are recorded at fair value and the changes in fair value are immediately included in earnings if the derivatives do not qualify as effective hedges. If a derivative is designated as a fair value hedge, then changes in the fair value of the derivative are offset against the changes in the fair value of the underlying hedged item in earnings.  If a derivative is designated as a cash flow hedge, then the effective portion of the changes in the fair value of the derivative is recognized as a component of accumulated other comprehensive income (loss) until the underlying hedged item is recognized in earnings or the forecasted transaction is no longer probable of occurring. If a derivative or a nonderivative financial instrument is designated as a hedge of the Company’s net investment in a foreign subsidiary, then changes in the fair value of the financial instrument are recognized as a component of accumulated other comprehensive income (loss) to offset a portion of the change in the translated value of the net investment being hedged, until the investment is sold or liquidated. The Company formally documents all hedging relationships for all derivative and nonderivative hedges and the underlying hedged items, as well as its risk management objectives and strategies for undertaking the hedge transactions.  There are no amounts excluded from the assessment of hedge effectiveness.
 
The Company classifies the fair value of all derivative contracts and the fair value of its hedged firm commitments as either current or long-term depending on whether the maturity date of the derivative contract is within or beyond one year from the balance sheet date. The cash flows from derivatives treated as hedges are classified in the Company’s condensed consolidated statement of cash flows in the same category as the item being hedged.

The table below presents the fair value of the Company's derivative financial instruments that qualify for hedge accounting as well as their classification on the condensed consolidated balance sheet as of July 28, 2012 and January 28, 2012 (in thousands):
 
 
 
 
Fair Value
 
 
Condensed Consolidated Balance Sheet Location
 
July 28, 2012
 
January 28, 2012
Asset derivatives:
 
 
 
 
 
 
Foreign currency forward
 
Other assets
 
$
7,133

 
$

Liability derivatives:
 
 
 
 
 
 
Interest rate swaps
 
Other long-term liabilities
 
$
(2,093
)
 
$

Foreign currency forward
 
Other long-term liabilities
 
(18,740
)
 
(21,974
)
Foreign currency swaps
 
Other long-term liabilities
 
(2,654
)
 
(14,353
)
Total
 
 
 
$
(23,487
)
 
$
(36,327
)

    

8

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


The tables below present gains and losses recognized in Other Comprehensive Income ("OCI") during the second quarter and first half of 2012 and 2011 related to derivative financial instruments designated as cash flow hedges or net investment hedges, as well as the amount of gains and losses reclassified into earnings during those periods (in thousands):

 
 
 
 
Gain (loss) recognized in OCI
 
Gain (loss) reclassified into earnings
 
Location of gain (loss) recognized in earnings
 
 
 
 
July 28, 2012
 
July 28, 2012
 
Derivative Type
 
Hedge Designation
 
13 Weeks Ended
 
26 Weeks Ended
 
13 Weeks Ended
 
26 Weeks Ended
 
Interest rate swaps
 
Cash flow
 
$
(2,093
)
 
$
(2,093
)
 
$

 
$

 

Foreign currency swaps
 
Net investment
 
7,766

 
2,478

 

 

 

Foreign currency forward
 
Net investment
 
7,133

 
7,133

 

 

 


 
 
 
 
Gain (loss) recognized in OCI
 
Loss reclassified into earnings
 
Location of Loss recognized in earnings
 
 
 
 
July 30, 2011
 
July 30, 2011
 
Derivative Type
 
Hedge Designation
 
13 Weeks Ended
 
26 Weeks Ended
 
13 Weeks Ended
 
26 Weeks Ended
 
Interest rate swaps
 
Cash flow
 
$
304

 
$
427

 
$
(304
)
 
$
(304
)
 
Other expense
Foreign currency swaps
 
Cash flow
 
(3,631
)
 
(3,631
)
 

 

 

Foreign currency swaps
 
Net investment
 
1,248

 
(17,851
)
 

 

 


Interest Rate Swaps:

During the second quarter of 2012, Staples entered into a series of interest rate swap agreements for an aggregate notional amount of $275.0 million. These swaps were designated as cash flow hedges of interest rate risk, and are used to hedge the Company's exposure to the variability in future cash flows associated with forecasted issuances of debt over a maximum period of twelve months. The effective portion of changes in the fair value of these derivatives is recorded in accumulated other comprehensive income (loss) ("AOCI") and will subsequently be reclassified into earnings in the period that the hedged forecasted transaction affects earnings. Amounts reported in AOCI will be reclassified to interest expense as interest payments are made on the Company's forecasted issuances of fixed-rate debt. During the next twelve months, the Company does not expect a material amount to be reclassified to the consolidated statement of comprehensive income as an increase to interest expense. At July 28, 2012, these interest rate swaps had an aggregate fair value loss of $2.1 million which was included in other long-term obligations. No amounts were included in the condensed consolidated statement of comprehensive income in the second quarter of 2012 related to ineffectiveness associated with these cash flow hedges. The Company has agreements with its interest rate swap counterparties that contain provisions whereby the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company's default on the indebtedness. At July 28, 2012, the termination value of derivatives in a net liability position related to these agreements, which includes accrued interest but excludes any adjustment for nonperformance risk, was $2.1 million. As of July 28, 2012, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at its termination value.

In March 2010, Staples entered into interest rate swaps for an aggregate notional amount of $750 million. These swaps were designated as a fair value hedge and designed to convert half of the aggregate principal amount of the January 2014 Notes into a variable rate obligation.  In September 2011, the Company terminated the $750 million interest rate swaps, realizing a gain of $30.3 million which was recorded as an adjustment to the carrying value of the debt and is being amortized to interest expense over the remaining term of the January 2014 Notes. No amounts had been included in the condensed consolidated statement of comprehensive income in the first half of 2011 related to ineffectiveness associated with this fair value hedge.

 In January 2003, Staples entered into interest rate swaps for an aggregate notional amount of $325 million. These swaps were designated as a fair value hedge and designed to convert the October 2012 Notes into a variable rate obligation. In September 2011, the Company terminated the $325 million interest rate swaps, realizing a gain of $12.4 million which was recorded as an adjustment to the carrying value of the debt and is being amortized to interest expense over the remaining term of the October 2012 Notes. No amounts were included in the condensed consolidated statement of comprehensive income in the first half of 2011 related to ineffectiveness associated with this fair value hedge.

9

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)



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 variable rate credit facilities and terminated the related interest rate swap agreements. As a result of the termination of these interest rate swap agreements, the Company recognized a loss of $0.3 million during the second quarter of 2011.
      
Foreign Currency Swaps and Foreign Currency Forwards:

In May 2012, the Company entered into a foreign currency forward that has been designated as a foreign currency hedge on Staples’ net investment in Euro denominated subsidiaries. Under the terms of the agreement, Staples, upon maturity of the agreement in September 2012, is entitled to receive 115.0 million Euros and is obligated to pay 150.0 million Canadian dollars. At July 28, 2012, this derivative had a fair value gain of $7.1 million which was included in other long-term assets.  No amounts were included in the condensed consolidated statement of comprehensive income for the second quarter of 2012 related to ineffectiveness associated with this net investment hedge.
    
In December 2011, the Company entered into a foreign currency forward designed to convert a series of intercompany loans denominated in Canadian dollars into a fixed U.S. dollar amount. The loans total 750 million Canadian dollars in the aggregate and are scheduled to mature at various dates between October 2012 and October 2013. Staples, upon full maturity of the agreements, will collect $720 million and will be obligated to pay 750 million Canadian dollars. The forward agreements are being accounted for as a fair value hedge. At July 28, 2012 and January 28, 2012, the foreign currency forward had an aggregate fair value loss of $18.7 million and $22.0 million, respectively, which was included in other long-term obligations. The effective portion of this hedge is included as a component of other expense. No amounts were included in the condensed consolidated statement of comprehensive income for the first half of 2012 related to ineffectiveness associated with this fair value hedge. During the second quarter and first half of 2012, gains of $16.6 million and $3.2 million, respectively, were recognized in other expense related to this fair value hedge.

In May 2011, the Company entered into a foreign currency swap designed to convert a $75 million intercompany loan denominated in Australian dollars into a fixed Euro amount. The intercompany loan had a fixed interest rate of 6.65%. The agreement was accounted for as a cash flow hedge. No amounts were included in the condensed consolidated statement of comprehensive income for the first half of 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 2007, the Company entered into a $300 million foreign currency swap that has been designated as a foreign currency hedge on Staples’ net investment in Canadian dollar denominated subsidiaries. In the first quarter of 2012, the Company terminated $50 million of this swap, realizing a loss of approximately $3.0 million which has been recorded as a foreign currency translation loss within other comprehensive income. In the second quarter of 2012, the Company terminated an additional $150 million of this swap, realizing a loss of approximately $6.2 million which has also been recorded as a foreign currency translation loss within other comprehensive income. The $100 million remaining notional amount under the swap agreement has been re-designated as a foreign currency hedge on Staples’ net investment in Canadian dollar denominated subsidiaries. At July 28, 2012 and January 28, 2012, the currency swap had an aggregate fair value loss of $2.7 million and $14.4 million, respectively, which was included in other long-term obligations.  No amounts were included in the condensed consolidated statement of comprehensive income for the first half of 2012 or 2011 related to ineffectiveness associated with this net investment hedge.    

Note G — Equity-Based Employee Compensation and Benefit Plans
 
Under the Amended and Restated 2004 Stock Incentive Plan, the Company grants restricted stock and restricted stock units (collectively, “Restricted Shares”) and nonqualified stock options to associates.  Shares issued pursuant to restricted stock awards are restricted in that they are not transferable until they vest. Shares underlying awards of restricted stock units are not issued until the units vest. Nonqualified stock options cannot be exercised until they vest.  Vesting of the Restricted Shares and nonqualified stock options occurs over different periods, depending on the terms of the individual award, but expenses relating to these awards are all recognized on a straight line basis over the applicable vesting period.

10

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)



The following table summarizes activity related to nonqualified stock options and Restricted Shares in the first half of 2012:
 
 
Nonqualified Stock Options
 
Restricted Shares (1)
 
 
Number of Shares
 
Weighted Average Exercise Price per Share
 
Number of Shares
 
Weighted Average Grant Date Fair Value per Share
Outstanding at January 28, 2012
 
45,995,348

 
$
19.89

 
16,799,262

 
$
18.13

Granted
 
2,478,921

 
13.03

 
4,548,772

 
13.13

Exercised/Released
 
(1,462,782
)
 
11.43

 
(5,188,156
)
 
20.11

Canceled
 
(2,210,790
)
 
19.87

 
(1,318,571
)
 
20.13

Outstanding at July 28, 2012
 
44,800,697

 
$
19.79

 
14,841,307

 
$
15.73

 
 
 
 
 
 
 
 
 
Exercisable at July 28, 2012
 
34,908,337

 
$
20.72

 
 
 
 
Vested or expected to vest at July 28, 2012
 
43,790,123

 
$
19.85

 
 
 
 

(1)
Restricted Shares do not include 0.5 million special performance and retention shares ("Performance Shares") which Staples granted to certain employees in 2010 with a fair market value of $19.27 per share. Performance Shares are awards under which restricted stock is issued only if the Company meets minimum performance targets. The fair value of Performance Shares is based upon the market price of the underlying common stock as of the date of grant.
 
In connection with its equity-based employee compensation and benefit plans, Staples included $32.0 million and $63.1 million in compensation expense for the second quarter and first half of 2012, respectively, and $46.1 million and $81.5 million in compensation expense for the second quarter and first half of 2011, respectively. As of July 28, 2012, Staples had $163.6 million of unamortized stock compensation expense associated with nonqualified stock options, Restricted Shares and Performance Shares which will be expensed over the period through June 2016

Staples offers its associates the opportunity for share ownership pursuant to the 2012 Employee Stock Purchase Plan and, prior to January 1, 2012, through the Amended and Restated 1998 Employee Stock Purchase Plan (collectively the “Employee Stock Purchase Plans”). Under the Employee Stock Purchase Plans, U.S. and International associates may purchase shares of Staples common stock at 85% of the lower of the market price of the common stock at the beginning or end of an offering period through payroll deductions in an amount not to exceed 10% of an employee’s annual base compensation. During the first half of 2012 and 2011, the Company issued 2.1 million shares and 1.7 million shares, respectively, pursuant to these plans.

Note H — Pension and Other Post-Retirement Benefit Plans
 
In connection with the acquisition of Corporate Express, Staples assumed the obligations under the defined benefit pension plans Corporate Express sponsored.  The pension plans cover certain employees in Europe and the U.S.  The benefits due to U.S. plan participants are frozen.  A number of the defined benefit plans outside the U.S. are funded with plan assets that have been segregated in trusts.  Contributions are made to these trusts, as necessary, to meet legal and other requirements.
 
In August 2010, the Company began sponsoring an unfunded post-retirement life insurance benefit plan, which provides benefits to eligible U.S. executives based on earnings, years of service and age at termination of employment.
 

11

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)



The total net cost recognized for the second quarter and first half of 2012 and 2011 associated with the pension and other post-retirement benefit plans is based upon preliminary estimates pending the final actuarial determination of such costs. The following table presents a summary of the total net periodic cost recorded in the condensed consolidated statement of comprehensive income for the second quarter and first half of 2012 and 2011 related to the plans (in thousands):
 
 
 13 Weeks Ended July 28, 2012
 
Pension Plans
 
 Other
Post-Retirement Benefit Plan
Total
 
U.S. Plans
 
International Plans
 
Total
 
Service cost
$

 
$
2,531

 
$
2,531

 
$
460

Interest cost
443

 
9,247

 
9,690

 
385

Expected return on plan assets
(438
)
 
(12,398
)
 
(12,836
)
 


Amortization of unrecognized losses and prior service costs
83

 
1,289

 
1,372

 
429

Total cost
$
88

 
$
669

 
$
757

 
$
1,274

 
13 Weeks Ended July 30, 2011
 
Pension Plans
 
 Other
Post-Retirement Benefit Plan
Total
 
U.S. Plans
 
International Plans
 
Total
 
Service cost
$

 
$
2,404

 
$
2,404

 
$
443

Interest cost
466

 
10,179

 
10,645

 
372

Expected return on plan assets
(422
)
 
(13,923
)
 
(14,345
)
 

Amortization of unrecognized losses and prior service costs

 
352

 
352

 
431

Total cost (benefit)
$
44

 
$
(988
)
 
$
(944
)
 
$
1,246


 
26 Weeks Ended July 28, 2012
 
Pension Plans
 
 Other
Post-Retirement Benefit Plan Total
 
U.S. Plans
 
International Plans
 
Total
 
Service cost
$

 
$
5,180

 
$
5,180

 
$
920

Interest cost
886

 
18,915

 
19,801

 
770

Expected return on plan assets
(876
)
 
(25,366
)
 
(26,242
)
 

Amortization of unrecognized losses and prior service costs
166

 
2,633

 
2,799

 
858

Total cost
$
176

 
$
1,362

 
$
1,538

 
$
2,548


 
26 Weeks Ended July 30, 2011
 
Pension Plans
 
 Other
Post-Retirement Benefit Plan Total
 
U.S. Plans
 
International Plans
 
Total
 
Service cost
$

 
$
4,807

 
$
4,807

 
$
897

Interest cost
932

 
20,358

 
21,290

 
752

Expected return on plan assets
(844
)
 
(27,846
)
 
(28,690
)
 

Amortization of unrecognized losses and prior service costs

 
704

 
704

 
872

Total cost (benefit)
$
88

 
$
(1,977
)
 
$
(1,889
)
 
$
2,521


12

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)



Cash contributions made to the pension plans during the second quarter and first half of 2012 and 2011 are as follows (in thousands):
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
U.S. Pension Plans
$
343

 
$
194

 
$
597

 
$
388

International Pension Plans
1,835

 
2,065

 
9,267

 
3,970

Total
$
2,178

 
$
2,259

 
$
9,864

 
$
4,358

 
The Company expects to make additional cash contributions of $0.8 million and $3.8 million to the U.S. Pension Plans and International Pension Plans, respectively, during the remainder of fiscal year 2012.  No cash contributions are expected to be made during 2012 to the Company’s other post-retirement benefit plans.

Note I — Stockholders’ Equity
 
The following table reflects the changes in stockholders’ equity attributed to Staples, Inc. and its noncontrolling interests for the first half of 2012 and 2011 (in thousands): 
 
Attributable to Staples, Inc.
 
Attributable to Noncontrolling Interest
 
Total
Stockholders' equity at January 28, 2012
$
7,015,151

 
$
7,062

 
$
7,022,213

Comprehensive Income:
 
 
 
 
 
Net income
307,488

 
(80
)
 
307,408

Other Comprehensive Income:
 
 
 
 
 
Foreign currency translation adjustments, net
(203,879
)
 
66

 
(203,813
)
Changes in fair value of derivatives, net (1)
8,831

 

 
8,831

Comprehensive Income
112,440

 
(14
)
 
112,426

Issuance of common stock for stock options exercised
24,259

 

 
24,259

Stock-based compensation
63,130

 

 
63,130

Purchase of noncontrolling interest
(4,649
)
 

 
(4,649
)
Cash dividends paid
(148,545
)
 

 
(148,545
)
Excess tax benefits from stock-based compensation arrangements
179

 

 
179

Purchase of treasury stock, net
(271,993
)
 

 
(271,993
)
Other
(267
)
 

 
(267
)
Stockholders' equity at July 28, 2012
$
6,789,705

 
$
7,048

 
$
6,796,753

 

13

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


 
Attributable to Staples, Inc.
 
Attributable to Noncontrolling Interest
 
Total
Stockholders' equity at January 29, 2011
$
6,943,710

 
$
7,471

 
$
6,951,181

Comprehensive Income:
 
 
 
 
 
Net income
374,683

 
(701
)
 
373,982

Other Comprehensive Income:
 
 
 
 
 
Foreign currency translation adjustments, net
200,546

 
206

 
200,752

Changes in fair value of derivatives, net (1)
(13,557
)
 

 
(13,557
)
Comprehensive Income
561,672

 
(495
)
 
561,177

Issuance of common stock for stock options exercised
31,559

 

 
31,559

Stock-based compensation
81,470

 

 
81,470

Cash dividends paid
(140,643
)
 

 
(140,643
)
Excess tax benefits from stock-based compensation arrangements
942

 

 
942

Purchase of treasury stock, net
(365,203
)
 

 
(365,203
)
Other
(831
)
 

 
(831
)
Stockholders' equity at July 30, 2011
$
7,112,676

 
$
6,976

 
$
7,119,652

 
(1)
Changes in the fair value of derivatives are net of a tax expense (benefit) of $7.9 million for the first half of 2012 and $(7.5) million for the first half of 2011, respectively.


Note J — Computation of Earnings Per Common Share
 
The computation of basic and diluted earnings per share for the second quarter and first half of 2012 and 2011 is as follows (in thousands, except per share data):
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
Numerator:
 

 
 

 
 

 
 

Net income attributed to Staples, Inc.
$
120,429

 
$
176,438

 
$
307,488

 
$
374,683

Denominator:
 
 
 
 
 
 
 
Weighted-average common shares outstanding
672,862

 
698,917

 
676,554

 
702,618

Effect of dilutive securities:
 
 
 
 
 
 
 
Employee stock options, restricted shares and performance shares
6,262

 
9,754

 
7,727

 
10,419

Weighted-average common shares outstanding assuming dilution
679,124

 
708,671

 
684,281

 
713,037

 
 
 
 
 
 
 
 
Basic earnings per common share
$
0.18

 
$
0.25

 
$
0.45

 
$
0.53

Diluted earnings per common share
$
0.18

 
$
0.25

 
$
0.45

 
$
0.53

 
Options to purchase shares of common stock are excluded from the calculation of diluted earnings per share when their inclusion would have an anti-dilutive effect on the calculation.  Options to purchase 39.2 million and 36.0 million shares of Staples, Inc. common stock were excluded from the calculation of diluted earnings per share at July 28, 2012 and July 30, 2011, respectively.
 
Note K — Segment Reporting
 
Staples has three reportable segments: North American Delivery, North American Retail and International Operations. Staples’ North American Delivery segment consists of the U.S. and Canadian businesses that sell and deliver office products and services directly to consumers and businesses and includes Staples Advantage, Staples.com and Quill.com.  The North American Retail segment consists of the U.S. and Canadian businesses that operate stores that sell office products and services. The International Operations segment consists of businesses that operate stores and that sell and deliver office products and services directly to consumers and businesses in 24 countries in Europe, Australia, South America and Asia.
 

14

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Staples evaluates performance and allocates resources based on profit or loss from operations before stock-based compensation, interest and other expense, non-recurring items and the impact of changes in accounting principles (“business unit income”).  Intersegment sales and transfers are recorded at Staples’ cost; therefore, there is no intercompany profit or loss recognized on these transactions.
 
Staples’ North American Delivery and North American Retail segments are managed separately because the way they market products is different, the classes of customers they service may be different and the distribution methods used to deliver products to customers are different.  The International Operations are considered a separate reportable segment because of the significant differences in the operating environment from the North American operations.
 
The following is a summary of sales and business unit income by reportable segment and a reconciliation of business unit income to consolidated income before income taxes for the second quarter and first half of 2012 and 2011 (in thousands):
 
 
13 Weeks Ended
 
26 Weeks Ended
 
July 28, 2012
 
July 30, 2011
 
July 28, 2012
 
July 30, 2011
 
Sales
North American Delivery
$
2,412,755

 
$
2,433,217

 
$
4,967,826

 
$
4,944,863

North American Retail
1,989,139

 
2,045,143

 
4,312,970

 
4,373,228

International Operations
1,096,602

 
1,341,252

 
2,322,525

 
2,674,459

Total segment sales
$
5,498,496

 
$
5,819,612

 
$
11,603,321

 
$
11,992,550

 
 
 
 
 
 
 
 
 
Business Unit Income (Loss)
North American Delivery
$
185,767

 
$
204,765

 
$
386,726

 
$
401,615

North American Retail
88,413

 
102,872

 
255,368

 
280,221

International Operations
(22,081
)
 
16,576

 
(40,851
)
 
26,100

Business unit income
252,099

 
324,213

 
601,243

 
707,936

Stock-based compensation
(32,042
)
 
(46,074
)
 
(63,130
)
 
(81,470
)
Interest and other expense, net
(41,695
)
 
(40,735
)
 
(82,694
)
 
(87,257
)
Consolidated income before income taxes
$
178,362

 
$
237,404

 
$
455,419

 
$
539,209

 
Note L — Guarantor Subsidiaries
 
Under the terms of the October 2012 Notes, the January 2014 Notes, the November 2014 Revolving Credit Facility and the Commercial Paper Program, the Guarantor Subsidiaries, as defined below, guarantee repayment of the debt. The debt is fully and unconditionally guaranteed on an unsecured, joint and several basis by Staples the Office Superstore, LLC, Staples the Office Superstore, East Inc., Staples Contract & Commercial, Inc. and Staples the Office Superstore Limited Partnership (collectively, the “Guarantor Subsidiaries”). The term of the guarantees is equivalent to the term of the related debt.  Upon payment of the October 2012 notes, the Company will take the actions required under the applicable guarantee fall-away provisions to cause the Guarantor Subsidiaries to be legally released from their guarantees of debt related to the January 2014 Notes, the November 2014 Revolving Credit Facility and the Commercial Paper Program.

The following condensed consolidating financial data is presented for the holders of the October 2012 Notes and the January 2014 Notes and illustrates the composition of Staples, Inc. (the “Parent Company”), Guarantor Subsidiaries and non-guarantor subsidiaries as of July 28, 2012 and January 28, 2012 and for the thirteen and twenty-six weeks ended July 28, 2012 and July 30, 2011.  The Guarantor Subsidiaries are wholly owned by Staples, Inc.  The non-guarantor subsidiaries represent more than an inconsequential portion of the consolidated assets and revenues of Staples. Investments in subsidiaries are accounted for by the Parent Company on the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are, therefore, reflected in the Parent Company’s investment accounts and earnings. The principal elimination entries eliminate the Parent Company’s investment in subsidiaries and intercompany balances and transactions.

15

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)



Condensed Consolidating Balance Sheet
As of July 28, 2012
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Cash and cash equivalents
$
78,626

 
$
76,954

 
$
829,086

 
$

 
$
984,666

Merchandise inventories, net

 
1,560,551

 
1,069,047

 

 
2,629,598

Other current assets
663,907

 
813,934

 
1,029,839

 

 
2,507,680

Total current assets
742,533

 
2,451,439

 
2,927,972

 

 
6,121,944

Net property, equipment and other assets
652,538

 
1,120,927

 
1,236,090

 

 
3,009,555

Goodwill
1,636,726

 
153,200

 
2,071,658

 

 
3,861,584

Investment in affiliates and intercompany, net
5,704,179

 
8,152,766

 
10,676,696

 
(24,533,641
)
 

Total assets
$
8,735,976

 
$
11,878,332

 
$
16,912,416

 
$
(24,533,641
)
 
$
12,993,083

Total current liabilities
$
237,404

 
$
2,119,173

 
$
1,577,227

 
$

 
$
3,933,804

Total long-term liabilities
1,701,819

 
209,225

 
351,482

 

 
2,262,526

Total stockholders' equity
6,796,753

 
9,549,934

 
14,983,707

 
(24,533,641
)
 
6,796,753

Total liabilities and stockholders' equity
$
8,735,976

 
$
11,878,332

 
$
16,912,416

 
$
(24,533,641
)
 
$
12,993,083

 
Condensed Consolidating Balance Sheet
As of January 28, 2012
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Cash and cash equivalents
$
385,279

 
$
43,323

 
$
835,547

 
$

 
$
1,264,149

Merchandise inventories, net

 
1,437,074

 
994,771

 

 
2,431,845

Other current assets
68,608

 
1,188,378

 
1,337,840

 

 
2,594,826

Total current assets
453,887

 
2,668,775

 
3,168,158

 

 
6,290,820

Net property, equipment and other assets
671,787

 
1,165,840

 
1,320,045

 

 
3,157,672

Goodwill
1,644,728

 
156,303

 
2,181,099

 

 
3,982,130

Investment in affiliates and intercompany, net
5,951,426

 
6,935,956

 
10,988,680

 
(23,876,062
)
 

Total assets
$
8,721,828

 
$
10,926,874

 
$
17,657,982

 
$
(23,876,062
)
 
$
13,430,622

Total current liabilities
$
(13,544
)
 
$
2,314,411

 
$
1,773,411

 
$

 
$
4,074,278

Total long-term liabilities
1,713,159

 
195,852

 
425,120

 

 
2,334,131

Total stockholders' equity
7,022,213

 
8,416,611

 
15,459,451

 
(23,876,062
)
 
7,022,213

Total liabilities and stockholders' equity
$
8,721,828

 
$
10,926,874

 
$
17,657,982

 
$
(23,876,062
)
 
$
13,430,622



16

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Condensed Consolidating Statement of Comprehensive Income
For the thirteen weeks ended July 28, 2012
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Sales
$

 
$
3,433,007

 
$
2,065,489

 
$

 
$
5,498,496

Cost of goods sold and occupancy costs
2,657

 
2,595,598

 
1,472,956

 

 
4,071,211

Gross (loss) profit
(2,657
)
 
837,409

 
592,533

 

 
1,427,285

Operating and other (income) expenses
(123,086
)
 
721,656

 
504,772

 
145,581

 
1,248,923

Consolidated income before income taxes
120,429

 
115,753

 
87,761

 
(145,581
)
 
178,362

Income tax expense

 
51,202

 
6,765

 

 
57,967

Consolidated net income
120,429

 
64,551

 
80,996

 
(145,581
)
 
120,395

Loss attributed to the noncontrolling interests

 

 
(34
)
 

 
(34
)
Net income attributed to Staples, Inc.
$
120,429

 
$
64,551

 
$
81,030

 
$
(145,581
)
 
$
120,429

 
 
 
 
 
 
 
 
 
 
Consolidated comprehensive income (loss)
$
(96,414
)
 
$
64,551

 
$
(130,325
)
 
$
65,659

 
$
(96,529
)
Comprehensive loss attributed to noncontrolling interests

 

 
(115
)
 

 
(115
)
Comprehensive income (loss) attributed to Staples, Inc.
$
(96,414
)
 
$
64,551

 
$
(130,210
)
 
$
65,659

 
$
(96,414
)
 
Condensed Consolidating Statement of Comprehensive Income
For the thirteen weeks ended July 30, 2011
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Sales
$

 
$
3,495,872

 
$
2,323,740

 
$

 
$
5,819,612

Cost of goods sold and occupancy costs
3,413

 
2,635,730

 
1,640,089

 

 
4,279,232

Gross (loss) profit
(3,413
)
 
860,142

 
683,651

 

 
1,540,380

Operating and other (income) expenses
(179,851
)
 
743,139

 
532,010

 
207,678

 
1,302,976

Consolidated income before income taxes
176,438

 
117,003

 
151,641

 
(207,678
)
 
237,404

Income tax expense

 
53,971

 
7,133

 

 
61,104

Consolidated net income
176,438

 
63,032

 
144,508

 
(207,678
)
 
176,300

Loss attributed to the noncontrolling interests

 

 
(138
)
 

 
(138
)
Net income attributed to Staples, Inc.
$
176,438

 
$
63,032

 
$
144,646

 
$
(207,678
)
 
$
176,438

 
 
 
 
 
 
 
 
 
 
Consolidated comprehensive income (loss)
$
59,172

 
$
63,032

 
$
26,646

 
$
(89,726
)
 
$
59,124

Comprehensive loss attributed to noncontrolling interests

 

 
(48
)
 

 
(48
)
Comprehensive income (loss) attributed to Staples, Inc.
$
59,172

 
$
63,032

 
$
26,694

 
$
(89,726
)
 
$
59,172

 



17

STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)


Condensed Consolidating Statement of Comprehensive Income
For the twenty-six weeks ended July 28, 2012
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Sales
$

 
$
7,222,481

 
$
4,380,840

 
$

 
$
11,603,321

Cost of goods sold and occupancy costs
5,165

 
5,422,362

 
3,138,794

 

 
8,566,321

Gross (loss) profit
(5,165
)
 
1,800,119

 
1,242,046

 

 
3,037,000

Operating and other (income) expenses
(312,653
)
 
1,478,200

 
1,066,452

 
349,582

 
2,581,581

Consolidated income before income taxes
307,488

 
321,919

 
175,594

 
(349,582
)
 
455,419

Income tax expense

 
138,174

 
9,837

 

 
148,011

Consolidated net income
307,488

 
183,745

 
165,757

 
(349,582
)
 
307,408

Loss attributed to the noncontrolling interests

 

 
(80
)
 

 
(80
)
Net income attributed to Staples, Inc.
$
307,488

 
$
183,745

 
$
165,837

 
$
(349,582
)
 
$
307,488

 
 
 
 
 
 
 
 
 
 
Consolidated comprehensive income (loss)
$
112,440

 
$
183,745

 
$
(20,830
)
 
$
(162,929
)
 
$
112,426

Comprehensive loss attributed to noncontrolling interests

 

 
(14
)
 

 
(14
)
Comprehensive income (loss) attributed to Staples, Inc.
$
112,440

 
$
183,745

 
$
(20,816
)
 
$
(162,929
)
 
$
112,440

 
Condensed Consolidating Statement of Comprehensive Income
For the twenty-six weeks ended July 30, 2011
(in thousands)
 
 
Staples, Inc.
(Parent Co.)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Sales
$

 
$
7,254,520

 
$
4,738,030

 
$

 
$
11,992,550

Cost of goods sold and occupancy costs
5,927

 
5,433,779

 
3,376,071

 

 
8,815,777

Gross (loss) profit
(5,927
)
 
1,820,741

 
1,361,959

 

 
3,176,773

Operating and other (income) expenses
(380,610
)
 
1,492,499

 
1,086,661

 
439,014

 
2,637,564

Consolidated income before income taxes
374,683

 
328,242

 
275,298

 
(439,014
)
 
539,209

Income tax expense

 
145,180

 
20,047

 

 
165,227

Consolidated net income
374,683

 
183,062

 
255,251

 
(439,014
)
 
373,982

Loss attributed to the noncontrolling interests

 

 
(701
)
 

 
(701
)
Net income attributed to Staples, Inc.
$
374,683

 
$
183,062

 
$
255,952

 
$
(439,014
)
 
$
374,683