Staples 2007 Annual Report Download - page 85

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 for that quarter, we may not proportionately reduce operating expenses for that quarter, and therefore such
a sales shortfall would have a disproportionate effect on our net income for the quarter.
Our expanding international operations expose us to the unique risks inherent in foreign operations.
We currently operate in 21 different countries outside the United States and may enter new international markets.
Operating in multiple countries requires that we comply with multiple foreign laws and regulations that may differ
substantially from country to country and may conflict with corresponding U.S. laws and regulations. Ensuring such
compliance may require that we implement new operational systems and financial controls that may be expensive and
divert management’s time from implementing our growth strategies. In addition, cultural differences and differences in
the business climate in our international markets may cause customers to be less receptive to our business model than we
expect. Other factors that may also have an adverse impact on our international operations include increased local
competition, foreign currency fluctuations, unfavorable foreign trade policies and unstable political and economic
conditions.
Our business may be adversely affected by the actions of and risks associated with our third-party vendors.
The products we sell are sourced from a wide variety of third-party vendors. We cannot control the supply, design,
function or cost of many of the products that we offer for sale and are dependent on the availability and pricing of key
products, including paper, ink, toner and technology products. Disruptions in the availability of raw materials used in the
production of these products may adversely affect our sales and result in customer dissatisfaction. In addition, global
sourcing of many of the products we sell is an important factor in our financial performance. Our ability to find qualified
vendors and access products in a timely and efficient manner is a significant challenge, especially with respect to goods
sourced outside the United States. Political instability, the financial instability of suppliers, merchandise quality issues,
trade restrictions, tariffs, foreign currency exchange rates, transport capacity and costs, inflation and other factors
relating to foreign trade are beyond our control. These and other issues affecting our vendors could adversely affect our
business and financial performance.
Our expanded offering of proprietary branded products may not improve our financial performance and may expose us to
intellectual property and product liability claims.
Our product offering includes Staples, Quill and other proprietary branded products, which together represented
approximately 22% of our total sales in fiscal 2007. Our proprietary branded products compete with other manufactur-
ers’ branded items that we offer. As we continue to increase the number and types of proprietary branded products that
we sell, we may adversely affect our relationships with our vendors, who may decide to reduce their product offerings
through Staples and increase their product offerings through our competitors. An increase in our proprietary branded
product offerings also may increase the risk that third parties will assert infringement claims against us with respect to
such products. In addition, if any of our customers are harmed by our proprietary branded products, they may bring
product liability and other claims against us. Any of these circumstances could damage our reputation and have an
adverse effect on our business and financial performance.
Our debt level and operating lease commitments may impact our ability to obtain future financing and continue our growth
strategy.
Our consolidated debt and operating lease obligations may have the effect generally of restricting our flexibility in
responding to changing market conditions and could make us more vulnerable in the event of a downturn in our
business. In addition, our level of indebtedness combined with the recent tightening of the global credit market may have
other important consequences, including: restricting our growth; making it more difficult for us to satisfy our obligations;
limiting our ability to borrow additional amounts for working capital, capital expenditures, debt service requirements,
future acquisitions or other corporate purposes; and limiting our ability to use operating cash flow in other areas of our
business. In such a situation, additional funds may not be available on satisfactory terms when needed, or at all, whether
in the next twelve months or thereafter.
Our effective tax rate may fluctuate.
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
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