By Eric J. Sinrod
May 23, 2007
perspective - The impact of computer security breaches is not
hypothetical. The financial consequences are real and can be immediate.
The economic cost of unauthorized computer intrusions is illustrated in
the first-quarter earnings report posted by TJX Companies.
By way of background, TJX refers to itself as the leading off-price
retailer of apparel and home fashions within the United States and
globally. TJX operates 830 T.J. Maxx, 763 Marshalls, 271 HomeGoods, 127
A.J. Wright stores, and 35 Bob's Stores in the United States. TJX also
states that it operates 185 Winners and 69 HomeSense stores in Canada,
as well as 211 T.K. Maxx stores in Europe.
According to its first-quarter earnings report, TJX suffered
unauthorized intrusions into portions of its computer systems that
process and store information related to credit card, debit card, and
check and "unreceipted" merchandise return transactions that were
discovered during the fourth quarter of the prior fiscal year.
TJX has been investigating the intrusions with the assistance of
computer security and incident response experts. Management believes
customer information was stolen and that this information primarily
relates to portions of transactions at its stores (not including Bob's
Stores) from 2003 through part of 2004, and from mid- to late 2006.
The financial upshot is that TJX recorded an after-tax charge of
approximately $12 million for costs incurred during the first quarter
relating to the intrusions. That's in addition to an after-tax charge of
approximately $3 million for costs recorded during the prior fourth
The charges include costs to investigate and contain the intrusions, as
well as to strengthen computer security and systems. It also includes
costs relating to communications with customers and for technical, legal
and other related charges. The company continues to experience ongoing
costs related to the intrusions, but still cannot estimate a range or
its potential exposure. Such costs and losses, it says, could wind up
being material to TJX's results.
Without knowing whether TJX took adequate steps to try to prevent the
intrusions before they occurred, there are obvious lessons here.
Plainly, companies of all types should want to avoid the costs of
investigations, customer communications, and technical, legal and
monitoring costs--not to mention potential exposure for related
losses--which arise from computer system breaches.
Thus, companies should educate themselves now, if they have not done so
already, as to how best to strengthen their computer security. Breach
prevention bears a cost. But that expense pales in comparison to what a
company will spend after a breach takes place. Better to be penny-wise
rather than pound-foolish, and companies would be smart on the front-end
to take steps that prevent breaches from ever occurring
Eric J. Sinrod is a partner in the San Francisco office of Duane Morris.
His focus includes information technology and intellectual-property
disputes. To receive his weekly columns, send an e-mail to ejsinrod (at)
duanemorris.com with "Subscribe" in the subject line. The views
expressed in this column do not necessarily reflect those of Sinrod's
law firm or its individual partners.
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