Pottery Barn 2005 Annual Report Download - page 69

Note J: Associate Stock Incentive Plan and Other Employee Benefits
We have 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), 401(k) and 401(m). The Plan permits eligible employees to make salary deferral contributions in
accordance with Internal Revenue Code Section 401(k) up to 15% of eligible compensation each pay period (4%
for certain higher paid individuals). Employees designate the funds in which their contributions are invested.
Each participant may choose to have his or her salary deferral contributions and earnings thereon invested in one
or more investment funds, including investing in our company stock fund. Prior to November 1, 2005, all
matching contributions were invested in our company stock fund. Effective November 1, 2005, participants were
allowed to reallocate past matching contributions to one or more investment funds. Effective December 1, 2005,
company contributions are invested in a similar manner as the participant’s salary deferral contributions.
Effective August 1, 2003, our matching contribution is equal to 50% of the participant’s salary deferral
contribution each pay period, taking into account only those contributions that do not exceed 6% of the
participant’s eligible pay for the pay period (4% for certain higher paid individuals). For the first five years of the
participant’s employment, all matching contributions generally vest at the rate of 20% per year of service,
measuring service from the participant’s hire date. Thereafter, all matching contributions vest immediately. Our
contributions to the plan were $3,322,000 in fiscal 2005, $2,850,000 in fiscal 2004 and $3,540,000 in fiscal 2003.
We have a nonqualified executive deferred compensation plan that provides supplemental retirement income
benefits for a select group of management and other certain highly compensated employees. This plan permits
eligible employees to make salary and bonus deferrals that are 100% vested. We have an unsecured obligation to
pay in the future the value of the deferred compensation adjusted to reflect the performance, whether positive or
negative, of selected investment measurement options, chosen by each participant, during the deferral period. At
January 29, 2006, $11,176,000 was included in other long-term obligations. Additionally, we have purchased life
insurance policies on certain participants to potentially offset these unsecured obligations. The cash surrender
value of these policies was $9,661,000 at January 29, 2006 and was included in other assets.
Note K: Financial Guarantees
We are party to a variety of contractual agreements under which we may be obligated to indemnify the other
party for certain matters. These contracts primarily relate to our commercial contracts, operating leases,
trademarks, intellectual property, financial agreements and various other agreements. Under these contracts, we
may provide certain routine indemnifications relating to representations and warranties or personal injury
matters. The terms of these indemnifications range in duration and may not be explicitly defined. Historically, we
have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any
of these matters, the loss would not have a material effect on our financial condition or results of operations.
Note L: Commitments and Contingencies
On September 30, 2004, we entered into a five-year service agreement with IBM to host and manage certain
aspects of our data center information technology infrastructure. The terms of the agreement require the payment
of both fixed and variable charges over the life of the agreement. The variable charges are primarily based on
CPU hours, storage capacity and support services that are expected to fluctuate throughout the term of the
agreement.
Under the terms of the agreement, we are subject to a minimum charge over the five-year term of the agreement.
This minimum charge is based on both a fixed and variable component calculated as a percentage of the total
estimated service charges over the five-year term of the agreement. As of January 29, 2006, we estimate the
remaining minimum charge to be approximately $21,000,000. The fixed component of this minimum charge will
be paid annually not to exceed approximately $5,000,000, while the variable component will be based on usage.
The agreement can be terminated at any time for cause and after 24 months for convenience. In the event the
agreement is terminated for convenience, a graduated termination fee will be assessed based on the time period
remaining in the contract term, not to exceed $9,000,000. During fiscal 2005, we recognized expense of
approximately $12,000,000 relating to this agreement.
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Form 10-K