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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended January 28, 2001
Commission file number 001-14077
WILLIAMS-SONOMA, INC.
(Exact Name of Registrant as Specified in Its Charter)
CALIFORNIA 94-2203880
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) 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
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $ .01 par value New York Stock Exchange, Inc.
----------------------------- ---------------------------------------
(Title of Class) Name of Each Exchange where Registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark 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 [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 27, 2001, the approximate aggregate market value of voting
stock held by non-affiliates of the Registrant was $1,277,981,574 using the
closing sales price on this day of $29.30. It is assumed for purposes of this
computation an affiliate includes all persons registered as Registrant insiders
with the Securities and Exchange Commission, as well as the Registrant's
Associate Stock Incentive Plan.
As of March 27, 2001, 55,896,265 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Proxy Statement for the 2001 Annual Meeting
(the "Proxy Statement") in Part III have been incorporated herein by reference.
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FORWARD-LOOKING STATEMENTS AND RISK FACTORS
The forward-looking statements included in Management's Discussion and
Analysis of Financial Condition and Results of Operations and elsewhere in this
Annual Report on Form 10-K may constitute "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those set forth in such
statements. These risks and uncertainties include, without limitation, the
following: the Company's ability to anticipate consumer preferences and buying
trends; timely introduction and customer acceptance of the Company's
merchandise; timely and effective sourcing of the Company's merchandise from its
foreign and domestic vendors and delivery thereof through the Company's 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; the
Company's 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 SEC filings, including but not limited to Reports on Forms
10-K, 8-K and 10-Q. The Company undertakes no obligation to update or revise any
forward-looking statements to reflect events or circumstances that may arise
after the date of this report.
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WILLIAMS-SONOMA, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JANUARY 28, 2001
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business 4
Item 2. Properties 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 14
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 29
PART III
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and Management 31
Item 13. Certain Relationships and Related Transactions 31
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 32
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PART I
ITEM 1. BUSINESS
Williams-Sonoma, Inc. and its subsidiaries (the "Company") are specialty
retailers of products for the home. The retail segment sells its products
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 direct-mail catalogs -Williams-Sonoma, Pottery Barn, Pottery
Barn Kids, Pottery Barn Bed + Bath, Hold Everything and Chambers -- and three
e-commerce websites. Based on net revenues in fiscal 2000, retail accounted for
57.2% of the business and direct-to-customer accounted for 42.8%. The principal
concepts in both retail and direct-to-customer are Williams-Sonoma and Pottery
Barn, which sell cookware essentials and contemporary tableware and home
furnishings, respectively.
The Company was founded in 1956 with the opening of its first store in Sonoma,
California by Charles E. Williams, currently Vice Chairman and a director of the
Company. Today, the Williams-Sonoma stores offer a wide selection of culinary
and serving equipment, including cookware, cookbooks, cutlery, informal
dinnerware, glassware and table linen. In addition, these stores carry a variety
of quality foods, including a line of Williams-Sonoma food products, such as
gourmet coffees and pasta sauces. The Company's direct-to-customer business
began in 1972 when it introduced its flagship catalog, "A Catalog for Cooks,"
which markets the Williams-Sonoma brand.
In 1982, the Company expanded into areas of the home-centered business beyond
kitchen products by acquiring Gardeners Eden. In May 1999, the Company sold
assets of the Gardeners Eden catalog to allow greater focus on the Company's
existing brands and Internet development. As a result of the sale, the Company
recognized a $3,962,000 pre-tax gain ($2,437,000 after-tax).
In 1983, the Company internally developed the Hold Everything catalog to offer
innovative solutions for household storage needs by providing efficient
organization solutions for every room in the house. The first Hold Everything
store was opened in 1985.
In 1986, the Company acquired Pottery Barn, a present retailer and
direct-to-customer merchandiser featuring a large assortment of items in casual
home furnishings, flatware and table accessories from around the world that are
designed internally to be combined to create a dynamic look in the home and in
1989, the Company developed Chambers, a mail order merchandiser of high quality
linens, towels, robes, soaps and accessories for the bed and bath.
In 1999, the Company launched the Pottery Barn Kids catalog on the belief that
there was a void in the market place for well-made and stylish children's
furnishings and in 2000, the Company opened its first Pottery Barn Kids stores
across the United States. In 2000, the Company also created Pottery Barn Bed +
Bath, a catalog dedicated to bed and bath products, and entered the magazine
publishing world with the launch of Williams-Sonoma Taste magazine which
features articles on cooking, entertainment and travel.
In 1999, the Company launched both its Williams-Sonoma Internet wedding and gift
registry website and its Williams-Sonoma e-commerce site. The Pottery Barn
website was introduced in 2000. The Company expects to launch three new
direct-to-customer growth initiatives in fiscal 2001 including a Pottery Barn
Kids e-commerce website, a Pottery Barn gift registry website and a Pottery Barn
Kids gift registry website. In 2001, the Company intends to open five retail
stores in Toronto, Canada.
The Company plans to test a new catalog called "Elm Street" in the Spring of
2002. If the test is successful, the Company will consider expanding the concept
at retail in 2003.
RETAIL STORES
The retail segment has four merchandising concepts - Williams-Sonoma, Pottery
Barn, Pottery Barn Kids and Hold Everything. As of January 28, 2001, the Company
operated 382 retail stores, located in 39 states and Washington DC. This
represents 200 Williams-Sonoma, 136 Pottery Barn, 8 Pottery Barn Kids, 26 Hold
Everything, and 12 outlet stores, of which 155 Williams-Sonoma and 124 Pottery
Barn stores are large-format. The prototypical large-format stores in fiscal
2000 range from 5,300 -- 9,800 selling square feet for Pottery Barn stores, and
2,600 -- 6,600 selling square feet for Williams-Sonoma stores and enable the
Company to more clearly display merchandise. Large-format stores accounted for
80% of retail sales in fiscal 2000, as compared to 76% in fiscal 1999. In fiscal
2001, the Company plans to increase leased square footage by approximately 15%.
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DIRECT-TO-CUSTOMER OPERATIONS
The direct-to-customer segment has six merchandising concepts --
Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed + Bath, Hold
Everything and Chambers. Of these six merchandising concepts, Pottery Barn has
been the major source of sales growth in the direct-to-customer segment for the
last several years. With the addition of Pottery Barn Kids in fiscal 1999,
Pottery Barn Bed + Bath in fiscal 2000, and one e-commerce website
(www.potterybarn.com) in fiscal 2000, the Pottery Barn brand grew 47.2% in
fiscal 2000 over fiscal 1999. The Pottery Barn Bed + Bath catalog and Pottery
Barn e-commerce website represented 29.7% of fiscal 2000 direct-to-customer
revenue growth and 33.1% of fiscal 2000 Pottery Barn brand 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 its Pottery Barn catalogs, website and design studio stores.
The Company sends its catalogs to addresses from its proprietary customer list,
as well as to names from lists which the Company receives in exchange or rents
from other mail order merchandisers, magazines and other companies. In
accordance with prevailing industry practice, the Company rents its list to
other merchandisers. The Company's customer list is continually updated to
include new prospects and eliminate non-responders.
The direct-to-customer business complements the retail business by building
customer awareness of a brand and acting as an effective advertising vehicle. In
addition, the Company believes that the mail order catalogs and the Internet act
as a cost efficient means of testing market acceptance of new products.
SUPPLIERS
The Company purchases its merchandise from numerous foreign and domestic
manufacturers and importers, none of which accounted for more than 4% of
purchases during fiscal 2000. Approximately 54% of the Company's payments for
merchandise in fiscal 2000 were to foreign vendors, most of which are located in
Europe and Asia. Substantially all of the Company's foreign purchases of
merchandise are negotiated and paid for in U.S. dollars.
The Company cannot predict whether any of the countries in which its products
are currently manufactured or may be manufactured in the future will be subject
to trade restrictions imposed by the U.S. government, including the likelihood,
type or effect of any such restrictions. Any event causing a sudden disruption
of imports from foreign vendors, including the imposition of additional import
restrictions, as well as increased tariffs or quotas, or both, against
home-centered items could increase the cost or reduce the supply of merchandise
available to the Company and adversely affect the Company's business, financial
condition and results of operations. The Company's sourcing strategy includes
relationships with manufacturers in over 40 countries. These sourcing operations
may be adversely affected by political and financial instability resulting in
the disruption of trade from exporting countries, significant fluctuation in the
value of the U.S. dollar against foreign currencies, restrictions on the
transfer of funds and/or other trade disruptions.
COMPETITION AND SEASONALITY
The specialty retail business is highly competitive. The Company's specialty
retail stores, mail order catalogs and the Internet compete with other retail
stores, including specialty stores and department stores, other mail order
catalogs and other e-commerce websites. The substantial sales growth in the
direct-to-customer industry within the last decade has encouraged the entry of
many new competitors and an increase in competition from established companies.
The Company competes on the basis of the quality of its merchandise, service to
its customers and its proprietary customer list.
The Company's business is subject to substantial seasonal variations in demand.
Historically, a significant portion of the Company's revenues and net earnings
have been realized during the period from October through December, and levels
of net revenues 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.
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PATENTS, TRADEMARKS, COPYRIGHTS AND DOMAIN NAMES
Williams-Sonoma, Inc. owns and/or has applied to register over one hundred
trademarks and service marks in the United States, Canada and in approximately
35 additional countries throughout the world. Exclusive rights to the trademarks
and service marks in the United States are held by Williams-Sonoma, Inc. and are
used by its subsidiaries under license. These marks include brand names for
products as well as house marks for the subsidiaries and their signature
publications and web sites. The house marks in particular, including
"Williams-Sonoma," the Williams-Sonoma Grand Cuisine Logo, "Pottery Barn," "Hold
Everything," "Chambers," and the new "Pottery Barn Kids," are of material
importance to the Company. Trademarks are generally valid as long as they are in
use and/or their registrations are properly maintained, and they have not been
found to have become generic. Trademark registrations can generally be renewed
indefinitely so long as the marks are in use. Williams-Sonoma, Inc. also owns
numerous copyrights and exclusive trade dress rights for Company products,
product packaging, catalogs, books, house publications and web designs, among
other things, which are also used by its subsidiaries under license.
Williams-Sonoma, Inc. also holds patents on certain product functions and
product designs. In addition, Williams-Sonoma, Inc. has registered and maintains
numerous Internet domain names, including "williams-sonoma.com,"
"wsweddings.com," "potterybarn.com," and "potterybarnkids.com." Collectively,
the copyrights, trade dress rights, patents and domain names currently held by
Williams-Sonoma, Inc. are of material importance to the Company.
EMPLOYEES
At January 28, 2001, the Company employed approximately 22,000 persons,
approximately 5,600 of whom were full-time employees. During the fiscal 2000
peak season the Company hired approximately 10,000 temporary employees in its
stores and in its direct-to-customer processing and distribution areas.
ITEM 2. PROPERTIES
The Company's net selling area, at January 28, 2001, totaled approximately
1,764,000 square feet of lease space for 382 stores compared to approximately
1,497,000 square feet for 344 stores at the end of the prior year. All of the
existing stores are leased by the Company with original terms ranging generally
from 3 to 23 years. Most store leases require the payment of minimum rentals
against percentage rentals based on store sales. Certain leases contain renewal
options for periods of up to 20 years. (See Note D to the Company's Consolidated
Financial Statements.)
The Company leases distribution facilities in the following locations:
Location Square Footage (Approximate)
-------- ----------------------------
Olive Branch, Mississippi 2,181,000 square feet
Memphis, Tennessee 1,401,000 square feet
Two of the Company's distribution facilities are leased from two partnerships
whose partners include directors, executive officers and/or significant
shareholders of the Company. (See Note E to the Company's Consolidated Financial
Statements.)
The Company leases build-to-suit call centers in the following locations:
Location Square Footage (Approximate)
-------- ----------------------------
Las Vegas, Nevada 36,000 square feet
Oklahoma City, Oklahoma 36,000 square feet
Camp Hill, Pennsylvania 38,000 square feet
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The Company's corporate facilities are located in San Francisco, California. The
Company's primary headquarters, consisting of 107,000 square feet, was purchased
in 1993 and will increase by approximately 16,000 square feet upon the summer
2001 completion of expansion renovations. In February 2000, the Company
purchased a 204,000 square foot facility in San Francisco, California for the
purpose of consolidating certain headquarters staff and to provide for future
growth.
The Company also leases office, warehouse, design/photo studio and data center
space in the following locations:
Location Square Footage (Approximate)
-------- ----------------------------
San Francisco, California 235,000 square feet
Rocklin, California 15,000 square feet
ITEM 3. 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
statements taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of the 2000 fiscal year.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
Williams-Sonoma's common stock is traded on the New York Stock Exchange (NYSE)
under the symbol WSM. The following table sets forth the high and low closing
prices on the NYSE for the periods indicated.
Fiscal 2000 High Low
---- ---
1st Quarter $ 34.63 $ 18.94
2nd Quarter $ 40.44 $ 26.00
3rd Quarter $ 44.75 $ 18.19
4th Quarter $ 27.63 $ 16.19
Fiscal 1999 High Low
---- ---
1st Quarter $ 38.50 $ 25.63
2nd Quarter $ 38.38 $ 26.00
3rd Quarter $ 53.75 $ 34.31
4th Quarter $ 59.19 $ 31.13
The closing sales price of the Company's common stock on the NYSE on March 27,
2001 was $29.30.
SHAREHOLDERS
The number of shareholders of record as of March 27, 2001 was approximately 565.
This number excludes shareholders whose stock is held in nominee or street name
by brokers.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its common stock. In
addition, the Company is prohibited from doing so by certain covenants in its
bank line of credit. (See Note B to the Company's Consolidated Financial
Statements.)
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ITEM 6. SELECTED FINANCIAL DATA
Five-Year Selected Financial Data
Dollars and amounts in thousands except percentages,
per share amounts and retail stores data Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999 Feb. 1, 1998 Feb. 2, 1997(4)
------------- ------------- ------------- ------------ -------------
Results of Operations
Net revenues(1) $1,829,483 $1,460,000 $1,160,909 $ 984,367 $ 858,214
Gross margin(1),(2) 693,628 567,027 450,208 376,446 315,059
Earnings before income taxes 92,329 110,721 90,745 70,022 39,197
Net earnings 56,782 68,100 54,897 41,347 22,742
Basic net earnings per share(3) 1.02 1.22 1.01 .81 .45
Diluted net earnings per share(3) $ .99 $ 1.16 $ .96 $ .75 $ .43
Gross margin as a percent of net revenues 37.9% 38.8% 38.8% 38.2% 36.7%
Operating margin as a percent of net revenues 5.4% 7.5% 7.9% 7.5% 5.1%
Financial Position
Working capital $ 81,623 $ 194,093 $ 172,866 $ 134,524 $ 96,568
Long-term debt and other long-term obligations 28,267 40,453 44,649 89,789 89,319
Total assets $ 891,928 $ 738,942 $ 576,245 $ 477,229 $ 404,417
Return on assets 7.5% 10.6% 10.6% 9.9% 7.1%
Shareholders' equity $ 427,458 $ 383,309 $ 302,030 $ 193,198 $ 146,038
Shareholders' equity per share (book value)(3) $ 7.66 $ 6.80 $ 5.42 $ 3.74 $ 2.86
Return on equity 14.0% 19.9% 22.2% 24.4% 17.0%
Debt-to-equity ratio 8.3% 10.8% 15.8% 45.8% 61.0%
Retail Stores
Store count
Williams-Sonoma: 200 185 163 152 145
Classic 45 57 65 78 89
Grande Cuisine 155 128 98 74 56
Pottery Barn: 136 117 96 88 76
Classic 12 17 19 34 43
Design Studio 124 100 77 54 33
Pottery Barn Kids 8 - - - -
Hold Everything 26 32 33 32 32
Outlets 12 10 6 4 3
Number of stores at year-end 382 344 298 276 256
Comparable store sales growth 5.5% 6.4% 5.0% 2.8% 4.6%
Store selling area at year-end (sq. ft.) 1,764,264 1,497,382 1,217,047 1,015,778 839,112
Gross leasable area at year-end (sq. ft.) 2,752,579 2,308,488 1,887,560 1,553,137 1,264,531
Direct-to-Customer Sales(5)
Catalogs mailed in year 233,199 191,810 163,067 154,475 136,489
Direct-to-customer sales growth 33.1% 34.2% 15.7% 11.2% 19.1%
Direct-to-customer sales as percent of net sales 39.7% 37.2% 34.8% 35.5% 36.7%
The information set forth above is not necessarily indicative of future
operations, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and notes thereto in this Annual Report on Form 10-K.
(1) Includes reclassification of shipping fees of $76,007, $56,955, $51,110
and $46,456 for the years ended January 30, 2000, January 31, 1999,
February 1, 1998 and February 2, 1997, respectively.
(2) Includes reclassification of shipping costs of $80,007, $59,759, $51,145
and $49,976 for the years ended January 30, 2000, January 31, 1999,
February 1, 1998 and February 2, 1997, respectively.
(3) Per share amounts have been restated to reflect the 2-for-1 stock split
in May 1998.
(4) The year ended February 2, 1997 includes 53 weeks.
(5) Direct-to-customer sales include catalog and Internet sales.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS
Williams-Sonoma, Inc. and its subsidiaries (the Company) are specialty retailers
of products for the home. The retail segment sells its products 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 direct-mail catalogs - Williams-Sonoma, Pottery Barn, Pottery Barn Kids,
Pottery Barn Bed + Bath, Hold Everything and Chambers - and three e-commerce
websites. The principal concepts in both retail and direct-to-customer are
Williams-Sonoma and Pottery Barn, which sell cookware essentials and
contemporary tableware and home furnishings, respectively. The following
discussion and analysis of financial condition, results of operations, liquidity
and capital resources should be read in conjunction with the Company's audited
consolidated financial statements and the notes thereto.
Results of Operations
NET REVENUES
Net revenues consist of retail sales, direct-to-customer sales and shipping
fees. Direct-to-customer sales include catalog and Internet sales. Shipping fees
consist of revenue received from customers for delivery of merchandise.
The following table summarizes the Company's net revenues for each of the 52
weeks ended January 28, 2001 ("fiscal 2000"), January 30, 2000 ("fiscal 1999")
and January 31, 1999 ("fiscal 1998").
Year Ended Year Ended Year Ended
Dollars in thousands Jan. 28, 2001 % Total Jan. 30, 2000 % Total Jan. 31, 1999 % Total
------------- ------- ------------- ------- ------------- -------
Retail sales $1,039,312 56.8% $869,078 59.5% $720,320 62.1%
Direct-to-customer sales 685,202 37.5% 514,915 35.3% 383,634 33.0%
Shipping fees 104,969 5.7% 76,007 5.2% 56,955 4.9%
Net revenues $1,829,483 100.0% $1,460,000 100.0% $1,160,909 100.0%
Net revenues for fiscal 2000 were $1,829,483,000 -- an increase of $369,483,000
(25.3%) over net revenues for fiscal 1999. Net revenues for fiscal 1999
increased $299,091,000 (25.8%) over net revenues for fiscal 1998. The increases
in both years were primarily due to new stores and the growth of the Pottery
Barn brand in the direct-to-customer segment.
RETAIL REVENUES
Year Ended
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Retail sales $ 1,039,312 $ 869,078 $ 720,320
Shipping fees 6,285 5,812 5,019
Total retail revenues $ 1,045,597 $ 874,890 $ 725,339
Percent growth in retail sales 19.6% 20.7% 19.7%
Percent growth in comparable store sales 5.5% 6.4% 5.0%
Number of stores - beginning of year 344 298 276
Number of new stores 62 58 57
Number of closed stores 24 12 35
Number of stores - end of year 382 344 298
Store selling square footage at fiscal year-end (sq. ft.) 1,764,264 1,497,382 1,217,047
Store leased square footage at fiscal year-end (sq. ft.) 2,752,579 2,308,488 1,887,560
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Retail revenues for fiscal 2000 increased $170,707,000 (19.5%) over retail
revenues for fiscal 1999 primarily due to new store openings. As of January 28,
2001, the Company operated 382 stores in 39 states and Washington DC. During
fiscal 2000, the Company opened 62 stores (27 large-format Williams-Sonoma, 24
large-format Pottery Barn, 8 Pottery Barn Kids, 1 Hold Everything and 2 Outlets)
and closed 24 smaller stores (12 Williams-Sonoma, 5 Pottery Barn and 7 Hold
Everything). Pottery Barn accounted for 53.6% of the growth in retail revenues
from fiscal 1999 to fiscal 2000. The Pottery Barn Kids retail stores debuted in
the third and fourth quarters of fiscal 2000 and exceeded the Company's initial
sales plan. The Company expects to open approximately 16 new Pottery Barn Kids
retail stores in fiscal 2001.
Retail revenues in fiscal 1999 increased $149,551,000 (20.6%) to $874,890,000
over retail revenues in fiscal 1998, principally due to a net increase of 46
stores. Pottery Barn accounted for 58.2% of the growth in retail revenues from
fiscal 1998 to fiscal 1999.
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 without closure for seven or more consecutive days. Comparable store
sales are computed monthly for purposes of this analysis. Comparable store sales
grew 5.5% in fiscal 2000 and 6.4% in fiscal 1999. Pottery Barn and
Williams-Sonoma, the Company's primary concepts, delivered mid-single digit
comparable store sales growth in both fiscal 2000 and fiscal 1999.
The prototypical large-format stores in fiscal 2000 range from 5,300 -- 9,800
selling square feet (9,100 -- 16,800 gross square feet) for Pottery Barn stores
and 2,600 -- 6,600 selling square feet (4,200 -- 8,800 gross square feet) for
Williams-Sonoma. As of the end of fiscal 2000, 279 stores (155 Williams-Sonoma
and 124 Pottery Barn) were large-format, comprising 81% of the Company's total
selling square footage. Large-format stores accounted for 80% of retail sales in
fiscal 2000, as compared to 76% in fiscal 1999. In fiscal 2001, the Company
plans to increase leased square footage by approximately 15%.
DIRECT-TO-CUSTOMER REVENUES
Year Ended
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Catalog sales $628,176 $504,967 $383,634
Internet sales 57,026 9,948 -
Total direct-to-customer sales 685,202 514,915 383,634
Shipping fees 98,684 70,195 51,936
Total direct-to-customer revenues $783,886 $585,110 $435,570
Percent growth in direct-to-customer sales 33.1% 34.2% 15.7%
Percent growth in number of catalogs mailed 22.7% 17.6% 5.6%
Direct-to-customer revenues of $783,886,000 in fiscal 2000 increased
$198,776,000 or 34.0% over direct-to-customer revenues in fiscal 1999 primarily
due to strong growth in the Pottery Barn brand. Revenues in the Pottery Barn
brand, including three catalogs (Pottery Barn, Pottery Barn Kids and Pottery
Barn Bed + Bath) and one e-commerce website (www.potterybarn.com) grew 47.2% in
fiscal 2000 over fiscal 1999. The Pottery Barn Bed + Bath catalog and Pottery
Barn e-commerce website were both launched in fiscal 2000 and represented 29.7%
of fiscal 2000 direct-to-customer revenue growth and 33.1% of fiscal 2000
Pottery Barn brand 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 its Pottery Barn catalogs,
website and design studio stores. The Company expects to launch three new
direct-to-customer growth initiatives in fiscal 2001 including a Pottery Barn
Kids e-commerce website in second quarter 2001, a Pottery Barn gift registry
website in third quarter 2001 and a Pottery Barn Kids gift registry website in
third quarter 2001.
Excluding the Gardeners Eden catalog, which was sold in May 1999,
direct-to-customer revenues in fiscal 1999 of $581,608,000 grew $171,409,000 or
41.8% over direct-to-customer revenues in fiscal 1998 primarily due to strong
growth in the Pottery Barn and Pottery Barn Kids catalogs. The year-over-year
revenue increase in the Pottery Barn and Pottery Barn Kids catalogs was 68.0%
and represented 89.2% of direct-to-customer revenue growth (excluding Gardeners
Eden) in fiscal 1999 over fiscal 1998. Pottery Barn Kids (introduced in January
1999) contributed over 33% of the fiscal 1999 year-over-year direct-to-customer
revenue growth.
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12
In 1999, the Company sold assets of the Gardeners Eden catalog to allow greater
focus on the Company's existing brands and Internet development. As a result of
the sale, the Company recognized a $3,962,000 pre-tax gain ($2,437,000 after
tax). Net revenues of the Gardeners Eden catalog were $3,502,000 and $25,371,000
in fiscal 1999 and fiscal 1998, respectively.
COST OF GOODS SOLD
Year Ended % Net Year Ended % Net Year Ended % Net
Dollars in thousands Jan. 28, 2001 Revenues Jan. 30, 2000 Revenues Jan. 31, 1999 Revenues
------------- -------- ------------- -------- ------------- --------
Cost of goods and occupancy expenses $1,026,681 56.1% $812,966 55.7% $650,942 56.1%
Shipping costs 109,174 6.0% 80,007 5.5% 59,759 5.1%
Total cost of goods sold $1,135,855 62.1% $892,973 61.2% $710,701 61.2%
Cost of goods and occupancy expenses increased $213,715,000 to $1,026,681,000 in
fiscal 2000 from $812,966,000 in fiscal 1999. Cost of goods and occupancy
expenses expressed as a percent of net revenues for fiscal 2000 increased 0.4
percentage points to 56.1% from 55.7% in fiscal 1999, principally due to
significant promotional activity in the third and fourth quarters and higher
inventory shrinkage, damage and obsolescence costs.
Cost of goods and occupancy expenses increased $162,024,000 in fiscal 1999 from
$650,942,000 in fiscal 1998. Cost of goods and occupancy expenses expressed as a
percent of net revenues for fiscal 1999 decreased 0.4 percentage points to 55.7%
from 56.1%, primarily due to a lower cost of merchandise.
Shipping costs increased $29,167,000 and $20,248,000 in fiscal 2000 and fiscal
1999, respectively, as compared to the respective prior years. Shipping costs as
a percentage of net revenues increased to 6.0% in fiscal 2000 from 5.5% and 5.1%
in fiscal 1999 and fiscal 1998, respectively. This growth trend in shipping
costs as a percentage of net revenues is consistent with an increasing
percentage of direct-to-customer revenue to total Company revenue and a
continued rise in the number of furniture and dimensionally larger products
being shipped to customers at a higher cost.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased $136,289,000 to
$594,112,000 in fiscal 2000 from $457,823,000 in fiscal 1999. Selling, general
and administrative expenses expressed as a percent of net revenues increased 1.1
percentage points in fiscal 2000 to 32.5% from 31.4% in fiscal 1999, primarily
due to increased catalog costs as a percentage of net revenues. The increased
percentage was primarily due to lower than anticipated direct-to-customer demand
in the second half of fiscal 2000.
Selling, general and administrative expenses increased $99,723,000 in fiscal
1999 from $358,100,000 in fiscal 1998. In fiscal 1999, selling, general and
administrative expenses as a percent of net revenues increased 0.6 percentage
points, from 30.8% in fiscal 1998 to 31.4%. The increase was principally due to
higher employment costs resulting from higher than planned direct-to-customer
demand in the fourth quarter, resulting in labor inefficiencies at the Company's
direct-to-customer distribution facility.
INTEREST EXPENSE - NET
Net interest expense increased $4,742,000, from $2,445,000 in fiscal 1999 to
$7,187,000 in fiscal 2000, principally due to increased borrowings to finance
the Company's purchase of new corporate facilities, discussed below. Net
interest expense in fiscal 1999 increased $1,082,000 over net interest expense
in fiscal 1998, primarily as a result of reduced short-term investment income
due to increased capital spending on distribution facilities and systems
development.
INCOME TAXES
The Company's effective tax rate was 38.5% for fiscal 2000 and fiscal 1999, as
compared to 39.5% in fiscal 1998. These reductions in the effective tax rate
since fiscal 1998 reflect decreases in state taxes resulting from revisions in
the corporate legal structure which have been undertaken in order to conform
more closely to the Company's operations.
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LIQUIDITY AND CAPITAL RESOURCES
For fiscal 2000, net cash provided by operating activities increased $75,608,000
to $181,329,000 from $105,721,000 in fiscal 1999. The fiscal 2000 increase in
operating cash is primarily attributable to slower growth of merchandise
inventory and significant increases in accounts payable and accrued expenses.
In fiscal 1999, net cash provided by operating activities increased $25,994,000
to $105,721,000 from $79,727,000 in fiscal 1998. The fiscal 1999 increase in
operating cash is primarily attributable to an increase in net earnings.
Additionally, significant increases in merchandise inventories were mostly
offset by increases in accounts payable, accrued expenses and other liabilities.
Net cash used in investing activities was $233,380,000 for fiscal 2000 as
compared to $116,400,000 in fiscal 1999. Fiscal 2000 purchases of property and
equipment were $161,549,000, which includes approximately $99,876,000 for
stores, $28,515,000 for the upgrade of store systems and other systems
development projects (including the Internet), $15,621,000 for distribution
capacity expansion, $9,752,000 for corporate facilities and $4,978,000 for a new
call center. Additionally, in February 2000, the Company purchased a 204,000
square foot corporate office facility in San Francisco, California, for the
purpose of consolidating certain headquarters staff and to provide for future
growth. The total purchase price of the corporate facility was approximately
$73,300,000 plus a deposit of $7,500,000 paid in fiscal 1999.
Net cash used in investing activities increased $39,672,000 in fiscal 1999 to
$116,400,000 from $76,728,000 in fiscal 1998. The fiscal 1999 expenditures were
primarily for stores, warehouse equipment, computer equipment and systems
development (including the Internet), offset by net proceeds from the sale of
the assets of Gardeners Eden catalog.
Gross capital expenditures in fiscal 2001 are projected to be approximately
$135,000,000 to $150,000,000, including $70,000,000 to $75,000,000 for stores,
$50,000,000 to $60,000,000 for systems development (including the Internet) and
approximately $15,000,000 for distribution capacity expansion and other
infrastructure projects.
For fiscal 2000 and fiscal 1999, cash used in financing activities was
$21,062,000 and $3,786,000, respectively, comprised primarily of repayment of
long-term debt and repurchases of the Company's common stock, partially offset
by proceeds from stock option exercises. In fiscal 2000, the Company repurchased
825,200 shares of its common stock for approximately $18,535,000. In fiscal
1999, the Company repurchased 166,000 shares of its common stock for
approximately $4,738,000.
For fiscal 1998, cash provided by financing activities was $7,095,000
principally due to proceeds from the exercise of stock options.
On August 23, 2000, the Company entered into a new line of credit facility. The
facility repaid and replaced the Company's previous 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 may request that the lenders under the credit facility
increase the maximum availability to $250,000,000. The Company may elect
interest rates calculated by reference to the agent's internal reference rate or
LIBOR plus a margin based on the Company's leverage ratio or, for advances under
$10,000,000, IBOR plus a margin based on the Company's leverage ratio. The
agreement expires on August 23, 2003. As of January 28, 2001, the Company had no
borrowings outstanding under the line of credit facility.
Additionally, the Company amended its letter of credit and cash advance facility
agreement with its bank to eliminate the cash advance facility and reduce the
letter of credit facility from $90,000,000 to $65,000,000. The expiration of the
amended agreement has been extended to August 1, 2001. As of January 28, 2001,
$34,060,000 was outstanding under this letter of credit facility. By the end of
the third quarter of fiscal 2001, the Company expects to replace its current
letter of credit agreement in order to meet increased working capital needs
associated with the Company's growth plans.
The Company believes that its available cash, cash equivalents, cash flow from
operations and credit facilities will be sufficient to finance operations and
capital requirements for at least the next twelve months.
IMPACT OF INFLATION
The impact of inflation on results of operations has not been significant.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 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 67 basis points (a 10% change
in the associated debt's variable rate as of January 28, 2001), 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 primarily 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. The Company intends to open five stores in Toronto, Canada during
the third quarter of 2001. As of January 28, 2001, the Company had deposits
totaling 835,000 Canadian dollars in a Canadian bank account to support this
effort.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Earnings
Year Ended
Dollars and shares in thousands, except per share amounts Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Net revenues $1,829,483 $1,460,000 $1,160,909
Cost of goods sold 1,135,855 892,973 710,701
Gross margin 693,628 567,027 450,208
Selling, general and administrative expenses 594,112 457,823 358,100
Gain on sale of Gardeners Eden - 3,962 -
Interest expense -- net 7,187 2,445 1,363
Earnings before income taxes 92,329 110,721 90,745
Income taxes 35,547 42,621 35,848
Net earnings $ 56,782 $ 68,100 $ 54,897
Basic earnings per share $ 1.02 $ 1.22 $ 1.01
Diluted earnings per share $ .99 $ 1.16 $ .96
Shares used in calculation of earnings per share:
Basic 55,900 55,817 54,267
Diluted 57,460 58,612 57,655
See Notes to Consolidated Financial Statements.
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Consolidated Balance Sheets
Dollars in thousands, except per share amounts Jan. 28, 2001 Jan. 30, 2000
------------- -------------
ASSETS
Current assets
Cash and cash equivalents $ 19,730 $ 92,843
Accounts receivable (less allowance for doubtful
accounts of $307 and $250) 38,181 22,427
Merchandise inventories - net 283,085 257,342
Prepaid catalog expenses 30,032 14,677
Prepaid expenses and other 13,720 13,326
Deferred income taxes 8,161 9,265
Total current assets 392,909 409,880
Property and equipment
Land and buildings 89,726 12,658
Leasehold improvements 319,396 250,106
Fixtures and equipment 228,326 166,466
Capitalized software 60,879 44,125
Construction in progress 13,365 7,313
Total 711,692 480,668
Accumulated depreciation and amortization (221,167) (167,497)
Property and equipment - net 490,525 313,171
Investments and other assets (less accumulated amortization of $565 and $649) 8,494 15,891
Total assets $ 891,928 $ 738,942
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 159,247 $ 102,462
Accrued expenses 40,839 33,971
Customer deposits 57,243 40,087
Income taxes payable 24,191 26,062
Current portion of long-term debt 12,133 5,839
Other liabilities 17,633 7,366
Total current liabilities 311,286 215,787
Deferred lease incentives 112,686 90,873
Long-term debt 23,189 35,465
Deferred income tax liability 12,231 8,520
Other long-term obligations 5,078 4,988
Commitments and contingencies - -
Shareholders' equity
Preferred stock, $.01 par value, 7,500,000 shares authorized, none issued - -
Common stock, $.01 par value, 126,562,500 shares authorized,
55,802,785 and 56,378,958 shares issued and outstanding 110,254 122,887
Retained earnings 317,204 260,422
Total shareholders' equity 427,458 383,309
Total liabilities and shareholders' equity $ 891,928 $ 738,942
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Shareholders' Equity
Total
Common Stock Retained Shareholders'
Dollars and shares in thousands Shares Amount Earnings Equity
------------ ------------ ------------ ------------
Balance at February 1, 1998 51,680 $ 55,773 $ 137,425 $ 193,198
Net earnings - - 54,897 54,897
Exercise of stock options and related tax benefit 1,028 14,931 - 14,931
Conversion of convertible notes into common stock 3,064 39,004 - 39,004
Balance at January 31, 1999 55,772 109,708 192,322 302,030
Net earnings - - 68,100 68,100
Exercise of stock options and related tax benefit 773 17,917 - 17,917
Repurchase of common stock (166) (4,738) - (4,738)
Balance at January 30, 2000 56,379 122,887 260,422 383,309
Net earnings - - 56,782 56,782
Exercise of stock options and related tax benefit 249 5,902 - 5,902
Repurchase of common stock (825) (18,535) - (18,535)
Balance at January 28, 2001 55,803 $ 110,254 $ 317,204 $ 427,458
See Notes to Consolidated Financial Statements.
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Consolidated Statements of Cash Flows
Year Ended
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Cash flows from operating activities:
Net earnings $ 56,782 $ 68,100 $ 54,897
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 62,402 45,211 33,021
Net loss (gain) on disposal of assets and provision for store closures 603 (931) 289
Amortization of deferred lease incentives (10,871) (8,699) (6,605)
Deferred income taxes 4,815 (7) 503
Tax benefit from exercise of stock options 1,575 10,488 7,221
Changes in:
Accounts receivable (15,754) (2,345) (4,844)
Merchandise inventories (25,743) (86,854) (40,709)
Prepaid catalog expenses (15,355) (3,152) 442
Prepaid expenses and other assets (394) (4,342) (994)
Accounts payable 56,785 31,498 12,468
Accrued expenses and other liabilities 35,341 22,976 (1,050)
Deferred lease incentives 33,014 27,245 22,775
Income taxes payable (1,871) 6,533 2,313
Net cash provided by operating activities 181,329 105,721 79,727
Cash flows from investing activities:
Purchase of property and equipment (161,549) (120,209) (78,934)
Purchase of corporate facilities (73,300) (7,500) -
Proceeds from sale of property and equipment 1,431 11,192 2,206
Other 38 117 -
Net cash used in investing activities (233,380) (116,400) (76,728)
Cash flows from financing activities:
Borrowings under line of credit 581,297 158,480 53,825
Repayments under line of credit (581,297) (158,480) (53,825)
Repurchase of common stock (18,535) (4,738) -
Repayments of long-term obligations (5,983) (6,477) (615)
Proceeds from exercise of stock options 4,333 7,429 7,710
Other (877) - -
Net cash (used in) provided by financing activities (21,062) (3,786) 7,095
Net increase (decrease) in cash and cash equivalents (73,113) (14,465) 10,094
Cash and cash equivalents at beginning of year 92,843 107,308 97,214
Cash and cash equivalents at end of year $ 19,730 $ 92,843 $ 107,308
Non-cash financing transaction:
Conversion of convertible notes to common stock $ - $ - $ 39,004
See Notes to Consolidated Financial Statements.
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Notes to Consolidated Financial Statements
Note A: Summary of Significant Accounting Policies
Williams-Sonoma, Inc. and its subsidiaries (the Company) are specialty retailers
of products for the home. The retail segment sells its products 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 direct-mail catalogs - Williams-Sonoma, Pottery Barn, Pottery Barn Kids,
Pottery Barn Bed + Bath, Hold Everything and Chambers - and three e-commerce
websites. The catalogs reach customers throughout the United States, while the
four retail businesses currently operate 382 stores in 39 states and Washington
DC. Significant intercompany transactions and accounts have been eliminated.
Fiscal Year: The Company's fiscal year ends on the Sunday closest to
January 31. Fiscal years 2000, 1999 and 1998 ended on January 28, 2001, January
30, 2000 and January 31, 1999, respectively, and each fiscal year consisted of
52 weeks.
Fair Value of Financial Instruments: The carrying value of cash and cash
equivalents, accounts receivable, investments, accounts payable and debt
approximates their estimated fair values.
Cash Equivalents: Cash equivalents consist of short-term investments with
original maturities of 90 days or less.
Merchandise Inventories: Merchandise inventories are stated at the lower of
cost (weighted-average method) or market. Approximately 54%, 49% and 42% of the
Company's payments for merchandise in fiscal 2000, fiscal 1999 and fiscal 1998,
respectively, were to foreign vendors, most of which are located in Europe and
Asia.
Prepaid Catalog Expenses: Prepaid catalog expenses consist of the cost to
produce, print and distribute catalogs. Such costs are amortized based upon the
ratio of actual sales to the expected sales volume for each catalog. The cost of
a catalog generally is fully amortized within six months. Catalog advertising
expenses amounted to $180,659,000, $132,326,000 and $108,425,000 in fiscal 2000,
fiscal 1999 and fiscal 1998, respectively.
Property and Equipment: Property and equipment are stated at cost.
Depreciation is computed using the straight-line method based upon the estimated
useful lives of the assets ranging from 3 to 40 years. Amortization of
improvements to leased properties is based upon the shorter of the remaining
term of the applicable lease or the estimated useful lives of such assets.
Interest costs related to assets under construction are capitalized during the
construction period. Whenever events or changes in circumstances indicate that
the carrying amount of its assets might not be recoverable, the Company, using
its best estimates based on reasonable and supportable assumptions and
projections, reviews for impairment the carrying value of long-lived assets.
Capitalized Software Costs: Capitalized computer software, included in
property and equipment, reflects costs related to internally developed or
purchased software that are capitalized and amortized on a straight-line basis,
generally over a two- to five-year period. Internally developed software costs
are capitalized in accordance with Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
Investments and Other Assets: Investments and other assets include
preferred stock holdings in non-public companies. Such long-term investments are
carried at the lower of cost or net realizable value due to their illiquid
nature.
Deferred Lease Incentives: Deferred lease incentives include construction
allowances received from landlords, which are amortized on a straight-line basis
over the initial lease term. For leases which contain fixed escalations of the
minimum annual lease payment during the original term of the lease, the Company
recognizes rental expense on a straight-line basis and records the difference
between rent expense and the amount currently payable as deferred lease
incentives.
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Revenue Recognition: Sales are recorded, net of estimated returns, when
merchandise is shipped from warehouses for direct-to-customer sales or purchased
by the customer at retail locations. In fiscal 1999, the Company began recording
sales returns on the accrual basis of accounting. Because the effect of this
change was insignificant to fiscal 1998, the Company recorded the effect of this
change in fiscal 1999. The difference between the cash and accrual basis of
accounting was not material to the results of operations in prior years. The
impact of recording this change in fiscal 1999 was a reduction in net earnings
of $3,206,000, or $0.05 diluted earnings per share.
The Company adopted Emerging Issues Task Force (EITF) No. 00-10, "Accounting for
Shipping and Handling Fees and Costs" in the fourth quarter of fiscal 2000. EITF
No. 00-10 requires revenues from shipping and handling to be reported gross as
revenues in the statement of operations and the costs of shipping and handling
to be reported as either cost of goods sold or selling expense with appropriate
disclosures in the notes to the financial statements. As a result, shipping fees
are included in net revenues and shipping costs are included in cost of goods
sold. Previously, shipping fees and costs had been presented net in selling,
general and administrative expenses. All prior period revenue, cost of goods
sold, gross margin and selling, general and administrative expenses have been
reclassified to conform to the current presentation. The reclassification has no
effect on net earnings or earnings per share.
Foreign Currency Gains and Losses: Foreign currency transaction gains and
losses are a result of the effect of exchange rate changes on transactions
denominated in currencies other than the U.S. dollar. Such amounts are included
in cost of goods sold and were not material in fiscal 2000, fiscal 1999 or
fiscal 1998.
Income Taxes: Income taxes are accounted for using the asset and liability
method. Under this method, deferred income taxes arise from temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the consolidated financial statements.
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 net earnings per share is computed based on the weighted average
number of common shares outstanding for the period, plus common stock
equivalents consisting of shares subject to stock options and shares from
assumed conversion of convertible debt.
Stock Option Compensation: The Company accounts for stock options granted
to employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation expense has been recognized in the consolidated
financial statements.
Comprehensive Income: Comprehensive income consists of net earnings and
other comprehensive income (primarily foreign currency translation adjustments).
Comprehensive income was substantially the same as net earnings for all periods
presented.
New Accounting Pronouncement: Effective January 29, 2001, the Company
adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities," as amended. The statement
requires that all derivative instruments be measured at fair value and
recognized in the balance sheet as either assets or liabilities. Management has
determined that the adoption of SFAS No. 133 did not have a material effect on
the Company's consolidated financial statements.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications: Certain items in the prior years' consolidated financial
statements have been reclassified to conform to the fiscal 2000 presentation.
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Note B: Borrowing Arrangements
Long-term debt consists of the following:
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000
------------- -------------
Senior notes $ 28,572 $ 34,286
Mortgage 6,154 6,279
Obligations under capital leases 596 739
Total debt 35,322 41,304
Less current maturities 12,133 5,839
Total long-term debt $ 23,189 $ 35,465
The Senior Notes are due in August 2005 with interest payable semi-annually at
7.2%. Annual principal payments of $5,714,000 began in August 1999, and continue
through August 2004. The remaining principal amount is due and payable upon
maturity. The Senior Notes contain certain restrictive loan covenants, including
minimum net-worth requirements, fixed-charge coverage ratios and limitations on
current and funded debt.
The Company has a mortgage agreement with a bank at LIBOR plus 1.25%. The
Company fixed the interest rate at 7.8% through an interest-rate swap agreement
with the bank. The swap expires concurrently with the April 2, 2001 mortgage due
date. Upon maturity of the mortgage, a lump sum payment of $6,154,000 will be
due. The mortgage is secured by the corporate headquarters building.
On August 23, 2000, the Company entered into a new line of credit facility. The
facility repaid and replaced the Company's previous 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 may request that the lenders under the credit facility
increase the maximum availability to $250,000,000. The Company may elect
interest rates calculated by reference to the agent's internal reference rate or
LIBOR plus a margin based on the Company's leverage ratio or, for advances under
$10,000,000, IBOR plus a margin based on the Company's leverage ratio. The
agreement expires on August 23, 2003. As of January 28, 2001, the Company had no
borrowings outstanding under the line of credit facility.
Additionally, the Company amended its letter of credit and cash advance facility
agreement with its bank to eliminate the cash advance facility and reduce the
letter of credit facility from $90,000,000 to $65,000,000. The expiration of the
amended agreement has been extended to August 1, 2001. As of January 28, 2001,
$34,060,000 was outstanding under this letter of credit facility. By the end of
the third quarter of fiscal 2001, the Company expects to replace its current
letter of credit agreement in order to meet increased working capital needs
associated with the Company's growth plans.
Interest expense was $8,254,000 (net of capitalized interest of $2,335,000),
$4,221,000 and $4,093,000 for fiscal 2000, fiscal 1999 and fiscal 1998,
respectively. Interest paid was $10,800,000, $4,390,000 and $4,568,000 for the
same periods.
Accounts payable at January 28, 2001 and January 30, 2000, includes cash
overdrafts of $19,425,000 and $22,667,000, respectively, for checks issued and
not yet presented to the bank for payment.
As of January 28, 2001, the Company's debt is scheduled to mature as follows:
$12,133,000 in fiscal 2001, $5,841,000 in fiscal 2002, $5,814,000 in fiscal
2003, $5,766,000 in fiscal 2004 and $5,768,000 in fiscal 2005.
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Note C: Income Taxes
The provision for income taxes consists of the following:
Dollars in thousands Year Ended
Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Current payable
Federal $ 25,529 $ 36,034 $ 29,182
State 5,203 6,594 6,163
Total current 30,732 42,628 35,345
Deferred
Federal 4,515 (12) 336
State 300 5 167
Total deferred 4,815 (7) 503
Total provision $ 35,547 $ 42,621 $ 35,848
Income taxes paid were $32,211,000, $26,639,000 and $26,371,000 for fiscal 2000,
fiscal 1999 and fiscal 1998, respectively. A reconciliation of income taxes at
the federal statutory corporate rate to the effective rate is as follows:
Year Ended
Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Federal income taxes at the statutory rate 35.0% 35.0% 35.0%
State income tax rate, less federal benefit 3.5% 3.5% 4.5%
Total 38.5% 38.5% 39.5%
Significant components of the Company's deferred tax accounts are as follows:
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000
-------------------------------- -------------------------------
Deferred Deferred Deferred Deferred
Tax Assets Tax Liabilities Tax Assets Tax Liabilities
------------ --------------- ------------ ---------------
Current:
Compensation $ 6,218 - $ 4,087 -
Inventory 7,623 - 7,419 -
Accrued liabilities 5,729 $ 233 3,669 $ 258
Deferred catalog costs - 11,176 - 5,652
Total current 19,570 11,409 15,175 5,910
Non-current:
Depreciation - 10,946 - 4,225
Deferred rent 954 - 821 -
Deferred lease incentives - 2,239 - 5,116
Total non-current 954 13,185 821 9,341
Total $ 20,524 $ 24,594 $ 15,996 $ 15,251
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Note D: Leases
The Company leases store locations, warehouses, corporate facilities, call
centers and certain equipment under operating and capital leases for original
terms ranging generally from 3 to 23 years. Most store leases require the
payment of minimum rentals against percentage rentals based on store sales.
Certain leases contain renewal options for periods of up to 20 years.
Total rental expense for all operating leases was as follows:
Year Ended
Dollars in thousands Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Minimum rent expense $ 62,927 $ 50,580 $ 43,320
Equipment rent 12,562 9,745 8,056
Contingent rent expense 15,253 10,046 6,138
Less: Sublease rental income (1,813) - -
Total rent expense $ 88,929 $ 70,371 $ 57,514
The aggregate minimum annual rental payments under noncancelable operating
leases in effect at January 28, 2001 were as follows:
Minimum Lease Sublease Rental Net Lease
Dollars in thousands Commitments Income Commitments
------------ --------------- ------------
Fiscal 2001 $ 90,520 $ (2,587) $ 87,933
Fiscal 2002 86,784 (2,587) 84,197
Fiscal 2003 81,879 (2,587) 79,292
Fiscal 2004 77,744 (2,587) 75,157
Fiscal 2005 74,203 (2,587) 71,616
Thereafter 441,747 (432) 441,315
Total $ 852,877 $ (13,367) $ 839,510
Note E: Related Party Lease Transactions
The Company has an agreement to lease a distribution facility with the primary
term expiring in June 2004. The lessor is a partnership comprised of W. Howard
Lester, chairman, chief executive officer and significant shareholder of the
Company and James A. McMahan, a director and significant shareholder of the
Company. The partnership financed the construction through the sale of
$6,300,000 and $2,900,000 principal amount of industrial development bonds due
2008 and 2010, respectively. Rental payments consist of the basic annual rent of
$618,000, plus interest on the bonds (a floating rate equal to 55% of the prime
rate of a designated bank), applicable taxes, insurance and maintenance
expenses.
The Company has an agreement to lease another distribution facility from a
partnership that includes Messrs. Lester and McMahan. The lease has an initial,
non-cancelable term of 15 years ending in July 2006, with three optional
five-year renewals. Rentals (including interest on the bonds, sinking fund
payments and fees) for the primary term are payable at an average rate of
$2,700,000 per year plus applicable taxes, insurance and maintenance expenses.
The partnership financed the distribution facility through the sale of
$20,375,000 principal amount of industrial development bonds due 2015.
After the option periods, the Company is obligated to renew each lease annually
so long as the bonds which financed the specific projects remain outstanding.
23
24
Note F: Earnings Per Share
The following is a reconciliation of net earnings and the number of shares used
in the basic and diluted earnings per share computations:
Net Weighted Per-Share
Dollars and amounts in thousands, except per share amounts Earnings Average Shares Amount
---------- -------------- ----------
2000
Basic $ 56,782 55,900 $ 1.02
Effect of dilutive stock options - 1,560
Diluted $ 56,782 57,460 $ .99
1999
Basic $ 68,100 55,817 $ 1.22
Effect of dilutive stock options - 2,795
Diluted $ 68,100 58,612 $ 1.16
1998
Basic $ 54,897 54,267 $ 1.01
Effect of assumed conversion of convertible notes 212 1,021
Effect of dilutive stock options - 2,367
Diluted $ 55,109 57,655 $ .96
Options with an exercise price greater than the average market price of common
shares for the period were 1,295,000 in fiscal 2000, 170,000 in fiscal 1999 and
29,000 in fiscal 1998 and were not included in the computation of diluted
earnings per share.
24
25
Note G: Stock Options
The Company's 1993 Stock Option Plan (the 1993 Plan), as amended, provides for
grants of incentive and non-qualified stock options up to an aggregate of
8,500,000 shares. All incentive stock option grants made under the 1993 Plan
have a maximum term of ten years, except those issued to 10% shareholders which
have a term of five years. The exercise price of all incentive stock options is
100% of the fair market value of the stock at the option grant date or 110% for
a 10% shareholder. Options generally vest over five years.
The Company's 2000 Stock Option Plan (the 2000 Plan), provides for grants of
non-qualified stock options up to an aggregate of 1,500,000 shares. All
non-qualified stock option grants under the 2000 Plan have a maximum term of ten
years with an exercise price of 100% of the fair value of the stock at the
option grant date. Options generally vest over five years.
The following table reflects the aggregate activity under the Company's stock
option plans:
Weighted Average
Shares Exercise Price
------------ ----------------
Balance at February 1, 1998 4,576,110 $ 9.82
Granted (weighted average fair value of $13.53) 2,558,350 22.57
Exercised (1,028,630) 29.29
Canceled (1,558,848) 23.06
Balance at January 31, 1999 4,546,982 13.00
Granted (weighted average fair value of $19.39) 1,836,075 30.63
Exercised (772,063) 9.59
Canceled (591,350) 16.12
Balance at January 30, 2000 5,019,644 19.61
Granted (weighted average fair value of $16.13) 3,091,250 23.30
Exercised (249,027) 17.38
Canceled (753,132) 25.39
Balance at January 28, 2001 7,108,735 $ 20.81
Exercisable, January 31, 1999 1,752,638 $ 8.22
Exercisable, January 30, 2000 1,773,015 11.17
Exercisable, January 28, 2001 2,401,264 $ 14.69
Options to purchase 1,099,989 shares were available for grant at January 28,
2001.
The following table summarizes information about stock options outstanding at
January 28, 2001:
Options Outstanding Options Exercisable
--------------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Number Contractual Exercise Number Exercise
Outstanding Life (Years) Price Exercisable Price
----------- ------------ --------- ----------- ----------
Range of exercise prices
$ 2.56 - $ 14.06 1,823,765 4.2 $9.40 1,519,265 $8.65
$ 14.38 - $ 19.00 1,742,550 9.1 18.70 94,450 17.41
$ 19.06 - $ 26.44 1,440,700 8.4 22.22 347,440 19.46
$ 26.63 - $ 30.88 1,455,720 8.5 29.51 273,460 29.17
$ 31.06 - $ 53.75 646,000 8.9 35.92 166,649 34.57
$ 2.56 - $ 53.75 7,108,735 7.6 $20.81 2,401,264 $14.69
SFAS No. 123, "Accounting for Stock Based Compensation," requires the disclosure
of pro forma net earnings and earnings per share as if the Company had adopted
the fair value method. Under SFAS No. 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even though
such models were developed to estimate the fair value of freely tradable, fully
transferable options without vesting restrictions, which significantly differ
from the Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values.
25
26
The Company's calculations are based on a single option valuation approach and
forfeitures are recognized as they occur. However, the impact of outstanding
unvested stock options granted prior to 1995 has been excluded from the pro
forma calculation, accordingly, the fiscal 2000, fiscal 1999 and fiscal 1998 pro
forma adjustments are not indicative of future periods pro forma adjustments.
Had compensation cost been determined consistent with SFAS No. 123, the
Company's net earnings and earnings per share would have been changed to the pro
forma amounts indicated below:
Year Ended
Dollars in thousands, except per share amounts Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Net earnings
As reported $ 56,782 $ 68,100 $ 54,897
Pro forma 45,165 59,606 50,270
Basic earnings per share
As reported 1.02 1.22 1.01
Pro forma .81 1.07 .92
Diluted earnings per share
As reported .99 1.16 .96
Pro forma $ .78 $ 1.03 $ .88
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
Year Ended
Jan. 28, 2001 Jan. 30, 2000 Jan. 31, 1999
------------- ------------- -------------
Dividend yield - - -
Volatility 66.1% 59.6% 60.0%
Risk-free interest 6.6% 5.2% 5.6%
Expected term (years) 6.8 6.7 5.7
Note H: Associate Stock-Incentive Plan
The Company has a defined contribution retirement plan, the "Williams Sonoma,
Inc. Associate Stock-Incentive Plan" (the Plan), for eligible employees, which
is intended to be qualified under Internal Revenue Code Sections 401(a) and
401(k). The Plan permits eligible employees to make salary deferral
contributions in accordance with Internal Revenue Code Section 401(k). Each
participant may choose to have his/her salary deferral contributions and
earnings thereon invested in one or more of a money market reserve fund, a
balanced mutual fund, or a fund investing in stock of the Company. All amounts
contributed by the Company are invested in common stock of the Company. The
Company's matching contribution is 100% of the first 6% of a participant's pay
(4% for highly-compensated individuals) which the participant elects to
contribute as salary deferral contributions and which the participant elects to
have invested in the Company stock fund. The Company's contributions were
$3,392,000 in fiscal 2000, $2,822,000 in fiscal 1999 and $2,098,000 in fiscal
1998.
Note I: Commitments and Contingencies
The Company is party to various legal proceedings arising from normal business
activities. Management believes that the resolution of these matters will not
have a material adverse effect on the Company's consolidated financial
statements taken as a whole.
26
27
Note J: 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 direct-mail catalogs - Williams-Sonoma, Pottery Barn, Pottery Barn Kids,
Pottery Barn Bed + Bath, Hold Everything and Chambers - and three e-commerce
websites.
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.
SEGMENT INFORMATION
Direct-to-
Dollars in thousands Retail Customer Unallocated Total
------------ ------------ ----------- ------------
2000
Net revenues $ 1,045,597 $ 783,886 $ - $ 1,829,483
Depreciation and amortization expense 39,254 14,021 9,127 62,402
Earnings before income taxes 117,645 69,207 (94,523) 92,329
Assets 539,840 177,993 174,095 891,928
Capital expenditures 111,656 24,854 98,339 234,849
1999
Net revenues 874,890 585,110 - 1,460,000
Depreciation and amortization expense 30,951 7,719 6,541 45,211
Earnings before income taxes 114,526 70,218 (74,023) 110,721
Assets 425,375 160,076 153,491 738,942
Capital expenditures 89,994 17,770 12,445 120,209
1998
Net revenues 725,339 435,570 - 1,160,909
Depreciation and amortization expense 24,054 3,954 5,013 33,021
Earnings before income taxes 88,670 58,045 (55,970) 90,745
Assets 335,882 91,585 148,778 576,245
Capital expenditures 65,374 8,930 4,630 78,934
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Independent Auditors' Report
To the Board of Directors and the Shareholders of Williams-Sonoma, Inc.:
We have audited the accompanying consolidated balance sheets of
Williams-Sonoma, Inc. and subsidiaries (the Company) as of January 28, 2001 and
January 30, 2000, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 28, 2001. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Williams-Sonoma, Inc. and
subsidiaries as of January 28, 2001 and January 30, 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 28, 2001, in conformity with accounting principles
generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
San Francisco, California
March 20, 2001
28
29
Quarterly Financial Information(1)
(Unaudited)
Dollars in thousands, except per share amounts
Fiscal 2000 Quarter Ended
April 30 July 30 October 29 January 28
-------- ------- ---------- ----------
Net revenues $365,259 $366,484 $424,572 $673,168
Gross margin 133,380 131,252 158,223 270,773
Earnings before income taxes 7,866 8,233 3,804 72,426
Net earnings 4,838 5,063 2,340 44,541
Basic earnings per share $.09 $.09 $.04 $.80
Diluted earnings per share $.08 $.09 $.04 $.79
Fiscal 1999 Quarter Ended
May 2 August 1 October 31 January 30
-------- -------- ---------- ----------
Net revenues $273,231 $277,684 $343,246 $565,839
Gross margin 97,562 97,842 130,235 241,388
Earnings before income taxes 5,410 11,436 15,271 78,604
Net earnings 3,274 6,918 9,239 48,669
Basic earnings per share $.06 $.12 $.17 $.87
Diluted earnings per share $.06 $.12 $.16 $.82
(1) All quarterly financial information has been reclassified to present
shipping fees in net revenues and shipping costs in cost of goods sold.
See Note A to the Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
29
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item is incorporated by reference herein to the
Company's definitive Proxy Statement, which was filed with the Securities and
Exchange Commission on April 20, 2001.
Information with respect to the Executive Officers of the Registrant, as of
April 26, 2001, is set forth below:
Chief Executive Officer Dale W. Hilpert
Chairman of the Company W. Howard Lester
Founder of the Company and Vice Chairman Charles E. Williams
Executive Vice President -- Pottery Barn Brand Laura J. Alber
Executive Vice President of Premium Brands James E. Boike
Senior Vice President of Human Resources John S. Bronson
Senior Vice President -- Chief Information Officer James A. Brownell
Executive Vice President and Chief Marketing Officer Patrick J. Connolly
Senior Vice President of Product Supply Chain and International Operations Donna H. Isralsky
Senior Vice President -- General Counsel Ronald M. Loeb
Senior Vice President -- Chief Financial Officer Sharon L. McCollam
Dale W. Hilpert, age 58, has served as Chief Executive Officer of the Company
since April 2, 2001. Mr. Hilpert previously served as Chairman and Chief
Executive Officer of Venator Group from 2000 to 2001, as President and Chief
Executive Officer of Venator Group from 1999 to 2000 and as President and Chief
Operating Officer of Venator Group from 1995 to 1999. He also served as Chairman
and Chief Executive Officer of Payless Shoe Source Division of The May
Department Stores Company from 1985 to 1995.
W. Howard Lester, age 65, has served as Chairman of the Company since 1986. Mr.
Lester previously served as Chief Executive Officer of the Company from 1979 to
April 2, 2001. He also serves as a director of Harold's Department Stores, Inc.
Charles E. Williams, age 85, is the founder of the Company and has served as
Vice Chairman since 1986.
Laura J. Alber, age 32, has served as Executive Vice President -- Pottery Barn
Brand of the Company since 2000. Ms. Alber previously served as Senior Vice
President -- Pottery Barn Catalog and Pottery Barn Kids Retail of the Company
from 1999 to 2000, as Divisional Vice President -- Pottery Barn Catalog of the
Company from 1997 to 1999 and as Director -- Pottery Barn Catalog of the Company
from 1996 to 1997.
James E. Boike, age 54, has served as Executive Vice President of Premium Brands
of the Company since 2000. Mr. Boike previously served as Executive Vice
President -- Stores and Operations of the Company from 1997 to 2000, as Senior
Vice President -Stores of the Company from 1995 to 1997, as Vice President --
Stores of the Company from 1994 to 1995 and as Vice President -Merchandise
Operations of the Company from 1993 to 1994.
John S. Bronson, age 53, has served as Senior Vice President of Human Resources
of the Company since 1999. Mr. Bronson previously served as Executive Vice
President of Human Resources of Pepsi Co. from 1979 to 1999.
James A. Brownell, age 43, has served as Senior Vice President - Chief
Information Officer of the Company since 2001. Mr. Brownell previously served as
Vice President of Information Technology of Toys R Us.com in 2000. He also
served as Vice President of Distribution Systems and Supply Chain of The Gap,
Inc. from 1979 to 2000.
Patrick J. Connolly, age 54, has served as Executive Vice President and Chief
Marketing Officer of the Company since 2000 and as Assistant Secretary of the
Company since 1983. Mr. Connolly previously served as Executive Vice President,
General Manager -Catalog of the Company from 1995 to 2000, as Senior Vice
President -- Mail Order of the Company from 1991 to 1995 and as Vice President
- -- Mail Order of the Company from 1979 to 1990.
Donna H. Isralsky, age 45, has served as Senior Vice President of Product Supply
Chain and International Operations of the Company since 1999. Ms. Isralsky
previously served as Vice President -- Product Supply Chain of the Company from
1996 to 1999. She also served as Vice President - Operations, Production and
Sourcing of Reebok International Ltd. from 1994 to 1996.
30
31
Ronald M. Loeb, age 68, has served as Senior Vice President -- General Counsel
of the Company since 1999. Mr. Loeb previously served as Senior Partner of Irell
& Manella from 1959 to 1997.
Sharon L. McCollam, age 38, has served as Senior Vice President - Chief
Financial Officer of the Company since 2000. Ms. McCollam previously served as
Vice President of Finance of the Company in 2000. She also served as Chief
Financial Officer of Dole Fresh Vegetables, Inc. from 1996 to 2000.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated by reference herein to the
Company's definitive Proxy Statement, which was filed with the Securities and
Exchange Commission on April 20, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is incorporated by reference herein to the
Company's definitive Proxy Statement, which was filed with the Securities and
Exchange Commission on April 20, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is incorporated by reference herein to the
Company's definitive Proxy Statement, which was filed with the Securities and
Exchange Commission on April 20, 2001.
31
32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of Williams-Sonoma,
Inc. and subsidiaries and the related notes are filed as part of this
report pursuant to Item 8:
Consolidated Statements of Earnings for the years ending January 28,
2001, January 30, 2000 and January 31, 1999
Consolidated Balance Sheets as of January 28, 2001 and January 30, 2000
Consolidated Statements of Shareholders' Equity for the years ending
January 28, 2001, January 30, 2000 and January 31, 1999
Consolidated Statements of Cash Flows for the years ending January
28, 2001, January 30, 2000 and January 31, 1999
Notes to Consolidated Financial Statements
Independent Auditors' Report
Quarterly Financial Information
(a)(2) Financial Statement Schedules
Description Page
----------- ----
Independent Auditors' Report on Financial Statement Schedule 33
Schedule II Valuation and Qualifying Accounts 34
Schedules other than those referred to above have been omitted because they
are not required or are not applicable.
(b) Reports on Form 8-K: No Form 8-K filings were made during the last quarter
of the fiscal year ended January 28, 2001.
(c) Exhibits: See Exhibit Index on pages 37 through 41.
32
33
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Williams-Sonoma, Inc.:
We have audited the consolidated financial statements of Williams-Sonoma, Inc.
and subsidiaries as of January 28, 2001 and January 30, 2000, and for each of
the three fiscal years in the period ended January 28, 2001, and have issued our
report thereon dated March 20, 2001; such financial statements and report are
included herein. Our audits also included the financial statement schedule of
Williams-Sonoma, Inc. and subsidiaries listed in Item 14(a)(2). This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
San Francisco, California
March 20, 2001
33
34
SCHEDULE II
WILLIAMS-SONOMA, INC. & SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
----------- ----------- ---------- ---------- -----------
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- ----------- ---------- ---------- -----------
Fiscal Year Ended January 31, 1999:
Allowance for Doubtful Accounts $ 206,000 $ 24,000 -- $ 230,000
Fiscal Year Ended January 30, 2000:
Allowance for Doubtful Accounts $ 230,000 $ 20,000 -- $ 250,000
Fiscal Year Ended January 28, 2001:
Allowance for Doubtful Accounts $ 250,000 $ 57,000 -- $ 307,000
34
35
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
WILLIAMS-SONOMA, INC.
Date: April 26, 2001 By /s/ DALE W. HILPERT
--------------------
Chief Executive Officer
Director
Pursuant to the requirements of Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Date: April 26, 2001 /s/ DALE W. HILPERT
----------------------------------------------
Dale W. Hilpert
Chief Executive Officer
Director (principal executive officer)
Date: April 26, 2001 /s/ W. HOWARD LESTER
----------------------------------------------
W. Howard Lester
Chairman of the Board and Director
Date: April 26, 2001 /s/ SHARON L. MCCOLLAM
----------------------------------------------
Sharon L. McCollam
Senior Vice President
Chief Financial Officer (principal financial
officer and principal accounting officer)
Date: April 26, 2001 /s/ CHARLES E. WILLIAMS
----------------------------------------------
Charles E. Williams
Founder, Vice-Chairman and Director
Date: April 26, 2001 /s/ PATRICK J. CONNOLLY
----------------------------------------------
Patrick J. Connolly
Executive Vice President
Chief Marketing Officer
Assistant Secretary and Director
Date: April 26, 2001
----------------------------------------------
Adrian D.P. Bellamy
Director
Date: April 26, 2001
----------------------------------------------
Michael R. Lynch
Director
Date: April 26, 2001
----------------------------------------------
James A. McMahan
Director
Date: April 26, 2001 /s/ JOHN E. MARTIN
----------------------------------------------
John E. Martin
Director
Date: April 26, 2001 /s/ EDWARD A. MUELLER
----------------------------------------------
Edward A. Mueller
Director
Date: April 26, 2001
----------------------------------------------
Heather M. Reisman
Director
35
36
Date: April 26, 2001
----------------------------------------------
Richard T. Robertson
Director
36
37
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE
FISCAL YEAR ENDED JANUARY 28, 2001
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
3.1 Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the period ended October 29, 1995
as filed with the Commission on December 12, 1995, File
No. 000-12704)
3.2 Certificate of Amendment of Restated Articles of
Incorporation (incorporated by reference to Exhibit 3.1A
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 2000 as filed with the
Commission on May 1, 2000, File No. 001-14077)
3.3* Restated Bylaws and Amendment Number One to the Restated
Bylaws of Registrant
4.1 Note Agreement, dated August 1, 1995, for $40,000,000
7.2% Senior Notes (incorporated by reference to Exhibit
10.9 to the Company's Quarterly Report on Form 10-Q for
the period ended July 30, 1995 as filed with the
Commission on September 12, 1995, File No. 000-12704)
10.1 Williams-Sonoma, Inc. 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,
File No. 2-83992)
10.2 Warehouse -- Distribution Facility lease dated July 1,
1983 between the Company as lessee and the Lester-McMahan
Partnership as lessor (incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the period ended September 30, 1983 as filed
with the Commission on October 14, 1983, File No.
000-12704)
10.3 First Amendment, dated December 1, 1985, to the Warehouse
-- Distribution Facility lease 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 Annual Report on Form 10-K for the fiscal
year ended February 2, 1986 as filed with the Commission
on May 2, 1986, File No. 000-12704)
10.4 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 Annual Report on Form 10-K for the
year ended February 2, 1986 as filed with the Commission
on May 2, 1986, File No. 000-12704)
10.5 Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan Trust Agreement, dated September 20, 1989
(incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-8 as filed
with the Commission on February 22, 1990, File No.
33-33693)
10.6 Sublease for the Distribution Facility at 4600 and 4650
Sonoma Cove, Memphis, Tennessee, 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 Quarterly Report on Form 10-Q for the period
ended October 28, 1990 as filed with the Commission on
December 12, 1990, File No. 000-12704)
10.7* First Amendment, dated August 1, 1990, to Sublease for
the Distribution Facility at 4600 and 4650 Sonoma Cove,
Memphis, Tennessee between the Company and Hewson-Memphis
Partners, dated as of August 1, 1990
10.8 Second Amendment, dated December 1, 1993, to the
Warehouse -- Distribution Facility lease dated July 1,
1983 between the Company as lessee and the Lester-McMahan
Partnership as lessor (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, File No. 000-12704)
10.9 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, File No.
000-12704)
37
38
10.10 Indemnity Agreement by the Company in favor of Bank of
America, National Trust and Savings Association, dated as
of 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, File No. 000-12704)
10.11 Second Amendment, dated September 1, 1994, to Sublease
for the Distribution Facility at 4600 and 4650 Sonoma
Cove, Memphis, Tennessee, dated as of August 1, 1990
between the Company and Hewson-Memphis Partners
(incorporated by reference to Exhibit 10.38 to the
Company's Quarterly Report on Form 10-Q for the period
ended October 30, 1994 as filed with the Commission on
December 13, 1994, File No. 000-12704)
10.12 Guaranty Agreement, dated August 1, 1995, for $40,000,000
Senior Notes (incorporated by reference to Exhibit 10.9A
to the Company's Quarterly Report on Form 10-Q for the
period ended July 30, 1995 as filed with the Commission
on September 12, 1995, File No. 000-12704)
10.13 Intercreditor Agreement, dated August 1, 1995, for
$40,000,000 Senior Notes (incorporated by reference to
Exhibit 10.9B to the Company's Quarterly Report on Form
10-Q for the period ended July 30, 1995 as filed with the
Commission on September 12, 1995, File No. 000-12704)
10.14 Third Amendment, dated October 24, 1995, to Sublease for
the Distribution Facility at 4600 and 4650 Sonoma Cove,
Memphis, Tennessee, dated as of August 1, 1990 between
the Company and Hewson-Memphis Partners (incorporated by
reference to Exhibit 10.2E to the Company's Quarterly
Report on Form 10-Q for the period ended October 29, 1995
as filed with the Commission on December 12, 1995, File
No. 000-12704)
10.15 First Amendment, dated January 5, 1996, to 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
10.3A to the Company's Annual Report on Form 10-K for the
year ended January 28, 1996 as filed with the Commission
on April 26, 1996, File No. 000-12704)
10.16* Fourth Amendment, dated February 1, 1996, to Sublease for
the Distribution Facility at 4600 and 4650 Sonoma Cove,
Memphis, Tennessee, dated as of August 1, 1990 between
the Company and Hewson-Memphis Partners
10.17 Letter of Credit Agreement, dated June 1, 1997, between
the Company and Bank of America, National Trust and
Savings Association (incorporated by reference to Exhibit
10.3 to the Company's Quarterly Report on Form 10-Q for
the period ended May 4, 1997 as filed with the Commission
on June 17, 1997, File No. 000-12704)
10.18 Williams-Sonoma, Inc. Amended and Restated 1993 Stock
Option Plan (incorporated by reference to Exhibit 4 of
the Company's Registration Statement on Form S-8 as filed
with the Commission on July 10, 1998, File No. 333-58833)
10.19 Office lease between TJM Properties, L.L.C. and
Williams-Sonoma, Inc., dated February 13, 1998
(incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year
ended February 1, 1998 as filed with the Commission on
April 22, 1998, File No. 000-12704)
10.20 Second Amendment, dated May 29, 1998, to Letter of Credit
Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period
ended August 2, 1998 as filed with the Commission on
September 14, 1998, File No. 001-14077)
10.21 Third Amendment, dated June 30, 1998, to Letter of Credit
Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.5 to the
Company's Quarterly Report on Form 10-Q for the period
ended August 2, 1998 as filed with the Commission on
September 14, 1998, File No. 001-14077)
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10.22 Memorandum of Understanding between the Company and the
State of Mississippi, Mississippi Business Finance
Corporation, Desoto County, Mississippi, the City of
Olive Branch, Mississippi and Hewson Properties, Inc.,
dated August 24, 1998 (incorporated by reference to
Exhibit 10.6 to the Company's Quarterly Report on Form
10-Q for the period ended August 2, 1998 as filed with
the Commission on September 14, 1998, File No. 001-14077)
10.23 Olive Branch Distribution Facility Lease, dated December
1, 1998, between the Company as lessee and Hewson/Desoto
Phase I, L.L.C. as lessor (incorporated by reference to
Exhibit 10.3D to the Company's Annual Report on Form 10-K
for the year ended January 31, 1999 as filed with the
Commission on April 30, 1999, File No. 001-14077)
10.24 Second Amendment and Restatement of the Williams-Sonoma,
Inc. Executive Deferral Plan, dated November 23, 1998
(incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 31, 1999 as filed with the Commission on
April 30, 1999, File No. 001-14077)
10.25 Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.26 Amendment Number One, dated April 27, 1990, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.27 Amendment Number Two, dated December 12, 1990, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.28 Amendment Number Three, dated March 10, 1992, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.29 Amendment Number Four, dated June 9, 1993, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.30 Amendment Number Five, dated December 23, 1993, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.31 Amendment Number Six, dated May 6, 1996, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.32 Amendment Number Seven, dated May 1, 1996, to the
Williams-Sonoma, Inc. Employee Profit Sharing and Stock
Incentive Plan, effective as of February 1, 1989
(incorporated by reference to Exhibit 4 to the Company's
Form S-8 as filed with the Commission on July 2, 1999,
File No. 333-82205)
10.33 Amendment Number Eight, dated September 16, 1997, to the
Williams-Sonoma, Inc. Associate Stock Incentive Plan,
effective as of February 1, 1989 (incorporated by
reference to Exhibit 4 to the Company's Form S-8 as filed
with the Commission on July 2, 1999, File No. 333-82205)
10.34 Amendment Number Nine, dated September 30, 1998, to the
Williams-Sonoma, Inc. Associate Stock Incentive Plan,
effective as of February 1, 1989 (incorporated by
reference to Exhibit 4 to the Company's Form S-8 as filed
with the Commission on July 2, 1999, File No. 333-82205)
10.35 Amendment Number Ten, dated December 31, 1998, to the
Williams-Sonoma, Inc. Associate Stock Incentive Plan,
effective as of February 1, 1989 (incorporated by
reference to Exhibit 4 to the Company's Form S-8 as filed
with the Commission on July 2, 1999, File No. 333-82205)
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10.36 Fourth Amendment, dated May 26, 1999, to Letter of Credit
Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended August 1, 1999 as filed with the Commission on
September 13, 1999, File No. 001-14077)
10.37 Fifth Amendment, dated September 22, 1999, to Letter of
Credit Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the period
ended October 31, 1999 as filed with the Commission on
December 13, 1999, File No. 001-14077)
10.38 Sixth Amendment, dated October 29, 1999, to Letter of
Credit Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the period
ended October 31, 1999 as filed with the Commission on
December 13, 1999, File No. 001-14077)
10.39 First Amendment, dated September 1, 1999, to the Olive
Branch Distribution Facility Lease between the Company as
lessee and Hewson/Desoto Phase I, L.L.C. as lessor, dated
December 1, 1998 (incorporated by reference to Exhibit
10.3B to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 2000 as filed with the
Commission on May 1, 2000, File No. 001-14077)
10.40 Purchase and Sale Agreement and Escrow Instructions,
dated December 14, 1999, between the Company and Levi
Strauss & Co. (incorporated by reference to Exhibit 10.13
to the Company's Annual Report on Form 10-K for the
fiscal year ended January 30, 2000 as filed with the
Commission on May 1, 2000, File No. 001-14077)
10.41 Lease for an additional Company distribution facility
located in Olive Branch, Mississippi between
Williams-Sonoma Retail Services, Inc. as lessee and
Hewson/Desoto Partners, L.L.C. as lessor, dated November
15, 1999 (incorporated by reference to Exhibit 10.14 to
the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 2000 as filed with the Commission
on May 1, 2000, File No. 001-14077)
10.42 Lease Guarantee by the Company in favor of Hewson/Desoto
Partners, L.L.C., dated November 15, 1999 (incorporated
by reference to Exhibit 10.14A to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30,
2000 as filed with the Commission on May 1, 2000, File
No. 001-14077)
10.43 Seventh Amendment, dated February 7, 2000, to Letter of
Credit Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.10Q to the
Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 2000 as filed with the Commission on
May 1, 2000, File No. 001-14077)
10.44 Eighth Amendment, dated May 26, 2000, to Letter of Credit
Agreement between the Company and Bank of America
National Trust and Savings Association, dated June 1,
1997 (incorporated by reference to Exhibit 10.10X to the
Company's Quarterly Report on Form 10-Q for the period
ended April 30, 2000 as filed with the Commission on June
14, 2000, File No. 001-14077)
10.45 Guarantor Acknowledgment and Consent to the Eighth
Amendment to the Letter of Credit Agreement by
Williams-Sonoma Stores, Inc., Hold Everything, Inc.,
Chambers Catalog Company, Inc., Pottery Barn, Inc.,
Williams-Sonoma Stores, LLC, Pottery Barn Kids, Inc.,
Williams-Sonoma Direct, Inc. and Williams-Sonoma Retail
Services Inc., dated May 26, 2000 (incorporated by
reference to Exhibit 10.10Y to the Company's Quarterly
Report on Form 10-Q for the period ended April 30, 2000
as filed with the Commission on June 14, 2000, File No.
001-14077)
10.46 Amended and Restated Credit Agreement, dated August 23,
2000, between the Company and Bank of America, National
Association (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
period ended July 30, 2000 as filed with the Commission
on September 12, 2000, File No.
001-14077)
10.47* Guaranty Agreement, dated August 23, 2000, for the
Amended and Restated Credit Agreement dated August 23,
2000, by the Company, Williams-Sonoma Stores, Inc.,
Williams-Sonoma Stores, LLC, Hold Everything, Inc.,
Pottery Barn, Inc., Pottery Barn Kids, Inc., Chambers
Catalog Company, Inc., Williams-Sonoma Retail Services,
Inc., and Williams-Sonoma Direct, Inc. as guarantor and
Bank of America, National Association as Administrative
Agent for the Lenders
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10.48* Agreement re: Intercreditor Agreement, dated August 23,
2000, for the Amended and Restated Credit Agreement dated
August 23, 2000
10.49 Williams-Sonoma, Inc. 2000 Nonqualified Stock Option Plan
(incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 as filed with the
Commission on October 27, 2000, File No. 333-48750)
10.50 Williams-Sonoma, Inc. 2001 Stock Option Plan
(incorporated by reference to Exhibit 4 to the Company's
Registration Statement on Form S-8 as filed with the
Commission on March 30, 2001, File No. 333-58026)
10.51* Ninth Amendment, dated July 31, 2000, to Letter of Credit
Agreement between the Company and Bank of America, N.A.,
dated June 1, 1997
10.52* Tenth Amendment, dated August 17, 2000, to Letter of
Credit Agreement between the Company and Bank of America,
N.A., dated June 1, 1997
10.53* Eleventh Amendment, dated October 31, 2000, to Letter of
Credit Agreement between the Company and Bank of America,
N.A., dated June 1, 1997
10.54* Employment Agreement between the Company and Dale W.
Hilpert, dated February 5, 2001
10.55* Sublease for 151 Union Street, San Francisco, California,
dated May 1, 2000, between Epoch Partners as lessee and
the Company as lessor
10.56* Sublease for 151 Union Street, San Francisco, California,
dated April 1, 2000, between Red Herring Communications,
Inc. as lessee and the Company as lessor
10.57* Net Lease Agreement for 3750 Atherton Road, Rocklin,
California, dated January 4, 2001, between the Company as
lessee and Standford Ranch I, LLC as lessor
10.58* First Amendment to Lease, dated February 1, 2001, to the
Net Lease Agreement for 3750 Atherton Road, Rocklin,
California, dated January 4, 2001 between the Company as
lessee and Standford Ranch I, LLC as lessor
10.59* Commercial Lease for 3025 Market Street, Camp Hill,
Pennsylvania, dated July 25, 2000, between the
Williams-Sonoma Direct, Inc. as lessee and C.A. Hempt
Estate, Inc. as lessor
10.60* Guaranty for Commercial Lease for 3025 Market Street,
Camp Hill Pennsylvania, dated July 25, 2000, by the
Company as guarantor and with C.A. Hempt Estate, Inc. as
the lessor
10.61* Industrial Lease, dated August 12, 1999, for 2828 18th
Street, San Francisco, California, between the Company as
lessee and 1900 Bryant Street Investors, LLC as lessor
10.62* Sublease for 2828 18th Street, San Francisco, California,
dated April 1, 2000, between the Company as lessor and
Red Herring Communications, Inc. as lessee
10.63* First Amendment, dated as of October 31, 2000, to
Sublease for 2828 18th Street, San Francisco, California,
dated April 1, 2000, between the Company as lessor and
Red Herring Communications, Inc. as lessee
11* Statement re: computation of per share earnings
21* Subsidiaries
23.1* Independent Auditors' Consent
* Filed herewith.
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