Staples 2007 Annual Report Download - page 101

Download and view the complete annual report

Please find page 101 of the 2007 Staples annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 142

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
leveraging of fixed expenses on higher sales including the added leverage of the 53rd week of sales, partially offset by
investments in marketing and customer service.
General and Administrative: General and administrative expenses as a percentage of sales were 4.4% for fiscal
2007, 4.2% for fiscal 2006 and 4.3% for fiscal 2005. The increase for 2007 reflects the $38.0 million charge related to the
settlement of the California wage and hour class action litigation, the impact of increased depreciation relating to prior
years’ investments in information systems, and the added leverage of the 53rd week in fiscal 2006, partially offset by our
continued focus on process improvement and expense control, and lower variable compensation. The decrease for 2006
primarily reflects strong expense control and leveraging of fixed expenses on higher sales, including the added leverage of
the 53rd week of sales, partially offset by an increase in stock-based compensation.
Amortization of Intangibles: Amortization of intangibles was $15.7 million in fiscal 2007, $14.4 million in fiscal 2006
and $13.0 million in fiscal 2005, reflecting the amortization of certain trade names, customer-related intangible assets
and non-competition agreements associated with acquisitions.
Interest income: Interest income decreased to $46.7 million in fiscal 2007 from $58.8 million in fiscal 2006 and
$59.9 million in fiscal 2005. The decrease in interest income for 2007 and 2006 is due to the reduction in our average cash
and short-term investment portfolio balance, partially offset by an increase in interest rates.
Interest expense: Interest expense decreased to $38.3 million in fiscal 2007 from $47.8 million in fiscal 2006 and
$56.8 million in fiscal 2005. The decrease in interest expense for 2007 is primarily due to the repayment of our
$200.0 million 7.125% senior notes in August 2007, partially offset by higher interest rates. The decrease in interest
expense for 2006 is primarily due to a reduction in average borrowings for our International Operations segment in 2006
compared to 2005, partially offset by higher interest rates. We use swap agreements to convert our fixed rate debt
obligations into variable rate obligations. As a result of rising interest rates, these interest rate swap agreements had a
negative impact on interest expense in 2007 and 2006. Excluding the impact of our interest rate swap agreements,
interest expense would have been $ 36.0 million for 2007, $47.2 million for 2006 and $63.7 million for 2005.
Miscellaneous expense: Miscellaneous expense was $2.2 million for fiscal 2007, $2.8 million for fiscal 2006 and
$1.9 million for fiscal 2005. These amounts primarily reflect foreign exchange gains and losses recorded in the respective
periods.
Income Taxes: Our effective tax rate was 36.0% for fiscal 2007, 33.8% for fiscal 2006 and 36.5% for fiscal 2005. Our
effective tax rate for 2006 reflects an adjustment for a change in estimate regarding certain tax uncertainties as well as
the favorable resolution of certain foreign and domestic tax matters, which were recorded as discrete items in the third
quarter of that year. Our effective tax rate for 2006 applicable to results from continuing operations, excluding the
impact of discrete items, was 36.0%.
Segment Performance:
Our business is comprised of three segments: North American Retail, North American Delivery and International
Operations. Our North American Retail segment consists of the U.S. and Canadian business units that operate office
products stores. The North American Delivery segment consists of the U.S. and Canadian business units that sell and
deliver office products and services directly to customers, and includes Staples Business Delivery, Quill, and Contract.
The International Operations segment consists of operating units that operate office products stores and that sell and
deliver office products and services directly to customers in 20 countries in Europe, Asia and South America. Additional
geographic information about our sales is provided in Note K in the Notes to the Consolidated Financial Statements.
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. Business unit income excludes stock-based compensation, interest and other
expense, income taxes, the impact of changes in accounting principles and non-recurring items (see reconciliation of total
B-3