SEGMENT REPORTING

9 Months Ended

Nov. 01, 2015

SEGMENT REPORTING

NOTE E. SEGMENT REPORTING

We have two reportable segments, e-commerce and retail. The e-commerce segment has the following merchandising 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 merchandising strategies are operating segments, which have been aggregated into one reportable segment, e-commerce. The retail segment has the following merchandising strategies: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation, which sell our products through our retail stores. Our retail merchandising strategies are operating segments, which have been aggregated into one reportable segment, retail. Our operating segments have had similar historical economic characteristics and it is management’s expectation that the operating segments will 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 operating income to evaluate segment profitability. Operating income is defined as earnings (loss) before net interest income or expense and income taxes. Unallocated costs before interest and income taxes include employee-related costs, occupancy expenses (including depreciation expense), administrative costs and third-party service costs, primarily in our corporate 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 reportable segment has not been included as income taxes are calculated at a company-wide level and are not allocated to each reportable segment.

Segment Information

In thousands	E-commerce		Retail		Unallocated			Total
Thirteen weeks ended November 1, 2015
Net revenues1		$     628,191		$     603,891		$            0			$  1,232,082
Depreciation and amortization expense		7,856		20,880		13,124			41,860
Operating income (loss)		137,828		49,213		(76,358	)		110,683
Capital expenditures		4,819		25,239		19,162			49,220
Thirteen weeks ended November 2, 2014
Net revenues1		$     586,976		$     556,186		$            0			$  1,143,162
Depreciation and amortization expense		8,471		20,344		12,988			41,803
Operating income (loss)		136,617		49,973		(81,870	)		104,720
Capital expenditures		5,451		29,005		13,695			48,151
Thirty-nine weeks ended November 1, 2015
Net revenues1		$  1,730,677		$  1,659,109		$            0			$  3,389,786
Depreciation and amortization expense		24,156		61,433		39,504			125,093
Operating income (loss)		387,863		117,842		(239,751	)		265,954
Assets2		666,993		1,151,657		617,026			2,435,676
Capital expenditures		13,337		68,432		54,300			136,069
Thirty-nine weeks ended November 2, 2014
Net revenues1		$  1,600,854		$  1,555,740		$            0			$  3,156,594
Depreciation and amortization expense		23,608		60,062		37,465			121,135
Operating income (loss)		378,365		117,227		(231,210	)		264,382
Assets2		623,674		1,087,683		592,590			2,303,947
Capital expenditures		28,326		63,253		40,091			131,670

¹  Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $80.0 million and $54.6 million for the thirteen weeks ended November 1, 2015 and November 2, 2014, respectively, and $201.7 million and $161.1 million for the thirty-nine weeks ended November 1, 2015 and November 2, 2014, respectively.

²  Includes long-term assets related to our international operations of approximately $60.6 million and $64.4 million as of November 1, 2015 and November 2, 2014, respectively.