Pottery Barn 2013 Annual Report Download - page 55

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. These products, representing distinct merchandise
strategies – Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Williams-Sonoma Home,
Rejuvenation, and Mark and Graham – are marketed through e-commerce websites, direct mail catalogs and
585 stores. We operate in the U.S., Canada, Australia and the United Kingdom, and ship our products to customers
worldwide. In addition, one of our unaffiliated franchisees operates stores in the Middle East.
Intercompany transactions and accounts have been eliminated.
Fiscal Year
Our fiscal year ends on the Sunday closest to January 31, based on a 52 or 53-week year. Fiscal 2013, a 52-week
year, ended on February 2, 2014; fiscal 2012, a 53-week year, ended on February 3, 2013; and fiscal 2011, a
52-week year, ended on January 29, 2012.
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. As of
February 2, 2014, we were invested primarily in money market funds, interest-bearing demand deposit accounts
and time deposits. 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, franchisee 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, if necessary. Our allowance for doubtful accounts was not material
to our financial statements as of February 2, 2014 and February 3, 2013.
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 and age of the merchandise. 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 sales and selling prices.
Reserves for shrinkage are estimated and recorded throughout the year, at the concept and channel level, as a
percentage of net sales based on historical shrinkage results, expectations of future shrinkage and current
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Form 10-K