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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
B-2
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
reclassifications had no impact on net income.
Forward Looking Statements
This Annual Report on Form 10-K and, in particular, this management’s 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 included in this
Annual Report on Form 10-K in Item 1A—Risk Factors. 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”) and 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). 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 and Outlook:
Net income for 2005 was $834.4 million or $1.12 per diluted share compared to $708.4 million or $0.93 per diluted
share for 2004 and $490.2 million or $0.66 per diluted share in 2003. 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. On a pro
forma basis to reflect the retroactive application of Issue 02-16, net income for 2003 was $551.9 million or $0.75 per
diluted share. Net income increased 18% for fiscal 2005 and, on a pro forma basis for 2003, net income increased 28%
for fiscal 2004.
Our positive performance in 2005 reflects the continued execution of our strategy of driving profitable sales growth,
improving profit margins and increasing asset productivity. This includes delivering on our “Easy” brand promise to
make buying office products easy for our customers in order to differentiate us from our competitors. Our commitment
to customer service, the continued positive impact of targeting our product mix and marketing at more profitable small
businesses and home offices, the continued success of our customer acquisition and retention efforts, solid execution and
expense management were key drivers of our 2005 results. This performance was slightly offset by lower sales in our retail
business in the United Kingdom and our delivery business in France and investments in our European delivery businesses,
as well as planned investments for long-term growth including labor and marketing to grow our copy and print business and
investments for our Chicago market entry.