Pottery Barn 2012 Annual Report Download - page 51
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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 February 3, 2013, 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 February 3,
2013, there were no amounts outstanding under our credit facility.
In addition, we have fixed and variable income investments consisting of short-term investments classified as
cash and cash equivalents, which are also affected by changes in market interest rates. As of February 3, 2013,
our investments, made primarily in money market funds, interest-bearing demand deposit accounts 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. Approximately 2% 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 2012 and fiscal 2011. 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 February 3, 2013, our retail stores in Canada and our limited operations in Asia, Europe and
Australia, expose 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 intend to enter into foreign currency
contracts beginning in fiscal 2013 to minimize the currency remeasurement risk associated with the transactions
of our foreign subsidiaries. We did not enter into any foreign currency contracts during fiscal 2012 or fiscal 2011.
37
Form 10-K