Staples 2006 Annual Report Download - page 83

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Fluctuations in our effective tax rate may adversely affect our business and results of operations.
We are a multi-national, multi-channel provider of office products and services. As a result, our effective tax rate is
derived from a combination of applicable tax rates in the various countries, states and other jurisdictions in which we
operate. Our effective tax rate may be lower or higher than our tax rates have been in the past due to numerous factors,
including the sources of our income, any agreements we may have with taxing authorities in various jurisdictions, and the
tax filing positions we take in various jurisdictions. We base our estimate of an effective tax rate at any given point in
time upon a calculated mix of the tax rates applicable to our company and to estimates of the amount of business likely
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,
changes in tax laws in any of the multiple jurisdictions in which we operate or adverse outcomes from tax audits that we
may be subject to in any of the jurisdictions in which we operate could result in an unfavorable change in our effective tax
rate, which change could have a material adverse effect on our business and results of our operations.
Compromises of our information security may adversely affect our business.
Through our sales and marketing activities, we collect and store certain personal information that our customers
provide to purchase products or services, enroll in promotional programs, register on our website, or otherwise
communicate and interact with us. We also gather and retain information about our associates in the normal course of
business. We may share information about such persons with vendors that assist with certain aspects of our business.
Despite instituted safeguards for the protection of such information, we cannot be certain that all of our systems are
entirely free from vulnerability to attack. Computer hackers may attempt to penetrate our or our vendors’ network
security and, if successful, misappropriate confidential customer or business information. In addition, a Company
employee, contractor or other third party with whom we do business may attempt to circumvent our security measures in
order to obtain such information or inadvertently cause a breach involving such information. Loss of customer or
business information could disrupt our operations and expose us to claims from customers, financial institutions,
payment card associations and other persons, which could have a material adverse effect on our business, financial
condition and results of operations.
The California wage and hour class action lawsuit may adversely affect our business and financial performance.
Various class action lawsuits have been brought against us for alleged violations of what is known as California’s
“wage and hour” law. The plaintiffs have alleged that we improperly classified store managers as exempt under the
California wage and hour law, making such managers ineligible for overtime wages. The plaintiffs are seeking to require
us to pay overtime wages to the putative class for the period from October 21, 1995 to the present. The court has granted
class certification to the plaintiffs. The court’s ruling is procedural only and does not address the merits of the plaintiffs’
allegations. The trial date for the case has been scheduled for November 2007. We believe we have meritorious defenses
in the litigation and expect to prevail. If, however, there is an adverse judgment from which there is no successful appeal,
damages could range from $10 million to $150 million, excluding interest and attorneys’ fees.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of February 3, 2007, we operated a total of 1,884 superstores in 47 states and the District of Columbia in the
United States, 11 provinces in Canada, 11 regions in the United Kingdom, 8 regions in Germany and in The Netherlands,
Portugal and Belgium. As of that same date, we also operated 55 distribution and fulfillment centers in 20 states of the
United States, 4 provinces in Canada, 2 regions in the United Kingdom, 2 regions in France, and in Austria, Belgium,
Denmark, Germany, Italy, The Netherlands, Spain, Sweden, Brazil, Argentina and China. The following table sets forth
the locations of our facilities as of February 3, 2007.