Pottery Barn 2005 Annual Report Download - page 54

Williams-Sonoma, Inc.
Notes to Consolidated Financial Statements
Note A: Summary of Significant Accounting Policies
We are a specialty retailer of products for the home. The retail segment of our business sells our products through
our six retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Hold Everything, West Elm and
Williams-Sonoma Home). The direct-to-customer segment of our business sells similar products through our
eight direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed + Bath, PBteen,
Hold Everything, West Elm and Williams-Sonoma Home) and six e-commerce websites (williams-sonoma.com,
potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and holdeverything.com). The catalogs reach
customers throughout the U.S., while the six retail concepts currently operate 570 stores in 43 states,
Washington, D.C. and Canada.
In January 2006, we decided to transition the merchandising strategies of our Hold Everything brand into our
other existing brands by the end of fiscal 2006. In connection with this transition, we incurred a pre-tax charge of
approximately $13,500,000, or $0.07 per diluted share, in the fourth quarter of fiscal 2005. These costs primarily
included the initial asset impairment and lease termination costs associated with the shutdown of the Hold
Everything retail stores, the asset impairment of the e-commerce website, and the write-down of impaired
merchandise inventories. Of this pre-tax charge, approximately $4,500,000 is included in cost of goods sold and
approximately $9,000,000 is included in selling, general, and administrative expenses. We expect to incur an
additional after-tax charge of $0.03 per diluted share in the first half of fiscal 2006.
Significant intercompany transactions and accounts have been eliminated.
Fiscal Year
Our fiscal year ends on the Sunday closest to January 31, based on a 52/53-week year. Fiscal years 2005, 2004
and 2003 ended on January 29, 2006 (52 weeks), January 30, 2005 (52 weeks) and February 1, 2004 (52 weeks),
respectively. The Company’s next 53-week fiscal year will be fiscal 2007, ending on February 3, 2008.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United
States of America requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. These estimates and
assumptions are evaluated on an on-going basis and are based on historical experience and various other factors
that we believe to be reasonable under the circumstances. Actual results could differ from these estimates.
Cash Equivalents
Cash equivalents include highly liquid investments with an original maturity of three months or less. Our policy
is to invest in high-quality, short-term instruments to achieve maximum yield while maintaining a level of
liquidity consistent with our needs. Book cash overdrafts issued but not yet presented to the bank for payment are
reclassified to accounts payable.
Allowance for Doubtful Accounts
A summary of activity in the allowance for doubtful accounts is as follows:
Dollars in thousands Fiscal 2005 Fiscal 2004 Fiscal 2003
Balance at beginning of year $217 $207 $ 64
Provision for loss on accounts receivable (49) 10 143
Accounts written off — — —
Balance at end of year $168 $217 $207
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