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APPENDIX B
STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
General
Our fiscal year is the 52 or 53 weeks ending on the Saturday closest to January 31. Fiscal year 2007 consisted of the
52 weeks ended February 2, 2008, fiscal year 2006 consisted of the 53 weeks ended February 3, 2007 and fiscal year 2005
consisted of the 52 weeks ended January 28, 2006. In order to enhance comparability between fiscal 2006 and other fiscal
years presented in this discussion, certain operational measures for fiscal 2006 are accompanied by a presentation of such
measure after removing the estimated effect of the 53rd week in fiscal 2006. Management also uses such adjusted
operational measures to evaluate our core operating results against plan, to compare our performance to that of our
competitors, and to provide earnings guidance to the investing community. Our comparable store sales include stores
open for more than one year and exclude sales related to the 53rd week in 2006.
Overview
Fiscal 2007 was a year of continued growth for us. We exceeded $19.3 billion in sales, with sales growth of 6.7%
compared to the 53 week year in 2006. Our overall results for 2007 were solid, as we continued to execute our business
strategy and make significant investments to improve our business during a time of slower economic growth. Major
contributors to our 2007 results are summarized below and reviewed further in the Consolidated Performance and
Outlook and Segment Performance discussions.
• Our total segment income increased 7.6% over 2006 results.
• North American Delivery drove strong sales growth across all of its businesses and achieved excellent customer
service, growing sales 11.9% and increasing its business unit income rate to 10.8%.
• International Operations continued to grow sales and drive profit improvement, raising its business unit income
rate to 3.6%.
• North American Retail’s business unit income rate of 9.5% remained strong in a tough environment and reflects a
slight decrease from 9.7% in 2006 which included the added leverage of the 53rd week.
• We opened 120 new stores in North America and 7 new stores in Europe, and added 32 new stores in China. We
also entered India, opening our first store under a joint venture agreement with Future Group. We now operate
2,038 stores worldwide.
• Operating cash flow increased to $1.4 billion.
Results of Operations
We have provided below a summary of our operating results at the consolidated level, followed by an overview of
our segment performance. Our discussion includes our results presented on the basis required by accounting principles
generally accepted in the United States of America (‘‘GAAP’’).
Consolidated Performance and Outlook:
Net income for 2007 was $995.7 million or $1.38 per diluted share compared to $973.7 million or $1.32 per diluted
share for 2006 and $784.1 million or $1.04 per diluted share for 2005. Earnings per diluted share increased 5% for 2007
and 27% for 2006. Our results for 2007 include a $24.3 million charge, net of taxes ($0.04 per diluted share) related to
the settlement of California wage and hour class action litigation (see Note F in the Notes to the Consolidated Financial
Statements). Our results for 2006 include a $33.3 million ($0.05 per diluted share) reduction in income taxes related to
the favorable resolution of certain foreign and domestic tax matters, and an $8.6 million charge, net of taxes ($0.01 per
diluted share) to correct the measurement dates used to calculate prior years’ stock-based compensation (see Note H in
the Notes to the Consolidated Financial Statements). In addition, our results for 2006 include the impact of the 53rd week
on net earnings of approximately $0.04 per diluted share.
We achieved the results for 2007 by continuing to execute our strategy of driving profitable sales growth, improving
profit margins, and increasing asset productivity. This includes delivering on our ‘‘Easy’’ brand promise to make buying
B-1