Target 2014 Annual Report Download - page 12

A significant disruption in our computer systems and our inability to adequately maintain and update those
systems could adversely affect our operations and our ability to maintain guest confidence.
We rely extensively on our computer systems to manage inventory, process guest transactions, manage and maintain
the privacy of guest data, communicate with our vendors and other third parties, service REDcard accounts, and
summarize and analyze results, and on continued and unimpeded access to the Internet to use our computer systems.
Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses
and malicious attacks, security breaches and catastrophic events. If our systems are damaged or fail to function
properly, we may incur substantial repair or replacement costs, experience data loss or theft and impediments to our
ability to manage inventories or process guest transactions, and encounter lost guest confidence, which could adversely
affect our results of operations. The Data Breach we experienced in the fourth quarter of 2013 negatively impacted
our ability to handle customer inquiries, and we experienced weaker than expected sales immediately following the
announcement of the Data Breach. Similarly, we experienced a temporary network disruption not involving a data
breach in June 2014 that prevented many of our point-of-sale registers from working in a limited geographic region.
This disruption caused checkout delays and generated negative publicity, and we engaged in promotional activities
to retain our customers during the delay.
We continually make significant technology investments that will help maintain and update our existing computer
systems. Implementing significant system changes increases the risk of computer system disruption. The potential
problems and interruptions associated with implementing technology initiatives could disrupt or reduce our operational
efficiency, and could impact the guest experience and guest confidence.
Data Security and Privacy Risks
If our efforts to protect the security of information about our guests, team members and vendors are
unsuccessful, we may face additional costly government enforcement actions and private litigation, and our
sales and reputation could suffer.
An important component of our business involves the receipt and storage of information about our guests, team
members, and vendors. We have a program in place to detect and respond to data security incidents. However,
because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change
frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or
implement adequate preventive measures. In addition, hardware, software, or applications we develop or procure from
third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise
information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third
parties with whom we do business, through fraud, trickery, or other forms of deceiving our team members, contractors,
and temporary staff.
Until the Data Breach in the fourth quarter of 2013, all incidents we experienced were insignificant. The Data Breach
we experienced was significant and went undetected for several weeks. Both we and our vendors have experienced
data security incidents other than the Data Breach; however, to date these other incidents have not been material to
our consolidated financial statements. If we or our vendors experience additional significant data security breaches
or fail to detect and appropriately respond to significant data security breaches, we could be exposed to additional
government enforcement actions and private litigation. In addition, our guests could further lose confidence in our
ability to protect their information, which could cause them to discontinue using our REDcards or pharmacy services,
or stop shopping with us altogether.
We have recorded significant expenses related to the Data Breach. Our losses could exceed the amounts we
have recorded by material amounts, and these matters could have a material adverse impact on our results
of operations.
The Data Breach we experienced was significant, went undetected for several weeks, and involved the theft of certain
payment card and guest information through unauthorized access to our network. We experienced weaker than
expected sales immediately following the announcement of the Data Breach, and we are currently facing litigation
seeking damages or other related relief allegedly arising out of the Data Breach. In addition, state and federal agencies,
including State Attorneys General, the Federal Trade Commission and the SEC, are investigating events related to
the Data Breach, including how it occurred, its consequences and our responses. The governmental agencies
investigating the Data Breach may seek to impose on us fines and/or other monetary relief and/or injunctive relief that
could materially increase our data security costs, adversely impact how we operate our network and collect and use
guest information, and put us at a competitive disadvantage with other retailers. Furthermore, three of the four major
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