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FORM 10-K

Securities and Exchange Commission
Washington, D.C. 20549

ý Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

or

o Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

        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 ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value of the voting stock held by non-affiliates of the registrant, based on the last sale price of Staples' common stock on August 2, 2002, as reported by Nasdaq, was approximately $6.9 billion. In determining the market value of non-affiliate voting stock, shares of Staples' common stock beneficially owned by each executive officer and director have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

        The registrant had 473,330,307 shares of Staples' common stock, par value $.0006, outstanding as of March 3, 2003.

        Documents Incorporated By Reference

        Listed below is the document incorporated by reference and the part of the Form 10-K into which the document is incorporated:

PART I

Item 1. Business

Staples

        Staples, Inc. and subsidiaries ("We", "Staples" or "the Company") pioneered the office products superstore concept and is a leading office products distributor. We opened the first office products superstore in Brighton, Massachusetts in 1986 to serve the needs of small businesses. The office products industry has experienced significant growth since 1986 as the industry has expanded to include a variety of retailers, dealers and distributors, including other high-volume office supply chains.

        We operate three business segments: North American Retail, North American Delivery and European Operations. Our North American Retail segment consists of U.S. and Canadian business units that, at the end of fiscal 2002, sold office products and services through 1,300 retail stores. Our North American Delivery segment consists of U.S. and Canadian catalog and internet business units, along with the U.S. contract stationer business unit, that sell and deliver office products and services directly to customers. Our European Operations segment consists of our business units that, at the end of fiscal 2002, sold office products and services through 188 retail stores in the United Kingdom, Germany, the Netherlands and Portugal and sell and deliver office products and services directly to businesses throughout the United Kingdom, Germany, France, Belgium, Spain and Italy. Additional information regarding our operating segments is presented in Management's Discussion and Analysis of Financial Condition and Results of Operations contained in this Annual Report on Form 10-K, and financial information regarding these segments is provided in Note M in the Notes to Consolidated Financial Statements contained in this Annual Report on Form 10-K.

Business Strategy

        We view the office products market as a large, diversified market for office supplies and services, business machines, computers and related products, and office furniture. Although there are no clear demarcations among customer groups, we target four principal end-user groups: power users (customers spending over $500 per year in office products excluding computers and furniture; primarily home-based businesses, home offices and teachers); small businesses and organizations with up to 50 office workers; medium-size businesses and organizations with between 50 and 500 office workers; and large businesses and organizations with more than 500 office workers. We effectively reach each sector of the office products market through different distribution channels designed to be convenient to the needs of our customers. Our stores seek to address the retail needs of customers, while our catalog and internet operations focus on customers who desire delivery of their office products and other specialized services. Our contract businesses are specifically organized to service the needs of medium and large businesses. Our ability to address all four major end-user groups increases and diversifies our available market opportunities; increases awareness of the Staples name among customers in all four end-user groups, who often shop across multiple sales channels; and allows us to enjoy a number of important economies of scale such as increased buying power, enhanced efficiencies in distribution and advertising, and improved capacity to leverage general and administrative functions.

        In 2001, we announced our Back to Brighton strategy. The three main elements of Back to Brighton are driving profitable sales growth, improving profit margins and increasing asset productivity. Back to Brighton brings a renewed focus to the business customer through changes in merchandise mix, marketing and customer service. To improve our merchandise mix, we eliminated more than 700 products that were consumer-oriented and low margin or slow turning and replaced these goods with 450 stock keeping units, or SKUs, directed at power users and small business customers. We have realigned our marketing efforts to focus on power users and small businesses with an increased focus on our sales force, direct mail, and customer loyalty programs and lesser emphasis on circulars. To improve our customer service, we have expanded our training of sales associates, added labor hours to certain store departments and changed our associate bonus plan.

North American Retail

        Our North American Retail segment, consisting of 1,300 stores throughout the United States and Canada at the end of fiscal 2002, generated a majority of our sales and profits during fiscal 2002. Our North American retail stores are located in 45 states, the District of Columbia and 10 Canadian provinces in both major metropolitan markets and smaller markets. Our retail operations focus on serving the needs of power users and small businesses.

        Our strategy for our North American superstores focuses on several key objectives: provide superior value to our customers through a combination of every day low prices, a broad selection of products, convenient store locations and

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hassle-free returns; reduce operating costs to the lowest level consistent with providing quality merchandise and service; and offer an easy-to-shop store environment with quality products that are in-stock and easy to find, fast checkout and courteous, helpful and knowledgeable sales associates.

        Our retail stores display inventory according to a plan-o-gram that graphically designates the place each item in each section of the store is displayed and specifies the quantity to be stocked. Related items are typically grouped together for customer convenience. Associates in our stores are available to consult on purchases, particularly in our furniture, business machines and technology sections, where customers often need assistance in decision making. Beginning in fiscal year 2000, Staples began offering retail customers the ability to make purchases on-line through in-store internet access points to acquire products that are not available in our stores. Internet access points are now in all of our U.S. stores, and our customers can pay for these purchases at the register or through Staples.com and have the product delivered to their home or business.

        During 2001, we introduced a redesigned layout of our stores called the "Dover" format. This design was created to improve the appeal of the store to the customer and to open up the interior of the store to give the customer a better view of our vast array of products. In addition, in fiscal 2002, we reduced the size of our new stores to 20,000 square feet from our previous 24,000 square foot store format. At February 1, 2003, we had 263 Dover stores, and we plan to open all of our stores in the United States in 2003 using the Dover format. We also plan to remodel up to 50 existing stores in the United States into the Dover format during 2003. We continue to improve our Dover store format focusing on refinements in product placement, store design and adjacencies. In select urban markets, we operate a smaller store format, "Staples Express", which offers a more focused assortment of products. These smaller stores, ranging from 6,000 to 10,000 square feet, give us the opportunity to meet the office supply needs of customers in a store format that is efficient and economical in an urban environment.

        We continue to execute a more conservative store growth strategy. Our goal is to expand our store base in a prudent fashion to produce strong sales and yield high returns on our investments. We believe that our network of stores, catalog and internet businesses in various metropolitan markets enhances our profitability by allowing us to leverage marketing costs, distribution expense and supervision costs. In determining where to open new retail stores and actively market our catalog, we evaluate the concentration of small- and medium-sized businesses and organizations, the number of home offices, household income levels, the availability of quality real estate locations, competition and other factors. While most of our retail stores have been located in conventional strip shopping centers, we have also successfully converted non-retail properties to Staples stores. Although we often lease second-use properties, we have also entered into ground leases where we plan to build a store or arrange to have landlords construct free-standing buildings to our specifications. In addition, we have on numerous occasions acquired lease rights from prior tenants. We believe that this flexibility in selecting sites will assist us in securing additional locations in the challenging real estate markets in which we operate.

        We plan to open approximately 75 to 90 stores in North America in 2003, versus 72 new stores in 2002 and 117 new stores in 2001. The growth program for fiscal year 2003 will continue to focus primarily on existing markets, with fewer new market entries, as we fill in markets we entered during 2000 and 2001. We have also focused on improving under performing stores in our store portfolio. Many of these stores are in new markets and did not fully benefit from initial marketing programs that build brand awareness and drive customer traffic. We are re-launching our initiatives in some markets and are giving more latitude to some store managers to improve profitability by implementing strategies that are unique to their marketplace.

North American Delivery

        Our North American Delivery segment is comprised of two principal operations: our catalog and internet businesses, operating under the names "Staples Business Delivery" and "Quill Corporation," and our contract stationer businesses, operating under the names "Staples National Advantage" and "Staples Business Advantage."

        We are implementing a number of strategies focusing on customer service and retention to grow our delivery business and increase its profitability. These strategies include: focusing on our perfect order metric which measures the number of orders that we ship without error; enhancing our distribution capabilities; expanding the size of our sales force; reducing the number of small orders; and increasing the percentage of orders placed electronically.

        Staples Business Delivery:    Our Staples Business Delivery operations combine the efforts of our direct mail catalog business, operating since 1990, and our Staples.com and Canadian e-commerce sites. Our direct mail catalog business is designed to reach all targeted segments of the office products market seeking the convenience of telephone ordering and free next business day delivery for orders over $50. Staples.com, which began in 1998, is our core electronic marketplace for small businesses, home offices and power users. The web site provides complete, on-site transaction processing for

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the purchase of over 130,000 office products and services. The site is available in all of our U.S. retail stores through internet access points. Delivery orders are shipped from our delivery distribution centers and are distributed through dedicated delivery hubs. In some markets, we also deliver products directly from our retail stores. We market Staples Business Delivery through direct mail catalogs, a sales force primarily focused on generating new accounts and internet and other broad-based media advertising.

        Quill Corporation:    Acquired by Staples in May 1998 and founded in 1956, Quill is a direct mail catalog business with a targeted approach to servicing the business product needs of more than one million small- and medium-sized businesses in the United States. Quill also sells office products using the internet channel through Quill.com. To attract and retain its customers, Quill offers outstanding customer service, superior private label products and special services. In July 2002, we acquired Medical Arts Press, Inc., or MAP, a leading direct marketer of specialized printed office products and practice-related supplies to medical offices, and established MAP as an operating division of Quill. Our acquisition of MAP provides us with an opportunity to sell traditional office products to MAP's customer base and expand Quill's and Staples' product offerings.

        Staples National Advantage and Staples Business Advantage:    Our contract stationer operations focus primarily on serving the needs of medium- to large-sized businesses that often require more services than are provided by a traditional retail or mail order business. We offer customized pricing, payment terms, usage reporting and the stocking of certain proprietary items. Our contract stationer business is divided into two segments. Staples National Advantage is a nationwide contract stationer business selling to large multi-regional businesses. Staples Business Advantage sells to medium- and large-sized regional companies and has the flexibility to handle smaller accounts. We initially established the contract stationer business through acquisitions, and more recently have entered certain metropolitan markets through the expanded sales and distribution capabilities of Staples Business Advantage. StaplesLink.com provides online procurement of office products for our contract stationer customers. To appeal to businesses which require high levels of procurement control, StaplesLink.com offers the highest level of procurement functionality of our websites, including customized pricing, payment terms, usage reporting and full service account management.

European Operations

        As of February 1, 2003, we operated 188 retail stores in Europe. This includes 83 Staples stores in the United Kingdom, 56 Staples stores in Germany, 37 Office Centre stores in the Netherlands and 12 Office Centre stores in Portugal. The Office Centre stores in the Netherlands are different from a typical Staples store in that they generally have a business-oriented membership format similar in concept to many U.S. warehouse clubs. In fiscal year 2002, we opened 14 stores in Europe, and we plan to open approximately 20 new stores in fiscal year 2003, including an expansion of the Office Centre concept into Belgium. Our European Operations segment also includes delivery businesses operating under the Staples name in the United Kingdom and Germany, and an internet site in Germany. On October 18, 2002, we gained access to the fast growing office products mail order market in France, Belgium, Spain and Italy and strengthened our position in the United Kingdom through our acquisition of the European mail order businesses of an office products seller. The acquisition expanded our European Operations segment to include leading direct mail office products sellers that deliver office products and services directly to more than 800,000 small business customers under a variety of different brand names, including JPG and Bernard in France and Belgium, Kalamazoo in Spain, Neat Ideas in the United Kingdom and MondOffice in Italy.

        We believe that Europe represents an important opportunity for us. Europe is the second largest office products market in the world and relies more than the United States on the delivery channel as opposed to the retail channel. Our retail business has experienced strong revenue growth and improved profitability over the last several years despite economic and regulatory challenges and a difficult real estate market. With our recent acquisition in the delivery channel and our existing delivery business, we believe that we are well positioned for success as a multi-channel distributor of office products in Europe.

Merchandising

        We sell a wide variety of office supplies and services, business machines, computers and related products and office furniture. While our buying and merchandising staff uses integrated computer systems to centrally perform the vast majority of our merchandise planning and product purchasing, some of our business units, particularly Quill, Canadian operations and multiple European businesses, leverage our global buying and merchandising staff along with their own staff to meet their more localized buying and merchandising needs.

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        We have approximately 8,000 SKUs stocked in each of our typical North American retail stores and approximately 15,000 SKUs stocked in our North American delivery business. We also offer over 130,000 additional SKUs to our customers through the internet, including internet access points in our U.S. retail stores. In order to minimize unit costs and selling prices, we sell most products in multi-unit packages. The pack sizes are designed to be large enough to be cost effective without being burdensome to our small business customers.

        Our product offering includes approximately 1,000 Staples private label items which are primarily in consumables categories. In fiscal 2002, we expanded our 10-year old private label program to focus on the Staples brand rather than controlled brands with greatly improved packaging. Staples branded products generally offer better gross margins than national brands and provide high quality and, we believe, better value to our customers. We also offer an array of services, including high-speed, color and self-service copying, other printing services, faxing, pack and ship services, payroll services and product warranty contracts.

        Our strategy is to tailor our product mix to meet the needs of customers by regularly evaluating sales and profit performance for each of our SKUs. In connection with our Back to Brighton strategy, we reevaluated our retail product assortment to refocus on the more profitable small business customers and power users. This began with a SKU rationalization process aimed at maximizing our assortment value and eliminating many of our low margin or slow moving consumer oriented SKUs. We added approximately 450 SKUs aimed at meeting the needs of our small business and power user customers while eliminating more than 700 consumer-oriented SKUs. This process included eliminating some of the entry-level, consumer only, low-end business machines in favor of more heavy duty, higher-end products with business features and functions that better fit our core customers' needs. We have also reevaluated our computer selection and now stock only one PC SKU in approximately 400 of our retail stores. We continue to stock an assortment of PCs in the rest of our stores and have increased our focus on build-to-order computers in all of our retail locations.

        The following table shows our sales by each major product line as a percentage of total sales for the periods indicated:

        We select our vendors based upon quality, price, delivery reliability and, where appropriate, customer brand recognition for all of our sales channels. As a result of the volumes in which we purchase our products and our centralized distribution facilities, we are able to obtain favorable pricing from our vendors. In fiscal 2002, we began to use reverse on-line auctions, an internet-based bidding process, to achieve savings through lower costs from our vendors on many of the items we use to operate our business and on some of the products we sell. We purchase products from several hundred vendors worldwide, and we believe that competitive sources of supply are available to us for substantially all of the products we carry.

Supply Chain

        We operate centrally located distribution centers across the United States to service the majority of our replenishment and delivery requirements for our U.S. retail and North American delivery operations. Most products are shipped from our suppliers to the distribution centers for reshipment to our stores and delivery to our customers through our delivery hubs. As of February 1, 2003, four distribution centers, located in California, Connecticut, Indiana and Maryland, supported our U.S. retail operations, and 31 distribution centers throughout the United States and Canada supported our North American delivery operations. Of our 31 North American delivery distribution centers, seven locations service multiple delivery businesses, with our distribution center in London, Ohio, which we opened in 2002, supporting all of our delivery businesses. We plan to continue to expand our multi-business capabilities into three additional locations in 2003.

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        We believe our distribution centers provide us with significant labor and merchandise cost savings by centralizing receiving and handling functions and by enabling us to purchase in full truckloads from suppliers. We also believe that the reduction in the number of purchase orders and invoices processed results in significant administrative cost savings. Our centralized purchasing and distribution systems also permit our store associates to spend more time on customer service and store presentation. Since our distribution centers maintain backup inventory, our in-store inventory requirements are reduced, and we operate smaller gross square footage stores than would otherwise be required. A smaller store size reduces our rental costs and provides us with greater opportunity to locate stores more closely to our target customers.

        We continually work with our vendors to improve our business relationships. StaplesPartners.com allows suppliers access to important supplier information, including supplier metrics, purchase order data, sales and inventory data, EDI information and transportation routing information. This site has improved the speed and accuracy of information, reduced our communication costs and improved our suppliers' understanding of doing business with us.

        Over the last several years, we have made incremental progress in our supply chain through improvements that did not require significant changes to our processes. In 2003, we expect to begin to implement a comprehensive plan to improve our supply chain performance as we look to improve our processes across all functions. The key objectives of the plan include improvements in our demand creation and inventory management processes as well as optimizing our distribution network.

Marketing

        We pursue a variety of marketing strategies to attract and retain target customers. These strategies include broad-based media advertising such as television, radio, newspaper circulars, print and internet advertising, as well as catalogs, e-mail marketing, a loyalty program and a sophisticated direct marketing system. In addition, we market to larger companies through a combination of direct mail catalogs, customized catalogs and a field sales force. We change our level of marketing spending as well as the mix of media employed depending upon market, competition and cost factors. This flexible approach allows us to optimize the effectiveness and efficiency of our marketing expenditures.

        With the implementation of our Back to Brighton strategy, we realigned our marketing efforts to focus on our core customers: small businesses and power users. The marketing strategies emphasized our strong brand and leveraged all of our delivery and retail vehicles to send a consistent message to our core customers. We expanded the size of our sales force in both delivery and retail segments. During fiscal 2002, we continued our print advertising program but at a reduced and more targeted level as we shifted our marketing expenditures from mass media to more targeted direct marketing and to our loyalty program. Going forward, we intend to focus our marketing message on our brand promise that Staples makes buying office products easy.

        We also have a naming rights agreement with L.A. Arena Company, LLC, which owns the Staples Center, a state of the art sports and entertainment complex in downtown Los Angeles, which opened in 1999. This agreement provides us with marketing, promotional and signage rights, community-based programs and various amenities in the Staples Center for 20 years.

Associates and Training

        We place great importance on recruiting, training and providing the proper incentives for quality personnel. We recruit actively on college campuses and also hire talented individuals with experience in successful retail operations. Additionally, current associates are rewarded for recruiting new associates.

        We consider customer relations and our associates' knowledge of office products and office-related capital goods to be significant to our marketing approach and our ability to maintain customer satisfaction. Associates are trained in a number of areas, including, where appropriate, sales techniques, management skills and product knowledge. We have continued to make an investment in computer-based, multi-media training programs to upgrade staff selling skills and improve customer service at our retail stores and delivery operations. Much of the training targets sales of capital goods such as fax machines, copiers, furniture and computers. Store management trainees advance through the store management structure by taking on assignments in different areas as they are promoted. Store and call center associates prepare for new assignments through Staples and third party designed training modules, written manuals, video instruction and self-testing.

        As of February 1, 2003, Staples employed 29,912 full-time and 27,904 part-time associates.

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Competition

        We compete with a variety of retailers, dealers and distributors in the highly competitive office products market. Our target customers have historically been serviced by traditional office products dealers. We believe we have competed favorably against these dealers in the past because we generally offer lower prices and a broader product selection. We compete in most of our geographic markets with other high-volume office supply chains, including Office Depot and OfficeMax, that are similar in concept to us in terms of pricing strategy and product selection, as well as mass merchants such as Wal-Mart, warehouse clubs, computer and electronics superstores such as Best Buy, and other discount retailers. In addition, both our retail stores and delivery operations compete with numerous mail order firms, contract stationer businesses, electronic commerce distributors and direct manufacturers.

        We believe we are able to compete favorably against other high-volume office supply chains, mass merchandisers and other retailers, dealers and distributors because of our: focus on the business customer and power user; courteous, helpful and knowledgable customer service; wide assortment of office supplies that are in stock and easy to find; fast checkout; easy to use website; reliability and speed of order shipment; convenient store locations; hassle-free returns and fair prices. Many of our competitors have increased their presence in our markets in recent years. Some of our current and potential competitors in the office products industry are larger than we are and have substantially greater financial resources. No assurance can be given that such increased competition will not have an adverse effect on our business.

Trademarks

        In connection with our North American Retail business, we have registered the marks "Staples" and "Staples The Office Superstore" in the Principal Register of the United States Patent and Trademark Office, and the marks "Staples the Office Superstore" and "Staples" in Canada. In connection with our North American Delivery businesses, we have registered the marks "Staples.com", "Staples National Advantage", "Staples Business Advantage", "StaplesLink.com", "Quill", "Medical Arts Press", "HMI", and "SmileMakers" on the Principal Register of the United States Patent and Trademark Office. In connection with our European Operations, we have registered the mark "Staples" in many foreign jurisdictions, including, but not limited to, the United Kingdom, Germany, the Netherlands, Portugal and Belgium and the mark "Office Centre" in many foreign jurisdictions, including, but not limited to, the Netherlands, Portugal and Belgium. As a result of our October 2002 acquisition of the European mail order businesses, we also have registered the mark "Bernard" in multiple foreign jurisdictions, including, but not limited to, France and Belgium; the mark "JPG" in many foreign jurisdictions, including, but not limited to, France and Belgium; the mark "Neat Ideas" in many foreign jurisdictions, including, but not limited to, the United Kingdom; the mark "Sistemas Kalamazoo" in Spain; and the mark "MondOffice" in Italy.

        We maintain a website with the address www.staples.com. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the Securities and Exchange Commission.

        We were organized in 1985 and are incorporated in Delaware.

EXECUTIVE OFFICERS OF THE REGISTRANT

        Our executive officers, their respective ages and positions as of February 1, 2003 and a description of their business experience is set forth below. There are no family relationships among any of the executive officers named below.

Basil L. Anderson, age 57

Mr. Anderson has served as a Vice Chairman of Staples since September 2001 and as a Director since 1997. Prior to joining Staples, Mr. Anderson served as Executive Vice President—Finance and Chief Financial Officer of Campbell Soup Company from April 1996 to April 2000. Prior to joining Campbell Soup, Mr. Anderson was with Scott Paper Company where he served in a variety of capacities beginning in 1975, including Vice President and Chief Financial Officer from February 1993 to December 1995.

Joseph G. Doody, age 50

Mr. Doody has served as President-Staples North American Delivery since March 2002. Prior to that he served as President-Staples Contract & Commercial from November 1998 to March 2002. Prior to joining Staples, Mr. Doody was Vice President of Sutherland Group, a call center outsourcing company, from January 1998 to November 1998.

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Prior to that, Mr. Doody served at Eastman Kodak for over 20 years in positions of increasing responsibility, ending with President of North American Office Imaging.

John J. Mahoney, age 51

Mr. Mahoney has served as Executive Vice President, Chief Administrative Officer and Chief Financial Officer since October 1997. Prior to that, he was Executive Vice President and Chief Financial Officer from September 1996 to October 1997. Prior to joining Staples, Mr. Mahoney was a partner with Ernst & Young LLP, where he served in various capacities in its accounting and auditing groups from 1975 to 1996.

Demos Parneros, age 40

Mr. Parneros has served as President—U.S. Stores since April 2002. Prior to that, he served in various capacities since joining Staples in October 1987, including Senior Vice President of Operations from March 1999 to March 2002 and Vice President of Operations from September 1996 to February 1999.

Ronald L. Sargent, age 47

Mr. Sargent has served as President and Chief Executive Officer of Staples since February 2002 and as a Director since 1999. Prior to that, he served in various capacities since joining Staples in March 1989, including President and Chief Operating Officer of Staples from November 1998 to February 2002, President-North American Operations from October 1997 to November 1998, and President-Staples Contract & Commercial from June 1994 to October 1997.

Thomas G. Stemberg, age 54

Mr. Stemberg has served as Chairman of the Board of Directors of Staples since February 1988 and an executive officer of Staples with the title of Chairman since February 2002. Mr. Stemberg founded Staples and was Chief Executive Officer of Staples from January 1986 to February 2002.

Jack A. VanWoerkom, age 49

Mr. VanWoerkom has served as Senior Vice President, General Counsel and Secretary since March 1999. Prior to that, he served as General Counsel of Teradyne, Inc. from January 1998 to March 1999. From January 1994 to June 1997, Mr. VanWoerkom was Chief Legal Counsel, Vice President of Development and Managing Director of Europe for A.W. Chesterton.

Joseph S. Vassalluzzo, age 54

Mr. Vassalluzzo has served as a Vice Chairman since December 1999. Prior to that, he served in various capacities since joining Staples in September 1989, including President, Realty and Development from October 1997 to December 1999, President—Staples Realty from September 1996 to October 1997, Executive Vice President—Growth and Development from November 1993 to September 1996, and Executive Vice President—Growth and Support Services from April 1993 to November 1993.

Item 2. Properties

        As of February 1, 2003, we operated 1,488 superstores in 45 states, the District of Columbia, 10 provinces in Canada, 10 regions in the United Kingdom, 9 regions in Germany, in the Netherlands and in Portugal. Staples also operates 39 distribution centers. The following table sets forth the locations of our facilities as of February 1, 2003.

RETAIL STORES

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DISTRIBUTION CENTERS

        Most of the existing facilities are leased by us with initial lease terms expiring on dates between 2003 and 2020. In most instances, we have renewal options at increased rents. Leases for 192 of the existing stores provide for contingent rent based upon sales.

        Our Framingham, Massachusetts corporate office is owned by us and consists of approximately 650,000 square feet.

Item 3. Legal Proceedings

        We are not a party to nor are any of our properties subject to any material pending legal proceedings other than routine litigation incidental to our business.

Item 4. Submission of Matters to a Vote of Security Holders

        No matter was submitted to a vote of our security holders during the fourth quarter of fiscal 2002.

PART II

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters

        Our common stock is traded on the Nasdaq National Market under the symbol "SPLS".

        At March 3, 2003, the number of holders of record of our common stock was 8,140.

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        The following table sets forth for the periods indicated the high and low sale prices per share of our common stock on the Nasdaq National Market, as reported by Nasdaq.

        We have never paid a cash dividend on our common stock. We presently intend to retain earnings for use in the operation and expansion of our business and, therefore, do not anticipate paying any cash dividends in the foreseeable future. In addition, our revolving credit agreement restricts the payment of dividends in the event we are in default under the agreement or such payout would cause a default under the agreement.

        On August 1, 2002, pursuant to a consulting agreement between Senator George Mitchell, one of our directors, and us, under which Senator Mitchell provides consulting services to us in return for an annual fee of $75,000, we sold to Senator Mitchell 4,706 shares of our common stock having a value of $75,000, in lieu of the $75,000 cash payment, in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933.

Item 6. Selected Financial Data

        The information required by this Item is attached as Appendix A.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

        The information required by this Item is attached as part of Appendix B.

Item 7A. Quantitative and Qualitative Disclosures about Market Risks

        The information required by this Item is attached as part of Appendix B.

Item 8. Financial Statements and Supplementary Data

        The information required by this Item is attached as Appendix C.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        Not applicable.

PART III

        Certain information required by Part III is omitted from this Annual Report on Form 10-K and incorporated herein by reference to the definitive proxy statement with respect to our 2003 Annual Meeting of Stockholders (the "Proxy Statement"), which we will file with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this Report.

Item 10. Directors and Executive Officers of the Registrant

        Certain information required by this Item is contained under the heading "Executive Officers of the Registrant" in Part I of this Annual Report on Form 10-K. Other information required by this Item will appear under the headings "Election of Directors" and "Corporate Governance—Directors of Staples" in our Proxy Statement, which sections are incorporated herein by reference.

        The information required by Item 405 of Regulation S-K will appear under the heading "Executive Compensation—Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement, which section is incorporated herein by reference.

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        We have adopted a written code of ethics that applies to all of our associates, including but not limited to, our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. Our code of ethics can be found at www.staples.com/about. We intend to make all required disclosures concerning any amendments to, or waivers from, our code of ethics on our website.

Item 11. Executive Compensation

        The information required by this Item will appear under the heading "Executive Compensation" and "Corporate Governance—Director Compensation" in our Proxy Statement, which sections are incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        The information required by this Item will appear under the headings "Beneficial Ownership of Common Stock" and "Executive Compensation—Securities Authorized for Issuance Under Equity Compensation Plans" in our Proxy Statement, which sections are incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions

        The information required by this Item will appear under the heading "Corporate Governance—Certain Relationships and Related Transactions" in our Proxy Statement, which section is incorporated herein by reference.

Item 14. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures. Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an effective manner.

(b)

Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

Index to Consolidated Financial Statements.

1.

Financial Statements. The following financial statements and schedules of Staples, Inc. are included as Appendix C of this Report:

•

Consolidated Balance Sheets—February 1, 2003 and February 2, 2002.

•

Consolidated Statements of Income—Fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001.

•

Consolidated Statements of Stockholders' Equity—Fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001.

•

Consolidated Statements of Cash Flows—Fiscal years ended February 1, 2003, February 2, 2002, and February 3, 2001.

•

Notes to Consolidated Financial Statements.

2.

Financial Statement Schedules. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission other than the ones listed above are not required under the related instructions or are not applicable, and, therefore, have been omitted.

3.

Exhibits. The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index on page D-1.

(b)

Reports on Form 8-K.

        No reports on Form 8-K were filed in the fiscal quarter ended February 1, 2003.

11

Signatures

        Pursuant to the requirements of Section 13 or 15(d) 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, on March 4, 2003.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 4, 2003.

12

13

CERTIFICATIONS

I, Ronald L. Sargent, certify that:

1.

I have reviewed this annual report on Form 10-K of Staples, Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

14

CERTIFICATIONS

I, John J. Mahoney, certify that:

1.

I have reviewed this annual report on Form 10-K of Staples, Inc.;



2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;



3.

Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;



4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:



a)

Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;



b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and



c)

Presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;




5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):



a)

All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and



b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and




6.

The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

15

APPENDIX A

STAPLES, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS
(Dollar Amounts in Thousands, Except Per Share Amounts)

(1)

Results of operations for this period include a tax benefit of $29.0 million related to Staples Communications. In fiscal 2000, the Company recognized an impairment loss related to the goodwill and fixed assets of Staples Communications, which was not recorded as a deduction for tax purposes. In 2002, the Company received approval from the Internal Revenue Service to take an ordinary deduction for the Company's investment in, and advances to, Staples Communication (see Note I).

(2)

Results of operations for this period include a store closure charge of $50.1 million ($30.8 million after taxes) related to the closing of 31 underperforming stores (see Note D), a $7.4 million ($4.6 million after taxes) charge to gross profit related to inventory write-downs to net realizable value for the closing stores and $10.7 million ($6.6 million after taxes) in other charges related to workforce reductions and distribution and call center closures (see Note C).

(3)

Results of operations for this period include $205.8 million of asset impairment and other charges related to the impairment of goodwill and fixed assets associated with Staples Communications and the write-down of investment values in various e-commerce companies (see Note C). These results also include a $7.3 million ($4.3 million after taxes) store closure credit (see Note D).

(4)

Results of operations for this period include a $41.0 million ($24.8 million after taxes) charge relating to costs incurred in connection with the merger with Quill Corporation ("Quill") and a $49.7 million ($30.1 million after taxes) charge relating to store closure costs.

On May 21, 1998, the Company acquired Quill. This transaction has been accounted for using the pooling of interests method. As a result, the financial information shown above has been restated to include the accounts and results of operations of Quill for all periods prior to the merger.

(5)

From the fourth quarter of fiscal year ending January 29, 2000 through the second quarter of fiscal year ending February 2, 2002, historical earnings per share is omitted for Staples Inc. as a result of the approval of the Tracking Stock Proposal which changed Staples' capital structure by creating Staples.com Stock and reclassifying Staples, Inc. common stock ("Staples, Inc. Stock") as Staples RD Stock (see Note L). Staples.com's net loss per share has also been retroactively restated to reflect the effect of a recapitalization through a one-for-two reverse stock split approved by the Board on March 7, 2000 and effected on April 5, 2000.

The Company's fiscal year is the 52 or 53 weeks ending the Saturday closest to January 31.

All earnings per share data has been restated to give retroactive effect to the three-for-two split of the Company's common stock effected in January 1999.

A-1

APPENDIX B

STAPLES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition and
Results of Operations

Overview

        Our business is comprised of three segments: North American Retail, North American Delivery and European Operations. Our North American Retail segment consists of the U.S. and Canadian business units that operate office supply stores. The North American Delivery segment consists of the U.S. and Canadian business units that sell and deliver office products and services directly to customers, and includes Staples Business Delivery (North American catalog and internet operations), our contract stationer operations (Staples National Advantage and Staples Business Advantage) and Quill. The European Operations segment consists of operating units that operate office supply stores in the United Kingdom, Germany, the Netherlands and Portugal and that sell and deliver office products and services directly to customers throughout the United Kingdom, Germany, France, Belgium, Spain and Italy. Our fiscal years ended February 1, 2003 and February 2, 2002 contained 52 weeks, while the fiscal year ended February 3, 2001 contained 53 weeks.

        We acquired two businesses during fiscal year 2002. On October 18, 2002, we gained access to the fast growing office products mail order market in France, Belgium, Spain and Italy and strengthened our position in the United Kingdom through our acquisition of the European mail order businesses of an office products seller. The acquisition expanded our European Operations segment to include leading direct mail office products sellers that deliver office products and services directly to more than 800,000 small business customers under a variety of different brand names, including JPG and Bernard in France and Belgium, Kalamazoo in Spain, Neat Ideas in the United Kingdom and MondOffice in Italy ("European mail order acquisition"). The acquired companies are reported as part of our European Operations segment for segment reporting. On July 17, 2002, we acquired Medical Arts Press, Inc. ("MAP"). MAP is a leading direct marketer of specialized printed office products and practice-related supplies to medical offices. The acquisition of MAP provides us with an opportunity to sell traditional office products to MAP's customer base and expand Quill's and Staples' product offerings. MAP is an operating division of Quill and is included in North American Delivery for segment reporting. The results of operations for the acquired businesses have been included in our consolidated financial statements since the respective acquisition dates.

        From November, 1999 through August, 2001, our certificate of incorporation included two series of common stock, Staples.com common stock ("Staples.com Stock") and Staples Retail and Delivery common stock ("Staples RD Stock"). On August 27, 2001, our stockholders approved a proposal to amend our certificate of incorporation to effect a recapitalization by reclassifying each share of Staples.com Stock into 0.4396 shares of Staples common stock and by reclassifying each share of Staples RD Stock into one share of Staples common stock (the "Recapitalization"). The Recapitalization had no effect on our overall financial position or results of operations.

Forward Looking Statements

        This Annual Report on Form 10-K and, in particular, this management discussion and analysis contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management's beliefs and assumptions. Any statements contained herein (including without limitation statements to the effect that Staples or its management "believes", "expects", "anticipates", "plans" and similar expressions) that are not statements of historical fact should be considered forward-looking statements and should be read in conjunction with our consolidated financial statements and notes to consolidated financial statements included in this report. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. There are a number of important factors that could cause our actual results to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below under the heading "Cautionary Statements." We do not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise.

B-1

Results of Operations

        We have provided below a summary of our operating results at the consolidated level, followed by an overview of our segment performance.

Consolidated Performance:

        General:    The following table is a summary of our net income for each of the past three fiscal years:

(1)

While the 2000 and 2001 amounts are both categorized as asset impairment and other charges, the 2000 amount relates to the asset impairment of Staples Communications and certain e-commerce investments, and the 2001 amount relates to severance and facility closures.

        Management uses net income excluding the items noted in the table above, among other standards, to measure operating performance. We have added this information because we believe it assists you in understanding our results of operations on a comparative basis. This supplements, and is not intended to represent a measure of performance in accordance with, disclosures required by accounting principles generally accepted in the United States ("GAAP"). See the discussion below for an explanation of the items included in the table above.

        Excluding the items noted in the table above, net income grew 36% for fiscal year 2002 and 18% for fiscal 2001. Fiscal year 2002 was a year of improved performance as our Back to Brighton strategy of focusing on driving profitable sales growth, improving profit margins and increasing asset productivity positively impacted our results. This strategy includes a shift to focus our merchandising, marketing and customer service on small businesses and power users. Our performance has been achieved despite the absence of robust comparable sales growth. Even in this tough economic environment, comparable sales continue to show sequential improvement, with most of the growth in consumables, which includes our core supply categories. This comparable sales growth, however, has been offset by a general weakness in our customers capital spending resulting in a negative impact on purchases of non-consumables, which include our technology and furniture categories.

        We strive to maintain a balance between investing for our long term success and delivering strong current earnings growth. During 2002, we chose to make significant investments to drive sustainable revenue growth by investing in productivity improvements and better processes in such areas as store labor, sales force, marketing and supply chain.

        Fiscal year 2002 was a year of transformation for us. In executing our Back to Brighton strategy we drove significant, sustainable, structural shifts throughout our business which we believe will continue to drive our sales and earnings growth in 2003. The most significant of these shifts include: a shift in customer base to more profitable business customers and power users versus consumers; improvements in customer service and our easy brand promise; improved new store productivity and our in-fill focused real estate strategy; our Dover store format; an increase in our private label mix; growing our more profitable delivery business faster than our retail business; our increased global presence in new European countries, addressing the large, attractive and growing European market; and the acquisition of businesses with a more profitable business model.

        As many of the initiatives we are executing are just beginning to positively impact our results, we expect additional operating margin improvement to continue in fiscal year 2003, independent of top line growth. As of the date of this filing, we anticipate organic sales growth in fiscal 2003 to be in the mid to high single digits with an additional two to three percent growth from our 2002 acquisitions. This sales growth implies low single digit North American retail

B-2

comparable store sales. We expect earnings per share growth of 20% for fiscal 2003. As with all forward looking statements made in this Annual Report on Form 10-K, we do not intend to update publicly any of the forward-looking statements in this paragraph.

        Sales:    Sales increased 7.9% in fiscal 2002, to $11.60 billion, versus sales of $10.74 billion in fiscal 2001. Sales in fiscal 2001 increased 0.7% compared to sales of $10.67 billion in fiscal 2000. Excluding the impact of our acquisitions in 2002, sales increased 5.7% in 2002. Excluding the additional week in fiscal 2000, sales increased 2.8% in fiscal 2001. Worldwide comparable sales increased 2% in 2002 and decreased 2% in 2001. Worldwide comparable sales include stores open for more than one year plus the Staples Business Delivery business and the Staples catalog business in Europe. Worldwide comparable sales for our retail locations increased 1% in 2002 and decreased 4% in 2001.

        The increase in sales for both years is primarily attributable to new stores and the continued success of our customer acquisition efforts in our delivery businesses. The increase in sales in 2002 also includes positive comparable store sales in our core office product categories, including ink and toner, paper and copiers and business machines, offset by declines in our technology and furniture categories; the positive results of cross-channel marketing among our catalogs, websites and stores; and increases in foreign exchange rates against the U.S. dollar. The increase in sales in 2001 was offset by the negative impact of the weak economy, including sharp declines in spending on computers, decreases in foreign exchange rates against the U.S. dollar, and the impact of the terrorist attacks in the United States on September 11^th.

        Gross Profit:    Gross profit as a percentage of sales was 25.4% for fiscal 2002, 23.9% for fiscal 2001 and 24.1% for fiscal 2000. The increase in the gross profit rate for 2002 was primarily due to a shift in sales mix toward higher margin consumable categories as well as the impact of the acquired businesses in 2002 which have higher margins, as a percentage of sales, than our other businesses. The slight decrease in the gross profit rate for 2001 was due to the deleveraging of fixed distribution, delivery and rent and occupancy costs, clearance activity related to the elimination of several hundred SKUs during our 300 store reflow initiative and mark-downs on PCs and furniture during the first half of 2001. The 2001 gross profit rate was also negatively impacted by a $7.4 million charge to write down inventory to net realizable value for the 31 stores which were closed and liquidated during the first quarter of fiscal 2002. These decreases were partially offset by strong margins from an improved product mix during the second half of 2001 and improved control of shrink costs throughout fiscal 2001.

        Operating and Selling Expenses:    Operating and selling expenses, which consist of payroll, advertising and other operating expenses, were 15.5% of sales for fiscal 2002 and 15.4% of sales for fiscal 2001 and 2000. The 2002 results reflect increased investments in our sales force at Quill and Staples Business Delivery, as well as the impact of the acquired businesses in 2002 which have higher marketing costs, as a percentage of sales, than our other businesses. Our 2002 results also reflect a $14.7 million charge relating to integration costs associated with our European mail order acquisition, six store closures in Germany and severance relating to reorganizations of our European corporate functions. Our ability to effectively leverage operating expenses offset these increases in 2002. The 2001 results reflect the effective management of operating costs despite softer sales and the benefits of expense leveraging in our e-commerce businesses.

        Pre-opening expenses:    Pre-opening expenses relating to new store openings, consisting primarily of salaries, supplies, marketing and distribution costs, are expensed by us as incurred and therefore fluctuate from period to period depending on the timing and number of new store openings. Pre-opening expenses were $8.7 million for the 86 stores opened in fiscal 2002, $13.7 million for the 136 stores opened in fiscal 2001 and $22.3 million for the 189 stores opened in fiscal 2000. The expense in fiscal 2000 reflects increased costs associated with the number of stores opened in remote locations during that year.

        General and Administrative:    General and administrative expenses as a percentage of sales were 3.9% for fiscal 2002, 3.5% for fiscal 2001, and 3.8% for fiscal 2000. The increase in general and administrative expenses as a percentage of sales in 2002 primarily reflects an increase in management's variable compensation. The decrease as a percentage of sales in 2001 reflects the results of the divestiture on April 3, 2002 of Staples Communications, which had high general and administrative costs as a percentage of sales, the benefits of expense leveraging in our e-commerce businesses, a

B-3

decrease in management's variable compensation, and our ability to increase sales without proportionately increasing overhead expenses.

        Amortization of Intangibles:    Amortization of intangibles was $2.1 million in fiscal 2002, reflecting the amortization of customer-related intangible assets and noncompetition agreements associated with our European mail order and MAP acquisitions in fiscal 2002. Prior to fiscal 2002, we had no amortizable intangible assets.

        Amortization of Goodwill:    Amortization of goodwill was zero in fiscal 2002, $6.6 million in fiscal 2001 and $13.6 million in fiscal 2000. The elimination of amortization of goodwill in fiscal 2002 is due to our adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which requires that goodwill and intangible assets that have indefinite lives be tested at least annually for impairment, rather than amortized. Accordingly, we ceased amortizing all goodwill on February 3, 2002. The decrease in the amortization of goodwill in fiscal 2001 from fiscal 2000 reflects the write-off of Staples Communications goodwill due to the impairment recorded during the fourth quarter of 2000.

        Asset Impairment and Other Charges:    During the fourth quarter of 2001, we recognized charges totaling $10.7 million, comprised of $6.8 million of severance related to the elimination of positions in our corporate office, certain call centers and distribution centers and $3.9 million for net lease obligations and asset write-offs related to the closure of a distribution center, two call centers and a delivery office in our North American Delivery segment. At February 1, 2003, we had $1.9 million remaining in accrued expenses and other current liabilities related to net future lease obligations and severance related to these charges. In fiscal 2000, we recognized impairment losses of $205.8 million. The assets that were impaired consisted of the goodwill and fixed assets associated with Staples Communications of $156.3 million. Also included in this charge was the write-down of investment values in various e-commerce companies of $49.5 million due to an other than temporary decline in value.

        Store Closure Charge:    In January 2002, we committed to a plan to close 31 underperforming stores and recorded a charge of $50.1 million related to these closings. This charge included $31.5 million for net lease obligations, $12.5 million for asset write-offs, $5.5 million in fees and other expenses related to the store closures and $0.6 million in severance. All of the store closures were completed by the end of the first quarter of fiscal 2002. At February 1, 2003, we had $29.1 million remaining in accrued expenses and other current liabilities related to net future lease obligations. In December 1998, we committed to a plan to close and relocate stores which could not be expanded and upgraded to our current store model. In connection with this plan, we recorded a charge of $49.7 million. During the first quarter of fiscal year 2000, we decided not to close several stores that were included in the original store closure plan due to changes in market conditions. Accordingly, we reversed a portion of the charge in the amount of $7.3 million relating to the stores that we did not close.

        Interest and Other Expense, Net:    Net interest and other expense totaled $20.6 million in fiscal 2002, $27.2 million in fiscal 2001 and $45.2 million in fiscal 2000. Interest and other expense relates primarily to interest on existing borrowings. The decrease in interest expense in fiscal 2002 and 2001 reflects a decrease in interest rates as well as a decrease in borrowings during fiscal 2001 and the first half of fiscal 2002 due to an increase in cash generated from operations. These decreases were offset by increased borrowings in the second half of 2002 for our two acquisitions.

        Income Taxes:    Our provision for income tax as a percentage of income before income taxes was 32.6% for fiscal 2002, 38.5% for fiscal 2001 and 75.6% for fiscal 2000. In fiscal 2000, we recognized impairment losses related to the goodwill and fixed assets of Staples Communications and the write-down of investment values in various e-commerce companies that were not benefited for tax purposes in 2000 due to the uncertainty concerning the ultimate deductibility of the losses. During fiscal 2001, we sold our Staples Communications business and applied for a pre-filing agreement with the Internal Revenue Service regarding deductibility of our investment in, and advances to, Staples Communications. In fiscal 2002, the Internal Revenue Service agreed to allow, as an ordinary deduction, our investment in, and advances to, Staples Communications. Accordingly, the provision for income taxes in 2002 includes a $29.0 million tax benefit attributable to the Staples Communications losses. Excluding these events, Staples' effective tax rate was 37.0% in 2002, 38.5% in 2001 and 41.0% in 2000. The decrease in our effective income tax rate from 2000 to 2002 is primarily due to an increase in international activity, which is generally taxed at lower rates.

B-4

Segment Performance:

        The following tables are a summary of our sales and business unit income by reportable segment and store activity for the last three fiscal years (see reconciliation of business unit income to income before income taxes in Note M to the consolidated financial statements):

B-5

        North American Retail:    Sales increased 3.6% in fiscal 2002 and, excluding the additional week in fiscal 2000, sales increased 0.8% in fiscal 2001. Comparable store sales in North America increased 1% in 2002 and decreased 5% in 2001. Our sales increase in both years primarily reflects the net addition of 39 stores in 2002 and 113 stores in 2001. Additionally, sales in 2002 were favorably impacted due to strong sales in our core office product categories that were offset by weaknesses in our technology and furniture categories. The 2001 growth was offset by the effects of a weak economy, a decrease in the Canadian exchange rate to the U.S. dollar from fiscal year 2000 and the impact of the events of September 11^th. The strong improvement in our bottom line, despite only modest sales growth in fiscal 2002, reflected the impact of our Back to Brighton strategy which has shifted our customer mix to more profitable business customers and power users and focused us on emphasizing multiple customer service initiatives, including expanding our training of store associates, adding labor hours to certain departments and changing our bonus plan. In addition, we believe our Dover format and reduced store size are significant competitive advantages that enable us to provide customers with a better view of our products while permitting us to lower rent and occupancy costs.

        North American Delivery:    Excluding the acquisition of MAP in fiscal 2002, sales increased 9.3% in fiscal 2002 and, excluding the additional week in fiscal 2000, sales increased 10.6% in fiscal 2001. The sales growth in both years reflects the positive results of cross-channel marketing among our catalogs, websites and retail stores and increases in both customer acquisition and customer retention rates in all of our delivery businesses. Our fiscal 2002 results also reflect the expansion of our sales force and continued improvement in our customer service. In fiscal 2001, our sales growth was achieved despite a weak economy and the events of September 11^th. In fiscal 2002, an increase in the number of orders placed electronically and an increase in average order size were the primary drivers of our bottom line improvement. Going forward, there is further opportunity to improve operating margin in the Staples Business Delivery division while continuing to increase our customer acquisition and retention rates in our contract stationer and Quill businesses.

        European Operations:    Excluding our European mail order acquisition, sales increased 13.2% in fiscal 2002 and, excluding the additional week in fiscal 2000, sales increased 13.7% in 2001. Comparable store sales in Europe were flat in 2002 and increased 9% in 2001. The sales growth in both years primarily reflects the net increase of 13 stores in 2002 and 16 stores in 2001 and also includes an increase in sales in the delivery businesses. Sales in existing stores were flat in 2002 which reflects improvements in the UK, Netherlands and Portugal that were offset by weakness in our retail business in Germany. The sales increase in 2002 also reflects the positive impact of an increase in European exchange rates against the U.S. dollar. Our sales growth in fiscal 2001 reflects an increase in sales at existing stores in all countries offset by the negative impact of a decrease in European exchange rates against the U.S. dollar from 2000. Our 2002 results of European Operations reflect charges of $14.7 million relating to integration costs associated with our European mail order acquisition, six store closures in Germany and severance relating to reorganizations of our European corporate functions. Excluding these charges and the results of our European mail order acquisition, our business unit income improved $9.4 million over 2001. Our European Operations showed improved profitability in fiscal 2002 despite a challenging economic environment. We expect to see significantly improved performance in our European Operations segment in fiscal 2003 due to our highly profitable European mail order acquired businesses, the positive impact of the integration process on our existing delivery business and improved execution in our retail business.

        Divested Business:    Sales for Divested Businesses represents the sales for Staples Communications which was sold on April 3, 2001.

Critical Accounting Policies

        Our financial statements are based on the application of significant accounting policies, many of which require management to make significant estimates and assumptions (see Note A to the consolidated financial statements). We believe that the following are some of the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

        Inventory:    We record inventory at the lower of weighted-average cost or market value. We reserve for obsolescence based on the difference between the weighted-average cost of the inventory and the estimated market value based on assumptions of future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional reserves may be required.

B-6

        Purchase and advertising rebates:    We earn rebates from our vendors which are based on various quantitative contract terms that can be complex and subject to interpretation. Amounts expected to be received from vendors relating to the purchase of merchandise inventories are recognized as a reduction of cost of goods sold as the merchandise is sold. Amounts that represent a reimbursement of incremental costs, such as advertising, are recorded as a reduction to the related expense in the period that the related expense is incurred. Several controls are in place, including direct confirmation with vendors, that we believe allow us to ensure that these amounts are recorded in accordance with the terms of the contracts. Should vendors reach different judgments regarding the terms of these contracts, they may seek to recover amounts from us.

        Impairment of Long-Lived Assets:    We review our long-lived assets for impairment when indicators of impairment are present and the undiscounted cash flow estimated to be generated by those assets are less than the assets' carrying amount. Our policy is to evaluate long-lived assets for impairment at a store level for retail operations and an operating unit level for our other operations. Our retail stores typically take three years to achieve their full profit potential. If actual market conditions are less favorable than management's projections, future write-offs may be necessary.

        Impairment of Goodwill and Indefinite Lived Intangible Assets:    As a result of our adoption of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS No. 142"), we now annually review goodwill and other intangible assets that have indefinite lives for impairment and when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. We determine fair value using discounted cash flow analysis, which requires us to make certain assumptions and estimates regarding industry economic factors and future profitability of acquired businesses. It is our policy to conduct impairment testing based on our most current business plans, which reflect changes we anticipate in the economy and the industry. If actual results are not consistent with our assumptions and judgments, we could be exposed to a material impairment charge.

        Deferred Taxes:    We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. We have considered estimated future taxable income and ongoing tax planning strategies in assessing the amount needed for the valuation allowance. If actual results differ unfavorably from those estimates used, we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be required.

New Accounting Pronouncements

        In April, 2002, the Financial Accounting Standards Board ("FASB") issued Statement No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections". This statement eliminates extraordinary accounting treatment for a gain or loss reported on the extinguishment of debt and amends other existing authoritative pronouncements to make technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of this statement are effective for us with the beginning of fiscal year 2003. We do not believe the adoption of this statement will have a material impact on our overall financial position or results of operations.

        In June, 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). This statement requires that the fair value of a liability associated with an exit or disposal activity be recognized when the liability is incurred. Prior to the adoption of SFAS No. 146, certain exit costs were recognized when we committed to a restructuring plan, which may have been before the liability was incurred. We adopted the provisions of this statement in December, 2002. The adoption of SFAS No. 146 had no impact on our financial position or results of operations.

        In December, 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure" ("SFAS No. 148"). SFAS No. 148 presents additional alternatives for transitioning to the fair value method of accounting for stock-based compensation, prescribes the format to be used for pro forma disclosures and requires the inclusion of similar pro forma disclosures in interim financial statements. The provisions of SFAS No. 148 are effective for us in fiscal 2003. We have not yet determined the impact the adoption of this statement will have on our financial position or results of operations.

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        In January, 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities," ("Interpretation 46") to clarify the conditions under which assets, liabilities and activities of another entity should be consolidated into the financial statements of a company. Interpretation 46 requires the consolidation of a variable interest entity (including a special purpose entity such as that utilized in an accounts receivable securitization transaction) by a company that bears the majority of the risk of loss from the variable interest entity's activities, is entitled to receive a majority of the variable interest entity's residual returns or both. The provisions of Interpretation 46 are required to be adopted by us in fiscal 2003. We do not believe the adoption of Interpretation 46 will have a material impact on our overall financial position or results of operations.

Liquidity and Capital Resources

        We traditionally use a combination of cash generated from operations and debt or equity offerings to fund our expansion and acquisition activities. We have also utilized our revolving credit facility to cover seasonal fluctuations in cash flows and to support our various growth initiatives.

        Cash flow from operations was $914.4 million in fiscal 2002, compared to $770.9 million in fiscal 2001 and $582.4 million in fiscal 2000. The increase in cash flow from operations in both years is primarily due to an increase in net income. The increase in 2002 also reflects a decrease in our net deferred income taxes. The increase in 2001 also reflects improvements in working capital partially offset by an increase in net deferred income taxes.

        Cash used in investing activities was $1.44 billion in fiscal 2002, compared to $315.7 million in fiscal 2001 and $500.4 million in fiscal 2000. The increase in investing activities in 2002 is primarily the result of the Medical Arts Press acquisition in July, 2002 for $383.4 million and the European mail order acquisition in October, 2002 for $787.8 million, net of cash acquired and capital leases assumed. This increase in investing activities, due to acquisitions, was partially offset by decreases in capital expenditures, reflecting reductions in the number of stores opened from 189 in 2000 to 136 in 2001 to 86 in 2002. During fiscal 2003, we expect to open up to 110 stores. We estimate that our cash requirements, including pre-opening expenses, inventory, leasehold improvements and fixtures, will be approximately $1.3 million for each new store. In addition, we plan on remodeling up to 50 stores to our Dover format during 2003 at an estimated cost of $400,000 per store. We also plan to continue to make investments in information systems and distribution centers to improve operational efficiencies and customer service. We currently plan to spend approximately $325 million on capital expenditures during 2003. We may also expend additional funds to acquire businesses or purchase lease rights from tenants occupying retail space that is suitable for a Staples store.

        Cash from financing activities was $714.1 million in fiscal 2002, compared to a use of $318.7 million in 2001 and a source of $74.6 million in fiscal 2000. This increase in 2002 is primarily due to the September 2002 $325 million offering of senior notes and the October 2002 $325 million 364-Day Term Loan Agreement. During fiscal 2001, we repaid $175 million of floating rate notes when they came due on November 26, 2001, as well as $100 million that was outstanding under our $350 million revolving credit facility at February 3, 2001.

        We had $1.38 billion in total cash and funds available through credit agreements at February 1, 2003, which consisted of $699.8 million of available credit, $596.1 million of cash and cash equivalents and $84.2 million available under a receivables securitization agreement. During fiscal 2002, we also issued letters of credit in the ordinary course of business to satisfy certain vendor contracts. At February 1, 2003, we had $46.0 million of open letters of credit. Finally, we finance the majority of our stores and certain equipment with operating leases. A schedule, as of February 1, 2003, of

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balances available under credit agreements, debt outstanding and principal payments due on our outstanding debt and operating lease obligations is presented below (amounts in thousands):

        On June 21, 2002, we entered into a revolving credit facility (the "New Credit Facility") with a syndicate of banks, which provides for a maximum borrowing of $600 million. The New Credit Facility terminates in June 2005 and replaced two existing revolving credit facilities, which provided an aggregate of $550 million in available borrowings and were to expire in 2002. Borrowings made pursuant to the New Credit Facility bear interest at the lower of (a) the higher of the lead bank's prime rate or the federal funds rate plus 0.50%, (b) the Eurodollar rate plus a percentage spread based upon certain defined ratios, or (c) a competitive bid rate. The New Credit Facility contains financial covenants that require that we maintain a minimum fixed charge coverage ratio of 1.5 and a maximum adjusted debt to total capital ratio of 0.75 and an affirmative covenant that requires us to maintain at least $275 million of consolidated EBIT (as defined in the New Credit Facility) for our subsidiaries that guarantee the New Credit Facility. As of February 1, 2003, no borrowings were outstanding under the New Credit Facility, but our available credit is reduced by $46.0 million of letters of credit that were issued against the facility.

        On September 30, 2002, we completed an offering of $325 million principal amount of 7.375% senior notes due October 2012 (the "Notes"). The Notes were sold in a private placement to qualified institutional investors pursuant to Rule 144A and Regulation S of the Securities Act of 1933, as amended. We used the net proceeds to finance a portion of the purchase price of the European mail order acquisition. In February 2003, we filed an exchange offer registration statement with the SEC pursuant to which the holders of these notes may exchange them for publicly tradable notes.

        On October 4, 2002, we entered into a $325 million 364-Day Term Loan Agreement (the "Term Loan") with a group of commercial banks, with Fleet National Bank acting as agent. We used the Term Loan to finance a portion of the purchase price of the European mail order acquisition. Borrowings under the Term Loan bear interest, at our option, at either (a) the higher of the lead bank's prime rate or the federal funds rate plus 0.50%, or (b) the Eurodollar rate plus a percentage spread based upon certain defined ratios. The Term Loan's financial and affirmative covenants are the same as those contained in the New Credit Facility. The Term Loan matures on October 3, 2003.

        We utilize a 364-day accounts receivable securitization agreement for the purpose of providing us with additional low cost short-term working capital funding that enables us to reduce our borrowings under our revolving credit facility. Under the accounts receivable securitization agreement, we sell, through two special purpose entities which are fully consolidated in our financial statements, participating interests in accounts receivable of Quill and our contract stationer business at a discount to an unrelated third party financier who purchases and receives an ownership interest in the accounts receivable. Specifically, (i) we transfer our interest in a pool of our accounts receivable to Hackensack Funding, LLC, a special purpose entity that is 99.9995% owned by us and 0.0005% owned by an unrelated third party investor who shares equal voting control with us, (ii) Hackensack Funding, LLC then sells its interest in the accounts receivable to Lincolnshire Funding, LLC, a bankruptcy remote special purpose entity that is wholly owned by Hackensack Funding, LLC, and (iii) Lincolnshire Funding, LLC then sells its interest in the accounts receivable to a commercial paper conduit

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of Citibank, N.A. In capitalizing Hackensack Funding, LLC, we contributed an intercompany note in exchange for 100% of the common stock and a 50% voting interest and the unrelated third party investor invested $1 million in exchange for 100% of the preferred stock and a 50% voting interest. The unrelated third party investor's preferred stock can be repurchased by us at any time for the face value of the investment plus all accrued but unpaid distributions. As part of the accounts receivable securitization agreement, we pledged $25 million of the intercompany note to Citibank, N.A. as collateral for the funding provided by Citibank, N.A. We do not provide any guarantee or similar support to the collectability of these accounts receivable. The maximum amount available under the accounts receivable securitization agreement is $140 million, subject to further restriction depending on the amount and characteristics of the accounts receivable outstanding. At February 1, 2003, the maximum amount available under this agreement was $109.2 million, $25.0 million of which was utilized. The utilized balance under the accounts receivable securitization agreement is not included in debt on the Consolidated Balance Sheets but rather is reflected as a reduction of accounts receivable.

        The New Credit Facility, Term Loan and the accounts receivable securitization agreement contain restrictive covenants and are subject to, either directly or indirectly, material adverse change and credit rating downgrade default provisions. If we experience a material adverse change, have our credit rating downgraded by Moody's to below Ba2 or by S&P to below BB, or are in breach of another restrictive covenant, our ability to borrow funds under these agreements may be limited. In addition, our New Credit Facility, Term Loan and accounts receivable securitization agreements contain default provisions such that a default under one of the agreements could trigger a default under the other agreements.

        We expect that our cash generated from operations, together with our current cash and funds available under our New Credit Facility, will be sufficient to fund our planned store openings and other recurring operating cash needs for at least the next twelve months. We continually evaluate financing possibilities, including an equity offering, intended to maintain our current debt ratings and outlook. We may seek to raise additional funds through any one or a combination of public or private debt or equity-related offerings, depending upon market conditions, or through additional commercial bank debt arrangements.

Inflation and Seasonality

        While neither inflation nor deflation has had, nor do we expect it to have, a material impact upon operating results, there can be no assurance that our business will not be affected by inflation or deflation in the future. We believe that our business is somewhat seasonal, with sales and profitability slightly lower during the first and second quarters of our fiscal year.

Cautionary Statements

        This annual report on Form 10-K includes or incorporates forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the use of the words "believes", "anticipates", "plans", "expects", "may", "will", "would", "intends", "estimates" and other similar expressions, whether in the negative or affirmative. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward looking statements made. We have included important factors in the cautionary statements below that we believe could cause actual results to differ materially from the forward-looking statements contained herein. The forward-looking statements do not reflect the potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any forward-looking statements contained herein.

        Our market is highly competitive and we may not continue to compete successfully.    We compete in a highly competitive marketplace with a variety of retailers, dealers and distributors. In most of our geographic markets, we compete with other high-volume office supply chains such as Office Depot and OfficeMax that are similar in concept to us in terms of pricing strategy and product selections, as well as mass merchants such as Wal-Mart, warehouse clubs, computer and electronic superstores such as Best Buy, and other discount retailers. In addition, both our retail stores and delivery operations compete with numerous mail order firms, contract stationer businesses, electronic commerce distributors and direct manufacturers. Many of our competitors have increased their presence in our markets in recent years. Some of our current and potential competitors in the office products industry are larger than we are and have

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substantially greater financial resources. It is possible that increased competition or improved performance by our competitors may reduce our market share, may reduce our profit margin, and may adversely affect our business and financial performance in other ways.

        We may be unable to continue to open new stores successfully.    An important part of our business plan is to increase our number of stores. We opened 86 stores during fiscal 2002 and currently plan to open up to 110 new stores in fiscal 2003. For our growth strategy to be successful, we must identify and lease favorable store sites, hire and train employees and adapt management and operational systems to meet the needs of our expanded operations. These tasks may be difficult to accomplish successfully. If we are unable to open new stores as quickly as planned, our future sales and profits could be materially adversely affected. Even if we succeed in opening new stores, these new stores may not achieve the same sales or profit levels as our existing stores. Also, our expansion strategy includes opening new stores in markets where we already have a presence so we 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.

        Our Dover format store may not be successful.    In 2001, we experimented with a new store format called the Dover format, which was designed to appeal to customer shopping preferences, open up the interior of the store and give the customer a better view of the products we offer. At February 1, 2003, we had 263 stores in the Dover format and plan to remodel up to 50 additional stores and open our new stores in the United States in this format in fiscal 2003. The reformatted stores and new stores based on the Dover format have only a limited operating history, and we cannot guarantee that the Dover stores will be successful or that they will generate sufficient additional revenue to justify the investment.

        Our growth may continue to strain operations, which could adversely affect our business and financial results.    Despite the recent decline in the rate of our growth and our planned slower store growth strategy, our business, including sales, number of stores, investment in Staples.com and number of employees, has grown dramatically over the past several years. In addition, we recently completed the acquisition of Medical Arts Press, Inc. and the European mail order businesses and may make additional acquisitions in the future. This growth has placed significant demands on management and operational systems. If we are not successful in upgrading our operational and financial systems, expanding our management team and increasing and effectively managing our employee base, this growth is likely to result in operational inefficiencies and ineffective management of the business and employees, which will in turn adversely affect our business and financial performance.

        Our quarterly operating results are subject to significant fluctuation.    Our operating results have fluctuated from quarter to quarter in the past, and we expect that they will continue to do so in the future. Our 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 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; and seasonality, primarily because the sales and profitability of our stores are typically slightly lower in the first and second quarter of the fiscal year than in other quarters. Most of our operating expenses, such as rent expense, advertising expense and employee salaries, do not vary directly with the amount of sales and are difficult to adjust in the short term. As a result, if sales in a particular quarter are below expectations for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore this sales shortfall would have a disproportionate effect on our net income for the quarter.

        Our operating results may be impacted by changes in the economy and international conflict.    Our operating results are directly impacted by the health of the North American and European economies. Current economic conditions and the prospect of a possible war with Iraq may adversely affect our business and our results of operations.

        Our stock price may fluctuate based on market expectations.    The public trading of our stock is based in large part on market expectations that our business will continue to grow and that we will achieve certain levels of net income. If the securities analysts that regularly follow our stock lower their rating or lower their projections for future growth and financial performance, the market price of our stock is likely to drop significantly. In addition, if our quarterly financial performance does not meet the expectations of securities analysts, our stock price would likely decline. The decrease in the stock price may be disproportionate to the shortfall in our financial performance.

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        Our expanding International operations expose us to the unique risks inherent in foreign operations.    In addition to our recently expanding operations in Europe, we have a significant presence in Canada through The Business Depot Ltd. We may also seek to expand further into other international markets in the future. Our foreign operations encounter risks similar to those faced by our U.S. operations, as well as risks inherent in foreign operations, such as local customs and competitive conditions and foreign currency fluctuations. Further, our recent European mail order acquisition has increased our exposure to these foreign operating risks, which could have an adverse impact on our European income and worldwide profitability.

        Our debt level could impact our ability to obtain future financing and continue our growth strategy.    Our consolidated outstanding debt at February 1, 2003 was $1.03 billion. Our consolidated debt may have the effect generally of restricting our flexibility in responding to changing market conditions and could make us more vulnerable in the event of a downturn in our business. In addition, our level of indebtedness may have other important consequences, including: restricting our growth; making it more difficult for us to satisfy our obligations; limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements, future acquisitions or other corporate purposes; and limiting our ability to use operating cash flow in other areas of our business. In such a situation, additional funds may not be available on satisfactory terms when needed, or at all, whether in the next twelve to eighteen months or thereafter.

Quantitative and Qualitative Disclosures about Market Risks

        We are exposed to market risk from changes in interest rates and foreign exchange rates. We have a risk management control process to monitor our interest rate and foreign exchange risks. The risk management process uses analytical techniques, including market value, sensitivity analysis, and value at risk estimates.

        As more fully described in the notes to the consolidated financial statements, we use interest rate swap agreements to modify fixed rate obligations to variable rate obligations, thereby adjusting the interest rates to current market rates and ensuring that the debt instruments are always reflected at fair value. While our variable rate debt obligations, approximately $1.01 billion at February 1, 2003, expose us to the risk of rising interest rates, management does not believe that the potential exposure is material to our overall financial performance or results of operations. Based on February 1, 2003 borrowing levels, a 1.0% increase or decrease in current market interest rates would have the effect of causing a $10.1 million additional pre-tax charge or credit to our statement of operations than otherwise would occur if interest rates remain unchanged.

        As more fully described in the notes to the consolidated financial statements, we are exposed to foreign exchange risks through subsidiaries in Canada, the United Kingdom, Germany, the Netherlands, Portugal, France, Belgium, Spain and Italy. We have entered into currency swaps in Canadian dollars and issued Euro denominated notes in order to hedge a portion of our foreign exchange risk related to our net investments in foreign subsidiaries and specific economic transactions. Any increase or decrease in the fair value of our currency exchange rate sensitive derivative instruments would be offset by a corresponding decrease or increase in the fair value of the hedged underlying asset, liability or cash flow.

        We account for our interest rate and currency swap agreements using hedge accounting treatment as the derivatives have been determined to be highly effective in achieving offsetting changes in fair value of the hedged items. Under this method of accounting, at February 1, 2003, we have recorded a $45.6 million asset representing gross unrealized gains on two of our derivatives and a $2.7 million liability representing a gross unrealized loss on another derivative. During fiscal 2001, we terminated an interest swap agreement resulting in a realized gain of $18.0 million which is being amortized into income through August, 2007, the remaining term of the original agreement. We do not enter into derivative agreements for trading purposes.

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Auditors

Board of Directors and Shareholders

Staples, Inc.

        We have audited the accompanying consolidated balance sheets of Staples, Inc. and subsidiaries as of February 1, 2003 and February 2, 2002, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended February 1, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Staples, Inc. and subsidiaries at February 1, 2003 and February 2, 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended February 1, 2003, in conformity with accounting principles generally accepted in the United States.

        As discussed in Note A to the consolidated financial statements, effective February 3, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets."

/s/ Ernst & Young LLP


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Ernst & Young LLP

Boston, Massachusetts
March 4, 2003

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STAPLES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Dollar Amounts in Thousands, Except Share Data)

See notes to consolidated financial statements.

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STAPLES, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(Dollar Amounts in Thousands, Except Share Data)

See notes to consolidated financial statements.

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STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Dollar Amounts in Thousands, Except Share Data)
For the Fiscal Years Ended February 1, 2003, February 2, 2002 and February 3, 2001