Note K: Segment Reporting

We have two reportable segments, e-commerce and retail. The e-commerce segment has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams Sonoma Home, Rejuvenation and Mark and Graham, which sell our products through our e-commerce websites and direct-mail catalogs. Our e-commerce merchandise strategies are operating segments, which have been aggregated into one reportable segment, e-commerce. The retail segment, which includes our franchise operations, has the following merchandise strategies: Williams Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation, which sell our products through our retail stores. Our retail merchandise strategies are operating segments, which have been aggregated into one reportable segment, retail. Management’s expectation is that the overall economic characteristics of each of our operating segments will be similar over time based on management’s judgment that the operating segments have had similar historical economic characteristics and are expected to have similar long-term financial performance in the future.

These reportable segments are strategic business units that offer similar products for the home. They are managed separately because the business units utilize two distinct distribution and marketing strategies. Based on management’s best estimate, our operating segments include allocations of certain expenses, including advertising and employment costs, to the extent they have been determined to benefit both channels. These operating segments are aggregated at the channel level for reporting purposes due to the fact that our brands are interdependent for economies of scale and we do not maintain fully allocated income statements at the brand level. As a result, material financial decisions related to the brands are made at the channel level. Furthermore, it is not practicable for us to report revenue by product group.

We use operating income to evaluate segment profitability. Operating income is defined as earnings (loss) before net interest income (expense) and income taxes. Unallocated costs before interest and income taxes include corporate employee-related costs, occupancy expenses (including depreciation expense), administrative costs and third-party service costs, primarily in our corporate administrative and systems departments. Unallocated assets include corporate cash and cash equivalents, prepaid expenses, the net book value of corporate facilities and related information systems, deferred income taxes and other corporate long-lived assets.

Income taxes are calculated at an entity level and are not allocated to our reportable segments.

Segment Information


In thousands	E-commerce		Retail		Unallocated			Total
Fiscal 2017
Net revenues¹		$ 2,778,457		$ 2,513,902		$ —			$ 5,292,359
Depreciation and amortization expense		28,977		90,625		63,475			183,077
Operating income (loss)^2,3		599,491		224,608		(370,288	)		453,811
Assets⁴		776,569		1,114,726		894,454			2,785,749
Capital expenditures		39,273		83,750		66,689			189,712
Fiscal 2016
Net revenues¹		$ 2,633,602		$ 2,450,210		$ —			$ 5,083,812
Depreciation and amortization expense		31,135		86,228		55,832			173,195
Operating income (loss)²		606,286		231,929		(365,616	)		472,599
Assets⁴		614,213		1,077,593		785,073			2,476,879
Capital expenditures		21,479		102,859		73,076			197,414
Fiscal 2015
Net revenues¹		$ 2,522,580		$ 2,453,510		$ —			$ 4,976,090
Depreciation and amortization expense		32,056		83,027		52,677			167,760
Operating income (loss)		562,081		239,288		(312,735	)		488,634
Assets⁴		625,951		1,049,892		741,584			2,417,427
Capital expenditures		22,293		102,717		77,925			202,935

¹	Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $328.2 million, $321.2 million and $298.9 million in fiscal 2017, fiscal 2016 and fiscal 2015, respectively.

²	Includes approximately $8.6 million in fiscal 2017 and $14.4 million in fiscal 2016 for severance-related reorganization charges, primarily in our corporate functions, which is recorded in selling, general and administrative expenses within the unallocated segment.

³	Includes approximately $6.2 million in fiscal 2017 for costs related to the acquisition of Outward and its ongoing operations, which is primarily recorded in selling, general and administrative expenses.

⁴	Includes long-term assets related to our international operations of approximately $63.4 million, $59.2 million and $61.7 million in fiscal 2017, fiscal 2016 and fiscal 2015, respectively.