Pier 1 2010 Annual Report Download - page 15

The Company outsources certain business processes to third-party vendors and has certain business
relationships that subject the Company to risks, including disruptions in business and increased costs.
The Company outsources some business processes to third parties including gift card tracking and
authorization, credit card authorization and processing, insurance claims processing, U.S. customs filings and
reporting, ocean freight processing, certain payroll processing and tax filings, and record keeping for retirement
plans. In addition, the Company has business relationships with third parties to provide essential services such as
the extension of credit to its customers and maintenance of the Company’s rewards program. The Company
makes a diligent effort to ensure that all providers of these services are observing 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 or the Company’s inability to arrange for alternative
providers on favorable terms in a timely manner could have an adverse effect on the Company’s results of
operations, financial condition, or ability to accomplish its financial and management reporting.
Factors that may or may not be controllable by the Company may adversely affect the Company’s
financial performance.
Increases in the Company’s expenses that are beyond the Company’s control including items such as
increases in fuel and transportation costs, higher interest rates, increases in losses from damaged merchandise,
inflation, fluctuations in foreign currency rates, higher costs of labor, labor disputes around the world, insurance
and healthcare, increases in postage and media costs, higher tax rates and changes in laws and regulations,
including accounting standards, may negatively impact the Company’s financial results.
Failure to successfully manage and execute the Company’s marketing initiatives could have a negative
impact on the business.
The success and growth of the Company is partially dependent on generating customer traffic in order to
gain sales momentum in its stores. Successful marketing efforts require the ability to reach customers through
their desired mode of communication utilizing various media outlets. Media placement decisions are generally
made months in advance of the scheduled release date. The Company’s inability to accurately predict its
consumers’ preferences, to utilize the desired mode of communication, or to ensure availability of advertised
products may negatively impact the business and operating results.
Changes to estimates related to the Company’s property and equipment, or financial results that are
lower than its current estimates at certain store locations, may cause the Company to incur impairment charges
on certain long-lived assets.
The Company makes certain estimates and projections with regards to individual store operations as well
as overall Company performance in connection with its impairment analyses for long-lived assets in accordance
with applicable accounting guidance. An impairment charge is required when the carrying value of the asset
exceeds the estimated fair value or undiscounted future cash flows of the asset. The projection of future cash
flows used in this analysis requires the use of judgment and a number of estimates and projections of future
operating results. If actual results differ from the Company’s estimates, additional charges for asset impairments
may be required in the future. If impairment charges are significant, the Company’s financial results could be
adversely affected.
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