Staples 2015 Annual Report Download - page 88

FORWARD-LOOKING STATEMENTS
10 STAPLES Form 10-K
Global economic conditions could adversely affect our
business and financial performance.
As a world-class provider of products and services that
serve the needs of business customers and consumers in
25 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, tighter credit markets,
reduced consumer credit availability, fluctuation in the
financial markets, lower consumer confidence, lack of small
business formation and other factors could result in a decline
in business and consumer spending. 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.
Our international operations expose us to risks inherent
in foreign operations.
We currently operate in 24 countries outside the United States.
In certain international market segments, we may not benefit
from any first-to-market advantages or otherwise succeed.
Cultural differences abroad and local practices of conducting
business may conflict with our own business practices and
ethics standards. Ensuring compliance with foreign and U.S.
laws and our own policies may require that we implement new
operational systems and financial controls, conduct audits or
internal investigations, train our associates and third parties
on our existing compliance methods, and take other actions,
all of which may be expensive, divert management’s time and
impact our operations. There are also different employee/
employer relationships and in some cases the existence of
workers’ councils that may delay or impact the implementation
of some of these operational systems. In addition, differences
in business practices in our international markets may cause
customers to be less receptive to our business model than
we expect.
Risks inherent in international operations also include, among
others, the costs and difficulties of managing international
operations, adverse tax consequences and greater difficulty
in enforcing intellectual property rights. Other factors that may
also have an adverse impact on our international operations
include limitations on the repatriation and investment of funds,
foreign currency exchange restrictions, complex import and
export schemes, increased local competition, our lack of
familiarity with local customer preferences, unfavorable foreign
trade policies, unstable political or economic conditions, and
geopolitical events, including war and terrorism.
Compromises of our information systems or
unauthorized access to confidential information or
personal information may materially harm our business
or damage our reputation.
Through our sales and marketing activities and our business
operations, we collect and store confidential information and
certain personal information from our customers, end users of
our services, vendors, business partners and associates. For
example, we handle, collect and store personal information
in connection with our customers purchasing products or
services, enrolling in our promotional or rewards programs,
registering on our web site or otherwise communicating or
interacting with us. We also accept payments using a variety
of methods, including debit and credit cards, gift cards,
electronic transfer of funds, and others. We rely on third parties
to provide payment processing services or make certain
payments on our behalf. In addition, in the normal course of
business, we gather and retain personal information about
our associates and generate and have access to confidential
business information. We may share confidential and personal
information with vendors or other third parties in connection
with processing of transactions, operating certain aspects of
our business or for marketing purposes. Although we have
taken steps designed to safeguard such information, there can
be no assurance that such information will be protected against
loss or unauthorized access, acquisition, use or disclosure.
For example, computer hackers may penetrate our or our
vendors’ network security and, if successful, misappropriate
such information or interfere with our ability to access such
information. A Staples associate, contractor or other third-
party with whom we do business may misuse confidential
or personal information to which they have access; attempt
to circumvent our security measures; or inadvertently cause
a breach involving such information. Additionally, methods to
obtain unauthorized access to confidential information change
frequently and may be difficult to detect, which can impact our
ability to respond appropriately. We could be subject to liability
for failure to comply with privacy and information security laws,
for failing to protect personal information, for failing to respond
appropriately, or for misusing personal information, such as use
of such information for an unauthorized marketing purpose.
Loss, interference with our ability to access, unauthorized
access to, or misuse of confidential or personal information
could disrupt our operations, damage our reputation, and
expose us to claims from customers, financial institutions,
regulators, payment card associations, employees and other
persons, any of which could have an adverse effect on our
business, financial condition and results of operations.
We have investigated, with the assistance of outside experts,
a data security incident involving unauthorized access into
the computer systems of PNI Digital Media Ltd (“PNI”), a
subsidiary we acquired in July 2014. PNI, which is based
in Vancouver, British Columbia, provides a software platform
that enables retailers to sell personalized products such
as photo prints, photo books, calendars, business cards,
stationery and other similar products. PNI’s customers
include a number of major third party retailers, as well as our
affiliates. The investigation determined that an unauthorized
party entered PNI’s systems and was able to deploy on some
of PNI’s servers supporting its customers, malware designed
to capture data that end users input on the photosites.
Some of PNI’s affected customers have notified certain of
their users of a potential compromise of the users’ payment
card information and/or other personal information. PNI took
prompt steps to contain the incident, including disabling
the retailer photosites, or online payment transactions, for
a period while the incident was being investigated, and to
further enhance the security of its retailer customers’ data.
To date the Company has incurred incremental expenses
of $18 million related to the incident. Additional losses and
expenses relating to the incident are probable; however, at
this stage, we do not have sufficient information to reasonably
estimate such losses and expenses. The types of losses and
expenses that may result from the incident include, without
limitation: claims by PNI’s retailer customers, including
indemnification claims for losses and damages incurred by
them; claims by end-users of PNI’s services, including class
action lawsuits that have been filed, and further class action
lawsuits that may be filed, in Canada and the United States;
investigations and claims by various regulatory authorities in
Canada and the United States; the costs of completing our