Pottery Barn 2009 Annual Report Download - page 51
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the closing price of our stock on the date prior to the date of issuance. Significant factors affecting the fair value
of option awards include the estimated future volatility of our stock price and the estimated expected term until
the option award is exercised or cancelled. The fair value of the award is amortized over the requisite service
period. Total stock-based compensation expense was $24,989,000, $12,131,000 (which includes an $11,023,000
reversal of compensation expense related to performance-based stock awards, see Note H) and $26,812,000, in
fiscal 2009, fiscal 2008 and fiscal 2007, respectively, and is recorded as a component of selling, general and
administrative expenses.
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this method, deferred income taxes
arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the
consolidated financial statements. We record 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.
Additionally, our effective tax rate in a given financial statement period may be materially impacted by changes
in the mix and level of our earnings.
In accordance with the accounting for income taxes and uncertain tax positions, we make estimates regarding the
likelihood that certain tax positions will be realized upon ultimate settlement and we record reserves where
necessary. It is reasonably possible that current income tax examinations involving uncertain tax positions could
be resolved within the next 12 months through administrative adjudicative procedures or settlement.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2009, Accounting Standards Codification (“ASC”) Topic 810-10 Consolidation, (formerly Statement of
Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R))” was issued. This
standard revises the consolidation guidance for variable interest entities and became effective for us on
February 1, 2010. We do not expect this standard to have a material impact on our consolidated financial
statements.
39
Form 10-K