Notes to Condensed Consolidated Financial Statements (unaudited)
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. These financial statements are for the period covering the
13
weeks ended
April 29, 2017
(also referred to as the “
first quarter of
2017
") and the period covering the
13
weeks ended
April 30, 2016
(also referred to as the “
first quarter of
2016
”).
These financial statements have been prepared based upon Securities and Exchange Commission (“SEC”) rules that permit reduced disclosure for interim periods. 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. 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, 2017
("Annual Report").
Beginning in the first quarter of 2017, the Company has presented its operations in Australia, New Zealand, Asia, and South America as discontinued operations in the Company’s condensed consolidated financial statements. Beginning in the fourth quarter of 2016, the Company presented its European operations as discontinued operations. See
Note D
-
Discontinued Operations
for further information.
The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. Our business is somewhat seasonal, with sales and profitability historically higher during the second half of our fiscal year due to the back-to-school, holiday and January back-to-business seasons.
Note B
—
Recent Accounting Pronouncements
It the first quarter of 2017, the Company adopted a pronouncement that aims to simplify several aspects of accounting and reporting for share-based payment transactions. One provision within this pronouncement requires that excess income tax benefits and tax deficiencies related to share-based payments be recognized within income tax expense in the statement of income, rather than within additional paid-in capital on the balance sheet. This adoption of this provision is to be applied prospectively. The impact to the Company's results of operations related to this provision in the first quarter of 2017 was an increase in the provision for income taxes of
$3 million
. The impact of this provision on the Company's future results of operations will depend in part on the market prices for the Company's shares on the dates there are taxable events related to share awards, and therefore the impact is difficult to predict. In connection with another provision within this pronouncement, the Company has elected to account for forfeitures as they occur rather than estimate expected forfeitures, with the change being applied on a modified retrospective basis that resulted in a cumulative effect reduction to retained earnings of approximately
$2 million
as of January 28, 2017. The Company does not expect that the other provisions within the pronouncement will have a material impact on its financial statements.
It the first quarter of 2017, the Company adopted a pronouncement that aims to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. This pronouncement stipulates that an entity should perform a goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, and will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, with the loss recognized not exceeding the total amount of goodwill allocated to that reporting unit. The amendments in this pronouncement are to be applied on a prospective basis. The Company does not expect this pronouncement will have a material impact on its financial statements.
In May 2014, a pronouncement was issued that creates common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. The new guidance supersedes most preexisting revenue recognition guidance. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, with an option to adopt the standard one year earlier. Staples intends to adopt the new guidance in the first quarter of fiscal 2018. The new standard is to be applied either retrospectively to each period presented or using a modified retrospective approach that incorporates a cumulative-effect adjustment as of the date of adoption. The Company plans to adopt using the modified retrospective approach. The Company continues to evaluate the potential effects of the standard on the Company's consolidated financial statements. The Company’s current analysis indicates that the most significant effect of the new standard relates to the Company's accounting for its Staples Rewards loyalty program. The Company currently accounts for this
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
loyalty program by accruing a liability equal to the incremental cost of fulfilling its obligations to program participants. Under the new standard, the Company will defer revenue at the time Rewards are earned using a relative fair value approach. However, the impact of the new standard on the Company's revenue recognition related to the Rewards program is not expected to be material to the Company's reported results of operations. The Company plans to provide updates later in 2017 related to the expected impact of adopting this standard.
In February 2016, a pronouncement was issued that creates new accounting and reporting guidelines for leasing arrangements. The new guidance requires organizations that lease assets to recognize assets and liabilities on the balance sheet related to the rights and obligations created by those leases, regardless of whether they are classified as finance or operating leases. Consistent with current guidance, the recognition, measurement, and presentation of expenses and cash flows arising from a lease primarily will depend on its classification as a finance or operating lease. The guidance also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with early application permitted. The new standard is to be applied using a modified retrospective approach. The Company is currently evaluating the impact of the new pronouncement on its financial statements. Based on its preliminary assessment, upon adoption the Company expects to recognize significant right-to-use assets and corresponding lease liabilities on its balance sheet related to leased facilities.
Note C
—
Strategic Initiatives, Restructuring and Related Charges
Restructuring Initiatives Related to Staples 20/20 Strategic Plan
In May 2016 the Company announced a strategic plan ("20/20 Plan") under which it plans to:
|
|
•
|
accelerate mid-market growth
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|
•
|
increase its focus on growth categories, including facilities supplies, breakroom supplies, furniture, technology solutions, and promotional products
|
|
|
•
|
preserve profitability and rationalize excess capacity in its North American Retail stores
|
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|
•
|
drive profit improvement and cost reduction across the company
|
|
|
•
|
narrow its geographic focus to North America
|
In connection with the 20/20 Plan, the Company also announced a new multi-year cost savings plan which is expected to generate approximately
$300 million
of annualized pre-tax cost savings by the end of 2018, primarily by reducing end-to-end product costs, continuing to evolve promotional strategies, increasing the mix of Staples Brand products, driving savings in supply chain, eliminating fixed costs in retail stores, and generating additional efficiency savings across the entire organization.
In connection with its plan to preserve profitability in its North American retail stores, the Company expects to close approximately
70
North American retail stores in 2017. The Company does not expect to incur material charges in 2017 related to these closures. The Company expects to incur charges in 2017 and beyond related to other initiatives under the 20/20 Plan. The nature and timing of such charges will depend upon the actions that are taken, and cannot be reasonably estimated at this time.
In connection with the 20/20 Plan, in the first quarter of 2017 the Company recorded restructuring charges of
$2 million
primarily related to the closure of retail stores in the U.S. and exiting certain contractual vendor arrangements. These charges primarily relate to the North American Retail segment.
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
The table below shows a reconciliation of the beginning and ending liability balances related to continuing operations for each major type of cost associated with the 20/20 Plan (in millions):
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|
|
|
|
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|
20/20 Plan
|
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|
Employee-Related
|
|
Contractual Obligations
|
|
Other
|
|
Total
|
Accrued restructuring balance as of January 28, 2017
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20
|
|
Charges
|
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
|
Cash payments
|
|
(7
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|
(9
|
)
|
Accrued restructuring balance as of April 29, 2017
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13
|
|
The
$13 million
accrued restructuring liability is recorded in Accrued expenses and other current liabilities on the condensed consolidated balance sheet at April 29, 2017. The Company expects that payments related to these liabilities will be substantially completed by the end of 2018.
2014 Restructuring Plan
In 2014 the Company announced a plan to close at least
225
retail stores in North America. Pursuant to this plan, the Company closed
290
stores from 2014 to 2016.
In addition, in 2014 the Company initiated a cost savings plan to generate annualized pre-tax savings of approximately
$500 million
by the end of fiscal 2015. The Company reinvested some of the savings in its strategic initiatives.
The actions taken related to the
$500 million
cost savings plan, together with the actions taken related to the store closure Plan, are referred to as the "2014 Plan". This plan is substantially complete.
During the first quarter of
2017
, the Company recorded restructuring charges of
$3 million
primarily related to ongoing expenses associated with closed retail stores. These charges relate to the North American Retail segment.
The table below shows a reconciliation of the beginning and ending liability balances related to continuing operations for each major type of cost associated with the 2014 Restructuring Plan (in millions):
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2014 Plan
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|
|
Employee-Related
|
|
Contractual Obligations
|
|
Other
|
|
Total
|
Accrued restructuring balance as of January 28, 2017
|
|
$
|
6
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
54
|
|
Charges
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
Cash payments
|
|
(1
|
)
|
|
(7
|
)
|
|
(2
|
)
|
|
(10
|
)
|
Accrued restructuring balance as of April 29, 2017
|
|
$
|
5
|
|
|
$
|
41
|
|
|
$
|
1
|
|
|
$
|
47
|
|
In addition to the contractual obligations shown in the tables above, the Company also had related liabilities of
$14 million
and
$12 million
recorded on the consolidated balance sheet as of
April 29, 2017
and
January 28, 2017
, respectively, which primarily represent amounts previously accrued to reflect rent expense on a straight-line basis for leased properties which the Company has now ceased using.
For the restructuring liabilities associated with the 2014 Restructuring Plan,
$19 million
of contractual obligations are included within Other long-term obligations and the remaining balances are included within Accrued expenses and other current liabilities in the Company's condensed consolidated balance sheet as of
April 29, 2017
. The Company expects that payments related to employee related liabilities associated with the 2014 Plan will be substantially completed by the end of fiscal year 2017. The Company anticipates that payments related to facility lease obligations will be completed by the end of fiscal year 2026.
During the first quarter of 2016, the Company recorded restructuring charges of
$11 million
primarily related to lease obligations for closed retail stores.
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
Note D
-
Discontinued Operations
In 2016 the Company announced its Staples 20/20 strategic plan, under which the Company plans to focus on growth opportunities in North America. In connection with this plan, in the fourth quarter of 2016 the Company disposed of its retail business in the United Kingdom and entered into an agreement to sell a controlling interest in its remaining European operations. The Company closed on the sale of this controlling interest on February 27, 2017. Beginning in the fourth quarter of 2016, the Company presented its combined European operations as discontinued operations in the Company’s consolidated financial statements.
In the first quarter of 2017, in connection with the Staples 20/20 plan the Company completed the sale of its operations in Australia and New Zealand, and pursued the sale of the Company’s operations in Asia and South America. The Company expects to complete a sale of its Asian and South American operations within the next twelve months. The operations in Asia and South America are classified as held for sale at April 29, 2017.
Beginning in the first quarter of 2017, the Company has presented its operations in Australia, New Zealand, Asia, and South America as discontinued operations. These operations, together with the European operations, comprised the Company’s former International Operations segment.
Sale of controlling interest in European Operations
On February 27, 2017 Staples completed the sale of a controlling interest in its European operations to an affiliate of Cerberus Capital Management, L.P. (“Cerberus”). Per the terms of the share purchase agreement, Cerberus acquired
85%
of the common shares and
100%
of the preferred shares in the Company's subsidiary holding the European operations for total consideration of €
50 million
($
53 million
). Staples has retained
15%
of the common shares, which the Company accounts for using the cost method of accounting. The Company determined that the fair value of its retained interest is not material. The Company used a market Back-Solve approach utilizing an option pricing model to assess the fair value of its retained investment.
In accordance with the terms of the share purchase agreement ("SPA"), upon completion of the transaction Staples delivered the European operations with €
166 million
(
$176 million
) related to a preliminary estimate of the requisite unrestricted cash, which is equal to (i) €
20 million
, plus (ii) €
146 million
relating to indebtedness, underfunded pension liabilities, working capital, and certain other adjustments, plus an additional €
6 million
(
$7 million
) related to other obligations outlined in the SPA. The preliminary estimate of the unrestricted cash amount is subject to adjustment based on finalization of the completion accounts, which is to occur no later than
90
days following closing. The preliminary unrestricted cash amount may vary significantly from the actual amount calculated as of completion.
Per the terms of the SPA, the Company has indemnified the Buyer for any losses incurred related to income taxes relating to periods prior to closing, and for any losses incurred related to certain legal matters. At the time of closing, the Company recorded a liability of approximately
$26 million
related to the fair value of the indemnification obligations.
Following the closing, Staples is providing certain customary transitional services during a period of up to
36
months, and is partnering with the disposed operations on managing certain global customer accounts. Commercial transactions between the parties following the closing of the transaction are not expected to be significant.
In the first quarter of 2017, the Company recorded a loss of
$907 million
related to the sale of this controlling interest. The loss includes
$242 million
related to the release of cumulative foreign currency translation losses and
$290 million
related to the write-off of deferred pension costs, both of which were recorded as components of accumulated other comprehensive loss.
Sale of operations in Australia and New Zealand
On March 10, 2017, Staples entered into a share purchase agreement pursuant to which Platinum Equity (“Platinum”) agreed to purchase
100%
of the outstanding shares related to the Company’s operations in Australia and New Zealand. The transaction was completed on April 28, 2017 (Eastern Daylight Time). The purchase consideration provides the divested business with the right to use the Corporate Express trade name in Australia and New Zealand. Following a transition period, the divested operations will cease using the Staples trade name.
The purchase price was
200 million
Australian dollars, subject to adjustment based on finalization of net working capital and net cash (“the Completion Accounts”). At the time of closing, the Company received cash proceeds of
205 million
Australian dollars (
$156 million
), and recorded a receivable of
16 million
Australian dollars (
$12 million
) representing the preliminary estimated amount of additional proceeds the Company expects to receive upon finalization of the Completion Accounts. Based
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
on these preliminary proceeds, the Company recorded a loss on sale of
$1 million
in the first quarter of 2017. The loss reflects, in part, the release of
$40 million
of cumulative foreign currency translation losses that were recorded in accumulated other comprehensive loss. Per the terms of the SPA, Staples has
90
days from the date of closing to finalize the Completion Accounts, and Platinum has up to
150
days following closing to provide notice of any dispute related to preparation of the Completion Accounts.
Following the closing, Staples is providing certain customary transitional services during a period of up to
18
months, and is partnering with the disposed operations on managing certain global customer accounts. Commercial transactions between the parties following the closing of the transaction are not expected to be significant.
Financial statement information
The table below provides a reconciliation of the carrying amounts of the major classes of assets and liabilities of the discontinued operations to the amounts presented separately in the consolidated balance sheets at April 29, 2017 and January 28, 2017. The balances at April 29, 2017 include only Asia and South America, as the Company’s operations in Europe, Australia and New Zealand had been disposed of prior to that date.
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April 29, 2017
|
|
January 28, 2017
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Receivables, net
|
$
|
77
|
|
|
$
|
495
|
|
|
Merchandise inventories
|
30
|
|
|
281
|
|
|
Property, plant and equipment
|
12
|
|
|
252
|
|
|
Intangible assets
|
—
|
|
|
29
|
|
|
Other assets
|
9
|
|
|
98
|
|
|
Loss recognized on classification as held for sale
|
(5
|
)
|
|
(231
|
)
|
|
Assets of discontinued operations
|
123
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|
|
924
|
|
|
|
|
|
|
|
Accounts payable
|
70
|
|
|
352
|
|
|
Accrued expenses and other current liabilities
|
10
|
|
|
194
|
|
|
Other liabilities
|
5
|
|
|
90
|
|
|
Liabilities of discontinued operations
|
$
|
85
|
|
|
$
|
636
|
|
|
|
|
|
|
|
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
The following table provides the major classes of line items constituting the results of the discontinued operations during the first quarter of 2017 and the first quarter of 2016. The results of operations during the first quarter of 2017 include the results of the European operations through February 27, 2017.
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Thirteen weeks ended
|
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|
|
April 29, 2017
|
|
April 30, 2016
|
|
|
Sales
|
|
$
|
356
|
|
|
$
|
738
|
|
|
Cost of goods sold and occupancy costs
|
|
280
|
|
|
565
|
|
|
Gross profit
|
|
76
|
|
|
173
|
|
|
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|
Operating expenses:
|
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|
|
|
|
Selling, general and administrative
|
|
74
|
|
|
183
|
|
|
Impairment of long-lived assets
|
|
4
|
|
|
—
|
|
|
Amortization of intangibles
|
|
1
|
|
|
5
|
|
|
Total operating expenses
|
|
79
|
|
|
188
|
|
|
|
|
|
|
|
|
Operating loss
|
|
(3
|
)
|
|
(15
|
)
|
|
|
|
|
|
|
|
Interest and other, net
|
|
(1
|
)
|
|
—
|
|
|
|
|
|
|
|
|
Pretax operating loss of discontinued operations
|
|
(4
|
)
|
|
(15
|
)
|
|
Loss recognized on classification as held for sale
|
|
(5
|
)
|
|
—
|
|
|
Loss on sale of discontinued operations
|
|
(908
|
)
|
|
—
|
|
|
Total pretax loss of discontinued operations
|
|
(917
|
)
|
|
(15
|
)
|
|
Income tax expense
|
|
3
|
|
|
4
|
|
|
Loss of discontinued operations
|
|
$
|
(920
|
)
|
|
$
|
(19
|
)
|
|
|
|
|
|
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|
The following table summarizes depreciation and capital expenditures for the discontinued operations for the first quarter of 2017 and the first quarter of 2016.
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|
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|
|
|
|
|
|
|
|
|
Thirteen weeks ended
|
|
|
|
April 29, 2017
|
|
April 30, 2016
|
|
Depreciation
|
|
$
|
2
|
|
|
$
|
15
|
|
|
Acquisition of property & equipment
|
|
8
|
|
|
10
|
|
|
Note E
—
Sale of Businesses and Assets
In the first quarter of 2017, the Company sold a controlling interest in its European operations and 100% of the shares related to its operations in Australia and New Zealand. See
Note D
-
Discontinued Operations
for additional information related to these divestitures.
Also in the first quarter of 2017, the Company sold an administrative building in Broomfield, CO for a net
$16 million
, and recognized a loss on sale of
$1 million
.
In April 2016, Staples entered into an agreement to sell substantially all of the assets and transfer certain liabilities related to Staples Printing Solutions, its commercial printing solutions business, for cash consideration of
$85 million
. The transaction closed on July 5, 2016. As a result of entering into this agreement, in the first quarter of 2016 the Company recognized charges
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
of
$19 million
and
$13 million
related to impairment of goodwill and long-lived assets, respectively. The charges were included in (Loss) gain related to sale of businesses and assets, net in the condensed consolidated statement of comprehensive income.
Note F
—
Fair Value Measurements
ASC Topic 820 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 carrying values of the Company's capital lease and commercial paper obligations approximate fair value.
At April 29, 2017, the Company had derivative assets with an aggregate fair value of
$4 million
recorded in Prepaid expenses and other current assets in the consolidated balance sheet. The fair values are classified as Level 2 measurements, and are based on quotes received from third-party banks. The fair values represent the estimated amount the Company would receive to terminate the agreements. See
Note G
—
Derivative Instruments and Hedging Activities
for more information on these derivative assets.
From time to time the Company has investments in money market funds that are measured and recorded in the financial statements at fair value. The fair values are based on quotes received from third-party banks and are classified as Level 1 measurements. As of
January 28, 2017
, the fair value of these investments, which are classified as Cash and cash equivalents in the condensed consolidated balance sheet was
$111 million
. There were no money market investments as of
April 29, 2017
.
There are no other material assets or liabilities measured at fair value.
The following table shows the difference between the financial statement carrying value and fair value of the Company's publicly traded debt obligations as of
April 29, 2017
and
January 28, 2017
(in millions). The fair values of these notes were determined based on quoted market prices and are classified as Level 1 measurements.
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|
April 29, 2017
|
|
January 28, 2017
|
|
Carrying Value
|
|
Fair Value
|
|
Carrying Value
|
|
Fair Value
|
January 2018 Notes
|
$
|
499
|
|
|
$
|
502
|
|
|
$
|
499
|
|
|
$
|
503
|
|
January 2023 Notes
|
497
|
|
|
504
|
|
|
497
|
|
|
509
|
|
Note G
—
Derivative Instruments and Hedging Activities
From time to time, Staples uses derivative instruments to hedge certain financial exposures. The Company does not use derivatives for speculative purposes. The derivatives qualify for hedge accounting treatment if they are highly effective in offsetting the underlying exposures. 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, or if a derivative has not been designated as a hedge for accounting purposes. The Company formally documents all hedging relationships for all derivatives, non-derivative 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.
In the first quarter of 2017, the Company entered into foreign currency forwards with aggregate notional amounts of
170 million
Canadian dollars that were designated as foreign currency hedges on Staples’ net investment in Canadian dollar denominated subsidiaries. In the first quarter of 2017 the Company recognized a net unrealized gain of
$3 million
related to these forward agreements. The gain was recorded as a foreign currency translation gain within other comprehensive income. No amounts were included in the consolidated statements of income related to ineffectiveness associated with these net investment hedges. These forward agreements are expected to be fully settled by September 2017.
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
In the first quarter of 2017, the Company entered into foreign currency forwards with aggregate notional amounts of
70 million
Australian dollars that were not designated as hedges for accounting purposes. In the first quarter of 2017 the Company recognized a net unrealized gain of
$1 million
related to these forward agreements. The gain is included in Pretax loss of discontinued operations in the consolidated statements of income. These forward agreements were settled in early May 2017.
Note H
—
Termination of Merger Agreement with Office Depot
On May 16, 2016, Staples and Office Depot terminated their previously announced merger agreement. In the first quarter of 2016, the Company incurred expenses of
$24 million
in connection with the proposed transaction, primarily related to professional services associated with seeking regulatory clearances. Of this amount,
$21 million
is included in selling, general and administrative expense and
$3 million
is included in discontinued operations in the condensed consolidated statement of comprehensive income for the first quarter of 2016. Also in the first quarter of 2016, the Company accrued
$32 million
of interest expense related to the transaction financing arrangements, and earned
$1 million
of interest income on loan proceeds being held in escrow.
During the first quarter of 2016 the Company made cash payments totaling
$55 million
into escrow accounts, representing deposits for interest and fees related to the transaction financing arrangements. This amount is included in Increase in restricted cash within the Investing Activities section of the condensed consolidated statement of cash flows for the first quarter of 2016. During the first quarter of 2016,
$20 million
of interest was paid directly from the escrow accounts to the lenders. Because these payments were made directly from escrow, they are considered non-cash operating activities that are not reflected in the condensed consolidated statements of cash flows. The Company also made cash payments of
$69 million
directly to the lenders during the first quarter of 2016, related to commitment fees incurred in 2015. This amount is reflected in the Operating activities section of the condensed consolidated statement of cash flows for the first quarter of 2016.
Note I
—
Stockholders' Equity
Accumulated Other Comprehensive Loss
The following table details the changes in accumulated other comprehensive loss ("AOCL") for the
first quarter of
2017
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Deferred Benefit Costs
|
|
Accumulated Other Comprehensive Loss
|
Balance at January 28, 2017
|
|
$
|
(761
|
)
|
|
$
|
(292
|
)
|
|
$
|
(1,053
|
)
|
Foreign currency translation adjustment
|
|
(16
|
)
|
|
—
|
|
|
(16
|
)
|
Reclassification adjustments:
|
|
|
|
|
|
|
Divestiture of businesses (net of taxes of $12)
|
|
282
|
|
|
290
|
|
|
572
|
|
Balance at April 29, 2017
|
|
$
|
(495
|
)
|
|
$
|
(2
|
)
|
|
$
|
(497
|
)
|
See
Note D
-
Discontinued Operations
for information related to the changes in AOCL that relate to the divestiture of businesses.
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
Note J
—
Computation of Earnings per Common Share
The computation of basic and diluted earnings per share for the
first quarter of
2017
and
2016
is as follows (in millions, except per share data):
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
April 29, 2017
|
|
April 30, 2016
|
Numerator:
|
|
|
|
Income from continuing operations
|
$
|
105
|
|
|
$
|
60
|
|
Loss from discontinued operations
|
(920
|
)
|
|
(19
|
)
|
Net (loss) income
|
$
|
(815
|
)
|
|
$
|
41
|
|
|
|
|
|
Denominator:
|
|
|
|
Weighted-average common shares outstanding
|
653
|
|
|
646
|
|
Effect of dilutive securities:
|
|
|
|
Restricted shares (including performance-based awards)
|
4
|
|
|
3
|
|
Weighted-average common shares outstanding assuming dilution
|
657
|
|
|
649
|
|
|
|
|
|
Basic Earnings per share
|
|
|
|
Continuing operations
|
$
|
0.16
|
|
|
$
|
0.09
|
|
Discontinued operations
|
(1.41
|
)
|
|
(0.03
|
)
|
Consolidated operations
|
$
|
(1.25
|
)
|
|
$
|
0.06
|
|
|
|
|
|
Diluted Earnings Per Share:
|
|
|
|
Continuing operations
|
$
|
0.16
|
|
|
$
|
0.09
|
|
Discontinued operations
|
(1.40
|
)
|
|
(0.03
|
)
|
Consolidated operations
|
$
|
(1.24
|
)
|
|
$
|
0.06
|
|
For the
first quarter of
2017
and
2016
, approximately
15 million
and
20 million
equity instruments, respectively, were excluded from the calculation of diluted earnings per share as their inclusion would have been anti-dilutive.
STAPLES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (continued)
Note K
—
Segment Reporting
Staples has
two
reportable segments: North American Delivery and North American Retail.
The following is a summary of sales and business unit income by reportable segment and a reconciliation of business unit income to income from continuing operations before income taxes for the
first quarter of
2017
and
2016
(in millions):
|
|
|
|
|
|
|
|
|
|
13 Weeks Ended
|
|
April 29, 2017
|
|
April 30, 2016
|
|
Sales
|
North American Delivery
|
$
|
2,635
|
|
|
$
|
2,712
|
|
North American Retail
|
1,514
|
|
|
1,651
|
|
Total sales
|
$
|
4,149
|
|
|
$
|
4,363
|
|
|
|
|
|
|
Business Unit Income
|
North American Delivery
|
$
|
137
|
|
|
$
|
159
|
|
North American Retail
|
53
|
|
|
49
|
|
Business unit income
|
190
|
|
|
208
|
|
Unallocated expense, net
(1)
|
(19
|
)
|
|
(22
|
)
|
Impairment of long-lived assets
|
(1
|
)
|
|
—
|
|
Loss related to sale of businesses and assets, net
|
(1
|
)
|
|
(32
|
)
|
Restructuring charges and costs related to strategic plans
|
(6
|
)
|
|
(11
|
)
|
Interest and other expense, net
|
(5
|
)
|
|
(36
|
)
|
Merger-related costs
|
—
|
|
|
(21
|
)
|
Income from continuing operations before income taxes
|
$
|
158
|
|
|
$
|
86
|
|
(1) Unallocated expense includes stock-based compensation, income or loss associated with the Company's supplemental executive retirement plan, and certain expenses that were previously allocated to the Company's international businesses.
Note L
—
Commitments and Contingencies
From time to time, the Company is involved in litigation arising from the operation of its business that is considered routine and incidental to its business. The Company estimates exposures and establishes reserves for amounts that are probable and can be reasonably estimated. However, litigation is inherently unpredictable and the outcome of legal proceedings and other contingencies could be unexpected or differ from the Company’s reserves. The Company does not believe it is reasonably possible that a loss in excess of the amounts recognized in the consolidated financial statements as of
April 29, 2017
would have a material adverse effect on its business, results of operations, financial condition or cash flows. For information related to specific contingent losses, see Note I in the Notes to the Consolidated Financial Statements in the Company's 2016 Annual Report on Form 10-K.
STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis
of Financial Condition and Results of Operations