Staples 2004 Annual Report Download - page 80

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
periods have not been restated to reclassify amounts recorded as a reduction of operating and selling expenses to cost of
goods sold and occupancy costs.
In November 2003, the Emerging Issues Task Force reached consensus on Issue No. 03-10 ‘‘Application of Issue
No. 02-16 by Resellers to Sales Incentives Offered to Consumers by Manufacturers’’ (‘‘Issue 03-10’’), which addresses the
accounting for consideration received by a reseller from a vendor that is a reimbursement by the vendor for honoring the
vendor’s sales incentives offered directly to consumers (e.g., coupons). Beginning with the first quarter of fiscal 2004,
vendor consideration received in the form of sales incentives is now recorded as a reduction of cost of goods sold when
recognized, rather than as a component of sales. In addition, we have reclassified certain other coupons previously
classified as operating and selling expenses to a reduction of sales. In accordance with Issue No. 03-10, our fiscal 2003
results have been reclassified, however no change has been made to the fiscal 2002 results reported. These reclassifica-
tions had no impact on net income.
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 expecta-
tions, 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.
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. Our discussion includes our results presented on the basis required by accounting principles
generally accepted in the United States (‘‘GAAP’’), a pro forma basis reflecting the retroactive application of Issue 02-16
as of February 3, 2001 and Issue 03-10 (see Note B to the Consolidated Financial Statements) and an adjusted basis to
reflect accounting changes and non-recurring items. Management uses net income adjusted for accounting changes and
non-recurring items, among other measures, to evaluate operating performance. We have incorporated this information
into the discussion below because we believe it is a meaningful measure of our normalized operating performance and
will assist you in understanding our results of operations on a comparative basis and in recognizing underlying trends.
This adjusted information supplements, and is not intended to represent a measure of performance in accordance with,
disclosures required by GAAP.
Consolidated Performance:
Net income for 2004 was $708.4 million or $1.40 per diluted share compared to $490.2 million or $0.99 per diluted
share for 2003 and $446.1 million or $0.94 per diluted share in 2002. Our fiscal 2003 results include a $61.7 million
adjustment, net of taxes, related to the change in accounting for vendor consideration required by Issue 02-16. Our
results for fiscal 2002 included the impact of a $29.0 million non-recurring tax benefit (see discussion below and Note H
to the Consolidated Financial Statements). On a pro forma basis to reflect the retroactive application of Issue 02-16, net
income for 2003 was $551.9 million or $1.12 per diluted share. Excluding the tax benefit, net income for 2002 was
$417.1 million or $0.88 per diluted share. On a pro forma basis for 2003 and excluding the tax benefit for 2002, net
income grew 28% for fiscal 2004 and 32% for fiscal 2003.
Our positive performance reflects the continued execution of our Back to Brighton strategy of driving profitable
sales growth, improving profit margins and increasing asset productivity. This includes delivering on our ‘‘Easy’’ brand
B-2