Staples 2015 Annual Report Download - page 90

FORWARD-LOOKING STATEMENTS
12 STAPLES Form 10-K
Our indebtedness could adversely affect us by reducing
our flexibility to respond to changing business and
economic conditions.
As of January 30, 2016, our consolidated outstanding debt
was $1.0 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. On February 2,
2016, in connection with our pending acquisition of Office
Depot, we entered into a term loan agreement for $2.5 billion,
the proceeds of which are currently held in escrow pending
the closing of the acquisition, and an extension to a financing
commitment for a $3 billion asset-based revolving credit
facility. Our acquisition-related financing, or other substantial
indebtedness we may incur 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 2015 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
and exporting merchandise, 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.
Problems in our information systems and technologies
may disrupt our operations.
We rely heavily on various information systems and technology
to sell and deliver our products and services and operate our
business, including systems to track inventory, to process
and record transactions, to generate financial reports and to
communicate with our associates, vendors and customers.
As we continue to accelerate our growth online, our ability to
attract and retain customers, compete and operate effectively is
dependent on a consistent, secure and easy to use technology
infrastructure with uninterrupted availability and reliable back-
up systems. Any disruption to the internet or our technology
infrastructure, including a disruption or incident affecting our
web sites and information systems, including without limitation
a denial of service attack, may cause a decline in our customer
satisfaction, jeopardize accurate financial reporting, impact our
sales volumes or result in increased costs. Hardware, software
or applications we develop or procure from third parties may
contain defects in design or manufacture or other problems
that could unexpectedly disrupt our operations or compromise
our information security. Although we continue to invest in
our technology, if we are unable to continually add software
and hardware, effectively manage or upgrade our systems
and network infrastructure, and develop effective system
availability, disaster recovery plans and protection solutions,
our business could be disrupted thus subjecting us to liability
and potentially harming our reputation.
In addition, we periodically make modifications and upgrades
to our information systems and technology. Some of
our information systems are outsourced to third parties.
Modifications involve replacing legacy systems with successor
systems, making changes to legacy systems or acquiring new
systems with new functionality. Although we make a diligent
effort to ensure that all providers of outsourced services
observe proper internal control practices and procedures,
we cannot assure that failures will not occur. We are aware of
inherent risks associated with replacing our systems, including
accurately capturing data, system disruptions and outsourcing
to third parties. Information technology system disruptions,
if not anticipated and appropriately mitigated, could have a
material adverse effect on our operations.
Our business may be adversely affected by the actions
of and risks associated with third-parties.
The products we sell are sourced from a wide variety of
third-party vendors and as we expand our assortment we
rely on third parties to fulfill our customer orders and deliver
products directly to our customers. In general, we do not
have long-term contracts with our vendors or third parties
committing them to provide products to us on acceptable
terms. For example, we derive benefits from vendor allowances
and promotional incentives which may not be offered in the
future. We also cannot control the supply, design, function or
cost of many of the products that we offer for sale. Some of
the products we offer are supplied to us on an exclusive basis
and may be difficult to replace in a timely manner. Additionally,
third parties may not live up to the delivery promises they
have made to our customers. Disruptions in the availability
of products or services purchased through third parties, or
quality issues that cause us to initiate voluntary or mandatory
recalls for products we sell on an exclusive basis, may result
in customer dissatisfaction, damage our reputation and
adversely affect our sales.