Staples 2006 Annual Report Download - page 103

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STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
B-9
payments under this Agreement are guaranteed by the same subsidiaries that guarantee our publicly issued notes (see
Note L).
We expect that our cash generated from operations, together with our current cash, short-term investments and
funds available under our Credit Facility, will be sufficient to fund our planned store openings and other recurring
operating cash needs for at least the next twelve months.
Uses of Capital
We expect to open at least 100 new stores during fiscal 2007. We estimate that our cash requirements, including
leasehold improvements and fixtures, net inventory and pre-opening expense, will be approximately $1.4 million for each
new store. We also plan to continue to make investments in information systems and distribution centers to improve
operational efficiencies and customer service. We currently plan to spend approximately $550 million on capital
expenditures during fiscal 2007. We may also expend additional funds to purchase lease rights from tenants occupying
retail space that is suitable for a Staples store.
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. We do not expect to rely on acquisitions to achieve
our targeted 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 to three year time frame.
We believe that we will need to spend approximately $550 million in 2007 and $525 million a year for the next few
years on capital expenditures 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. To use this excess
cash to benefit our stockholders, in 2004 we implemented a $1.0 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 approximately $500 million in 2005. During the third quarter of 2005, we announced a new repurchase program
under which we may repurchase up to an additional $1.5 billion of Staples common stock through February 2, 2008,
following completion of our $1.0 billion repurchase program. Under our new repurchase program, we repurchased
approximately $150 million of common stock during 2005 and approximately $750 million during 2006. We paid an
annual cash dividend of $0.22 per share of common stock on April 20, 2006 to shareholders of record on March 31, 2006,
resulting in a total dividend payment of $160.9 million. On March 1, 2007, we announced that we would pay a cash
dividend of $0.29 per share on April 19, 2007 to shareholders of record on March 30, 2007. While it is our current
intention to pay cash dividends in years following 2007, 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 them 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.