Pier 1 2007 Annual Report Download - page 12

Risks Associated with Dependence on Technology
The Company is heavily dependent on various kinds of technology in the operation of its business.
Failure of any critical software applications, technology infrastructure, telecommunications, data commu-
nications, or networks could have a material adverse effect on the Company’s ability to manage the
merchandise supply chain, sell products, accomplish payment functions or report financial data. The Company
maintains backup processing capabilities; however, not all processes and applications are duplicated, and a
concentration of technology related risk does exist at the Company’s headquarters.
The Company outsources certain business processes to third party vendors that subject the Company to
risks, including disruptions in business and increased costs.
Some business processes that are dependent on technology are outsourced to third parties. Such processes
include gift card tracking and authorization, credit card authorization and processing, catalog and e-commerce
fulfillment, insurance claims processing, U.S. customs filings and reporting, payroll payments and tax filings,
and record keeping for retirement plans. The Company makes a diligent effort to insure that all providers of
outsourced services observe proper internal control practices, such as redundant processing facilities; however,
there are no guarantees that failures will not occur. Failure of third parties to provide adequate services could
have an adverse effect on the Company’s results of operations, liquidity, or ability to accomplish its financial
and management reporting.
Failure to protect the integrity and security of individually identifiable data of the Company’s customers
and employees could expose the Company to litigation and damage the Company’s reputation.
The Company receives and maintains certain personal information about its customers and employees. If
the Company’s security systems are compromised and this information is obtained by unauthorized persons, it
could adversely affect the Company’s reputation, as well as operations, results of operations, financial
condition and liquidity, and could result in litigation against the Company or the imposition of penalties. In
addition, the use of this information by the Company is regulated at the federal and state levels. As privacy
and information security laws and regulations change, the Company may incur additional costs to insure it
remains in compliance.
Regulatory Risks
The Company is subject to laws and regulatory requirements in many jurisdictions. Changes in these laws
and requirements may result in additional costs to the Company, including the costs of compliance as
well as potential penalties for non-compliance.
The Company operates in many local, state, and federal taxing jurisdictions, including foreign countries.
In most of these jurisdictions, the Company is required to collect state and local sales taxes at the point of sale
and remit them to the appropriate taxing authority. The Company is also subject to income taxes, excise taxes,
franchise taxes, payroll taxes and other special taxes. The Company is also required to maintain various kinds
of business and commercial licenses to operate its stores and other facilities. Rates of taxation are beyond the
Company’s control, and increases in such rates or taxation methods and rules could have a material impact on
the Company’s profitability. Failure to comply with laws concerning the collection and remittance of taxes and
with licensing requirements could also subject the Company to financial penalties or business interruptions.
Local, state, and federal legislation also has a potential material effect on the Company’s profitability or
ability to operate its business. Compliance with certain legislation carries with it significant costs. The
Company is subject to oversight by many governmental agencies in the course of operating its business
because of its numerous locations, large number of employees, contact with consumers, granting of credit, and
importation and exportation of product. Insuring compliance with regulations may cause the Company to incur
significant expenses, including the costs associated with periodic audits. Failure to comply may also cause
additional costs in the form of penalties.
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