1
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 April 30, 1995.
[ ] 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 2-83992
WILLIAMS-SONOMA, INC.
(Exact Name of Registrant as Specified in Its Charter)
California 94-2203880
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
3250 Van Ness Avenue, San Francisco, CA 94109
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (415) 421-7900
100 North Point Street, San Francisco, California 94133
__________________________________________________________________________
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 May 25, 1995, 25,361,727 shares of the Registrant's Common Stock were
outstanding.
2
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
April 30, January 29, May 1,
1995 1995 1994
---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 5,897 $ 17,481 $ 5,258
Accounts receivable 6,316 5,394 4,307
Merchandise inventories 105,923 87,949 78,339
Prepaid expenses and other assets 9,567 5,849 6,719
Prepaid catalog expenses 12,459 11,205 9,563
Deferred income taxes 259 259 2,617
-------- -------- --------
Total current assets 140,421 128,137 106,803
Deferred income taxes 4,021 4,021 2,968
Investments and other assets 6,272 6,325 2,196
Property and equipment (net) 87,155 79,395 62,053
-------- -------- ------
$237,869 $217,878 $174,020
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,075 $ 49,357 $ 27,028
Accrued expenses 5,280 4,407 6,168
Accrued salaries and benefits 7,986 8,138 6,378
Line of credit 40,000 - 8,400
Current portion of long-term debt 141 141 184
Customer deposits 5,713 5,631 3,840
Other liabilities 2,506 2,628 2,755
Income taxes payable - 8,329 1,173
-------- -------- --------
Total current liabilities 97,701 78,631 55,926
Deferred lease credits 15,494 14,250 13,452
Long-term debt 6,749 6,781 7,451
Shareholders' equity 117,925 118,216 97,191
-------- -------- --------
$237,869 $217,878 $174,020
======== ======== ========
See Notes to Condensed Consolidated Financial Statements.
3
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share amounts)
(Unaudited)
Thirteen Weeks Ended
April 30, May 1,
1995 1994
---- ----
Net sales $118,160 $102,842
Costs and expenses:
Cost of goods sold and occupancy 73,778 63,452
Selling, general and administrative 44,584 36,145
------ ------
Total costs and expenses 118,362 99,597
------- ------
Earnings from operations (202) 3,245
Interest expense (net) 350 163
--- ---
Earnings (loss) before income taxes (552) 3,082
Income taxes (226) 1,294
----- -----
Net earnings (loss) $ (326) $1,788
======= ======
Earnings (loss) per share:
Primary $(0.01) $.07
Fully diluted $(0.01) $.07
Average number of common shares outstanding:
Primary 26,181 26,065
Fully diluted 26,181 26,111
Note: 1994 shares and per share amounts have been restated to reflect the
3-for-2 stock split in September 1994.
See Notes to Condensed Consolidated Financial Statements.
4
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Thirteen Weeks Ended
April 30, May 1,
1995 1994
---- ----
Cash flows from operating activities:
Net earnings (loss) $ (326) $ 1,788
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 3,451 2,820
Amortization of deferred lease incentives (301) (257)
Change in allowance for doubtful accounts 19 24
Change in deferred rents (81) (81)
Loss on disposal of assets 180 253
Change in:
Notes and accounts receivable (941) (597)
Merchandise inventories (17,973) (8,000)
Prepaid catalog expenses (1,254) (3,845)
Prepaid expenses and other assets (1,827) (1,560)
Accounts payable (7,832) (832)
Accrued expenses and other liabilities 1,015 226
Income taxes payable (9,545) (8,397)
--------- ---------
Net cash used in operating activities (35,415) (18,458)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (13,163) (1,718)
Other investments 21 -
Proceeds from sale of property and equipment 796 1
-------- --------
Net cash used in investing activities (12,346) (1,717)
-------- ---------
Cash flows from financing activities:
Change in cash overdrafts (5,451) (731)
Deferred lease incentives 1,625 -
Borrowings under line of credit 51,700 24,400
Repayments under line of credit (11,700) (16,000)
Proceeds from long-term debt - 7,000
Repayment of long-term debt (32) (83)
Proceeds from exercise of stock options 35 90
--------- ---------
Net cash provided by financing activities 36,177 14,676
--------- ---------
Net decrease in cash and cash equivalents (11,584) (5,499)
Cash and cash equivalents at beginning of period 17,481 10,757
-------- --------
Cash and cash equivalents at end of period $ 5,897 $ 5,258
======== =========
See Notes to Condensed Consolidated Financial Statements.
5
WILLIAMS-SONOMA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Thirteen Weeks Ended April 30, 1995 and May 1, 1994
NOTE A. FINANCIAL STATEMENTS - BASIS OF PRESENTATION
The condensed consolidated balance sheets as of April 30, 1995 and May 1, 1994,
the condensed consolidated statements of operations for the thirteen week
periods ended April 30, 1995 and May 1, 1994, and condensed consolidated
statements of cash flows for the thirteen week periods ending April 30, 1995
and May 1, 1994 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 for the thirteen 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 29, 1995, presented herein, has been
prepared from the audited balance sheet of the Company.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report to Shareholders for the fiscal year ended January 29, 1995.
Certain reclassifications have been made to the prior year financial statements
to conform to classifications used in the current period.
The results of operations for the thirteen weeks ended April 30, 1995 are not
necessarily indicative of the operating results of the full year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
NET SALES
Net sales consist of the following components (dollars in thousands):
Thirteen Thirteen
Weeks Weeks
Ended Ended
April 30, May 1,
1995 % Total 1994 % Total
---- ------- ----- -------
Catalog sales $52,965 44.8% $43,809 42.6%
Retail sales 65,195 55.2% 56,300 54.7%
California Closet revenue 0 0.0% 2,733 2.7%
------ ---- ----- ----
Total net sales $118,160 100.0% $102,842 100.0%
======== ====== ======== ======
Net sales for Williams-Sonoma, Inc. and its subsidiaries ("the Company") for
the thirteen weeks ended April 30, 1995 ( "First Quarter of 1995") were
$118,160,000-- a $15,318,000 increase from the thirteen weeks ended May 1,1994
(" First Quarter of 1994"). Catalog sales increased 20.9% and retail sales
increased 15.8%. The Pottery Barn catalog continues to perform well and was
responsible for 64% of the increase in catalog sales in the quarter. Retail
sales for the First Quarter of 1995 increased 15.8% over retail sales for the
First Quarter of 1994 while comparable store sales increased 2.3%. Pottery
Barn, with 26% of the store locations at the end of the First Quarter,
accounted for 55% of the retail sales growth. The Company opened 6 new large
format stores in the First Quarter of 1995 -- 5 Williams-Sonoma stores and 1
Pottery Barn store -- and closed 1 Hold Everything store. In August 1994 the
Company sold California Closet Company, Inc., a wholly-owned subsidiary which
marketed custom home closet systems.
COST OF GOODS SOLD AND OCCUPANCY
Cost of goods sold and occupancy expense for the First Quarter of 1995
increased as a percentage of net sales to 62.4% from 61.7%. Higher cost of
goods sold accounted for .4 percentage points of the .7 percentage point
increase.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, and general and administrative costs increased as a percentage of net
sales by 2.6 percentage points-- from 35.1% to 37.7%. Higher advertising and
customer service expenses were principally responsible for the increase. The
Company attributes most of the increase in customer service expense to higher
costs associated with operating existing service and distribution facilities
above their optimum capacity. The Company is presently expanding its customer
service and distribution facilities to increase their total capacity and
improve operating efficiency. The Company expects to complete this expansion
during the fall of 1995.
INTEREST EXPENSE
Interest expense in the First Quarter of 1995 increased $187,000 over that of
the First Quarter of 1994 due to increased bank line borrowing used to support
planned growth. The Company's effective interest rate on short-term borrowings
was 7.7% for the First Quarter of 1995 and 6.7% for the First Quarter of 1994.
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INCOME TAXES
The Company's effective tax rate was 42% for the First Quarter of 1994 and 41.5
% for the First Quarter of 1995. The decrease is due to a lower aggregate
state tax rate based on the mix of retail sales and catalog sales in the
various states where the Company has sales or conducts business.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $42,720,000 of working capital at April 30, 1995 compared to
$50,877,000 at May 1, 1994. The decrease is attributable primarily to
increased borrowings under the Company's line of credit for store construction
and expansion. The Company believes that additional long-term working capital
is required to continue with its planned store construction and expansion and
is pursuing several alternatives.
Net cash used in operating activities in the First Quarter of 1995 was
$35,415,000 -- a $16,957,000 increase over the $18,458,000 used in the First
Quarter of 1994. This change was primarily due to increased merchandise
inventories and payments to vendors. The increase in merchandise inventories is
principally attributable to the new store expansion program.
Net cash used in investing activities was $12,346,000 in the First Quarter of
1995. This was a significant increase over the $1,717,000 in the First Quarter
of 1994. $10,555,000 was used for store, distribution center and office
expansion and $1,970,000 for new systems. The Company plans to open 35 stores
in 1995 which will increase the store selling area by approximately 35%.
Net cash provided by financing activities increased from $14,676,000 in the
First Quarter of 1994 to $36,177,000 in the First Quarter of 1995. The Company
used borrowings under its line of credit and landlord lease incentives to fund
infrastructure and new store investment.
SEASONALITY
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's sales and net income have
been realized during the period from October through December, and levels of
net sales and net income have generally been significantly lower during the
period from February through July. The Company believes this is the general
pattern associated with the mail order and retail industries. In anticipation
of its peak season, the Company hires a substantial number of additional
employees in its retail stores and mail order processing and distribution
areas, and incurs significant fixed catalog production and mailing costs.
8
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 materially 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
24, 1995.
(b) At the Company's 1995 Annual Meeting of Shareholders, the
shareholders took the following actions:
(I) Each of the following persons was re-elected by the vote
indicated to serve as a director of the Company until the
next Annual Meeting of Shareholders or until his successor
is elected and qualified:
Name For Against Withheld
---- --- ------- --------
Charles E. Williams 22,283,993 8,460 188,207
W. Howard Lester 22,288,368 4,085 183,832
James A. McMahan 22,284,835 7,618 187,365
Nathan Bessin 22,288,950 3,503 183,250
Patrick J. Connolly 22,288,568 3,885 183,632
Gary G. Friedman 22,288,671 3,782 183,529
F. Warren Hellman 21,884,718 407,735 587,482
James M. Berry 22,275,528 16,925 196,672
Millard S. Drexler 21,871,851 420,602 600,349
John E. Martin 21,872,280 420,173 599,920
(ii) A proposal was approved to amend the Company's Articles of
Incorporation to add a par value of $.01 per share of common
stock and preferred stock.
For Against Withheld
--- ------- --------
22,225,673 29,639 24,656
(iii) A proposal was approved to amend the Company's 1993 Stock
Option Plan to increase the size of the stock options awarded
annually to non-employee directors upon their re-election
from 2,250 shares of common stock to 5,250 shares of common
stock.
For Against Withheld
--- ------- --------
20,624,869 1,547,343 299,988
(iv) A proposal was approvd to ratify the selection of Deloitte &
Touche LLP as the independent accountants for the Company's
fiscal year ending January 28, 1996.
For Against Withheld
--- ------- --------
22,448,188 13,314 10,698
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Description
- ------ -------------------
10. Material Contracts
10.1 1983 Incentive Stock Option Plan and Form of Agreement (incorporated
by reference to Exhibit 10.2 to the Company's Registration Statement
on Form S-1, as filed with the Commission on May 25, 1983)
10.1A 1976 Stock Option Plan and Form of Agreement as amended
(incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1993, as
filed with the Commission on May 3, 1993)
10.1B 1993 Stock Option Plan approved by the Shareholders at the 1993
Annual Meeting (incorporated by reference to Exhibit 10.22 to the
Company's Report on Form 10-Q for the period ended May 2, 1993 as
filed with the Commission on June 16, 1993)
10.2 Warehouse - distribution facility lease dated July 1, 1983 between
the Lester-McMahan Partnership as lessor and the Company as lessee
(incorporated by reference to Exhibit 10.28 to the Company's Report
on Form 10-Q for the period ended September 30, 1983, as filed with
the Commission on October 14, 1983)
10.2A The Amendment, dated December 1, 1985, to the lease for the
distribution center, dated July 1, 1983 between the Company as
lessee and the Lester McMahan Partnership as lessor (incorporated by
reference to Exhibit 10.48 to the Company's Report on Form 10-K for
the fiscal year ended February 3, 1985, as filed with the Commission
on April 26, 1985)
10.2B The Sublease, dated as of August 1, 1990, by and between Hewson-
Memphis Partners and the Company (incorporated by reference to
Exhibit 10 to the Company's Report on Form 10-Q for the period ended
October 28, 1990, as filed with the Commission on December 12, 1990)
10.2C Second Amendment to Lease between the Company and The Lester-McMahan
Partnership, dated December 1, 1993 (incorporated by reference to
Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 1994 as filed with the Commission on
April 29, 1994)
10.2D Second Amendment to Sublease between the Company and Hewson-Memphis
Partners, dated September 1, 1994 (incorporated by reference to
Exhibit 10.38 to the Company's Report on Form 10-Q for the period
ended October 30, 1994 as filed with the Commission on December 13,
1994)
10
10.3 The lease for the Company's Corporate Offices at 100 North Point
Street, San Francisco, California dated January 13, 1986, between
the Company as lessee and Northpoint Investors as lessor
(incorporated by reference to Exhibit 10.49 to the Company's Report
on Form 10-K for the year ended February 3, 1985, as filed with the
Commission on April 26, 1985)
10.4 Joint Venture Agreement and Trade Name and Trade Mark Licensing
Agreement, dated May 3, 1988 between the Company and Tokyu
Department Store Co., Ltd. (incorporated by reference to Exhibit
10.1 to the Company's Report on Form 10-Q for the period ended July
31, 1988, as filed with the Commission on September 15, 1988)
10.4A Stock Purchase Agreement dated as of May 15, 1989, by and between
the Company and Tokyu Department Store Co., Ltd. (incorporated by
reference to Exhibit 4.1 to the Company's registration statement on
Form S-2 filed with the Commission on June 28, 1990 as amended by
amendment Number 1 on Form S-2 filed with the Commission on July 17,
1990)
10.5 Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive
Plan effective as of February 1, 1989 (incorporated by reference to
Exhibit 4.2 of the Company's Form S-8 (File No. 33-33693) filed
February 22, 1990)
10.5A Williams-Sonoma, Inc. Employee Profit Sharing and Stock Incentive
Plan Trust Agreement, dated September 20, 1989 (incorporated by
reference to Exhibit 4.2 of the Company's Form S-8 (File No. 33-
33693) filed February 22, 1990)
10.5B Amendment Number One to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated April 27, 1990 (incorporated
by reference to Exhibit 10.20 to the Company's Annual Report on Form
10-K for the fiscal year ended February 3, 1991, as amended by a
Form 8 Amendment to Form 10-K, filed with the Commission on July 26,
1991)
10.5C Amendment Number Two to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated December 12, 1990
(incorporated by reference to Exhibit 10.21 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 3, 1991, as
amended by a Form 8 Amendment to Form 10-K, filed with the
Commission on July 26, 1991)
10.5D Amendment Number Three to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated March 10, 1992 (incorporated
by reference to Exhibit 10.21 to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1993 as filed with the
Commission on May 3, 1993)
11
10.5E Amendment Number Four to the Williams-Sonoma, Inc. Employee Profit
Sharing and Stock Incentive Plan, dated June 9, 1993 (incorporated
by reference to Exhibit 10.24 to the Company's Report on Form 10-Q
for the period ended May 2, 1993 as filed with the Commission on
June 16, 1993)
10.6 Indemnity Agreement by the Company in favor of Bank of America, NT &
SA, dated December 1, 1993 (incorporated by reference to Exhibit
10.28 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994 as filed with the Commission on April
29, 1994)
10.6A Standing Loan Agreement and Deed of Trust between the Company and
Bank of America, NT & SA, dated March 9, 1994 (incorporated by
reference to Exhibit 10.31 to the Company's Annual Report on Form
10-K for the fiscal year ended January 30, 1994 as filed with the
Commission on April 29, 1994)
10.6B Master Agreement between the Company and Bank of America, NT & SA,
dated March 30, 1994 (incorporated by reference to Exhibit 10.33 to
the Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1994 as filed with the Commission on April 29, 1994)
10.6C Amended and Restated Credit Agreement between the Company and Bank
of America, NT & SA, dated October 13, 1994 (incorporated by
reference to Exhibit 10.27 to the Company's Report on Form 10-Q for
the period ended October 30, 1994 as filed with the Commission on
December 13, 1994)
10.7 Purchase and Sale Agreement between the Company and Bancroft-
Whitney, a division of Thomson Legal Publishing, Inc., dated
December 14, 1993 (incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the fiscal year ended
January 30, 1994 as filed with the Commission on April 29, 1994)
10.8 Stock Purchase agreement between the Company and Bill Levine, dated
August 12, 1994. (incorporated by reference to Exhibit 10.36 to
Company's Report on Form 10-Q for period ended July 31, 1994 as
filed with the Commission on September 13, 1994)
11 Statement re computation of per share earnings.
27 Financial Data Schedule
(b) There have been no reports on Form 8-K filed during the quarter for
which this report on Form 10-Q is being filed.
12
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/Russell Solt
-----------------------------
Russell Solt
Senior Vice President
Principal Financial Officer
Principal Accounting Officer
Dated: June 12, 1995
13
EXHIBIT INDEX
Exhibit 11 Statement Re Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
14
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
15
EXHIBIT 11.1: COMPUTATION OF EARNINGS PER SHARE
Thirteen Weeks Ended
--------------------
April 30, May 1,
1995 1994
---- ----
Net earnings (loss) $(326,200) $1,788,300
Average shares of common stock
outstanding during the period 25,342,842 25,096,457
Incremental shares from assumed
exercise of stock options (primary) 838,096 968,916
------- -------
26,180,936 26,065,373
---------- ----------
Primary earnings (loss) per share $(0.01) $0.07
======= =====
Average shares of common stock
outstanding during the period 25,342,842 25,096,457
Incremental shares from assumed
exercise of stock options (fully 838,096 1,014,081
-------- ---------
diluted)
26,180,938 26,110,538
---------- ----------
Fully diluted earnings (loss) per
share $(0.01) $0.07
======= =====
Note: 1994 amounts are adjusted to reflect the 3-for-2 stock split in
September 1994.
16
EXHIBIT INDEX
Ex. 27 Financial Data Schedule