Staples 2004 Annual Report Download - page 83

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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Miscellaneous income (expense): Miscellaneous income (expense) was $(1.5) million for fiscal 2004, $1.3 million for
fiscal 2003 and $2.1 million for fiscal 2002. These amounts primarily reflect foreign exchange gains and losses recorded in
the respective periods, as well as earnings related to our equity investment in OA365 (China).
Income Taxes: Our effective tax rate was 36.5% for fiscal 2004, 37.0% for fiscal 2003 and 32.6% for fiscal 2002. In
fiscal 2000, we recognized impairment losses related to the goodwill and fixed assets of Staples Communications. Due to
the uncertainty concerning the ultimate deductibility of the losses, no corresponding tax benefit was recognized in fiscal
year 2000. 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, our income tax expense in 2002 includes a $29.0 million tax benefit attributable to
the Staples Communications losses; excluding this tax benefit, our effective tax rate was 37.0% in 2002, which is
consistent with the effective tax rate for 2003. The decrease in our effective tax rate from 2003 to 2004 is primarily due to
changes in the mix of our earnings. The American Jobs Creation Act of 2004, which was signed into law on October 22,
2004, did not have a material impact on our effective tax rate for fiscal 2004.
Segment Performance:
The following tables provide 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 L
to the Consolidated Financial Statements):
2004 2003
(Amounts in thousands) Increase From Increase From
Sales 2004 2003 2002 Prior Year Prior Year
North American Retail ................. $ 8,324,299 $ 7,665,804 $ 7,166,105 8.6% 7.0%
North American Delivery ............... 4,196,882 3,702,311 3,389,625 13.4% 9.2%
International Operations ................ 1,927,197 1,598,907 1,040,345 20.5% 53.7%
Consolidated Staples ................. $14,448,378 $12,967,022 $11,596,075 11.4% 11.8%
2004 2003 2002
(Amounts in thousands) % of % of % of
Business Unit Income 2004 2003 2002 Sales Sales Sales
North American Retail ....... $ 681,230 $ 523,612 $ 413,895 8.2% 6.8% 5.8%
North American Delivery ..... 376,730 308,305 265,055 9.0% 8.3% 7.8%
International Operations ...... 67,913 64,346 3,722 3.5% 4.0% 0.4%
Consolidated Staples ....... $ 1,125,873 $ 896,263 $ 682,672 7.8% 6.9% 5.9%
Stores Stores
Open at Net Open at
Beginning Stores Stores Stores End
Store Activity of Period Opened Acquired Closed of Period
2002 North American Retail ................ 1,261 72 33 1,300
2002 International Operations ............... 175 14 1 188
2002 Total ............................. 1,436 86 34 1,488
2003 North American Retail ................ 1,300 67 9 1,358
2003 International Operations ............... 188 17 4 201
2003 Total ............................. 1,488 84 13 1,559
2004 North American Retail ................ 1,358 77 9 1,426
2004 International Operations ............... 201 11 49 7 254
2004 Total ............................. 1,559 88 49 16 1,680
B-5