Staples 2014 Annual Report Download - page 105

FORWARD-LOOKING STATEMENTS
STAPLES 11
to be done in any given jurisdiction. The loss of one or more
agreements with taxing jurisdictions, a change in the mix of
our business from year to year and from country to country,
changes in rules related to accounting for income taxes,
adverse outcomes from tax audits that we may be subject to
in any of the jurisdictions in which we operate, or changes in
tax laws in any of the multiple jurisdictions in which we operate
could result in an unfavorable change in our effective tax rate
which could have an adverse effect on our business and
results of our operations.
Fluctuations in foreign exchange rates could lead to
lower earnings.
Sales from our delivery operations and stores outside the
U.S. are denominated in the currency of the country in which
these operations or stores are located and changes in foreign
exchange rates affect the translation of the sales and earnings
of these businesses into U.S. dollars for financial reporting
purposes. Additionally, merchandising agreements may also
be denominated in the currency of the country where the
vendor resides. Although we attempt to mitigate such risks by
sometimes entering into foreign exchange hedges or utilizing
risk management strategies, such hedges and strategies
themselves present some risk and thus may not be entirely
successful in mitigating the risk.
We may be unable to attract, train, engage and retain
qualified associates.
Our customers value courteous and knowledgeable associates
to support customers across all channels. Accordingly, our
performance depends on attracting, training, engaging and
retaining a large number of qualified associates. We face
intense competition for qualified associates, particularly in
tight labor markets in emerging markets or in specialized areas
of technical expertise. Many of our associates, particularly
in retail stores, are in entry-level or part-time positions with
historically high rates of turnover. Our ability to meet our labor
needs while controlling our labor costs is subject to numerous
external factors, including the availability of a sufficient number
of qualified persons in the workforce, unemployment levels,
prevailing wage rates, changing demographics, health and
other insurance costs and the cost of compliance with labor
and wage laws and regulations. If we are unable to attract,
train, engage and retain a sufficient number of qualified
associates, our business and financial performance may be
adversely affected.
Our quarterly operating results are subject to significant
fluctuation.
Our operating results have fluctuated from quarter to quarter in
the past, and we expect that they will continue to do so in the
future. Historically, sales and profitability are generally stronger
in the second half of our fiscal year than the first half of our
fiscal year due in part to back-to-school, holiday and back-
to-business seasons. Factors that could also cause these
quarterly fluctuations include: the mix of products sold; pricing
actions of competitors; the level of advertising and promotional
expenses; the expense and outcome of legal proceedings;
severe weather; consumer confidence; and the other risk
factors described in this section. Most of our operating
expenses, such as occupancy costs and associate salaries,
do not vary directly with the amount of sales and are difficult
to adjust in the short term. As a result, if sales in a particular
quarter are below expectations, we may not proportionately
reduce operating expenses for that quarter, and therefore such
a sales shortfall may have a disproportionate effect on our net
income for the quarter.
Our indebtedness could adversely affect us by reducing
our flexibility to respond to changing business and
economic conditions.
As of January 31, 2015, our consolidated outstanding debt
was $1.1 billion and we also had $1.1 billion of additional
borrowing capacity under our commercial paper program,
revolving credit facility and other lines of credit. We are not
restricted from incurring substantial additional indebtedness
in the future. Incurring substantial indebtedness in the
future could reduce our ability to obtain additional financing
for working capital, capital expenditures, acquisitions, and
other general corporate purposes and could make us more
vulnerable to economic downturns and economic pressures.
Our level of indebtedness may also place us at a competitive
disadvantage against less leveraged competitors. If we default
or breach our obligations, we could be required to pay a
higher rate of interest or lenders could require us to accelerate
our repayment obligations. If we were to experience a credit
rating downgrade in future periods, we may incur higher
interest costs on future financings and it may limit our ability to
participate in the commercial paper market.
Our expanded offering of proprietary branded
products may not improve our financial performance
and may expose us to intellectual property liability,
product liability, import/export liability, government
investigations and claims, and other risks associated
with global sourcing.
Our product offering includes Staples, Quill and other
proprietary branded products and services, which represented
approximately 28% of our sales in fiscal 2014 and which
typically generate higher margins than national brand products
and services. Our proprietary branded products compete with
other manufacturers’ branded items that we offer. An increase
in our proprietary branded products and services also exposes
us to added risks that could increase the cost of doing
business, such as third party intellectual property infringement,
false advertising, and product liability claims against us with
respect to such products and services; and import and
export compliance issues. Furthermore, although we have
implemented policies and procedures designed to facilitate
compliance with laws and regulations relating to importing
merchandise from abroad, there can be no assurance that
contractors, agents, vendors, manufacturers or other third
parties with whom we do business will not violate such laws
and regulations or our policies, which could subject us to
liability and could adversely affect our operations or operating
results. We also have greater exposure and responsibility to
the consumer for replacements as a result of product defects.
If any of our customers are harmed by our proprietary branded
products or services, they may bring product liability and
other claims against us or we may have to issue voluntary or
mandatory recalls.
The more proprietary branded products and services we offer,
the more these risks increase. A loss of consumer acceptance
of these products could also adversely affect our sales and
gross margin rates. Any of these circumstances could damage
our reputation and have an adverse effect on our business and
financial performance.