Pottery Barn 2011 Annual Report Download - page 59

Williams-Sonoma, Inc.
Notes to Consolidated Financial Statements
Note A: Summary of Significant Accounting Policies
We are a specialty retailer of high-quality products for the home. The direct-to-customer segment of our business
sells our products through our six e-commerce websites (williams-sonoma.com, potterybarn.com,
potterybarnkids.com, pbteen.com, westelm.com and rejuvenation.com) and seven direct-mail catalogs (Williams-
Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Rejuvenation). The
catalogs reach customers throughout the U.S. The retail segment of our business sells similar products through
our five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation).
As of January 29, 2012, we operated 576 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 2011, a 52-week
year, ended on January 29, 2012; fiscal 2010, a 52-week year, ended on January 30, 2011; and fiscal 2009, a
52-week year, ended on January 31, 2010.
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 29, 2012, 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.
Restricted Cash
Restricted cash represents deposits held in trusts to secure our liabilities associated with our workers’
compensation and other insurance programs.
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 29, 2012 and January 30, 2011.
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 and selling
prices.
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Form 10-K