<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 July 30, 2000.
[ ] 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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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, 2000, 55,719,705 shares of the Registrant's Common
Stock were outstanding.
<PAGE> 2
WILLIAMS-SONOMA, INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JULY 30, 2000
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements (3)
Condensed Consolidated Balance Sheets
July 30, 2000, January 30, 2000 and August 1, 1999
Condensed Consolidated Statements of Operations
Thirteen weeks ended July 30, 2000 and August 1, 1999
Twenty-six weeks ended July 30, 2000 and August 1, 1999
Condensed Consolidated Statements of Cash Flows
Twenty-six weeks ended July 30, 2000 and August 1, 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition (9)
PART II. OTHER INFORMATION
Item 1. Legal Proceedings (14)
Item 4. Submission of Matters to a Vote of Security Holders (14)
Item 6. Exhibits and Reports on Form 8-K (15)
</TABLE>
2
<PAGE> 3
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 30, January 30, August 1,
2000 2000 1999
-------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,036 $ 92,843 $ 6,219
Accounts receivable (net) 22,377 22,427 25,321
Merchandise inventories 293,503 257,342 234,358
Prepaid expenses and other assets 13,981 13,326 10,989
Prepaid catalog expenses 20,824 14,677 12,859
Deferred income taxes 9,265 9,265 4,077
-------- -------- --------
Total current assets 363,986 409,880 293,823
Property and equipment (net) 428,596 313,171 276,734
Investments and other assets (net) 8,425 15,891 7,636
-------- -------- --------
Total assets $801,007 $738,942 $578,193
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 85,493 $102,462 $ 72,417
Accrued expenses 31,882 33,971 22,134
Line of credit 107,237 -- 8,000
Customer deposits 41,309 40,087 27,603
Income taxes payable 5,015 26,062 1,075
Current portion of long-term obligations 6,196 5,839 6,368
Other liabilities 8,329 7,366 6,426
-------- -------- --------
Total current liabilities 285,461 215,787 144,023
Deferred lease credits 91,305 90,873 76,811
Deferred income tax liabilities 8,520 8,520 3,339
Long-term debt 34,848 35,466 40,988
Other liabilities 5,583 4,987 4,327
Commitments and contingencies -- -- --
Shareholders' equity
Common stock 104,967 122,887 106,191
Retained earnings 270,323 260,422 202,514
-------- -------- --------
Total shareholders' equity 375,290 383,309 308,705
-------- -------- --------
Total liabilities and shareholders' equity $801,007 $738,942 $578,193
======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
----------------------- -----------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net sales $343,966 $264,000 $686,967 $522,676
Cost of goods sold and occupancy expenses 214,425 166,078 422,356 325,972
-------- -------- -------- --------
Gross margin 129,541 97,922 264,611 196,704
Selling, general and administrative expenses 118,919 89,848 244,851 183,183
Gain on sale of assets -- 4,000 -- 4,000
Interest expense (net) 2,389 638 3,661 675
-------- -------- -------- --------
Earnings before income taxes 8,233 11,436 16,099 16,846
Income taxes 3,170 4,518 6,198 6,654
-------- -------- -------- --------
Net earnings $ 5,063 $ 6,918 $ 9,901 $ 10,192
======== ======== ======== ========
Earnings per share:
Basic $ 0.09 $ 0.12 $ 0.18 $ 0.18
Diluted $ 0.09 $ 0.12 $ 0.17 $ 0.17
Shares used in calculation of earnings per
share:
Basic 55,579 55,671 55,986 55,725
Diluted 58,080 58,294 58,250 58,402
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
-------------------------
July 30, August 1,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 9,901 $ 10,192
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 27,696 19,448
Loss (gain) on disposal of assets 351 (2,850)
Amortization of deferred lease credits (4,997) (3,953)
Other -- 112
Changes in:
Accounts receivable 50 (5,238)
Merchandise inventories (36,161) (63,870)
Prepaid catalog expenses (6,147) (1,334)
Prepaid expenses and other assets (655) (2,005)
Accounts payable (16,969) 1,453
Accrued expenses and other liabilities 1,182 (1,810)
Deferred lease credits 5,429 8,437
Income taxes payable (21,047) (18,454)
--------- ---------
Net cash used in operating activities (41,367) (59,872)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment (62,918) (54,273)
Purchase of corporate facilities, net of deposit (73,303) --
Net proceeds from the sale of Gardeners Eden -- 9,101
Other (275) (102)
--------- ---------
Net cash used in investing activities (136,496) (45,274)
--------- ---------
Cash flows from financing activities:
Borrowings under line of credit 152,049 8,000
Repayments under line of credit (44,812) --
Repayment of long-term obligations (261) (427)
Proceeds from exercise of stock options 615 1,222
Repurchase of common stock (18,535) (4,738)
--------- ---------
Net cash provided by financing activities 89,056 4,057
--------- ---------
Net decrease in cash and cash equivalents (88,807) (101,089)
Cash and cash equivalents at beginning of period 92,843 107,308
--------- ---------
Cash and cash equivalents at end of period $ 4,036 $ 6,219
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen and Twenty-six Weeks Ended July 30, 2000 and
August 1, 1999
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of July 30, 2000 and August 1, 1999
and the condensed consolidated statements of operations and cash flows for the
thirteen and twenty-six week periods ended July 30, 2000 and August 1, 1999 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 30, 2000, 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 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 to Shareholders for the fiscal
year ended January 30, 2000.
Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting
for Derivative Instruments and Hedging Activities," 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 recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for years beginning
after June 15, 2000. The impact of adoption of the standard by the Company has
not yet been determined.
Certain reclassifications have been made to the prior period financial
statements to conform to the presentation used in the current period.
The results of operations for the thirteen and twenty-six weeks ended July 30,
2000 are not necessarily indicative of the operating results of the full year.
NOTE B. DEBT
As of July 30, 2000, the Company had $33,975,000 of outstanding borrowings under
its syndicated line of credit facility, and $73,262,000 outstanding under a line
of credit agreement with its lead bank. The latter agreement was added in
February 2000 to finance the purchase of a new corporate facility in San
Francisco.
On August 23, 2000, both of these debt facilities were repaid and replaced with
a new debt agreement. The new debt agreement provides for $200,000,000 in cash
advances, 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 cash advance
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 premium, as defined in the
agreement. The agreement expires on August 23, 2003.
In addition, the Company had a $90,000,000 combined letter of credit and cash
advance facility with its lead bank. Effective with the new debt agreement, this
agreement was amended to eliminate the cash advance facility and reduce the
letter of credit facility to $65,000,000. This amended agreement expires on
October 31, 2000. The Company is currently in negotiations with several of its
banks and expects to replace this facility by the end of the third quarter. As
of July 30, 2000, $59,756,000 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 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.
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 Amount
----------- ----------- ---------
<S> <C> <C> <C>
Thirteen weeks ended July 30, 2000
Basic $ 5,063,000 55,579,217 $ 0.09
========
Effect of dilutive stock options -- 2,500,815
----------------------------
Diluted $ 5,063,000 58,080,032 $ 0.09
=========== =========== ========
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
=========== =========== ========
Twenty-six weeks ended July 30, 2000
Basic $ 9,901,000 55,986,229 $ 0.18
========
Effect of dilutive stock options -- 2,263,620
----------------------------
Diluted $ 9,901,000 58,249,849 $ 0.17
=========== =========== ========
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
=========== =========== ========
</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 447,050 in the Second
Quarter of 2000 and 187,250 in the Second Quarter of 1999.
7
<PAGE> 8
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
three retail concepts: Williams-Sonoma, Pottery Barn 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. The third
website, www.potterybarn.com, was introduced on August 1, 2000 and is not
included in the direct-to-customer segment information presented below.
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
equivalents, the net book value of corporate facilities and related information
systems, deferred tax amounts and other corporate long-lived assets. The 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.
SEGMENT INFORMATION
Dollars in thousands
<TABLE>
<CAPTION>
Direct-to-
Retail Customer Unallocated Total
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Thirteen weeks ended July 30, 2000
Revenues $ 206,726 $ 137,240 $ -- $ 343,966
Earnings before income taxes 11,479 18,992 (22,238) 8,233
Thirteen weeks ended August 1, 1999
Revenues $ 172,500 $ 91,500 $ -- $ 264,000
Earnings before income taxes 10,853 18,517 (17,934) 11,436
</TABLE>
<TABLE>
<CAPTION>
Direct-to-
Retail Customer Unallocated Total
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Twenty-six weeks ended July 30, 2000
Revenues $ 402,654 $ 284,313 $ -- $ 686,967
Earnings before income taxes 27,175 33,903 (44,979) 16,099
Assets 484,416 167,635 148,956 801,007
Twenty-six weeks ended August 1, 1999
Revenues $ 330,851 $ 191,825 $ -- $ 522,676
Earnings before income taxes 20,988 30,200 (34,342) 16,846
Assets 386,476 136,627 55,090 578,193
</TABLE>
8
<PAGE> 9
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 Twenty-Six Weeks Ended
----------------------------------------------- -----------------------------------------------
Dollars in thousands July 30, 2000 August 1, 1999 July 30, 2000 August 1, 1999
-------------------- -------------------- -------------------- --------------------
%Total %Total %Total %Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Retail sales $206,726 60.1% $172,500 65.3% $402,654 58.6% $330,851 63.3%
Direct-to-customer sales 137,240 39.9% 91,500 34.7% 284,313 41.4% 191,825 36.7%
-------- ------ -------- ------ -------- ------ -------- ------
Total Net Sales $343,966 100.0% $264,000 100.0% $686,967 100.0% $522,676 100.0%
</TABLE>
Net sales for Williams-Sonoma, Inc. and its subsidiaries (the Company) for the
thirteen weeks ended July 30, 2000 (Second Quarter of 2000), were $343,966,000
-- an increase of $79,966,000 (30.3%) over net sales for the thirteen weeks
ended August 1, 1999 (Second Quarter of 1999). Net sales for the twenty-six week
period ended July 30, 2000 (Year-to-Date 2000) were $686,967,000, an increase of
$164,291,000 (31.4%) from the twenty-six week period ended August 1, 1999
(Year-to-Date 1999). Direct-to-customer sales include catalog and Internet
sales.
RETAIL SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
--------------------------- ---------------------------
Dollars in thousands July 30, August 1, July 30, August 1,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Retail sales $ 206,726 $ 172,500 $ 402,654 $ 330,851
Retail sales growth percentage 19.8% 21.8% 21.7% 22.2%
Comparable store sales growth 7.0% 6.8% 8.0% 6.9%
Number of stores - beginning of period 336 305 344 298
Number of new stores 14 12 16 20
Number of closed stores 3 3 13 4
Number of stores - end of period 347 314 347 314
Store selling square footage at quarter-end (sq. ft.) 1,547,947 1,294,858 1,547,947 1,294,858
Store leased square footage at quarter-end (sq. ft.) 2,396,370 2,008,683 2,396,370 2,008,683
</TABLE>
Retail sales for the Second Quarter of 2000 increased 19.8% over retail sales
for the Second Quarter of 1999 primarily due to new store openings in the last
twelve months. During the Second Quarter of 2000, the Company opened 14 stores
(9 large-format Williams-Sonoma, 3 large-format Pottery Barn, 1 Hold Everything
and 1 Outlet), and closed 3 smaller stores (3 Williams-Sonoma). Total retail
sales for Year-to-Date 2000 grew 21.7% 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 7.0% for the Second Quarter of 2000 as
compared to the same period of the prior year, and 8.0% for Year-to-Date 2000.
Pottery Barn led the increase in both periods.
Large-format stores average 3,439 selling square feet for Williams-Sonoma and
7,250 selling square feet for Pottery Barn. As of the end of the Second Quarter
of 2000, 242 stores (138 Williams-Sonoma and 104 Pottery Barn) were
large-format, comprising 79.4% of the Company's total selling square footage.
Large-format stores accounted for 78.7% of retail sales in the Second Quarter of
2000, as compared to 74.1% in the Second Quarter of 1999.
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The Company intends to capitalize on the success of its Pottery Barn Kids
catalog by opening seven retail stores in Fall 2000. 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-CUSTOMER SALES
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------ ------------------------
July 30, August 1, July 30, August 1,
2000 1999 2000 1999
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Catalog sales $130,742 $ 90,661 $273,199 $190.986
Internet sales 6,498 839 11,114 839
-------- -------- -------- --------
Total direct-to-customer sales $137,240 $ 91,500 $284,313 $191,825
Percent growth in direct-to-customer sales 50.0% 24.3% 48.2% 27.2%
Percent growth in number of catalogs mailed 45.7% 18.5% 24.5% 11.4%
</TABLE>
Direct-to-customer sales increased 50.0% in the Second Quarter of 2000 and 24.3%
in the Second Quarter of 1999, as compared to the same periods of the respective
prior years. These increases were primarily due to the strength of Pottery Barn
& Pottery Barn Kids. For Year-to-Date 2000, direct-to-customer sales increased
48.2%, also as a result of strong sales performance by Pottery Barn and Pottery
Barn Kids.
Catalog
The Pottery Barn brand and its extensions (Pottery Barn Kids and Pottery Barn
Bed + Bath) accounted for 84.5% of the growth in Second Quarter 2000
direct-to-customer sales, and the majority of the growth in the number of
catalogs mailed. Management believes that the success of the Pottery Barn brand
and its brand extensions 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. The Company successfully introduced the
Pottery Barn Bed + Bath catalog in May 2000.
In May 1999, the Company sold the assets of its Gardeners Eden catalog, and as
a result recorded a $2,437,000 after-tax gain.
Internet
In June 1999, the Company launched its Williams-Sonoma Wedding and Gift Registry
Web site, and in November 1999 launched its Williams-Sonoma e-commerce site.
Combined sales from these sites were $6,498,000 in the Second Quarter of 2000
and $11,114,000 for Year-to-Date 2000. The Company unveiled its Pottery Barn
e-commerce site in August 2000.
COST OF GOODS SOLD AND OCCUPANCY EXPENSES
Cost of goods sold and occupancy expenses expressed as a percentage of net sales
for the Second Quarter of 2000 decreased 0.6 percentage points as compared to
the same quarter of the prior year, to 62.3% from 62.9%. Merchandise margins
improved slightly due to an improved cost of merchandise rate, partially offset
by increased retail freight costs. Occupancy expenses expressed as a percentage
of total sales improved, primarily due to increased sales volume.
For Year-to-Date 2000, cost of goods sold and occupancy expenses expressed as a
percent of net sales decreased 0.9 percentage points, to 61.5% from 62.4%. This
improvement was primarily driven by improved merchandise markup and a lower
occupancy expense rate.
10
<PAGE> 11
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses expressed as a percent of net sales
increased by 0.6 percentage points to 34.6% in the Second Quarter of 2000 from
34.0% in the Second Quarter of 1999. For Year-to-Date 2000, the selling, general
and administrative expense rate increased 0.6 percentage points to 35.6%. For
both these periods, the increase in direct-to-customer business as a percentage
of total sales resulted in a higher advertising expense rate, which was
partially offset by improvements in shipping and other administrative costs.
INTEREST EXPENSE
Net interest expense increased $1,751,000, from $638,000 in the Second Quarter
of 1999 to $2,389,000 in the Second Quarter of 2000, and increased $2,986,000
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-to-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 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 $41,367,000
representing a decrease of $18,505,000 from the $59,872,000 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 and
increased operating income, partially offset by increased cash used for accounts
payable. Inventories for the period grew 25% compared to sales growth of 30%.
This trend is consistent with the Company's objective to improve inventory turns
relative to sales growth.
Net cash used in investing activities was $136,496,000 for Year-to-Date 2000 as
compared to $45,274,000 for the same period of 1999. Year-to-Date 2000 purchases
of property and equipment include approximately $73,303,000 (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 $33,200,000 for stores and $12,600,000 for systems development,
including the Internet.
Year-to-Date 1999 expenditures were primarily for new stores and a new, leased
retail distribution facility. These expenditures were partially offset with the
proceeds from the sale of assets of the Gardeners Eden catalog in May of 1999.
For Year-to-Date 2000, cash provided by financing activities was $89,056,000,
comprised primarily of proceeds from the line of credit financing, 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
$4,057,000,
11
<PAGE> 12
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.
As of July 30, 2000, the Company had $33,975,000 of outstanding borrowings under
its syndicated line of credit facility, and $73,262,000 outstanding under a line
of credit agreement with its lead bank. The latter agreement was added in
February 2000 to finance the purchase of a new corporate facility in San
Francisco.
On August 23, 2000, both of these debt facilities were repaid and replaced with
a new debt agreement. The new debt agreement provides for $200,000,000 in cash
advances, 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 cash advance
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 premium, as defined in
the agreement. The agreement expires on August 23, 2003.
In addition, the Company had a $90,000,000 combined letter of credit and cash
advance facility with its lead bank. Effective with the new debt agreement, this
agreement was amended to eliminate the cash advance facility and reduce the
letter of credit facility to $65,000,000. The amended agreement expires on
October 31, 2000. The Company is currently in negotiations with several of its
banks and expects to replace this facility by the end of the third quarter. As
of July 30, 2000, $59,756,000 in letters of credit were outstanding under this
facility.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
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 July 30, 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.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December, and levels of net
sales and net income have generally been significantly lower during the period
from 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
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<PAGE> 13
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. 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 potential for
changes in consumer spending patterns, consumer preferences and overall economic
conditions, the Company's dependence on foreign suppliers, and increasing
competition in the specialty retail business. Other factors that could cause
actual results to differ materially from those set forth in such forward-looking
statements include the risks and uncertainties detailed in the Company's most
recent annual report on Form 10-K and its other filings with the Securities and
Exchange Commission.
13
<PAGE> 14
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 31, 2000.
(b) At the Company's 2000 Annual Meeting of Shareholders, the shareholders took
the following actions:
(I) The shareholders 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 44,959,430 1,267,843
W. Howard Lester 41,879,073 4,348,200
James A. McMahan 44,945,589 1,281,684
Nathan Bessin 44,973,063 1,254,210
Patrick J. Connolly 45,008,676 1,218,597
Gary G. Friedman 45,007,551 1,219,722
James M. Berry 44,982,633 1,244,640
John E. Martin 39,556,031 6,671,242
Adrian D.P. Bellamy 40,768,142 5,459,131
Michael R. Lynch 45,010,144 1,217,129
Edward A. Mueller 45,005,728 1,221,545
</TABLE>
(II) The shareholders approved and adopted, by the vote indicated, the
amendment to the Company's restated bylaws to increase the authorized
number of members of the Company's Board of Directors from not less
than six and no more than eleven to not less than seven and no more
than thirteen:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
37,006,020 88,509 29,066
</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 28, 2001:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C> <C>
46,204,473 17,675 5,125
</TABLE>
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<PAGE> 15
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
<S> <C>
10.1 Amended and Restated Credit Agreement between the Company and
Bank of America, National Association, dated August 23, 2000
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.
15
<PAGE> 16
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 12, 2000
16
