Pottery Barn 2011 Annual Report Download - page 62

and general liability claims were $19,103,000 and $19,122,000 as of January 29, 2012 and January 30, 2011,
respectively, and are recorded within accrued salaries, benefits and other.
Customer Deposits
Customer deposits are primarily comprised of unredeemed gift cards, gift certificates and merchandise credits
and deferred revenue related to undelivered merchandise. We maintain a liability for unredeemed gift cards, gift
certificates and merchandise credits until the earlier of redemption, escheatment or four years as we have
concluded that the likelihood of our gift cards and gift certificates being redeemed beyond four years from the
date of issuance is remote.
Deferred Rent and Lease Incentives
For leases that contain fixed escalations of the minimum annual lease payment during the original term of the
lease, we recognize rental expense on a straight-line basis over the lease term, including the construction period,
and record the difference between rent expense and the amount currently payable as deferred rent. We record
rental expense during the construction period. Deferred lease incentives include construction allowances received
from landlords, which are amortized on a straight-line basis over the lease term, including the construction
period.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and debt
approximate their estimated fair values.
Revenue Recognition
We recognize revenues and the related cost of goods sold (including shipping costs) at the time the products are
delivered to our customers. Revenue is recognized for retail sales (excluding home-delivered merchandise) at the
point of sale in the store and for home-delivered merchandise and direct-to-customer sales when the merchandise
is delivered to the customers. Discounts provided to customers are accounted for as a reduction of sales. We
record a reserve for estimated product returns in each reporting period. Shipping and handling fees charged to the
customer are recognized as revenue at the time the products are delivered to the customer. Revenues are
presented net of any taxes collected from customers and remitted to governmental authorities.
Sales Returns Reserve
Our customers may return purchased items for an exchange or refund. We record a reserve for estimated product
returns, net of cost of goods sold, based on historical return trends together with current product sales
performance. A summary of activity in the sales returns reserve is as follows:
Dollars in thousands Fiscal 20111Fiscal 20101Fiscal 20091
Balance at beginning of year $ 12,502 $ 11,839 $ 10,142
Provision for sales returns 245,815 221,289 203,053
Actual sales returns (244,166) (220,626) (201,356)
Balance at end of year $ 14,151 $ 12,502 $ 11,839
1Amounts are shown net of cost of goods sold.
Vendor Allowances
We receive allowances or credits from certain vendors for volume rebates. We treat such volume rebates as an
offset to the cost of the product or services provided at the time the expense is recorded. These allowances and
credits received are recorded in both cost of goods sold and in selling, general and administrative expenses.
Cost of Goods Sold
Cost of goods sold includes cost of goods, occupancy expenses and shipping costs. Cost of goods consists of cost
of merchandise, inbound freight expenses, freight-to-store expenses and other inventory related costs such as
shrinkage, damages and replacements. Occupancy expenses consist of rent, depreciation and other occupancy
costs, including common area maintenance and utilities. Shipping costs consist of third party delivery services
and shipping materials.
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