Staples 2003 Annual Report Download - page 61

STAPLES, INC. AND SUBSIDIARIES
Management’s Discussion and Analysis of Financial Condition and
Results of Operations (Continued)
of Citibank, N.A. In capitalizing Hackensack Funding, LLC, we contributed an intercompany note in exchange for 100%
of the common stock and a 50% voting interest and the unrelated third party investor invested $1 million in exchange for
100% of the preferred stock and a 50% voting interest. The unrelated third party investor’s preferred stock can be
repurchased by us at any time for the face value of the investment plus all accrued but unpaid distributions. As part of
the accounts receivable securitization agreement, we pledged $25 million of the intercompany note to Citibank, N.A. as
collateral for the funding provided by Citibank, N.A. We do not provide any guarantee or similar support to the
collectability of these accounts receivable. The maximum amount available under the accounts receivable securitization
agreement is $140 million, subject to further restriction depending on the amount and characteristics of the accounts
receivable outstanding. At February 1, 2003, the maximum amount available under this agreement was $109.2 million,
$25.0 million of which was utilized. The utilized balance under the accounts receivable securitization agreement is not
included in debt on the Consolidated Balance Sheets but rather is reflected as a reduction of accounts receivable.
The New Credit Facility, Term Loan and the accounts receivable securitization agreement contain restrictive
covenants and are subject to, either directly or indirectly, material adverse change and credit rating downgrade default
provisions. If we experience a material adverse change, have our credit rating downgraded by Moody’s to below Ba2 or
by S&P to below BB, or are in breach of another restrictive covenant, our ability to borrow funds under these agreements
may be limited. In addition, our New Credit Facility, Term Loan and accounts receivable securitization agreements
contain default provisions such that a default under one of the agreements could trigger a default under the other
agreements.
We expect that our cash generated from operations, together with our current cash and funds available under our
New Credit Facility, will be sufficient to fund our planned store openings and other recurring operating cash needs for at
least the next twelve months. We continually evaluate financing possibilities, including an equity offering, intended to
maintain our current debt ratings and outlook. We may seek to raise additional funds through any one or a combination
of public or private debt or equity-related offerings, depending upon market conditions, or through additional
commercial bank debt arrangements.
Inflation and Seasonality
While neither inflation nor deflation has had, nor do we expect it 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.
Cautionary Statements
This annual report on Form 10-K includes or incorporates forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these
forward-looking statements by the use of the words ‘‘believes’’, ‘‘anticipates’’, ‘‘plans’’, ‘‘expects’’, ‘‘may’’, ‘‘will’’, ‘‘would’’,
‘‘intends’’, ‘‘estimates’’ and other similar expressions, whether in the negative or affirmative. We cannot guarantee that
we actually will achieve the plans, intentions or expectations disclosed in the forward looking statements made. We have
included important factors in the cautionary statements below that we believe could cause actual results to differ
materially from the forward-looking statements contained herein. The forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers or dispositions. We do not assume any obligation to update any
forward-looking statements contained herein.
Our market is highly competitive and we may not continue to compete successfully. We compete in a highly
competitive marketplace with a variety of retailers, dealers and distributors. In most of our geographic markets, we
compete with other high-volume office supply chains such as Office Depot and OfficeMax that are similar in concept to
us in terms of pricing strategy and product selections, as well as mass merchants such as Wal-Mart, warehouse clubs,
computer and electronic superstores such as Best Buy, and other discount retailers. In addition, both our retail stores
and delivery operations compete with numerous mail order firms, contract stationer businesses, electronic commerce
distributors and direct manufacturers. Many of our competitors have increased their presence in our markets in recent
years. Some of our current and potential competitors in the office products industry are larger than we are and have
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