Pottery Barn 2010 Annual Report Download - page 54

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks, which include significant deterioration of the U.S. and foreign markets, changes
in U.S. interest rates, foreign currency exchange rates, including the devaluation of the U.S. dollar, and the
effects of uncertain economic forces which may affect the prices we pay our vendors in the foreign countries in
which we do business. We do not engage in financial transactions for trading or speculative purposes.
Interest Rate Risk
As of January 30, 2011, our line of credit facility was the only instrument we held with a variable interest rate
which could, if drawn upon, subject us to risks associated with changes in that interest rate. As of January 30,
2011, there were no amounts outstanding under our credit facility. If the interest rate on this existing variable rate
debt instrument rose 10%, our results from operations and cash flows would not be materially affected.
In addition, we have fixed and variable income investments consisting of short-term investments classified as
short-term cash and cash equivalents, which are also affected by changes in market interest rates. As of
January 30, 2011, our investments, made primarily in money market funds and highly liquid U.S. Treasury bills,
are stated at cost and approximate their fair values.
Foreign Currency Risks
We purchase a significant amount of inventory from vendors outside of the U.S. in transactions that are
denominated in U.S. dollars, however, only approximately 3% of our international purchase transactions are in
currencies other than the U.S. dollar, primarily the euro. Any currency risks related to these international
purchase transactions were not significant to us during fiscal 2010 and fiscal 2009. Since we pay for the majority
of our international purchases in U.S. dollars, however, a decline in the U.S. dollar relative to other foreign
currencies would subject us to risks associated with increased purchasing costs from our vendors in their effort to
offset any lost profits associated with any currency devaluation. We cannot predict with certainty the effect these
increased costs may have on our financial statements or results of operations.
In addition, as of January 30, 2011, we have 16 retail stores in Canada and limited operations in Europe and Asia,
each of which exposes us to market risk associated with foreign currency exchange rate fluctuations. Although
these exchange rate fluctuations have not been material to us in the past, we may enter into foreign currency
contracts in the future to minimize any currency remeasurement risk associated with the intercompany assets and
liabilities of our subsidiaries. We did not enter into any foreign currency contracts during fiscal 2010 or fiscal
2009.
40