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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 October 31, 2021.         
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
(State or other jurisdiction of
incorporation or organization)
3250 Van Ness Avenue, San Francisco, CA
(Address of principal executive offices)
94-2203880
(I.R.S. Employer
Identification No.)
94109
(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 shareWSM
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 filerAccelerated 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 November 28, 2021, 72,954,519 shares of the registrant’s Common Stock were outstanding.


WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 2021

TABLE OF CONTENTS





ITEM 1. FINANCIAL STATEMENTS

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 Thirteen
 Weeks Ended
Thirty-nine
 Weeks Ended
In thousands, except per share amountsOctober 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Net revenues$2,047,539 $1,764,536 $5,744,907 $4,490,516 
Cost of goods sold1,152,054 1,058,953 3,238,181 2,819,471 
Gross profit895,485 705,583 2,506,726 1,671,045 
Selling, general and administrative expenses565,218 430,979 1,578,182 1,162,435 
Operating income330,267 274,604 928,544 508,610 
Interest expense, net121 5,344 1,954 13,967 
Earnings before income taxes330,146 269,260 926,590 494,643 
Income taxes80,622 67,488 203,194 122,884 
Net earnings$249,524 $201,772 $723,396 $371,759 
Basic earnings per share$3.37 $2.60 $9.66 $4.80 
Diluted earnings per share$3.29 $2.54 $9.40 $4.71 
Shares used in calculation of earnings per share:
Basic74,010 77,487 74,865 77,511 
Diluted75,943 79,332 76,975 79,012 

See Notes to Condensed Consolidated Financial Statements.


WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 Thirteen
 Weeks Ended
Thirty-nine
 Weeks Ended
In thousandsOctober 31,
2021
November 1,
2020
October 31,
2021
November 1,
2020
Net earnings$249,524 $201,772 $723,396 $371,759 
Other comprehensive income (loss):
Foreign currency translation adjustments792 (745)970 716 
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(19), $21, $(235), and $146
(54)54 (654)403 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax (tax benefit) of $(131), $85, $(312), and $136
369 (231)859 (375)
Comprehensive income$250,631 $200,850 $724,571 $372,503 

See Notes to Condensed Consolidated Financial Statements.

1

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

In thousands, except per share amountsOctober 31,
2021
January 31,
2021
November 1,
2020
ASSETS
Current assets
Cash and cash equivalents$656,898 $1,200,337 $773,170 
Accounts receivable, net139,511 143,728 129,782 
Merchandise inventories, net1,272,028 1,006,299 1,125,475 
Prepaid expenses85,433 93,822 84,974 
Other current assets22,852 22,894 23,556 
Total current assets2,176,722 2,467,080 2,136,957 
Property and equipment, net892,226 873,894 869,092 
Operating lease right-of-use assets1,159,315 1,086,009 1,091,649 
Deferred income taxes, net61,768 61,854 42,185 
Goodwill85,392 85,446 85,402 
Other long-term assets, net101,901 87,141 85,394 
Total assets$4,477,324 $4,661,424 $4,310,679 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable$638,371 $542,992 $562,294 
Accrued expenses273,722 267,592 194,985 
Gift card and other deferred revenue431,446 373,164 349,671 
Income taxes payable38,320 69,476 36,037 
Current debt 299,350  
Operating lease liabilities218,348 209,754 217,448 
Other current liabilities91,418 85,672 99,691 
Total current liabilities1,691,625 1,848,000 1,460,126 
Deferred lease incentives17,268 20,612 21,858 
Long-term debt  299,173 
Long-term operating lease liabilities1,095,290 1,025,057 1,027,142 
Other long-term liabilities129,771 116,570 100,478 
Total liabilities2,933,954 3,010,239 2,908,777 
Commitments and contingencies – See Note F
Stockholders’ equity
Preferred stock: $0.01 par value; 7,500 shares authorized; none issued
   
Common stock: $0.01 par value; 253,125 shares authorized; 73,326, 76,340 and 76,697 shares issued and outstanding at October 31, 2021, January 31, 2021 and November 1, 2020, respectively
734 764 768 
Additional paid-in capital585,449 638,375 623,379 
Retained earnings963,840 1,019,762 792,196 
Accumulated other comprehensive loss(5,942)(7,117)(13,843)
Treasury stock, at cost: 4, 8 and 8 shares as of October 31, 2021, January 31, 2021 and November 1, 2020, respectively
(711)(599)(598)
Total stockholders’ equity1,543,370 1,651,185 1,401,902 
Total liabilities and stockholders’ equity$4,477,324 $4,661,424 $4,310,679 
See Notes to Condensed Consolidated Financial Statements.
2

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 thousandsSharesAmount
Balance at January 31, 202176,340 $764 $638,375 $1,019,762 $(7,117)$(599)$1,651,185 
Net earnings— — — 227,802 — — 227,802 
Foreign currency translation adjustments
— — — — 3,700 — 3,700 
Change in fair value of derivative financial instruments, net of tax
— — — — (665)— (665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — 153 — 153 
Conversion/release of stock-based awards1
686 7 (97,958)— — (500)(98,451)
Repurchases of common stock(1,791)(18)(9,239)(306,272)— — (315,529)
Reissuance of treasury stock under stock-based compensation plans1
— — (344)(44)— 388  
Stock-based compensation expense— — 25,471 — — — 25,471 
Dividends declared— — — (46,370)— — (46,370)
Balance at May 2, 202175,235 $753 $556,305 $894,878 $(3,929)$(711)$1,447,296 
Net earnings— — — 246,070 — — 246,070 
Foreign currency translation adjustments
— — — — (3,522)— (3,522)
Change in fair value of derivative financial instruments, net of tax
— — — — 65 — 65 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — 337 — 337 
Conversion/release of stock-based awards1
25 — (1,709)— — — (1,709)
Repurchases of common stock(834)(8)(4,358)(131,493)— — (135,859)
Stock-based compensation expense
— — 19,496 — — — 19,496 
Dividends declared— — — (45,455)— — (45,455)
Balance at August 1, 202174,426 $745 $569,734 $964,000 $(7,049)$(711)$1,526,719 
Net earnings— — — 249,524 — — 249,524 
Foreign currency translation adjustments
— — — — 792 — 792 
Change in fair value of derivative financial instruments, net of tax
— — — — (54)— (54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — 369 — 369 
Conversion/release of stock-based awards1
20 — (2,322)— — — (2,322)
Repurchases of common stock
(1,120)(11)(5,921)(195,379)— — (201,311)
Stock-based compensation expense
— — 23,958 — — — 23,958 
Dividends declared— — — (54,305)— — (54,305)
Balance at October 31, 202173,326 $734 $585,449 $963,840 $(5,942)$(711)$1,543,370 
1.Amounts are shown net of shares withheld for employee taxes.
See Notes to Condensed Consolidated Financial Statements.






3

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 thousandsSharesAmount
Balance at February 2, 202077,137 $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) loss on derivative financial instruments, net of tax
— — — — (37)— (37)
Conversion/release of stock-based awards1
622 6 (28,747)— — (171)(28,912)
Reissuance of treasury stock under stock-based compensation plans1
— — (499)(14)— 513  
Stock-based compensation expense— — 19,608 — — — 19,608 
Dividends declared— — — (38,286)— — (38,286)
Balance at May 3, 202077,759 $778 $596,184 $641,917 $(19,351)$(599)$1,218,929 
Net earnings— — — 134,564 — — 134,564 
Foreign currency translation adjustments
— — — — 6,737 — 6,737 
Change in fair value of derivative financial instruments, net of tax
— — — — (200)— (200)
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax
— — — — (107)— (107)
Conversion/release of stock-based awards1
37 — (677)— — — (677)
Stock-based compensation expense
— — 13,385 — — — 13,385 
Dividends declared— — — (39,709)— — (39,709)
Balance at August 2, 202077,796 $778 $608,892 $736,772 $(12,921)$(599)$1,332,922 
Net earnings— — — 201,772 — — 201,772 
Foreign currency translation adjustments— — — — (745)— (745)
Change in fair value of derivative financial instruments, net of tax
— — — — 54 — 54 
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax— — — — (231)— (231)
Conversion/release of stock-based awards1
20 1 (968)— — 1 (966)
Repurchases of common stock(1,119)(11)(5,640)(103,397)— — (109,048)
Stock-based compensation expense— — 21,095 — — — 21,095 
Dividends declared— — — (42,951)— — (42,951)
Balance at November 1, 202076,697 $768 $623,379 $792,196 $(13,843)$(598)$1,401,902 
1Amounts are shown net of shares withheld for employee taxes.
See Notes to Condensed Consolidated Financial Statements.
4

WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Thirty-nine
 Weeks Ended
In thousandsOctober 31,
2021
November 1,
2020
Cash flows from operating activities:
Net earnings$723,396 $371,759 
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization145,897 140,340 
Loss on disposal/impairment of assets887 26,220 
Amortization of deferred lease incentives(3,345)(4,538)
Non-cash lease expense159,757 162,767 
Deferred income taxes(11,440)(6,969)
Tax benefit related to stock-based awards10,838 13,143 
Stock-based compensation expense70,566 54,671 
Other4 (9)
Changes in:
Accounts receivable4,941 (18,017)
Merchandise inventories(264,094)(22,990)
Prepaid expenses and other assets(10,078)(4,807)
Accounts payable74,181 54,279 
Accrued expenses and other liabilities24,400 58,539 
Gift card and other deferred revenue58,189 59,953 
Operating lease liabilities(164,569)(171,245)
Income taxes payable(31,191)13,532 
Net cash provided by operating activities788,339 726,628 
Cash flows from investing activities:
Purchases of property and equipment(141,010)(124,885)
Other97 506 
Net cash used in investing activities(140,913)(124,379)
Cash flows from financing activities:
Repurchases of common stock(652,699)(109,048)
Repayment of long-term debt(300,000) 
Payment of dividends(135,201)(116,761)
Tax withholdings related to stock-based awards(102,482)(30,555)
Debt issuance costs(777)(3,645)
Borrowings under revolving line of credit 487,823 
Repayments under revolving line of credit (487,823)
Net cash used in financing activities(1,191,159)(260,009)
Effect of exchange rates on cash and cash equivalents294 (1,232)
Net (decrease) increase in cash and cash equivalents(543,439)341,008 
Cash and cash equivalents at beginning of period1,200,337 432,162 
Cash and cash equivalents at end of period$656,898 $773,170 
See Notes to Condensed Consolidated Financial Statements.
5


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 October 31, 2021 and November 1, 2020, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, the Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and thirty-nine weeks then ended and the Condensed Consolidated Statements of Cash Flows for the thirty-nine 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 and thirty-nine weeks then ended. Intercompany transactions and accounts have been eliminated. The balance sheet as of January 31, 2021, 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 January 31, 2021.

The results of operations for the thirteen and thirty-nine weeks ended October 31, 2021 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 January 31, 2021.

COVID-19
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 pandemic. As of October 31, 2021, all of our stores have reopened for in-person shopping. However, we have experienced, and expect to continue to experience, delays in inventory receipts, increased raw material costs and higher shipping-related charges as a result of port slowdowns and congestion, as well as shipping container shortages, due in part to the impact from COVID-19.

New Accounting Pronouncements
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. This ASU was effective for us in the first quarter of fiscal 2021. The adoption of this ASU did not have an impact on our financial condition, results of operations or cash flows.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The ASU is intended to ease the potential accounting and financial reporting burden of reference rate reform, including the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The guidance provides optional expedients and scope exceptions for transactions if certain criteria are met. These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity. We may elect to apply the provisions of the new standard prospectively through December 31, 2022. Unlike other topics, the provisions of this update are only available until December 31, 2022, by which time the reference rate replacement activity is expected to be completed. We have yet to elect an adoption date, but do not believe the adoption would have a material impact on our financial condition, results of operations or cash flows.
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NOTE B. BORROWING ARRANGEMENTS

Credit Facility
We have a credit facility which provides for a $500,000,000 unsecured revolving line of credit (“revolver”). 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. Our credit facility also provided for a $300,000,000 unsecured term loan facility (“term loan”), which was fully repaid in February 2021. In September 2021, we entered into an amendment to our credit facility (the "Amended Credit Agreement"), which extended the maturity date of the revolver to September 30, 2026 and removed the $300,000,000 term loan component available under the existing credit facility. The Amended Credit Agreement maintains the interest rate of the revolver.

During the third quarter of fiscal 2021 and for year-to-date fiscal 2021, we had no borrowings under the revolver. Additionally, as of October 31, 2021, $11,919,000 in issued but undrawn standby letters of credit were outstanding under the revolver. The standby letters of credit were primarily issued to secure the liabilities associated with workers’ compensation and other insurance programs. We had no borrowings during the third quarter of fiscal 2020, and for year-to-date fiscal 2020, we had borrowings of $487,823,000 under the revolver (at a year-to-date weighted average interest rate of 2.47%), all of which were repaid prior to the end of fiscal 2020. The revolver matures on September 30, 2026, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be cash collateralized. We may elect to extend the maturity date subject to lender approval.

The interest rate applicable to the revolver is variable, and may be elected by us as: (i) the LIBOR (or future alternative rate) plus an applicable margin based on our leverage ratio ranging from 0.91% to 1.775% or (ii) a base rate as defined in the credit facility, plus an applicable margin based on our leverage ratio ranging from 0% to 0.775%.

The credit facility contains 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 October 31, 2021, we were in compliance with our covenants under the credit facility and, based on current projections, we expect to remain in compliance with our covenants under the credit facility throughout the next 12 months.

Letter of Credit Facilities
On August 22, 2021, we renewed all three of our letter of credit facilities on substantially similar terms for a total of $35,000,000. We also extended each facility's maturity date until August 22, 2022. 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 October 31, 2021, an aggregate of $7,542,000 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 date possible for any future letters of credit issued under the facilities is January 19, 2023.
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, 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 42,720,000 shares. As of October 31, 2021, there were approximately 7,507,000 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.

Stock Awards
Annual grants of stock awards are limited to 1,000,000 shares on a per person basis. Stock awards granted to employees generally vest evenly over a period of four years for service-based awards. Certain performance-based awards, which have
7

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 and thirty-nine weeks ended October 31, 2021, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $24,306,000 and $70,566,000, respectively. During the thirteen and thirty-nine weeks ended November 1, 2020, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses of $21,276,000 and $54,671,000, respectively.

Restricted Stock Units
The following table summarizes our restricted stock unit activity during the thirty-nine weeks ended October 31, 2021:
  Shares
Balance at January 31, 20213,118,884 
Granted393,572 
Granted, with vesting subject to performance conditions107,075 
Released 1
(1,096,821)
Cancelled(124,603)
Balance at October 31, 20212,398,107 
Vested plus expected to vest at October 31, 20212,373,380 
1Excludes 229,000 incremental shares released due to achievement of performance conditions above target.

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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 amountsNet EarningsWeighted
Average Shares
Earnings
Per Share
Thirteen weeks ended October 31, 2021
Basic$249,524 74,010 $3.37 
Effect of dilutive stock-based awards1,933 
Diluted$249,524 75,943 $3.29 
Thirteen weeks ended November 1, 2020
Basic$201,772 77,487 $2.60 
Effect of dilutive stock-based awards1,845 
Diluted$201,772 79,332 $2.54 
Thirty-nine weeks ended October 31, 2021
Basic$723,396 74,865 $9.66 
Effect of dilutive stock-based awards2,110 
Diluted$723,396 76,975 $9.40 
Thirty-nine weeks ended November 1, 2020
Basic$371,759 77,511 $4.80 
Effect of dilutive stock-based awards1,501 
Diluted$371,759 79,012 $4.71 

Stock-based awards of 500 and 4,300 were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended October 31, 2021, respectively, as their inclusion would be anti-dilutive. Stock-based awards of 200 and 19,300 were excluded from the computation of diluted earnings per share for the thirteen and thirty-nine weeks ended November 1, 2020, respectively, as their inclusion would be anti-dilutive.
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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.

The following table summarizes our net revenues by brand for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020.
 Thirteen Weeks EndedThirty-nine Weeks Ended
In thousandsOctober 31, 2021November 1, 2020October 31, 2021November 1, 2020
Pottery Barn$788,732 $684,029 $2,200,110 $1,726,920 
West Elm579,668 474,959 1,636,621 1,170,941 
Williams Sonoma272,361 259,725 793,423 702,160 
Pottery Barn Kids and Teen316,417 277,598 826,421 702,137 
Other 1
90,361 68,225 288,332 188,358 
Total 2
$2,047,539 $1,764,536 $5,744,907 $4,490,516 
1Primarily consists of net revenues from our international franchise operations, Rejuvenation and Mark and Graham.
2Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of approximately $93.1 million and $87.1 million for the thirteen weeks ended October 31, 2021 and November 1, 2020, respectively, and approximately $309.1 million and $219.8 million for the thirty-nine weeks ended October 31, 2021 and November 1, 2020, respectively.

Long-lived assets by geographic location are as follows:
In thousandsOctober 31, 2021November 1, 2020
U.S.$2,154,392 $2,025,140 
International146,210 148,582 
Total$2,300,602 $2,173,722 

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
In August 2021, our Board approved a new $1,250,000,000 stock repurchase authorization, which replaced our existing program and superseded the remaining amount outstanding under our prior stock repurchase authorization. During the thirteen weeks ended October 31, 2021, we repurchased 1,119,748 shares of our common stock at an average cost of $179.78 per share for a total cost of approximately $201,312,000 under our prior and new stock repurchase programs. During the thirty-nine weeks ended October 31, 2021, we repurchased 3,744,767 shares of our common stock at an average cost of $174.30 per share for a total cost of approximately $652,699,000 under our prior and new stock repurchase programs. As of October 31, 2021, there was approximately $1,057,485,000 remaining under our current stock repurchase program.

10

During the thirteen and thirty-nine weeks ended November 1, 2020, we repurchased 1,119,335 shares of our common stock at an average cost of $97.42 per share for a total cost of approximately $109,048,000.

As of October 31, 2021 and November 1, 2020, we held treasury stock of $711,000 and $598,000, respectively, that represents the cost of shares available for issuance that are intended to satisfy future stock-based award settlements in certain foreign jurisdictions.

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
In August 2021, our Board approved a 20.3% increase in our quarterly cash dividend from $0.59 to $0.71 per share. We declared cash dividends of $0.71 and $0.53 per common share during the thirteen weeks ended October 31, 2021 and November 1, 2020, respectively. We declared cash dividends of $1.89 and $1.49 per common share during the thirty-nine weeks ended October 31, 2021 and November 1, 2020, 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 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 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 12 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 October 31, 2021, we expect to reclassify a net pre-tax loss of approximately $696,000 from OCI to cost of goods sold over the next 12 months.

As of October 31, 2021 and November 1, 2020, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
In thousandsOctober 31, 2021November 1, 2020
Contracts designated as cash flow hedges$19,500 $28,200 

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 and thirty-nine weeks ended October 31, 2021 and November 1, 2020.
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The effect of derivative instruments in our Condensed Consolidated Financial Statements from gains or losses recognized in income was not material for the thirteen and thirty-nine weeks ended October 31, 2021 and November 1, 2020.
The fair values of our derivative financial instruments are presented in other current assets and/or other current liabilities 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. 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.

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/decline, 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 thirteen and thirty-nine weeks ended October 31, 2021, no impairment charges were recognized. During the thirteen weeks ended November 1, 2020, no impairment charges were recognized. During the thirty-nine weeks ended November 1, 2020, we recognized impairment charges of $16,514,000, related to the impairment of property and equipment and $5,461,000, related to the impairment of operating lease right-of-use assets, due to lower projected revenues and fair market values resulting from the impact of COVID-19.

There were no transfers in and out of Level 3 categories during the thirteen and thirty-nine weeks ended October 31, 2021 or November 1, 2020.
13

NOTE J. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income (loss) by component, net of tax, are as follows:

In thousandsForeign Currency
Translation
Cash Flow
Hedges
Accumulated Other
Comprehensive
Income (Loss)
Balance at January 31, 2021
$(6,398)$(719)$(7,117)
Foreign currency translation adjustments3,700 — 3,700 
Change in fair value of derivative financial instruments— (665)(665)
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1
— 153 153 
Other comprehensive income (loss)3,700 (512)3,188 
Balance at May 2, 2021$(2,698)$(1,231)$(3,929)
Foreign currency translation adjustments(3,522)— (3,522)
Change in fair value of derivative financial instruments— 65 65 
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— 337 337 
Other comprehensive income (loss)(3,522)402 (3,120)
Balance at August 1, 2021$(6,220)$(829)$(7,049)
Foreign currency translation adjustments792 — 792 
Change in fair value of derivative financial instruments— (54)(54)
Reclassification adjustment for realized (gain) loss on derivative financial instruments1
— 369 369 
Other comprehensive income (loss)792 315 1,107 
Balance at October 31, 2021$(5,428)$(514)$(5,942)
Balance at February 2, 2020
$(14,593)$6 $(14,587)
Foreign currency translation adjustments(5,276)— (5,276)
Change in fair value of derivative financial instruments— 549 549 
Reclassification adjustment for realized (gain) loss on derivative financial instruments 1
— (37)(37)
Other comprehensive income (loss)(5,276)512 (4,764)
Balance at May 3, 2020$(19,869)$518 $(19,351)
Foreign currency translation adjustments