Pottery Barn 2013 Annual Report Download - page 30

contractual obligations. In addition, for certain types or levels of risk, such as risks associated with natural
disasters 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, employment practices liability, employee health benefits, and product and general liability claims,
among others. 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,
reputation and operating results.
We may not be able to adequately protect our intellectual property in the U.S. or in foreign jurisdictions,
particularly as we continue to expand globally. 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 reputation 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 has been a rise in the number of lawsuits against companies like us that gather
information in order to market to consumers online or through the mail and, along with other retailers, we have
been named in lawsuits for gathering zip code information from our customers. We believe that we have
meritorious defenses against these actions, and we will continue to vigorously defend against them. There have
also been a growing number of e-commerce-related patent infringement lawsuits and employment-related
lawsuits in recent years. From time to time, we have been subject to these types of lawsuits. The cost of
defending against all these types of claims against us or the ultimate resolution of such claims, whether by
settlement or adverse court decision, 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 holiday selling
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 downturn, we may incur
unnecessary expenses or we may have inadequate resources to properly run our business, and 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, including in our stores. 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. State,
federal and global laws and regulations regarding employment change frequently and the ultimate cost of
compliance cannot be precisely estimated. Any changes in regulations, the imposition of additional regulations,
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