<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 10-Q
(Mark One)
/x/QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended November 2, 1997.
----------------
/ /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 000-12704
---------
WILLIAMS-SONOMA, INC.
- ------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
- ------------------------------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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
Indicate by check /x/ 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 /x/ No / /
As of December 5, 1997, 25,833,276 shares of the Registrant's Common Stock
were outstanding.
<PAGE>
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
November 2, 1997, February 2, 1997, and October 27, 1996
Condensed Consolidated Statements of Operations
Thirteen weeks ended November 2, 1997 and October 27, 1996
Thirty-nine weeks ended November 2, 1997 and October 27, 1996
Condensed Consolidated Statements of Cash Flows
Thirty-nine weeks ended November 2, 1997 and October 27, 1996
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
November 2, February 2, October 27,
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,624 $ 78,802 $ 2,882
Accounts receivable (net) 25,768 11,918 17,038
Merchandise inventories 169,792 110,702 119,016
Prepaid expenses and other assets 7,756 8,674 11,044
Prepaid catalog expenses 18,437 11,925 16,870
Deferred income taxes 4,028 4,028 139
-------- ------- ---------
Total current assets 229,405 226,049 166,989
Property and equipment (net) 194,734 172,093 168,667
Investments and other assets (net) 6,237 5,824 7,518
Deferred income taxes 451 451 4,040
-------- -------- ---------
$430,827 $404,417 $347,214
======== ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 61,708 $ 64,409 $ 54,600
Accrued expenses 8,057 12,514 5,223
Accrued salaries and benefits 13,035 16,116 10,642
Line of credit 24,600 -- 15,400
Customer deposits 14,893 13,801 10,539
Income taxes payable 690 15,715 --
Current portion of long-term obligations 125 125 125
Other liabilities 6,607 6,801 3,773
-------- -------- --------
Total current liabilities 129,715 129,481 100,302
Deferred lease credits and other liabilities 56,441 39,579 40,328
Long-term debt 89,527 89,319 86,884
Shareholders' equity 155,144 146,038 119,700
-------- -------- ---------
$430,827 $404,417 $ 347,214
======== ======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $203,863 $171,154 $562,825 $484,050
Costs and expenses:
Cost of goods sold and occupancy 126,525 108,522 353,219 312,942
Selling, general and administrative 70,458 60,917 194,461 171,549
-------- -------- -------- -------
Total costs and expenses 196,983 169,439 547,680 484,491
-------- -------- -------- -------
Earnings (loss) from operations 6,880 1,715 15,145 (441)
Interest expense (net) 1,285 1,317 2,988 4,334
-------- -------- -------- -------
Earnings (loss) before income taxes 5,595 398 12,157 (4,775)
Income taxes (benefit) 2,350 167 5,106 (2,005)
-------- -------- ------- -------
Net earnings (loss) $3,245 $231 $7,051 $ (2,770)
======== ======== ======= ========
Earnings (loss) per share:
Primary and fully diluted $0.12 $0.01 $0.26 $(0.11)
Average number of common shares outstanding:
Primary 27,058 26,453 26,753 25,453*
Fully diluted 27,058** 26,511** 26,834** 25,453*
</TABLE>
* Incremental shares from assumed exercise of stock options and convertible
debt are antidilutive for primary and fully diluted loss per share.
** Incremental shares from assumed conversion of convertible debt are
antidilutive for fully diluted earnings per share.
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
November 2, October 27,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $7,051 $(2,770)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 21,074 17,333
Amortization of deferred lease incentives (3,461) (2,444)
Loss on prepayment of CA Closets note receivable -- 225
Loss on disposal of assets -- 6
Change in:
Accounts receivable (13,850) (4,106)
Merchandise inventories (59,090) 2,587
Prepaid catalog expenses (6,512) (1,257)
Prepaid expenses and other assets 918 (4,538)
Accounts payable (2,701) (3,695)
Accrued expenses and other liabilities (5,264) (960)
Deferred lease incentives 20,323 14,195
Income taxes payable (15,025) (1,947)
-------- -------
Net cash provided by (used in)
operating activities (56,537) 12,629
-------- -------
Cash flows from investing activities:
Purchases of property and equipment (44,804) (39,482)
Other investments (699) 156
-------- -------
Net cash used in investing activities (45,503) (39,326)
-------- -------
Cash flows from financing activities:
Borrowings under line of credit 35,100 160,480
Repayments under line of credit (10,500) (174,680)
Proceeds from issuance of long-term debt -- 40,000
Debt issuance costs -- (1,330)
Repayment of long-term debt (472) (94)
Proceeds from exercise of stock options 2,055 816
Change in other long-term liabilities 679 221
-------- -------
Net cash provided by financing activities 26,862 25,413
-------- --------
Net increase (decrease) in cash and
cash equivalents (75,178) (1,284)
Cash and cash equivalents at beginning
of period 78,802 4,166
-------- --------
Cash and cash equivalents at end of period $3,624 $2,882
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Thirty-nine Weeks Ended November 2, 1997 and October 27, 1996
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of November 2, 1997 and October 27,
1996, the condensed consolidated statements of operations for the thirteen and
thirty-nine week periods ended November 2, 1997 and October 27, 1996, and
condensed consolidated statements of cash flows for the thirty-nine week periods
ending November 2, 1997 and October 27, 1996 have been prepared by Williams-
Sonoma, Inc., (the Company) without audit. In the opinion of management, 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. These financial statements include Williams-Sonoma,
Inc., and its wholly owned subsidiaries. Significant intercompany transactions
and accounts have been eliminated. The balance sheet at February 2, 1997,
presented herein, has been prepared from the audited balance sheet of the
Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report to Shareholders for the fiscal year ended February 2, 1997.
Certain reclassifications have been made to the prior year financial statements
to conform to classifications used in the current period.
The results of operations for the thirteen and thirty-nine weeks ended November
2, 1997 are not necessarily indicative of the operating results of the full
year.
NOTE B. DEBT
On April 15, 1996, the Company issued $40,000,000 principal amount of 5.25%
convertible, subordinated notes due April 15, 2003 (Convertible Notes). Net
proceeds from the transaction amounted to $38,607,000 and were used to provide
the Company with a long-term source of working capital. Interest is payable
semi-annually and began in October 1996. The Convertible Notes are convertible
into shares of common stock at a conversion price of $26.10 per share
(equivalent to a conversion rate of 38.3 shares per $1,000 principal amount).
The conversion price is subject to adjustment in certain events, including stock
splits and stock dividends. Except as discussed below, the Convertible Notes
are redeemable at the option of the Company in the form of cash or common stock,
on or after April 15, 1998, in whole or in part, at redemption prices (expressed
as a percentage of principal amount) ranging from 103.75% to 100% in the last
year. For the period of April 15, 1998 through April 14, 2000, redemption may
not occur unless the ratio of the stock price to the conversion price has
achieved a minimum as defined in the Convertible Note agreement. In the event
of a change in control, holders of the Convertible Notes may, at their option,
require the Company to repurchase all or any portion of the principal amount.
The agreement does not restrict the Company from incurring additional
indebtedness.
The Company has a 364-day syndicated line of credit facility expiring on May 29,
1998 which provides for $60,000,000 to $90,000,000 in cash advances, depending
on seasonal requirements. The agreement contains certain restrictive loan
covenants, including minimum tangible net worth, a minimum out-of-debt period,
and a prohibition on payment of cash dividends. Additionally, the Company has a
$35,000,000 letter-of-credit agreement with its primary bank.
<PAGE>
NOTE C. NEW ACCOUNTING STANDARDS
In February 1997, Statement of Financial Accounting Standards No. 128 (SFAS No.
128), Earnings per Share, was issued. SFAS No. 128 requires dual presentation
of basic EPS on the face of all income statements issued after December 15, 1997
for all entities with complex capital structures. Basic EPS is computed as net
income divided by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and other convertible
securities.
The pro forma effect assuming adoption of SFAS No. 128 at the beginning of each
period is presented below:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma earnings (loss) per share
Basic $0.13 $0.01 $0.28 $(0.11)
Diluted $0.12 $0.01 $0.26 $(0.11)
</TABLE>
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130 (Reporting Comprehensive Income), which
requires that an enterprise report, by major components and as a single total,
the change in its net assets during the period from nonowner sources; and No.
131 (Disclosures about Segments of an Enterprise and Related Information), which
establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas,
and major customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Net sales consists of the following components (dollars in thousands):
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 2, 1997 October 27, 1996 November 2, 1997 October 27, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Sales $130,638 64.1% $107,632 62.9% $353,159 62.7% $298,495 61.7%
Catalog Sales 73,225 35.9% 63,522 37.1% 209,666 37.3% 185,555 38.3%
-------- ----- -------- ----- -------- ----- -------- -----
Total Net Sales $203,863 100.0% $171,154 100.0% $562,825 100.0% $484,050 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and subsidiaries (the Company) for the 13
weeks ended November 2, 1997 (Third Quarter of 1997) were $203,863,000 -- an
increase of $32,709,000 (19.1%) over net sales for the 13 weeks ended October
27, 1996 (Third Quarter of 1996). Net sales for the 39-week period ended
November 2, 1997 (Year-to-Date 1997) were $562,825,000, a 16.3% increase from
the 39-week period ended October 27, 1996 (Year-to-Date 1996).
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
(Dollars in thousands) November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total retail sales $130,638 $107,632 $353,159 $298,495
Retail growth percentage 21.4% 32.3% 18.3% 34.8%
Comparable store sales growth 1.3% 4.4% 1.4% 4.6%
Number of stores - beginning of period 264 246 256 240
Number of new stores 20 17 42 29
Number of closed stores 6 6 20 12
Number of stores - end of period 278 257 278 257
Store selling area at quarter-end (sq. ft.) 1,015,594 842,176 1,015,594 842,176
</TABLE>
Retail sales for the Third Quarter of 1997 increased 21.4% over retail sales for
the Third Quarter of 1996 primarily due to the 20.6% increase in selling square
footage. Year-to-Date 1997 retail sales increased 18.3% over the same period of
the prior year. The Company operated 278 stores at the end of the Third Quarter
of 1997 as compared to 257 stores at the end of the same period of the prior
year. During the Third Quarter of 1997, the Company opened 20 stores (12
Pottery Barn, 7 Williams-Sonoma and 1 Hold Everything), all of which were large-
format stores except for the Hold Everything location, and closed 6 smaller
stores (4 Pottery Barn, 1 Williams-Sonoma and 1 Hold Everything). Pottery Barn,
which represented 32.4% of the locations at the end of the Third Quarter of
1997, accounted for 75.3% and 65.1% of the growth in retail sales for the Third
Quarter of 1997 and Year-to-Date 1997, respectively.
<PAGE>
Comparable store sales are defined as those whose gross square feet did not
change by more than 20% in the previous twelve months and which have been open
for at least 12 months. Comparable store sales are compared monthly for
purposes of this analysis. Comparable store sales grew 1.3% in the Third
Quarter of 1997 and 1.4% for Year-to-Date 1997. Large-format stores accounted
for 52.4% and 47.6% of Third Quarter and Year-to-Date 1997 comparable store
sales, respectively.
The prototypical 1997 large-format stores range from 5,700 - 8,100 selling
square feet (10,000 - 13,800 gross square feet) for Pottery Barn stores and
2,800 - 4,600 selling square feet (4,200 - 6,500 gross square feet) for
Williams-Sonoma, and are intended to enable the Company to display
merchandise more effectively. Large-format stores accounted for 60.4% and
55.8% of 1997 Third Quarter and 1997 Year-to-Date retail sales, respectively.
As of the end of the 1997 Third Quarter, 126 stores (73 Williams-Sonoma and
53 Pottery Barn) were in the large-format.
CATALOG SALES
Catalog sales in the Third Quarter of 1997 increased 15.3% over catalog sales in
the Third Quarter of 1996 and catalog sales in the Third Quarter of 1996 had
increased 11.4% over the same period of the prior year. For Year-to-Date 1997,
catalog sales increased 13.0% over the same period of 1996.
The following table reflects catalog sales growth (loss) percentages by concept:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
November 2, 1997 October 27, 1996 November 2, 1997 October 27, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Williams-Sonoma 6.5% 2.1% 18.9% 2.6%
Pottery Barn 28.1% 15.8% 17.4% 23.6%
Hold Everything 9.6% 13.9% 14.1% 7.6%
Gardeners Eden (6.7%) (3.1%) (6.2%) 5.0%
Chambers 0.1% 25.6% (2.5%) 18.2%
Total catalog 15.3% 11.4% 13.0% 13.9%
</TABLE>
Combined sales for Williams-Sonoma and Pottery Barn, the Company's primary
concepts, comprised approximately 72.6% and 68.2% of total catalog sales for the
Third Quarter 1997 and Year-to-Date 1997, respectively. The number of catalogs
mailed in the Third Quarter of 1997 as compared to the same period of 1996
increased 14.9% for Pottery Barn and 8.0% for Williams-Sonoma. The total number
of catalogs mailed, which grew 5.9% in the Third Quarter of 1996 as compared to
the same period of the previous year, increased 8.0% in the Third Quarter of
1997 as compared to the Third Quarter of 1996. Other factors contributing to
the catalog sales growth in the Williams-Sonoma, Pottery Barn and Hold
Everything concepts were an improved in-stock position and a reduction in
Pottery Barn merchandise returns.
The Company reduced the number of Gardeners Eden and Chambers catalogs mailed in
the Third Quarter of 1997 by 16.8% and 8.9%, respectively, as compared to the
same period of the prior year in an effort to improve revenue per catalog
mailed.
<PAGE>
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expenses expressed as a percent of net sales in
the Third Quarter of 1997 decreased 1.3 percentage points, to 62.1% from 63.4%
in the same period of the prior year. Merchandise margin improved 1.2
percentage points, principally due to lower cost of merchandise and lower
shipping costs from the distribution center to the stores as a result of volume
efficiencies and improved management of the distribution process. Occupancy
expenses expressed as a percentage of net sales decreased slightly in the Third
Quarter of 1997, primarily as a result of efficiencies achieved at the Company's
Memphis distribution center.
For the Year-to-Date 1997, cost of goods sold and occupancy expenses as a
percent of net sales decreased 1.9 percentage points from 64.7% for the same
period of 1996 to 62.8%. Merchandise margins improved 2.0 percentage points,
primarily as a result of the lower cost of merchandise. The occupancy expense
rate increased 0.1 percentage points, primarily due to increased occupancy costs
for the Las Vegas call center.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses expressed as a percent of net sales
decreased 1.1 percentage points to 34.5% in the Third Quarter of 1997 from 35.6%
in the Third Quarter of 1996, and 0.9 percentage points for Year-to-Date 1997.
These reductions are primarily attributable to operational efficiencies at the
Memphis distribution center and lower advertising expense rates as a result of
more effective marketing and mailing strategies in the catalog division and
accelerating growth of retail sales as compared to catalog sales.
INTEREST EXPENSE
Net interest expense for the Third Quarter of 1997 decreased $32,000 to
$1,285,000 from $1,317,000 for the Third Quarter of 1996. Year-to-Date 1997 net
interest expense was $2,988,000 -- a decrease of $1,346,000 from the same period
of the prior year. The decrease is primarily a result of increased interest
income. For the first nine months of fiscal year 1997, the Company maintained
an average short-term investment balance of approximately $30,000,000 as
compared to approximately $500,000 for the same period of the prior year. This
was achieved primarily as a result of the Company's performance in the fourth
quarter of fiscal year 1996, which enabled the Company to start fiscal year 1997
with $78,802,000 in cash and equivalents.
INCOME TAXES
The Company's effective tax rate was 42.0% for the Third Quarter 1997 and Year-
to-Date 1997, as well as for the comparable periods of 1996. This rate reflects
the effect of aggregate state tax rates based on the mix of retail sales and
catalog sales in the various states in which the Company has sales or conducts
business.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities in Year-to-Date 1997 was $56,537,000 - a
change of $69,166,000 from the $12,629,000 of cash generated by operating
activities in the same period of 1996. The majority of the change is due to the
change in inventory levels. In the first two quarters of 1996, the Company was
liquidating inventories to reduce overstocks and slow-moving items. Due to
improved merchandise planning and control in 1997, the Company was in the more
typical position of building inventories in response to growth and seasonal
requirements. The remainder of the decrease in cash from operations is
<PAGE>
principally attributable to income tax payments. As a result of such
payments, the income tax liability during Year-to-Date 1997 decreased
$15,025,000, as compared to a decrease of $1,947,000 in the same period of
1996. This is primarily due to the payment of the Company's 1996 income
taxes in the first quarter of 1997, which was significantly higher than the
prior year's payment because of the Company's improved profitability in 1996.
Net cash used in investing activities for Year-to-Date 1997 was $45,503,000.
Approximately $7,415,000 was used for information systems, and the majority of
the remainder was for new stores. The Company is planning approximately
$15,500,000 of capital expenditures for the remainder of fiscal year 1997.
For Year-to-Date 1997, cash provided by financing activities was $26,862,000,
most of which was provided through borrowings under the Company's line of credit
facility. Cash provided by financing activities for Year-to-Date 1996 was
$25,413,000, and included the replacement of certain short-term borrowings with
long-term debt. On April 15, 1996, the Company sold $40,000,000 of 5.25%
convertible, subordinated notes due 2003 ("Convertible Notes"). The Convertible
Notes are convertible into shares of the Company's common stock at a conversion
price of $26.10 per share (or 38.3 shares per $1,000 principal amount).
Proceeds from the notes were used primarily to reduce bank borrowings.
The Company has a 364-day syndicated line of credit facility expiring on May 29,
1998 which provides for $60,000,000 to $90,000,000 in cash advances, depending
on seasonal requirements. The agreement contains certain restrictive loan
covenants, including minimum tangible net worth, a minimum out-of-debt period,
and a prohibition on payment of cash dividends. Additionally, the Company has a
$35,000,000 letter-of-credit agreement with its lead bank. As of December 1,
1997, there were no outstanding borrowings under this facility.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December, and levels of net
sales and net income have generally been significantly lower during the period
from February through July. The Company believes this is the general pattern
associated with the catalog and retail industries. In anticipation of its peak
season, the Company hires a substantial number of additional employees in its
retail stores and catalog processing and distribution areas, and incurs
significant fixed catalog production and mailing costs.
FORWARD-LOOKING STATEMENTS
Except for historical information contained herein, the matters discussed in
this quarterly report are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's ability to continue to
improve planning and control processes and other infrastructure issues, the
potential for construction and other delays in store openings, the Company's
dependence on external funding sources, a limited operating history for the
Company's new large-format stores, the potential for changes in consumer
spending patterns, consumer preferences and overall economic conditions, the
Company's dependence on foreign suppliers, and increasing competition in the
specialty retail business. Other factors that could cause actual results to
differ materially from those set forth in such forward-looking statements
include the risks and uncertainties detailed in the Company's most recent annual
report on Form 10-K and its other filings with the Securities and Exchange
Commission.
<PAGE>
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Company. The
Company is, however, involved in routine litigation arising in the ordinary
course of its business, and, while the results of the proceedings cannot be
predicted with certainty, the Company believes that the final outcome of such
matters will not have a material adverse effect on the Company's consolidated
financial position or results of operations.
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
<S> <C>
3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit
3.1 to the Company's Report on Form 10-Q for the period ended October 29,
1995, as filed with the Commission on December 12, 1995).
3.2 Restated and Amended Bylaws of Registrant (incorporated by reference to
Exhibit 3.2 to the Company's Report on Form 10-K for the fiscal year ended
January 31, 1988, as filed with Commission on April 29, 1988).
10.5 First Amendment and Restatement of the Williams-Sonoma, Inc. Executive
Deferral Plan dated November 6, 1997.
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
</TABLE>
(b) There have been no reports on Form 8-K filed during the quarter for which
this report is being filed.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS-SONOMA, INC.
By:/S/Dennis A. Chantland
----------------------
Dennis A. Chantland
Executive Vice President
Chief Administrative Officer
Secretary
Dated: December 9, 1997
<PAGE>
EXHIBIT 10.5
FIRST AMENDMENT AND RESTATEMENT
OF THE
WILLIAMS-SONOMA, INC.
EXECUTIVE DEFERRAL PLAN
Williams-Sonoma, Inc. (the "Company") hereby adopts this First Amendment
and Restatement of the Williams-Sonoma, Inc. Executive Deferral Plan effective
as of January 1, 1998, with reference to the following facts:
A. Effective as of July 1, 1995, the Company adopted the Williams-Sonoma,
Inc. Executive Deferral Plan (the "Plan") to provide supplemental retirement
income benefits for a select group of management and highly compensated
employees.
B. The Company wishes to amend and restate the Plan in its entirety to
enhance certain benefits provided to participants and to clarify certain
provisions of the Plan.
NOW, THEREFORE, the Plan is hereby amended and restated in its entirety,
effective as of January 1, 1998, as follows:
I
TITLE AND DEFINITIONS
This Plan shall be known as the Williams-Sonoma, Inc. Executive Deferral
Plan.
Whenever the following words and phrases are used in this Plan, with the
first letter capitalized, they shall have the meanings specified below.
"Beneficiary" or "Beneficiaries" shall mean the person or persons
designated under Article VII.
<PAGE>
"Board of Directors" or "Board" shall mean the Board of Directors of the
Company.
"Bonus" shall mean any incentive compensation payable to a Participant in
addition to the Participant's Salary.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee appointed by the Board to administer
the Plan in accordance with Article VII.
"Company" shall mean Williams-Sonoma, Inc., any successor corporation and
each corporation which is a member of a controlled group of corporations (within
the meaning of Section 414(b) of the Code) of which Williams-Sonoma, Inc. is a
member.
"Compensation" shall mean the Salary and Bonus that the Participant
receives for services rendered to the Company.
"Deferral Account" shall mean the bookkeeping account maintained by the
Committee for each Participant under Article IV.
"Disability" shall mean a period of disability during which a Participant
qualifies for benefits under the Company's group long term disability plan or,
if a Participant does not participate in such a plan, a period of disability
during which the Participant would have qualified for benefits under such a plan
had the Participant been a participant in such a plan, as determined in the sole
discretion of the Committee. If the Company does not sponsor such a plan,
Disability shall be determined by the Committee in its sole discretion.
"Distributable Amount" shall mean the amount credited to a Participant's
Deferral Account as of the date of distribution or withdrawal under Section 6.4.
"Eligible Employee" shall mean each member of a group of select management
or highly compensated employees of the
<PAGE>
Company who is selected by the Committee to participate in the Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Fund" or "Funds" shall mean one or more of the mutual funds or investment
vehicles selected by the Committee pursuant to Section 3.2(a).
"Initial Election Period" for an Eligible Employee shall mean the 30-day
period following the date on which the Committee notifies an employee that he or
she has been selected as an Eligible Employee.
"Interest Rate" shall mean, for each Fund, an amount equal to the net rate
of gain or loss which assets invested in such Fund would have earned during each
calendar month.
"Participant" shall mean any Eligible Employee who elects to defer
Compensation in accordance with Section 3.l.
"Payment Eligibility Date" shall mean the date (which shall be the first
day of a calendar quarter) specified by the Participant on a form provided by
the Committee prior to July 30, 1995 or, if later, within 30 days of the date on
which such person becomes a Participant. If the Participant specifies no
Payment Eligibility Date, the Payment Eligibility Date shall be the first day of
the calendar quarter following the Participant's death, Disability, or
Termination of Employment.
"Plan" shall mean the Williams-Sonoma, Inc. Executive Deferral Plan set
forth herein.
"Plan Year" shall mean the 12 consecutive month period beginning January 1,
and ending December 31, except that the first Plan Year shall be a short year
beginning July 1, 1995 and ending December 31, 1995.
"Retirement" shall mean a Participant's Termination of Employment on or
after his or her attainment of both age 55
<PAGE>
and five Years of Service for any reason other than a leave of absence approved
by the Committee, death, or Disability. For purposes of determining whether a
Participant has "Retired," "Years of Service" shall mean the total number of
full years in which a Participant has been continuously employed by the Company.
For purposes of this definition, a year of employment shall be a 365 day period
(or 366 day period in the case of a leap year) that, for the first year of
employment, commences on the employee's date of hire and that, for any
subsequent year, commences on an anniversary of that hiring date. The Committee
may, in its sole discretion, credit a Participant with any partial year of
employment. Periods during which an Eligible Employee is on a paid leave of
absence or suffers from a Disability shall be deemed to be periods of continuous
employment.
"Salary" shall mean the Participant's base pay.
"Termination of Employment" shall mean the ceasing of a Participant's
employment with the Company for any reason other than a leave of absence
approved by the Committee, death, or Disability. A Participant shall not be
considered to have had a Termination of Employment by virtue of a change in
employment from one corporation which is a member of the controlled group of
corporations (within the meaning of Section 414(b) of the Code) constituting the
Company to another such member. However, if the corporation which employs a
Participant ceases to be a member of the controlled group of corporations
constituting the Company as a result of a sale or other corporate
reorganization, such sale or other corporate reorganization shall be treated as
the Participant's Termination of Employment unless, immediately following such
sale or reorganization and without any break in employment, the Participant
remains employed by another member of the controlled group of corporations
constituting the Company, or the former member of the controlled group which
employs the Participant assumes liability for the benefits of the Participant
under this Plan.
<PAGE>
II
PARTICIPATION
.1 Participation.
An Eligible Employee shall become a Participant in the Plan by electing to
defer all or a portion of his or her Compensation in accordance with Section
3.1. The Committee, in its discretion, may require an Eligible Employee, as a
condition to becoming a Participant, to complete an application for the life
insurance benefit described in Section 6.3(a), and to comply with various
medical underwriting requirements of the insurance company.
2.2 Continuing Participation.
An Eligible Employee who becomes a Participant shall continue to be a
Participant until all of his benefits are distributed under this Plan. The
Committee may determine at any time, in its sole discretion, that a Participant
is no longer an Eligible Employee. Such a Participant shall continue to be a
Participant in this Plan until all of his benefits are distributed under this
Plan, but, from and after the first day of the first Plan Year beginning after
such determination, such Participant shall not be entitled to make any further
deferrals of Compensation under Article III.
III
DEFERRAL ELECTIONS
.1 Elections to Defer Compensation.
(a) Initial Election Period. Each Eligible Employee may elect to defer
Compensation by filing with the Committee an election that conforms to the
requirements of this Section 3.1, on a form provided by the Committee, no later
than the last day of his or her Initial Election Period.
(b) General Rule. Subject to the limitations set forth in paragraphs (c)
and (d) below, the amount of Compensation which an Eligible Employee may elect
to defer is as follows:
<PAGE>
(1) Any whole percentage of Salary up to 100%; and/or
(2) Any whole percentage or dollar amount of Bonus up to 100%.
(c) Maximum Deferrals. A Participant shall not be entitled to defer an
amount of his Salary or Bonus for any Plan Year to the extent that the amount of
the Salary or Bonus remaining undeferred for that Plan Year is less than the
amount of payroll taxes which the Company will owe on his Compensation and all
other compensation he receives from the Company in that Plan Year. An election
to defer Salary or Bonus shall not be effective to the extent it exceeds the
maximum amount set forth in this Section 3.1(b).
(d) Minimum Deferrals. For each Plan Year for which a Participant elects
to defer any portion of his Salary, the minimum percentage of Salary which may
be deferred under paragraph (b)(1) of this Section 3.1 is 5%. This 5% minimum
deferral for any Plan Year shall be reduced to a lesser percentage (but not
below zero percent) if the Participant deferred any portion of his or her Bonus
paid with respect to the preceding Plan Year. The amount of such reduction
shall be the number of percentage points determined by (1) dividing the amount
of the Bonus deferred with respect to such preceding Plan Year by the amount of
the Participant's annual Salary at the beginning of the Plan Year for which the
minimum deferral is being computed, and (2) multiplying by 10. For example, if
a Participant receives a Salary of $200,000 for the Plan Year for which the
minimum deferral is being computed, and deferred $20,000 of his bonus for the
prior Plan Year, the minimum deferral will be reduced by (1) $20,000 divided by
$200,000, or .10, multiplied by (2) 10, to arrive at a reduction in the maximum
percentage of 1.0%. The maximum deferral percentage will therefore be 5% minus
1%, or 4%.
(e) Effect of Initial Election. An election to defer Compensation made
during an Initial Election Period shall be effective with respect to Salary
earned during the first pay period beginning after the end of the Initial
Election Period and with respect to the Bonus payable for services
<PAGE>
rendered during the Company's fiscal year ending with or within the Plan Year in
which the election is made.
(f) Duration of Salary Deferral Election. Any Salary deferral election
made under paragraph (a) or paragraph (h) of this Section 3.1 shall be
irrevocable with respect to the Plan Year for which it is made, and shall remain
in effect, notwithstanding any change in the Participant's Salary, until changed
or terminated in accordance with the terms of this paragraph (f); provided,
however, that such election shall terminate under Section 2.2 for any Plan Year
for which the Participant is not an Eligible Employee. Subject to the maximum
deferral requirement of Section 3.1(c) and the minimum deferral requirement of
Section 3.1(d), a Participant may increase, decrease or terminate his or her
Salary deferral election, effective for Salary earned during pay periods
beginning after any January 1, by filing a new election, in accordance with the
terms of this Section 3.1, with the Committee during the preceding December.
(g) Duration of Bonus Deferral Election. Any Bonus deferral election made
under paragraph (a) or paragraph (h) of this Section 3.1 shall be irrevocable
and shall apply only to the Bonus payable with respect to services performed
during the Plan Year for which the election is made. For each subsequent Plan
Year, an Eligible Employee may make a new election, subject to the limitations
set forth in this Section 3.1, to defer a percentage of his or her Bonus payable
with respect to services performed during such subsequent Plan Year. Such
election shall be on forms provided by the Committee and shall be made during
the month of December preceding the Plan Year for which the election is to
apply.
(h) Elections other than Elections during the Initial Election Period.
Subject to the limitations of paragraphs (c) and (d) above, any Eligible
Employee who fails to elect to defer compensation during his or her Initial
Election Period may subsequently become a Participant, and any Eligible Employee
who has terminated a prior Salary deferral election may elect to again defer
Salary, by filing an election, on a form provided by the Committee, to defer
Compensation as described in paragraph (b) above. An election to defer Salary
<PAGE>
and/or Bonus must be filed during the month of December and will be effective
for Salary earned during pay periods beginning after the following January 1 and
the Bonus paid with respect to services performed in the Plan Year beginning on
the following January 1.
.2 Investment Elections.
(a) The Committee shall select the Funds whose performance will measure
the amounts to be credited to the Deferral Accounts of Participants under
paragraph (c) of Article IV. The selection of funds shall be for bookkeeping
purposes only, and the Company shall not be obligated actually to invest any
money in the Funds, or to acquire or maintain any actual investment. The
Committee may, in its discretion, change its selection of the Funds at any time.
If a Participant has elected pursuant to Section 3.2(b) to invest all or a
portion of his Deferral Account in a Fund which the Committee decides to
discontinue, his Deferral Account shall be invested after such discontinuance in
the continuing Fund which the Committee determines, in its discretion, most
nearly resembles the discontinued Fund.
(b) The Committee shall provide each Participant with a list of the Funds
available for hypothetical investment, and the Participant shall designate, when
the Participant makes deferral elections under Section 3.1, on a form provided
by the Committee, one or more of such Funds in which his or her Deferral Account
will be deemed to be invested. The Participant may make a separate designation
for deferrals to be made after such designation than for amounts credited to his
or her Deferral Account as of the date of such designation. In making the
designation pursuant to this Section 3.2(b), the Participant may specify that
all or any whole percentage of at least 10% of his or her future deferrals or
Deferral Account balance, as the case may be, be deemed to be invested in one or
more of Funds.
(c) On or prior to the twentieth day of any calendar month (or later day
prescribed by the Committee, but not later than the last day of the calendar
month), a Participant may change the designation of the Funds in which his
Deferral
<PAGE>
Account balance or future deferrals will be deemed to be invested. Such change
may be made with respect to any whole percentage of at least 10% of the Deferral
Account balance or amount of future deferrals, as the case may be. Such change
shall be made by filing with the Committee an election on a form provided by the
Committee. Such change shall be effective as of the first day of the following
calendar month.
IV
DEFERRAL ACCOUNT
The Committee shall establish and maintain a Deferral Account for each
Participant under the Plan, which shall be merely a bookkeeping account and
which need not represent any actual assets. Each Participant's Deferral Account
shall be further divided into separate subaccounts ("Fund Subaccounts"), each of
which corresponds to a Fund elected by the Participant pursuant to Section
3.2(b). A Participant's Deferral Account shall be credited as follows:
(a) As of the last day of each calendar month, the Committee shall credit
each Participant's Fund Subaccounts with amounts equal to Salary deferred by
the Participant during each pay period ending in that month in accordance with
the Participant's election under Section 3.2(b); that is, the portion of the
Participant's deferred Salary that the Participant has elected to be deemed to
be invested in a certain Fund shall be credited to the Fund Subaccount
corresponding to that Fund.
(b) As of the last day of the month in which the Bonus is paid, the
Committee shall credit the Participant's Fund Subaccounts with amounts equal to
the portion of the Bonus which the Participant has deferred in accordance with
the Participant's election under Section 3.2(b); that is, the portion of the
Participant's deferred Bonus that the Participant has elected to be deemed to be
invested in a certain Fund shall be credited to the Fund Subaccount
corresponding to that Fund.
<PAGE>
(c) As of the last day of each month, each Fund Subaccount of a
Participant's Deferral Account shall be credited with deemed earnings in an
amount equal to the product of the balance credited to such Fund Subaccount as
of the last day of the preceding month multiplied by the Interest Rate for the
corresponding Fund for the month for which earnings are credited.
(d) Any distribution on the entire balance in a Participant's Deferral
Account shall be charged to the Deferral Account on the last day of the calendar
month before the distribution is made. If distributions are made to a
Participant or his Beneficiary in the form of installments, or if a distribution
or withdrawal is made of less than the entire Distributable Amount, the amount
of each such installment, distribution or withdrawal shall be charged to such
Participant's Deferral Account on the last day of the month on which such
installment, distribution or withdrawal is paid. The amount of an installment,
distribution or withdrawal charged to a Participant's Deferral Account on the
last day of a month shall be charged to the Fund Subaccounts in such Deferral
Account in the proportions of the relative balances of such Fund Subaccounts on
the first day of such calendar month.
V
VESTING
Subject to the provisions of Sections 6.4, 6.6, 11.1, 11.2 and 11.6, a
Participant's Deferral Account shall be 100% vested at all times.
VI
DISTRIBUTIONS
.1 Distribution on Retirement or Disability.
(a) A Participant who becomes Disabled or whose Payment Eligibility Date
occurs on or after the date of his Retirement shall, unless he makes a valid
election under Section 6.1(b) and except as provided in Section 6.1(c), receive
<PAGE>
his Distributable Amount in the form of quarterly installments over 15 years
beginning as soon as practicable after his Payment Eligibility Date, or, in
the case of Disability, as soon as practicable after the first day of the
calendar quarter following the calendar quarter in which his Disability occurs.
(b) Notwithstanding the foregoing, a Participant may elect, pursuant to
this Section 6.1(b), to have his Distributable Amount paid in one of the
following optional forms on his Disability, or on his Payment Eligibility Date
occurring on or after the date of his Retirement:
(1) a cash lump sum payable as soon as practicable following the
Participant's Payment Eligibility Date, or, in the case of Disability, as soon
as practicable after the first day of the calendar quarter following the
calendar quarter in which his Disability occurs, or
(2) quarterly installments over five or 10 years beginning as soon as
practicable after his Payment Eligibility Date, or, in the case of Disability,
as soon as practicable after the first day of the calendar quarter following the
calendar quarter in which the Participant's Disability occurs.
An election under this Section 6.1(b) shall be valid only if it is made in
writing in a form prescribed by the Committee either (i) during the Initial
Election Period, or (ii) at least one year before the Participant's Disability
or Payment Eligibility Date.
(c) Notwithstanding the provisions of Sections 6.1(a) and (b), if the
Distributable Amount is $25,000 or less, the Distributable Amount shall
automatically be distributed in the form of a cash lump sum as soon as
practicable following the Payment Eligibility Date, or, in the case of
Disability, the first day of the calendar quarter after the Participant's
Disability occurs.
(d) If a Participant's benefits are paid in installments, the
Participant's Deferral Account shall continue to be credited monthly with deemed
earnings pursuant to paragraph (c) of Article IV until all amounts credited to
his or her Deferral Account have been distributed. Such
<PAGE>
installments shall be as nearly equal as possible consistent with the
requirement of the preceding sentence.
6.2 Situations Other Than Retirement, Disability or Death.
The Distributable Amount of a Participant whose Payment Eligibility Date
occurs before his Retirement, Disability or death shall be paid to the
Participant in the form of a cash lump sum as soon as practicable following the
Participant's Payment Eligibility Date.
6.3 Death.
(a) If a Participant dies while employed by the Company, the following
benefits shall be provided: That portion of the death benefit of any life
insurance policy purchased by the Company to insure the life of the Participant
(the "Policy") which is equal to two times the Participant's annual Salary at
the time the Participant dies shall be paid to Participant's beneficiary under
the Policy by the insurance company which issued the Policy. Any such Policy
shall be subject to the conditions set forth in a "Split-Dollar Life Insurance
Agreement" between the Participant and the Company, pursuant to which the
Participant may designate a beneficiary with respect to the portion of the
Policy proceeds described in the preceding sentence in the event the Participant
dies prior to terminating employment with the Company. The Participant shall
have the right to designate and change such beneficiary (which need not be his
Beneficiary as determined under Article VIII) at any time on a form provided by
and filed with the insurance company, and the life insurance proceeds designated
in this Section 6.3(a) shall be paid to such beneficiary.
The benefit payable pursuant to this Section 6.3(a) shall be paid only if a
Policy has been issued on the Participant's life and is in force at the time of
the Participant's death and any such payment shall be subject to all conditions
and exceptions set forth in the Policy. A Participant who is entitled to a
death benefit pursuant to this Section 6.3(a) shall not be entitled to any other
Company-paid group term life insurance benefits from the Company under this Plan
or any other Policy provided by the Company. Notwithstanding any provision of
this Plan or any other document to the contrary,
<PAGE>
the Company shall not have any obligation to pay the Participant or his
Beneficiary any amounts described in this Section 6.3(a). Any such amounts
shall be payable solely from the proceeds of the Policy, and if no Policy is in
force, no payment shall be made. Furthermore, the Company is not obligated to
maintain any Policy; and no death benefit shall be payable under this Section
6.3(a) if the Company has been notified by the Committee to discontinue the
Policy for the Participant. In addition, no Policy shall be allocated to any
Deferral Account.
(b) If a Participant dies before his Payment Eligibility Date, or after
his Payment Eligibility Date but before payment of benefits under this Plan has
begun, the Distributable Amount shall be paid to the Participant's Beneficiary
in a cash lump sum as soon as practicable after the first day of the calendar
quarter following the calendar quarter in which the Participant dies. If a
Participant dies after the beginning of installment payments under Sections
6.1(a) or (b) but before receiving all of such installments, his beneficiary
shall receive a cash lump sum payment as soon as practicable following the last
day of the calendar month in which he dies equal to the remaining balance of his
Deferral Account as of such last day.
6.4 Withdrawals.
A Participant shall be permitted to elect to withdraw amounts from his
Deferral Account as soon as practicable after the first day of any calendar
quarter, whether before or after his Termination of Employment or Payment
Eligibility Date, subject to the following restrictions:
(b) The election to take a withdrawal shall be made by filing a form
provided by and filed with the Committee prior to the end of any calendar month.
(c) The amount of the withdrawal shall equal 90% of the Distributable
Amount as of the end of the calendar month in which the withdrawal election is
made.
<PAGE>
(d) The amount described in subsection (b) above shall be paid in a
single cash lump sum as soon as practicable after the end of the calendar month
in which the withdrawal election is made.
(e) If a Participant receives a withdrawal, the remaining 10% of the
balance (including the withdrawn amount) in his Deferral Account as of the date
of the withdrawal shall be permanently forfeited and the Company shall have no
obligation to the Participant or his Beneficiary with respect to such forfeited
amount.
(f) If a Participant receives a withdrawal, the following rules will
apply for the balance of the Plan Year in which the withdrawal election is
made and for the following Plan Year: (i) the Participant will be ineligible to
Participate in the Plan, and (ii) neither the Participant (nor his Beneficiary
or Beneficiaries) shall be entitled to death benefits under Section 6.4.
(g) A Participant will be limited to a maximum of two withdrawals during
all of his periods of Plan Participation.
6.5 Unforeseeable Emergency.
The Committee may, pursuant to rules adopted by it and applied in a uniform
manner, accelerate the date of distribution of a Participant's Deferral Account
because of an Unforeseeable Emergency at any time; provided, however, that any
determination to accelerate the distribution of the Deferral Account of any
member of the Committee shall be made by the Board. Any acceleration shall be
limited to the amount necessary to meet the "Unforeseeable Emergency."
"Unforeseeable Emergency" shall mean an unforeseeable, severe financial
condition resulting from (a) a sudden and unexpected illness or accident of the
Participant or his dependent (as defined in Section 152(a) of the Code); (b)
loss of the Participant's property due to casualty; or (c) other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant, but which may not be relieved through
other available resources of the Participant (including reimbursement or
compensation by insurance, liquidation of the Participant's assets, to the
extent the liquidation of the assets would not itself cause severe financial
<PAGE>
hardship, or by the cessation of deferrals under the Plan), as determined by the
Committee in accordance with uniform rules adopted by it. Subject to the
foregoing, payment of any amount with respect to which a Participant has filed a
request under this Section 6.5 shall be made as soon as practicable after
approval of such request by the Committee.
6.6 Inability to Locate Participant.
If the Committee is unable to locate a Participant or his or her
Beneficiary on any date on which a distribution is to be made from such
Participant's Deferral Account, the Company shall retain the distribution which
was to be made on such date until such time as the Committee can locate the
Participant or Beneficiary; provided, however, that the Company may deduct from
such retained distributions all taxes which are required to be withheld by the
Company. No additional earnings shall be credited pursuant to paragraph (c) of
Article IV on any distribution retained pursuant to this Section 6.6. If the
Committee is unable to locate a Participant or Beneficiary within five years
following a date on which a distribution is to be made from such Participant's
Deferral Account, the amount of such distribution shall be forfeited. In
seeking to locate a Participant or Beneficiary, the Committee may take any
reasonable action, but shall not be required to take any action other than
communicating by registered mail to the address or addresses last provided to
the Committee by the Participant or Beneficiary.
ARTICLE VII
ADMINISTRATION
A Committee, consisting of not less than one person, shall be appointed by
and serve at the pleasure of the Board of Directors. The number of members
comprising the Committee shall be determined by the Board, which may from time
to time vary the number of members. A member of the Committee may resign by
delivering a written notice of resignation to the Board. The Board may remove
any member by resolution at any time. Vacancies in the membership of the
Committee shall be filled by the Board.
<PAGE>
The Committee shall act at meetings by affirmative vote of a majority of
the members of the Committee. Any action permitted to be taken at a meeting may
be taken without a meeting if, prior or subsequent to such action, a written
consent to the action is signed by all members of the Committee, and such
written consent is filed with the minutes of the proceedings of the Committee.
A member of the Committee shall not vote or act upon any matter which relates
solely to himself or herself as a Participant. The Chairman or any other member
or members of the Committee designated by the Chairman may execute any
certificate or other written direction on behalf of the Committee.
7.3 Powers and Duties of the Committee.
The Committee shall enforce the Plan in accordance with its terms, shall be
charged with the general administration of the Plan and shall have full
discretion, power, and authority necessary to accomplish its purposes,
including, but not by way of limitation, the following:
(a) To construe and interpret the terms and provisions of this Plan;
(b) To compute and certify to the amount and kind of benefits payable
to Participants and their Beneficiaries;
(c) To maintain all records that may be necessary for the
administration of the Plan;
(d) To provide for disclosure of all information and the filing or
provision of all reports and statements to Participants, Beneficiaries or
governmental agencies as shall be required by law;
(e) To make and publish such rules for the regulation of the Plan and
procedures for the administration of the Plan as are not inconsistent with the
terms hereof;
<PAGE>
(f) To appoint a plan administrator or any other agent, and to
delegate to them such powers and duties in connection with the administration of
the Plan as the Committee may from time to time prescribe; and
(g) To determine who are Eligible Employees, subject to the
limitations described in the Plan.
7.4 Construction and Interpretation.
The Committee shall have full discretion to construe and interpret the
terms and provisions of this Plan, which interpretation or construction shall be
final and binding on all parties, including but not limited to the Company and
any Participant or Beneficiary. The Committee shall administer such terms and
provisions in a uniform and nondiscriminatory manner and in full accordance with
any and all laws applicable to the Plan; provided, however, the Committee shall
have the discretion to determine whether an otherwise Eligible Employee is
selected to participate in the Plan.
7.5 Information.
To enable the Committee to perform its functions, the Companies shall
supply full and timely information to the Committee on all matters relating to
the Compensation of all Participants, their death or other cause of termination,
and such other pertinent facts as the Committee may require.
7.6 Compensation and Expenses.
The members of the Committee shall serve without compensation for their
services hereunder. The Committee is authorized at the expense of Williams-
Sonoma, Inc. to employ such legal counsel, accountants, and other advisers as it
may deem advisable to assist in the performance of its duties hereunder.
Expenses and fees in connection with the administration of the Plan shall be
paid by Williams-Sonoma, Inc.
<PAGE>
7.7 Indemnity.
To the fullest extent permitted by applicable law, Williams-Sonoma, Inc.
shall indemnify, hold harmless, and defend the Committee and each member
thereof, the Board of Directors, and any delegate of the Committee who is an
employee of a Company against any and all expenses, liabilities and claims,
including legal fees as they are incurred to defend against such liabilities and
claims arising out of their discharge in good faith of responsibilities under or
incident to the Plan, other than expenses and liabilities arising out of willful
misconduct. This indemnity shall not preclude such further indemnities as may
be available under insurance purchased by the Company or provided by the Company
under any bylaw, agreement or otherwise.
7.8 Participant Statements.
Under procedures established by the Committee, a Participant shall receive
a statement with respect to such Participant's Deferral Account on a periodic
basis at least once with respect to each Plan Year.
VII I
BENEFICIARY DESIGNATION
8.1 Beneficiary.
Each Participant shall have the right, at any time, to designate his or her
Beneficiary(ies) (both primary as well as contingent) to receive any benefits
payable under the Plan to a beneficiary upon the death of a Participant. The
Beneficiary designated under this Plan may be the same as or different from the
Beneficiary designation under any other plan of the Company in which the
Participant participates.
8.2 Beneficiary Designation; Change; Spousal Consent.
A Participant shall designate his or her Beneficiary by completing and
signing the Beneficiary Designation Form, and returning it to the Committee or
its designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the terms of the
Beneficiary Designation Form and the Committee's rules and procedures, as in
effect from time to time. If the Participant names someone other than his or
her spouse as a Beneficiary, a spousal consent, in the form designated by the
Committee, must be signed by that Participant's spouse and returned to the
Committee. Upon the acceptance by the Committee of a new Beneficiary
Designation Form, all Beneficiary designations previously filed shall be
cancelled. The Committee shall be entitled to rely on the last Beneficiary
Designation Form filed by the Participant and accepted by the Committee prior to
his or her death.
<PAGE>
8.3 Acknowledgment.
No designation or change in designation of a Beneficiary shall be effective
until received, accepted and acknowledged in writing by the Committee or its
designated agent.
8.4 No Beneficiary Designation.
If a Participant fails to designate a Beneficiary as provided in
Sections 8.1, 8.2 and 8.3 above or, if all designated Beneficiaries predecease
the Participant or die prior to complete distribution of the Participant's
benefits, then the Participant's spouse shall be the designated Beneficiary. If
the Participant has no surviving spouse, the benefits remaining under the Plan
shall be paid to the duly appointed and currently acting personal representative
of the Participant's estate (which shall include either the Participant's
probate estate or living trust) shall be the Beneficiary. In any case where
there is no such personal representative of the Participant's estate duly
appointed and acting in that capacity within 90 days after the Participant's
death (or such extended period as the Committee determines is reasonably
necessary to allow such personal representative to be appointed, but not to
exceed 180 days after the Participant's death), then Beneficiary shall mean the
person or persons who can verify by affidavit or court order to the satisfaction
of the Committee that they are legally entitled to receive the benefits under
this Plan.
8.5 Doubt as to Beneficiary.
If the Committee has any doubt as to the proper Beneficiary to receive
payments pursuant to this Plan, the Committee shall have the right, exercisable
in its discretion, to cause the Company to withhold such payments until this
matter is resolved to the Committee's satisfaction.
<PAGE>
8.6 Discharge of Obligations.
The payment of benefits under the Plan to a Beneficiary shall fully and
completely discharge the Company and the Committee from all further obligations
under this Plan with respect to the Participant, and that Participant's rights
under the Plan shall terminate upon such full payment of benefits.
8.7 Death of Spouse or Dissolution of Marriage.
A Participant's Beneficiary designation shall be deemed automatically
revoked if the Participant names a spouse as Beneficiary and the marriage is
later dissolved. Without limiting the generality of the preceding sentence, the
interest in benefits of a spouse of a Participant who has predeceased the
Participant or whose marriage has been dissolved shall automatically pass to the
Participant, and shall not be transferrable by such spouse in any manner,
including but not limited to such spouse's will, nor shall such interest pass
under the laws of intestate succession.
<PAGE>
ARTICLE IX
CLAIMS PROCEDURE
9.1 Presentation of Claim.
Any Participant or Beneficiary of a deceased Participant (such Participant
or Beneficiary being referred to below as a "Claimant") may deliver to the
Committee a written claim for a determination with respect to the amounts
distributable to such Claimant from the Plan. If such a claim relates to the
contents of a notice received by the Claimant, the claim must be made within
60 days after such notice was received by the Claimant. The claim must state
with particularity the determination desired by the Claimant. All other claims
must be made within 180 days of the date on which the event that caused the
claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
9.2 Notification of Decision.
The Committee shall consider a Claimant's claim within a reasonable time,
and shall notify the Claimant in writing:
(i) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(ii) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such notice must set
forth in a manner calculated to be understood by the Claimant:
(1) the specific reason(s) for the denial of the claim, or any
part of it;
(2) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(3) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an explanation of why such
material or information is necessary; and
<PAGE>
(4) an explanation of the claim review procedure set forth in
Section 9.3 below.
9.3 Review of a Denied Claim.
Within 60 days after receiving a notice from the Committee that a claim has
been denied, in whole or in part, a Claimant (or the Claimant's duly authorized
representative) may file with the Committee a written request for a review of
the denial of the claim. Thereafter, but not later than 30 days after the
review procedure began, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
9.4 Decision on Review.
The Committee shall render its decision on review promptly, and not later
than 60 days after the filing of a written request for review of the denial,
unless a hearing is held or other special circumstances require additional time,
in which case the Committee's decision must be rendered within 120 days after
such date. Such decision must be written in a manner calculated to be
understood by the Claimant, and it must contain:
(d) specific reasons for the decision;
(e) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(f) such other matters as the Committee deems relevant.
<PAGE>
9.5 Arbitration.
A Claimant's compliance with the foregoing provisions of this Article 9 is
a mandatory prerequisite to a Claimant's right to commence any arbitration
proceeding with respect to any claim for benefits under this Plan.
<PAGE>
ARTICLE X
ARBITRATION
Arbitration shall be the exclusive remedy for resolving any dispute or
controversy between the Company and any employee, Participant or Beneficiary,
including, but not limited to, any dispute regarding an employee's status as a
Participant, a Participant's employment or the termination of a Participant's
employment or any dispute regarding the application, interpretation or validity
of this Plan not otherwise resolved through the claims procedure set forth in
Article 9. Such arbitration shall be conducted in accordance with the then most
applicable rules of the American Arbitration Association. The arbitrator shall
be empowered to grant only such relief as would be available in a court of law.
In the event of any conflict between this Agreement and the rules of the
American Arbitration Association, the provisions of this Agreement shall be
determinative. If the parties are unable to agree upon an arbitrator, they
shall select a single arbitrator from a list designated by the office of the
American Arbitration Association having responsibility for the city in which the
Participant or Beneficiary last resided while employed by the Employer of seven
arbitrators, all of whom shall be retired judges who are actively involved in
hearing private cases or members of the National Academy of Arbitrators. If the
parties are unable to agree upon an arbitrator from such list, they shall each
strike names alternatively from the list, with the first to strike being
determined by lot. After each party has used three strikes, the remaining name
on the list shall be the arbitrator. The fees and expenses of the arbitrator
shall initially be borne equally by the parties; provided, however, that each
party shall initially be responsible for the fees and expenses of its own
representatives and witnesses. If the parties cannot agree upon a location for
the arbitration, the arbitrator shall determine the location. Judgment may be
entered on the award of the arbitrator in any court having jurisdiction. The
prevailing party in the arbitration proceeding, as determined by the arbitrator,
and in any enforcement or other court proceedings, shall be entitled to the
extent provided by law to reimbursement from the other party for all of the
prevailing party's costs (including but not limited to the arbitrator's
compensation), expenses and reasonable attorney's fees.
<PAGE>
ARTICLE XI
MISCELLANEOUS
11.1 Unsecured General Creditor.
Participants and their Beneficiaries, heirs, successors, and assigns shall
have no legal or equitable rights, claims, or interests in any specific property
or assets of any Company. No assets of the Company shall be held under any
trust, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. This Plan shall not cause the
Company's assets to be pledged or restricted. The Company's obligation under
the Plan shall be merely that of an unfunded and unsecured promise of that
Company to pay money in the future, and the rights of the Participants and
Beneficiaries shall be no greater than those of unsecured general creditors of
the Company. The Company may, but need not, acquire investments corresponding
to the Funds, and it is not under any obligation to maintain any investment it
may make. Any such investments, if made, shall be in the name of the Company,
and shall be its sole property in which no Participant shall have any interest.
The Plan is intended to be an unfunded plan for purposes of Title I of ERISA.
11.2 Restriction Against Assignment.
The Company shall pay all amounts payable hereunder only to the person or
persons designated by the Plan and not to or for any other person. No part of a
Participant's Deferral Account shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiary, or successors in
interest, nor shall a Participant's Deferral Account be subject to execution by
levy, attachment, or garnishment or by any other legal or equitable proceeding,
nor shall any such person have any right to alienate, anticipate, transfer,
commute, pledge, encumber, or assign any benefits or payments hereunder in any
manner whatsoever, except with regard to debts, contracts and engagements owed
to the Company. Any purported alienation, anticipation, transfer, commutation,
pledge, encumbrance, or assignment shall be void and of no effect, except with
regard to debts, contracts and engagements owed to the Company. If any
Participant, Beneficiary or successor in interest is adjudicated bankrupt, and
the Participant's rights to distribution or payment under the Plan are subject
to involuntary transfer or assignment in any such proceeding, the Committee may
in its discretion cancel such distribution or payment (or any part thereof) to
or for the benefit of such Participant, Beneficiary or successor in interest.
<PAGE>
11.3 Withholding.
There shall be deducted from each payment to a Participant or Beneficiary
made under the Plan all taxes which are required to be withheld by the Company
from such payment. If any taxes, including employment taxes with respect to the
Deferral Account, are required to be withheld prior to the time of payment, the
Company may withhold such amounts from other compensation paid to the
Participant.
11.4 Amendment, Modification, Suspension or Termination.
The Board of Directors may amend, modify, suspend or terminate the Plan in
whole or in part, except that no amendment, modification, suspension or
termination shall have any retroactive effect to reduce any amounts allocated to
a Participant's Deferral Account on the date of such termination. On the
termination of this Plan, the Board may cause the Deferral Accounts of
Participants to be immediately paid out in cash lump sum payments, or to be paid
at any other time or in any other manner the Board may determine, but not later
than the times such Deferral Accounts would otherwise be paid to Participants or
Beneficiaries.
11.5 Governing Law.
This Plan shall be construed, governed and administered in accordance with
the laws of the State of California, to the extent not preempted by ERISA.
<PAGE>
11.6 Receipt and Release.
Any payment to a Participant or the Participant's Beneficiary in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Committee and the Company. The Committee
may require such Participant or Beneficiary, as a condition precedent to such
payment, to execute a receipt and release to such effect.
11.7 Payments on Behalf of Persons Under Incapacity.
In the event that any amount becomes payable under the Plan to a person
who, in the sole judgment of the Committee, is considered by reason of physical
or mental condition to be unable to give a valid receipt therefor, the Committee
may direct that such payment be made to any person found by the Committee, in
its sole judgment, to have assumed the care of such person. Any payment made
pursuant to such determination shall constitute a full release and discharge of
the Committee and the Company.
11.8 No Employment Rights.
Participation in this Plan shall not confer upon any person any right to be
employed by the Company nor any other right not expressly provided hereunder.
11.9 Headings Not Part of Agreement.
Headings and subheadings in this Plan are inserted for convenience of
reference only and are not to be considered in the construction of the
provisions hereof.
11.10 ERISA.
This Plan constitutes a pension benefit plan within the meaning of
Section 3(2) of ERISA, which is unfunded and maintained for the purpose of
providing deferred compensation for a select group of management or highly
compensation employees. This Plan constitutes the "Summary Plan Description"
required under ERISA, as well as the governing document of the Plan. The
Committee is the Administrator of the Plan, within the meaning of Section 3(16)
of ERISA, and the Named Fiduciary thereof, within the meaning of Section 402 of
ERISA, is the Committee.
<PAGE>
11.11 Validity.
In case any provision of this Plan shall be illegal or invalid for any
reason, said illegality or invalidity shall not affect the remaining parts
hereof, but this Plan shall be construed and enforced as if such illegal and
invalid provision had never been inserted herein.
11.12 Distribution in the Event of Taxation.
If, for any reason, all or any portion of a Participant's benefit under
this Plan becomes taxable to the Participant prior to receipt, a Participant may
petition the Committee for a distribution of that portion of his or her benefit
that has become taxable. Upon the grant of such a petition, which the Committee
may grant or refrain from granting in its sole discretion, the Company shall
distribute to the Participant immediately available funds in an amount equal to
the taxable portion of his or her benefit (which amount shall not exceed the
balance in such Participant's Deferral Account as of the last day of the
calendar month before such distribution). If the petition is granted, the tax
liability distribution shall be made within ninety (90) days of the date when
the Participant's petition is granted.
IN WITNESS WHEREOF, Williams-Sonoma, Inc. has caused this document to be
executed on this 6th day of November, 1997.
WILLIAMS-SONOMA, INC.
/s/D.A. Chantland
-----------------
<PAGE>
EXHIBIT 11: COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
November 2, October 27, November 2, October 27,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $3,245,000 $ 231,000 $7,051,000 $(2,770,000)
Average shares of common stock
outstanding during the period 25,775,083 25,499,092 25,620,003 25,452,830
Incremental shares from assumed
exercise of stock options(primary) 1,282,635 954,129 1,133,276 *
---------- ---------- ---------- -----------
27,057,718 26,453,221 26,753,279 25,452,830
---------- ---------- ---------- -----------
Primary earnings (loss) per share $ 0.12 $ 0.01 $ 0.26 $ (0.11)
========== ========== ========== ===========
Average shares of common stock
outstanding during the period 25,775,083 25,499,092 25,620,003 25,452,830
Incremental shares from assumed exercise
of stock options (fully diluted) **1,282,635 **1,011,409 **1,214,454 *
---------- ---------- ---------- -----------
27,057,718 26,510,501 26,834,457 25,452,830
---------- ---------- ---------- -----------
Fully diluted earnings (loss) per share $ 0.12 $ 0.01 $ 0.26 $ (0.11)
========== ========== ========== ===========
</TABLE>
* Incremental shares from assumed exercise of stock options and convertible
debt are antidilutive for primary and fully diluted loss per share, and
therefore not presented.
** Incremental shares from assumed conversion of convertible debt are
antidilutive for fully diluted earnings per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> NOV-02-1997
<CASH> 3624
<SECURITIES> 0
<RECEIVABLES> 25768
<ALLOWANCES> 0
<INVENTORY> 169792
<CURRENT-ASSETS> 229405
<PP&E> 295265
<DEPRECIATION> 100531
<TOTAL-ASSETS> 430827
<CURRENT-LIABILITIES> 129715
<BONDS> 86436
0
0
<COMMON> 11466
<OTHER-SE> 143678
<TOTAL-LIABILITY-AND-EQUITY> 430827
<SALES> 562825
<TOTAL-REVENUES> 562825
<CGS> 353219
<TOTAL-COSTS> 353219
<OTHER-EXPENSES> 194461
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 2988
<INCOME-PRETAX> 12157
<INCOME-TAX> 5106
<INCOME-CONTINUING> 7051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7051
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
