Staples 2007 Annual Report Download - page 105

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 141(R), ‘‘Business Combinations’’ (‘‘SFAS No. 141(R)’’). SFAS No. 141(R) replaces SFAS No. 141, ‘‘Business
Combinations’’, but retains the requirement that the purchase method of accounting for acquisitions be used for all
business combinations. SFAS No. 141(R) expands on the disclosures previously required by SFAS No. 141, better defines
the acquirer and the acquisition date in a business combination, and establishes principles for recognizing and measuring
the assets acquired (including goodwill), the liabilities assumed and any noncontrolling interests in the acquired business.
SFAS No. 141(R) also requires an acquirer to record an adjustment to income tax expense for changes in valuation
allowances or uncertain tax positions related to acquired businesses. SFAS No. 141(R) is effective for all business
combinations with an acquisition date in the first annual period following December 15, 2008; early adoption is not
permitted. We will adopt this statement as of February 1, 2009. We are currently evaluating the impact SFAS No. 141(R)
will have on our financial position, results of operations or cash flows.
In December 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards
No. 160, ‘‘Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51’’ (‘‘SFAS
No. 160’’). SFAS No. 160 requires that noncontrolling (or minority) interests in subsidiaries be reported in the equity
section of the company’s balance sheet, rather than in a mezzanine section of the balance sheet between liabilities and
equity. SFAS No. 160 also changes the manner in which the net income of the subsidiary is reported and disclosed in the
controlling company’s income statement. SFAS No. 160 also establishes guidelines for accounting for changes in
ownership percentages and for deconsolidation. SFAS No. 160 is effective for financial statements for fiscal years
beginning on or after December 1, 2008 and interim periods within those years. The adoption of SFAS No. 160 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 increased to $1.36 billion in fiscal 2007, from $1.15 billion in fiscal 2006 and
$1.20 billion in fiscal 2005. The increase in operating cash flow from 2006 to 2007 is primarily due to an increase in net
income and non-cash expenses, including depreciation and amortization. The decrease in cash flow from operations from
2005 to 2006 is primarily due to an increase in working capital partially offset by an increase in net income.
Cash used in investing activities was $217.7 million in fiscal 2007, $424.9 million in fiscal 2006 and $634.1 million in
fiscal 2005. The change in cash used in investing activities for 2007 and 2006 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 investments, municipal bonds and Treasury securities as the risk, rates of return and attractiveness of these
asset classes change. As of February 2, 2008, our short-term investment portfolio consisted exclusively of treasury
securities.
Cash used in financing activities was $966.2 million in fiscal 2007, $696.6 million in fiscal 2006 and $584.0 million in
fiscal 2005. In August 2007, we repaid the outstanding principal and interest due on our $200 million 7.125% senior
notes, pursuant to the terms of the original debt agreement. In connection with our annual cash dividend, we paid
shareholders $207.6 million in 2007, $160.9 million in 2006, and $123.4 million in 2005. To repurchase shares of our
common stock under our share repurchase program, we paid $750.0 million in 2007, $749.9 million in 2006, and
$649.6 million in 2005.
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 $2.1 billion in total cash, short-term investments and funds available through credit agreements at
February 2, 2008, which consisted of $792.4 million of available credit, $1.25 billion of cash and cash equivalents and
$27.0 million of short-term investments. During fiscal 2007, we also issued letters of credit in the ordinary course of
business to satisfy certain vendor contracts. At February 2, 2008, we had $71.6 million of open letters of credit, thus
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