Pottery Barn 2009 Annual Report Download - page 57

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 five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-
Sonoma Home). The direct-to-customer segment of our business sells similar products through our seven direct-
mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West
Elm and Williams-Sonoma Home) and six e-commerce websites (williams-sonoma.com, potterybarn.com,
potterybarnkids.com, pbteen.com, westelm.com and wshome.com). The catalogs reach customers throughout the
U.S., while the five retail concepts, as of January 31, 2010, operated 610 stores in 44 states, Washington, D.C.,
Canada and Puerto Rico.
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 2009, a 52-week
year, ended on January 31, 2010; fiscal 2008, a 52-week year, ended on February 1, 2009; and fiscal 2007, a
53-week year, ended 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 ongoing 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 that maintain a level of liquidity consistent with our needs. As
of January 31, 2010, we were invested primarily in money market funds and highly liquid U.S. Treasury bills.
Book cash overdrafts issued, but not yet presented to the bank for payment, are reclassified to accounts payable.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are stated at their carrying values, net of an allowance for doubtful accounts. Accounts
receivable consist primarily of credit card and landlord receivables for which collectability is reasonably assured.
Other miscellaneous receivables are evaluated for collectability on a regular basis and an allowance for doubtful
accounts is recorded as deemed necessary. Our allowance for doubtful accounts was not material to our financial
statements as of January 31, 2010 and February 1, 2009.
Merchandise Inventories
Merchandise inventories, net of an allowance for excess quantities and obsolescence, are stated at the lower of
cost (weighted average method) or market. To determine if the value of our inventory should be marked down
below cost, we consider current and anticipated demand, customer preferences, age of the merchandise and
fashion trends. Our inventory value is adjusted periodically to reflect current market conditions, which requires
management judgments that may significantly affect the ending inventory valuation, as well as gross margin. The
significant estimates used in inventory valuation are obsolescence (including excess and slow-moving inventory
and lower of cost or market reserves) and estimates of inventory shrinkage. We reserve for obsolescence based
on historical trends, aging reports, specific identification and our estimates of future retail sales prices.
Reserves for shrinkage are estimated and recorded throughout the year, at the concept and channel level, as a
percentage of net sales based on historical shrinkage results, expectations of future shrinkage and current
inventory levels. Actual shrinkage is recorded at year-end based on the results of our physical inventory count
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Form 10-K