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 2020-08-02 Filed 2020-09-09
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 2020-08-26 Enter Agreement, Earnings, Off-BS Arrangement, Exhibits
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-10.1 d87421dex101.htm
EX-10.2 d87421dex102.htm
EX-31.1 d87421dex311.htm
EX-31.2 d87421dex312.htm
EX-32.1 d87421dex321.htm
EX-32.2 d87421dex322.htm

Williams Sonoma Earnings 2020-08-02

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
0.010.010.010.010.010.012020-08-232021-01-21false2020Q20000719955--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. See Note A.Excludes 267,000 restricted stock units for which the accounting grant date had not yet been determined as of August 2,2020 and, consequently, for which no expense has been recognized for the twenty-six weeks then ended. 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 $77.6 million and $87.7 million for the thirteen weeks ended August 2, 2020 and August 4, 2019, respectively, and approximately $132.7 million and $174.3 million for the twenty-six weeks ended August 2, 2020 and August 4, 2019, respectively.Refer to Note H for additional disclosures about reclassifications out of accumulated other comprehensive income and their corresponding effects on the respective line items in the Condensed Consolidated Statements of Earnings. 0000719955 2020-02-03 2020-08-02 0000719955 2020-02-02 0000719955 2019-08-04 0000719955 2020-08-02 0000719955 2019-02-04 2019-08-04 0000719955 2020-05-04 2020-08-02 0000719955 2019-05-06 2019-08-04 0000719955 2019-02-04 2019-05-05 0000719955 2020-02-03 2020-05-03 0000719955 2020-08-30 0000719955 2019-02-03 0000719955 2020-05-03 0000719955 2019-05-05 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2020-05-03 0000719955 us-gaap:AccumulatedTranslationAdjustmentMember 2019-02-03 0000719955 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-02-03 0000719955 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-02-03 0000719955 us-gaap:CommonStockMember 2019-02-03 0000719955 us-gaap:AdditionalPaidInCapitalMember 2019-02-03 0000719955 us-gaap:RetainedEarningsMember 2019-02-03 0000719955 us-gaap:TreasuryStockMember 2019-02-03 0000719955 us-gaap:AccumulatedTranslationAdjustmentMember 2019-05-05 0000719955 us-gaap:AccumulatedGainLossNetCashFlowHedgeParentMember 2019-05-05 0000719955 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-05-05 0000719955 us-gaap:CommonStockMember 2019-05-05 0000719955 us-gaap:AdditionalPaidInCapitalMember 2019-05-05 0000719955 us-gaap:RetainedEarningsMember 2019-05-05 0000719955 us-gaap:TreasuryStockMember 2019-05-05 0000719955 us-gaap:RetainedEarningsMember us-gaap:NewAccountingPronouncementEarlyAdoptionEffectMember 2019-05-05 0000719955 us-gaap:NewAccountingPronouncementEarlyAdoptionEffectMember 2019-05-05 iso4217:USD xbrli:shares xbrli:pure iso4217:USD xbrli:shares
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 August 2, 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 August 30, 2020, 77,799,854 shares of the registrant’s Common Stock were outstanding.
 
 
 

Table of Contents
WILLIAMS-SONOMA, INC.
REPORT ON FORM
10-Q
FOR THE QUARTER ENDED AUGUST 2, 2020
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
 
 
  
 
  
PAGE
 
     
Item 1.
  
  
 
1
 
     
Item 2.
  
  
 
16
 
     
Item 3.
  
  
 
22
 
     
Item 4.
  
  
 
22
 
     
 
  
PART II. OTHER INFORMATION
  
     
     
Item 1.
  
  
 
23
 
     
Item 1A.
  
  
 
23
 
     
Item 2.
  
  
 
25
 
     
Item 3.
  
  
 
25
 
     
Item 4.
  
  
 
25
 
     
Item 5.
  
  
 
25
 
     
Item 6.
  
  
 
26
 
 

Table of Contents
ITEM 1. FINANCIAL STATEMENTS
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
 
    
Thirteen
Weeks Ended
 
  
Twenty-six

Weeks Ended
 
In thousands, except per share amounts
  
August 2
,
2020
 
  
August 4
,
2019
 
  
August 2
,
2020
 
  
August 4
,
2019
 
Net revenues
   $ 1,490,777      $ 1,370,814      $ 2,725,980      $ 2,611,946  
Cost of goods sold
     939,575        886,953        1,760,518        1,683,754  
Gross profit
     551,202        483,861        965,462        928,192  
Selling, general and administrative expenses
     365,841        397,696        731,456        767,895  
Operating income
     185,361        86,165        234,006        160,297  
Interest expense, net
     6,464        2,669        8,623        4,922  
Earnings before income taxes
     178,897        83,496        225,383        155,375  
Income taxes
     44,333        20,848        55,396        40,071  
Net earnings
   $ 134,564      $ 62,648      $ 169,987      $ 115,304  
Basic earnings per share
   $ 1.73      $ 0.80      $ 2.19      $ 1.47  
Diluted earnings per share
   $ 1.70      $ 0.79      $ 2.16      $ 1.45  
  
 
 
    
 
 
    
 
 
    
 
 
 
Shares used in calculation of earnings per share:
           
Basic
     77,783        78,488        77,522        78,586  
Diluted
     79,264        79,470        78,841        79,633  
See Notes to Condensed Consolidated Financial Statements.
WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
    
Thirteen
Weeks Ended
 
 
Twenty-six

Weeks Ended
 
In thousands
  
August 2
,
2020
 
  
August 4
,
2019
 
 
August 2
,
2020
 
  
August 4
,
2019
 
Net earnings
   $       134,564      $        62,648     $      169,987      $        115,304  
Other comprehensive income (loss):
          
Foreign currency translation adjustments
     6,737        (1,251     1,461        (4,260 )
Change in fair value of derivative financial instruments, net of tax (tax benefit) of $(71), $(8), $125 and $66
     (200      (132     349        72  
Reclassification adjustment for realized gain on derivative financial instruments, net of tax of $38, $10, $51 and $34
     (107      (160     (144      (227 )
 
Comprehensive income
   $ 140,994      $ 61,105     $ 171,653      $ 110,889  
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
  
August 2,
2020
   
February 2,
2020
   
August 4,
2019
 
ASSETS
       
Current assets
       
Cash and cash equivalents
   $ 947,760      $ 432,162     $ 120,467  
Accounts receivable, net
     128,737        111,737       111,114  
Merchandise inventories, net
    
 
 
 
 
1,042,340
      
 
 
 
 
1,100,544
     
 
 
 
 
1,187,728
 
Prepaid expenses
     109,495        90,426       117,017  
Other current assets
     27,098        20,766       21,693  
Total current assets
     2,255,430        1,755,635       1,558,019  
Property and equipment, net
     887,401        929,038       913,059  
Operating lease
right-of-use
assets
     1,146,229        1,166,383       1,208,528  
Deferred income taxes, net
     37,789        47,977       38,803  
Goodwill
     85,419        85,343       85,348  
Other long-term assets, net
     75,028        69,666       65,924  
Total assets
   $ 4,487,296      $ 4,054,042     $ 3,869,681  
LIABILITIES AND STOCKHOLDERS’ EQUITY
       
Current liabilities
       
Accounts payable
   $ 373,086      $ 521,235     $ 404,337  
Accrued expenses
     158,407        175,003       127,137  
Gift card and other deferred revenue
     292,684        289,613       283,108  
Income taxes payable
     28,502        22,501       13,065  
Current debt
  
 
 
  
 
299,818
 
 
 
 
Borrowings under revolving line of credit
 
 
487,823
 
 
 
—  
 
 
 
60,000
 
Operating lease liabilities
     221,575        227,923       222,978  
Other current liabilities
     102,086        73,462       76,254  
Total current liabilities
     1,664,163        1,609,555       1,186,879  
Deferred rent and lease incentives
     24,684        27,659       28,618  
Long-term debt
     298,995        —         299,719  
Long-term operating lease liabilities
     1,080,622        1,094,579       1,148,031  
Other long-term liabilities
     85,910        86,389       84,831  
Total liabilities
     3,154,374        2,818,182       2,748,078  
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; 77,796, 77,137 and
78,203 shares issued and outstanding at August 2, 2020, February 2, 2020 and
August 4, 2019, respectively
     778        772       783  
Additional
paid-in
capital
     608,892        605,822       584,828  
Retained earnings
     736,772        644,794       552,454  
Accumulated other comprehensive loss
     (12,921      (14,587     (15,488
Treasury stock, at cost: 8, 14 and 14 shares as of August 2, 2020, February 2, 2020 and August 4, 2019, respectively
     (599      (941     (974
Total stockholders’ equity
     1,332,922        1,235,860       1,121,603  
Total liabilities and stockholders’ equity
   $ 4,487,296      $ 4,054,042     $ 3,869,681  
See Notes to Condensed Consolidated Financial Statements.
 
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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  
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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)
on derivative financial instruments, net of
tax
    
—  
                  (107         (107
Conversion/release of stock-based awards
1
     37           (677                 (677
Stock-based compensation expense
    
—  
          13,385                 13,385
Dividends declared
    
—  
              (39,709             (39,709
  
 
 
    
 
 
    
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Balance at August 2, 2020
     77,796      $ 778      $ 608,892     $ 736,772     $ (12,921   $ (599   $ 1,332,922  
1
 
Amounts are shown net of shares withheld for employee taxes
.
See Notes to Condensed Consolidated Financial Statements.
 
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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 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) loss 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  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Net earnings
     —         —         —         62,648       —         —         62,648  
Foreign currency translation adjustments
     —         —         —         —         (1,251     —         (1,251
Change in fair value of derivative financial instruments, net of tax
     —         —         —         —         (132     —         (132
Reclassification adjustment for realized (gain) loss on derivative financial instruments, net of tax
     —         —         —         —         (160     —         (160
Conversion/release of stock-based awards
1
     31       1       (482     —         —         —         (481
Repurchases of common stock
     (636     (6     (3,170     (35,107     —         —         (38,283
Stock-based compensation expense
     —         —         16,708       —         —         —         16,708  
Dividends declared
     —         —         —         (39,214     —         —         (39,214
Balance at August 4, 2019
     78,203     $ 783     $ 584,828     $ 552,454     $ (15,488   $ (974   $ 1,121,603  
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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 Note A.
See Notes to Condensed Consolidated Financial Statements.
 
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WILLIAMS-SONOMA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Twenty-six

Weeks Ended
 
In thousands
  
August 2,
2020
 
  
August 4,
2019
 
Cash flows from operating activities:
     
Net earnings
   $ 169,987      $ 115,304  
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
     
Depreciation and amortization
     93,120        93,744  
(Gain) loss on disposal/impairment of assets
     25,408        (6
Amortization of deferred lease incentives
     (2,975      (4,228
Non-cash
lease expense
     108,448        105,437  
Deferred income taxes
     (2,229      (8,428
Tax benefit related to stock-based awards
     12,694        14,110  
Stock-based compensation expense
     33,395        35,401  
Other
     255        92  
Changes in:
           
Accounts receivable
     (16,740      (4,430
Merchandise inventories
     60,055        (63,576
Prepaid expenses and other assets
     (30,968      (24,506
Accounts payable
     (141,602      (127,511
Accrued expenses and other liabilities
     12,117        (30,677
Gift card and other deferred revenue
     2,936        (7,173
Operating lease liabilities
     (113,489     
(111,782
)
 
Income taxes payable
     5,988        (8,407
  
 
 
    
 
 
 
Net cash provided by (used in) operating activities
     216,400        (26,636
  
 
 
    
 
 
 
Cash flows from investing activities:
     
Purchases of property and equipment
     (76,123      (77,189
Other
     241        470  
Net cash used in investing activities
     (75,882      (76,719
Cash flows from financing activities:
     
Borrowings under revolving line of credit
 
 
487,823
 
 
 
60,000
 
Payment of dividends
     (79,274      (75,453
Tax withholdings related to stock-based awards
     (29,589      (25,887
Debt issuance costs
     (1,050       
Repurchases of common stock
            (72,131
Net cash provided by (used in) financing activities
     377,910        (113,471
Effect of exchange rates on cash and cash equivalents
     (2,830      (1,661
Net increase (decrease) in cash and cash equivalents
     515,598        (218,487
Cash and cash equivalents at beginning of period
     432,162        338,954  
Cash and cash equivalents at end of period
   $ 947,760      $ 120,467  
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 August 2, 2020 and August 4, 2019, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Stockholders’ Equity for the thirteen and
twenty-six
weeks then ended and the Condensed Consolidated Statements of Cash Flows for the
twenty-six
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 and
twenty-six
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 and
twenty-six
weeks ended August 2, 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 pandemic. As of August 2, 2020
,
we had reopened the majority of our stores but continue to see reduced traffic 
and have
extended 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 and second quarters, 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 prolonged impact on our retail locations, including the continued closure of certain retail locations and reduced traffic at many others, we
 identified certain assets whose carrying value was now deemed to have been impaired. Given the material reductions in our retail store revenues and operating income during the first and second quarters 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
 
on future cash flows
from the recent
temporary store closures, including reduced store traffic
 and
longer recovery times
 in
 
those stores we have re-opened, as well as extended closures
 in
areas where retail restrictions have not been lifted
. As a result, during the thirteen and
twenty-six
weeks ended August 2, 2020, we recorded store asset impairment charges within selling, general and administrative expenses of approximately $4,689,000 and $16,514,000, respectively, related to property and equipment and $1,666,000 and $5,461,000, respectively, related to operating lease
right-of-use
assets.
In addition, during the
twenty-six
weeks ended August 2, 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 August 2, 2020 and August 4, 2019, we had goodwill of $85,419,000 and $85,348,000, respectively, primarily related to our fiscal 2017 acquisition of Outward and 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, 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
 
6

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operating income growth, nor the long-term strategies of our brands, considered in our most recently completed goodwill assessment. Therefore, we have not tested our goodwill for impairment between annual tests and, accordingly, have not recorded any goodwill impairment charges during the second quarter of fiscal 2020.
As of the end of the quarter, we had finalized rent concession negotiations with a portion of our store landlords and we expect the remaining outstanding lease concession negotiations to be finalized throughout the remainder of fiscal 2020.
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 for 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, 2020, 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 flows.
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.
In May 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. Under the Credit Facility Amendment, the interest rate applicable to the credit facility is variable, and may be elected by us as: (i) the 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.
We had
n
o
 bo
rrowings during
the second 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 2.48%). Additionally, as of August 2, 2020, $11,672,000 in issued but undrawn standby letters of credit were outstanding under the revolver, for a total outstanding balance on the revolver of $499,495,000. The standby letters of credit were issued to secure the liabilities associated with workers’ compensation and other insurance programs. During the second quarter and for
year-to-date
fiscal 2019, we had borrowings of $60,000,000 under the revolver
 
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(at a
year-to-date
weighted average interest rate of 3.42%). 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 elect to extend the maturity date for an additional year, subject to lender approval.
As of August 
2
,
2020
, we had $
300,000,000
outstanding under our term loan (at a
year-to-date
weighted average interest rate of
2.89
%). 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.
In addition to the Credit Facility Amendment, during the second quarter
 
of fiscal 2020
 we entered into a new agreement (the
“364-Day
Credit Agreement”) for an additional $
200,000,000
unsecured revolving line of credit. Under 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. We had no borrowings under the 364-Day Credit Agreement during the second quarter
 
of fiscal 2020
.
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 August 2, 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
As of August 2, 2020 we had
three unsecured letter of credit reimbursement facilities for a total of $70,000,000. 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 August 2, 2020, an aggregate of $11,335,000
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. On August 23, 2020 we renewed all three of our letter of credit facilities
and reduced the
 
aggregate
credit available under these facilities from $70,000,000 to
$35,000,000
due to our lower level of usage
,
and extended each of these facilities’ maturity dates until August 22, 2021. The latest expiration
 date
possible for any future letters of credit issued under the facilities is January 
19
, 2022.
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 August 2, 2020, there were approximately 2,480,000 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. 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 limite
d
 
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 stoc
k
 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).
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Stock-Based Compensation Expense
During the thirteen and
twenty-six
weeks ended August 2, 2020, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses, of $13,692,000 and $33,395,000, respectively. During the thirteen and
twenty-six
weeks ended
August 4, 2019, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses, of $16,872,000 and $35,401,000, respectively.
Restricted Stock Units
The following table summarizes our restricted stock unit activity during the
twenty-six
weeks ended August 2, 2020:
 
    
Shares
 
Balance at February 2, 2020
     2,884,194  
Granted
1
     1,106,666  
Released
2
     (999,778 )
Cancelled
     (80,226
  
 
 
 
Balance at August 2, 2020
     2,910,856  
Vested plus expected to vest at August 2, 2020
     2,356,233  
1
 
Excludes 267,000 restricted stock units for which the accounting grant date had not yet been determined
as of August 2,2020
and, consequently, for which no expense has been recognized
 for the twenty-six weeks then ended
. 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 August 2, 2020
        
Basic
   $ 134,564        77,783      $ 1.73  
Effect of dilutive stock-based awards
        1,481     
Diluted
   $ 134,564        79,264      $ 1.70  
Thirteen weeks ended August 4, 2019
        
Basic
   $ 62,648        78,488      $ 0.80  
Effect of dilutive stock-based awards
        982     
Diluted
   $ 62,648        79,470      $ 0.79  
Twenty-six
weeks ended August 2, 2020
        
Basic
   $ 169,987        77,522      $ 2.19  
Effect of dilutive stock-based awards
        1,319     
Diluted
   $ 169,987        78,841      $ 2.16  
Twenty-six
weeks ended August 4, 2019
        
Basic
   $ 115,304        78,586      $ 1.47  
Effect of dilutive stock-based awards
        1,047     
Diluted
   $ 115,304        79,633      $ 1.45  
Stock-based awards of 1,958 and 4,191 were excluded from the computation of diluted earnings per share for the thirteen and
twenty-six
weeks ended August 2, 2020, respectively, as their inclusion would be anti-dilutive. Stock-based awards of 5,259 and 16,813 were excluded from the computation of diluted earnings per share for the thirteen and
twenty-six
weeks ended August 4, 2019, 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
twenty-six
weeks ended August 
2
,
2020
and August 
4
,
2019
.
 
     Thirteen Weeks Ended     
Twenty-six Weeks Ended
 
In thousands
   August 2, 2020      August 4, 2019      August 2, 2020      August 4, 2019  
Pottery Barn
   $ 563,276      $ 524,847      $ 1,042,891      $ 1,016,973  
West Elm
     380,552        357,574        695,982        667,057  
Williams Sonoma
     243,133        191,374        442,435        386,267  
Pottery Barn Kids and Teen
     235,987        227,853        424,539        404,899  
Other
1
     67,829        69,166        120,133        136,750  
Total
2
   $ 1,490,777      $ 1,370,814      $ 2,725,980      $ 2,611,946  
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 $77.6
 million and $87.7
 million for the thirteen weeks ended August 2, 2020 and August 4, 2019, respectively, and approximately $132.7
 million and $174.3
 million for the
twenty-six
weeks ended August 2, 2020 and August 4, 2019, respectively.
Long-lived assets by geographic location are as follows:
 
In thousands
   August 2, 2020      August 4, 2019  
U.S.
   $ 2,076,079      $ 2,146,995  
International
     155,787        164,667  
  
 
 
    
 
 
 
Total
   $ 2,231,866      $ 2,311,662  
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 and 
twenty-six
weeks ended August 2, 2020, we
did not repurchase any shares of our common stock and, as of August 2, 2020, there was $
574,982,000
remaining under 
our
current
stock
repurchase program
. As of August 2, 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 August 4, 2019, we repurchased 635,526 shares of our common stock at an average cost of $60.24 per share for a total cost of approximately $38,283,000. During the
twenty-six
weeks ended August 4, 2019, we repurchased 1,228,622 shares of our common stock at an average cost of $58.71 per share for a total cost of approximately $72,131,000. As of August 4, 2019, there was $651,685,000 remaining under our current stock repurchase program. As of August 4, 2019, we held treasury stock of $974,000 that represents the cost of shares available for issuance that is intended to satisfy future stock-based award settlements in certain foreign jurisdictions.
 
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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 August 2, 2020 and August 4, 2019, respectively. We declared cash dividends of $0.96 per common share during the
twenty-six
weeks ended August 2, 2020 and August 4, 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 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 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 August 2, 2020, we expect to reclassify a net
pre-tax
gain of approximately $285,000 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 August 2, 2020 and August 4, 2019, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
 
In thousands
   August 2, 2020      August 4, 2019  
Contracts designated as cash flow hedges
   $ 6,800      $ 6,000  
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
twenty-six
weeks ended August 2, 2020 and August 4, 2019.
 
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The effect of derivative instruments in our Condensed Consolidated Financial Statements during the thirteen and
twenty-six
weeks ended August 2, 2020 and August 4, 2019,
pre-tax,
was as follows:
 
   
Thirteen Weeks Ended
 
 
Twenty-six
Weeks Ended
 
 
 
August 2, 2020
 
 
August 4, 2019
 
 
August 2, 2020
 
 
August 4, 2019
 
In thousands
 
Cost of goods
sold
   
Selling,
general and
administrative
expenses
   
Cost of goods
sold
   
Selling,
general and
administrative
expenses
    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
  $ 939,575     $ 365,841     $ 886,953     $ 397,696     $ 1,760,518     $ 731,456     $ 1,683,754     $ 767,895  
Gain (loss) recognized in income
               
Derivatives designated as cash flow hedges
  $ 145     $     $ 187     $ —     $ 195     $     $ 295     $ —  
Derivatives not designated as hedging instruments
  $     $ —       $ —     $ 24     $     $ 2     $ —     $ 18  
 
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
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.
 
In thousands
   August 2, 2020      August 4, 2019  
Derivatives designated as cash flow hedges:
     
Other current assets
   $ 150      $ 142  
  
 
 
    
 
 
 
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 August 2, 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.
 
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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.
During the thirteen and
twenty-six
weeks ended August 2, 2020, we recognized impairment charges of $4,689,000 and $16,514,000, respectively, related to the impairment of property and equipment and $1,666,000 and $5,461,000, respectively, 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.
During the thirteen and
twenty-six
weeks ended August 4, 2019, no impairment charges were recognized.
There were no transfers in and out of Level 3 categories during the thirteen and
twenty-six
weeks ended August 2, 2020 or August 4, 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