Company Quick10K Filing
Williams Sonoma
Price67.18 EPS2
Shares79 P/E28
MCap5,338 P/FCF59
Net Debt145 EBIT255
TEV5,483 TEV/EBIT22
TTM 2019-11-03, in MM, except price, ratios
10-Q 2020-05-03 Filed 2020-06-08
10-K 2020-02-02 Filed 2020-03-27
10-Q 2019-11-03 Filed 2019-12-12
10-Q 2019-08-04 Filed 2019-09-12
10-Q 2019-05-05 Filed 2019-06-14
10-K 2019-02-03 Filed 2019-04-04
10-Q 2018-10-28 Filed 2018-12-07
10-Q 2018-07-29 Filed 2018-09-07
10-Q 2018-04-29 Filed 2018-06-08
10-K 2018-01-28 Filed 2018-03-29
10-Q 2017-10-29 Filed 2017-12-06
10-Q 2017-07-30 Filed 2017-09-08
10-Q 2017-04-30 Filed 2017-06-02
10-K 2017-01-29 Filed 2017-03-30
10-Q 2016-10-30 Filed 2016-12-07
10-Q 2016-07-31 Filed 2016-09-08
10-Q 2016-05-01 Filed 2016-06-07
10-K 2016-01-31 Filed 2016-03-31
10-Q 2015-11-01 Filed 2015-12-11
10-Q 2015-08-02 Filed 2015-09-11
10-Q 2015-05-03 Filed 2015-06-12
10-K 2015-02-01 Filed 2015-04-02
10-Q 2014-11-02 Filed 2014-12-05
10-Q 2014-08-03 Filed 2014-09-12
10-Q 2014-05-04 Filed 2014-06-12
10-K 2014-02-02 Filed 2014-04-03
10-Q 2013-08-04 Filed 2013-09-12
10-Q 2013-05-05 Filed 2013-06-14
10-K 2013-02-03 Filed 2013-04-04
10-Q 2012-10-28 Filed 2012-12-07
10-Q 2012-07-29 Filed 2012-09-07
10-Q 2012-04-29 Filed 2012-06-08
10-K 2012-01-29 Filed 2012-03-29
10-Q 2011-10-30 Filed 2011-12-09
10-Q 2011-07-31 Filed 2011-09-09
10-Q 2011-05-01 Filed 2011-06-10
10-K 2011-01-30 Filed 2011-03-31
10-Q 2010-10-31 Filed 2010-12-10
10-Q 2010-08-01 Filed 2010-09-10
10-Q 2010-05-02 Filed 2010-06-11
10-K 2010-01-31 Filed 2010-04-01
8-K 2020-06-03
8-K 2020-05-28
8-K 2020-05-11
8-K 2020-03-23
8-K 2020-03-18
8-K 2020-03-09
8-K 2020-01-17
8-K 2019-12-16
8-K 2019-11-21
8-K 2019-08-28
8-K 2019-08-23
8-K 2019-07-22
8-K 2019-07-08
8-K 2019-06-05
8-K 2019-05-30
8-K 2019-04-03
8-K 2019-03-20
8-K 2019-02-12
8-K 2018-10-25
8-K 2018-08-24
8-K 2018-08-22
8-K 2018-05-30
8-K 2018-05-23
8-K 2018-03-14
8-K 2018-01-08

WSM 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 d919457dex311.htm
EX-31.2 d919457dex312.htm
EX-32.1 d919457dex321.htm
EX-32.2 d919457dex322.htm

Williams Sonoma Earnings 2020-05-03

Balance SheetIncome StatementCash Flow
4.03.22.41.60.80.02012201420172020
Assets, Equity
1.71.41.00.70.30.02012201420172020
Rev, G Profit, Net Income
0.50.30.20.0-0.1-0.32012201420172020
Ops, Inv, Fin

10-Q
0.010.010.010.010.010.01false2020Q10000719955--01-29WILLIAMS SONOMA INCCAAmounts are shown net of shares withheld for employee taxes. Relates to our adoption of ASU 2016-02, Leases, in fiscal 2019. Excludes 267,000 restricted stock units for which the accounting grant date has not yet been determined and consequently for which no expense has been recognized. These awards reduced the shares available for future grant under the Plan.Excludes 170,308 incremental shares released due to achievement of performance conditions above target. Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham.Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $55.2 million and $86.6 million for the thirteen weeks ended May 3, 2020 and May 5, 2019. 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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 2020.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                
to
                
Commission File Number:
001-14077
 
WILLIAMS-SONOMA, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
94-2203880
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
3250 Van Ness Avenue,
 
San Francisco, CA
 
94109
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (415)
 421-7900
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class:
 
Trading 
Symbol(s):
 
Name of each exchange
on which registered:
Common Stock, par value $.01 per share
 
WSM
 
New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
Smaller reporting company
 
             
Emerging growth company
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
As of May 31, 2020, 77,758,981 shares of the registrant’s Common Stock were outstanding.
 
 

Table of Contents
WILLIAMS-SONOMA, INC.
REPORT ON FORM
10-Q
FOR THE QUARTER ENDED MAY 3, 2020
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
 
 
PAGE
 
 
 
 
 
 
 
 
Item 1.
 
 
 
1
 
 
 
 
 
 
 
 
Item 2.
 
 
 
15
 
 
 
 
 
 
 
 
Item 3.
 
 
 
21
 
 
 
 
 
 
 
 
Item 4.
 
 
 
21
 
 
 
 
 
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
22
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
22
 
 
 
 
 
 
 
 
Item 2.
 
 
 
24
 
 
 
 
 
 
 
 
Item 3.
 
 
 
24
 
 
 
 
 
 
 
 
Item 4.
 
 
 
24
 
 
 
 
 
 
 
 
Item 5.
 
 
 
24
 
 
 
 
 
 
 
 
Item 6.
 
 
 
25
 

Table of Contents
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
                 
 
Thirteen
Weeks Ended
 
In thousands, except per share amounts
 
May 3,
2020
   
May 5,
2019
 
Net revenues
  $
1,235,203
    $
1,241,132
 
Cost of goods sold
   
820,943
     
796,801
 
Gross profit
   
414,260
     
444,331
 
Selling, general and administrative expenses
   
365,615
     
370,199
 
Operating income
   
48,645
     
74,132
 
Interest expense, net
   
2,159
     
2,253
 
Earnings before income taxes
   
46,486
     
71,879
 
Income taxes
   
11,063
     
19,223
 
Net earnings
 
$
35,423
 
 
$
52,656
 
Basic earnings per share
  $
0.46
    $
0.67
 
Diluted earnings per share
  $
0.45
    $
0.66
 
Shares used in calculation of earnings per share:
   
     
 
Basic
   
77,262
     
78,683
 
Diluted
 
 
78,399
 
 
 
79,867
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
                 
 
Thirteen
Weeks Ended
 
In thousands
 
May 3,
2020
   
May 5,
2019
 
Net earnings
  $
      
35,423
    $
      
52,656
 
Other comprehensive income (loss):
   
     
 
Foreign currency translation adjustments
   
(5,276
)    
(3,009
)
Change in fair value of derivative financial instruments, net of tax of $196 and $74
   
549
     
204
 
Reclassification adjustment for realized (gain) on derivative financial instruments, net of tax of $13 and $24
   
(37
)    
(67
)
Comprehensive income
 
$
30,659
 
 
$
49,784
 
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
1

Table of Contents
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
                         
In thousands, except per share amounts
 
May 3,
2020
   
 
 
 
February 2,
2020
   
May 5,
2019
 
ASSETS
   
     
     
 
Current assets
   
     
     
 
Cash and cash equivalents
  $
861,002
    $
432,162
    $
107,683
 
Accounts receivable, net
   
104,829
     
111,737
     
102,195
 
Merchandise inventories, net
   
1,070,681
     
1,100,544
     
1,155,427
 
Prepaid expenses
   
90,433
     
90,426
     
98,213
 
Other current assets
   
22,099
     
20,766
     
22,128
 
Total current assets
   
2,149,044
     
1,755,635
     
1,485,646
 
Property and equipment, net
   
907,219
     
929,038
     
916,030
 
Operating lease
right-of-use
assets
   
1,175,402
     
1,166,383
     
1,200,972
 
Deferred income taxes, net
   
33,320
     
47,977
     
34,215
 
Goodwill
   
85,335
     
85,343
     
85,357
 
Other long-term assets, net
   
67,795
     
69,666
     
66,145
 
Total assets
  $
4,418,115
    $
4,054,042
    $
3,788,365
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
   
     
     
 
Current liabilities
   
     
     
 
Accounts payable
  $
423,375
    $
521,235
    $
385,646
 
Accrued expenses
   
137,495
     
175,003
     
109,169
 
Gift card and other deferred revenue
   
299,353
     
289,613
     
291,839
 
Income taxes payable
   
24,049
     
22,501
     
24,384
 
Current debt
   
487,823
     
299,818
     
—  
 
Operating lease liabilities
   
224,541
     
227,923
     
227,427
 
Other current liabilities
   
85,458
     
73,462
     
75,750
 
Total current liabilities
   
1,682,094
     
1,609,555
     
1,114,215
 
Deferred rent and lease incentives
   
26,254
     
27,659
     
30,536
 
Long-term debt
   
299,868
     
—  
     
299,670
 
Long-term operating lease liabilities
   
1,109,473
     
1,094,579
     
1,139,625
 
Other long-term liabilities
   
81,497
     
86,389
     
82,551
 
Total liabilities
   
3,199,186
     
2,818,182
     
2,666,597
 
Commitments and contingencies – See Note F
   
     
     
 
Stockholders’ equity
   
     
     
 
Preferred stock: $.01 par value; 7,500 shares authorized; none issued
   
—  
     
—  
     
—  
 
Common stock: $.01 par value; 253,125 shares authorized; 77,759, 77,137 and 78,808 shares issued and outstanding at May 3, 2020, February 2, 2020 and May 5, 2019, respectively
   
778
     
772
     
788
 
Additional
paid-in
capital
   
596,184
     
605,822
     
571,772
 
Retained earnings
   
641,917
     
644,794
     
564,127
 
Accumulated other comprehensive loss
   
(19,351
   
(14,587
)    
(13,945
)
Treasury stock, at cost: 8, 14 and 14 shares as of May 3, 2020, February 2, 2020 and May 5, 2019, respectively
   
(599
   
(941
)    
(974
)
Total stockholders’ equity
   
1,218,929
     
1,235,860
     
1,121,768
 
Total liabilities and stockholders’ equity
  $
4,418,115
    $
4,054,042
    $
3,788,365
 
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
2

Table of Contents
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
 
 
Common Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
Stockholders’
Equity
 
In thousands
 
Shares
   
Amount
 
Balance at February 2, 2020
   
77,137
    $
772
    $
605,822
    $
644,794
    $
(14,587
)   $
(941
)   $
1,235,860
 
Net earnings
   
—  
     
—  
     
—  
     
35,423
     
—  
     
—  
     
35,423
 
Foreign currency translation adjustments
   
—  
     
—  
     
—  
     
—  
     
(5,276
   
—  
     
(5,276
Change in fair value of derivative financial instruments, net of tax
   
—  
     
—  
     
—  
     
—  
     
549
     
—  
     
549
 
Reclassification adjustment for realized (gain)
on derivative financial instruments, net of tax
   
—  
     
—  
     
—  
     
—  
     
(37
   
—  
     
(37
)
Conversion/release of stock-based awards
1
   
622
     
6
     
(28,747
   
—  
     
—  
     
(171
   
(28,912
)
Reissuance of treasury stock under stock-based compensation plans
1
   
—  
     
—  
     
(499
   
(14
   
—  
     
513
     
—  
 
Stock-based compensation expense
   
—  
     
—  
     
19,608
     
—  
     
—  
     
—  
     
19,608
 
Dividends declared
   
—  
     
—  
     
—  
     
(38,286
   
—  
     
—  
     
(38,286
)
Balance at May 3, 2020
 
 
77,759
 
 
$
778
 
 
$
596,184
 
 
$
641,917
 
 
$
(19,351
 
$
(599
 
$
1,218,929
 
                                     
 
 
Common Stock
   
Additional
Paid-in
Capital
   
Retained
Earnings
   
Accumulated
Other
Comprehensive
Income (Loss)
   
Treasury
Stock
   
Total
Stockholders’
Equity
 
In thousands
 
Shares
   
Amount
 
Balance at February 3, 2019
   
78,813
    $
789
    $
581,900
    $
584,333
    $
(11,073
)   $
(235
)   $
1,155,714
 
Net earnings
   
—  
     
—  
     
—  
     
52,656
     
—  
     
—  
     
52,656
 
Foreign currency translation adjustments
   
—  
     
—  
     
—  
     
—  
     
(3,009
)    
—  
     
(3,009
)
Change in fair value of derivative financial instruments, net of tax
   
—  
     
—  
     
—  
     
—  
     
204
     
—  
     
204
 
Reclassification adjustment for realized (gain)
on derivative financial instruments, net of tax
 
 
 
—  
     
—  
     
—  
     
—  
     
(67
)    
—  
     
(67
)
Conversion/release of stock-based awards
1
   
571
     
5
     
(25,298
)    
—  
     
—  
     
(113
)    
(25,406
)
Repurchases of common stock
   
(576
)    
(6
)    
(2,874
)    
(30,010
)    
—  
     
(958
)    
(33,848
)
Reissuance of treasury stock under stock-based compensation plans
1
   
—  
     
—  
     
(332
)    
—  
     
—  
     
332
     
—  
 
Stock-based compensation expense
   
—  
     
—  
     
18,376
     
—  
     
—  
     
—  
     
18,376
 
Dividends declared
   
—  
     
—  
     
—  
     
(39,549
)    
—  
     
—  
     
(39,549
)
Adoption of accounting pronouncements
2
   
—  
     
—  
     
—  
     
(3,303
)    
—  
     
—  
     
(3,303
)
Balance at May 5, 2019
 
 
78,808
 
 
$
788
 
 
$
571,772
 
 
$
564,127
 
 
$
(13,945
)
 
$
(974
)
 
$
1,121,768
 
1
Amounts are shown net of shares withheld for employee taxes.
2
Relates to our adoption of ASU
2016-02,
Leases, in fiscal 2019.
See Notes to Condensed Consolidated Financial Statements.
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WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
 
Thirteen
Weeks Ended
 
In thousands
 
May 3,
2020
   
May 5,
2019
 
Cash flows from operating activities:
   
     
 
Net earnings
  $
35,423
    $
52,656
 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
   
     
 
Depreciation and amortization
   
46,224
     
46,838
 
(Gain) loss on disposal/impairment of assets
   
16,185
     
(323
)
Amortization of deferred lease incentives
   
(1,405
   
(2,306
)
Non-cash
lease expense
   
54,262
     
51,596
 
Deferred income taxes
   
(2,585
   
(4,126
)
Tax benefit related to stock-based awards
   
12,039
     
14,898
 
Stock-based compensation expense
   
19,703
     
18,529
 
Other
   
129
     
69
 
Changes in:
   
     
 
Accounts receivable
   
8,950
     
4,684
 
Merchandise inventories
   
28,513
     
(31,460
)
Prepaid expenses and other assets
   
(215
   
(4,914
)
Accounts payable
   
(92,871
   
(144,399
)
Accrued expenses and other liabilities
   
(29,050
   
(49,196
)
Gift card and other deferred revenue
   
9,960
     
1,558
 
Operating lease liabilities
   
(57,629
   
(55,099
)
Income taxes payable
   
6,240
     
2,915
 
Net cash provided by (used in) operating activities
   
53,873
     
(98,080
)
Cash flows from investing activities:
   
     
 
Purchases of property and equipment
   
(42,321
   
(36,148
)
Other
   
242
     
107
 
Net cash used in investing activities
   
(42,079
   
(36,041
)
Cash flows from financing activities:
   
     
 
Borrowings under revolving line of credit
   
487,823
     
—  
 
Payment of dividends
   
(39,391
   
(36,868
)
Tax withholdings related to stock-based awards
   
(28,912
   
(25,406
)
Repurchases of common stock
   
—  
     
(33,848
)
Net cash provided by (used in) financing activities
   
419,520
     
(96,122
)
Effect of exchange rates on cash and cash equivalents
   
(2,474
   
(1,028
)
Net increase (decrease) in cash and cash equivalents
   
428,840
     
(231,271
)
Cash and cash equivalents at beginning of period
   
432,162
     
338,954
 
Cash and cash equivalents at end of period
 
$
861,002
 
 
$
107,683
 
 
 
 
 
 
 
See Notes to Condensed Consolidated Financial Statements.
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WILLIAMS-SONOMA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
These financial statements include Williams-Sonoma, Inc. and its wholly owned subsidiaries (“we,” “us” or “our”). The Condensed Consolidated Balance Sheets as of May 3, 2020 and May 5, 2019, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Statements of Stockholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the thirteen weeks then ended, have been prepared by us, without audit. In our opinion, the financial statements include all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at the balance sheet dates and the results of operations for the thirteen weeks then ended. Intercompany transactions and accounts have been eliminated. The balance sheet as of February 2, 2020, presented herein, has been derived from our audited Consolidated Balance Sheet included in our Annual Report on Form
10-K
for the fiscal year ended February 2, 2020.
The results of operations for the thirteen weeks ended May 3, 2020 are not necessarily indicative of the operating results of the full year.
Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been omitted. These financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form
10-K
for the fiscal year ended February 2, 2020.
COVID-19
On March 11, 2020, the World Health Organization declared a novel strain of the coronavirus
(COVID-19)
to be a global pandemic and recommended containment and mitigation measures worldwide. In March 2020, we announced the temporary closures of all of our retail store operations to protect our employees, customers and the communities in which we operate and to help contain the
COVID-19
coronavirus pandemic. While subsequent to quarter end we have announced the reopening of over 350 stores, we have extended such closures in locations where retail restrictions have not been lifted. The preventative or protective actions that governments and businesses around the world have taken to contain the spread of
COVID-19
have resulted in a period of disruption that has materially reduced customer store traffic, and thus our retail store revenues, which comprised approximately 44% of our net revenues in fiscal 2019. Throughout the first quarter, we continued to operate our
e-commerce
sites and distribution centers and continued to deliver products to our customers.
As a result of the
COVID-19
pandemic and the resulting closure of all of our retail locations, we identified certain assets whose carrying value was now deemed to have been partially impaired. Given the material reductions in our retail store revenues and operating income during the first quarter of fiscal 2020, we evaluated our estimates and assumptions related to our stores’ future sales and cash flows, and performed a comprehensive review of our stores’ long-lived assets for impairment, including both property and equipment and operating lease
right-of-use
assets, at an individual store level. Key assumptions used in estimating fair value of our store assets in connection with our impairment analyses are sales growth, gross margin, employment costs, lease escalations, market rental rates, changes in local real estate markets in which we operate, inflation, and the overall economics of the retail industry. Our assumptions account for the estimated impact from the recent closure of all of our retail stores and reflect the
re-opening
of our retail stores throughout fiscal 2020 as allowed by the local governmental requirements in the states in which we operate. As a result, during the first quarter of fiscal 2020, we recorded store asset impairment charges within selling, general and administrative expenses of approximately $11,825,000 related to property and equipment and $3,795,000 related to operating lease
right-of-use
 
assets.
In addition, during the first quarter of fiscal 2020, we recorded charges of approximately $11,378,000 representing write
-
offs for inventory with minor damage that we could not liquidate through our outlets due to store closures resulting from
COVID-19.
We test goodwill for impairment annually (on the first day of the fourth quarter), or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. As of May 3, 2020 and May 5, 2019, we had goodwill of $85,335,000 and $85,357,000, respectively, primarily related to our fiscal 2017 acquisition of Outward and to our fiscal 2011 acquisition of Rejuvenation, Inc. As a result of the
COVID-19
pandemic and the resulting closure of all of our retail locations during the quarter, we evaluated the need to test goodwill for potential impairment. Our most recently completed qualitative goodwill impairment assessment indicated that the fair values of our reporting units significantly exceeded their carrying values. Further, we currently do not expect the impact of
COVID-19
to significantly affect the long-term estimates or assumptions of revenue and operating income growth, nor the long-term strategies of our brands, considered in our most recently completed goodwill assessment. Therefore, we currently do not consider the pandemic to be a triggering event requiring the testing of goodwill between annual tests, and accordingly, we have not recorded any goodwill impairment charges during the first quarter of fiscal 2020.
As of the end of the quarter, we had finalized rent concession negotiations on a limited portion of our stores and therefore any impact on our financials was immaterial for the first quarter of fiscal 2020. We expect most outstanding lease concession negotiations to be finalized during the second quarter of fiscal 2020.
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In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law on March 27, 2020. The CARES Act provides tax provisions and other stimulus measures to affected companies. The impact of the CARES Act was not material to our result of operations and financial position for the first quarter of fiscal 2020. We are continuing to assess the financial relief available to us under the CARES Act and expect to record any further impact during the second quarter of fiscal 2020.
These events and changes in circumstances, including a more prolonged and/or severe
COVID-19
pandemic, may lead to increased impairment risk in the future; therefore, we will continue to monitor events and changes in circumstances that may indicate the need to test our long-lived assets, including goodwill, for potential impairment.
New Accounting Pronouncements
In June 2016, the FASB issued ASU
2016-13,
 
Financial Instruments—Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. This standard is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. This ASU was effective for us in the first quarter of fiscal 2020. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows.
In August 2018, the FASB issued ASU
2018-15,
Intangibles—Goodwill and Other—Internal-Use Software
(Subtopic
350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain
internal-use
software. Accordingly, the amendments require an entity in a hosting arrangement that is a service contract to follow the guidance in Subtopic
350-40
to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. This ASU was effective for us in the first quarter of fiscal 2020. The adoption of this ASU did not have a material impact on our financial condition, results of operations or cash flows. 
In December 2019, the FASB issued ASU
2019-12,
Simplifying the Accounting for Income Taxes
(Topic 740). This standard simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a
step-up
in the tax basis of goodwill. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 202
0
, and early adoption is permitted. We do not expect the adoption of this ASU to have a material impact on our financial condition, results of operations or cash flow.
NOTE B. BORROWING ARRANGEMENTS
Credit Facility
We have a credit facility which provides for a $500,000,000 unsecured revolving line of credit (“revolver”) and a $300,000,000 unsecured term loan facility (“term loan”). The revolver may be used to borrow revolving loans or request the issuance of letters of credit. We may, upon notice to the administrative agent, request existing or new lenders, at such lenders’ option, to increase the revolver by up to $250,000,000 to provide for a total of $750,000,000 of unsecured revolving credit.
During the first quarter of fiscal 2020, we drew down $487,823,000 on the revolver (at a weighted average interest rate of 2.00%). Additionally, as of May 3, 2020, $12,177,000 in issued but undrawn standby letters of credit were outstanding under the revolver, for a total outstanding balance on the revolver of $500,000,000. The standby letters of credit were issued to secure the liabilities associated with workers’ compensation and other insurance programs. During the first quarter of fiscal 2019, we had no borrowings under the revolver. The revolver matures on January 8, 2023, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized. We may, prior to the first and second anniversaries of the closing date of the amendment of the credit facility, elect to extend the maturity date for an additional year, subject to lender approval.
As of May 3, 2020, we had $300,000,000 outstanding under our term loan (at a weighted average interest rate of 2.55%).
On May 11, 2020, we entered into an amendment to our credit facility (the “Credit Facility Amendment”), which, among other changes, extends the maturity date and amends the interest rate of the term loan, modifies covenants under the credit facility, and maintains the maturity date and interest rate of the revolver. The term loan now matures
on January 8, 2022,
at which time all outstanding principal and any accrued interest must be repaid. Based on this Credit Facility Amendment, borrowings under our term loan have been presented as long-term debt in our Condensed Consolidated Balance Sheet as of May 3, 2020. Costs incurred in connection with the issuance of the term loan are presented as a reduction to the carrying value of the debt in our Condensed Consolidated Balance Sheet.
Under the Credit Facility Amendment, the interest rate applicable to the credit facility is variable, and may be elected by us as: (i) the London Interbank Offer Rate (“LIBOR”) plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% for a revolver borrowing, and 1.75% to 2.5% for the term loan, or (ii) a base rate as defined in the credit facility, plus an applicable margin ranging from 0% to 0.775% for a revolver borrowing, and 0.75% to 1.5% for the term loan.
In addition to the Credit Facility Amendment, subsequent to quarter end, we entered into a new agreement (the
“364-Day
Credit Agreement”) for an additional $200,000,000 unsecured revolving line of credit.
Unde
r the
364-Day
Credit Agreement, the
interest
rate is variable and may be elected by us as: (i) LIBOR plus an applicable margin based on our leverage ratio ranging from 1.75% to 2.5% or (ii) a base rate as defined in the agreement, plus an applicable margin ranging from 0.75% to 1.5%. The
364-Day
Credit Agreement matures on May 10, 2021.
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Table of Contents
The Credit Facility Amendment and the
364-Day
Credit Agreement contain certain restrictive loan covenants, including, among others, a financial covenant requiring a maximum leverage ratio (funded debt adjusted for lease and rent expense to earnings before interest, income tax, depreciation, amortization and rent expense), and covenants limiting our ability to incur indebtedness, grant liens, make acquisitions, merge or consolidate, and dispose of assets. As of May 3, 2020, we were in compliance with our covenants under our credit facilities and based on current projections, we expect to remain in compliance throughout the next 12 months.
Letter of Credit Facilities
We have three unsecured letter of credit reimbursement facilities for a total of $70,000,000, each of which matures on August 23, 2020. The letter of credit facilities contain covenants that are consistent with our credit facility. Interest on unreimbursed amounts under the letter of credit facilities accrues at a base rate as defined in the credit facility plus an applicable margin based on our leverage ratio. As of May 3, 2020, an aggregate of $7,099,000 was outstanding under the letter of credit facilities, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration possible for any future letters of credit issued under the facilities is January 21, 2021.
NOTE C. STOCK-BASED COMPENSATION
Equity Award Programs
Our Amended and Restated 2001 Long-Term Incentive Plan (the “Plan”) provides for grants of incentive stock options, nonqualified stock options, stock-settled stock appreciation rights (collectively, “option awards”), restricted stock awards, restricted stock units (including those that are performance-based), deferred stock awards (collectively, “stock awards”) and dividend equivalents up to an aggregate of 36,570,000 shares. As of May 3, 2020, there were approximately 2,479,000 shares available for future grant. Awards may be granted under the Plan to officers, employees and
non-employee
members of the board of directors of the company (the “Board”) or any parent or subsidiary. Shares issued as a result of award exercises or releases are primarily funded with the issuance of new shares.
Option Awards
Annual grants of option awards are limited to 1,000,000 shares on a per person basis and have a maximum term of seven years. The exercise price of these option awards must not be less than 100% of the closing price of our stock on the day prior to the grant date. Option awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain option awards contain vesting acceleration clauses resulting from events including, but not limited to, retirement, merger or a similar corporate event.
Stock Awards
Annual grants of stock awards are limited to 1,000,000 shares on a per person basis and have a maximum term of seven years. Stock awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain performance-based awards, which have variable payout conditions based on predetermined financial targets, generally vest three years from the date of grant. Certain stock awards and other agreements contain vesting acceleration clauses resulting from events including, but not limited to, retirement, disability, death, merger or a similar corporate event. Stock awards granted to
non-employee
Board members generally vest in one year.
Non-employee
Board members automatically receive stock awards on the date of their initial election to the Board and annually thereafter on the date of the annual meeting of stockholders (so long as they continue to serve as a
non-employee
Board member).
Stock-Based Compensation Expense
During the thirteen weeks ended May 3, 2020 and May 5, 2019, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses, of $19,703,000 and $18,529,000, respectively.
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Table of Contents
Restricted Stock Units
The following table summarizes our restricted stock unit activity during the thirteen weeks ended May 3, 2020:
 
Shares
 
Balance at February 2, 2020
 
 
2,884,194
 
Granted
1
 
 
1,080,400
 
Released
2
 
 
(954,419
)
Cancelled
 
 
(53,699
)
Balance at May 3, 2020
 
 
2,956,476
 
Vested plus expected to vest at May 3, 2020
 
 
2,390,537
 
1
Excludes 267,000 restricted stock units for which the accounting grant date has not yet been determined and consequently for which no expense has been recognized. These awards reduced the shares available for future grant under the Plan. 
2
Excludes 170,308 incremental shares released due to achievement of performance conditions above target.
NOTE D. EARNINGS PER SHARE
Basic earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed as net earnings divided by the weighted average number of common shares outstanding and common stock equivalents outstanding for the period. Common stock equivalents consist of shares subject to stock-based awards with exercise prices less than or equal to the average market price of our common stock for the period, to the extent their inclusion would be dilutive.
The following is a reconciliation of net earnings and the number of shares used in the basic and diluted earnings per share computations:
In thousands, except per share amounts
 
Net Earnings
   
Weighted
Average Shares
   
Earnings
Per Share
 
Thirteen weeks ended May 3, 2020
 
 
 
 
 
 
 
 
 
Basic
 
$
35,423
 
 
 
77,262
 
 
$
0.46
 
Effect of dilutive stock-based awards
 
 
 
 
 
1,137
 
 
 
 
Diluted
 
$
35,423
 
 
 
78,399
 
 
$
0.45
 
Thirteen weeks ended May 5, 2019
 
 
 
 
 
 
 
 
 
Basic
 
$
52,656
 
 
 
78,683
 
 
$
0.67
 
Effect of dilutive stock-based awards
 
 
 
 
 
1,184
 
 
 
 
Diluted
 
$
52,656
 
 
 
79,867
 
 
$
0.66
 
Stock-based awards of 8,000 and 11,000 were excluded from the computation of diluted earnings per share for the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively, as their inclusion would be anti-dilutive.
NOTE E. SEGMENT REPORTING
We identify our operating segments according to how our business activities are managed and evaluated. Each of our brands are operating segments. Because they share similar economic and other qualitative characteristics, we have aggregated our operating segments into a single reportable segment.
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Table of Contents
The following table summarizes our net revenues by brand for the thirteen weeks ended May 3, 2020 and May 5, 2019.
 
Thirteen Weeks Ended
 
In thousands
 
May 3, 2020
 
 
May 5, 2019
 
Pottery Barn
  $
479,615
    $
492,126
 
West Elm
   
315,430
     
309,483
 
Williams Sonoma
   
199,302
     
194,894
 
Pottery Barn Kids and Teen
   
188,552
     
177,046
 
Other
1
   
52,304
     
67,583
 
Total
2
  $
 
 
 
1,235,203
    $
1,241,132
 
1
Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham.
2
Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $55.2 million and $86.6 million for the thirteen weeks ended May 3, 2020 and May 5, 2019.
Long-lived assets by geographic location are as follows:
In thousands
 
May 3, 2020
   
May 5, 2019
 
U.S.
  $
2,117,469
    $
2,136,000
 
International
   
151,602
     
166,719
 
Total
  $
2,269,071
    $
2,302,719
 
NOTE F. COMMITMENTS AND CONTINGENCIES
We are involved in lawsuits, claims and proceedings incident to the ordinary course of our business. These disputes, which are not currently material, are increasing in number as our business expands and our company grows. We review the need for any loss contingency reserves and establish reserves when, in the opinion of management, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated. In view of the inherent difficulty of predicting the outcome of these matters, it may not be possible to determine whether any loss is probable or to reasonably estimate the amount of the loss until the case is close to resolution, in which case no reserve is established until that time. Any claims against us, whether meritorious or not, could result in costly litigation, require significant amounts of management time and result in the diversion of significant operational resources. The results of these lawsuits, claims and proceedings cannot be predicted with certainty. However, we believe that the ultimate resolution of these current matters will not have a material adverse effect on our Condensed Consolidated Financial Statements taken as a whole.
NOTE G. STOCK REPURCHASE PROGRAM AND DIVIDENDS
Stock Repurchase Program
During the thirteen weeks ended May 3, 2020, we did not repurchase any shares of our common stock and as of May 3, 2020, there
was $574,982,000 remaining under our current stock repurchase program. As of May 3, 2020, we held treasury stock of $599,000 that represents the cost of shares available for issuance intended to satisfy future stock-based award settlements in certain foreign jurisdictions.
During the thirteen weeks ended May 5, 2019, we repurchased 593,096 shares of our common stock at an average cost of $57.07 per share and a total cost of approximately $33,848,000.
Stock repurchases under our program may be made through open market and
privately
negotiated transactions at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital availability and other market conditions.
Dividends
We declared cash dividends of $0.48 per common share during the thirteen weeks ended May 3, 2020 and May 5, 2019, respectively. Our quarterly cash dividend may be limited or terminated at any time.
NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS
We have retail and
e-commerce
businesses in Canada, Australia and the United Kingdom, and operations throughout Asia and Europe, which expose us to market risk associated with foreign currency exchange rate fluctuations. Substantially all of our purchases and sales are denominated in U.S. dollars, which limits our exposure to this risk. However, some of our foreign operations have a
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functional currency other than the U.S. dollar. To mitigate this risk, we hedge a portion of our foreign currency exposure with foreign currency forward contracts in accordance with our risk management policies. We do not enter into such contracts for speculative purposes. The assets or liabilities associated with the derivative financial instruments are measured at fair value and recorded in either other current or long-term assets or other current or long-term liabilities. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on whether the derivative financial instrument is designated as a hedge and qualifies for hedge accounting in accordance with the Accounting Standards Codification (“ASC”) 815,
Derivatives and Hedging
.
Cash Flow Hedges
We enter into foreign currency forward contracts designated as cash flow hedges (to sell Canadian dollars and purchase U.S. dollars) for forecasted inventory purchases in U.S. dollars by our Canadian subsidiary. These hedges have terms of up to 18 months. All hedging relationships are formally documented, and the forward contracts are designed to mitigate foreign currency exchange risk on hedged transactions. We record the effective portion of changes in the fair value of our cash flow hedges in other comprehensive
income (“OCI”) until the earlier of when the hedged forecasted inventory purchase occurs or the respective contract reaches maturity. Subsequently, as the inventory is sold to the customer, we reclassify amounts previously recorded in OCI to cost of goods sold. Changes in the fair value of the forward contract related to interest charges (or forward points) are excluded from the assessment and measurement of hedge effectiveness and are recorded in cost of goods sold. Based on the rates in effect as of May 3, 2020, we expect to reclassify a net
pre-tax
gain of
approximately $
702,000
from OCI to cost of goods sold over the next 12 months.
We also enter into
non-designated
foreign currency forward contracts (to sell Australian dollars and British pounds and purchase U.S. dollars) to reduce the exchange risk associated with our assets and liabilities denominated in a foreign currency. Any foreign exchange gains or losses related to these contracts are recognized in selling, general and administrative expenses.
As of May 3, 2020 and May 5, 2019, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
In thousands
 
May 3, 2020
   
May 5, 2019
 
Contracts designated as cash flow hedges
  $
11,600
    $
10,800
 
Contracts not designated as cash flow hedges
  $
—  
    $
—  
 
Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively using regression analysis. Any measurable ineffectiveness of the hedge is recorded in selling, general and administrative expenses. No gain or loss was recognized for cash flow hedges due to hedge ineffectiveness and all hedges were deemed effective for assessment purposes for the thirteen weeks ended May 3, 2020 and May 5, 2019.
The effect of derivative instruments in our Condensed Consolidated Financial Statements during the thirteen weeks ended May 3, 2020 and May 5, 2019,
pre-tax,
was as follows:
In thousands
 
May 3, 2020
   
May 5, 2019
 
Net gain recognized in OCI
  $
745
    $
278
 
 
May 3, 2020
   
May 5, 2019
 
In thousands
 
Cost of goods
sold
   
Selling,
general and
administrative
expenses
   
Cost of goods
sold
   
Selling,
general and
 administrative
 expenses
 
Line items presented in the Condensed Consolidated Statement of Earnings in which the effects of derivatives are recorded
  $
820,943
    $
365,615
    $
796,801
    $
370,199
 
Gain (loss) recognized in income
   
     
     
     
 
Derivatives designated as cash flow hedges
  $
50
    $
—  
    $
108
    $
—  
 
Derivatives not designated as hedging instruments
  $
—  
    $
2
    $
—  
    $
(6
)
The fair values of our derivative financial instruments are presented below according to their classification in our Condensed Consolidated Balance Sheets. All fair values were measured using Level 2 inputs as defined by the fair value hierarchy described in Note I.
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In thousands
 
May 3, 2020
   
May 5, 2019
 
Derivatives designated as cash flow hedges:
   
     
 
Other current assets
  $
698
    $
475
 
We record all derivative assets and liabilities on a gross basis. They do not meet the balance sheet netting criteria as discussed in ASC 210,
Balance Sheet
, because we do not have master netting agreements established with our derivative counterparties that would allow for net settlement.
NOTE I. FAIR VALUE MEASUREMENTS
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
We determine the fair value of financial and
non-financial
assets and liabilities using the fair value hierarchy established by ASC 820,
Fair Value Measurement
, which defines three levels of inputs that may be used to measure fair value, as follows:
 
Level 1: inputs which include quoted prices in active markets for identical assets or liabilities;
 
Level 2: inputs which include observable inputs other than Level 1 inputs, such as quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability; and
 
Level 3: inputs which include unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The fair values of our cash and cash equivalents are based on Level 1 inputs, which include quoted prices in active markets for identical assets.
Debt
As of May 3, 2020, the fair value of our debt, which consists of outstanding borrowings under our revolver and term loan, approximates its carrying value, as the instruments are relatively short-term in nature and the interest rate under the term loan is based on observable Level 2 inputs, which consist primarily of quoted market interest rates for instruments with similar maturities.
Foreign Currency Derivatives and Hedging Instruments
We use the income approach to value our derivatives using observable Level 2 market data at the measurement date and standard valuation techniques to convert future amounts to a single present value amount, assuming that participants are motivated but not compelled to transact. Level 2 inputs are limited to quoted prices that are observable for the assets and liabilities, which include interest rates and credit risk ratings. We use
mid-market
pricing as a practical expedient for fair value measurements. Key inputs for foreign currency derivatives are the spot rates, forward rates, interest rates and credit derivative market rates.
The counterparties associated with our foreign currency forward contracts are large credit-worthy financial institutions, and the derivatives transacted with these entities are relatively short in duration, therefore, we do not consider counterparty concentration and
non-performance
to be material risks at this time. Both we and our counterparties are expected to perform under the contractual terms of the instruments. None of the derivative contracts we entered into are subject to credit risk-related contingent features or collateral requirements.
Long-lived Assets
We review the carrying value of all long-lived assets for impairment, primarily at an individual store level, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure property and equipment at fair value on a nonrecurring basis using Level 3 inputs as defined in the fair value hierarchy. We measure
right-of-use
assets on a nonrecurring basis using Level 2 inputs that are corroborated by market data. Where Level 2 inputs are not readily available, we use Level 3 inputs. Fair value of these long-lived assets is based on the present value of estimated future cash flows using a discount rate commensurate with the risk.
The significant unobservable inputs used in the fair value measurement of our store assets are sales growth, gross margin, employment costs, lease escalations, market rental rates, changes in local real estate markets in which we operate , inflation and the overall economics of the retail industry. Significant fluctuations in any of these inputs individually could significantly impact our measurement of fair value.
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During the first quarter of fiscal 2020, we recognized impairment charges of $11,825,000 related to the impairment of property and equipment and $3,795,000 related to the impairment of operating lease
right-of-use
assets, due to the impact of
COVID-19.
During the first quarter of fiscal 2019, no impairment charges were recognized.
There were no transfers in and out of Level 3 categories during the thirteen weeks ended May 3, 2020 or May 5, 2019.
NOTE J. ACCUMULATED OTHER COMPREHENSIVE INCOME
Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:
 
In thousands
 
Foreign Currency
Translation
   
Cash Flow
Hedges
   
Accumulated Other
Comprehensive
Income (Loss)
 
Balance at February 2, 2020
  $
(14,593
)   $
6
    $
(14,587
)
Foreign currency translation adjustments
   
(5,276
   
—  
     
(5,276
Change in fair value of derivative financial instruments
   
—  
     
549
     
549
 
Reclassification adjustment for realized (gain) on derivative financial instruments
1
   
—  
     
(37
   
(37
Other comprehensive income (loss)
   
(5,276
   
512
     
(4,764
Balance at May 3, 2020
  $
(19,869
  $
518
    $
(19,351
Balance at February 3, 2019
  $
(11,259
)   $
186
    $
(11,073
)
Foreign currency translation adjustments
   
(3,009
)    
—  
     
(3,009
)
Change in fair value of derivative financial instruments
   
—  
     
204
     
204
 
Reclassification adjustment for realized (gain) on derivative financial instruments
1
   
—  
     
(