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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
B-7
Deferred Taxes: We record a valuation allowance to reduce our deferred tax assets to the amount that is more
likely than not to be realized. We have considered estimated future taxable income and ongoing tax planning strategies in
assessing the amount needed for the valuation allowance. If actual results differ unfavorably from those estimates used,
we may not be able to realize all or part of our net deferred tax assets and additional valuation allowances may be
required.
New Accounting Pronouncements
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertain income tax positions that are
recognized in a company’s financial statements in accordance with the provisions of FASB Statement No. 109,
“Accounting for Income Taxes”. FIN 48 also provides guidance on the derecognition of uncertain positions, financial
statement classification, accounting for interest and penalties, accounting for interim periods and new disclosure
requirements. FIN 48 is effective for fiscal years beginning after December 15, 2006. While our analysis of the impact of
this Interpretation is not yet complete, we do not anticipate it will have a material impact on our retained earnings at the
time of adoption.
In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The
adoption of SFAS No. 157 is not expected to have a material impact on our financial position, results of operations or
cash flows.
Liquidity and Capital Resources
Cash Flows
Cash provided by operations decreased to $1.16 billion in fiscal 2006, from $1.20 billion in fiscal 2005 and $1.14
billion in fiscal 2004. The decrease in cash flow from operations in 2006 is primarily due to an increase in working capital
partially offset by an increase in net income. The increase in cash flow from operations in 2005 is primarily the result of
an increase in net income.
Cash used in investing activities was $424.9 million in fiscal 2006, $634.1 million in fiscal 2005 and $14.4 million in
fiscal 2004. The change in investing activities for 2006 and 2005 is primarily due to fluctuations in our short-term
investment portfolio. While maintaining our overall investment guidelines, we shift between cash and cash equivalents,
including commercial paper and money markets investments, and short-term investments, including auction rate
preferred stock and debt securities as rates of return and attractiveness of these asset classes change.
Cash used in financing activities was $710.6 million in fiscal 2006, $584.0 million in fiscal 2005 and $598.7 million in
fiscal 2004. We repurchased 30.3 million shares of our common stock for a total purchase price of $ 749.9 million under
our share repurchase program in 2006, we repurchased 30.1 million shares of our common stock for a total purchase
price of $649.6 million in 2005 and we repurchased 26.1 million shares of our common stock for a total purchase price of
$502.7 million in 2004. We paid $160.9 million in 2006, $123.4 million in 2005 and $99.5 million in 2004 to shareholders
in connection with our annual cash dividend on our common stock. In 2004, we repaid the outstanding principal and
interest due on our 5.875% 150 million Euro Notes, pursuant to the terms of the original debt agreement.
Sources of Liquidity
We utilize cash generated from operations, short-term investments and our main revolving credit facility to cover
seasonal fluctuations in cash flows and to support our various growth initiatives.
We had $2.3 billion in total cash, short-term investments and funds available through credit agreements at
February 3, 2007, which consisted of $810.8 million of available credit, $1.02 billion of cash and cash equivalents and