Segment Reporting

12 Months Ended

Feb. 03, 2019

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. Beginning in fiscal 2019, due to the convergence of our e-commerce and retail businesses, we will only report one reportable segment.

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 2018 (53 Weeks)
Net revenues 1	$	3,082,064	$	2,589,529	$	—		$	5,671,593
Depreciation and amortization expense		36,294		89,419		63,095			188,808
Operating income (loss) 2		643,592		217,070		(424,709	)		435,953
Assets 3		914,452		1,183,604		714,788			2,812,844
Capital expenditures		45,151		82,840		62,111			190,102
Fiscal 2017 (52 Weeks)
Net revenues 1	$	2,778,457	$	2,513,902	$	—		$	5,292,359
Depreciation and amortization expense		28,977		90,625		63,475			183,077
Operating income (loss) 4		599,491		224,608		(370,288	)		453,811
Assets 3		776,569		1,114,726		894,454			2,785,749
Capital expenditures		39,273		83,750		66,689			189,712
Fiscal 2016 (52 Weeks)
Net revenues 1	$	2,633,602	$	2,450,210	$	—		$	5,083,812
Depreciation and amortization expense		31,135		86,228		55,832			173,195
Operating income (loss) 4		606,286		231,929		(365,616	)		472,599
Assets 3		614,213		1,077,593		785,073			2,476,879
Capital expenditures		21,479		102,859		73,076			197,414

1	Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $ 346.8 million, $ 328.2 million and $ 321.2 million in fiscal 2018, fiscal 2017 and fiscal 2016 respectfully.

The 53 weeks ended February 3, 2019 includes approximately $25.2 million of expense related to our acquisition of Outward (primarily acquisition-related compensation costs, the amortization of intangible assets acquired, and the operations of the Outward business), of which $19.6 million is recorded in the e-commerce segment and $5.5 million is recorded in the unallocated segment; $13.2 million of expense related to impairment and early lease termination charges which is primarily recorded in the retail segment; and $8.0 million of employment-related expense primarily associated with an equity grant, which is recorded within the unallocated segment.

3	Includes long-term assets related to our international operations of approximately $ 50.3 million, $ 63.4 million and $ 59.2 million in fiscal 2018, fiscal 2017 and fiscal 2016.

The 52 weeks ended January 28, 2018 includes approximately $

8.6

million for severance-related charges, primarily in our corporate functions, which is recorded within the unallocated segment and approximately $6.2 million for costs related to the acquisition of Outward and its ongoing operations, of which $3.3 million is recorded in the e-commerce segment and $2.9 million is recorded in the unallocated segment. The 52 weeks ended January 29, 2017 includes $

14.4

million for severance-related reorganization charges, primarily in our corporate functions, which is recorded within the unallocated segment.