Pottery Barn 2009 Annual Report Download - page 61

Foreign Currency Translation
As of January 31, 2010, we have 17 retail stores in Canada and limited sourcing operations in both Europe and
Asia, each of which expose us to market risk associated with foreign currency exchange rate fluctuations.
Additionally, some of our foreign operations have a functional currency different than the U.S. dollar, such as in
Canada (functional currency of the Canadian Dollar) and in Europe (functional currency of the Euro). Assets and
liabilities are translated into U.S. dollars using the current exchange rates in effect at the balance sheet date,
while revenues and expenses are translated at the average exchange rates during the period. The resulting
translation adjustments are recorded as other comprehensive income within shareholders’ equity. Gains and
losses in fiscal 2009 and fiscal 2008 resulting from foreign currency transactions have not been significant and
are included in selling, general and administrative expenses.
Earnings Per Share
Basic earnings per share is computed as net earnings divided by the weighted average number of common shares
outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted
average number of common shares outstanding for the period plus common stock equivalents consisting of
shares subject to stock-based awards with exercise prices less than or equal to the average market price of our
common stock for the period, to the extent their inclusion would be dilutive.
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.
New Accounting Pronouncements
In June 2009, Accounting Standards Codification (“ASC”) Topic 810-10 Consolidation, (formerly Statement of
Financial Account 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.
Note B: Property and Equipment
Property and equipment consists of the following:
Dollars in thousands Jan. 31, 2010 Feb. 1, 2009
Leasehold improvements $ 831,757 $ 828,414
Fixtures and equipment 576,488 578,259
Capitalized software 267,724 247,613
Land and buildings 135,692 133,406
Corporate systems projects in progress165,989 66,469
Construction in progress214,905 25,866
Corporate aircraft (held for sale) 10,029 11,503
Total 1,902,584 1,891,530
Accumulated depreciation and amortization (1,073,557) (949,311)
Property and equipment – net $ 829,027 $ 942,219
1Corporate systems projects in progress is primarily comprised of a new merchandising, inventory management and order management
system currently under development.
2Construction in progress is primarily comprised of leasehold improvements and furniture and fixtures related to new, expanded or
remodeled retail stores where construction had not been completed as of year-end.
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Form 10-K