Staples 2015 Annual Report Download - page 116

APPENDIX B
B-13 STAPLES Form 10-K
STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (continued)
Uses of Capital
As a result of our planned acquisition of Office Depot, we have
temporarily suspended our share repurchase program to focus
on building up cash reserves ahead of the acquisition. While
we did not repurchase any shares in 2015, over the long-term
we expect to continue buying back stock. The remaining
repurchase authorization under our current repurchase plan,
which has no expiration date, is $373 million.
We may use capital to engage in strategic acquisitions such as
the proposed acquisition of Office Depot. We consider many
types of acquisitions for their strategic and other benefits.
We are committed to maintaining our current quarterly
dividend of $0.12 per share. We paid quarterly dividends of
$0.12 per share during 2015, 2014 and 2013. While it is our
intention to continue to pay quarterly cash dividends for 2016
and beyond, any decision to pay future cash dividends will
be made by our Board of Directors and will depend upon our
earnings, financial condition and other factors.
Excluding any impact from our proposed acquisition of Office
Depot, we expect a moderate decrease in capital spending in
2016 compared with 2015, as we focus spending on strategic
priorities. We expect the source of funds for our capital
expenditures to come primarily from operating cash flows.
INFLATION AND SEASONALITY
While neither inflation nor deflation has had, nor do we expect
them to have, a material impact upon our consolidated
operating results, we may see price increases in certain
categories from time to time. Our business is somewhat
seasonal, with sales and profitability historically higher during
the second half of our fiscal year due to the back-to-school,
holiday and January back-to-business seasons.
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.
Interest Rate Risk
At January 30, 2016, we did not have any material variable
rate debt obligations. As discussed in Note R - Proposed
Acquisition of Office Depot in the Notes to the Consolidated
Financial Statements, on February 2, 2016 we borrowed
$2.5 billion under a variable rate term loan agreement in
connection with our planned acquisition of Office Depot, with
the proceeds deposited into escrow accounts pending the
closing of the acquisition. See Note R for additional information
related to this loan.
In certain instances we may 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. We had no interest rate swap agreements outstanding
as of January 30, 2016 and January 31, 2015.
Foreign Currency Risk
We are exposed to foreign exchange risks through our
business operations and investments in subsidiaries in
Canada, Europe, Australia, South America and Asia. The
currencies for which we have the most significant exposure
to exchange rate fluctuations include the Canadian Dollar, the
Euro, the Norwegian Krone, the British Pound Sterling, the
Australian Dollar and the Chinese Renminbi.
Revenue and expense transactions in our foreign subsidiaries
are primarily denominated in the respective local currencies.
The income statements of our international operations are
translated into U.S. dollars at the average exchange rates in
each applicable period. To the extent the U.S. dollar weakens
against foreign currencies, the translation of these foreign
currency-denominated transactions results in increased
revenues and operating expenses for our international
operations. Conversely, our revenues and operating expenses
will decrease for our international operations when the U.S.
dollar strengthens against foreign currencies. While the
matching of local currency revenues and local currency
expenses provides in effect a natural hedge, such matching
does not completely reduce the foreign currency exchange rate
exposure. Revenues from our foreign operations accounted
for approximately 26% and 29% of consolidated revenues in
2015 and 2014, respectively.