Pottery Barn 2008 Annual Report Download - page 27

period from October through December each year. In anticipation of increased holiday sales activity, we incur
certain significant incremental expenses prior to and during peak selling seasons, particularly October through
December, including fixed catalog production and mailing costs and the costs associated with hiring a substantial
number of temporary employees to supplement our existing workforce. For example, we realized significantly
lower-than-expected revenues and net earnings during the October through December selling season of fiscal
2008 due to the economic downturn, which affected our business and operating results.
We may require external funding sources for operating funds, which may cost more than we expect, or not be
available at the levels we require and, as a consequence, our expenses and operating results could be negatively
affected.
We regularly review and evaluate our liquidity and capital needs. We currently believe that our available cash,
cash equivalents, cash flow from operations and cash available under our existing credit facilities will be
sufficient to finance our operations and expected capital requirements for at least the next 12 months. However,
we might experience periods during which we encounter additional cash needs during the course of our fiscal
year, and we might need additional external funding to support our operations. Although we were able to amend
our line of credit facility during fiscal 2008 on acceptable terms, in the event we require additional liquidity from
our lenders, such funds may not be available to us or may not be available to us on acceptable terms. For
example, in the event we were to breach any of our financial covenants, our banks would not be required to
provide us with additional funding, or they may require us to renegotiate our existing credit facility on less
acceptable terms. In addition, we may not be able to renew our letters of credit that we use to help pay our
suppliers on terms that are acceptable to us, or at all, as the availability of letter of credit facilities may continue
to be limited. Further, the providers of such credit may reallocate the available credit to other borrowers. If we
are unable to access credit at the levels we require, or the cost of credit is greater than expected, it could
adversely affect our operating results.
Disruptions in the financial markets may adversely affect our liquidity and capital resources and our business.
Disruptions in global financial markets and banking systems have made credit and capital markets more difficult
for companies to access, even for some companies with established revolving or other credit facilities. We have
access to capital through our revolving line of credit facility. Each financial institution which is part of the
syndicate for our revolving line of credit facility is responsible for providing a portion of the loans to be made
under the facility. If any participant or group of participants with a significant portion of the commitments in our
revolving line of credit facility fail to satisfy its or their respective obligations to extend credit under the facility
and we are unable to find a replacement for such participant or participants on a timely basis (if at all), our
liquidity may be adversely affected and our business could be materially adversely affected.
If we are unable to pay quarterly dividends at intended levels, our reputation and stock price may be harmed.
Our current quarterly cash dividend is $0.12 per common share. The dividend program requires the use of a
significant portion of our cash earnings. As a result, we may not retain a sufficient amount of cash to fund our
operations or finance future growth opportunities, new product development initiatives and unanticipated capital
expenditures. Our Board of Directors may, at its discretion, decrease the intended level of dividends or entirely
discontinue the payment of dividends at any time. Our ability to pay dividends will depend on our ability to
generate sufficient cash flows from operations in the future.This ability may be subject to certain economic,
financial, competitive and other factors that are beyond our control. Any failure to pay dividends after we have
announced our intention to do so may negatively impact our reputation and investor confidence in us and
negatively impact our stock price.
If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial
statements could be impaired and investors’ views of us could be harmed.
We have evaluated and tested our internal controls in order to allow management to report on, and our registered
independent public accounting firm to attest to, our internal controls, as required by Section 404 of the Sarbanes-
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Form 10-K