Pottery Barn 2007 Annual Report Download

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ANNUAL REPORT
2007
June 11, 2008

Table of contents

  • Page 1
    2 0 0 7 ANNUAL REPORT June 11, 2008

  • Page 2

  • Page 3
    Shareholders' Letter LETTER TO SHAREHOLDERS WILLIAMS-SONOMA, INC. 2007 ANNUAL REPORT

  • Page 4
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  • Page 5
    ...-customer contact strategies. We also expanded the reach of the West Elm brand, which increased its retail leased square footage by 28.3% and ended the year with 27 stores, and improved the operating performance of Williams-Sonoma Home. Supply Chain Advancements In our supply chain, we successfully...

  • Page 6
    ... 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 February 3, 2008, which is part of this Annual Report to Shareholders...

  • Page 7
    Form 10-K FORM 10-K WILLIAMS-SONOMA, INC. 2007 ANNUAL REPORT

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  • Page 9
    ... Form 10-K 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...

  • Page 10
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  • Page 11
    ..., strategies, initiatives and objectives of management for future operations; statements related to our plans to increase retail leased square footage, including the opening of new retail stores and expansion or remodeling of additional stores; statements related to improving the furniture delivery...

  • Page 12
    ... Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information Item 5. PART III Directors, Executive Officers and Corporate Governance Executive Compensation...

  • Page 13
    ..., and Pottery Barn Kids gift registry. Additionally, in 2001, we opened five new retail stores (two Williams-Sonoma, two Pottery Barn and one Pottery Barn Kids) in Toronto, Canada, our first stores operated by us outside of the U.S. In 2002, we launched our West Elm catalog. The brand targets design...

  • Page 14
    ...Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home). As of February 3, 2008, we operated 600 retail stores, located in 44 states, Washington, D.C. and Canada. This represents 256 Williams-Sonoma, 198 Pottery Barn, 94 Pottery Barn Kids, 27 West Elm, 9 Williams-Sonoma Home and 16 Outlet stores...

  • Page 15
    ... 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 16
    ... commensurate with customer demand. Much of our inventory is sourced from vendors located outside the United States. Thus, we usually must order merchandise, and enter into contracts for the purchase and manufacture of such merchandise, up to twelve months in advance of the applicable selling season...

  • Page 17
    ... websites that market lines of merchandise similar to ours. We compete with national, regional and local businesses utilizing a similar retail store strategy, as well as traditional furniture stores, department stores and specialty stores. The substantial sales growth in the direct-to-customer...

  • Page 18
    ... our business and operating results. 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...

  • Page 19
    ... that the information sources cannot predict future consumer preferences and buying trends with complete accuracy. In addition, changes in demographics, in the types of merchandise that we sell and in the pricing of our products may reduce the number of suitable store locations. Further, time frames...

  • Page 20
    ... store sales expectations of investors and securities analysts in one or more future periods could significantly reduce 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...

  • Page 21
    ... returns that exceeds our reserves could harm our business and operating results. Form 10-K We must successfully manage the complexities associated with a multi-channel and multi-brand business. During the past few years, with the launch and expansion of our Internet business, new brands and brand...

  • Page 22
    ...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 existing brands. From time to time, we...

  • Page 23
    ... in our business as well as increased costs. For example, we have engaged IBM to host and manage certain aspects of our data center information technology infrastructure. Accordingly, we are subject to the risks associated with IBM's ability to provide information technology services to meet...

  • Page 24
    ... cash to finance growth opportunities, new product development initiatives and unanticipated capital expenditures or to fund our operations. Our Board of Directors may, at its discretion, decrease the intended level of dividends or entirely discontinue the payment of dividends at any time. The stock...

  • Page 25
    ...website or through our customer care centers. In order for our direct-to-customer channel to function and develop successfully, we and other parties involved in processing customer transactions must be able to transmit confidential information, including credit card information, securely over public...

  • Page 26
    ...City of Industry, California. As of February 3, 2008, we were occupying 950,000 square feet of this new facility. In addition to the above long-term contracts, we enter into other agreements for such things as our offsite storage needs both for our distribution centers and our retail store locations...

  • Page 27
    Corporate Facilities We also lease office, design studio, photo studio, warehouse and data center space in the following locations: Location Brisbane, California San Francisco, California New York City, New York Rocklin, California Square Footage (Approximate) 194,000 square feet 173,000 square feet...

  • Page 28
    ... ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol WSM. The following table sets forth the high and low closing prices of our common stock on the NYSE for the periods indicated: Fiscal 2007 (53 Weeks) 1st...

  • Page 29
    ..., 2007 - February 3, 2008 Total Total Number of Shares Purchased 1,025,006 491,700 279,389 1,796,095 Average Price Paid Per Share $27.31 27.85 21.27 $26.52 In January 2008, our Board of Directors authorized the repurchase of up to an additional $150,000,000 of our common stock through open market...

  • Page 30
    ...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 31
    ...increase in store leased square footage of 5.3% (including 12 net new stores), the impact of the extra week of net revenues in fiscal 2007, a 53-week year, and comparable store sales growth of 0.3%. Net revenues generated in the West Elm, Pottery Barn, Williams-Sonoma and Williams-Sonoma Home brands...

  • Page 32
    ... our operating costs. In information technology, we continued the rollout of our new retail inventory management system in the Pottery Barn, West Elm, and Williams-Sonoma Home brands. This system will allow us to optimize the flow of inventory and improve our in-stock position in our retail stores...

  • Page 33
    ...or relocation. 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...

  • Page 34
    ...9 stores during fiscal 2007. Net revenues generated in the West Elm, Pottery Barn, Williams-Sonoma and Williams-Sonoma Home brands were the primary contributors to this year-over-year revenue increase. Retail revenues in fiscal 2006 increased by $121,071,000, or 6.0%, over fiscal 2005. This increase...

  • Page 35
    ...in the PBteen, West Elm, Pottery Barn and Williams-Sonoma brands due to the impact of the extra week of net revenues in fiscal 2007, a 53-week year, an overall increase in catalog and page circulation of 3.7% and 7.9%, respectively, and continued strength in our Internet business, which continued to...

  • Page 36
    ... expenses, and typically operates with lower markdowns and inventory shrinkage than the retail channel. However, the direct-to-customer channel incurs higher customer shipping, damage and replacement costs than the retail channel. Fiscal 2007 vs. Fiscal 2006 Cost of goods sold increased by $168,737...

  • Page 37
    ...non-occupancy related costs associated with our retail stores, distribution warehouses, customer care centers, supply chain operations (buying, receiving and inspection), and corporate administrative functions. These costs include employment, advertising, third party credit card processing and other...

  • Page 38
    ...market Williams-Sonoma Home stores), partially offset by a change in estimate for recording income associated with unredeemed gift certificates, the settlement of the Visa/ MasterCard litigation and the elimination of expenses associated with the Hold Everything brand. In the retail channel, selling...

  • Page 39
    ... 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 40
    ... "Off Balance Sheet Arrangements" section and Note E to our Consolidated Financial Statements. 3Projected payments include only those amounts that are fixed and determinable as of the reporting date. 4Represents estimated commitments at year-end to purchase inventory and other goods and services in...

  • Page 41
    ... scheduled maturities. The timing of these payments cannot be determined, except for amounts estimated to be payable in fiscal 2008 which are included in our current liabilities as of February 3, 2008. Commercial Commitments The following table provides summary information concerning our outstanding...

  • Page 42
    ...lease a 500,000 square foot distribution facility located in Memphis, Tennessee. The lease has an initial term of four years, with one optional three-year and nine-month renewal. We made annual rental payments of approximately $1,059,000, $1,025,000 and $913,000, plus applicable taxes, insurance and...

  • Page 43
    ...-year agreement to lease 1,180,000 square feet of storage facility space in City of Industry, California. As of February 3, 2008, we were occupying 950,000 square feet of this new facility. During fiscal 2007, we made total rental payments of approximately $1,672,000 plus applicable taxes, insurance...

  • Page 44
    ... initiatives in our stores, off-site storage locations, and our third party transportation providers. Advertising and Prepaid Catalog Expenses Advertising expenses consist of media and production costs related to catalog mailings, e-commerce advertising and other direct marketing activities. All...

  • Page 45
    ...of sale in the store and for home-delivered merchandise and direct-to-customer sales when the merchandise is delivered to the customers. Discounts provided to customers are accounted for as a reduction of sales. We record a reserve for estimated product returns in each reporting period. Shipping and...

  • Page 46
    ... the expected service period. Total stock-based compensation expense was $26,812,000, $26,759,000 and $440,000, in fiscal 2007, fiscal 2006 and fiscal 2005, respectively, and is recorded as a component of selling, general and administrative expenses. Income Taxes Income taxes are accounted for using...

  • Page 47
    ... fair value option has been elected in earnings at each subsequent reporting date. This Statement is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash...

  • Page 48
    ... increased costs may have on our financial statements or results of operations. In addition, as of February 3, 2008, we have 15 retail stores in Canada and limited operations in both Europe and Asia, each of which expose us to market risk associated with foreign currency exchange rate fluctuations...

  • Page 49
    ... 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 Interest...

  • Page 50
    ... Balance Sheets Feb. 3, 2008 (53 Weeks) Jan. 28, 2007 (52 Weeks) Dollars and shares in thousands, except per share amounts ASSETS Current assets Cash and cash equivalents Accounts receivable Merchandise inventories - net Prepaid catalog expenses Prepaid expenses Deferred income taxes Other...

  • Page 51
    Williams-Sonoma, Inc. Consolidated Statements of Shareholders' Equity Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Total Shareholders' Equity Dollars and shares in thousands Balance at January 30, 2005 (52 Weeks) Net earnings Foreign currency translation adjustment...

  • Page 52
    ...365 5,945 (6,141) 15,950 Accrued salaries, benefits and other current and long term liabilities1 Customer deposits 13,458 14,958 24,066 Deferred rent and lease incentives 37,675 49,079 27,661 Income taxes payable (9,175) 18,115 11,409 Net cash provided by operating activities 245,539 309,114 348,373...

  • Page 53
    ... five retail store concepts (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home). The direct-to-customer segment of our business sells similar products through our seven direct-mail catalogs (WilliamsSonoma, Pottery Barn, Pottery Barn Kids, Pottery Barn Bed and Bath...

  • Page 54
    ... term (typically 5 to 22 years) is based upon our experience, historical operations of the stores and estimates of future store profitability and economic conditions. The future estimates of store profitability and economic conditions require estimating such factors as sales growth, employment rates...

  • Page 55
    ... assets include fees associated with the acquisition of our credit facility and are recorded at cost in other assets and amortized over the life of the facility. Self-Insured Liabilities We are primarily self-insured for workers' compensation, employee health benefits and product and general...

  • Page 56
    ... stores, distribution warehouses, customer care centers, supply chain operations (buying, receiving and inspection), and corporate administrative functions. These costs include employment, advertising, third party credit card processing and other general expenses. Stock-Based Compensation We account...

  • Page 57
    ... 2006 for option awards with an exercise price equal to the fair value of our common stock on the date of grant. Financial Instruments As of February 3, 2008, we have 15 retail stores in Canada and limited operations in both Europe and Asia, each of which expose us to market risk associated with...

  • Page 58
    ... fair value option has been elected in earnings at each subsequent reporting date. This Statement is effective for fiscal years beginning after November 15, 2007. We do not expect the adoption of SFAS 159 to have a material impact on our consolidated financial position, results of operations or cash...

  • Page 59
    ...,075 Jan. 28, 2007 (52 Weeks) $ 720,927 479,012 181,829 132,464 83,650 48,670 16,799 1,663,351 (750,769) $ 912,582 Corporate systems projects in progress is primarily comprised of a new merchandising, inventory management and order management system currently under development. 2 Construction in...

  • Page 60
    ... whereby the Mississippi Business Finance Corporation issued $15,000,000 in long-term variable rate industrial development bonds, the proceeds, net of debt issuance costs, of which were loaned to us to finance the acquisition and installation of leasehold improvements and equipment located in our...

  • Page 61
    ...fiscal 2007, fiscal 2006 and fiscal 2005, respectively. Form 10-K Note D: Income Taxes The components of earnings before income taxes, by tax jurisdiction, are as follows: Fiscal Year Ended Dollars in thousands United States Foreign Total earnings before income taxes The provision for income taxes...

  • Page 62
    ...incentives Executive deferral plan State taxes Other Total non-current Total deferred tax assets, net 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...

  • Page 63
    ... made annual rental payments in fiscal 2007, fiscal 2006 and fiscal 2005 of approximately $618,000, plus interest on the bonds calculated at a variable rate determined monthly (approximately 3.4% on February 3, 2008), applicable taxes, insurance and maintenance expenses. Although the current term of...

  • Page 64
    ...,000,000 of our common stock through open market and privately negotiated transactions, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements, capital...

  • Page 65
    ... fiscal 2005: Fiscal Year Ended Jan. 29, 2006 Dollars in thousands, except per share amounts (52 Weeks) Net earnings, as reported $214,866 Add: stock-based employee compensation expense included in reported net earnings, net of related tax effect 273 Less: total stock-based employee compensation...

  • Page 66
    ... grant date fair value. • • Stock Options The following table summarizes our stock option activity during fiscal 2007, fiscal 2006 and fiscal 2005: Weighted Average Weighted Contractual Term Average Remaining Shares Exercise Price (Years) Intrinsic Value1 Balance at January 30, 2005 (52 Weeks...

  • Page 67
    ... business day of the fiscal year (or $27.52), for those stock-settled stock appreciation rights where the market value is greater than the conversion price. For conversions, intrinsic value is defined as the difference between the grant price and the market value on the date of the conversion. Form...

  • Page 68
    ... over our expected term of the option award. Fiscal Year Ended Feb. 3, 2008 (53 Weeks) 5.0 33.6% 4.4% 1% Jan. 28, 2007 Jan. 29, 2006 (52 Weeks) (52 Weeks) 5.0 6.5 33.7% 59.2% 4.7% 4.3% 1% - • • • The weighted average assumptions for fiscal 2007, fiscal 2006 and fiscal 2005 are as follows...

  • Page 69
    ... retirement plan, the "Williams-Sonoma, Inc. 401(k) Plan" (the "Plan"), 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 70
    ... Reporting We have two reportable segments, retail and direct-to-customer. The retail segment has five merchandising concepts, which sell products for the home (Williams-Sonoma, Pottery Barn, Pottery Barn Kids, West Elm and Williams-Sonoma Home). The five retail merchandising concepts are operating...

  • Page 71
    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-sonoma.com, potterybarn.com, potterybarnkids.com, pbteen.com, westelm.com and wshome....

  • Page 72
    ... internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide...

  • Page 73
    ... financial statements referred to above present fairly, in all material respects, the financial position of Williams-Sonoma, Inc. and subsidiaries as of February 3, 2008 and January 28, 2007, and the results of their operations and their cash flows for each of the three years in the period ended...

  • Page 74
    ... Financial Information (Unaudited) Dollars in thousands, except per share amounts Fiscal 2007 (53 Weeks) Net revenues Gross margin Earnings before income taxes Net earnings Basic earnings per share1 Diluted earnings per share1 Stock price (as of quarter-end)2 Fiscal 2006 (52 Weeks) Net revenues...

  • Page 75
    ... public accounting firm audited the financial statements included in this Annual Report on Form 10-K and has audited the company's internal control over financial reporting. Their report appears on pages 62 through 63 of this Annual Report on Form 10-K. Form 10-K ITEM 9B. OTHER INFORMATION...

  • Page 76
    ... to information under the headings "Election of Directors," "Information Concerning Executive Officers," "Compensation Discussion and Analysis," and "Committee Reports-Compensation Committee Report" in our Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND...

  • Page 77
    ... 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 February 3, 2008, January 28, 2007 and January 29, 2006 Consolidated Balance Sheets...

  • Page 78
    ... on its behalf by the undersigned, thereunto duly authorized. WILLIAMS-SONOMA, INC. Date: April 3, 2008 By /s/ W. HOWARD LESTER Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 79
    ... to Exhibit 3.1 to the Company's Current Report on Form 8-K as filed with the Commission on May 22, 2007, File No. 001-14077) 3.2 3.3 Form 10-K 3.4 3.5 FINANCING AGREEMENTS 10.1 Fourth Amended and Restated Credit Agreement, dated October 4, 2006, between the Company and Bank of America...

  • Page 80
    ...-14077) Fourth Amendment, dated as of September 8, 2007, to the Reimbursement Agreement between the Company and The Bank of New York, dated as of July 1, 2005 (incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the period ended October 28, 2007 as filed with...

  • Page 81
    ...14077) Third Amendment, dated as of September 8, 2007, to the Reimbursement Agreement between the Company and Wells Fargo Bank, N.A., dated as of July 1, 2005 (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q for the period ended October 28, 2007 as filed with...

  • Page 82
    ... Stock Unit Award Agreement for 2006 Employee Grants Form of Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Restricted Stock Unit Award Term Sheet for Director Grants (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended July 29, 2007...

  • Page 83
    ... 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 10.16 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2001 as filed with the...

  • Page 84
    ...facility located in Olive Branch, Mississippi between Williams-Sonoma Retail Services, Inc. as lessee and SPI WS II, LLC (the successor-in-interest to 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...

  • Page 85
    ...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) 10.52+ OTHER AGREEMENTS 10.53# Aircraft Purchase Agreement, dated April 30, 2003, between the Company as buyer and Bombardier Inc...

  • Page 86
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  • Page 87
    Notice of 2008 Annual Meeting of Shareholders PROXY STATEMENT Proxy WILLIAMS-SONOMA, INC. 2007 ANNUAL REPORT

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  • Page 89
    ... Avenue San Francisco, California 94109 www.williams-sonomainc.com NOTICE OF 2008 ANNUAL MEETING OF SHAREHOLDERS MEETING DATE: TIME: PLACE: June 11, 2008 9:00 a.m. Pacific Time Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, California 94109 1) 2) The election of our Board of Directors...

  • Page 90
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  • Page 91
    ... corporate headquarters located at 3250 Van Ness Avenue, San Francisco, California 94109. Our Annual Report to Shareholders for the fiscal year ended February 3, 2008, or fiscal 2007, including our financial statements for fiscal 2007, is also enclosed. These proxy materials are first being mailed...

  • Page 92
    ... Meeting. What is a broker non-vote? The term broker non-vote refers to shares that are held of record by a broker for the benefit of the broker's clients but that are not voted at the Annual Meeting on certain non-routine matters set forth in New York Stock Exchange, or NYSE, Rule 402.08(b) because...

  • Page 93
    ... 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 94
    ... 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 95
    ... interested parties may send written communications to the Board or to any of the directors, including non-management directors, at the following address: Secretary, Williams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California 94109. All communications will be compiled by our Secretary...

  • Page 96
    ...employee directors as compensation for their service on our Board or Board committees. The number of restricted stock units granted will be determined by dividing the total monetary value of each award, as identified in the following table, by the closing price of our common stock on the trading day...

  • Page 97
    ... forfeiture assumptions. The fair market value is based on the closing price of our stock on the day prior to the grant date multiplied by the number of awards issued. Based on the compensation cost recognized in fiscal 2007 for financial statement reporting purposes as determined pursuant to...

  • Page 98
    ... of $4,441. Includes dividend equivalent payments made with respect to an outstanding restricted stock unit award of $483. Fiscal 2007 expense associated with a restricted stock unit award of 2,100 shares of common stock made on May 16, 2007 with a fair value as of the grant date of $34.13 per share...

  • Page 99
    ... Officer since 2000 • Executive Vice President, General Manager, Catalog, 1995 - 2000 1983 Director Since Position with the Company and Recent Business Experience Proxy Adrian D.P. Bellamy ...Age 66 1997 • Chairman of the Compensation Committee and member of the Nominations and Corporate...

  • Page 100
    ...Director Emeritus Since Position with the Company and Business Experience Charles E. Williams ...Age 92 James A. McMahan ...Age 85 2003 • Director, 1973 - 2003 • Vice Chairman, 1986 - 2003 • Founder • Director, 1979 - 2003 • Chief Executive Officer of McMahan Furniture Stores (furniture...

  • Page 101
    ... 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 2007, none of our executive officers served as a member of the board of directors...

  • Page 102
    ... of corporate governance, we are requesting that our shareholders ratify such selection. What relationship does Deloitte currently have with us? Deloitte has audited our financial statements for the last twenty-eight years. Based in part upon information provided by Deloitte, the Audit and Finance...

  • Page 103
    ...an exercise price above the per-share 52-week high of our common stock (measured as of the start date of the exchange program) for a lesser number of restricted stock units to be granted under our 2001 Long-Term Incentive Plan. Our intent in using the 52-week high threshold of our common stock is to...

  • Page 104
    ... eligible to participate in the exchange program? The members of our Board of Directors and our named executive officers as of the start of the exchange program will not be eligible to participate in the exchange program. In addition, employees based outside of the United States will not be eligible...

  • Page 105
    ... on the company's financial position and cash flow from operations. We also believe that in order to have the desired impact on employee motivation and retention, our employee options and SSARs should be exercisable near the current price of our common stock. The failure to address the underwater...

  • Page 106
    ... the members of our Board of Directors and our named executive officers) is approximately $65 million. Since the exchange program is structured to replace underwater awards with restricted stock units of similar or lesser value, the company will recognize no additional compensation expense. The only...

  • Page 107
    ...the date of the Annual Meeting the exact number of eligible awards. For example, if we were to start the exchange program on December 10, 2008, then the per-share 52-week high price of our common stock would be $30.51, and based on the number of options and SSARs currently held by eligible employees...

  • Page 108
    ..., only options and SSARs with an exercise price above $30.51 per share and that were granted at least 20 months prior to the anticipated end of the exchange program would be eligible for the exchange program. If, at the time we set the exchange ratios, the fair market value of our common stock was...

  • Page 109
    ... of the replacement restricted stock unit grant date and the remaining 50% vest one year later, subject to the participant remaining employed with us through the respective vesting date. What terms and conditions will apply to the restricted stock units? Restricted stock units issued in the exchange...

  • Page 110
    ..., company policy decisions that make it appropriate to change the exchange program and the like. For instance, although we will not in any circumstances permit the members of our Board of Directors or our named executive officers to participate or allow options priced below the applicable 52-week...

  • Page 111
    ... restricted stock units may be issued. As indicated above, the members of our Board of Directors and our named executive officers as of the start of the exchange program are not eligible to participate in the exchange program. What is the impact of the exchange program on the company's shareholders...

  • Page 112
    ... of our Board, subject to rights, if any, under employment contracts. Name Position with the Company and Business Experience W. Howard Lester ...Age 72 Laura J. Alber ...Age 39 Group President, Williams-Sonoma, Williams-Sonoma Home and West Elm since 2006 • President, Emerging Brands, 2003...

  • Page 113
    ... forfeiture assumptions. The fair market value is based on the closing price of our stock on the day prior to the grant date multiplied by the number of awards issued. Based on the compensation cost recognized in fiscal 2007 for financial statement reporting purposes as determined pursuant to...

  • Page 114
    ...fiscal 2007, represents the maximum executive medical supplement payable by the company. For fiscal 2006, represents the actual amount paid for executive medical supplement. Represents the value of parking provided by the company, based on current estimated market rates. Dividend equivalent payments...

  • Page 115
    ... Compensation Table. (2) Maximum potential payment pursuant to our 2001 Incentive Bonus Plan is equal to three times the executive's base salary as of January 29, 2007, the first day of fiscal 2007. Proxy (3) Grants of stock-settled stock appreciation rights. (4) Generally, the full grant date...

  • Page 116
    ... Equity Awards at Fiscal Year-End The following tables set forth information regarding equity awards held by our named executive officers at February 3, 2008: Option Awards(1) Equity Incentive Plan Number of Securities Number of Securities Awards: Number of Underlying Underlying Securities...

  • Page 117
    ..., 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 remaining vesting dates of 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 118
    ... in full upon the executive officers' termination due to their death, disability or retirement after attaining age 55 and working with us for at least 10 years. (3) Based on a stock price of $27.52, the closing price of our common stock on February 1, 2008, the last business day of fiscal 2007. 28

  • Page 119
    ...the plan may provide a death benefit funded by a life insurance policy, in addition to payment of the participant's account. Employment Contracts and Termination of Employment and Change-of-Control Arrangements Laura J. Alber We entered into an employment agreement with Laura J. Alber, currently our...

  • Page 120
    ... restricted stock units. Value is based on a stock price of $27.52, the closing price of our common stock on February 1, 2008, the last business day of fiscal 2007. (4) Based on a monthly health insurance premium of $1,301 to be paid by the company for 18 months, which is the period provided under...

  • Page 121
    ...,000 restricted stock units. Value is based on a stock price of $27.52, the closing price of our common stock on February 1, 2008, the last business day of fiscal 2007. (5) Based on a monthly health insurance premium of $465 to be paid by the company for 18 months, which is the period provided under...

  • Page 122
    .... Each of the named executive officers during fiscal 2007 is listed in the Summary Compensation Table appearing in this Proxy Statement; • Reviews, makes recommendations to the Board regarding, and approves, as appropriate, general compensation goals and guidelines for the company's employees; 32

  • Page 123
    ...Committee's regularly scheduled meetings. What is management's role in the compensation-setting process? Although the Compensation Committee does not delegate any of its authority with respect to executive officers and non-employee directors of the company, management does play a significant role in...

  • Page 124
    ... related to named executive officers and director compensation. Frederic W. Cook also provides certain services to management, primarily related to providing market data and advice regarding general compensation trends in the retail industry and among similarly situated companies. Frederic W. Cook...

  • Page 125
    ... 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. The named executive officers also receive certain retirement and other benefits, as...

  • Page 126
    ... contributions to the company's success. In determining executive base salaries, the Compensation Committee also considers overall company performance. Mr. Miller was the only named executive officer to receive a base salary change in fiscal 2007. Mr. Miller's base salary was increased from $440,000...

  • Page 127
    ... named executive officers, including our Chief Executive Officer, in fiscal 2008 as in fiscal 2007. What are the criteria considered in awarding annual incentives? Under the 2001 Incentive Bonus Plan, key performance criteria for evaluating named executive officers, including business and financial...

  • Page 128
    ... to provide a long-term incentive to help the company achieve its financial and strategic objectives. Prior to fiscal 2007, the company also granted restricted stock units to certain of the named executive officers. Although no restricted stock units were granted to the named executive officers in...

  • Page 129
    ... following the effective date of grant, or May 2, 2012. The restricted stock units also contain a one-year performance metric, based upon our profitability, designed to focus these named executive officers on a shared business goal that guides our annual and long-term growth. This metric, because...

  • Page 130
    ... options or SSARs is always the closing price of the company's common stock on the trading day prior to the grant date. In general, equity awards to named executive officers are made during the Compensation Committee's March meeting in which the Compensation Committee reviews company performance...

  • Page 131
    ...and amount of such benefits are reasonable and necessary to provide additional incentives to attract or retain key executives. Do the executive officers have change of control arrangements? The named executive officers who received restricted stock unit grants in fiscal 2005, Ms. Alber, Ms. McCollam...

  • Page 132
    ... it by the Internal Revenue Service, publicly held companies may be precluded from deducting certain compensation paid to certain executive officers in excess of $1,000,000 in a year. The regulations exclude from this limit performance-based compensation, SSARs and stock options, provided certain...

  • Page 133
    ... with management. Based on our review and discussion with management, we have recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and in the company's Annual Report on Form 10-K for fiscal 2007. Nominations and Corporate Governance...

  • Page 134
    ... 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 135
    ... shareholders of the director nominees described in this Proxy Statement; • Reviewed and evaluated the performance of the company's Chief Executive Officer; and • Evaluated the effectiveness of Board meeting agendas and suggested topics to be covered at future meetings. Who prepared this report...

  • Page 136
    ...and review selected financing, dividend and stock repurchase policies and plans. How do we meet our responsibilities? We perform the following functions: • Monitor the integrity of the company's financial reports, earnings, sales and guidance press releases, and other company financial information...

  • Page 137
    ...included 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 assessment of the company's internal control over financial reporting as required by...

  • Page 138
    ...Corporate Code of Conduct, which applies to all of our employees, including our Chief Executive Officer, Chief Operating and Chief Financial Officer and Controller, are available on our website at www.williams-sonomainc.com. Each is also available in print to any shareholder who requests it. To date...

  • Page 139
    ... the Partnership 2 industrial development bonds. We made annual rental payments of approximately $2,591,000, $2,585,000 and $2,600,000 plus applicable taxes, insurance and maintenance expenses in fiscal 2007, fiscal 2006 and fiscal 2005, respectively. Although the current term of the lease expires...

  • Page 140
    ... options to purchase our stock listed below are currently exercisable or are exercisable within 60 days of March 31, 2008. Amount and Nature of Beneficial Ownership Percent of Shares Options Class(1) Name and Address of Beneficial Owner Position with Company FMR LLC ...82 Devonshire Street Boston...

  • Page 141
    ... Owner Position with Company Amount and Nature of Beneficial Ownership Shares Options Percent of Class(1) Adrian D.P. Bellamy ...Adrian T. Dillon ...Anthony A. Greener ...Ted W. Hall ...Michael R. Lynch ...Richard T. Robertson ...David B. Zenoff ...All current executive officers and directors...

  • Page 142
    ...24, the closing price of Williams-Sonoma, Inc. common stock on March 31, 2008. (12) Includes 4,400 shares owned by Mr. Robertson's wife. (13) The directors and officers as a group own $1,043,699 in the Williams-Sonoma, Inc. Stock Fund under our 401(k) plan, as of March 31, 2008. The number of shares...

  • Page 143
    ... 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 submit a proposal for inclusion in our Proxy Statement for the 2009 Annual Meeting...

  • Page 144
    ... the increased Board at least 55 days prior to the anniversary date of this year's Annual Meeting, or March 20, 2009, a notice shall also be considered 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...

  • Page 145
    ... 01/28/2005 01/27/2006 01/26/2007 02/01/2008 â...¢ Williams-Sonoma, Inc â˜... NYSE (U.S. Companies) NASDAQ Retail Trade Stocks Williams-Sonoma, Inc. NYSE Stock Market NASDAQ Retail Trade Notes: A. B. C. D. The lines represent monthly index levels derived from compounded daily returns that include...

  • Page 146
    ...the financial statements for fiscal 2007 as filed with the SEC, are 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...

  • Page 147
    ... other executive officers, and directors; (ii) administer the Company's incentive compensation and other equity-based plans (the "Plans") and make grants under them; (iii) oversee the Company's compensation policies, plans, and benefits programs generally, and (iv) in the case of the Williams-Sonoma...

  • Page 148
    ...any non-executive officer of the Company under such of the Plans as the Compensation Committee deems appropriate in accordance with the terms of such Plans. The Compensation Committee also shall review and make recommendations to the Board of Directors with respect to changes in the number of shares...

  • Page 149
    ...receive such fees, if any, 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...

  • Page 150
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  • Page 151
    ... 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 152
    ... of the Board. REPORTS The Committee will report to the Board on a periodic basis and make such recommendations with respect to any of the above matters as the Committee deems necessary or appropriate. COMPENSATION Members of the Committee shall receive such fees, if any, for their service as...

  • Page 153
    ... on November 1, 2007) PURPOSE The Audit and Finance Committee (the "Committee") is created by the Board of Directors (the "Board") of Williams-Sonoma, Inc. (the "Company") to: • Oversee the integrity of the financial statements of the Company; the qualifications, independence, performance and...

  • Page 154
    ... 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 155
    ... the planning and staffing of the audit. Oversight of the Company's Internal Audit Function Exhibits • Review the appointment and replacement of the senior internal auditing executive. • Review the significant reports to management prepared by the internal auditing department and management...

  • Page 156
    ... 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 to management...

  • Page 157
    ... 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...

  • Page 158
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  • Page 159
    ... 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 160
    Cert no. SCS-COC-00648