Pottery Barn 2007 Annual Report Download - page 25

20 years into the future. If these estimates or projections change or prove incorrect, we may be, and have been,
required to record impairment charges on certain store locations and other property and equipment. If these
impairment charges are significant, our operating results would be adversely affected.
We must properly account for our unredeemed gift certificates, gift cards and merchandise credits.
We maintain a liability for unredeemed gift certificates, gift cards and merchandise credits until the earlier of
redemption, escheatment or four years. After four years, the remaining unredeemed gift certificate, gift card or
merchandise credit liability is relieved and recorded within selling, general and administrative expenses. In the
event that a state or states were to require that the unredeemed amounts should have been escheated to that state
or states, our business and operating results would be harmed. Further, in the event that our historical redemption
patterns change in the future, our operating results would be affected.
We may experience fluctuations in our tax obligations and effective tax rate.
We are subject to income taxes in many U.S. and certain foreign jurisdictions. We record tax expense based on
our estimates of future payments, which include reserves for estimates of probable settlements of foreign and
domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The
results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues.
As a result, we expect that throughout the year there could be on-going variability in our quarterly tax rates as
taxable events occur and exposures are evaluated. Further, our effective tax rate in a given financial statement
period may be materially impacted by changes in the mix and level of earnings or by changes to existing
accounting rules or regulations. For example, the adoption of FIN 48 had an approximate net 40 basis point
negative impact on our effective tax rate in fiscal 2007.
We rely on the services of key personnel, whose knowledge of our business and expertise would be difficult to
replace.
Our future success depends to a significant degree on the skills, experience and efforts of key personnel in our
senior management, whose vision for our company, knowledge of our business and expertise would be difficult
to replace. If any of our key employees leaves, is seriously injured or is unable to work, and we are unable to find
a qualified replacement, we may be unable to execute our business strategy.
In addition, our main offices are located in the San Francisco Bay Area, where competition for personnel with
retail and technology skills is intense. If we fail to identify, attract, retain and motivate these skilled personnel,
our business may be harmed. Further, in the event we need to hire additional personnel, we may experience
difficulties due to significant competition for highly skilled personnel in our market.
We may be exposed to risks and costs associated with credit card fraud and identity theft that could cause us to
incur unexpected expenditures and loss of revenue.
A significant portion of our customer orders are placed through our website or through our customer care centers. In
order for our direct-to-customer channel to function and develop successfully, we and other parties involved in
processing customer transactions must be able to transmit confidential information, including credit card
information, securely over public networks. Third parties may have the technology or knowledge to breach the
security of customer transaction data. Although we take the security of our systems and the privacy of our
customers’ confidential information seriously, we cannot guarantee that our security measures will effectively
prohibit others from obtaining unauthorized access to our information and our customers’ information. Any person
who circumvents our security measures could destroy or steal valuable information or disrupt our operations. Any
security breach could cause consumers to lose confidence in the security of our website and choose not to purchase
from us. Any security breach could also expose us to risks of data loss, litigation and liability and could seriously
disrupt our operations and harm our reputation, any of which could harm our business.
In addition, states and the federal government are increasingly enacting laws and regulations to protect
consumers against identity theft. We collect personal information from consumers in the course of doing
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Form 10-K