Pottery Barn 2011 Annual Report Download - page 32

If we do not properly account for our unredeemed gift certificates, gift cards and merchandise credits, our
operating results will be harmed.
We maintain a liability for unredeemed gift cards, gift certificates and merchandise credits until the earlier of
redemption, escheatment or four years. After four years, the remaining unredeemed gift cards, gift certificate or
merchandise credit liability is relieved and recorded as a benefit within selling, general and administrative
expenses. In the event that our historical redemption patterns change in the future, we might change the
minimum time period for maintaining a liability for unredeemed gift certificates on our balance sheets, which
would affect our financial position or operating results. Further, in the event that a state or states were to require
that the unredeemed amounts be escheated to that state or states, our business and operating results would be
harmed.
We may be exposed to risks and costs associated with credit card fraud and identity theft that could cause us to
incur unexpected expenses and loss of revenue.
A significant portion of our customer orders are placed through our e-commerce websites or through our
customer care centers. In addition, a significant portion of sales made through our retail channel require the
collection of certain customer data, such as credit card information. In order for our sales 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 prevent 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 or stores 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. Also, as our business expands globally, we are subject to data privacy and other
similar laws in various foreign jurisdictions. Compliance with these laws will likely increase the costs of doing
business and, if we fail to implement appropriate safeguards or to detect and provide prompt notice of
unauthorized access as required by some of these new laws, we could be subject to potential claims for damages
and other remedies, which could harm our business.
Fluctuations in our tax obligations and effective tax rate may result in volatility of our operating results and
stock price.
We are subject to income taxes in many U.S. and certain foreign jurisdictions, and our domestic and global tax
liabilities are subject to the allocation of expenses in differing jurisdictions. Our provision for income taxes is
subject to volatility and could be adversely impacted by a number of factors that require significant judgment and
estimation. Although we believe our estimates are reasonable, the final tax outcome of these matters may
materially differ from our estimates and adversely affect our financial condition or operating results. 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 ongoing variability in
our quarterly tax rates as taxable events occur and exposures are evaluated.
In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in
the mix and level of earnings in countries with differing statutory tax rates or by changes to existing rules or
regulations. Further, pending tax legislation in the U.S. and abroad could negatively impact our current or future
tax structure and effective tax rates.
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