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 30, 2016 and November 1, 2015, the Condensed Consolidated Statements of Earnings, the Condensed Consolidated Statements of Comprehensive Income 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, 2016, 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, 2016.
The results of operations for the thirteen and thirty-nine weeks ended October 30, 2016 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, 2016.
In November 2015, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2015-17,
Balance Sheet Classification of Deferred Taxes
, which requires entities to present both deferred tax assets and deferred tax liabilities as noncurrent in a classified balance sheet. We early adopted
this ASU prospectively as of January 31, 2016, and have presented both deferred tax assets and deferred tax liabilities as noncurrent in our Condensed Consolidated Balance Sheets as of January 31, 2016 and October 30, 2016. In accordance
with the provisions of the ASU, the balance sheet as of November 1, 2015, presented herein, has not been retrospectively adjusted.
New Accounting
Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, to clarify the principles of recognizing
revenue and create common revenue recognition guidance between U.S. GAAP and International Financial Reporting Standards. In addition, in March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent
Considerations
. The amendments are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The FASB also issued ASU 2016-10,
Identifying Performance Obligations and
Licensing
in April 2016, which amends certain aspects of ASU 2014-09 for identifying performance obligations and the implementation guidance on licensing. These ASUs are effective retrospectively for fiscal years and interim periods within
those years beginning after December 15, 2017. We are currently assessing the potential impact of these ASUs on our Condensed Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
, which revises an entitys
accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU is effective for fiscal years and interim
periods within those fiscal years beginning after December 15, 2017. We are currently assessing the potential impact of this ASU on our Condensed Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which will require lessees to recognize a right-of-use asset and a lease liability for virtually
all of their leases (other than short-term leases). This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2018. We are currently assessing the impact of this ASU on our Condensed Consolidated
Financial Statements, but expect that it will result in a significant increase in our long-term assets and liabilities.
In March 2016, the FASB issued
ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies the accounting for share-based payment transactions (including the accounting for income taxes and forfeitures, among other areas). The ASU requires
entities to, among other things, recognize all excess tax benefits and deficiencies in the income statement in the period in which they occur. This ASU is effective for fiscal years and interim periods within those years beginning after
December 15, 2016. We are currently assessing the potential impact of this ASU on our Condensed Consolidated Financial Statements.
4
NOTE B. BORROWING ARRANGEMENTS
Credit Facility
We have a $500,000,000 unsecured
revolving line of credit (credit facility) that 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 to increase the credit
facility by up to $250,000,000, at such lenders option, to provide for a total of $750,000,000 of unsecured revolving credit. As of October 30, 2016, we were in compliance with the financial covenants under the credit facility and based on
current projections, we expect to remain in compliance throughout the next twelve months. The credit facility matures on November 19, 2019, at which time all outstanding borrowings must be repaid and all outstanding letters of credit must be
cash collateralized.
We may elect interest rates calculated at (i) Bank of Americas prime rate (or, if greater, the average rate on overnight
federal funds plus one-half of one percent, or a rate based on LIBOR plus one percent) plus a margin based on our leverage ratio or (ii) LIBOR plus a margin based on our leverage ratio. During the third quarter of fiscal 2016, we had no
borrowings under the credit facility. For year-to-date 2016, we borrowed $125,000,000 (at a weighted average interest rate of 1.55%), all of which was outstanding as of October 30, 2016. During the third quarter of fiscal 2015, we borrowed
$50,000,000 under the credit facility. For year-to-date 2015, we borrowed $200,000,000 (at a weighted average interest rate of 1.11%), all of which was outstanding as of November 1, 2015. Additionally, as of October 30, 2016, $12,289,000 issued but
undrawn standby letters of credit was outstanding under the credit facility. The standby letters of credit were issued to secure the liabilities associated with workers compensation and other insurance programs.
Letter of Credit Facilities
We have three unsecured
letter of credit reimbursement facilities for a total of $70,000,000, each of which matures on August 26, 2017. The letter of credit facilities contain covenants that are consistent with our unsecured revolving line of credit. Interest on
unreimbursed amounts under the letter of credit facilities accrues at the lenders prime rate (or, if greater, the average rate on overnight federal funds plus one-half of one percent) plus 2.0%. As of October 30, 2016, an aggregate of
$6,585,000 was outstanding under the letter of credit facilities, which represents only a future commitment to fund inventory purchases to which we had not taken legal title. The latest expiration possible for any future letters of credit issued
under the facilities is January 23, 2018.
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 32,310,000 shares. As of October 30, 2016, there were approximately 7,421,000 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 is not 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, 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, 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 30, 2016, we recognized total stock-based compensation expense, as a component of selling, general and administrative expenses, of $10,499,000 and $37,975,000, respectively. During the thirteen and thirty-nine
weeks ended November 1, 2015, we recognized total stock-based compensation expense of $11,269,000 and $36,182,000, respectively.
5
Stock Options
The following table summarizes our stock option activity during the thirty-nine weeks ended October 30, 2016:
|
|
|
|
|
|
|
Shares
|
|
Balance at January 31, 2016 (100% vested)
|
|
|
38,500
|
|
Granted
|
|
|
|
|
Exercised
|
|
|
(38,500
|
)
|
Cancelled
|
|
|
|
|
Balance at October 30, 2016
|
|
|
|
|
Stock-Settled Stock Appreciation Rights
The following table summarizes our stock-settled stock appreciation right activity during the thirty-nine weeks ended October 30, 2016:
|
|
|
|
|
|
|
Shares
|
|
Balance at January 31, 2016 (100% vested)
|
|
|
634,609
|
|
Granted
|
|
|
|
|
Converted into common stock
|
|
|
(204,201
|
)
|
Cancelled
|
|
|
|
|
Balance at October 30, 2016 (100% vested)
|
|
|
430,408
|
|
Restricted Stock Units
The following table summarizes our restricted stock unit activity during the thirty-nine weeks ended October 30, 2016:
|
|
|
|
|
|
|
Shares
|
|
Balance at January 31, 2016
|
|
|
2,288,958
|
|
Granted
|
|
|
1,098,253
|
|
Released
|
|
|
(954,170
|
)
|
Cancelled
|
|
|
(205,130
|
)
|
Balance at October 30, 2016
|
|
|
2,227,911
|
|
Vested plus expected to vest at October 30,
2016
|
|
|
1,423,998
|
|
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 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.
6
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 October 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
69,378
|
|
|
|
88,382
|
|
|
$
|
0.78
|
|
Effect of dilutive stock-based awards
|
|
|
|
|
|
|
762
|
|
|
|
|
|
Diluted
|
|
$
|
69,378
|
|
|
|
89,144
|
|
|
$
|
0.78
|
|
Thirteen weeks ended November 1, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
70,482
|
|
|
|
90,437
|
|
|
$
|
0.78
|
|
Effect of dilutive stock-based awards
|
|
|
|
|
|
|
1,364
|
|
|
|
|
|
Diluted
|
|
$
|
70,482
|
|
|
|
91,801
|
|
|
$
|
0.77
|
|
Thirty-nine weeks ended October 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
160,760
|
|
|
|
88,906
|
|
|
$
|
1.81
|
|
Effect of dilutive stock-based awards
|
|
|
|
|
|
|
858
|
|
|
|
|
|
Diluted
|
|
$
|
160,760
|
|
|
|
89,764
|
|
|
$
|
1.79
|
|
Thirty-nine weeks ended November 1, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
168,940
|
|
|
|
91,129
|
|
|
$
|
1.85
|
|
Effect of dilutive stock-based awards
|
|
|
|
|
|
|
1,447
|
|
|
|
|
|
Diluted
|
|
$
|
168,940
|
|
|
|
92,576
|
|
|
$
|
1.82
|
|
Stock-based awards of 610,000 and 540,000 were excluded from the computation of diluted earnings per share for the thirteen
and thirty-nine weeks ended October 30, 2016, as their inclusion would be anti-dilutive. There were no stock-based awards excluded from the computation of diluted earnings per share for the thirteen or thirty-nine weeks ended November 1, 2015.
NOTE E. SEGMENT REPORTING
We have two reportable
segments, e-commerce and retail. The e-commerce segment has the following merchandising strategies: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm, PBteen, Williams-Sonoma Home, Rejuvenation and Mark and Graham, which sell our products
through our e-commerce websites and direct-mail catalogs. Our e-commerce merchandising strategies are operating segments, which have been aggregated into one reportable segment, e-commerce. The retail segment has the following merchandising
strategies: Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Rejuvenation, which sell our products through our retail stores. Our retail merchandising strategies are operating segments, which have been aggregated into one reportable
segment, retail. Managements expectation is that the overall economic characteristics of each of our operating segments will be similar over time based on managements judgment that the operating segments have had similar historical
economic characteristics and are expected to have similar long-term financial performance in the future.
These reportable segments are strategic business
units that offer similar products for the home. They are managed separately because the business units utilize two distinct distribution and marketing strategies. Based on managements best estimate, our operating segments include allocations
of certain expenses, including advertising and employment costs, to the extent they have been determined to benefit both channels. These operating segments are aggregated at the channel level for reporting purposes due to the fact that our brands
are interdependent for economies of scale and we do not maintain fully allocated income statements at the brand level. As a result, material financial decisions related to the brands are made at the channel level. Furthermore, it is not practicable
for us to report revenue by product group.
We use operating income to evaluate segment profitability. Operating income is defined as earnings (loss)
before net interest income (expense) and income taxes. Unallocated costs before interest and income taxes include corporate employee-related costs, occupancy expenses (including depreciation expense), administrative costs and third-party service
costs, primarily in our corporate administrative and systems departments. Unallocated assets include corporate cash and cash equivalents, prepaid expenses, the net book value of corporate facilities and related information systems, deferred income
taxes and other corporate long-lived assets.
Income tax information by reportable segment has not been included as income taxes are calculated at a
company-wide level and are not allocated to each reportable segment.
7
Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
E-commerce
|
|
|
Retail
|
|
|
Unallocated
|
|
|
Total
|
|
Thirteen weeks ended October 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
1
|
|
$
|
648,743
|
|
|
$
|
596,642
|
|
|
$
|
|
|
|
$
|
1,245,385
|
|
Depreciation and amortization expense
|
|
|
7,812
|
|
|
|
21,676
|
|
|
|
14,888
|
|
|
|
44,376
|
|
Operating income (loss)
2
|
|
|
150,164
|
|
|
|
47,080
|
|
|
|
(87,265
|
)
|
|
|
109,979
|
|
Capital expenditures
|
|
|
5,231
|
|
|
|
25,820
|
|
|
|
18,241
|
|
|
|
49,292
|
|
Thirteen weeks ended November 1, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
1
|
|
$
|
628,191
|
|
|
$
|
603,891
|
|
|
$
|
|
|
|
$
|
1,232,082
|
|
Depreciation and amortization expense
|
|
|
7,856
|
|
|
|
20,880
|
|
|
|
13,124
|
|
|
|
41,860
|
|
Operating income (loss)
|
|
|
137,828
|
|
|
|
49,213
|
|
|
|
(76,358
|
)
|
|
|
110,683
|
|
Capital expenditures
|
|
|
4,819
|
|
|
|
25,239
|
|
|
|
19,162
|
|
|
|
49,220
|
|
Thirty-nine weeks ended October 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
1
|
|
$
|
1,824,660
|
|
|
$
|
1,677,571
|
|
|
$
|
|
|
|
$
|
3,502,231
|
|
Depreciation and amortization expense
|
|
|
23,415
|
|
|
|
63,764
|
|
|
|
40,566
|
|
|
|
127,745
|
|
Operating income (loss)
2
|
|
|
414,442
|
|
|
|
110,422
|
|
|
|
(268,084
|
)
|
|
|
256,780
|
|
Assets
3
|
|
|
664,105
|
|
|
|
1,118,913
|
|
|
|
670,314
|
|
|
|
2,453,332
|
|
Capital expenditures
|
|
|
13,673
|
|
|
|
64,699
|
|
|
|
48,797
|
|
|
|
127,169
|
|
Thirty-nine weeks ended November 1, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
1
|
|
$
|
1,730,677
|
|
|
$
|
1,659,109
|
|
|
$
|
|
|
|
$
|
3,389,786
|
|
Depreciation and amortization expense
|
|
|
24,156
|
|
|
|
61,433
|
|
|
|
39,504
|
|
|
|
125,093
|
|
Operating income (loss)
|
|
|
387,863
|
|
|
|
117,842
|
|
|
|
(239,751
|
)
|
|
|
265,954
|
|
Assets
3
|
|
|
666,993
|
|
|
|
1,151,657
|
|
|
|
617,026
|
|
|
|
2,435,676
|
|
Capital expenditures
|
|
|
13,337
|
|
|
|
68,432
|
|
|
|
54,300
|
|
|
|
136,069
|
|
1
|
Includes net revenues related to our international operations (including our operations in Canada, Australia, the United Kingdom and our franchise businesses) of
approximately $82.8 million and $80.0 million for the thirteen weeks ended October 30, 2016 and November 1, 2015, respectively, and $232.5 million and $201.7 million for the thirty-nine weeks ended October 30, 2016 and November 1, 2015,
respectively.
|
2
|
Includes $1.2 million and $14.4 million for the thirteen and thirty-nine weeks ended October 30, 2016, respectively, of severance-related reorganization charges
due to a reduction of headcount, primarily in our corporate functions, which is recorded as selling, general and administrative expense within the unallocated segment.
|
3
|
Includes long-term assets related to our international operations of approximately $59.2 million and $60.6 million as of October 30, 2016 and November 1, 2015,
respectively.
|
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 larger. 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 be time consuming, 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 consolidated financial statements taken as a whole.
NOTE G. STOCK REPURCHASE PROGRAM AND DIVIDENDS
Stock Repurchase Program
In March 2016, we
announced that our Board of Directors authorized a new stock repurchase program to purchase up to $500,000,000 of our common stock that we intend to execute over the next three years. During the thirteen weeks ended October 30, 2016, we repurchased
771,327 shares of our common stock at an average cost of $50.56 per share for a total cost of approximately $39,001,000. During the thirty-nine weeks ended October 30, 2016, we repurchased 2,164,473 shares of our common stock at an average cost of
$53.21 per share for a total cost of approximately $115,167,000. As of October 30, 2016, we held treasury stock of $1,383,000 that represents the cost of shares available for issuance intended to satisfy future stock-based award settlements in
certain foreign jurisdictions.
8
During the thirteen weeks ended November 1, 2015, we repurchased 922,127 shares of our common stock at an average
cost of $77.54 per share for a total cost of approximately $71,497,000. During the thirty-nine weeks ended November 1, 2015, we repurchased 2,485,830 shares of our common stock at an average cost of $79.05 per share for a total cost of approximately
$196,497,000.
Stock repurchases under this 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. The stock
repurchase program does not have an expiration date and may be limited or terminated at any time without prior notice.
Dividends
We declared cash dividends of $0.37 and $0.35 per common share during the thirteen weeks ended October 30, 2016 and November 1, 2015, respectively. We declared
cash dividends of $1.11 and $1.05 per common share during the thirty-nine weeks ended October 30, 2016 and November 1, 2015, respectively. Our quarterly cash dividend may be limited or terminated at any time.
NOTE H. DERIVATIVE FINANCIAL INSTRUMENTS
We have retail
and/or 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. 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 instruments are measured at fair value
and recorded in either other current assets or other current liabilities. As discussed below, the accounting for gains and losses resulting from changes in fair value depends on whether the derivative instrument is designated as a hedge and
qualifies for hedge accounting in accordance with the FASB Accounting Standards Codification (ASC) 815,
Derivatives and Hedging
.
Cash Flow Hedges
We enter into foreign currency forward
contracts designated as cash flow hedges (to sell Canadian dollars and purchase U.S. dollars) for forecasted inventory purchases in U.S. dollars by our foreign subsidiaries. These hedges generally have terms of up to 12 months. All hedging
relationships are formally documented, and the forward contracts are designed to further 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 immediately in
selling, general and administrative expense, net. Based on the rates in effect as of October 30, 2016, we expect to reclassify a net gain of approximately $322,000 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 purchase U.S. dollars) to reduce the exchange risk
associated with our assets and liabilities denominated in a foreign currency. Any foreign exchange gains (losses) related to these contracts are recognized in selling, general and administrative expense, net.
As of October 30, 2016 and November 1, 2015, we had foreign currency forward contracts outstanding (in U.S. dollars) with notional values as follows:
|
|
|
|
|
|
|
|
|
In thousands
|
|
October 30, 2016
|
|
|
November 1, 2015
|
|
Contracts designated as cash flow hedges
|
|
$
|
29,000
|
|
|
$
|
20,000
|
|
Contracts not designated as cash flow hedges
|
|
$
|
46,000
|
|
|
$
|
37,000
|
|
Hedge effectiveness is evaluated prospectively at inception, on an ongoing basis, as well as retrospectively using regression
analysis. Any measureable ineffectiveness of the hedge is recorded in selling, general and administrative expense, net. 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 30, 2016 and November 1, 2015.
9
The effect of derivative instruments in our Condensed Consolidated Financial Statements, pre-tax, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Thirteen
Weeks Ended
October 30, 2016
|
|
|
Thirteen
Weeks Ended
November 1, 2015
|
|
|
Thirty-nine
Weeks Ended
October 30, 2016
|
|
|
Thirty-nine
Weeks Ended
November 1, 2015
|
|
Net gain (loss) recognized in OCI
|
|
$
|
704
|
|
|
$
|
158
|
|
|
$
|
(795
|
)
|
|
$
|
729
|
|
Net gain (loss) reclassified from OCI into cost of goods sold
|
|
$
|
(406
|
)
|
|
$
|
339
|
|
|
$
|
53
|
|
|
$
|
1,250
|
|
Net foreign exchange gain (loss) recognized in selling, general and administrative
expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instruments designated as cash flow
hedges
1
|
|
$
|
(22
|
)
|
|
$
|
(12
|
)
|
|
$
|
(12
|
)
|
|
$
|
(54
|
)
|
Instruments not designated or
de-designated
2
|
|
$
|
(566
|
)
|
|
$
|
748
|
|
|
$
|
(3,599
|
)
|
|
$
|
3,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
Changes in fair value of the forward contract related to interest charges (or forward points).
|
2
|
Changes in fair value for instruments not designated as cash flow hedges as well as de-designated instruments.
|
The fair values of our derivative financial instruments are presented below. All fair values were measured using Level 2 inputs as defined by the fair value
hierarchy described in Note I.
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands
|
|
Balance sheet location
|
|
|
October 30, 2016
|
|
|
November 1, 2015
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge foreign currency forward contracts
|
|
|
Other current assets
|
|
|
$
|
653
|
|
|
$
|
412
|
|
Cash flow hedge foreign currency forward contracts
|
|
|
Other long-term assets
|
|
|
|
176
|
|
|
|
|
|
Cash flow hedge foreign currency forward contracts
|
|
|
Other current liabilities
|
|
|
|
(328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net
|
|
|
|
|
|
$
|
501
|
|
|
$
|
412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts
|
|
|
Other current assets
|
|
|
$
|
314
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total, net
|
|
|
|
|
|
$
|
314
|
|
|
$
|
541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
10
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 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 entered into are subject to credit risk-related contingent features or collateral requirements.
Property and Equipment
We review the carrying value of
all long-lived assets for impairment, primarily at a store level, whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. We measure these assets at fair value on a nonrecurring basis using
Level 3 inputs as defined in the fair value hierarchy. The fair value is based on the present value of estimated future cash flows using a discount rate that approximates our weighted average cost of capital.
There were no transfers between Level 1, 2 or 3 categories during the thirteen and thirty-nine weeks ended October 30, 2016 or November 1, 2015.
11
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 January 31, 2016
|
|
$
|
(11,480
|
)
|
|
$
|
864
|
|
|
$
|
(10,616
|
)
|
Foreign currency translation adjustments
|
|
|
5,208
|
|
|
|
|
|
|
|
5,208
|
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
(2,165
|
)
|
|
|
(2,165
|
)
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
(302
|
)
|
|
|
(302
|
)
|
Other comprehensive income (loss)
|
|
|
5,208
|
|
|
|
(2,467
|
)
|
|
|
2,741
|
|
Balance at May 1, 2016
|
|
|
(6,272
|
)
|
|
|
(1,603
|
)
|
|
|
(7,875
|
)
|
Foreign currency translation adjustments
|
|
|
(3,005
|
)
|
|
|
|
|
|
|
(3,005
|
)
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
1,058
|
|
|
|
1,058
|
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
(38
|
)
|
|
|
(38
|
)
|
Other comprehensive income (loss)
|
|
|
(3,005
|
)
|
|
|
1,020
|
|
|
|
(1,985
|
)
|
Balance at July 31, 2016
|
|
|
(9,277
|
)
|
|
|
(583
|
)
|
|
|
(9,860
|
)
|
Foreign currency translation adjustments
|
|
|
(1,731
|
)
|
|
|
|
|
|
|
(1,731
|
)
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
520
|
|
|
|
520
|
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
299
|
|
|
|
299
|
|
Other comprehensive income (loss)
|
|
|
(1,731
|
)
|
|
|
819
|
|
|
|
(912
|
)
|
Balance at October 30, 2016
|
|
$
|
(11,008
|
)
|
|
$
|
236
|
|
|
$
|
(10,772
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
February 1, 2015
|
|
$
|
(3,522
|
)
|
|
$
|
974
|
|
|
$
|
(2,548
|
)
|
Foreign currency translation adjustments
|
|
|
867
|
|
|
|
|
|
|
|
867
|
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
(379
|
)
|
|
|
(379
|
)
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
(198
|
)
|
|
|
(198
|
)
|
Other comprehensive income (loss)
|
|
|
867
|
|
|
|
(577
|
)
|
|
|
290
|
|
Balance at May 3, 2015
|
|
|
(2,655
|
)
|
|
|
397
|
|
|
|
(2,257
|
)
|
Foreign currency translation adjustments
|
|
|
(3,694
|
)
|
|
|
|
|
|
|
(3,694
|
)
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
800
|
|
|
|
800
|
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
(474
|
)
|
|
|
(474
|
)
|
Other comprehensive income (loss)
|
|
|
(3,694
|
)
|
|
|
326
|
|
|
|
(3,368
|
)
|
Balance at August 2, 2015
|
|
|
(6,349
|
)
|
|
|
723
|
|
|
|
(5,625
|
)
|
Foreign currency translation adjustments
|
|
|
(1,370
|
)
|
|
|
|
|
|
|
(1,370
|
)
|
Change in fair value of derivative financial instruments
|
|
|
|
|
|
|
118
|
|
|
|
118
|
|
Reclassification adjustment for realized gains on
derivative financial instruments
1
|
|
|
|
|
|
|
(250
|
)
|
|
|
(250
|
)
|
Other comprehensive income (loss)
|
|
|
(1,370
|
)
|
|
|
(132
|
)
|
|
|
(1,502
|
)
|
Balance at November 1, 2015
|
|
$
|
(7,719
|
)
|
|
$
|
591
|
|
|
$
|
(7,127
|
)
|
1
|
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.
|
12