<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 October 29, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 000-12704
WILLIAMS-SONOMA, INC.
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(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
California 94-2203880
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(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3250 Van Ness Avenue, San Francisco, CA 94109
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(Address of Principal Executive Offices) (Zip Code)
</TABLE>
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 November 27, 2000, 56,787,865 shares of the Registrant's Common
Stock were outstanding.
<PAGE> 2
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 29, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
October 29, 2000, January 30, 2000 and October 31, 1999
Condensed Consolidated Statements of Operations
Thirteen weeks ended October 29, 2000 and October 31, 1999
Thirty-nine weeks ended October 29, 2000 and October 31, 1999
Condensed Consolidated Statements of Cash Flows
Thirty-nine weeks ended October 29, 2000 and October 31, 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations and 9
Financial Condition
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
2
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 29, January 30, October 31,
2000 2000 1999
----------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,889 $ 92,843 $ 4,791
Accounts receivable, net 38,403 22,427 29,980
Merchandise inventories 369,446 257,342 301,665
Prepaid expenses and other assets 13,174 13,326 10,968
Prepaid catalog expenses 29,002 14,677 27,068
Deferred income taxes 9,265 9,265 4,077
------- --------- ---------
Total current assets 465,179 409,880 378,549
Property and equipment, net 466,815 313,171 302,718
Investments and other assets, net 9,120 15,891 9,576
-------- --------- ---------
Total assets $941,114 $738,942 $690,843
======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $135,215 $102,462 $106,115
Accrued expenses 36,340 33,971 21,750
Line of credit 173,700 - 61,980
Customer deposits 45,009 40,087 30,515
Income taxes payable 2,628 26,062 6,481
Current portion of long-term obligations 12,196 5,839 5,966
Other liabilities 13,656 7,366 7,691
-------- --------- ---------
Total current liabilities 418,744 215,787 240,498
Deferred lease credits 103,877 90,873 85,610
Deferred income tax liabilities 8,520 8,520 3,339
Long-term debt 23,000 35,466 35,497
Other liabilities 5,782 4,987 4,709
Commitments and contingencies - - -
Shareholders' equity
Common stock 108,527 122,887 109,436
Retained earnings 272,664 260,422 211,754
-------- --------- ---------
Total shareholders' equity 381,191 383,309 321,190
-------- --------- ---------
Total liabilities and shareholders' equity $941,114 $738,942 $690,843
======== ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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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 Thirty-Nine Weeks Ended
October 29, October 31, October 29, October 31,
2000 1999 2000 1999
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $398,656 $324,148 $1,085,623 $846,823
Cost of goods sold and
occupancy expenses 238,489 192,748 660,845 518,720
-------- -------- ---------- --------
Gross margin 160,167 131,400 424,778 328,103
Selling, general and
administrative expenses 152,843 114,880 397,694 298,062
Gain (loss) on sale of
assets -- (23) -- 3,977
Interest expense, net 3,520 1,226 7,181 1,901
-------- -------- ---------- --------
Earnings before income taxes 3,804 15,271 19,903 32,117
Income taxes 1,464 6,032 7,662 12,686
-------- -------- ---------- --------
Net earnings $2,340 $9,239 $12,241 $19,431
======== ======== ========== ========
Earnings per share:
Basic $0.04 $0.17 $0.22 $0.35
Diluted $0.04 $0.16 $0.21 $0.33
Shares used in calculation of
earnings per share:
Basic 55,717 55,827 55,931 55,761
Diluted 58,440 58,908 58,291 58,502
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
October 29, October 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 12,241 $ 19,431
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 43,347 31,126
Loss (gain) on disposal of assets 700 (2,325)
Amortization of deferred lease credits (7,801) (6,215)
Other -- 165
Changes in:
Accounts receivable (15,976) (9,898)
Merchandise inventories (112,104) (131,177)
Prepaid catalog expenses (14,325) (15,543)
Prepaid expenses and other assets 152 (1,983)
Accounts payable 32,753 35,151
Accrued expenses and other liabilities 15,338 2,858
Deferred lease credits 20,805 19,498
Income taxes payable (23,434) (13,048)
--------- ---------
Net cash used in operating activities (48,304) (71,960)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (117,754) (95,009)
Purchase of corporate facilities, net of deposit (73,324) --
Proceeds from sale of property and equipment -- 11,192
Purchase of investment -- (2,000)
Other (805) (130)
--------- ---------
Net cash used in investing activities (191,883) (85,947)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit 477,080 132,850
Repayments under line of credit (303,380) (70,870)
Repayment of long-term obligations (6,108) (6,319)
Proceeds from exercise of stock options 4,176 4,467
Repurchase of common stock (18,535) (4,738)
--------- ---------
Net cash provided by financing activities 153,233 55,390
--------- ---------
Net decrease in cash and cash equivalents (86,954) (102,517)
Cash and cash equivalents at beginning of period 92,843 107,308
--------- ---------
Cash and cash equivalents at end of period $ 5,889 $ 4,791
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Thirty-Nine Weeks Ended October 29, 2000 and October 31, 1999
(Unaudited)
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of October 29, 2000 and October 31,
1999 and the condensed consolidated statements of operations and cash flows for
the thirteen and thirty-nine week periods ended October 29, 2000 and October 31,
1999 have been prepared by Williams-Sonoma, Inc., without audit. In the opinion
of management, the financial statements include all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position at the balance sheet dates and the results of operations for the
thirteen and thirty-nine week periods then ended. These financial statements
include Williams-Sonoma, Inc., and its wholly-owned subsidiaries (the Company).
Significant intercompany transactions and accounts have been eliminated. The
balance sheet at January 30, 2000, presented herein, has been derived from the
audited balance sheet of the Company included in the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 2000.
Certain information and footnote disclosures normally included in the annual
financial statements prepared in accordance with generally accepted accounting
principles in the United States of America 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 on Form 10-K for the
fiscal year ended January 30, 2000.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 138,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The statement requires that an entity recognizes all
derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. This statement is
effective for the Company's fiscal year beginning January 29, 2001. The Company
is currently evaluating which impact, if any, the adoption of SFAS No. 133 will
have on the Company's financial statements.
The results of operations for the thirteen and thirty-nine weeks ended October
29, 2000 are not necessarily indicative of the operating results of the full
year.
NOTE B. DEBT
On August 23, 2000, the Company entered into a syndicated line of credit
facility. The new facility repaid and replaced the Company's previous
syndicated lead bank line of credit. The new agreement provides for a
$200,000,000 unsecured revolving credit facility and contains certain
restrictive loan covenants, including minimum tangible net worth, maximum
leverage ratios, fixed charge coverage requirements and a prohibition on
payment of cash dividends. Within the first two years of the agreement, the
Company has the option of increasing the credit facility to a maximum of
$250,000,000. The Company has a choice of interest rates between the bank's
reference rate or LIBOR plus a premium, as defined in the agreement. The
agreement expires on August 23, 2003. As of October 29, 2000, the Company had
$173,700,000 of outstanding borrowings under this agreement at a weighted
average interest rate of 7.6%.
Effective with the new credit agreement, the Company amended its letter of
credit and cash advance facility agreement with its lead bank to eliminate the
cash advance facility and reduce the letter of credit facility from $90,000,000
to $65,000,000. The expiration date of the amended agreement has been extended
to August 1, 2001. As of October 29, 2000, $49,910,000 in letters of credit
were outstanding under this facility.
6
<PAGE> 7
NOTE C. EARNINGS PER SHARE
Basic earnings per share is computed as net earnings divided by the weighted
average number of common shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible securities.
The following is a reconciliation of net earnings and the number of shares used
in the basic and diluted earnings per share computations:
<TABLE>
<CAPTION>
Weighted
Net Average Per Share
Earnings Shares Amounts
(Amounts in thousands, except per share amounts) -------- -------- ---------
<S> <C> <C> <C>
Thirteen weeks ended October 29, 2000
Basic $ 2,340 55,717 $ 0.04
======
Effect of dilutive stock options - 2,723
------- ------
Diluted $ 2,340 58,440 $ 0.04
======= ====== ======
Thirteen weeks ended October 31, 1999
Basic $ 9,239 55,827 $ 0.17
======
Effect of dilutive stock options - 3,081
------- ------
Diluted $ 9,239 58,908 $ 0.16
======= ====== ======
Thirty-Nine weeks ended October 29, 2000
Basic $12,241 55,931 $ 0.22
======
Effect of dilutive stock options - 2,360
------- ------
Diluted $12,241 58,291 $ 0.21
======= ====== ======
Thirty-Nine weeks ended October 31, 1999
Basic $19,431 55,761 $ 0.35
======
Effect of dilutive stock options - 2,741
------- ------
Diluted $19,431 58,502 $ 0.33
======= ====== ======
</TABLE>
Options for which the exercise price was greater than the average market price
of common shares for the period were not included in the computation of diluted
earnings per share. These options to purchase shares were 280,000 and 15,000 for
the thirteen weeks and 730,000 and 183,000 for the thirty-nine weeks ended
October 29, 2000 and October 31, 1999, respectively.
NOTE D. SEGMENT REPORTING
Williams-Sonoma, Inc. has two reportable segments: retail and
direct-to-customer. The retail segment sells products for the home through its
four retail concepts: Williams-Sonoma, Pottery Barn, Pottery Barn Kids and Hold
Everything. The direct-to-customer segment sells similar products through its
six mail order catalogs, Williams-Sonoma, Pottery Barn, Pottery Barn Kids,
Pottery Barn Bed + Bath, Hold Everything and Chambers, and three e-commerce
websites.
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These reportable segments are strategic business units that offer similar
home-centered products. They are managed separately because the business units
utilize 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. The Company
uses earnings before unallocated corporate overhead, interest and taxes to
evaluate segment profitability. Unallocated assets include corporate cash and
cash equivalents, the net book value of corporate facilities and related
information systems, deferred tax amounts and other corporate long-lived
assets. For the thirty-nine weeks ended October 31, 1999, direct-to-customer
earnings before income taxes includes the $4 million pre-tax gain from the sale
of the Gardeners Eden catalog in May 1999.
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Direct-to-
Dollars in thousands Retail Customer Unallocated Total
-------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Thirteen weeks ended October 29, 2000
Revenues $223,771 $174,885 $ -- $398,656
Earnings before income taxes 12,645 15,119 (23,960) 3,804
Thirteen weeks ended October 31, 1999
Revenues $189,732 $134,416 $ -- $324,148
Earnings before income taxes 12,052 21,195 (17,976) 15,271
</TABLE>
<TABLE>
<CAPTION>
Direct-to-
Retail Customer Unallocated Total
-------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Thirty-Nine weeks ended October 29, 2000
Revenues $626,425 $459,198 $ -- $1,085,623
Earnings before income taxes 39,820 49,022 (68,939) 19,903
Assets 586,381 195,749 158,984 941,114
Thirty-Nine weeks ended October 31, 1999
Revenues $520,583 $326,240 $ -- $ 846,823
Earnings before income taxes 33,040 51,395 (52,318) 32,117
Assets 446,693 185,156 58,994 690,843
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Net sales consists of the following components:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dollars in thousands October 29, 2000 October 31, 1999 October 29, 2000 October 31, 1999
----------------- ----------------- ------------------- -----------------
% Total % Total % Total % Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales $223,771 56.1% $189,732 58.5% $ 626,425 57.7% $520,583 61.5%
Direct-to-customer sales 174,885 43.9% 134,416 41.5% 459,198 42.3% 326,240 38.5%
-------- ------ -------- ------ ---------- ------ -------- ------
Total Net Sales $398,656 100.0% $324,148 100.0% $1,085,623 100.0% $846,823 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and its subsidiaries (the Company) for the
thirteen weeks ended October 29, 2000 (Third Quarter of 2000), were
$398,656,000 -- an increase of $74,508,000 or 23.0% over net sales for the
thirteen weeks ended October 31, 1999 (Third Quarter of 1999). Net sales for
the thirty-nine week period ended October 29, 2000 (Year-to-Date 2000) were
$1,085,623,000, an increase of $238,800,000 or 28.2% from the thirty-nine week
period ended October 31, 1999 (Year-to-Date 1999). Direct-to-customer sales
include catalog and Internet sales.
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dollars in thousands October 29, 2000 October 31, 1999 October 29, 2000 October 31, 1999
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Retail sales $ 223,771 $ 189,732 $ 626,425 $ 520,583
Retail sales growth percentage 17.9% 23.8% 20.3% 22.8%
Comparable store sales growth 4.7% 9.6% 6.8% 7.9%
Number of stores -- beginning of period 347 314 344 298
Number of new stores 27 24 43 44
Number of closed stores 4 2 17 6
Number of stores -- end of period 370 336 370 336
Store selling square footage at
quarter-end (sq. ft.) 1,672,091 1,420,903 1,672,091 1,420,903
Store leased square footage at
quarter-end (sq. ft.) 2,588,938 2,197,588 2,588,938 2,197,588
</TABLE>
Retail sales for the Third Quarter of 2000 increased 17.9% over retail sales
for the Third Quarter of 1999 primarily due to new store openings in the last
twelve months. During the Third Quarter of 2000, the Company opened 27 stores
(13 large-format Williams-Sonoma, 11 large-format Pottery Barn, and 3 Pottery
Barn Kids), and closed 4 smaller stores (1 Williams-Sonoma, 2 Pottery Barn and
1 Hold Everything). Total retail sales for Year-to-Date 2000 grew 20.3% 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 12 months and which have been open for at
least 12 months. Comparable store sales are computed monthly for purposes of
this analysis. Comparable store sales grew 4.7% for the Third Quarter of 2000
as compared to the same period of the prior year. For Year-to-Date 2000,
comparable store sales increased 6.8% as compared to the same period of the
prior year. Pottery Barn led the year-to-date increase.
Large-format stores, which enable the Company to more clearly display
merchandise, average 3,442 selling square feet for Williams-Sonoma and 7,211
selling square feet for Pottery Barn. As of the end of the Third Quarter of
2000, 266 stores (151 Williams-Sonoma and 115 Pottery Barn) were large-format,
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comprising 80.7% of the Company's total selling square footage. Large-format
stores accounted for 79.8% of retail sales in the Third Quarter of 2000, as
compared to 76.1% in the Third Quarter of 1999.
The Company opened three Pottery Barn Kids retail stores in the Third Quarter
of 2000 and will open an additional five stores in the fourth quarter. By the
end of fiscal 2000, the Company plans to increase leased square footage by
approximately 20% as compared to fiscal year-end 1999.
DIRECT-TO CUSTOMERS SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
Dollars in thousands October 29, 2000 October 31, 1999 October 29, 2000 October 31, 1999
---------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Catalog sales $156,988 $132,636 $430,187 $323,622
Internet sales 17,897 1,780 29,011 2,618
-------- -------- -------- --------
Total direct-to-customer sales $174,855 $134,416 $459,198 $326,240
Percent growth in direct-to-customer sales 30.1% 52.7% 40.8% 36.6%
Percent growth in number of catalogs mailed 15.2% 28.4% 26.0% 12.7%
</TABLE>
Direct-to-customer sales increased 30.1% in the Third Quarter of 2000. This
increase was primarily due to the strength of the Pottery Barn (including
Pottery Barn Kids and Pottery Barn Bed + Bath) and Chambers brands and
continued e-commerce success. For Year-to-Date 2000, direct-to-customer sales
increased 40.8%, also as a result of strong sales performance by the Pottery
Barn brand.
Catalog
The Pottery Barn brand (including Pottery Barn Kids and Pottery Barn Bed +
Bath) accounted for 57.7% of the growth in Third Quarter 2000
direct-to-customer sales, and the majority of the growth in the number of
catalogs mailed. For Year-to-Date 2000, the Pottery Barn brand accounted for
80.5% of the direct-to-customer growth. Management believes that the success of
the Pottery Barn brand reflects the Company's continuing investment in product
design and quality, and the consumer recognition achieved through the Pottery
Barn catalogs and design studio stores.
Internet
In June 1999, the Company launched its Williams-Sonoma Wedding and Gift
Registry Web sites, and in November 1999 launched its Williams-Sonoma
e-commerce site. The Company unveiled its Pottery Barn e-commerce site in
August 2000. Combined sales from these sites were $17,897,000 in the Third
Quarter of 2000 and $29,011,000 for Year-do-Date 2000, as compared to
$1,780,000 in the Third Quarter of 1999 and $2,618,000 for Year-to-Date 1999.
COST OF GOODS SOLD AND OCCUPANCY EXPENSES
Cost of goods sold and occupancy expenses expressed as a percentage of net
sales for the Third Quarter of 2000 increased 0.4 percentage points to 59.8% as
compared to the same quarter of the prior year. Higher promotional activity and
increased transportation costs from the distribution center to the stores more
than offset the favorable impact of vertical integration and sourcing
initiatives.
For Year-to-Date 2000, cost of goods sold and occupancy expenses expressed as a
percent of net sales decreased 0.4 percentage points to. 60.9% versus the same
period of the prior year. This improvement was primarily driven by improved
merchandise markup and a lower occupancy expense rate.
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SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses expressed as a percent of net
sales increased by 2.9 percentage points to 38.3% in the Third Quarter of 2000
from 35.4% in the Third Quarter of 1999. For Year-to-Date 2000, the selling,
general and administrative expense rate increased 1.4 percentage points to
36.6%. For both of these periods, higher catalog advertising costs and an
increase in the direct-to-customer business as a percentage of total sales
resulted in a higher advertising expense rate. This increase was partially
offset by the Company's implementation of controllable cost reduction programs.
INTEREST EXPENSE
Net interest expense increased $2,294,000, from $1,226,000 in the Third Quarter
of 1999 to $3,520,000 in the Third Quarter of 2000, and increased $5,280,000
for Year-to-Date 2000. These increases resulted primarily from increased
borrowings of $73,262,000 for the Company's purchase of a new corporate
facility, discussed below.
INCOME TAXES
The Company's effective tax rate was 38.5% for Year-do-Date 2000 and 39.5% for
Year-to-Date 1999. The reduction in the effective tax rate reflects decreases
in state taxes resulting from revisions in the corporate legal structure which
are being undertaken in order to conform more closely to the Company's
operations.
LIQUIDITY AND CAPITAL RESOURCES
For Year-to-Date 2000, cash used in operating activities was $48,304,000
representing a decrease of $23,656,000 from the $71,960,000 of cash used in
operating activities for the same period of 1999. This decrease is primarily
attributable to a reduction in purchases of merchandise inventories as compared
to the prior year. Inventories for the period grew 22% compared to sales growth
of 28%. This trend is consistent with the Company's objective to improve
inventory turns relative to sales growth.
Net cash used in investing activities was $191,883,000 for Year-to-Date 2000 as
compared to $85,947,000 for the same period of 1999. Year-to-Date 2000
purchases of property and equipment include approximately $73,324,000, net of
deposit, for the purchase of a 204,000 square foot corporate facility. The new
facility was purchased in February 2000 for the purpose of consolidating
certain headquarters staff and to provide for future growth. Additional
expenditures in fiscal 2000 include $61,340,000 for stores, $23,090,000 for
store systems upgrade and systems development, including the Internet, and
$15,350,000 for distribution expansion.
Year-to-Date 1999 expenditures were primarily for new stores, warehouse and
computer equipment in a new, leased retail distribution facility, and systems
development. These expenditures were partially offset with the proceeds from
the sale of assets of the Gardeners Eden catalog in May 1999.
For Year-to-Date 2000, cash provided by financing activities was $153,233,000,
comprised primarily of proceeds from the line of credit financing, which
includes the financing of the new corporate facility, partially offset by
repurchases of 825,200 shares of the Company's common stock for $18,535,000.
For Year-to-Date 1999, cash provided by financing activities was $55,390,000,
comprised primarily of proceeds from borrowings under the Company's line of
credit facility.
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<PAGE> 12
On August 23, 2000, the Company entered into a syndicated line of credit
facility. The new facility repaid and replaced the Company's previous
syndicated lead bank line of credit. The new agreement provides for a
$200,000,000 unsecured revolving credit facility and contains certain
restrictive loan covenants, including minimum tangible net worth, maximum
leverage ratios, fixed charge coverage requirements and a prohibition on
payment of cash dividends. Within the first two years of the agreement, the
Company has the option of increasing the credit facility to a maximum of
$250,000,000. The Company has a choice of interest rates between the bank's
reference rate or LIBOR plus a premium, as defined in the agreement. The
agreement expires on August 23, 2003. As of October 29, 2000, the Company had
$173,700,000 of outstanding borrowings under this agreement at a weighted
average interest rate of 7.6%.
Effective with the new credit agreement, the Company amended its letter of
credit and cash advance facility agreement with its lead bank to eliminate the
cash advance facility and reduce the letter of credit facility from $90,000,000
to $65,000,000. The expiration date of the amended agreement has been extended
to August 1, 2001. As of October 29, 2000, $49,910,000 in letters of credit were
outstanding under this facility.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net earnings
have been realized during the period from October through December, and levels
of net sales and net earnings have generally been significantly lower during
the period from January through September. The Company believes this is the
general pattern associated with the direct-to-customer and retail industries.
In anticipation of its peak season, the Company hires a substantial number of
additional employees in its retail stores and direct-to-customer 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. These risks
and uncertainties include, without limitation, the following: the Company's
ability to anticipate consumer preferences and buying trends; dependence on
timely introduction and customer acceptance of its merchandise; timely and
effective sourcing of its merchandise from its foreign and domestic vendors and
delivery thereof through its supply chain to its stores and customers;
successful catalog management, including timing, sizing and merchandising;
construction and other delays in store openings; uncertainties in Internet
marketing, infrastructure and regulation; changes in consumer spending based on
weather, economic, competitive and other conditions beyond the Company's
control; multi-channel and multi-brand complexities; effective inventory
management commensurate with customer demand; dependence on external funding
sources for operating funds; the Company's ability to control employment,
occupancy and other operating costs; its ability to improve and control its
systems and processes; and other risks and uncertainties contained in the
Company's public announcements, reports to stockholders and filings with the
Securities and Exchange Commission, including but not limited to the Company's
most recent Annual Report on Form 10-K.
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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.
Interest Rate Risk
The interest payable on the Company's bank lines of credit are based on
variable interest rates and therefore affected by changes in market interest
rates. If interest rates on existing variable rate debt rose 95 basis points (a
10% change from the bank's reference rate as of October 29, 2000), 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
instruments 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.
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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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Financial Data Schedule as of and for the thirty-nine weeks ended
October 29, 2000, is filed as Exhibit 27 to this report on Form 10-Q.
(b) Reports on Form 8-K
There have been no reports on Form 8-K filed during the quarter for which
this report is being filed.
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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/ SHARON L. MCCOLLAM
----------------------
Sharon L. McCollam
Senior Vice President
Chief Financial Officer
Dated: December 13, 2000
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EXHIBIT 27
FINANCIAL DATA SCHEDULE (Electronic version only)
This schedule is required in this format for electronic filing.
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