Pottery Barn 2006 Annual Report Download

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ANNUAL REPORT
2006
May 16, 2007

Table of contents

  • Page 1
    2 0 0 6 ANNUAL REPORT May 16, 2007

  • Page 2

  • Page 3
    Shareholders' Letter LETTER TO SHAREHOLDERS WILLIAMS-SONOMA, INC. 2006 ANNUAL REPORT

  • Page 4
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  • Page 5
    ... accelerated growth in the coming years. Our Fiscal 2006 Financial Results Net revenues in 2006 increased 5.3% to $3.7 billion, with positive growth across all brands. Diluted earnings per share, however, decreased 1.1%, including a net charge of $0.11 for unusual business events and new accounting...

  • Page 6
    ... driven by incremental revenues from the opening of new stores in West Elm and Williams-Sonoma Home and strong direct-to-customer growth in PBteen and West Elm. Of our 29 emerging brand stores - 22 in West Elm and 7 in Williams-Sonoma Home - two had to be impaired at the end of 2006 due to estimated...

  • Page 7
    ... next several years - driving sustainable revenue growth with a key focus on the revitalization of the Pottery Barn brand; increasing our pre-tax operating margin by continuing to drive operational advancements and cost containment initiatives across the company; and enhancing shareholder value by...

  • Page 8
    ... the Board of Directors and Chief Executive Officer This letter contains forward-looking statements. Please see the section titled "Forward-Looking Statements" on page 1 of our Annual Report on Form 10-K for the fiscal year ended January 28, 2007, which is part of this Annual Report to Shareholders...

  • Page 9
    Form 10-K FORM 10-K WILLIAMS-SONOMA, INC. 2006 ANNUAL REPORT

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... 30, 2006 listed as executive officers and directors with the Securities and Exchange Commission. This aggregate market value includes all shares held in the registrant's Williams-Sonoma, Inc. Stock Fund. As of February 25, 2007, 109,881,292 shares of the registrant's Common Stock were outstanding...

  • Page 12
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  • Page 13
    ...2007 and 2008, increasing our market share, driving sustainable revenue growth and the revitalization of the Pottery Barn brand; statements related to enhancing shareholder value; statements related to our plans to increase retail leased square footage, including the opening of new retail stores and...

  • Page 14
    ... III Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Principal Accountant Fees and Services PART IV Exhibits and Financial Statement...

  • Page 15
    ... Kids, West Elm and WilliamsSonoma Home). The direct-to-customer segment of our business sells similar products through our seven directmail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Williams-Sonoma Home) and six e-commerce websites...

  • Page 16
    ...(Williams-Sonoma, Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home) and sells products through our seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Williams-Sonoma Home) and six e-commerce websites...

  • Page 17
    ... large department stores, discount stores, other specialty retailers offering home centered assortments, 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...

  • Page 18
    ...-time employees. During the fiscal 2006 peak season, we hired approximately 16,900 temporary employees in our stores and in our direct-to-customer processing and distribution centers. AVAILABLE INFORMATION We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form...

  • Page 19
    ...with brands or products similar to ours. The specialty retail and direct-to-customer business is highly competitive. Our specialty retail stores, mail order catalogs and e-commerce websites compete with other retail stores, other mail order catalogs and other e-commerce websites that market lines of...

  • Page 20
    ... The growth of our sales and profits depends, in large part, on our ability to successfully open new stores. In each of the past three fiscal years, the majority of our net revenues have been generated by our retail stores. Our ability to open additional stores successfully will depend upon a number...

  • Page 21
    .... We experience fluctuations in our comparable store sales. Our success depends, in part, upon our ability to increase sales at our existing stores. Various factors affect comparable store sales, including the number, size and location of stores we open, close, remodel or expand in 9 Form 10-K

  • Page 22
    ...the market price of our common stock. Our failure to successfully manage the costs and performance of our catalog mailings might have a negative impact on our business. Postal rate increases, paper costs, printing costs and other catalog distribution costs affect the cost of our catalog mailings. We...

  • Page 23
    ...catalog businesses, and we face the risk of increased catalog circulation cannibalizing our retail sales. While we recognize that our Internet sales cannot be entirely incremental to sales through our retail and catalog channels, we seek to attract as many new customers as possible to our e-commerce...

  • Page 24
    ... continue to look for opportunities to reduce costs. We recognize that we may need to increase the number of our employees, especially in peak sales seasons, and incur other expenses to support new brands and brand extensions, as well as the opening of new stores and direct-to-customer growth of our...

  • Page 25
    ... through December. In anticipation of increased holiday sales activity, we incur certain significant incremental expenses, including fixed catalog production and mailing costs and the costs associated with hiring a substantial number of temporary employees to supplement our existing workforce. If...

  • Page 26
    ... Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 123R, "Share Based Payment," which requires us to measure compensation costs for all stock-based compensation at fair value and record compensation expense equal to that value over the requisite service period. Share...

  • Page 27
    ...expertise would be difficult to replace. If any of our key employees leaves, is seriously injured or is unable to work, and we are unable to find a qualified replacement, we may be unable to execute our business strategy. In addition, our main offices are located in the San Francisco Bay Area, where...

  • Page 28
    ... a 418,000 square foot distribution facility located in South Brunswick, New Jersey. The lease has an initial term of two years, with two optional two-year renewals. We contract with a third party who provides furniture delivery and storage facilities in a 662,000 square foot distribution facility...

  • Page 29
    ... these current matters will not have a material adverse effect on our 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 fiscal 2006. Form 10-K 17

  • Page 30
    ...This number excludes shareholders whose stock is held in nominee or street name by brokers. PERFORMANCE GRAPH Information required by this Item is incorporated by reference herein to information under the heading "Performance Graph" in our 2006 Annual Report. DIVIDEND POLICY In March 2006, our Board...

  • Page 31
    ... year-end, the remaining authorized number of shares eligible for repurchase was 1,195,500. The following table summarizes our repurchases of shares of our common stock during the fourth quarter of fiscal 2006: Total Number of Shares Purchased as Part of a Publicly Announced Repurchase Plan 703...

  • Page 32
    ...Pottery Barn: Design Studio Classic Pottery Barn Kids West Elm Williams-Sonoma Home Outlets Hold Everything Number of stores at year-end Store selling area at fiscal year-end (sq. ft.) Store leased area at fiscal year-end (sq. ft.) Direct-to-Customer Revenues Direct-to-customer revenue growth Direct...

  • Page 33
    ... West Elm and Williams-Sonoma Home and strong direct-to-customer growth in PBteen and West Elm. In West Elm, incremental revenues from both existing and new stores, improved catalog response, and increased traffic in e-commerce drove year-over-year revenue growth. We opened 10 stores in fiscal 2006...

  • Page 34
    ... 20 stores. We also expect to increase catalog circulation and electronic direct marketing and plan to intensify the marketing support behind our fastest growing shopping channel, e-commerce. As a result of our initiatives in the emerging brands (West Elm, PBteen and Williams-Sonoma Home) in...

  • Page 35
    ... in-stock position to increase order fulfillment rates and testing new product categories that hold sizable potential. In Williams-Sonoma Home, our top priority in fiscal 2007 is superior execution, from product design to world class furniture delivery. We are modifying our brand rollout strategy to...

  • Page 36
    .... 2Fiscal 2005 store closing numbers include two Williams-Sonoma, two Pottery Barn and one Pottery Barn Kids temporary store closures in the New Orleans area due to Hurricane Katrina. One Williams-Sonoma store reopened before fiscal 2005 year-end. The remaining stores reopened in fiscal 2006. 24

  • Page 37
    ... sales exclude the West Elm concept. Percentages represent changes in comparable store sales versus the same period in the prior year. Percent increase (decrease) in comparable store sales Williams-Sonoma Pottery Barn Pottery Barn Kids Outlets Hold Everything1 Total 1Hold Form 10-K Fiscal 2006...

  • Page 38
    ... Barn Kids, Pottery Barn, PBteen, Williams-Sonoma and West Elm brands due to an overall increase in catalog page circulation of 3.2% and continued strength in our Internet business, primarily resulting from our catalog advertising, expanded efforts associated with our electronic direct marketing...

  • Page 39
    ...higher customer shipping, damage and replacement costs than the retail channel. Fiscal 2006 vs. Fiscal 2005 Cost of goods sold increased by $136,761,000, or 6.5%, in fiscal 2006 over fiscal 2005. Including expense of approximately $5,000,000 associated with transitioning the merchandising strategies...

  • Page 40
    ...-price selling in the Pottery Barn and Williams-Sonoma brands, partially offset by the write-down of impaired merchandise inventories associated with transitioning the merchandising strategies of our Hold Everything brand into our other existing brands and increased costs associated with the 2005...

  • Page 41
    ... in employee benefit costs. In the direct-to-customer channel, selling, general and administrative expenses as a percentage of direct-to-customer net revenues increased by approximately 40 basis points in fiscal 2005 compared to fiscal 2004. This rate increase was primarily driven by higher catalog...

  • Page 42
    ... fiscal 2005. Cash provided by operating activities in fiscal 2006 was primarily attributable to net earnings, an increase in deferred rent and lease incentives due to new store openings, an increase in income taxes payable and an increase in customer deposits due to growth in unredeemed gift cards...

  • Page 43
    ... fiscal 2006, we repurchased and retired a total of 5,824,500 shares of common stock under all programs previously authorized at a weighted average cost of $31.85 per share and an aggregate cost of approximately $185,508,000. As of fiscal year-end, the remaining authorized number of shares eligible...

  • Page 44
    ... 2010 - - - - Fiscal 2011 to Fiscal 2012 Thereafter Total - $124,860 37,398 $162,258 Credit Facility As of January 28, 2007, we have a credit facility that provides for a $300,000,000 unsecured revolving line of credit that may be used for loans or letters of credit and contains certain financial...

  • Page 45
    ...made annual rental payments of approximately $2,968,000, plus applicable taxes, insurance and maintenance expenses. In February 2004, we entered into an agreement to lease 781,000 square feet of a distribution center located in Cranbury, New Jersey. The lease has an initial term of seven years, with...

  • Page 46
    ... lease a 418,000 square foot distribution facility located in South Brunswick, New Jersey. The lease has an initial term of two years, with two optional two-year renewals. During fiscal 2006, we made annual rental payments of approximately $1,247,000, plus applicable taxes, insurance and maintenance...

  • Page 47
    ... distribution centers, the mix of our inventory (which ranges from large furniture to small tabletop items) and execution against loss prevention initiatives in our stores, off-site storage locations, and our third party transportation providers. Advertising and Prepaid Catalog Expenses Advertising...

  • Page 48
    ... (including shipping costs) at the time the products are received by our customers in accordance with the provisions of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" as amended by SAB No. 104, "Revenue Recognition." Revenue is recognized for retail sales...

  • Page 49
    ... 30, 2006, we adopted SFAS No. 123R, "Share-Based Payments," which required us to measure and record compensation expense in our consolidated financial statements for all employee stock-based compensation awards using a fair value method. For stock options and stock-settled stock appreciation rights...

  • Page 50
    ... that are already required or permitted by other accounting standards, except for measurements of share-based payments, and measurements that are similar to, but not intended to be, fair value. This Statement is effective for fiscal years beginning after November 15, 2007 and will require...

  • Page 51
    ... fiscal 2006 or fiscal 2005. A decline in the relative value of the U.S. dollar to other foreign currencies could, however, lead to increased purchasing costs. As of January 28, 2007, we have 14 retail stores in Canada, which expose us to market risk associated with foreign currency exchange rate...

  • Page 52
    ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Williams-Sonoma, Inc. Consolidated Statements of Earnings Fiscal Year Ended Dollars and shares in thousands, except per share amounts Net revenues Cost of goods sold Gross margin Selling, general and administrative expenses Interest income ...

  • Page 53
    ... debt Deferred income tax liabilities Other long-term obligations Total liabilities Commitments and contingencies - See Note L Shareholders' equity Preferred stock, $.01 par value, 7,500 shares authorized, none issued Common stock, $.01 par value, 253,125 shares authorized, 109,868 shares issued and...

  • Page 54
    ... Income (Loss) Total Shareholders' Equity Dollars and shares in thousands Balance at February 1, 2004 Net earnings Foreign currency translation adjustment Exercise of stock options and related tax effect Repurchase and retirement of common stock Comprehensive income Balance at January 30, 2005...

  • Page 55
    ... Deferred income taxes Tax benefit from exercise of stock options Stock-based compensation expense Other Changes in: Accounts receivable Merchandise inventories Prepaid catalog expenses Prepaid expenses and other assets Accounts payable Accrued salaries, benefits and other Customer deposits...

  • Page 56
    ... Kids, West Elm and WilliamsSonoma Home). The direct-to-customer segment of our business sells similar products through our seven directmail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Williams-Sonoma Home) and six e-commerce websites...

  • Page 57
    ...estimates due to such factors as changes in operations within our distribution centers, the mix of our inventory (which ranges from large furniture to small tabletop items) and execution against loss prevention initiatives in our stores, off-site storage locations, and our third party transportation...

  • Page 58
    ... with Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." However, most store closures occur upon the lease expiration. We review the carrying value of all long-lived assets for impairment whenever events or changes in...

  • Page 59
    ... (including shipping costs) at the time the products are received by our customers in accordance with the provisions of Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" as amended by SAB No. 104, "Revenue Recognition." Revenue is recognized for retail sales...

  • Page 60
    ... in selling, general and administrative expenses in each reporting period. We did not enter into any foreign currency contracts during fiscal 2006 or fiscal 2005. Any gain or loss associated with these types of contracts in prior years was not material to us. Income Taxes Income taxes are accounted...

  • Page 61
    ...Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, no compensation expense was recognized prior to fiscal 2006 for option awards with an exercise price equal to the fair value on the date of grant. New Accounting Pronouncements Form...

  • Page 62
    ...of a new merchandising, inventory management and order management system currently under development. 2 Construction in progress is primarily comprised of leasehold improvements and furniture and fixtures related to new, unopened retail stores. Note C: Borrowing Arrangements Long-term debt consists...

  • Page 63
    ...Fiscal 2010 Fiscal 2011 Thereafter Total $15,853 1,584 1,438 1,462 1,414 6,924 $28,675 Credit Facility As of January 28, 2007, we have a credit facility that provides for a $300,000,000 unsecured revolving line of credit that may be used for loans or letters of credit and contains certain financial...

  • Page 64
    .... A reconciliation of income taxes at the federal statutory corporate rate to the effective rate is as follows: Fiscal Year Ended Jan. 28, 2007 Federal income taxes at the statutory rate State income tax rate, less federal benefit Total 35.0% 3.1% 38.1% Jan. 29, 2006 Jan. 30, 2005 35.0% 3.4% 38...

  • Page 65
    ... Executive deferral plan Other Total non-current Total Note E: Accounting for Leases Operating Leases We lease store locations, warehouses, corporate facilities, call centers and certain equipment for original terms ranging generally from 3 to 22 years. Certain leases contain renewal options...

  • Page 66
    ... lease a 418,000 square foot distribution facility located in South Brunswick, New Jersey. The lease has an initial term of two years, with two optional two-year renewals. During fiscal 2006, we made annual rental payments of approximately $1,247,000, plus applicable taxes, insurance and maintenance...

  • Page 67
    ... certain financial covenants. As of January 28, 2007, $12,893,000 was outstanding under the Partnership 2 industrial development bonds. During fiscal 2006, we made annual rental payments of approximately $2,585,000, plus applicable taxes, insurance and maintenance expenses. Although the current term...

  • Page 68
    ...,000 shares to employees who were not officers or Board members. Annual grants were not limited on a per person basis under this plan. All nonqualified stock option grants under the 2000 Plan have a maximum term of ten years with an exercise price equal to the closing price of our stock on the date...

  • Page 69
    ... 2005 and fiscal 2004: Fiscal Year Ended Dollars in thousands, except per share amounts Net earnings, as reported Add: stock-based employee compensation expense included in reported net earnings, net of related tax effect Less: total stock-based employee compensation expense determined under fair...

  • Page 70
    ... during fiscal 2006, fiscal 2005 and fiscal 2004. Stock Options The following table summarizes our stock option activity during fiscal 2006, fiscal 2005 and fiscal 2004: Weighted Average Contractual Term Remaining (Years) Shares Balance February 1, 2004 Granted (weighted average fair value of $20...

  • Page 71
    ... Contractual Term Remaining (Years) Intrinsic Value2 Form 10-K Balance at January 29, 2006 Granted (weighted average fair value of $12.37) Converted - Canceled Balance at January 28, 2007 9.47 $2,211,000 Stock-settled stock appreciation rights vested at January 28, 2007 - - - - 1 Conversion price...

  • Page 72
    ... 4.0 years. The fair value for both stock options and stock-settled stock appreciation rights was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: • Expected Term - For fiscal 2006, the expected term of the option...

  • Page 73
    ... Williams-Sonoma Associate Stock Incentive Plan, for eligible employees, which is intended to be qualified under Internal Revenue Code Sections 401(a), 401(k), 401(m) and 4975(e)(7). The Plan permits eligible employees to make salary deferral contributions up to 15% of eligible compensation each pay...

  • Page 74
    ...Pottery Barn, Pottery Barn Kids, PBteen, West Elm and Williams-Sonoma Home) and sells similar products through our seven direct-mail catalogs (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath, PBteen, West Elm and Williams-Sonoma Home) and six e-commerce websites (williams...

  • Page 75
    ... information systems, deferred income taxes and other corporate long-lived assets. Income tax information by segment has not been included as taxes are calculated at a company-wide level and are not allocated to each segment. Segment Information Dollars in thousands 2006 Net revenues Depreciation...

  • Page 76
    Report of Independent Registered Public Accounting Firm To the Board of Directors and 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, 2007 and January 29, 2006, and the ...

  • Page 77
    ... 30, 2006, the Company changed its method of accounting for share-based payment arrangements to conform to Statement of Financial Accounting Standards No. 123(R), "Share Based Payment" and adopted Financial Accounting Standards Board Staff Position 13-1, "Accounting for Rental Costs Incurred During...

  • Page 78
    ... independently. 2 Stock price represents our common stock price at the close of business on the Friday before our fiscal quarter-end. 3 Includes a net pre-tax benefit of $10,200,000 in selling, general and administrative expenses related to unredeemed gift certificate income due to a change in...

  • Page 79
    ... public accounting firm audited the financial statements included in this Annual Report on Form 10-K and has issued an attestation report on management's assessment of the company's internal control over financial reporting. This report appears on pages 64 through 65 of this annual report on Form...

  • Page 80
    ... Committee Report," "Committee Reports-Audit and Finance Committee Report," "Corporate Governance Guidelines and Corporate Code of Conduct" and "Section 16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION Information required by this Item is...

  • Page 81
    ... 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 fiscal years ended January 28, 2007, January 29, 2006 and January 30, 2005 Consolidated Balance Sheets...

  • Page 82
    ... the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WILLIAMS-SONOMA, INC. Date:March 29, 2007 By /s/ W. HOWARD LESTER Chief Executive Officer Pursuant to...

  • Page 83
    ...the Company's Quarterly Report on Form 10-Q for the period ended July 30, 2006 as filed with the Commission on September 5, 2006, File No. 001-14077) 3.2 Form 10-K 3.3 3.4 3.5 FINANCING AGREEMENTS 10.1 Fourth Amended and Restated Credit Agreement, dated October 4, 2006, between the Company and...

  • Page 84
    ... Exhibit 10.7 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 2006 as filed with the Commission on December 8, 2006, File No. 001-14077) Reimbursement Agreement between the Company and The Bank of New York dated as of July 1, 2005 (incorporated by reference to...

  • Page 85
    ... by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2006 as filed with the Commission on April 15, 2005, File No. 001-14077) Williams-Sonoma, Inc. 2000 Nonqualified Stock Option Plan (incorporated by reference to Exhibit 4 to the...

  • Page 86
    ... the Commission on May 24, 2005, File No. 001-14077) 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...

  • Page 87
    ... 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) Lease for an additional Company distribution facility located in Olive Branch, Mississippi between Williams-Sonoma Retail Services, Inc. as...

  • Page 88
    ..., dated December 28, 2002 (incorporated by reference to Exhibit 10.42 to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2006 as filed with the Commission on April 15, 2005, File No. 001-14077) Separation Agreement entered into July 9, 2006 between Williams-Sonoma...

  • Page 89
    ...EXHIBIT DESCRIPTION Subsidiaries Consent of Independent Registered Public Accounting Firm Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule...

  • Page 90
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  • Page 91
    Notice of 2007 Annual Meeting of Shareholders PROXY STATEMENT Proxy WILLIAMS-SONOMA, INC. 2006 ANNUAL REPORT

  • Page 92
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  • Page 93
    ... meeting. ITEMS OF BUSINESS: 3) WHO CAN VOTE: DATE OF MAILING: You may vote if you were a shareholder of record as of March 19, 2007. This notice, the Proxy Statement and the Annual Report are first being mailed to shareholders on or about April 9, 2007. By Order of the Board of Directors Seth...

  • Page 94
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  • Page 95
    ... corporate headquarters located at 3250 Van Ness Avenue, San Francisco, California 94109. Our Annual Report to Shareholders for the fiscal year ended January 28, 2007, or fiscal 2006, including our financial statements for fiscal 2006, is also enclosed. These proxy materials are first being mailed...

  • Page 96
    ... or Bank If your shares are held in an account at a brokerage firm or bank, you should follow the voting instructions on your proxy card. What if I return my proxy card directly to the company, but do not provide voting instructions? If a signed proxy card is returned to us without any indication...

  • Page 97
    ... Annual Report and Proxy Statement. A shareholder may notify us that the shareholder would like a separate Annual Report and Proxy Statement by phone at 415-421-7900 or at the following mailing address: 3250 Van Ness Avenue, San Francisco, California 94109, Attention: Annual Report Administrator...

  • Page 98
    ... proxies? We pay all of the expenses incurred in preparing, assembling and mailing this Proxy Statement and the materials enclosed. We have retained Skinner & Company to assist in the solicitation of proxies at an estimated cost to us of $6,500. Some of our officers or employees may solicit proxies...

  • Page 99
    ... parties communicate with members of the Board? Shareholders and interested parties may send written communications to the Board or to any of the directors at the following address: Secretary, Williams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California 94109. All communications will be...

  • Page 100
    ... price of these stock-settled stock appreciation rights is equal to the closing price of the Company's common stock on the trading day prior to the grant date. (2) Awarded on the date of the Annual Meeting so long as the non-employee director has been serving on the Board for at least three months...

  • Page 101
    ...which is included in our Annual Report on Form 10-K for the fiscal year ended January 28, 2007. (2) Fiscal 2006 expense associated with (i) an option award of 12,500 shares of common stock made on May 23, 2006 at an exercise price of $39.80 per share, with a fair value as of the grant date of $13.64...

  • Page 102
    ...Chief Executive Officer, 1979 - 2001 • Executive Vice President, Chief Marketing Officer since 2000 • Executive Vice President, General Manager, Catalog, 1995 - 2000 Patrick J. Connolly ...Age 60 Independent Directors: Nominee 1983 Director Since Position with the Company and Recent Business...

  • Page 103
    ... Since Proxy Director Emeritus Position with the Company and Business Experience Charles E. Williams ...Age 91 2003 • Director, 1973 - 2003 • Vice Chairman, 1986 - 2003 • Founder • Director, 1979 - 2003 • Chief Executive Officer of McMahan Furniture Stores (furniture), 1947 - 1999...

  • Page 104
    ... and Corporate Governance Committee Report" and "Shareholder Proposals" sections of this Proxy Statement. Are there any disclosures relating to Compensation Committee interlocks and insider participation? During fiscal 2006, none of our executive officers served as a member of the board of directors...

  • Page 105
    ... 401(k) plan; • Review of our quarterly consolidated financial statements; • Review of our internal control over financial reporting; and • Audit services related to periodic filings made with the SEC. Proxy In fiscal 2006, Deloitte also performed certain audit-related and tax services, and...

  • Page 106
    ... 2006 Executive Vice President, Pottery Barn, 2000 - 2002 Senior Vice President, Pottery Barn Catalog and Pottery Barn Kids Retail, 1999 - 2000 Patrick J. Connolly ...Age 60 David M. DeMattei ...Age 50 * • Group President, Williams-Sonoma, Williams-Sonoma Home, West Elm since 2006 • President...

  • Page 107
    ... named executive officers. Summary Compensation Table for Fiscal 2006 Change in Pension Value and Non-Stock Nonqualified Incentive Plan Deferred All Other Compensation Compensation Compensation ($) Earnings ($)(3) Name and Principal Position Year Salary ($) Bonus ($) Stock Awards ($)(1) Option...

  • Page 108
    .... The value of personal aircraft usage reported above for fiscal 2006 is the aggregate incremental cost to the company (including fuel, maintenance and certain fees and expenses) as determined and published from time to time by Conklin & de Decker Associates, Inc. for each particular aircraft type...

  • Page 109
    ... to three times the executive's base salary as of January 30, 2006. No payments related to fiscal 2006 were made to named executive officers pursuant to the 2001 Incentive Bonus Plan. (3) Grants of stock-settled stock appreciation rights. Proxy (4) Generally, the full grant date fair value is the...

  • Page 110
    ... Equity Awards at Fiscal Year-End The following tables set forth information regarding equity awards held by our named executive officers at January 28, 2007: Option Awards(1) Equity Incentive Plan Number of Securities Number of Securities Awards: Number of Underlying Underlying Securities...

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    ..., 9/12/2010 and 9/12/2011. Stock options vest at the rate of 20% of the total number of shares subject to the option per year, with vesting dates of 5/27/2007, 5/27/2008, 5/27/2009 and 5/27/2010. Stock options vest at the rate of 20% of the total number of shares subject to the option per year, with...

  • Page 112
    ... a stock price of $34.24, the closing price of our common stock on January 26, 2007. Option Exercises and Stock Vested The following table sets forth information regarding exercises and vesting of equity awards held by our named executive officers during fiscal 2006: Option Awards Number of Shares...

  • Page 113
    ...000. (2) Payment of 13 weeks of salary. Proxy (3) Acceleration of vesting of 150,000 restricted stock units. Value is based on a stock price of $34.24, the closing price of our common stock on January 26, 2007. (4) Based on a monthly health insurance premium of $1,244 to be paid by the company for...

  • Page 114
    ... Payment of 13 weeks of salary. (3) Maximum bonus payable under the 2001 Incentive Bonus Plan for fiscal 2006. See "Grants of Plan Based Awards" table on page 15. (4) Acceleration of vesting of 150,000 restricted stock units. Value is based on a stock price of $34.24, the closing price of our common...

  • Page 115
    ...executive officers is listed in the Summary Compensation Table appearing in this Proxy Statement; • Review, make recommendations to the Board regarding, and approve, as appropriate, general compensation goals and guidelines for the company's employees; • Review, make recommendations to the Board...

  • Page 116
    ... support the company's objective of creating value for its shareholders. Accordingly, we believe that executive officers and other key employees should have a significant stake in the company's stock performance and that compensation programs should link executive compensation to shareholder value...

  • Page 117
    ... our executive team to work toward long-term sustained growth and success from the perspective of owners in the company and to reward executives and other key employees for maximizing long-term shareholder value. Our named executive officers also receive certain retirement and other benefits, as...

  • Page 118
    ... 2006. We believe that executive officers' base salaries must be sufficiently competitive to attract and retain key executives. Accordingly, base pay and annual increases are determined through an analysis of each individual's salary and total target compensation relative to salaries for similar...

  • Page 119
    ... equity compensation awards are important for motivating executive officers and other employees to increase shareholder value over the long term. Prior to fiscal 2006, we granted stock options to our executive officers. During fiscal 2006, we decided to begin granting SSARs since they are accounted...

  • Page 120
    ... has ended. As with all awards, the exercise price of these awards is the closing price of the company's common stock on the trading day prior to the grant date. In general, equity awards to executives are made during our March meeting in which we review company performance over the past fiscal year...

  • Page 121
    ... have a stock ownership policy for our executive officers, but all of our named executive officers own shares of the company's common stock or vested, but unexercised, equity awards. Does the company have a policy regarding recovery of past awards or payments in the event of a financial restatement...

  • Page 122
    ... the total potential cost of the severance benefits to our executive officers and determined them to be reasonable and not excessive. Have we changed our equity compensation practices in light of the new equity compensation accounting rules? Commencing with our 2006 fiscal year, the company is...

  • Page 123
    ...occasionally makes personal use of the company aircraft. The value of all of these benefits to each of the named executive officers is detailed in the "Other Annual Compensation from Summary Compensation Table" on page 14. How does the Compensation Committee address Internal Revenue Code Section 162...

  • Page 124
    ... for election to the Board shall direct the recommendation in writing to Williams-Sonoma, Inc., Attention: Secretary, 3250 Van Ness Avenue, San Francisco, California 94109. The recommendation must include: (i) the candidate's name, home and business contact information; (ii) detailed biographical...

  • Page 125
    ... Board; • Considered and recommended to the Board the submission to shareholders of the director nominees described in this Proxy Statement; and • Reviewed and evaluated the performance of the company's Chief Executive Officer. Who prepared this report? Members of the Nominations and Corporate...

  • Page 126
    ... • Review the financial impact on the company of selected strategic initiatives and selected financing plans and develop and recommend policies related to dividend and stock repurchase programs. How did we perform our responsibilities in fiscal 2006? The Audit and Finance Committee held a total of...

  • Page 127
    ... in our Annual Report on Form 10-K and to review our condensed, consolidated financial statements included in our quarterly reports on Form 10-Q. Fees for audit services billed also consisted of fees for the attestation of management's assessment of internal control as required by Section 404 of...

  • Page 128
    ... our Chief Executive Officer, Chief Financial Officer, Controller or persons performing similar functions by posting such information on our website at www.williams-sonomainc.com. CERTIFICATIONS The certification of our Chief Executive Officer required by the NYSE Listing Standards, Section 303A.12...

  • Page 129
    ... our directors, executive officers and holders of more than 10% of our common stock to file reports regarding their ownership and changes in ownership of our stock with the SEC. We believe that during fiscal 2006, our directors, officers and more than 10% shareholders complied with all Section 16...

  • Page 130
    ... of each shareholder noted in the following table is c/o Williams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California 94109. Information regarding our non-management 5% holders is derived from the most recently available 13G filings. The options to purchase our stock listed below are...

  • Page 131
    ... closing price of Williams-Sonoma, Inc. common stock on March 19, 2007. (11) Includes 4,400 shares owned by Mr. Robertson's wife. (12) The directors and officers as a group own $1,381,605 in the Williams-Sonoma, Inc. Stock Fund under our 401(k) plan, as of March 19, 2007. The number of shares listed...

  • Page 132
    ... option will be exchanged for a payment in cash or shares equal to the excess of the fair market value of our common stock over the exercise price. No future awards will be granted from the 2000 Nonqualified Stock Option Plan or the 1993 Stock Option Plan. SHAREHOLDER PROPOSALS How can shareholders...

  • Page 133
    ... timely, but only with respect to nominees for any new positions created by such increase, if it is delivered no later than the close of business on the 10th day following the day on which we first make such public announcement. Does a shareholder proposal require specific information? With...

  • Page 134
    ... of future performance. Comparison of Five-Year Cumulative Total Returns of Williams-Sonoma, Inc. CRSP* Index for the NYSE (U.S. Companies) and CRSP Index for NASDAQ Retail Trade Stocks $400 $300 $200 165.8 154.6 153.5 $100 $0 02/01/2002 01/31/2003 01/30/2004 01/28/2005 01/27/2006 01/26...

  • Page 135
    ... 2006 as filed with the SEC, is available at our website at www.williams-sonomainc.com and upon written request and without charge to any shareholder by writing to: Annual Report Administrator, Williams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California 94109. San Francisco, California...

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    ... the long-term incentive component of the Chief Executive Officer's compensation, the Compensation Committee shall consider such factors as the Company's performance and relative shareholder return, the value of similar incentive awards given to Chief Executive Officers of comparable companies, and...

  • Page 138
    ... review and make recommendations to the Board of Directors with respect to changes in the number of shares reserved for issuance under those Plans. • Preparing a compensation committee report on executive compensation as required by the SEC to be included in the Company's annual proxy statement...

  • Page 139
    ...for their service as committee members as may be determined by the Board of Directors in its sole discretion. Fees may be paid in such form of consideration as is determined by the Board of Directors. DELEGATION OF AUTHORITY The Compensation Committee may form and delegate authority to subcommittees...

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  • Page 141
    ... with the Committee's Shareholder Recommendations Policy. • Annually evaluate the performance of the Company's Chief Executive Officer, annually oversee evaluation of the performance of the Board and the Company's management and provide a report with respect to this performance to the members of...

  • Page 142
    MEETINGS The Nominations and Corporate Governance Committee will set its own schedule and will meet periodically, but not less frequently than at least one (1) time each year. The members of the Committee may invite the Chief Executive Officer or any other person to attend meetings as appropriate ...

  • Page 143
    ... report that the Securities and Exchange Commission (the "SEC") rules require to be included in the Company's annual proxy statement; and • Oversee the financial impact of selected strategic initiatives of the Company and review selected financing, dividend and stock repurchase policies and plans...

  • Page 144
    ... direct, and make such investigations and reviews of the Company and its operations as the Chief Executive Officer or the Board may from time to time request. The Committee shall: Financial Statement and Disclosure Matters • Review and discuss with management and the independent auditor the annual...

  • Page 145
    ...to requested information, and any significant disagreements with management. • Review disclosures made to the Committee by the Company's CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls...

  • Page 146
    ... executive and the Company's Chief Financial Officer at least once each year the sufficiency of company systems to support effective internal controls and any recommended changes in the information technology department's priorities and projects planned for improving such systems. • Review reports...

  • Page 147
    ... frequently than four times per year. • The Committee shall meet at least annually with management, the internal auditors, and the independent auditors in separate executive sessions. The Committee may request any officer or employee of the Company or the Company's outside counsel or independent...

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  • Page 151
    ... Trademarks Pottery Barn, pottery barn kids, PBteen, west elm, Williams-Sonoma and Williams-Sonoma Home are trademarks of Williams-Sonoma, Inc. Stock Exchange Listing New York Stock Exchange Symbol: WSM Corporate Website www.williams-sonomainc.com Shareholder/Investor Information www.williams...

  • Page 152
    Cert no. SCS-COC-00648