Staples 2012 Annual Report Download - page 79

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Item 1A. Risk Factors
Global economic conditions could adversely affect our business and financial performance.
As the world's leading office products company operating in 26 countries, our operating results and performance depend
significantly on worldwide economic conditions and their impact on business and consumer spending. Increases in the levels of
unemployment, particularly white collar unemployment, energy and commodity costs, health care costs, higher interest rates and
taxes, a return to tighter credit markets, reduced consumer credit availability, turmoil in the financial markets (including recent
events in the European Union), lower consumer confidence, lack of small business formation and other factors could result in a
decline in business and consumer spending. Although there has been modest improvement in some of these measures, the political
and economic environment in Europe has not improved, and the level of business and consumer spending across the globe is not
where it was prior to the global recession. Our business and financial performance may continue to be adversely affected, and
our ability to generate cash flow may be negatively impacted, by current and future economic conditions if there is a renewed
decline in business and consumer spending or if such spending remains stagnant.
We face uncertainties in connection with the implementation of our strategies to transform our business, and our
inability to successfully implement our strategies could adversely affect our business and financial performance.
In September 2012, we announced plans to transform our business, including accelerating growth in online businesses
by expanding our product assortment, integrating our retail and online offering, improving store productivity in North America,
restructuring operations in order to reduce complexity and improve profitability of our European operations, and initiating a multi-
year cost savings plan in order to help fund these investments. The success of our transformation is subject to both the risks
affecting our business generally and the inherent difficulty associated with implementing our new strategies and is dependent on
the skills, experience, and efforts of our management and other associates and our success with third parties. If we are unable to
successfully implement our plans, we risk taking additional charges in the future, including potential impairment of assets and
charges for additional restructuring activities that may be required. To the extent we pursue acquisitions or other operational and
strategic opportunities, our success will depend on selecting the appropriate targets or partners, completing integration efforts
quickly and effectively and realizing any expected synergies and cost savings. There is no assurance that we will be able to
successfully implement these strategic initiatives or that the implementation of changes will result in the benefits or costs savings
at the levels that we anticipate or at all, which may result in an adverse impact on our business and financial results.
We have recognized substantial goodwill impairment charges in the current fiscal year and may be required to recognize
additional goodwill impairment charges in the future.
During the third quarter of 2012, we recorded a pre-tax goodwill impairment charge of $771.5 million related to our
Europe Retail and Europe Catalog reporting units as a result of industry trends and the ongoing economic weakness in Europe,
and the related strategic decision to reallocate resources to other Staples business units with greater growth potential. At February 2,
2013, we had $3.22 billion of remaining goodwill on our balance sheet, and we could experience material goodwill impairment
charges in the future. Certain factors, including consumer spending levels, industry and macroeconomic conditions, the price of
our stock and the future profitability of our businesses, might have a negative impact on the carrying value of our goodwill. The
process of testing goodwill for impairment involves numerous judgments, assumptions and estimates made by management which
inherently reflect a high degree of uncertainty. In addition, our goodwill impairment analysis includes a comparison of the aggregate
estimated fair value of all reporting units to our total market capitalization. If the business climate deteriorates, if our plans change
or if we fail to manage our restructuring activities successfully, then actual results may not be consistent with these judgments,
assumptions and estimates, and our goodwill may become impaired in future periods. This would in turn have an adverse impact
on our financial position and results of operations.
Our market is highly competitive and we may not be able to continue to compete successfully.
The office supply and services market is highly competitive. We compete with a variety of local, regional, national and
international retailers and online and traditional retailers, dealers and distributors for customers, associates, locations, products,
services, and other important aspects of our business. In most of our geographic markets, we compete with other high-volume
office supply providers such as Office Depot, OfficeMax and Lyreco, as well as mass merchants such as Wal-Mart, Target and
Tesco, warehouse clubs such as Costco, computer and electronics retail stores such as Best Buy, specialty technology stores such
as Apple, copy and print businesses such as FedEx Office, online retailers such as Amazon.com, and other discount retailers. We
also compete with numerous mail order firms, contract stationer businesses, electronic commerce distributors, regional and local
dealers and direct manufacturers. Some of our current and potential competitors are larger than we are, may have more experience
in selling certain products or delivering services or may have substantially greater financial resources. Also, many of our competitors