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Staples.com Third Quarter Revenue Increases Nearly 500 Percent

Tuesday, November 16, 1999 6:00 am EST

Dateline:

FRAMINGHAM, Mass.

Public Company Information:

NASDAQ:
SPLS
"The Staples.com Stock gives us the ability to turn our ideas and visions into actions and aggressively seize opportunities to become the preeminent e-tailer of office supplies and services."

Staples Inc. (NASDAQ:SPLS) today announced that Staples.com, the company's e-commerce business that provides office supplies and services over the Internet, reported revenues of close to $24 million for the third quarter of 1999, which ended October 30, 1999, up nearly 500 percent from the more than $4 million reported for the same period in the prior year, and up 54 percent from the $15.6 million reported for the second quarter 1999. The business reported a net loss of $2.8 million for the third quarter, compared with a loss of $0.1 million for the same quarter in the prior year.

"Our Internet business has surpassed our own expectations this quarter and we are on our way to becoming the online destination for small business - the place where business does business," said Staples Chairman and Chief Executive Officer Thomas G. Stemberg. "We continue to expand our reach and develop online relationships with our target small business customer."

On November 9, 1999, Staples shareholders approved the company's plans to create a separate stock, Staples.com Stock, to reflect the performance of its e-commerce businesses. Staples.com Stock includes the operations of all three of the company's e-commerce sites: www.staples.com, www.quillcorp.com and www.stapleslink.com (formerly Staples Network Advantage Plus or S.N.A.P.).

"We've only just begun to tap into our true potential with e-commerce," said Jeanne B. Lewis, president of Staples.com. "The Staples.com Stock gives us the ability to turn our ideas and visions into actions and aggressively seize opportunities to become the preeminent e-tailer of office supplies and services." -0-

  Q1'99   Q2'99   Q3'99
 
Sales 421% 455% 493%
(increase over prior year)
 
Sales 50% 34% 54%
(increase over previous quarter)
 
Gross Profit Rate 23% 23% 23%

CORPORATE HIGHLIGHTS

During the quarter, Staples.com:

--Named Jeanne B. Lewis, former executive vice president of marketing for Staples Inc., to the position of president for Staples.com;

--Ranked #1 in its space by small business, Staples.com's core target customer, in MediaMetrix's latest ranking;

--Launched its first major advertising campaign, "Your Online Office Manager," specifically for Staples.com, including a national network television spot;

--Developed its online Business Solutions Center to provide small businesses with access to services they need to run their offices, including free intranet services from HotOffice.com, domain name registration from register.com, Web site hosting and tools from Concentric Network Corporation, payroll services from Staples InterPay, cellular phones and service plans from Point.com, printing services from the online Staples Copy Center and communications services from Staples Communications;

--Completed its sixth major site enhancement, integrating its back end into the front end system, giving customers access to real time inventory visibility and account information;

--Added more than 25,000 SKUs to accommodate special order capabilities; and

--Launched StaplesLink.com, an enhanced e-commerce site for its contract and commercial customers.

About Staples.com

Staples.com is Staples' e-commerce business that sells office supplies and services to the business customer via the Internet. In November 1999, Staples shareholders approved the company's plans to create a separate stock, Staples.com Stock, to reflect the performance of its e-commerce businesses. Staples.com Stock includes the operations of all three of the company's e-commerce sites: www.staples.com, www.quillcorp.com and www.stapleslink.com. The division's mission is to be the online destination for small business - the place where business does business. More information about the company is available at http://www.staples.com.

Certain information presented within this news release may constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which are discussed in our most recent Proxy Statement on file with the Securities and Exchange Commission.

STAPLES.COM
Statements of Operations
(Dollar Amounts in Thousands)
             
(Unaudited) (Unaudited)
13 Weeks Ended 39 Weeks Ended
Oct. 30, Oct. 31,

Oct. 30,

Oct. 31,

1999 1998

1999

1998

 
Sales $ 23,979 $ 4,046 $ 51,281 $ 9,104
Cost of goods sold
and occupancy costs 18,474 2,969 39,471 6,675
Gross profit 5,505 1,077 11,810 2,429
 
Operating and other expenses:
Operating and selling 6,384 446 13,470 1,058
General and administrative 3,720 785 8,963 1,682
Interest and other
expense, net 64 9 115 10
Total operating and
other expenses 10,168 1,240 22,548 2,750
 
Loss before income taxes (4,663) (163) (10,738) (321)
Income tax benefit (1,819) (64) (4,188) (118)
Net loss $ (2,844) $ (99) $ (6,550) $ (203)
 
Pro forma:
Historical net loss $ (203)
Provision for income taxes
on previously untaxed
earnings of pooled
S-Corporation income (12)
Pro forma net loss $ (191)
 
See notes to group interim financial statements.
 
 
STAPLES.COM
Balance Sheets
(Dollar Amounts in Thousands)
 
 

October 30,

 

1999 January 30,
ASSETS (Unaudited) 1999
Current Assets:
Cash and cash equivalents
Prepaid expenses and other current assets $ -- $ --
Total current assets -- 1,033
-- 1,033
Equipment:
Equipment
Less accumulated depreciation 7,237 1,072
Net equipment 445 58
6,792 1,014
Other Assets:
Investments
Total other assets 25,665 --
25,665 --
$ 32,457 $ 2,047
LIABILITIES AND GROUP EQUITY
Current Liabilities:
Inter-group payable to Staples Group
Accrued expenses and other current liabilities $ 4,281 $ --
Total current liabilities 1,679 85
5,960 85
Group equity
26,497 1,962
$ 32,457 $ 2,047
See notes to interim financial statements.
 
 
STAPLES.COM
Statements of Cash Flows
(Dollar Amounts in Thousands)
 
(Unaudited)
39 Weeks Ended
October 31, October 31,
1999 1998
Operating Activities:
Net income $ (6,550) $ (203)
Adjustments to reconcile
net income to net cash
used in operating activities:
Depreciation and amortization 387 --
Change in assets and liabilities:
(Increase)/Decrease in prepaid
expenses and other assets 1,033 (850)
Increase in inter-group payable -- --
Increase in accounts payable, accrued
expenses and other current liabilities 1,594 1
3,014 (849)
Net cash used in operating activities (3,536) (1,052)
 
Investing Activities:
Acquisition of property and equipment (6,165) (712)
Purchase of long-term investments (23,756) --
Net cash used in investing activities (29,921) (712)
 
Financing Activities:
Proceeds from borrowings 3,536 1,052
Capital contributions from Staples Group 29,921 712
Net cash provided by/
(used in) financing activities 33,457 1,764
 
Net decrease in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
Cash and cash equivalents at end of period $ -- $ --
 
See notes to group interim financial statements.
 
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollar Amounts in Thousands, Except Share Data)
 
(Unaudited) (Unaudited)
13 Weeks Ended 39 Weeks Ended

October 30,

October 31,

October 30,

October 31,

1999 1998

1999

1998

 
Sales $ 2,393,811 $ 1,899,770 $ 6,305,987 $ 5,046,086
Cost of goods sold
and occupancy costs 1,799,564 1,431,596 4,762,428 3,849,207
Gross profit 594,247 468,174 1,543,559 1,196,879
 
Operating and
other expenses:
Operating and selling 340,263 264,575 926,320 719,957
Pre-opening 4,570 4,011 13,977 11,595
General and
administrative 89,497 79,958 263,747 218,138
Amortization
of goodwill 3,060 901 8,318 2,752
Merger-related and
integration costs -- -- -- 41,000
Interest and other
expense, net 5,162 4,372 10,554 14,960
Total operating
and other expenses 442,552 353,817 1,222,916 1,008,402
 
 
Income before
income taxes 151,695 114,357 320,643 188,477
Income tax expense 59,161 45,171 125,051 74,502
Net income before
minority interest 92,534 69,186 195,592 113,975
Minority interest -- -- -- 135
Net income $ 92,534 $ 69,186 $ 195,592 $ 114,110
 
Basic earnings
per common share
Historical net income
per common share $ 0.20 $ 0.16 $ 0.42 $ 0.27
 
Diluted earnings
per common share
Historical net income
per common share $ 0.20 $ 0.15 $ 0.41 $ 0.26
 
Pro forma:
Historical net income $ 114,110
Provision for
income taxes on
previously untaxed
earnings of pooled
S-Corporation income 1,814
Pro forma net income $ 112,296
 
Basic earnings
per common share
Pro forma net income
per common share $ 0.27
 
Diluted earnings
per common share
Pro forma net income
per common share $ 0.26
 
Number of shares
used in computing
historical and
pro forma basic
net income per
common share 460,547,5044 26,183,6784 61,933,928 423,056,732
 
Number of shares
used in computing
historical and
pro forma diluted
net income per
common share 472,344,1074 69,768,1264 75,059,118 466,194,189
 
See notes to consolidated financial statements.
 
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollar Amounts in Thousands, Except Share Data)
 

October 30,

 

1999

 

January 30,

(Unaudited)

 

1999

ASSETS
Current Assets:
Cash and cash equivalents $ 90,164 $ 357,993
Short-term investments 1,211 17,428
Merchandise inventories 1,534,439 1,340,432
Receivables, net 433,123 221,836
Deferred income taxes 47,374 75,261
Prepaid expenses
and other current assets 67,192 51,150
Total current assets 2,173,503 2,064,100
 
Property and Equipment:
Land and buildings 309,326 231,378
Leasehold improvements 427,329 372,451
Equipment 498,333 400,225
Furniture and fixtures 288,219 239,755
Total property and equipment 1,523,207 1,243,809
Less accumulated depreciation
and amortization 492,036 403,520
Net property and equipment 1,031,171 840,289
 
Other Assets:
Lease acquisition costs,
net of amortization 70,613 75,127
Investments 25,665 --
Goodwill, net of amortization 378,093 148,201
Deferred income taxes 31,335 28,735
Other 25,265 22,814
Total other assets 530,971 274,877
$ 3,735,645 $ 3,179,266
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 935,855 $ 794,427
Accrued expenses and
other current liabilities 538,793 438,311
Debt maturing within one year 21,832 32,594
Total current liabilities 1,496,480 1,265,332
 
Long-Term Debt 492,910 205,015
Other Long-Term Obligations 58,515 52,033
Stockholders' Equity:
Preferred stock, $ 01
par value-authorized
5,000,000 shares;
no shares issued -- --
Common stock, $ 0006
par value-authorized
1,500,000,000 shares;
issued 467,201,085 at
October 30, 1999 and
461,538,061 shares
at January 30, 1999 280 277
Additional paid-in capital 1,109,883 1,043,194
Cumulative foreign currency
translation adjustments (9,791) (11,675)
Unrealized gain on investments 1,138 7
Retained earnings 828,914 633,321
Less: treasury stock at cost,
10,269,153 shares at
October 30, 1999 and 488,922
shares at January 30, 1999 (242,684) (8,238)
Total stockholders' equity 1,687,740 1,656,886
$ 3,735,645 $ 3,179,266
 
See notes to consolidated financial statements.
 
 
STAPLES, INC. AND SUBSIDIARIES
Consolidated Statements of CashFlows
(Dollar Amounts in Thousands)
 
(Unaudited)
39 Weeks Ended

October 30,

October 31,

1999 1998
Operating Activities:
Net income $ 195,592 $ 114,110
Adjustments to reconcile net income to net cash
used in operating activities:
Minority interest -- (135)
Depreciation and amortization 126,020 89,682
Merger-related and integration costs -- 41,000
Expense from 401K and PARS stock contribution 13,633 6,351
Deferred income tax expense/(benefit) 24,630 (23,388)
Change in assets and liabilities,
net of companies acquired
using purchase accounting:
Increase in merchandise inventories (150,260) (177,353)
Increase in receivables (184,997) (74,394)
(Increase)/Decrease in prepaid
expenses and other assets (30,274) 4,501
Increase in accounts payable, accrued
expenses and other current liabilities 160,175 150,228
Increase in other long-term obligations 5,146 7,267
(35,927) 23,759
Net cash provided by operating activities 159,665 137,869
 
Investing Activities:
Acquisition of property and equipment (251,114) (254,140)
Acquisition of businesses, net of cash acquired (241,940) --
Proceeds from sales and maturities
of short-term investments 32,836 11,356
Purchase of short-term investments (16,651) (6,899)
Proceeds from sales and maturities
of long-term investments -- 18,995
Purchase of long-term investments (23,756) (2,545)
Acquisition of lease rights (130) (37,705)
Other 2,170 2,994
Net cash used in investing activities (498,585) (267,944)
 
Financing Activities:
Proceeds from sale of capital stock 30,191 41,998
Proceeds from borrowings 745,501 26,171
Payments on borrowings (470,164) (53,598)
Purchase of dissenting
shareholder S-Corporation stock -- (48,102)
Purchase of treasury stock (234,446) (8,057)
Dividends to shareholders
of acquired S-Corp -- (15,904)
Net cash provided by/(used in)
financing activities 71,082 (57,492)
 
Effect of exchange rate changes on cash 9 124
 
Net decrease in cash and cash equivalents (267,829) (187,443)
Cash and cash equivalents at beginning of period 357,993 381,088
Cash and cash equivalents at end of period $ 90,164 $ 193,645

See notes to consolidated financial statements.

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