Staples 2015 Annual Report Download - page 89

FORWARD-LOOKING STATEMENTS
STAPLES 11
investigation of the incident; remediation costs; and legal fees.
We will continue to evaluate information as it becomes known
and will record an estimate for losses or expenses at the
time or times when it is both probable that any loss has been
incurred and the amount of such loss is reasonably estimable.
Such losses may be material to our results of operations and
financial condition. We maintain network-security insurance
coverage, which we expect would help mitigate the financial
impact of the incident. The incident has resulted in a loss of
business for PNI and may result in further reputational and
other harm to us going forward.
On December 19, 2014, we announced that the investigation
into our previously announced data security incident had
determined that malware deployed by criminals to some
point of sale systems at 115 of our more than 1,400 U.S.
retail stores may have allowed access to transaction data at
those affected stores. As a result, cardholder names, payment
card numbers, expiration dates, and card verification codes
for approximately 1.16 million payment cards may have been
affected. Upon detection, we immediately took action to
eradicate the malware and commenced an investigation into
the incident, working closely with payment card companies
and law enforcement and with the assistance of outside data
security experts. We also have taken steps to further enhance
the security of our point of sale systems, including the use of
new encryption tools. We continue to evaluate cybersecurity
policies and practices to mitigate the risk of future incidents.
Expenses incurred to date related to this incident have not
been material. It is reasonably possible that we may incur
additional expenses or losses in connection with the incident;
however, at this time we are unable to reasonably estimate any
such additional expenses or losses. In addition, we maintain
network-security insurance coverage, which we expect would
help mitigate any material financial impact.
Our effective tax rate may fluctuate.
We are a multi-national, multi-channel provider of 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, changes in the laws
and the tax filing positions we take in various jurisdictions. In
addition, our effective tax rate may fluctuate quarterly, and the
resulting tax rate may be negative or unusually high as a result
of significant charges in a quarter that are not tax deductible,
such as goodwill and long-lived asset impairment. We base
our estimate of our 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,
adverse outcomes from tax audits that we may be subject to
in any of the jurisdictions in which we operate, or changes in
tax laws in any of the multiple jurisdictions in which we operate
could result in an unfavorable change in our effective tax rate
which could have an adverse effect on our business and
results of operations.
Fluctuations in foreign exchange rates could lead to
lower earnings.
Sales from our delivery operations and stores outside the
U.S. are denominated in the currency of the country in which
these operations or stores are located and changes in foreign
exchange rates affect the translation of the sales and earnings
of these businesses into U.S. dollars for financial reporting
purposes. Additionally, merchandising agreements may also
be denominated in the currency of the country where the
vendor resides. Although we attempt to mitigate such risks by
sometimes entering into foreign exchange hedges or utilizing
risk management strategies, such hedges and strategies
themselves present some risk and thus may not be entirely
successful in mitigating the risk.
We may be unable to attract, train, engage and retain
qualified associates.
Our customers across all channels value courteous and
knowledgeable associates. Accordingly, our performance
depends on attracting, training, engaging and retaining a large
number of qualified associates. We face intense competition
for qualified associates, particularly in tight labor markets
in emerging markets or in specialized areas of technical
expertise. Many of our associates, particularly in retail stores,
are in entry-level or part-time positions with historically high
rates of turnover. Our ability to meet our labor needs while
controlling our labor costs is subject to numerous external
factors, including the availability of a sufficient number of
qualified persons in the workforce, unemployment levels,
prevailing wage rates, changing demographics, health
and other insurance costs and the cost of compliance with
labor and wage laws and regulations. We have experienced
reductions in force in connection with our restructuring activity,
which may lead to lower associate morale, gaps in experience
and knowledge, and a higher likelihood that remaining
associates terminate their employment. If we are unable to
attract, train, engage and retain a sufficient number of qualified
associates, our business and financial performance may be
adversely affected.
Our quarterly operating results are subject to significant
fluctuation.
Our operating results have fluctuated from quarter to quarter in
the past, and we expect that they will continue to do so in the
future. Historically, sales and profitability are generally stronger
in the second half of our fiscal year than the first half of our
fiscal year due in part to back-to-school, holiday and back-
to-business seasons. Factors that could also cause these
quarterly fluctuations include: the mix of products sold; pricing
actions of competitors; the level of advertising and promotional
expenses; the expense and outcome of legal proceedings;
severe weather; consumer confidence; and the other risk
factors described in this section. Most of our operating
expenses, such as occupancy costs and associate salaries,
do not vary directly 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, we may not proportionately
reduce operating expenses for that quarter, and therefore such
a sales shortfall may have a disproportionate effect on our net
income for the quarter.