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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 August 1, 1999.
[ ] 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.
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(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
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(State or Other Jurisdiction (I.R.S. Employer
of 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
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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 8, 1999, 56,011,388 shares of the Registrant's Common
Stock were outstanding.
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WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 1, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
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PAGE
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Item 1. Financial Statements (2)
Condensed Consolidated Balance Sheets
August 1, 1999, January 31, 1999, and August 2, 1998
Condensed Consolidated Statements of Operations
Thirteen weeks ended August 1, 1999
and August 2, 1998
Twenty-six weeks ended August 1, 1999
and August 2, 1998
Condensed Consolidated Statements of Cash Flows
Twenty-six weeks ended August 1, 1999
and August 2, 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (7)
Item 3. Quantitative and Qualitative Disclosure about
Market Risk (10)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (12)
Item 4. Submission of Matters to a Vote of Security Holders (12)
Item 6. Exhibits and Reports on Form 8-K (13)
</TABLE>
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
August 1, January 31, August 2,
1999 1999 1998
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,219 $107,308 $ 37,896
Accounts receivable (net) 25,321 20,082 18,408
Merchandise inventories 234,358 173,160 152,247
Prepaid expenses and other assets 10,989 8,985 9,333
Prepaid catalog expenses 12,859 13,154 12,485
Deferred income taxes 4,077 4,077 3,680
-------- -------- --------
Total current assets 293,823 326,766 234,049
Property and equipment (net) 276,734 243,119 213,742
Investments and other assets (net) 7,636 6,360 5,823
-------- -------- --------
Total assets $578,193 $576,245 $453,614
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 72,417 $ 70,964 $ 44,697
Accrued expenses 22,134 24,003 24,028
Line of credit 8,000 -- --
Customer deposits 27,603 26,659 19,171
Income taxes payable 1,075 19,529 153
Current portion of long-term debt 6,368 6,368 125
Other liabilities 6,426 6,377 5,516
-------- -------- --------
Total current liabilities 144,023 153,900 93,690
Deferred lease credits 76,811 72,327 62,641
Deferred tax liability 3,339 3,339 2,439
Long-term debt and other liabilities 45,315 44,649 50,587
Commitments and contingencies -- -- --
Shareholders' equity
Common stock 106,191 109,708 100,841
Retained earnings 202,514 192,322 143,416
-------- -------- --------
Total shareholders' equity 308,705 302,030 244,257
Total liabilities and shareholders' equity $578,193 $576,245 $453,614
======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
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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 1, August 2, August 1, August 2,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $264,000 $215,262 $522,676 $421,472
Costs and expenses:
Cost of goods sold and occupancy 166,078 135,248 325,972 263,171
Selling, general and administrative 89,848 73,336 183,183 147,695
-------- -------- -------- --------
Total costs and expenses 255,926 208,584 509,155 410,866
-------- -------- -------- --------
Earnings from operations 8,074 6,678 13,521 10,606
Gain on sale of assets 4,000 -- 4,000 --
Interest expense (net) 638 163 675 452
-------- -------- -------- --------
Earnings before income taxes 11,436 6,515 16,846 10,154
Income taxes 4,518 2,671 6,654 4,163
-------- -------- -------- --------
Net earnings $ 6,918 $ 3,844 $ 10,192 $ 5,991
======== ======== ======== ========
Earnings per share:
Basic $ 0.12 $ 0.07 $ 0.18 $ 0.11
Diluted $ 0.12 $ 0.07 $ 0.17 $ 0.11
Average number of common shares outstanding:
Basic 55,671 55,484 55,725 53,587
Diluted 58,294 57,852 58,402 55,947
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
---------------------------
August 1, August 2,
1999 1998
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Cash flows from operating activities:
Net earnings $ 10,192 $ 5,991
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 19,448 15,571
Net gain on sale/disposal of assets (2,850) --
Amortization of deferred lease incentives (3,953) (2,959)
Other 112 151
Change in:
Accounts receivable (5,238) (3,170)
Merchandise inventories (63,870) (19,796)
Prepaid catalog expenses (1,334) 1,111
Prepaid expenses and other assets (2,005) (1,342)
Accounts payable 1,453 (13,799)
Accrued expenses and other liabilities (1,810) (10,092)
Deferred lease incentives 8,437 9,442
Income taxes payable (18,454) (17,063)
--------- ---------
Net cash used in operating activities (59,872) (35,955)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (54,273) (31,233)
Proceeds from landlord for store closure -- 2,117
Net proceeds from the sale of Gardeners Eden 9,101 --
Other (102) --
--------- ---------
Net cash used in investing activities (45,274) (29,116)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit 11,750 --
Repayments under line of credit (3,750) --
Repayment of long-term obligations (427) (311)
Proceeds from exercise of stock options 1,222 6,064
Repurchase of common stock (4,738) --
--------- ---------
Net cash provided by financing activities 4,057 5,753
--------- ---------
Net decrease in cash and cash equivalents (101,089) (59,318)
Cash and cash equivalents at beginning of period 107,308 97,214
--------- ---------
Cash and cash equivalents at end of period $ 6,219 $ 37,896
========= =========
Non-cash financing activity:
Conversion of convertible notes to equity $ 39,004
</TABLE>
See Notes to Condensed Financial Statements
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Twenty-six Weeks Ended August 1, 1999 and August 2, 1998
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of August 1, 1999 and August 2,
1998, the condensed consolidated statements of operations for the thirteen and
twenty-six week periods ended August 1, 1999 and August 2, 1998 and the
condensed consolidated statements of cash flows for the twenty-six week periods
ended August 1, 1999 and August 2, 1998 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 January 31, 1999, presented herein,
has been derived from the audited balance sheet of the Company included in the
Company's Form 10-K for the fiscal year ended January 31, 1999.
Certain information and disclosures normally included in the notes to annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These condensed 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 January
31, 1999.
Certain reclassifications have been made to the prior period financial
statements to conform to classifications used in the current period.
The results of operations for the thirteen and twenty-six weeks ended August 1,
1999 are not necessarily indicative of the operating results of the full year.
NOTE B. DEBT
The Company's amended and restated syndicated line of credit facility, which
expires on May 31, 2001, provides for $50,000,000 in cash advances, and contains
certain restrictive loan covenants, including minimum tangible net worth, a
minimum out-of-debt period, fixed charge coverage requirements and a prohibition
on payment of cash dividends. Additionally, the Company has a one-year
$65,000,000 letter-of-credit agreement expiring on May 31, 2000 with its lead
bank.
On August 1, 1999, the Company had $8,000,000 of borrowings outstanding under
the line of credit facility and $49,878,000 of outstanding letters of credit.
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NOTE C. EARNINGS PER SHARE
Basic earnings per share is computed as net income divided by the weighted
average number of common shares outstanding for the period. Diluted earnings per
share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities.
NOTE D. SEGMENT REPORTING
Williams-Sonoma, Inc. has two reportable segments: retail and catalog. The
retail segment sells products for the home through its three retail concepts:
Williams-Sonoma, Pottery Barn and Hold Everything. The catalog segment sells
similar products through its four direct-mail catalogs: Williams-Sonoma, Pottery
Barn (including Pottery Barn Kids), Hold Everything and Chambers.
In May 1999 the Company sold its Gardners Eden catalog business to Brookstone,
Inc. As result of this sale, the Company recorded a $4 million pre-tax gain,
which is reflected in catalog earnings before income taxes in the segment
information below.
These reportable segments are strategic business units that offer similar
home-centered products. They are managed separately because each business unit
utilizes two distinct distribution and marketing strategies.
The accounting policies of the segments, where applicable, are the same as those
described in the summary of significant accounting policies detailed in the
Company's most recent annual report on Form 10-K filed with the Securities and
Exchange Commission. Williams-Sonoma uses earnings before unallocated corporate
overhead, interest and taxes to evaluate segment profitability. Unallocated
assets include corporate cash and equivalents, the net book value of corporate
facilities and related information systems, deferred tax amounts and other
corporate long-lived assets.
SEGMENT INFORMATION --
Dollars in thousands
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<CAPTION>
Retail Catalog Unallocated Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Second Quarter 1999
Revenues $172,500 $ 91,500 $ -- $264,000
Earnings before income taxes 10,853 18,517 (17,934) 11,436
Second Quarter 1998
Revenues $141,658 $ 73,604 $ -- $215,262
Earnings before income taxes 9,917 9,239 (12,641) 6,515
</TABLE>
Dollars in thousands
<TABLE>
<CAPTION>
Retail Catalog Unallocated Total
-------- -------- ----------- --------
<S> <C> <C> <C> <C>
Second Quarter 1999 - YTD
Revenues $330,851 $191,825 $ -- $522,676
Earnings before income taxes 20,988 30,200 (34,342) 16,846
Segment Assets 386,476 136,627 55,090 578,193
Second Quarter 1998 - YTD
Revenues $270,675 $150,797 $ -- $421,472
Earnings before income taxes 19,064 16,048 (24,958) 10,154
Segment Assets 294,207 76,789 82,618 453,614
</TABLE>
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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 1, 1999 August 2, 1998 August 1, 1999 August 2, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail Sales $172,500 65.3% $141,658 65.8% $330,851 63.3% $270,675 64.2%
Catalog Sales 91,500 34.7% 73,604 34.2% 191,825 36.7% 150,797 35.8%
-------- ----- -------- ----- -------- ----- -------- -----
Total Net Sales $264,000 100.0% $215,262 100.0% $522,676 100.0% $421,472 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and subsidiaries (the Company) for the 13
weeks ended August 1, 1999 (Second Quarter of 1999) were $264,000,000 -- an
increase of $48,738,000 or 22.6% over net sales for the 13 weeks ended August 2,
1998 (Second Quarter of 1998). Net sales for the 26-week period ended August 1,
1999 (Year-to-Date 1999) were $522,676,000, an increase of $101,204,000 or
24.0%, from the 26-week period ended August 2, 1998 (Year-to-Date 1998).
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------- --------------------------------
(Dollars in thousands) August 1, 1999 August 2, 1998 August 1, 1999 August 2, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Total retail sales $ 172,500 $ 141,658 $ 330,851 $ 270,675
Retail growth percentage 21.8% 21.8% 22.2% 21.6%
Comparable store sales growth 6.8% 5.8% 6.9% 5.4%
Number of stores - beginning of period 305 276 298 276
Number of new stores 12 17 20 25
Number of closed stores 3 8 4 16
Number of stores - end of period 314 285 314 285
Store selling area at quarter-end (sq. ft.) 1,294,858 1,098,734 1,294,858 1,098,734
Store leased area at quarter-end (sq. ft.) 2,008,683 1,688,314 2,008,683 1,688,314
</TABLE>
Retail sales for the Second Quarter of 1999 increased 21.8% over retail sales
for the Second Quarter of 1998 primarily due to a net increase of 29 stores.
During the Second Quarter of 1999, the Company opened 12 stores (5 Pottery Barn
and 7 Williams-Sonoma stores) and closed 3 stores (1 Pottery Barn, 1
Williams-Sonoma and 1 Hold Everything store). Pottery Barn accounted for 58.1%
of the growth in retail sales during this period and 61.9% for Year-to-Date
1999. Total retail sales for Year-to-Date 1998 grew 21.6% over the same period
of the prior year, primarily due to new store openings.
Comparable stores 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. In any given period, the set of stores comprising comparable
stores may be different than the comparable stores in the previous period,
depending on store opening and closing activity. Comparable store sales grew
6.8% in the Second Quarter of 1999 as compared to the same period of the prior
year, and 6.9% for Year-to-Date 1999. For these periods, comparable store sales
growth was strong in both Williams-Sonoma and Pottery Barn.
The prototypical 1999 large-format stores range from 4,500 - 10,200 selling
square feet (9,000 - 13,300 leased square feet) for Pottery Barn stores and
2,800 - 3,700 selling square feet (4,000 - 7,800 leased square feet) for
Williams-Sonoma stores, and enable the Company to display merchandise more
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effectively. At the end of the Second Quarter of 1999, 194 stores (110
Williams-Sonoma and 84 Pottery Barn) were in the large format, comprising 76.1%
of the Company's total selling square footage. Large-format stores accounted for
74.1% of total retail sales in the Second Quarter of 1999 and 65.4% in the
Second Quarter of 1998. During fiscal year 1999, the Company plans to increase
leased square footage by approximately 21%.
CATALOG SALES
Catalog sales increased 24.3% in the Second Quarter of 1999, primarily due to
the strength of Pottery Barn. The number of catalogs mailed in this period as
compared to the same period of the prior year increased 18.5% in total, and
40.1% for Pottery Barn. Year-to-date 1999 catalog sales increased 27.2% over the
same period of the prior year, and circulation increased 11.4%.
The following table reflects catalog sales growth (decline) percentages by
concept:
Percentage Growth (Decline)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------ ---------------------------------
August 1, 1999 August 2, 1998 August 1, 1999 August 2, 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Williams-Sonoma 21.0% (15.1)% 11.0% (6.6)%
Pottery Barn 54.7% 33.8% 57.1% 28.4%
Hold Everything (2.1)% 0.3% 3.2% 5.5%
Gardeners Eden (99.6)% (7.1)% (70.2)% (15.6)%
Chambers 3.1% (2.8)% (4.2)% (4.0)%
Total catalog 24.3% 11.2% 27.2% 10.5%
</TABLE>
In the Second Quarter of 1999, Pottery Barn, which includes Pottery Barn Kids,
accounted for 67.5% of total catalog sales as compared to 54.2% in the Second
Quarter of 1998. Pottery Barn Kids, which debuted in January 1999, accounted for
33.8% of the total growth in Pottery Barn. The growth of Pottery Barn over the
last several years and the initial success of Pottery Barn Kids reflect the
Company's development of the assortment and the enhanced consumer brand
recognition achieved through the Pottery Barn catalogs and Design Studio stores.
In the Second Quarter of 1999, the Company introduced a new format for the
Williams-Sonoma catalog, and has been pleased with the initial response.
In May 1999, the Company sold the assets of its Gardeners Eden catalog to
Brookstone, Inc., and recognized a $4,000,000 pre-tax gain ($2,420,000
after-tax) as a result of this sale. The Company decided to sell Gardeners Eden
to allow greater focus on existing Williams-Sonoma, Inc. brands and the
Internet. Also in the Second Quarter of 1999, the Company launched its
Williams-Sonoma Internet Wedding and Gift Registry application. The Company
intends to add a Williams-Sonoma general e-commerce site in the fourth quarter.
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 1999 increased 0.1 percentage points to 62.9% from 62.8%
in the same period of the prior year. Merchandise margin improved 0.1 percentage
points, principally due to a lower cost of merchandise. Occupancy expenses
expressed as a percent of net sales increased slightly in the Second Quarter
of 1999 as compared to the same period of the prior year, principally due to
higher depreciation expense for catalog systems, including the Internet.
For the Year-to-Date 1999 and the same period of 1998, cost of goods sold and
occupancy expenses as a percent of net sales remained constant at 62.4%.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses expressed as a percent of net sales
decreased 0.1 percentage points to 34.0% in the Second Quarter of 1999 from
34.1% in the Second Quarter of 1998. Second Quarter 1999 selling, general and
administrative expenses include charges for employment costs related to recent
additions to the senior management team and costs associated with the relocation
of the Company's distribution center. These costs were primarily offset by an
improved advertising expense rate in the catalog division as a result of
increased sales volume.
Selling, general and administrative expenses expressed as a percentage of net
sales improved 0.1 percentage points for Year-to-Date 1999, to 35.0%. The
improvement is due primarily to an improved advertising expense rate partially
offset by higher employment costs.
INTEREST EXPENSE
Net interest expense for the Second Quarter of 1999 was $638,000, an increase of
$475,000 from the same period of the prior year. The increase was primarily due
to a decrease in short-term investment income. Net interest expense for
Year-to-Date 1999 increased to $675,000, from $452,000 for Year-to-date 1998.
This is principally attributable to a decrease in short-term investment income,
offset by interest savings as a result of the 1998 conversion of the Company's
Convertible Notes to common stock.
INCOME TAXES
The Company's effective tax rate was 39.5% for the Second Quarter and
Year-to-Date of 1999 and 41.0% for the Second Quarter and Year-to-Date of 1998.
The reduction in the tax rate reflects decreases in state tax liability
resulting from revisions in the corporate structure which are being undertaken
in order to conform more closely to the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
For Year-to-Date 1999, cash used in operating activities was $59,872,000,
representing an increase of $23,917,000 from the $35,955,000 of cash used in
operating activities for the same period of 1998. This was principally
attributable to increases in merchandise inventories, offset by improved cash
flow from changes in accounts payable and other accrued expenses as compared to
the prior year. The growth in the level of merchandise inventories reflects the
Company's investment in additional inventory to support new stores, Internet
initiatives, and strong sales in both Pottery Barn retail and catalog
businesses. The Company expects inventory levels to increase in the third
quarter in preparation for the holiday season.
Net cash used in investing activities was $45,274,000 for the Year-to-Date 1999.
Purchases of property and equipment were $54,273,000, which includes
approximately $27,000,000 for stores, $14,500,000 for warehouse and computer
equipment in a new, leased distribution facility and $8,100,000 for systems
development. Net proceeds from the sale of the assets of the Gardeners Eden
catalog were $9,101,000. The Company is planning approximately $130,000,000 to
$135,000,000 of gross capital expenditures for fiscal 1999.
For Year-to-Date 1999, cash provided by financing activities was $4,057,000,
comprised primarily of proceeds from borrowings under the Company's line of
credit facility, partially offset by cash used to repurchase shares of common
stock. For Year-to-Date 1998, cash provided by financing activities was
$5,753,000, principally as a result of the exercise of stock options.
The Company's amended and restated syndicated line of credit facility, which
expires on May 31, 2001, provides for $50,000,000 in cash advances, and contains
certain restrictive loan covenants, including minimum tangible net worth, a
minimum out-of-debt period, fixed charge coverage requirements and a prohibition
on payment of cash dividends. Additionally, the Company has a one-year
$65,000,000 letter-of-credit agreement expiring on May 31, 2000 with its primary
bank. In the third quarter of 1999, the
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Company expects to negotiate a short-term increase in the line of credit
facility in order to meet seasonal working capital needs.
On August 1, 1999, the Company had $8,000,000 of borrowings outstanding under
the line of credit facility and $49,878,000 of outstanding letters of credit.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
YEAR 2000 COMPLIANCE
As is the case with most other companies using computers in their operations,
the Company is addressing the "Year 2000" problem. The Company has conducted a
review of its information technology ("IT") and non-IT systems to identify those
areas that could be affected by the Year 2000 issue, and has developed a
comprehensive, risk-based plan. This plan addresses both IT and non-IT systems
and products, as well as dependencies on those with whom the Company does
significant business.
In connection with the plan, the Company completed an inventory and
risk-assessment of its computer systems and related technology. The Company
expects to complete comprehensive testing of its critical business processes and
any necessary remediation by the end of the third quarter of 1999. The Company
can not guarantee that its compliant systems will not encounter difficulties
when attempting to interface or interconnect with third party systems, whether
or not those systems are claimed to be "compliant", and the Company can not
guarantee that such failure to interface or interconnect will not have a
materially adverse effect on the Company's operations.
With regard to outside vendors, the Company believes the greatest Year 2000
exposure is with its service providers (customs broker, logistics providers,
etc.). The Company believes the Year 2000 risk with its merchandise suppliers is
low because no vendor accounts for more than 3% of purchases and many of the
vendors are small artisan manufacturers with simple business systems. The
Company has completed its compliance review of major vendors and will resolve
any outstanding issues by the end of the third quarter of 1999. Despite this
approach, there can be no guarantee that the systems of other companies on which
the Company is reliant will be converted timely, or that a failure by another
company to convert would not have a materially adverse effect on the Company.
The Company is using both internal and external resources to complete this
project. In total, the estimated remaining cost for the remediation and testing
of computer applications and related products in fiscal 1999 is $315,000.
Approximately $2.3 million has been expensed to date.
The Company presently believes, with modification to existing software and
converting to new software, the Year 2000 problem will not pose significant
operational risk. While the Company can not accurately predict a "worst case
scenario" with regard to its Year 2000 issues, the failure by the Company and/or
vendors to complete Year 2000 compliance work in a timely manner could have a
materially adverse effect on the Company's operations. The Company is in the
process of assessing these risks and uncertainties and developing appropriate
contingency plans and procedures in an attempt to minimize the effects of such a
scenario.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S. interest
rates and, to a lesser extent, foreign exchange rates. The Company does not
engage in financial transactions for trading or speculative purposes.
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Interest Rate Risk: The interest payable on the Company's bank line of credit is
based on variable interest rates and therefore affected by changes in market
interest rates. If interest rates on existing variable rate debt rose 0.8
percentage points (a 10% change from the bank's reference rate as of August 1,
1999), the Company's results from operations and cash flows would not be
materially affected. In addition, the Company has fixed and variable income
investments consisting of cash equivalents and short-term investments, which are
also affected by changes in market interest rates. The Company does not use
derivative financial investments in its investment portfolio.
Foreign Currency Risks: The Company enters into a significant amount of purchase
obligations outside of the U.S. which are settled in U.S. Dollars, and,
therefore, has only minimal exposure to foreign currency exchange risks. The
Company does not hedge against foreign currency risks and believes that foreign
currency exchange risk is immaterial.
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, the potential for changes in consumer
spending patterns, consumer preferences and overall economic conditions, the
Company's dependence on foreign suppliers, increasing competition in the
specialty retail business, and the Company's ability to successfully resolve its
Year 2000 issues. 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.
11
<PAGE> 13
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 26, 1999.
(b) At the Company's 1999 Annual Meeting of Shareholders, the shareholders
took the following actions:
(I) 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 or her
successor is elected and qualified:
<TABLE>
<CAPTION>
Name For Withheld
---- --- --------
<S> <C> <C>
Charles E. Williams 47,928,147 1,118,092
W. Howard Lester 48,021,156 1,025,083
James A. McMahan 48,015,011 1,031,228
Nathan Bessin 47,988,911 1,057,328
Patrick J. Connolly 48,029,894 1,016,345
Gary G. Friedman 48,028,960 1,017,279
James M. Berry 47,991,549 1,054,690
John E. Martin 40,813,725 8,232,514
Adrian D.P. Bellamy 40,582,005 8,464,234
Janet L. Emerson 48,028,260 1,017,979
</TABLE>
(II) The shareholders approved, by the vote indicated, the amendment
to the Company's restated Articles of Incorporation:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
41,511,330 1,928,118 52,904
</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 January 30, 2000:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
49,008,444 17,157 20,638
</TABLE>
12
<PAGE> 14
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.1 Fourth Amendment to Letter of Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated May 26,
1999.
10.2 Third Amendment to Syndicated Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated November
13, 1999.
10.3 Guarantee by Williams-Sonoma Stores, LLC in favor of Bank of America
National Trust and Savings Association, dated November 13, 1998.
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.
13
<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/ John W. Tate
-------------------------------------
John W. Tate
Senior Vice President
Chief Financial Officer
Dated: September 10, 1999
14
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.1 Fourth Amendment to Letter of Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated May 26,
1999.
10.2 Third Amendment to Syndicated Credit Agreement between the Company and
Bank of America National Trust and Savings Association, dated November
13, 1999.
10.3 Guarantee by Williams-Sonoma Stores, LLC in favor of Bank of America
National Trust and Savings Association, dated November 13, 1998.
11 Statement re computation of per share earnings.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
FOURTH AMENDMENT TO LETTER OF CREDIT AGREEMENT
This Amendment dated as of May 26, 1999 is between Bank of America
National Trust and Savings Association (the "Bank") and Williams-Sonoma, Inc.
(the "Borrower").
RECITALS
A. The Bank and the Borrower entered into a certain Letter of Credit
Agreement dated as of June 1, 1997 (as previously amended, the "Agreement").
B. The Bank and the Borrower desire to amend the Agreement.
AGREEMENT
1. Definitions. Capitalized terms used but not defined in this Amendment
shall have the meanings given to them in the Agreement.
2. Amendment. The Agreement is hereby amended as follows:
2.1 The definition of "Expiration Date" is amended to read as
follows:
"Expiration Date" means May 31, 2000.
2.2 In Paragraph 2.2 of the Agreement, the amount "Sixty Five
Million Dollars ($65,000,000)" is substituted for the amount "Fifty Million
Dollars ($50,000,000)."
3. Representations and Warranties. When the Borrower signs this
Amendment, the Borrower represents and warrants to the Bank that the
representations and warranties in Article 5 of the Agreement, as applied to the
Agreement as amended hereby, are true and correct as of the date of this
Amendment as if made on the date of this Amendment.
4. Conditions. This Amendment will be effective when the Bank receives
the following items, in form and content acceptable to the Bank.
(a) Evidence that the execution, delivery, and performance by
the Borrower of this Amendment and any instrument or agreement
required under this Amendment have been duly authorized;
(b) A Guarantor Acknowledgment and Consent in the form attached
hereto.
5. Effect of Amendment. Except as provided in this Amendment, all of the
terms and conditions of the Agreement shall remain in full force and effect.
-1-
<PAGE> 2
This Amendment is executed as of the date first stated above.
BANK OF AMERICA NATIONAL WILLIAMS-SONOMA, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/ HENRY ROGERS By JERRY S. B. DRATLER
---------------------------- ----------------------------
Henry Rogers
Vice President Title VP Finance
-------------------------
By DENNIS A. CHANTLAND
----------------------------
Title Executive VP - CAO
-------------------------
-2-
<PAGE> 3
GUARANTOR ACKNOWLEDGMENT
AND CONSENT
The undersigned, each a guarantor with respect to the Borrower's obligations to
the Bank under the Agreement, each hereby (i) acknowledge and consent to the
execution, delivery and performance by the Borrower of the foregoing Fourth
Amendment to Letter of Credit Agreement, and (ii) reaffirm and agree that the
guaranty to which the undersigned is party is in full force and effect, and
guaranties all of the obligations of the Borrower under the Agreement, as
amended.
Dated as of May 26, 1999 WILLIAMS-SONOMA STORES, INC.
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
HOLD EVERYTHING, INC.
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
CHAMBERS CATALOG
COMPANY, INC.
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
GARDENER'S EDEN, INC.
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
POTTERY BARN EAST, INC.
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler
Assistant Secretary
WILLIAMS-SONOMA STORES, LLC
By Williams-Sonoma, Inc., its sole
member
By /s/ JERRY S. B. DRATLER
----------------------------------
Jerry S. B. Dratler, Its President
-3-
<PAGE> 1
EXHIBIT 10.2
THIRD AMENDMENT TO SYNDICATED CREDIT AGREEMENT AND CONSENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
November 13, 1998, is entered into by and among WILLIAMS-SONOMA, INC. (the
"Company"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent
for itself and the Banks (the "Agent"), and the several financial institutions
party to the Credit Agreement (collectively, the "Banks").
RECITALS
A. The Company, Banks, and Agent are parties to a Credit Agreement
dated as of June 1, 1997 (as previously amended, the "Credit Agreement")
pursuant to which the Agent and the Banks have extended certain credit
facilities to the Company.
B. The company has formed a new entity, Williams-Sonoma Stores, LLC
(the "LLC"), and has transferred certain assets of the Company and its
Subsidiaries to the LLC, as more particularly described in the information
provided by the Company to the Agent and the Banks and in Schedule A to the
Limited Liability Company Agreement of the LLC. Williams-Sonoma, Inc. is the
sole member of the LLC.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings, if any, assigned to them in the Credit
Agreement.
2. Consent. The Agent and Banks consent to the transactions
described in the Recitals to this Amendment.
3. Amendments to Credit Agreement.
3.1 The definitions of "Guarantor" and "Material Subsidiary"
in the Credit Agreement are amended to add Williams-Sonoma Stores, LLC.
3.2 Subparagraph 7.03(b) of the Credit Agreement is amended to
read as follows:
(b) any Subsidiary may sell or otherwise transfer all or
substantially all of its assets (upon voluntary liquidation or
otherwise) to the Company or another Wholly-Owned Subsidiary,
provided that if, after giving effect to such sale or transfer,
the Subsidiary receiving the assets will become a Material
Subsidiary, then the receiving Subsidiary must also become a
Guarantor at or before the time the sale or transfer is made;
3.3 Subparagraph 7.04(d) of the Credit Agreement is amended to
read as follows:
(d) Investments by the Company in any of its
Wholly-Owned Subsidiaries or by any of its Wholly-Owned
Subsidiaries in another of its Wholly-Owned Subsidiaries, provided
that if, after giving effect to such investment, the Subsidiary
will become a Material Subsidiary, then the Subsidiary must also
become a Guarantor at or before the time the investment is
-1-
<PAGE> 2
made;
4. Representations and Warranties. The Company hereby represents and
warrants to the Agent and the Banks as follows:
(a) No Default or Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent of approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement as amended by this
Amendment constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without
defense, counterclaim or offset.
(c) All representations and warranties of the Company contained in
the Credit Agreement are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the
Agent and the Banks or any other Person.
5. Effective Date. This Amendment will become effective as of November
13, 1998 (the "Effective Date"), provided that each of the following conditions
precedent is satisfied:
(a) The Agent has received from the Company and each of the Banks a
duly executed original (or, if elected by the Agent, an executed facsimile
copy) of this Amendment and Consent.
(b) The Agent has received from the LLC a guaranty in form acceptable
to the Agent.
(c) The Agent has received from the LLC evidence of the due
authorization of the execution of the guaranty, and of the authority of the
individual executing the guaranty on behalf of the LLC.
6. Reservation of Rights. The Company acknowledges and agrees that the
execution and delivery by the Agent and the Banks of this Amendment shall not
be deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
7. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and
effect and all references therein to such Credit Agreement shall henceforth
refer to the Credit Agreement as amended by this Amendment. This Amendment
shall be deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit
of the parties hereto and thereto and their respective successors and assigns.
No third party beneficiaries are intended in connection with this Amendment.
-2-
<PAGE> 3
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a Bank or
the Company shall bind such Bank or the Company, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all costs and expenses (including allocated costs of in-house
counsel) incurred in connection with the development, preparation, negotiation,
execution and delivery of this Amendment.
IN WITNESS WHEREOF, the parties herein have executed and delivered this
Amendment as of the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as Agent
WILLIAMS-SONOMA, INC.
By
---------------------------------- By /s/ HOWARD LESTER
Patrick W. Zetzman ------------------------------------
Vice President
Title CEO
---------------------------------
By /s/ JERRY S. B. DRATLER
------------------------------------
Title VP Finance, Asst. Secretary
BANK OF AMERICA NATIONAL TRUST ---------------------------------
AND SAVINGS ASSOCIATION, as a Bank NATIONSBANK, N.A.
as successor by merger to NationsBank
By /s/ HAGOP V. BOULDOUKIAN of Texas, N.A.
----------------------------------
Hagop V. Bouldoukian By /s/ MICHAEL SHEA
Vice President ------------------------------------
Michael Shea
Senior Vice President
-3-
<PAGE> 1
EXHIBIT 10.3
GUARANTY
This Guaranty is entered into as of November 13, 1998, by Williams-Sonoma
Stores, LLC (the "Guarantor"), in favor of Bank of America National Trust and
Savings Association as agent for the financial institutions from time to time
party to that certain Credit Agreement dated as of June 1, 1997 (the "Banks")
(in such capacity, the "Agent") and such Banks.
RECITALS
A. Williams-Sonoma, Inc. (the "Company"), the Agent and the Banks
entered into a Credit Agreement dated as of June 1, 1997. The Credit Agreement
as now in effect or hereafter extended, renewed, modified, supplemented, amended
or restated is hereinafter called the "Credit Agreement".
B. The Banks are willing to make certain Loans to the Company as
provided in the Credit Agreement on the condition (among others) that the
Guarantor enter into this Guaranty.
C. The Guarantor as a Subsidiary of the Company will derive
substantial and direct benefits (which benefits are hereby acknowledged by the
Guarantor) from the Loans and other benefits to be provided to the Company under
the Credit Agreement.
D. In order to induce the Banks to make such Loans available to the
Company as provided in the Credit Agreement, and for other valuable
consideration, the Guarantor issues this Guaranty.
1. Definitions. Unless otherwise defined herein, capitalized terms used
in this Guaranty have the meanings given to them from time to time in the Credit
Agreement.
2. Guaranty.
2.1 Guaranty. The Guarantor hereby irrevocably, absolutely and
unconditionally guarantees the full and punctual payment or performance when
due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all of the Obligations. This Guaranty
constitutes a guaranty of payment and performance when due and not of
collection, and the Guarantor specifically agrees that it shall not be necessary
or required that the Agent or any Banks exercise any right, assert any claim or
demand or enforce any remedy whatsoever against the Company (or any other
Person) before or as a condition to the obligations of the Guarantor hereunder.
The Agent or any Bank may permit the indebtedness of the Company to the Agent or
any Bank to include indebtedness other than the Obligations, and may apply any
amounts received from any source, other than from the Guarantor, to that portion
of Company's indebtedness to the Agent or any Bank which is not a part of the
Obligations.
2.2 Obligations Independent. The obligations hereunder are
independent of the obligations of the Company, and a separate action or actions
may be brought and prosecuted against the Guarantor whether action is brought
against the Company or whether the Company be joined in any such action or
actions.
-1-
<PAGE> 2
2.3 Authorization of Renewals, Etc. The Guarantor authorizes the Agent
and each Bank, without notice or demand and without affecting its liability
hereunder, from time to time:
(a) to renew, compromise, extend, accelerate or otherwise change the
time for payment, or otherwise change the terms, of the Obligations, including
increase or decrease of the rate of interest thereon, or otherwise change the
terms of the Credit Agreement or any other Loan Document;
(b) to receive and hold security for the payment of this Guaranty or
the Obligations and exchange, enforce, waive, release, fail to perfect, sell,
or otherwise dispose of any such security;
(c) to apply such security and direct the order or manner of sale
thereof as the Agent, or any Bank, as the case may be, in its or their
discretion may determine; and
(d) to release or substitute any one or more of any endorsers or
guarantors of the Obligations.
The Guarantor further agrees the performance or occurrences of any of the acts
or events described in clauses (a), (b), (c), and (d) above with respect to
indebtedness or other obligations of the Company, other than the Obligations,
to the Agent or any Bank, shall not affect the liability of the Guarantor
hereunder.
2.4 Waiver of Certain Rights. The Guarantor waives any right to require
the Agent or any Bank:
(a) to proceed against the Company or any other Person;
(b) to proceed against or exhaust any security for the Obligations
or any other indebtedness of the Company to the Agent or any Bank; or
(c) to pursue any other remedy in the Agent's or any such Bank's
power whatsoever.
2.5 Waiver of Certain Defenses. The Guarantor waives any defense arising
by reason of any claim that the Guarantor's obligations exceed or are more
burdensome than those of the Company. The Guarantor waives all rights and
defenses arising out of an election of remedies by the Agent or any Bank, even
though that election of remedies, such as a nonjudicial foreclosure with
respect to security for the Obligations, has destroyed the Guarantor's rights
of subrogation and reimbursement against the Company by operation of Section
580d of the California Code of Civil Procedure (if applicable) or otherwise.
The Guarantor waives any benefit of, and any right to participate in, any
security or other guaranty now or hereafter held by the Agent or any Bank
securing the Obligations.
2.6 Waiver of Presentments, Etc. The Guarantor waives all presentments,
demands for performance, notice of nonperformance, protests, notices of protest,
notices of dishonor and notices of acceptance of this Guaranty and of this
existence, creation, or incurring
-2-
<PAGE> 3
of new or additional Obligations or any other indebtedness of Company to the
Agent or any Bank.
2.7 Information Relating to Company. The Guarantor acknowledges and
agrees that it shall have the sole responsibility for obtaining from the
Company such information concerning the Company's financial condition or
business operations as the Guarantor may require, and that neither the Agent
nor any Bank has any duty at any time to disclose to the Guarantor any
information relating to the business operations or financial condition of the
Company.
2.8 Right of Setoff. In addition to any rights and remedies of the
Banks provided by law, if Guarantor has failed to make any payment due
hereunder upon demand, each Bank is authorized at any time and from time to
time, without prior notice to the Guarantor, any such notice being waived by
the Guarantor to the fullest extent permitted by law, to set-off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Bank to or for
the credit or the account of the Guarantor against any and all obligations of
the Guarantor now or hereafter existing under this Guaranty or any other Loan
Document, irrespective of whether or not the Agent or such Bank shall have made
demand under this Guaranty or any other Loan Document and although such
obligations may be contingent or unmatured. Each Bank agrees promptly to notify
the Guarantor and the Agent after any such set-off and application made by such
Bank, provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application. The rights of each Bank under
this Section 2.8 are in addition to the other rights and remedies (including,
without limitation, other rights of set-off) which such Bank may have.
2.9 Subordination. Any obligations of the Company to the Guarantor,
new or hereafter existing, including, but not limited to, obligations to the
Guarantor as subrogee of the Agent or any Bank or resulting from the Guarantor's
performance under this Guaranty, are hereby fully subordinated in priority of
payment to the Obligations and all other indebtedness of the Company to the
Agent or any Bank.
2.10 Reinstatement of Guaranty. If any payment or transfer of any
interest in property by the Company to the Agent or any Bank in fulfillment of
any Obligation is rescinded or must at any time (including after the return or
cancellation of this Guaranty) be returned, in whole or in part, by the Agent or
any Bank to the Company or any other Person, upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, this Guaranty shall be reinstated
with respect to any such payment or transfer, regardless of any such prior
return or cancellation.
2.11 Powers. It is not necessary for the Agent or any Bank to inquire
into the powers of the Company or of the officers, directors, partners or
agents acting or purporting to act on its behalf, and any Obligations made or
created in reliance upon the professed exercise or such powers shall be
guaranteed hereunder.
2.12 Taxes. (a) Subject to compliance with Section 9.10 of the Credit
Agreement, any and all payments by the Guarantor to each Bank or the Agent
under this Guaranty shall be made free and clear of, and without deduction or
withholding for, any Taxes, Other Taxes or Further Taxes. In addition, the
Guarantor shall pay all Other Taxes.
-3-
<PAGE> 4
(b) If the Guarantor shall be required by law to deduct or withhold
any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section), such
Bank or the Agent, as the case may be, receives and retains an amount equal to
the sum it would have received and retained had no such deductions or
withholdings been made;
(ii) the Guarantor shall make such deductions and withholdings;
(iii) the Guarantor shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Guarantor shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, Further Taxes in the
amount that the respective Bank specifies as necessary to preserve the
after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed.
(c) The Guarantor agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of (i) Taxes, (ii) Other Taxes, and (iii) Further
Taxes in the amount that the respective Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed, and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly
or legally asserted. Payment under this indemnification shall be made with 30
days after the date the Bank or the Agent makes written demand therefor.
(d) Within 30 days after the date of any payment by the Guarantor of
Taxes, Other Taxes or Further Taxes, the Guarantor shall furnish to each Bank or
the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) For purposes of this Section, (i) "Taxes" means any and all
present or future taxes, levies, assessments, imposts, duties, deductions, fees,
withholdings or similar charges, and all liabilities with respect thereto,
excluding, in the case of each Bank and the Agent, respectively, taxes imposed
on or measured by its net income by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as the case
may be, is organized or maintains a lending office; (ii) "Other Taxes" means any
present or future stamp, court or documentary taxes or any other excise or
property taxes, charges or similar levies which arise from any payment made
hereunder or from the execution, delivery, performance, enforcement or
registration of, or otherwise with respect to, this Guaranty; and (iii) "Further
Taxes" means any and all present or future taxes, levies, assessments, imposts,
duties, deductions, fees, withholdings or similar changes (including, without
limitation, net income taxes and franchise taxes), and all liabilities with
respect thereto, imposed by any jurisdiction on account of amounts payable or
paid pursuant to this Section.
-4-
<PAGE> 5
3. Representations and Warranties. The Guarantor represents and
warrants to the Agent and each Bank as follows:
3.1 Existence and Power. The Guarantor (a) is a limited liability
company duly organized, validly existing and in good standing under the laws of
the jurisdiction of its organization; (b) has the power and authority and all
governmental licenses, authorizations, consents and approvals to own its assets,
carry on its business and to execute, deliver, and perform its obligations
under, this Guaranty and any other Loan Document to which it is a party; (c) is
duly qualified as a foreign limited liability company, and licensed and in good
standing, under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and (d) is in compliance with all Requirements of Law; except, in
each case, to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect. "Material Adverse Effect" means (a)
a material adverse change in, or a material adverse effect upon, the operations,
business, properties, condition (financial or otherwise) or prospects of the
Guarantor, to parent and affiliates, taken as a whole; (b) a material impairment
of the ability of the Guarantor to perform its obligations under the Guaranty;
or (c) a material adverse effect upon the legality, validity, binding effect or
enforceability against the Guarantor of this Guaranty and any other Loan
Document to which it is a party.
3.2 Authorization; No Contravention. The execution, delivery and
performance by the Guarantor of this Guaranty and any other Loan Document to
which it is a party, have been duly authorized, and do not and will not (a)
contravene the terms of any of the Guarantor's Organization Documents; (b)
violate or result in any breach or contravention of, or the creation of any lien
under, any document evidencing any Contractual Obligation to which the Guarantor
is a party or any order, injunction, writ or decree of any Governmental
Authority to which the Guarantor or its property is subject; or (c) violate any
Requirement of Law.
3.3 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Guarantor of
this Guaranty or any other Loan Document to which it is a party.
3.4 Binding Effect. This Guaranty and each other Loan Document to
which the Guarantor is a party constitute the legal, valid and binding
obligations of the Guarantor, enforceable against the Guarantor in accordance
with their respective terms, except as enforceability may be limited by
applicable bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
3.5 Regulated Entities. None of the Guarantor, any Person
controlling the Guarantor or any Subsidiary of the Guarantor is (a) an
"Investment Company" within the meaning of the Investment Company Act of 1940;
or (b) subject to regulation under the Public Utility Holding Company Act of
1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code, or any other Federal or state statute or regulation limiting its
ability to incur or guarantee indebtedness.
4. Miscellaneous
-5-
<PAGE> 6
4.1 Application of Payments on Guaranty. All payments required to be
made by the guarantor hereunder shall, unless otherwise expressly provided
herein, be made to the Agent for the account of the Banks at the Agent's Payment
Office. The Agent will promptly distribute to each Bank its Pro Rata Share (or
other applicable share as expressly provided herein) of such payment in like
funds as received. Payments received from the Guarantor shall, unless otherwise
expressly provided herein, be applied to costs, fees, or other expenses due
under the Loan Documents, any interest (including interest due under subsection
2.10(c) of the Credit Agreement, any principal due under the Loan Documents and
any other Obligations, in such order as the Agent, with the consent of or at the
request of the Majority Banks, shall determine.
4.2 Assignments, Participations, Confidentiality. Any Bank may from
time to time, without notice to the Guarantor and without affecting the
Guarantor's obligations hereunder, transfer its interest in the Obligations to
Participants and Assignees as provided in the Credit Agreement. The Guarantor
agrees that such transfer will give rise to a direct obligation of the
Guarantor to each such Participant and Assignee and that each such Participant
and Assignee shall have the same rights and benefits under this Guaranty as it
would have if it were a Bank party to the Credit Agreement and this Guaranty.
The Guarantor, the Agent and each Bank agree that the provisions of Section
10.09 of the Credit Agreement shall apply to all information identified as
"confidential" or "secret" by the Guarantor and provided to the Agent or such
Bank by the Guarantor or any Subsidiary of the Guarantor under this Guaranty or
any other Loan Document to which the Guarantor is a party.
4.3 Loan Document. This Guaranty is a Loan Document executed and
delivered pursuant to the Credit Agreement and shall (unless otherwise
expressly indicated herein) be construed, administered and applied in
accordance with the terms and provisions thereof. Without limiting the
generality of the foregoing, the provisions of Sections 1.02 and 1.03 of the
Credit Agreement shall apply to the interpretation and administration of this
Guaranty as if such provisions were incorporated herein, with all references to
the "Agreement" in such Sections being deemed to be references to this Guaranty.
4.4 Waivers; Writing Required. No delay or omission by the Agent or
any Bank to exercise any right under this Guaranty shall impair any such right,
nor shall it be construed to be a waiver thereof. No waiver of any single breach
or default under this Guaranty shall be deemed a waiver of any other breach or
default. Any amendment or waiver of any provision of this Guaranty must be in
writing and signed by the Guarantor and the Agent, with the written consent of
the Majority Banks or all of the Banks, in accordance with the terms of Section
10.01 of the Credit Agreement.
4.5 Remedies. All rights and remedies provided in this Guaranty and
any instrument or agreement referred to herein are cumulative and are not
exclusive of any rights or remedies otherwise provided by law. Any single or
partial exercise of any right or remedy shall not preclude the further exercise
thereof or the exercise of any other right or remedy.
4.6 Costs and Expenses. The Guarantor agrees to pay or reimburse the
Agent and each Bank within five Business Days after demand for all costs and
expenses (including Attorney Costs) incurred by them in accordance with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Guaranty (including in connection with any
-6-
<PAGE> 7
"workout" or restructuring regarding amounts due under this Guaranty, and
including any insolvency Proceeding or appellate proceeding).
4.7 Severability. The illegality or unenforceability of any provision
of this Guaranty or any instrument or agreement referred to herein shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Guaranty or any instrument or agreement referred to herein.
4.8 Governing Law and Jurisdiction. (a) THIS GUARANTY SHALL BE GOVERNED
BY, AND CONSIDERED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA;
PROVIDED THAT THE AGENT, THE GUARANTOR AND THE BANKS SHALL RETAIN ALL RIGHTS
ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS GUARANTY AND
ANY OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF
CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND
BY EXECUTION AND DELIVERY OF THIS GUARANTY, EACH OF THE GUARANTOR, THE AGENT
AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE
NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE GUARANTOR, THE AGENT
AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING, WITHOUT LIMITATION,
ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR
PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS GUARANTY OR ANY DOCUMENT
RELATED HERETO. THE GUARANTOR, THE AGENT AND THE BANKS EACH WAIVE PERSONAL
SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY
OTHER MEANS PERMITTED BY CALIFORNIA LAW.
4.9 Waiver of Jury Trial. THE GUARANTOR, THE BANKS AND THE AGENT EACH
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS,
TORT CLAIMS, OR OTHERWISE. THE GUARANTOR, THE BANKS AND THE AGENT EACH AGREE
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT
A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS
TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN
PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY OR THE OTHER
LOAN DOCUMENTS OR ANY PORTION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY
AND THE OTHER LOAN DOCUMENTS.
4.10 Entire Agreement. This Guaranty (a) integrates all the terms and
conditions mentioned herein or incidental hereto, (b) supersedes all oral
negotiations and prior
-7-
<PAGE> 8
writings with respect to the subject matter hereof, and (c) is intended by the
parties as the final expression of the agreement with respect to the terms and
conditions as set forth in this Guaranty and any such instrument, agreement and
document and as the complete and exclusive statement of the terms agreed to by
the parties.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty by its duly
authorized officers as of the day and year first above written.
WILLIAMS-SONOMA STORES, LLC
By: Williams-Sonoma Inc., Its sole member
By: /s/ JERRY S.B. DRATLER
---------------------------------------
Jerry S. B. Dratler, its President
-8-
<PAGE> 1
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
15
<PAGE> 2
EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Net Weighted Average Per-Share
Earnings Shares Amount
----------- ---------------- ---------
<S> <C> <C> <C>
Thirteen weeks ended August 1, 1999:
Basic $ 6,918,000 55,670,513 $0.12
=====
Effect of dilutive stock options -- 2,623,593
----------- ----------
Diluted $ 6,918,000 58,294,106 $0.12
=========== ========== =====
Thirteen weeks ended August 2, 1998:
Basic $ 3,844,000 55,484,075 $0.07
=====
Effect of dilutive stock options -- 2,368,251
----------- ----------
Diluted $ 3,844,000 57,852,326 $0.07
=========== ========== =====
Twenty-six weeks ended August 1, 1999:
Basic $10,192,000 55,724,622 $0.18
=====
Effect of dilutive stock options -- 2,677,729
----------- ----------
Diluted $10,192,000 58,402,351 $0.17
=========== ========== =====
Twenty-six weeks ended August 2, 1998:
Basic $ 5,991,000 53,587,300 $0.11
=====
Effect of dilutive stock options -- 2,359,770
----------- ----------
Diluted $ 5,991,000 55,947,070 $0.11
=========== ========== =====
</TABLE>
16
<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 1, 1999 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> JAN-30-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> AUG-01-1999
<CASH> 6,219
<SECURITIES> 0
<RECEIVABLES> 25,321
<ALLOWANCES> 0
<INVENTORY> 234,358
<CURRENT-ASSETS> 293,823
<PP&E> 423,635
<DEPRECIATION> 146,901
<TOTAL-ASSETS> 578,193
<CURRENT-LIABILITIES> 144,023
<BONDS> 40,988
0
0
<COMMON> 11,466
<OTHER-SE> 297,239
<TOTAL-LIABILITY-AND-EQUITY> 578,193
<SALES> 522,676
<TOTAL-REVENUES> 522,676
<CGS> 325,972
<TOTAL-COSTS> 509,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 675
<INCOME-PRETAX> 16,846
<INCOME-TAX> 6,654
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,192
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
