<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended: May 1, 1999
------------------------------------------------
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 [ ]
The registrant had 464,812,942 shares of Common Stock, par value $.0006,
outstanding as of May 17, 1999.
<PAGE> 2
FORM 10-Q
STAPLES, INC.
MAY 1, 1999
TABLE OF CONTENTS
Page
----
Part I - Financial Information:
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets ............................................. 3
Consolidated Statements of Income ....................................... 4
Consolidated Statements of Cash Flows ................................... 5
Notes to Consolidated Financial Statements .............................. 6-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 13-19
Item 3. Quantitative and Qualitative Disclosures about
Market Risk ........................................................ 20
Part II - Other Information ............................................ 21
Signature ............................................................... 22
Page 2
<PAGE> 3
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
May 1,
1999 January 30,
(Unaudited) 1999
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 151,670 $ 357,993
Short-term investments ................................. 23,498 17,428
Merchandise inventories ................................ 1,305,170 1,340,432
Receivables, net ....................................... 342,675 221,836
Deferred income taxes .................................. 77,221 75,261
Prepaid expenses and other current assets .............. 37,855 51,150
---------- ----------
TOTAL CURRENT ASSETS .................................. 1,938,089 2,064,100
PROPERTY AND EQUIPMENT:
Land and buildings ..................................... 239,336 231,378
Leasehold improvements ................................. 387,839 372,451
Equipment .............................................. 438,210 400,225
Furniture and fixtures ................................. 254,073 239,755
---------- ----------
TOTAL PROPERTY AND EQUIPMENT .......................... 1,319,458 1,243,809
Less accumulated depreciation and amortization ......... 435,352 403,520
---------- ----------
NET PROPERTY AND EQUIPMENT ............................ 884,106 840,289
OTHER ASSETS:
Lease acquisition costs, net of amortization ........... 73,017 75,127
Goodwill, net of amortization .......................... 300,981 148,201
Deferred income taxes .................................. 29,704 28,735
Other .................................................. 22,350 22,814
---------- ----------
TOTAL OTHER ASSETS .................................... 426,052 274,877
---------- ----------
$3,248,247 $3,179,266
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 778,251 $ 794,427
Accrued expenses and other current liabilities ......... 471,454 438,311
Debt maturing within one year .......................... 35,782 32,594
---------- ----------
TOTAL CURRENT LIABILITIES ............................. 1,285,487 1,265,332
LONG-TERM DEBT ............................................ 204,270 205,015
OTHER LONG-TERM OBLIGATIONS ............................... 53,913 52,033
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value-authorized
5,000,000 shares; no shares issued ..................... -- --
Common stock, $.0006 par value-authorized
1,000,000,000 shares; issued
463,163,798 at May 2, 1999 and
461,538,061 shares at January 30, 1999 ................. 279 277
Additional paid-in capital ............................. 1,065,137 1,043,194
Cumulative foreign currency translation adjustments .... (8,513) (11,675)
Unrealized gain on investments ......................... 1 7
Retained earnings ...................................... 683,635 633,321
Less: treasury stock at cost, 1,344,768 shares at
May 1, 1999 and 488,922 shares at January 30, 1999 ..... (35,962) (8,238)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ........................ 1,704,577 1,656,886
---------- ----------
$3,248,247 $3,179,266
========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 4
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(UNAUDITED)
13 WEEKS ENDED
-----------------------------
MAY 1, MAY 2,
1999 1998
------------ ------------
<S> <C> <C>
Sales ................................................. $ 2,072,066 $ 1,670,611
Cost of goods sold and occupancy costs ................ 1,577,313 1,289,833
------------ ------------
GROSS PROFIT ...................................... 494,753 380,778
OPERATING AND OTHER EXPENSES:
Operating and selling ............................... 315,320 248,411
Pre-opening ......................................... 4,508 3,352
General and administrative .......................... 88,740 67,486
Amortization of goodwill ............................ 2,287 924
Interest and other expense, net ..................... 1,416 4,694
------------ ------------
TOTAL OPERATING AND OTHER EXPENSES ................ 412,271 324,867
------------ ------------
INCOME BEFORE INCOME TAXES ......................... 82,482 55,911
Income tax expense .................................... 32,168 20,011
------------ ------------
NET INCOME BEFORE MINORITY INTEREST ............... 50,314 35,900
Minority interest ................................... -- 50
------------ ------------
NET INCOME ........................................ $ 50,314 $ 35,950
============ ============
BASIC EARNINGS PER COMMON SHARE
Historical net income per common share ............ $ 0.11 $ 0.09
============ ============
DILUTED EARNINGS PER COMMON SHARE
Historical net income per common share ............ $ 0.11 $ 0.08
============ ============
PRO FORMA:
Historical net income .............................. $ 50,314 $ 35,950
Provision for income taxes on previously
untaxed earnings of pooled
S-Corporation income ............................. -- 1,814
------------ ------------
PRO FORMA NET INCOME .............................. $ 50,314 $ 34,136
============ ============
BASIC EARNINGS PER COMMON SHARE
Pro forma net income per common share ............. $ 0.11 $ 0.08
============ ============
DILUTED EARNINGS PER COMMON SHARE
Pro forma net income per common share ............. $ 0.11 $ 0.08
============ ============
Number of shares used in computing historical and
pro forma basic net income per common share ....... 462,832,475 419,027,328
============ ============
Number of shares used in computing historical and
pro forma diluted net income per common share ..... 476,801,013 461,616,368
============ ============
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
STAPLES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
13 Weeks Ended
-----------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................................ $ 50,314 $ 35,950
Adjustments to reconcile net income to net cash
used in operating activities:
Minority interest ................................................ -- (50)
Depreciation and amortization .................................... 34,456 28,652
Expense from 401K and PARS stock contribution .................... 4,625 1,622
Deferred income taxes (benefit)/expense .......................... (2,800) 2,795
Change in assets and liabilities, net of companies
acquired using purchase accounting:
(Decrease)/Increase in merchandise inventories .................. 47,238 (3,704)
Increase in receivables ......................................... (100,995) (37,841)
(Decrease)/Increase in prepaid expenses and other assets ........ 11,278 (8,167)
Decrease in accounts payable, accrued
expenses and other current liabilities ....................... (41,760) (50,787)
Increase in other long-term obligations ......................... 526 6,009
--------- ---------
(47,432) (61,471)
--------- ---------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES ............... 2,882 (25,521)
INVESTING ACTIVITIES:
Acquisition of property and equipment ............................. (60,623) (50,925)
Acquisition of businesses, net of cash acquired ................... (137,625) --
Proceeds from sales and maturities of short-term investments ...... 10,572 11,389
Purchase of short-term investments ................................ (16,651) (6,854)
Proceeds from sales and maturities of long-term investments ....... -- 3,430
Purchase of long-term investments ................................. -- (2,545)
Acquisition of lease rights ....................................... 656 (36,826)
Other ............................................................. 2,553 (5,596)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ............................. (201,118) (87,927)
FINANCING ACTIVITIES:
Proceeds from sale of capital stock ............................... 9,973 13,467
Proceeds from borrowings .......................................... 13,150 (334)
Payments on borrowings ............................................ (11,914) (24,575)
Purchase of treasury stock ........................................ (19,779) --
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES ............................. (8,570) (11,442)
Effect of exchange rate changes on cash ........................... 483 454
NET DECREASE IN CASH AND CASH EQUIVALENTS ........................... (206,323) (124,436)
Cash and cash equivalents at beginning of period .................... 357,993 381,088
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................... $ 151,670 $ 256,652
========= =========
</TABLE>
See notes to consolidated financial statements
Page 5
<PAGE> 6
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim unaudited consolidated financial statements include the
accounts of Staples, Inc. and subsidiaries ("Staples" and the "Company"). All
intercompany accounts and transactions are eliminated in consolidation.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, such interim statements reflect all adjustments (consisting only of
normal recurring accruals) 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. These financial
statements should be read in conjunction with the audited consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended January 30, 1999.
NOTE 2 - COMPUTATION OF EARNINGS PER COMMON SHARE
Staples calculates earnings per share in accordance with Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("FAS 128") which requires
disclosure of basic and diluted earnings per share. Basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities,
while diluted earnings per share includes such effects.
Average common and common equivalent shares used in computing diluted earnings
per share include approximately 13,969,000 and 42,589,000 shares for the three
months ended May 1, 1999 and May 2, 1998, respectively, as a result of applying
the treasury stock method to outstanding stock options as well as the
convertible debentures for the three months ended May 2, 1998. All of the
convertible debentures were redeemed and/or converted by the quarter ended
January 30, 1999.
NOTE 3 - COMPREHENSIVE INCOME
Staples calculates comprehensive income in accordance with SFAS No. 130
"Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes new rules
for the reporting and display of comprehensive income and its components. The
adoption of SFAS 130 had no impact on Staples' net income or shareholders'
equity. SFAS 130 requires Staples' to report comprehensive income which includes
net income, foreign currency translation adjustments and unrealized gains and
losses on short-term investments, which are reported separately in stockholders'
equity, to be disclosed in the notes to the financial statements for interim
periods. During the three months ended May 1, 1999 and May 2, 1998, total
comprehensive income amounted to approximately $53,467,000 compared to
$38,629,000, respectively.
Page 6
<PAGE> 7
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - ACQUISITIONS
On February 26, 1999, Staples completed the acquisition of Claricom Holdings,
Inc. and certain related entities ("Claricom") for a purchase price of
approximately $140,000,000. The acquisition has been accounted for using the
purchase method. Claricom is a full-service supplier of telecommunications
services to small and medium sized businesses in the United States.
NOTE 5 - DESCRIPTION OF THE TYPES OF PRODUCTS AND SERVICES FROM WHICH EACH
REPORTABLE SEGMENT DERIVES ITS REVENUES
Staples has three reportable segments: North America Retail, North America
Delivery Operations, and European Operations. Staples' North America Retail
division consists of two operating units that operate stores throughout the US
and Canada. Staples' North America Delivery Operations division consists of five
operating units that sell office products and supplies directly to businesses.
The European Operations segment consists of three operating units which operate
office supply stores and sell directly to businesses throughout the United
Kingdom and Germany.
Measurement of Segment Profit or Loss and Segment Assets
Staples evaluates performance and allocates resources based on profit or loss
from operations before income taxes, not including gains and losses on Staples'
investment portfolio. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies.
Intersegment sales and transfers are recorded at Staples' cost, therefore there
is no intercompany profit or loss recognized on these transactions.
Factors Management Used to Identify the Enterprise's Reportable Segments
Staples' reportable segments are business units that distribute office products
in different manners. The reportable segments are each managed separately
because they distribute products to different classes of customer with different
distribution methods. The European operations are considered a separate
operating segment because of the significant difference in the operating
environment from the North American operations.
Page 7
<PAGE> 8
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Information about segment profit/loss and segment assets (in thousands):
Quarter ended May 1, 1999:
<TABLE>
<CAPTION>
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ------------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues from external customers ................. $1,407,821 $576,126 $ 88,119 $ -- $2,072,066
Depreciation and amortization expense ............ 26,117 6,260 2,079 -- 34,456
Segment profit (loss) ............................ 106,749 35,424 (5,926) (53,765) 82,482
Segment assets ................................... 2,722,219 685,562 164,178 -- 3,571,959
Expenditures for long-lived assets ............... $ 55,091 $ 2,766 $ 2,766 $ -- $ 60,623
</TABLE>
Quarter ended May 2, 1998:
<TABLE>
<CAPTION>
N. America N. America Delivery European
Retail Operations Operations All Other(1) Totals
---------- ------------------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Revenues from external customers ................. $1,131,496 $456,912 $ 82,203 $ -- $1,670,611
Depreciation and amortization expense ............ 21,840 5,339 1,473 -- 28,652
Segment profit (loss) ............................ 74,832 24,150 (3,961) (39,110) 55,911
Expenditures for long-lived assets ............... $ 42,614 5,341 2,970 -- 50,925
Segment assets, at January 30, 1999 .............. 2,866,114 448,452 162,693 -- 3,497,259
</TABLE>
(1) All other is composed of corporate general and administrative expenses.
Asset Reconciliation: May 1, January 30,
1999 1999
---------- -----------
Total assets for reportable segments ....... $3,571,959 $3,497,259
Elimination of intercompany receivables .... (95,383) (89,664)
Elimination of intercompany investments .... (228,329) (228,329)
---------- ----------
Total consolidated assets ......... $3,248,247 $3,179,266
========== ==========
Geographic Information (in thousands):
Quarter ended May 1, 1999: Long-Lived
Revenues Assets
---------- ----------
North America .............................. $1,983,947 $1,219,479
Europe ..................................... 88,119 38,625
---------- ----------
Consolidated Total ......................... $2,072,066 $1,258,104
========== ==========
Long-Lived
Assets -
Quarter ended May 2, 1998: January 30
Revenues 1999
---------- ----------
North America .............................. $1,588,408 $1,027,704
Europe ..................................... 82,203 35,913
---------- ----------
Consolidated Total ......................... $1,670,611 $1,063,617
========== ==========
Page 8
<PAGE> 9
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6 - Guarantor Subsidiaries
The 7.125% senior notes due August 15, 2007 and the obligations under the
$350,000,000 revolving credit facility effective through November, 2002 with a
syndicate of banks are fully and unconditionally guaranteed on an unsecured,
joint and several basis by certain wholly owned subsidiaries of the Company (the
"Guarantor Subsidiaries"). The following condensed consolidating financial data
illustrates the composition of Staples, Inc. (the "Parent Company"), Guarantor
Subsidiaries, and non-guarantor subsidiaries as of and for the quarters ended
May 1, 1999 and May 2, 1998. The non-guarantor subsidiaries represent more than
an inconsequential portion of the consolidated assets and revenues of the
Company. Separate complete financial statements of the respective Guarantors
Subsidiaries would not provide additional information which would be useful in
assessing the financial condition of the Guarantor Subsidiaries and thus, are
not presented.
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' investment in subsidiaries and intercompany balances and
transactions.
Condensed Consolidating Balance Sheet
As of May 1, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments ............. $ 84,952 $ 11,691 $ 78,525 $ -- $ 175,168
Merchandise inventories .............. (4,416) 1,050,522 259,064 -- 1,305,170
Other current assets and
Intercompany ....................... 685,490 494,180 605,556 (1,327,475) 457,751
---------- ---------- ---------- ----------- ----------
Total current assets ................. 766,026 1,556,393 943,145 (1,327,475) 1,938,089
Net property, equipment and
other assets ....................... 279,091 722,569 523,608 (215,110) 1,310,158
---------- ---------- ---------- ----------- ----------
Total assets ......................... $1,045,117 $2,278,962 $1,466,753 $(1,542,585) $3,248,247
========== ========== ========== =========== ==========
Total current liabilities ............ (118,983) 856,727 442,825 104,918 1,285,487
Total long-term liabilities .......... 3,927 236,913 17,343 -- 258,183
Total stockholders' equity ........... 1,160,173 1,185,322 1,006,585 (1,647,503) 1,704,577
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity ............... $1,045,117 $2,278,962 $1,466,753 $(1,542,585) $3,248,247
========== ========== ========== =========== ==========
</TABLE>
Page 9
<PAGE> 10
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidating Balance Sheet
As of January 30, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Eliminations Consolidated
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and
short-term investments ............. $ 219,426 $ 16,348 $ 139,647 $ -- $ 375,421
Merchandise inventories .............. (5,561) 1,095,906 250,087 -- 1,340,432
Other current assets and
Intercompany ....................... 780,629 396,920 552,395 (1,381,697) 348,247
---------- ---------- ---------- ----------- ----------
Total current assets ................. 994,494 1,509,174 942,129 (1,381,697) 2,064,100
Net property, equipment and
other assets ....................... 271,129 710,049 362,178 (228,190) 1,115,166
---------- ---------- ---------- ----------- ----------
Total assets ......................... $1,265,623 $2,219,223 $1,304,307 $(1,609,887) $3,179,266
========== ========== ========== =========== ==========
Total current liabilities ............ $ 86,206 $ 830,728 $ 266,789 $ 81,609 1,265,332
Total long-term liabilities .......... 7,581 237,128 12,339 -- 257,048
Total stockholders' equity ........... 1,171,836 1,151,367 1,025,179 (1,681,496) 1,656,886
---------- ---------- ---------- ----------- ----------
Total liabilities and
stockholders' equity ............... $1,265,623 $2,219,223 $1,304,307 $(1,609,887) $3,179,266
========== ========== ========== =========== ==========
</TABLE>
Condensed Consolidated Statement of Income
For the thirteen weeks ended May 1, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales .................................................. $ -- $1,569,642 $502,424 $2,072,066
Cost of goods sold and occupancy
costs ................................................ 172 1,200,081 377,060 1,577,313
------- ---------- -------- ----------
Gross profit ........................................... (172) 369,561 125,364 494,753
Operating and other expenses ........................... 8,510 309,764 93,997 412,271
------- ---------- -------- ----------
Income before income taxes ............................. (8,682) 59,797 31,367 82,482
Provision/(Benefit) for income taxes ................... (2,795) 25,839 9,124 32,168
------- ---------- -------- ----------
Net income ............................................. $(5,887) $ 33,958 $ 22,243 $ 50,314
======= ========== ======== ==========
</TABLE>
Page 10
<PAGE> 11
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidated Statement of Income
For the thirteen weeks ended May 2,1998
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales ................................................. $ -- $1,264,650 $405,961 $1,670,611
Cost of goods sold and occupancy
costs ............................................... 269 974,867 314,697 1,289,833
-------- ---------- -------- ----------
Gross profit .......................................... (269) 289,783 91,264 380,778
Operating and other expenses .......................... 35,174 222,251 67,442 324,867
-------- ---------- -------- ----------
Income before income taxes ............................ (35,443) 67,532 23,822 55,911
Provision/(Benefit) for income taxes .................. (1,965) 16,853 5,123 20,011
Minority interest ..................................... -- -- 50 50
-------- ---------- -------- ----------
Net income ............................................ $(33,478) $ 50,679 $ 18,749 $ 35,950
======== ========== ======== ==========
</TABLE>
Condensed Consolidated Statement of Cash Flows
For the thirteen weeks ended May 1, 1999
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash (used in)/provided by
operating activities .................................. $(209,205) $ 55,832 $ 156,255 $ 2,882
Investing Activities:
Acquisition of property,
equipment and lease rights .......................... (8,128) (37,487) (14,352) (59,967)
Other ................................................. 39,427 (23,002) (157,576) (141,151)
--------- -------- --------- ---------
Cash (used in)/provided by investing
activities ............................................ 31,299 (60,489) (171,928) (201,118)
Financing Activities:
Payments on borrowings ................................ (11,914) -- -- (11,914)
Other ................................................. 55,346 -- (52,002) 3,344
--------- -------- --------- ---------
Cash provided by/(used) in
financing activities .................................. 43,432 -- (52,002) (8,570)
Effect of exchange rate changes on cash ................. -- -- 483 483
--------- -------- --------- ---------
Net decrease in cash .................................... (134,474) (4,657) (67,192) (206,323)
Cash and cash equivalents at
beginning of period ................................... 219,426 16,348 122,219 357,993
--------- -------- --------- ---------
Cash and cash equivalents at end
of period ............................................. $ 84,952 $ 11,691 $ 55,027 $ 151,670
========= ======== ========= =========
</TABLE>
Page 11
<PAGE> 12
STAPLES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Condensed Consolidated Statement of Cash Flows
For the thirteen weeks ended May 2, 1998
(in thousands)
<TABLE>
<CAPTION>
Non-
Staples, Inc. Guarantor Guarantor
(Parent Co.) Subsidiaries Subsidiaries Consolidated
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net cash (used in)/provided by
Operating activities .................................. $ (52,210) $ 594 $ 22,851 $ (25,521)
Investing Activities:
Acquisition of property,
equipment and lease rights .......................... (14,238) (65,722) (7,791) (87,751)
Other ................................................. (43,267) 64,227 (21,136) (176)
--------- -------- -------- ---------
Cash used in investing activities ....................... (57,505) (1,495) (28,927) (87,927)
Financing Activities:
Payments on borrowings ................................ (25,251) -- 676 (24,575)
Other ................................................. 19,225 -- (6,092) 13,133
--------- -------- -------- ---------
Cash used in financing activities ....................... (6,026) -- (5,416) (11,442)
Effect of exchange rate changes on cash ................. -- -- 454 454
--------- -------- -------- ---------
Net decrease in cash .................................... (115,741) (901) (7,794) (124,436)
Cash and cash equivalents at
beginning of period ................................... 189,252 8,253 183,583 381,088
--------- -------- -------- ---------
Cash and cash equivalents at end
of period ............................................. $ 73,511 $ 7,352 $175,789 $ 256,652
========= ======== ======== =========
</TABLE>
NOTE 7 - RECLASSIFICATIONS:
Certain previously reported amounts have been reclassified to conform with the
current period presentation.
Note 8 - Subsequent Events
On May 11, 1999, Staples entered into an interest rate swap for an aggregate
notional amount of $100,000,000 in order to minimize financing costs. The swap
agreements are scheduled to terminate on August 15, 2007.
Under the interest rate swap agreements, Staples is entitled to receive
semi-annual interest payments at a fixed rate of approximately 7.125% and is
obligated to pay interest based on 30 day US Commercial Paper Rates,
Non-Financial. Staples has designated its $200,000,000 of senior notes and its
interest rate swap agreements to be an integrated transaction. Accordingly, the
interest rate swap is being accounted for as a hedge and the differential to be
paid or received on the interest rate swap agreements is accrued and recognized
as an adjustment to interest rate expense over the life of the agreements.
Should Staples and the counterparty to the agreements terminate the swaps prior
to their original maturity, any gain or loss upon termination will be amortized
to interest expense over the remaining original life of the agreements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SALES. Sales increased 24.0% to $2,072,066,000 in the quarter ended May 1, 1999
from $1,670,611,000 in the quarter ended May 2, 1998. This growth was
attributable to an increased number of open stores and increased sales in
existing stores and in the delivery and contract stationer segments. Comparable
store and delivery hub sales for the quarter ended May 1, 1999 increased 9% over
the quarter ended May 2, 1998. Comparable sales in the contract stationer
segment, including Quill, increased 11% for the quarter ended May 1, 1999 versus
the quarter ended May 2, 1998. The Company had 960 stores open as of May 1, 1999
compared to 782 stores as of May 2, 1998 and 913 stores as of January 30, 1999;
this total includes 47 stores opened during the quarter ended May 1, 1999.
GROSS PROFIT. Gross profit as a percentage of sales was 23.9% for the three
months ended May 1, 1999 as compared to 22.8% for the same period in the prior
year. The gross profit rate for the quarter ended May 1, 1999 compared to the
quarter ended May 2, 1998 was increased by continually improving margins in the
retail and delivery segments due to lower product costs from vendors and
improved buying as well as the leveraging of fixed distribution center and
delivery costs over a larger sales base. These increases were partially offset
by continued price reductions and decreased margins on computer hardware sales
such as CPU's and laptops.
OPERATING AND SELLING EXPENSES. Operating and selling expenses, which consist of
payroll, advertising and other operating expenses, increased as a percentage of
sales in the three months ended May 1, 1999 to 15.2%, as compared to 14.9% for
the same period in the prior year. The increase was primarily due to increased
payroll costs incurred for Tech Centers and Expanded Copy Centers in remodeled
stores as well as the addition of Claricom, which Staples acquired during the
three months ended May 1, 1999. Claricom has higher operating and selling
expenses as a percentage of sales. These increases were partially offset by the
continued leveraging of fixed store operating costs as store sales have
increased.
PRE-OPENING EXPENSES. Pre-opening expenses relating to new store openings,
consisting primarily of salaries, supplies, marketing and occupancy costs, are
expensed by Staples as incurred and therefore fluctuate from period to period
depending on the timing and number of new store openings. Pre-opening expenses
averaged $96,000 per store for the three months ended May 1, 1999, as compared
to $82,000 per store for the same period in the prior year.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
three months ended May 1, 1999 increased as a percentage of sales to 4.3% as
compared to 4.0% for the same period in the prior year. This increase as a
percentage of sales was primarily due to costs incurred for Year 2000 compliance
projects and the addition of Claricom which has higher general and
administrative expenses as a percentage of sales. In addition, Staples has made
other investments in its information systems ("IS") staffing and infrastructure,
which Staples believes will reduce costs as a percentage of sales in future
years. The overall increase in general and administrative costs was partially
offset by the Staples' ability to increase sales without proportionately
increasing overhead expenses in its core retail and direct business.
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AMORTIZATION OF GOODWILL. Amortization of goodwill for the three months ended
May 1, 1999 was $2,287,000 as compared to $924,000 for the same period in the
prior year. The increase in amortization is due to the goodwill from the
acquisitions of Ivan Allen Corporation on November 1, 1998 and Claricom
Holdings, Inc. on February 26, 1999.
INTEREST AND OTHER EXPENSE, NET. Net interest and other expense for the three
months ended May 1, 1999 was $1,416,000 as compared to $4,694,000 for the same
period in the prior year. The interest expense relates primarily to existing
borrowings. The decrease in net interest expense during the three months ended
May 1, 1999 was primarily due to the conversion of Staples' $300,000,000 of 4
1/2% Debentures into common stock in December 1998.
INCOME TAXES. The provision for income taxes as a percentage of pre-tax income
was 39% and 35.8% for the quarters ended May 1, 1999 and May 2, 1998
respectively. On a pro forma basis, to reflect a provision for income taxes on
previously untaxed earnings of Quill, Staples' effective tax rate would have
been 39% for the quarter ended May 2, 1998.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended May 1, 1999, cash and cash equivalents decreased
by $206,323,000. This decrease was primarily attributable to cash used in
investing activities of $201,118,000, including cash used in the acquisition of
Claricom Holdings, Inc. of $137,625,000 and the acquisition of property and
equipment of $60,623,000, primarily for the 47 new stores opened. The decrease
in cash was partially offset by cash provided by operating activities of
$2,882,000, which includes a decrease in merchandise inventories of $47,238,000
offset by an increase in accounts receivable of $100,995,000 and a decrease in
accounts payable, accrued expenses and other current liabilities of $41,760,000.
The cash used in financing activities of $8,570,000 is due to the purchase of
treasury shares of $19,779,000 offset by the proceeds from capital stock sales
from the exercise of employee stock options of $9,973,000.
Staples opened 47 stores and 41 stores during the three months ended May 1, 1999
and May 2, 1998, respectively. During the three months ended May 2, 1998 one
store was closed. To the extent that the store base matures and becomes more
profitable, cash generated from store operations is expected to provide a
greater portion of funds required for new store inventories and other working
capital requirements. Sales generated by the contract stationer business segment
are made under regular credit terms, which requires that Staples carry its own
receivables from these sales. Staples also utilized capital equipment financings
to fund current working capital requirements. Staples expects to open
approximately 120 stores during the last three quarters of fiscal 1999.
Management estimates that Staples' cash requirements, including pre-opening
expenses, leasehold improvements and fixtures, will be approximately $1,400,000
for each new store (excluding the cost of any acquisitions of lease rights).
Accordingly, Staples expects to use approximately $168,000,000 for store
openings during this period.
Staples began a stock repurchase program during the quarter ended May 1, 1999
intended to provide shares for employee stock programs.
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<PAGE> 15
Staples expects to repurchase approximately six million shares annually and has
authorized up to $200,000,000 to be used in fiscal 1999 for these repurchases.
During the three months ended May 1, 1999 Staples repurchased 591,000 shares for
approximately $19,800,000. In addition, Staples plans to continue to make
investments in information systems, distribution centers and store remodels to
improve operational efficiencies and customer service, and may expend additional
funds to acquire businesses or lease rights from tenants occupying retail space
that is suitable for a Staples store. Staples expects to meet these cash
requirements through a combination of available cash, operating cash flow and
borrowings from its existing revolving line of credit.
Staples issued $200,000,000 of senior notes (the "Notes") on August 12, 1997
with an interest rate of 7.125% payable semi-annually on February 15 and August
15 of each year commencing on February 15, 1998. Net proceeds of approximately
$198,000,000 from the sale of Staples' Notes were used for repayment of
indebtedness under Staples' revolving credit agreement and for general working
capital purposes, including the financing of new store openings, distribution
facilities and corporate offices.
Staples also maintains a revolving credit facility, effective through November
2002, with a syndicate of banks which provides up to $350,000,000 of available
borrowings. Borrowings made pursuant to this facility will bear interest at
either the lead bank's prime rate, the federal funds rate plus 0.50%, the LIBOR
rate plus a percentage spread based upon certain defined ratios, a competitive
bid rate or a swing line loan rate. This agreement, among other conditions,
contains certain restrictive covenants including net worth maintenance, minimum
fixed charge interest coverage and limitations on indebtedness and sales of
assets. As of May 1, 1999, no borrowings were outstanding under the revolving
credit agreement. Staples also has available $35,000,000 in uncommitted,
short-term bank credit lines, of which no borrowings were outstanding as of May
1, 1999. Staples UK has a $50,000,000 line of credit which had an outstanding
balance of $32,936,000 at May 1, 1999 and Business Depot has a $16,545,000 line
of credit with no outstanding balance at May 1, 1999. Total cash, short-term
investments and available revolving credit amounts totaled $594,395,000 as of
May 1, 1999.
Staples expects that income from operations, together with its current cash and
cash equivalents and funds available under its revolving credit facility will be
sufficient to fund its planned store openings and other recurring operating cash
needs for at least the next twelve to eighteen months. Staples continually
evaluates financing possibilities, and it may seek to raise additional funds
through any one or a combination of public or private debt or equity-related
offerings, dependent upon market conditions, or through an additional commercial
bank debt arrangement.
INFLATION AND SEASONALITY
While inflation or deflation has not had, and Staples does not expect it to
have, a material impact upon operating results, there can be no assurance that
Staples' business will not be affected by inflation or deflation in the future.
Staples believes that its business is somewhat seasonal, with sales and
profitability slightly lower during the first and second quarters of its fiscal
year.
FUTURE OPERATING RESULTS
This quarterly report on Form 10-Q contains a number of forward-looking
statements. Any statement (including statements to the effect that Staples
"believes", "expects", "anticipates", "plans" and similar expressions) that are
not statements relating to historical matters should be considered
forward-looking statements. Staples' actual results may differ materially from
the results discussed in the forward-looking statements as a result of numerous
important factors, including those discussed below.
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STAPLES OPERATES IN A HIGHLY COMPETITIVE MARKET. Staples competes in a highly
competitive marketplace with a variety of retailers, dealers and distributors.
In most of its geographic markets, Staples competes with other high-volume
office supply chains, such as Office Depot, OfficeMax and Office World, that
have store formats, pricing strategies and product selections that are similar
to its own. Staples also competes with mass merchants (such as Wal-Mart),
warehouse clubs, computer and electronic superstores, and other discount
retailers. In addition, its retail stores and delivery and contract businesses
compete with numerous mail order firms, contract stationer businesses and direct
manufacturers. Many of Staples' competitors, including Office Depot, OfficeMax
and Wal-Mart, have in recent years significantly increased the number of stores
they operate within Staples' markets. Some of Staples' current and potential
competitors are larger than Staples and have substantially greater financial
resources. It is possible that increased competition or improved performance by
the competitors may reduce Staples' market share, may force Staples to charge
lower prices than it otherwise would, and may adversely affect Staples' business
and financial performance in other ways.
STAPLES' SUCCESS DEPENDS ON ITS ABILITY TO SUCCESSFULLY OPEN NEW STORES. An
important part of Staples' business plan is to aggressively increase the number
of our stores. Staples opened 174 stores in the United States, Canada and Europe
in fiscal 1998 and plans to open approximately 170 new stores in fiscal 1999.
For its growth strategy to be successful, Staples must identify and lease
favorable store sites, hire and train employees and adapt our management and
operational systems to meet the needs of its expanded operations. These tasks
may be difficult to accomplish successfully. If Staples is unable to open new
stores as quickly as planned, its future sales and profits could be materially
adversely affected. Even if Staples succeeds in opening new stores, new stores
may not achieve the same sales or profit levels as our existing stores. Also,
Staples' expansion strategy includes opening new stores in markets where it has
a presence so that it can take advantage of economies of scale in marketing,
distribution and supervision costs. However, these new stores may result in the
loss of sales in existing stores in nearby areas.
STAPLES' OPERATING RESULTS MAY VARY FROM QUARTER TO QUARTER. Staples' operating
results have fluctuated from quarter to quarter in the past, and it expects that
they will continue to do so in the future. Staples' earnings may not continue to
grow at rates similar to the growth rates achieved in recent years and may fall
short of either a prior fiscal period or investors' expectations. Factors that
could cause these quarterly fluctuations include the following:
- the number of new store openings (pre-opening expenses are expensed as
incurred and newer stores are less profitable than mature stores);
- the extent to which sales in new stores result in the loss of sales in
existing stores;
- the mix of products sold;
- pricing actions of competitors;
- the level of advertising and promotional expenses;
- seasonality (the sales and profitability of our stores are typically
slightly lower in the first and second quarter of our fiscal year than
in other quarters); and
- charges associated with acquisitions.
Most of Staples' operating expenses, such as rent expense, advertising expense
and employee salaries, do not vary directly with the amount of our sales and are
difficult to adjust in the short term. As a result, if sales in a particular
quarter are below Staples' expectation for that quarter, Staples could not
proportionately reduce operating expenses for that quarter, and therefore this
sales shortfall would have a disproportionate effect on expected net income for
the quarter.
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<PAGE> 17
The market price of Staples' Common Stock is based in large part on professional
securities analysts' expectations that Staples' business will continue to grow
and that Staples will achieve certain levels of new income. If Staples'
financial performance in a particular quarter does not meet the expectations of
securities analysts, this may adversely affect the views of those securities
analysts concerning Staples' growth potential and future financial performance.
If the securities analysts that regularly follow Staples lower their rating of
the Common Stock or lower their projections for its future growth and financial
performance, the market price of our Common Stock is likely to drop
significantly. In addition, in those circumstances the decrease in Common Stock
price would probably be disproportionate to the shortfall in financial
performance.
RAPID GROWTH COULD STRAIN STAPLES' OPERATIONS. Staples' business, including
sales, number of stores and number of employees, has grown dramatically over the
past several years. In addition, Staples has acquired a number of significant
companies in the last few years and may make additional acquisitions in the
future. This growth has placed significant demands on its management and
operational systems. If Staples is not successful in upgrading its operational
and financial systems, expanding its management team and increasing and
effectively managing its employee base, this growth is likely to result in
operational inefficiencies and ineffective management of its business and
employees, which will in turn adversely affect its business and financial
performance.
STAPLES' INTERNATIONAL OPERATIONS ARE SUBJECT TO ADDITIONAL RISKS. Staples
currently operates in international markets through The Business Depot Ltd. in
Canada, Staples UK in the United Kingdom and Staples Germany in Germany. Staples
may seek to expand into other international markets in the future. Staples'
foreign operations encounter risks similar to those faced by its US stores, as
well as risks inherent in foreign operations, such as local customs and
competitive conditions and foreign currency fluctuations. Staples' European
operations are currently unprofitable, and it cannot guarantee that they will
become profitable.
THE TERMS AND TIMING OF FUTURE FINANCINGS ARE UNCERTAIN. Staples currently
expects that income from operations, together with current cash and cash
equivalents and funds available under its revolving credit facility will be
sufficient to fund its planned new store openings and other operating cash needs
for at least the next twelve to eighteen months. However, it is possible that
Staples will require additional sources of financing earlier than anticipated,
as a result of unexpected cash needs or opportunities, an expanded growth
strategy or disappointing operating results. Additional funds may not be
available on satisfactory terms when needed or at all, whether within the next
twelve to eighteen months or thereafter.
YEAR 2000 READINESS DISCLOSURE
Staples has completed a comprehensive assessment of its internal computer
systems and applications to identify those that might be affected by computer
programs using two digits rather than four to define the applicable year (the
"Year 2000 issue"). Staples has used internal personnel as well as external
contractors and consultants to identify those systems and applications which are
affected by the Year 2000 issue. Those systems and applications identified as
needing remediation will be replaced or modified and tested for compliance.
Remediation of the most critical Information Technology (IT) related systems and
applications was completed on schedule, during the first quarter of 1999 and it
is anticipated that testing
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will be completed by the end of the second quarter of 1999. These systems
include Merchandising/Logistics, Distribution, Store Point of Sale, and
Corporate Finance. The remediation of the less critical IT systems remains on
schedule to be completed during the second quarter of 1999. These systems and
applications include Marketing Systems and Non-Mission Critical Desktop
Applications. Testing of these less critical IT systems and applications is
expected to be finished during the third quarter of 1999.
Staples has also finished its assessment of non-IT-related systems and
applications and is continuing to assess the status of third parties with regard
to Year 2000 compliance. The non-IT-related systems and applications include
telephone systems, store security systems, and electrical systems, among others.
The remediation of these systems was completed during the first quarter of 1999
with testing to be finished by the end of the second quarter of 1999. Staples is
also working with third parties, primarily major vendors, but also customers to
ensure that they will be Year 2000 compliant as Staples' schedule requires.
Responses have been received from the majority of vendors, but not all vendors
have assured Staples that they will be compliant in time. As a contingency,
alternative lists of third party vendors have been created in case a critical
third party does not achieve compliance. Staples has completed its
enterprise-wide inventory review and has completed a comprehensive risk
assessment relative to vendor-provided products, devices and/or services.
Comprehensive due diligence and monitoring with respect to vendors with the
greatest impact on Staples will be performed on a continuous basis throughout
1999.
Staples has estimated that the total cost of Year 2000 compliance will be
between $25 and $30 million, $20 million of which had been spent as of May 1,
1999. Most of the costs to be incurred are related to remediation and testing of
software using outside contracted services. The costs of compliance have been
included in Staples' current 1999 IT budgets. The inclusion of Year 2000
compliance in the IT budget has not caused any critical IT projects to be
delayed or eliminated.
Staples is currently preparing a "what steps to follow" contingency plan in the
event that an area of its operations is impacted by the Year 2000 issue. A
formal plan will be adopted if it becomes more evident that there will be an
area of non-compliance in its systems or at a critical third party. Staples is
developing these procedures for all its sites, listing those to contact in the
event a "Year 2000 suspected" issue is encountered. Although Staples expects to
achieve Year 2000 compliance as scheduled, there are potential risks if the
Company does not become or is late in becoming Year 2000 compliant. Such risks
include impairing Staples' ability to process and deliver customer orders and
payments, procure saleable merchandise, and perform other critical business
functions which could have a material impact on financial performance. Staples
has yet to make an analysis of the effect that an instance of critical
non-compliance by the Company or a third party would have on revenues and
expenses since a worst case scenario has not been identified. Further, there is
also the risk that claims may be made against Staples in the event of its
non-compliance or the non-compliance of the products and services which it
sells. The costs of defending and settling such claims could have a material
impact on the financial statements of the Company. Starting in May 1999 each
Staples point of customer contact (stores, call centers and customer service)
will have a "Year 2000 Preparedness Guide" for its customers so the Company can
be proactive in assisting them with vendor contacts to answer their Year 2000
questions.
The information presented above is based on management's estimates which were
made using assumptions of future events. Uncontrollable factors such as the
compliance of the systems of third parties and the availability of resources
could materially increase the cost or delay the estimated date of Year 2000
compliance. All Year 2000 statements contained herein are designated as "Year
2000 Readiness Disclosures" pursuant to the Year 2000 Information and Readiness
Disclosures Act (P.L. 105-271).
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EURO CURRENCY
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency, ("the euro"). The former currencies of the
participating countries are scheduled to remain legal tender as denominations of
the euro until January 1, 2002 when the euro will be adopted as the sole legal
currency.
Staples has evaluated the potential impact on its business including the ability
of its information systems to handle euro-denominated transactions and the
impact on exchange costs and currency exchange rate risks. The conversion to the
euro is not expected to have a material impact on Staples' operations or
financial position.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Staples is exposed to market risk from changes in interest rates and foreign
exchange rates. Staples does not use these derivative instruments for trading
purposes. Staples initiated a risk management control process to monitor the
foreign exchange and interest rate risks. The risk management process uses
analytical techniques including market value, sensitivity analysis, and value at
risk estimates. Staples does not believe that the potential exposure is
significant in light of the size of the Company and its business. In addition,
the foreign exchange rate can move in Staples' favor. Recent experience has
demonstrated that gains on certain days are offset by losses on other days.
Therefore, Staples does not expect to incur material losses.
On May 11, 1999, Staples entered into an interest rate swap for an aggregate
notional amount of $100,000,000 in order to minimize financing costs. The swap
agreements are scheduled to terminate on August 15, 2007.
Under the interest rate swap agreements, Staples is entitled to receive
semi-annual interest payments at a fixed rate of approximately 7.125% and is
obligated to pay interest based on 30 day US Commercial Paper Rates,
Non-Financial. Staples has designated its $200,000,000 of senior notes and its
interest rate swap agreements to be an integrated transaction. Accordingly, the
interest rate swap is being accounted for as a hedge and the differential to be
paid or received on the interest rate swap agreements is accrued and recognized
as an adjustment to interest rate expense over the life of the agreements.
Should Staples and the counterparty to the agreements terminate the swaps prior
to their original maturity, any gain or loss upon termination will be amortized
to interest expense over the remaining original life of the agreements.
This risk management discussion, and the effects of changes in interest rates
and foreign exchange rates, are forward-looking statements. Actual results in
the future may differ materially from these projected results due to
developments in the global financial markets. The analytical methods used by
Staples to assess and mitigate risk discussed above should not be considered
projections of future events or losses.
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<PAGE> 21
PART II -- OTHER INFORMATION
ITEMS 1-5 - NOT APPLICABLE.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 10-K.
A. Exhibits
27.1 Financial Data Schedule.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STAPLES, INC.
Date: May 18, 1999 By: /s/ John J. Mahoney
------------ ---------------------------------
John J. Mahoney
Executive Vice President-Finance
and Chief Financial Officer
(Principal Financial Officer)
Page 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMETNS OF STAPLES, INC. FOR THE THREE MONTHS ENDED MAY 1, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<EXCHANGE-RATE> 1
<CASH> 151,670
<SECURITIES> 23,498
<RECEIVABLES> 346,241
<ALLOWANCES> 3,566
<INVENTORY> 1,305,170
<CURRENT-ASSETS> 1,938,089
<PP&E> 1,319,458
<DEPRECIATION> 435,352
<TOTAL-ASSETS> 3,248,247
<CURRENT-LIABILITIES> 1,285,487
<BONDS> 204,270
0
0
<COMMON> 279
<OTHER-SE> 1,704,298
<TOTAL-LIABILITY-AND-EQUITY> 3,248,247
<SALES> 2,072,066
<TOTAL-REVENUES> 2,072,066
<CGS> 1,577,313
<TOTAL-COSTS> 1,892,633
<OTHER-EXPENSES> 95,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,416
<INCOME-PRETAX> 82,482
<INCOME-TAX> 32,168
<INCOME-CONTINUING> 50,314
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,314
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
<FN>
<F1>INCOME-BEFORE MINORITY IN 50,314
<F1>MINORITY INTEREST 0
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