SEGMENT REPORTING

6 Months Ended

Jul. 29, 2012

SEGMENT REPORTING

NOTE E. SEGMENT REPORTING

We have two reportable segments, direct-to-customer and retail. The direct-to-customer segment has seven merchandising concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm, Williams-Sonoma Home and Rejuvenation) and sells our products through our six e-commerce websites (williams-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and rejuvenation.com) and seven direct mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Rejuvenation). The retail segment has five merchandising concepts which sell products for the home (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation). The five retail merchandising concepts 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 major concepts within each reportable segment 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 home-centered products. 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 earnings before unallocated corporate overhead, interest and taxes to evaluate segment profitability. 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 systems, corporate facilities and other administrative departments. Unallocated assets include corporate cash and cash equivalents, deferred income taxes, the net book value of corporate facilities and related information systems, and other corporate long-lived assets.

Income tax information by segment has not been included as taxes are calculated at a company-wide level and are not allocated to each segment.

Segment Information

Dollars in thousands	Direct-to- Customer		Retail		Unallocated			Total
Thirteen weeks ended July 29, 2012
Net revenues1	$	414,361	$	459,922	$	0		$	874,283
Depreciation and amortization expense		5,677		17,497		9,350			32,524
Operating income		95,223		38,602		(63,722	)		70,103
Capital expenditures		7,482		16,808		17,499			41,789
Thirteen weeks ended July 31, 2011
Net revenues1	$	368,041	$	446,709	$	0		$	814,750
Depreciation and amortization expense		4,951		19,791		8,279			33,021
Operating income2		83,562		38,276		(57,753	)		64,085
Capital expenditures		8,873		13,860		17,556			40,289
Twenty-six weeks ended July 29, 2012
Net revenues1	$	788,768	$	903,129	$	0		$	1,691,897
Depreciation and amortization expense		11,294		35,556		18,468			65,318
Operating income3		173,178		72,955		(126,707	)		119,426
Assets4		373,340		881,375		735,169			1,989,884
Capital expenditures		12,758		26,080		30,770			69,608
Twenty-six weeks ended July 31, 2011
Net revenues1	$	712,162	$	873,413	$	0		$	1,585,575
Depreciation and amortization expense		10,063		39,401		16,435			65,899
Operating income2		158,690		68,755		(111,660	)		115,785
Assets4		315,176		882,388		812,560			2,010,124
Capital expenditures		13,227		20,723		28,575			62,525

¹  Includes net revenues of approximately $31.6 million and $31.9 million for the thirteen weeks ended July 29, 2012 and July 31, 2011, respectively, and $62.2 million and $58.1 million for the twenty-six weeks ended July 29, 2012 and July 31, 2011, respectively, related to our foreign operations.

² Includes expenses in the retail channel of approximately $0.8 million and $2.3 million for the thirteen weeks and twenty-six weeks ended July 31, 2011, respectively, related to asset impairment and early lease termination charges for underperforming retail stores.

³  Unallocated costs include approximately $7.0 million for employee separation charges primarily related to the retirement of our former Executive Vice President, Chief Operating and Chief Financial Officer.

⁴  Includes approximately $26.5 million and $26.0 million of long-term assets as of July 29, 2012 and July 31, 2011, respectively, related to our foreign operations.