Pottery Barn 2011 Annual Report Download - page 27

Our inability to obtain commercial insurance at acceptable rates or our failure to adequately reserve for self-
insured exposures might increase our expenses and have a negative impact on our business.
We believe that commercial insurance coverage is prudent in certain areas of our business for risk management.
Insurance costs may increase substantially in the future and may be affected by natural catastrophes, fear of
terrorism, financial irregularities and other fraud at publicly-traded companies, intervention by the government
and a decrease in the number of insurance carriers. In addition, the carriers with which we hold our policies may
go out of business, or may be otherwise unable to fulfill their contractual obligations. In addition, for certain
types or levels of risk, such as risks associated with earthquakes, hurricanes or terrorist attacks, we may
determine that we cannot obtain commercial insurance at acceptable rates, if at all. Therefore, we may choose to
forego or limit our purchase of relevant commercial insurance, choosing instead to self-insure one or more types
or levels of risks. We are primarily self-insured for workers’ compensation, employee health benefits and product
and general liability claims. If we suffer a substantial loss that is not covered by commercial insurance or our
self-insurance reserves, the loss and related expenses could harm our business and operating results. In addition,
exposures exist for which no insurance may be available and for which we have not reserved.
Our inability or failure to protect our intellectual property would have a negative impact on our brands,
goodwill and operating results.
We may not be able to adequately protect our intellectual property. Our trademarks, service marks, copyrights,
trade dress rights, trade secrets, domain names and other intellectual property are valuable assets that are critical
to our success. The unauthorized reproduction or other misappropriation of our intellectual property could
diminish the value of our brands or goodwill and cause a decline in our sales. Protection of our intellectual
property and maintenance of distinct branding are particularly important as they distinguish our products and
services from our competitors. In addition, the costs of defending our intellectual property may adversely affect
our operating results.
We may be subject to legal proceedings that could be time consuming, result in costly litigation, require
significant amounts of management time and result in the diversion of significant operational resources.
We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. Litigation is
inherently unpredictable. Any claims against us, whether meritorious or not, could be time consuming, result in
costly litigation, require significant amounts of management time and result in the diversion of significant
operational resources. There have been a growing number of e-commerce-related patent infringement lawsuits in
recent years. There has also been a rise in lawsuits against companies that gather information in order to market
to consumers online or through the mail. In addition, there has been an increase in employment-related lawsuits.
From time to time, we have been subject to these types of lawsuits. The cost of defending claims against us or the
ultimate resolution of such claims may harm our business and operating results. In addition, the increasingly
regulated business environment may result in a greater number of enforcement actions and private litigation. This
could subject us to increased exposure to stockholder lawsuits.
Our operating results may be harmed by unsuccessful management of our employment, occupancy and other
operating costs, and the operation and growth of our business may be harmed if we are unable to attract
qualified personnel.
To be successful, we need to manage our operating costs and continue to look for opportunities to reduce costs.
We recognize that we may need to increase the number of our employees, especially during peak sales seasons,
and incur other expenses to support new brands and brand extensions and the growth of our existing brands,
including the opening of new stores. Alternatively, if we are unable to make substantial adjustments to our cost
structure during times of uncertainty, such as the 2008-2009 economic downtown, we may incur unnecessary
expenses, we may have too few resources to properly run our business, or our business and operating results may
be negatively impacted. From time to time, we may also experience union organizing activity in currently
non-union facilities. Union organizing activity may result in work slowdowns or stoppages and higher labor
costs. In addition, there appears to be a growing number of wage-and-hour lawsuits and other employment-
related lawsuits against retail companies, especially in California.
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Form 10-K