<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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 August 3, 1997.
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[ ] 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
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WILLIAMS-SONOMA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3250 Van Ness Avenue, San Francisco, CA 94109
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(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 September 9, 1997, 25,792,737 shares of the Registrant's Common
Stock were outstanding.
<PAGE> 2
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 3, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
August 3, 1997, February 2, 1997, and July 28, 1996
Condensed Consolidated Statements of Operations
Thirteen weeks ended August 3, 1997 and July 28, 1996
Twenty-six weeks ended August 3, 1997 and July 28, 1996
Condensed Consolidated Statements of Cash Flows
Twenty-six weeks ended August 3, 1997 and July 28, 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 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
</TABLE>
<PAGE> 3
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 3, February 2, July 28,
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 27,266 $ 78,802 $ 6,176
Accounts receivable (net) 15,273 11,918 9,737
Merchandise inventories 125,709 110,702 101,284
Prepaid expenses and other assets 10,322 8,674 12,957
Prepaid catalog expenses 6,993 11,925 11,342
Deferred income taxes 4,028 4,028 139
-------- -------- --------
Total current assets 189,591 226,049 141,635
Property and equipment (net) 185,256 172,093 163,453
Investments and other assets (net) 6,160 5,824 7,867
Deferred income taxes 451 451 4,040
-------- -------- --------
$381,458 $404,417 $316,995
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 46,120 $ 64,409 $ 47,824
Accrued expenses 12,064 12,514 7,990
Accrued salaries and benefits 13,183 16,116 8,747
Customer deposits 13,672 13,801 9,846
Income taxes payable 2,900 15,715 --
Current portion of long-term obligations 125 125 125
Other liabilities 6,235 6,801 3,188
-------- -------- --------
Total current liabilities 94,299 129,481 77,720
Deferred lease credits and other liabilities 46,318 39,579 33,213
Long-term debt 89,534 89,319 86,854
Shareholders' equity 151,307 146,038 119,208
-------- -------- --------
$381,458 $404,417 $316,995
======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ ------------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $182,427 $ 155,499 $358,962 $ 312,895
Costs and expenses:
Cost of goods sold and occupancy 116,667 101,644 226,694 204,419
Selling, general and administrative 60,662 53,451 124,003 110,631
-------- --------- -------- ---------
Total costs and expenses 177,329 155,095 350,697 315,050
-------- --------- -------- ---------
Earnings (loss) from operations 5,098 404 8,265 (2,155)
Interest expense (net) 929 1,476 1,703 3,017
-------- --------- -------- ---------
Earnings (loss) before income taxes 4,169 (1,072) 6,562 (5,172)
Income taxes (benefit) 1,752 (450) 2,756 (2,172)
-------- --------- -------- ---------
Net earnings (loss) $ 2,417 $ (622) $ 3,806 $ (3,000)
======== ========= ======== =========
Earnings (loss) per share:
Primary and fully diluted $ 0.09 $ (0.02) $ 0.14 $ (0.12)
Average number of common shares
outstanding:
Primary 26,802 25,460* 26,678 25,442*
Fully diluted 26,885** 25,460* 26,777** 25,442*
</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> 5
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
August 3, July 28,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 3,806 $ (3,000)
Adjustments to reconcile net earnings (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 13,745 10,917
Amortization of deferred lease incentives (2,173) (1,493)
Change in:
Accounts receivable (3,355) 3,421
Merchandise inventories (15,007) 20,319
Deferred rents (218) (257)
Prepaid catalog expenses 4,932 4,271
Prepaid expenses and other assets (1,648) (6,451)
Accounts payable (18,289) (10,471)
Accrued expenses and other liabilities (3,064) (1,371)
Deferred lease incentives 9,131 6,385
Income taxes payable (12,815) (1,947)
-------- ---------
Net cash provided by (used in)
operating activities (24,955) 20,323
-------- ---------
Cash flows from investing activities:
Purchases of property and equipment (27,751) (28,038)
Other investments (506) --
-------- ---------
Net cash used in investing activities (28,257) (28,038)
-------- ---------
Cash flows from financing activities:
Borrowings under line of credit 3,900 119,180
Repayments under line of credit (3,900) (148,780)
Proceeds from issuance of long-term debt -- 40,000
Debt issuance costs -- (1,327)
Repayment of long-term debt (313) (31)
Proceeds from exercise of stock options 1,462 555
Change in other long-term liabilities 527 128
-------- ---------
Net cash provided by financing activities 1,676 9,725
-------- ---------
Net increase (decrease) in cash and
cash equivalents (51,536) 2,010
Cash and cash equivalents at beginning
of period 78,802 4,166
-------- ---------
Cash and cash equivalents at end of period $ 27,266 $ 6,176
======== =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Twenty-six Weeks Ended August 3, 1997 and July 28, 1996
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of August 3, 1997 and July 28,
1996, the condensed consolidated statements of operations for the thirteen and
twenty-six week periods ended August 3, 1997 and July 28, 1996, and condensed
consolidated statements of cash flows for the twenty-six week periods ending
August 3, 1997 and July 28, 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 twenty-six 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 twenty-six weeks ended August 3,
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> 7
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 Twenty-Six Weeks Ended
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma earnings (loss) per share
Basic $0.09 $(0.02) $0.15 $(0.12)
Diluted $0.09 $(0.02) $0.14 $(0.12)
</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> 8
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 Twenty-Six Weeks Ended
August 3, 1997 July 28, 1996 August 3, 1997 July 28, 1996
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Sales $116,264 63.7% $ 99,778 64.2% $222,520 62.0% $190,863 61.0%
Catalog Sales 66,163 36.3% 55,721 35.8% 136,442 38.0% 122,032 39.0%
-------- ----- -------- ----- -------- ----- -------- -----
Total Net Sales 182,427 100.0% 155,499 100.0% 358,962 100.0% 312,895 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and subsidiaries (the Company) for the 13
weeks ended August 3, 1997 (Second Quarter of 1997) were $182,427,000 -- an
increase of $26,928,000 (17.3%) over net sales for the 13 weeks ended July
28, 1996 (Second Quarter of 1996). Net sales for the 26-week period ended August
3, 1997 (Year-to-Date 1997) were $358,962,000, a 14.7% increase from the 26-week
period ended July 28, 1996 (Year-to-Date 1996).
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
(Dollars in thousands) August 3, 1997 July 28, 1996 August 3, 1997 July 28, 1996
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Total retail sales $116,264 $ 99,778 $222,520 $190,863
Retail growth percentage 16.5% 33.3% 16.6% 36.3%
Comparable store sales growth 2.7% 2.6% 1.4% 4.8%
Number of stores - beginning of period 260 244 256 240
Number of new stores 16 6 22 12
Number of closed stores 12 4 14 6
Number of stores - end of period 264 246 264 246
Store selling area at quarter-end (sq. ft.) 900,361 750,273 900,361 750,273
</TABLE>
Retail sales for the Second Quarter of 1997 increased 16.5% over retail sales
for the Second Quarter of 1996 primarily due to a net increase of 18 stores.
Year-to-Date 1997 retail sales increased 16.6% over the same period of the prior
year. The Company operated 264 stores at the end of the Second Quarter of 1997
as compared to 246 stores at the end of the same period during the prior year.
During the Second Quarter of 1997, the Company opened 16 stores (8
Williams-Sonoma, 4 Pottery Barn, 2 Hold Everything and 2 Clearance Centers) and
closed 12 smaller stores (7 Williams-Sonoma, 3 Hold Everything, 1 Pottery Barn
and 1 Clearance Center). Pottery Barn, which represented 31.1% of the locations
at the end of the Second Quarter of 1997, accounted for 59.1% and 57.8% of the
growth in retail sales for the Second Quarter of 1997 and Year-to-Date 1997,
respectively.
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 twelve months. Comparable store sales are compared monthly for
purposes of this analysis. Comparable store sales grew 2.7% in the Second
Quarter of 1997, and 1.4% for Year-to-Date 1997. Comparable store sales for
Pottery Barn stores were slightly negative in both of these periods.
The Company opened its first large-format store in fiscal 1994. 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
<PAGE> 9
2,800 - 4,600 selling square feet (4,200 - 6,500 gross square feet) for
Williams-Sonoma, and enable the Company to more clearly display merchandise.
Large-format stores accounted for 54.0% and 53.2% of Second Quarter of 1997 and
Year-to-Date 1997 retail sales, respectively. As of the end of the Second
Quarter of 1997, 107 stores (66 Williams-Sonoma and 41 Pottery Barn) were in
the large format.
CATALOG SALES
Catalog sales in the Second Quarter of 1997 and the Second Quarter of 1996
increased 18.7% and 5.4%, respectively, over the same period of the prior year
in each case. For 1997 Year-to-Date, catalog sales increased 11.8% over the same
period of 1996.
The following table reflects catalog sales growth (loss) percentages by concept:
<TABLE>
<CAPTION>
Percentage Growth (Loss)
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 3, 1997 July 28, 1996 August 3, 1997 July 28, 1996
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Williams-Sonoma 36.8% 1.3% 27.7% 2.9%
Pottery Barn 27.7% 6.0% 11.9% 28.0%
Hold Everything 29.1% (6.6%) 16.5% 4.6%
Gardeners Eden (9.1%) 7.8% (6.1%) 7.6%
Chambers (20.3%) 26.5% (3.7%) 15.1%
Total catalog 18.7% 5.4% 11.8% 15.3%
</TABLE>
Combined sales for Williams-Sonoma and Pottery Barn, the Company's primary
concepts, comprised approximately 65.4% and 65.8% of total catalog sales for the
Second Quarter of 1997 and Year-to-Date 1997, respectively. The number of
catalogs mailed in the Second Quarter of 1997 as compared to the same period of
1996 increased 24.3% for Pottery Barn and 12.3% for Williams-Sonoma. The total
number of catalogs mailed, which had remained relatively flat in the Second
Quarter of 1996 as compared to the same period of the previous year, increased
17.6% in the Second Quarter of 1997 as compared to the Second Quarter of 1996.
Other factors contributing to the sales growth in the Williams-Sonoma, Pottery
Barn and Hold Everything concepts were a reduction in the return rate and an
improved in-stock position.
The reductions in sales for Chambers and Gardeners Eden reflect poor performance
in the Spring catalogs, partly as a result of transition in the merchandising
staff.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expenses expressed as a percent of net sales in
the Second Quarter of 1997 decreased 1.4 percentage points to 64.0% from 65.4%
in the same period of the prior year. Merchandise margin improved 1.6 percentage
points, principally due to promotionally-driven catalog sales in the Second
Quarter of 1996. Occupancy expenses expressed as a percentage of net sales
increased slightly in the Second Quarter of 1997, primarily as a result of
occupancy costs for the Company's Las Vegas call center, which opened in the
third quarter of 1996.
For the Year-to-Date 1997, the cost of goods sold and occupancy expenses as a
percent of net sales decreased 2.1 percentage points, from 65.3% for the same
period of 1996 to 63.2%. Merchandise margins improved 2.5 percentage points,
partially as a result of markdowns taken in the first quarter of 1996 which
significantly reduced overstocks and slow-moving items. The occupancy expense
rate increased 0.4
<PAGE> 10
percentage points, primarily due to the opening of the Las Vegas call center,
and additional depreciation following completion of the expansion and upgrade of
the Memphis distribution center.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses expressed as a percent of net sales
decreased 1.1 percentage points to 33.3% in the Second Quarter of 1997 from
34.4% in the Second Quarter of 1996. This reduction is primarily attributable to
lower shipping expense and packing supply expense rates for the catalog
division, principally due to fewer sale items, improved fulfillment rates and a
reduction of the return rates. The improvement in these measures is largely the
result of improved merchandise planning and better quality control over the
merchandise and its packaging.
Selling, general and administrative expense rates for Year-to-Date 1997 improved
0.9 percentage points over the Year-to-Date 1996. This is primarily due to lower
shipping expense rates and lower advertising expense rates. Year-to-Date 1997
advertising expense as a percent of net sales decreased .2 percentage points
for the catalog division as compared to the prior year. For the total company,
the 1997 Year-to-Date advertising expense rate decreased .6 percentage points.
INTEREST EXPENSE
Interest expense for the Second Quarter of 1997 decreased $547,000 to $929,000
from $1,476,000 for the Second Quarter of 1996. This is primarily due to the
Company's 1996 fourth quarter performance, which enabled the Company to start
fiscal 1997 with $78,802,000 in cash and equivalents. As a result, the Company
had an average investment balance of $27,558,000 for the Second Quarter of 1997,
versus average short-term borrowings of $5,660,000 for the Second Quarter of
1996. Year-to-Date 1997 interest expense was $1,703,000, representing a decrease
of $1,314,000 from the same period of the prior year. On April 15, 1996, the
Company issued $40,000,000 principal amount of 5.25% convertible notes due April
15, 2003 (Convertible Notes). See Note B to the condensed consolidated financial
statements.
INCOME TAXES
The Company's effective tax rate was 42.0% for the Second Quarter and
Year-to-Date of 1997 and 1996. This rate reflects the affect 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
For Year-to-Date 1997, net cash used in operating activities was $24,955,000,
representing a change of $45,278,000 from the $20,323,000 of cash provided by
operating activities in the same period of 1996. The majority of the change is
due to the fact that in the first quarter of 1996, the Company was liquidating
inventories to reduce overstocks and slow-moving items. Due to improved
merchandise planning and control, the Company was in the more typical position
of building inventories during the first two quarters of 1997 and expects to
continue to do so in the third quarter in response to growth and seasonal
requirements. The income tax liability during Year-to-Date 1997 decreased
$12,815,000, 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 as a result of the improved profitability of 1996 as
compared to 1995.
Net cash used in investing activities of $28,257,000 for the Year-to-Date 1997
was primarily for new stores. The Company is planning $64,500,000 of gross
capital expenditures in 1997 (approximately $42,200,000 net of tenant
improvement allowances), including $10,000,000 for information systems.
<PAGE> 11
For Year-to-Date 1997, cash provided by financing activities was $1,676,000 as
compared to $9,725,000 for the same period of 1996. On April 15, 1996, the
Company issued the Convertible Notes, which 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 primary bank. See Note B to the
condensed consolidated financial statements.
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 mail order and retail industries. In anticipation of its
peak season, the Company hires a substantial number of additional employees in
its retail stores and mail order 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> 12
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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on May 28, 1997.
(b) At the Company's 1997 Annual Meeting of Shareholders, the shareholders took
the following actions:
(I) The shareholders elected Adrian D.P. Bellamy by the vote indicated to
serve as a director of the Company until the next Annual Meeting of
Shareholders or until his successor is elected and qualified:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Adrian D.P. Bellamy 21,145,391 223,724
</TABLE>
The shareholders re-elected each of the following persons by the
vote indicated to serve as a director of the Company until the next
Annual Meeting of Shareholders or until his successor is elected
and qualified:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Charles E. Williams 21,139,217 229,898
W. Howard Lester 21,144,192 224,923
James A. McMahan 21,137,158 231,957
Nathan Bessin 21,146,391 222,724
Patrick J. Connolly 21,146,118 222,997
Gary G. Friedman 21,146,401 222,714
James M. Berry 21,146,676 222,439
Millard S. Drexler 18,552,883 2,816,232
John E. Martin 18,541,405 2,827,710
</TABLE>
(II) The shareholders approved by the vote indicated the Amended and
Restated 1993 Stock Option Plan:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
20,402,141 829,365 37,609
</TABLE>
(III) The shareholders ratified by the vote indicated the selection of
Deloitte & Touche LLP as the independent accountants for the
Company's fiscal year ending February 1, 1998:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
21,350,381 7,915 10,819
</TABLE>
<PAGE> 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------ -------------------
<S> <C>
10.1 Amended and Restated Standing Loan Agreement between the Company and
Bank of America, NT & SA, dated June 1, 1997 (incorporated by
reference to Exhibit 10.1 to the Company's Report on Form 10-Q for
the period ended May 4, 1997 as filed with the Commission on June 17,
1997).
10.2 Credit Agreement between the Company and Bank of America, NT & SA,
dated June 1, 1997 (incorporated by reference to Exhibit 10.2 to the
Company's Report on Form 10-Q for the period ended May 4, 1997 as
filed with the Commission on June 17, 1997).
10.2A Agreement Re: Intercreditor Agreement, dated May 22, 1997
(incorporated by reference to Exhibit 10.2A to the Company's Report
on Form 10-Q for the period ended May 4, 1997 as filed with the
Commission on June 17, 1997).
10.2B Continuing Guaranty from Pottery Barn East, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2B to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.2C Continuing Guaranty from Hold Everything, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.2C to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.2D Continuing Guaranty from Williams-Sonoma Stores, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2D to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.2E Continuing Guaranty from Chambers Catalog Company, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.2E to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.2F Continuing Guaranty from Gardeners Eden, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.2F to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.3 Letter of Credit Agreement between the Company and Bank of America,
NT & SA dated June 1, 1997 (incorporated by reference to Exhibit 10.3
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
</TABLE>
<PAGE> 14
<TABLE>
<S> <C>
10.3A One Bank Guaranty from Pottery Barn East, Inc. to Bank of America,
NT & SA, dated June 1, 1997 (incorporated by reference to Exhibit
10.3A to the Company's Report on Form 10-Q for the period ended May
4, 1997 as filed with the Commission on June 17, 1997).
10.3B One Bank Guaranty from Hold Everything, Inc. to Bank of America, NT
& SA, dated June 1, 1997 (incorporated by reference to Exhibit 10.3B
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
10.3C One Bank Guaranty from Williams-Sonoma Stores, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.3C to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.3D One Bank Guaranty from Chambers Catalog Company, Inc. to Bank of
America, NT & SA, dated June 1, 1997 (incorporated by reference to
Exhibit 10.3D to the Company's Report on Form 10-Q for the period
ended May 4, 1997 as filed with the Commission on June 17, 1997).
10.3E One Bank Guaranty from Gardeners Eden, Inc. to Bank of America, NT
& SA, dated June 1, 1997 (incorporated by reference to Exhibit 10.3E
to the Company's Report on Form 10-Q for the period ended May 4, 1997
as filed with the Commission on June 17, 1997).
10.4 Amendment Number Seven to the Williams-Sonoma, Inc. Employee
Profit Sharing and Stock Incentive Plan, dated May 1, 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> 15
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: September 12, 1997
<PAGE> 1
EXHIBIT 10.4
AMENDMENT NUMBER SEVEN TO THE WILLIAMS-SONOMA, INC.
EMPLOYEE PROFIT SHARING AND STOCK INCENTIVE PLAN
Williams-Sonoma, Inc., a California corporation (the "Company"), hereby
adopts this Amendment Number Seven to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, with reference to the following facts:
A. The Company maintains the Williams-Sonoma, Inc. Employee Profit Sharing
and Stock Incentive Plan (the "Plan").
B. Article XV of the Plan permits the Company to amend the Plan at any
time.
C. The Company desires to amend the Plan as set forth in this Amendment
Number Seven.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Effective May 1, 1997, the name of the Plan shall be the
"Williams-Sonoma, Inc. Associate Stock Incentive Plan."
2. Effective as of May 1, 1997, Section 1.20 is hereby amended in its
entirety to provide as follows:
1.20. "Entry Date" means the day after the day on which an eligible
Employee satisfies the requirements for participation under Section 3.01.
3. Effective as of January 1, 1994, Section 1.38 is hereby amended
in its entirety to provide as follows:
1.38. "Quarterly Valuation Date" means March 31, June 30, September 30,
and December 31.
4. Effective as of May 1, 1997, the second sentence of paragraph 1 of
Section 1.48 (dealing with the weekly crediting of Hours of Service to Salaried
Employees, as heretofore added
<PAGE> 2
by Amendment Number One and Amendment Number Four to the Plan) is hereby
deleted.
5. Effective as of May 1, 1997, Section 3.01 is hereby amended
in its entirety to provide as follows:
3.01. Eligibility to Participate. Every Eligible Employee whom the
Company designates to the Committee as a "Non-Limited Employee" shall
become a Participant on the Entry Date following the later of (a) the
thirtieth (30th) day after such Eligible Employee's date of hire, or (b)
such Eligible Employee's twenty-first (21st) birthday. Each Eligible
Employee whom the Company designates to the Committee as a "Limited
Employee" shall become a Participant on the Entry Date following the
later of (i) the thirtieth (30th) day after the date on which such
Eligible Employee completes one thousand (1,000) Hours of Service within
an "Eligibility Computation Period" (as defined below), or (ii) such
Eligible Employee's twenty-first (21st) birthday. For purposes of this
Plan, the term "Eligibility Computation Period" means the period of
twelve (12) consecutive months beginning on the Eligible Employee's
Employment Commencement Date, the Plan Year including the first
anniversary of such Employment Commencement Date, and each succeeding
Plan Year.
6. Effective for the first payroll period beginning on or
after May 5, 1997 for Williams-Sonoma Store Associates, and for the first
payroll period beginning on or after May 12, 1997 for all other Associates
(including, but not limited to, Memphis Distribution Center Associates and
Non-Exempt Associates), Section 6.01 is hereby amended in its entirety to
provide as follows:
6.01. Amount of Matching Contributions. The Company shall make
Matching Contributions to the Trust. As of each Quarterly Valuation
Date, the Company shall contribute to the Matching Contribution Account
of each Participant an amount equal to one hundred percent (100%) of the
Salary Deferral Contributions made by such Participant to the extent
that such Salary Deferral Contributions do not exceed six percent (6%)
of such Participant's Compensation; provided, however, that the
percentage level of the Matching Contributions may be altered for any
Plan year by the resolution of the Board of Directors adopted before
the
-2-
<PAGE> 3
first day of such Plan Year, and provided, further, that Salary Deferral
Contributions shall not be matched to the extent that they are not
allocated to the Company Stock Account pursuant to Section 9.01.
7. In all other respects, the terms and provisions of the Plan
are hereby ratified and declared to be in full force and effect.
IN WITNESS WHEREOF, the Company has executed this Amendment
Number Seven as of this 1st day of May, 1997.
WILLIAMS-SONOMA, INC.
By: /s/ G. Andrew Rich
----------------------
G. Andrew Rich
-3-
<PAGE> 1
EXHIBIT 11: COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
August 3, July 28, August 3, July 28,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ 2,417,000 $ (622,000) $ 3,806,000 $ (3,000,000)
Average shares of common stock
outstanding during the period 25,600,314 25,459,808 25,585,681 25,441,935
Incremental shares from assumed
exercise of stock options (primary) 1,201,663 * 1,092,487 *
----------- ------------ ----------- ------------
26,801,977 25,459,808 26,678,168 25,441,935
----------- ------------ ----------- ------------
Primary earnings (loss) per share $ 0.09 $ (0.02) $ 0.14 $ (0.12)
=========== ============ =========== ============
Average shares of common stock
outstanding during the period 25,600,314 25,459,808 25,585,681 25,441,935
Incremental shares from assumed
exercise of stock options (fully **1,284,220 * **1,191,551 *
diluted)
----------- ------------ ----------- ------------
26,884,534 25,459,808 26,777,232 25,441,935
----------- ------------ ----------- ------------
Fully diluted earnings (loss) per
share $ 0.09 $ (0.02) $ 0.14 $ (0.12)
=========== ============ =========== ============
</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 TWENTY-SIX WEEKS ENDED AUGUST 3, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> AUG-03-1997
<CASH> 27,266
<SECURITIES> 0
<RECEIVABLES> 15,273
<ALLOWANCES> 0
<INVENTORY> 125,709
<CURRENT-ASSETS> 189,591
<PP&E> 280,215
<DEPRECIATION> 94,959
<TOTAL-ASSETS> 381,458
<CURRENT-LIABILITIES> 94,299
<BONDS> 86,467
0
0
<COMMON> 11,466
<OTHER-SE> 139,841
<TOTAL-LIABILITY-AND-EQUITY> 381,458
<SALES> 358,962
<TOTAL-REVENUES> 358,962
<CGS> 226,694
<TOTAL-COSTS> 226,694
<OTHER-EXPENSES> 124,003
<LOSS-PROVISION> 96
<INTEREST-EXPENSE> 1,703
<INCOME-PRETAX> 6,562
<INCOME-TAX> 2,756
<INCOME-CONTINUING> 3,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,806
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
