Staples 2004 Annual Report Download - page 89

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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
Historically, we have primarily grown organically, and while we do not expect this to change, we may also use capital
to engage in strategic acquisitions or joint ventures in markets where we currently have a presence and in new geographic
markets that could become significant to our business in future years. This growth strategy is evidenced by our
August 2004 purchase of Globus Office World plc, an office products company operating in the United Kingdom,
representing a significant expansion in an existing market; our September 2004 acquisitions of Pressel Versand
International GmbH, a mail order company based in Austria and operating in nine European countries, and Malling
Beck A/S, a mail order company operating in Denmark, representing two acquisitions that will help us establish a
presence in eastern Europe and Denmark; our purchase of Officenet SA, a mail order and Internet business operating in
Brazil and Argentina, representing our entry in the South American market; and our investment in OA365 (China), a
mail order and Internet company in the People’s Republic of China, representing our first venture into Asia. In the
aggregate, these acquisitions and our investment totaled $141.0 million, net of cash acquired.
We do not rely on acquisitions to achieve our publicly announced target growth plans. While we will consider many
types of acquisitions on an opportunistic basis, we target acquisitions that are small, aligned with our existing businesses,
focused on both strengthening our presence in existing markets and expanding our presence into new geographies that
could become long term meaningful drivers of our business and financed from our operating cash flows. In connection
with such targeted acquisitions, we plan to exercise the same discipline as we use for other investments, pursuing those
that we believe will earn a return above our internal return on net assets hurdle rate within a two or three year time
frame.
We believe that we will need to spend approximately $400 million a year on capital expenditures for the next few
years to fund organic growth and ongoing operations. The combination of capital spending in this range and an
acquisition strategy that is not projected to require significant amounts of capital means that we will likely generate
operating cash flow in excess of our expected needs, thereby strengthening our credit profile. As a result of this
improvement, we implemented in 2004 a $1 billion share repurchase program and paid an annual cash dividend. Under
the repurchase program, we repurchased approximately $500 million of common stock during 2004 and expect to buy
back approximately $500 million in 2005. We paid our first annual cash dividend of $0.20 per outstanding share of
common stock on May 17, 2004 to shareholders of record on April 26, 2004, resulting in a total dividend payment of
$99.5 million. In 2005, we will pay an annual cash dividend of $0.25 per share of outstanding common stock, with such
dividend payable on April 14, 2005 to shareholders of record on March 28, 2005. While it is our intention to pay annual
cash dividends in years following 2005, 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.
Inflation and Seasonality
While neither inflation nor deflation has had, nor do we expect it to have, a material impact upon operating results,
there can be no assurance that our business will not be affected by inflation or deflation in the future. We believe that our
business is somewhat seasonal, with sales and profitability slightly lower during the first and second quarters of our fiscal
year.
Cautionary Statements
This Annual Report on Form 10-K includes or incorporates 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. You can identify these
forward-looking statements by the use of the words ‘‘believes,’’ ‘‘anticipates,’’ ‘‘plans,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘would,’’
‘‘intends,’’ ‘‘estimates’’ and other similar expressions, whether in the negative or affirmative. We cannot guarantee that
we actually will achieve the plans, intentions or expectations disclosed in the forward looking statements made. We have
included important factors in the cautionary statements below that we believe could cause actual results to differ
materially from the forward-looking statements contained herein. The forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any
forward-looking statements contained herein.
Our market is highly competitive and we may not continue to compete successfully. We compete in a highly
competitive marketplace with a variety of retailers, dealers and distributors. In most of our geographic markets, we
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