Pottery Barn 2008 Annual Report Download

Download and view the complete annual report

Please find the complete 2008 Pottery Barn annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 168

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168

ANNUAL REPORT
2008
May 22, 2009

Table of contents

  • Page 1
    2 0 0 8 ANNUAL REPORT May 22, 2009

  • Page 2

  • Page 3
    Shareholders Letter LETTER TO SHAREHOLDERS WILLIAMS-SONOMA, INC. 2008 ANNUAL REPORT

  • Page 4
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 5
    ... Williams-Sonoma Home - net revenues were relatively flat. Total retail leased square footage increased 7.1% - with the majority of the increase coming from 9 new stores in West Elm. In PBteen, our strongest performing brand, net revenues increased 3%. During the year, our focus was on the changing...

  • Page 6
    ... which are currently increasing site traffic and conversion. Infrastructure was also a key area of investment this year, as we replaced our company-wide point-of-sale hardware and rolled out electronic signature and pin debit functionality to our stores. The Year Ahead As we look forward to 2009, we...

  • Page 7
    ... 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 1, 2009, which is part of this Annual Report to Shareholders...

  • Page 8
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 9
    Form 10-K FORM 10-K WILLIAMS-SONOMA, INC. 2008 ANNUAL REPORT

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ...Ness Avenue, San Francisco, CA 94109 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 421-7900 Securities registered pursuant to Section 12(b) of the Act: Common Stock, $.01 par value New York Stock Exchange, Inc. (Title of class) (Name of...

  • Page 12
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 13
    ... value proposition, and making superior customer service our top priority; statements related to optimizing our marketing strategies, including continuing our catalog optimization strategy, shifting advertising dollars from catalog to e-commerce, and continuing to identify new opportunities to build...

  • Page 14
    .... PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services PART...

  • 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
    ...Barn Kids, West Elm and Williams-Sonoma Home). As of February 1, 2009, we operated 627 retail stores, located in 44 states, Washington, D.C., Canada and Puerto Rico. This represents 264 Williams-Sonoma, 204 Pottery Barn, 95 Pottery Barn Kids, 36 West Elm, 10 Williams-Sonoma Home and 18 Outlet stores...

  • Page 17
    ... brand names for selected products and services. The house marks in particular, including "Williams-Sonoma," the Williams-Sonoma Grande Cuisine logo, "Pottery Barn," "pottery barn kids," "PBteen," "west elm" and "Williams-Sonoma Home" are of material importance to us. Trademarks are generally valid...

  • Page 18
    ...The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding Williams-Sonoma, Inc. and other companies that...

  • Page 19
    ... sales may be negatively impacted by increasing competition from companies with brands or products similar to ours. The specialty retail and direct-to-customer business is highly competitive. Our specialty retail stores, direct mail catalogs and e-commerce websites compete with other retail stores...

  • Page 20
    ... on a timely basis and minimize returns, replacements, and damaged products. In light of the many competitive challenges facing us, we may not be able to compete successfully. Increased competition could reduce our sales and harm our operating results and business. We depend on key domestic and...

  • Page 21
    ... to successfully open new stores or close existing stores are beyond our control, and these factors may harm our ability to expand or retract our retail operations and harm our ability to increase our sales and profits. In each of the past three fiscal years, the majority of our net revenues have...

  • Page 22
    ... the market price of our common stock. Various factors affect comparable store sales, including the number, size and location of stores we open, close, remodel or expand in any period, the overall economic and general retail sales environment, consumer preferences and buying trends, changes in sales...

  • Page 23
    ...customers to whom the catalogs are mailed, changes in mailing strategies, the sizing and timing of delivery of the catalogs as well as the general retail sales environment and current domestic and global economic conditions. In addition, environmental organizations and other consumer advocacy groups...

  • Page 24
    ... brands. Our newest brands - West Elm, PBteen and Williams-Sonoma Home - and any other new brands, however, may not be successful growth vehicles. Further, if we devote time and resources to new brands, brand extensions or brand repositioning, and those businesses are not as successful as we planned...

  • Page 25
    ... costs and continue to look for opportunities to reduce costs. We recognize that we may need to increase the number of our employees, especially during 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...

  • Page 26
    ... in our business as well as increased costs. For example, we utilize outside vendors for such things as payroll processing and various information technology and distribution center services. Accordingly, we are subject to the risks associated with their ability to successfully provide the...

  • Page 27
    ... our operations or finance future growth opportunities, new product development initiatives and unanticipated capital expenditures. Our Board of Directors may, at its discretion, decrease the intended level of dividends or entirely discontinue the payment of dividends at any time. Our ability to pay...

  • Page 28
    ... Commission or the New York Stock Exchange. Any such action could negatively impact the perception of us in the financial market and our business. In addition, our internal controls may not prevent or detect all errors and fraud. A control system, no matter how well designed and operated, is based...

  • Page 29
    ... 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 competition for personnel with retail and...

  • Page 30
    ..., our Chairman of the Board of Directors and Chief Executive Officer, and James A. McMahan, a Director Emeritus and a significant shareholder. Both partnerships are consolidated by us. See Note F to our Consolidated Financial Statements for more information. During fiscal 2008, we entered into lease...

  • Page 31
    ... facilities, we own buildings in San Francisco, California comprising approximately 326,000 square feet that we use for our corporate headquarters and a 13,000 square foot data center located in Memphis, Tennessee. We believe that our facilities are adequate for our current needs and that suitable...

  • Page 32
    ... this Annual Report on Form 10-K for the quarter-end closing price of our common stock for each quarter listed above. SHAREHOLDERS The number of shareholders of record of our common stock as of March 27, 2009 was 475. This number excludes shareholders whose stock is held in nominee or street name by...

  • Page 33
    ... shows historical stock price performance, including reinvestment of dividends, and is not necessarily indicative of future performance. Comparison of Five-Year Cumulative Total Return of Williams-Sonoma, Inc., the NYSE Composite Index, the NASDAQ Retail Trade Index and the S&P Retailing Index $160...

  • Page 34
    ... to year-end, on March 24, 2009, our Board of Directors declared a quarterly cash dividend of $0.12 per common share, payable on May 26, 2009 to shareholders of record as of the close of business on April 27, 2009. Our quarterly cash dividend may be limited or terminated at any time. Additional...

  • Page 35
    ... per share Retail Revenues Retail revenue growth (decline) Retail revenues as a percent of net revenues Comparable store sales growth (decline)2 Store count Williams-Sonoma Pottery Barn Pottery Barn Kids West Elm Williams-Sonoma Home Outlets Hold Everything Number of stores at year-end Store selling...

  • Page 36
    ... openings and the remodeling or expansion of an additional 23 stores). Net revenue decreases were led by the Pottery Barn, Williams-Sonoma and Pottery Barn Kids brands, partially offset by net revenue increases in the West Elm brand. In our direct-to-customer channel, net revenues in fiscal 2008...

  • Page 37
    ..., product reviews, and search. Infrastructure was also a key area of investment this year, including the replacement of our company-wide point-of-sale hardware and the rollout of electronic signature and pin debit functionality in our stores. In direct-marketing, we reduced catalog advertising costs...

  • Page 38
    ... this number further as we work with landlords to close underperforming stores. Finally, in fiscal 2009, we expect to continue to return excess capital to our shareholders as reflected by the approval of a quarterly cash dividend of $0.12 per common share by our Board of Directors in March 2009. 26

  • Page 39
    ... through our catalogs and the Internet. Shipping fees consist of revenue received from customers for delivery of merchandise. Revenues are presented net of sales returns and other discounts. The following table summarizes our net revenues for the 52 weeks ended February 1, 2009 ("fiscal 2008"), the...

  • Page 40
    ... West Elm, Pottery Barn, Williams-Sonoma and Williams-Sonoma Home brands were the primary contributors to this year-over-year revenue increase. Comparable Store Sales Comparable stores are defined as those stores in which gross square footage did not change by more than 20% in the previous 12 months...

  • Page 41
    ..., 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) of approximately $40,000,000, an overall increase in catalog and page circulation of 3.7% and 7.9%, respectively, and continued strength in our Internet business...

  • Page 42
    ... 100 basis point increase as a percentage of net revenues was primarily driven by increased markdowns, higher cost of merchandise sold due to increased raw material costs and higher inventory-related costs, including costs associated with the start-up of a new returns processing operation, partially...

  • Page 43
    ...related costs associated with our retail stores, distribution centers, 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...

  • Page 44
    ... not recur in fiscal 2007 and increased income from unredeemed gift certificates and gift cards, partially offset by increased employment costs primarily associated with the growth of the emerging brands. In the direct-to-customer channel, selling, general and administrative expenses as a percentage...

  • Page 45
    ...inventory reduction initiatives throughout fiscal 2008, an increase in deferred rent and lease incentives due to the opening of new stores and a decrease in our prepaid catalog costs due to our catalog circulation optimization strategy. This was partially offset by a decrease in income taxes payable...

  • Page 46
    ... on operating leases in the "Off Balance Sheet Arrangements" section and Note E to our Consolidated Financial Statements. 4 Projected payments include only those amounts that are fixed and determinable as of the reporting date. 5 Represents estimated commitments at year-end to purchase inventory and...

  • Page 47
    ... Facility As of February 1, 2009, we have an amended credit facility that provides for a $300,000,000 unsecured revolving line of credit that may be used for loans or letters of credit. Prior to April 4, 2011, we may, upon notice to the lenders, request an increase in the credit facility of up to...

  • Page 48
    ... 2009. The latest expiration possible for any future letters of credit issued under the facilities is February 1, 2010. OFF BALANCE SHEET ARRANGEMENTS Operating Leases We lease store locations, warehouses, corporate facilities, care centers and certain equipment for original terms ranging generally...

  • Page 49
    ... bonds calculated at a variable rate determined monthly (approximately 3.0% as of February 1, 2009), applicable taxes, insurance and maintenance expenses. Although the current term of the lease expires in August 2009, we are obligated to renew the operating lease on an annual basis until these bonds...

  • Page 50
    ... be marked down below cost, we consider current and anticipated demand, customer preferences, age of the merchandise and fashion trends. Our inventory value is adjusted periodically to reflect current market conditions, which requires management judgments that may significantly affect the ending...

  • Page 51
    ... cards and gift certificates being redeemed beyond four years from the date of issuance is remote. Revenue Recognition We recognize revenues and the related cost of goods sold (including shipping costs) at the time the products are delivered to our customers. Revenue is recognized for retail sales...

  • Page 52
    ...2008, our reserve for sales returns was $10,142,000 and $17,259,000, respectively. Stock-Based Compensation We measure and record compensation expense in our consolidated financial statements for all stock-based compensation awards using a fair value method. For stock options and stock-settled stock...

  • Page 53
    ... provided in our Form 10-Q for our first fiscal quarter ending May 3, 2009. On February 4, 2008, we adopted the provisions of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose...

  • Page 54
    ... increased costs may have on our financial statements or results of operations. In addition, as of February 1, 2009, we have 16 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 55
    ... 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 expense Earnings before income taxes Income taxes...

  • Page 56
    Williams-Sonoma, Inc. Consolidated Balance Sheets Dollars and shares in thousands, except per share amounts ASSETS Current assets Cash and cash equivalents Accounts receivable - net Merchandise inventories - net Prepaid catalog expenses Prepaid expenses Deferred income taxes Other assets Total ...

  • Page 57
    ... Income Total Shareholders' Equity Dollars and shares in thousands Balance at January 29, 2006 Net earnings Foreign currency translation adjustment Unrealized gain on investment Exercise of stock options and related tax effect Repurchase and retirement of common stock Stock-based compensation...

  • Page 58
    ... tax benefit from exercise of stock-based compensation 1,034 5,100 4,878 Payment of dividends (50,518) (48,863) (34,435) Credit facility costs (1,520) - (218) Repurchases of common stock - (190,378) (185,508) Net cash used in financing activities (52,160) (208,482) (206,027) Effect of exchange rates...

  • Page 59
    ... 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 60
    ... useful life or lease term (generally 2 - 22 years) 2 - 20 years 10 - 40 years 2 - 10 years 20 years (20% salvage value) Internally developed software costs are capitalized in accordance with the American Institute of Certified Public Accountants Statement of Position ("SOP") 98-1, "Accounting...

  • Page 61
    ... for employee health benefits, workers' compensation and product and general liability claims were $21,006,000 and $21,512,000 as of February 1, 2009 and February 3, 2008, respectively, and are recorded within accrued salaries, benefits and other on our Consolidated Balance Sheets. Customer Deposits...

  • Page 62
    ... product returns in each reporting period. Shipping and handling fees charged to the customer are recognized as revenue at the time the products are delivered to the customer. Revenues are presented net of any taxes collected from customers and remitted to governmental authorities. Sales Returns...

  • Page 63
    ... 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 general expenses. Stock-Based Compensation...

  • Page 64
    ... provided in our Form 10-Q for our first fiscal quarter ending May 3, 2009. On February 4, 2008, we adopted the provisions of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits entities to choose...

  • Page 65
    ..., 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, expanded or remodeled retail stores where construction had not been completed as of year-end...

  • Page 66
    ... located in our Olive Branch, Mississippi distribution center. The aggregate maturities of long-term debt at February 1, 2009 were as follows: Dollars in thousands Fiscal 2009 Fiscal 2010 Fiscal 2011 Fiscal 2012 Fiscal 2013 Thereafter Total $14,702 1,587 1,542 1,652 1,724 3,754 $24,961 Credit...

  • Page 67
    ...The provision for income taxes consists of the following: Fiscal Year Ended Dollars in thousands Current Federal State Foreign Total current Deferred Federal State Foreign Total deferred Total provision Feb. 1, 2009 (52 Weeks) $ 5,143 (1,096) 2,775 6,822 4,817 (83) 373 5,107 $11,929 Feb. 3, 2008 (53...

  • Page 68
    ...$136,840 Dollars in thousands Current: Compensation Inventory Accrued liabilities Customer deposits Deferred catalog costs Other Total current Non-current: Depreciation Deferred rent Stock-based compensation Deferred lease incentives Executive deferral plan State taxes Other Total non-current Total...

  • Page 69
    ... all material state, local and foreign income tax examinations have been concluded for years through 1999. Note E: Accounting for Leases Operating Leases We lease store locations, warehouses, corporate facilities, care centers and certain equipment for original terms ranging generally from 2 to...

  • Page 70
    ...bonds calculated at a variable rate determined monthly (approximately 3.0% on February 1, 2009), applicable taxes, insurance and maintenance expenses. Although the current term of the lease expires in August 2009, we are obligated to renew the operating lease on an annual basis until these bonds are...

  • Page 71
    ... to year-end, on March 24, 2009, our Board of Directors declared a quarterly cash dividend of $0.12 per common share payable on May 26, 2009 to shareholders of record as of the close of business on April 27, 2009. Our quarterly cash dividend may be limited or terminated at any time. Note I: Stock...

  • Page 72
    ... with SFAS No. 123R, "Share-Based Payment," which requires us to measure and record compensation expense in our consolidated financial statements for all employee stock-based awards using a fair value method. Total Stock-Based Compensation Expense During fiscal 2008, fiscal 2007 and fiscal 2006...

  • Page 73
    ...2009 1 Shares 9,026,289 - (1,979,641) (415,499) 6,631,149 - (571,782) (432,824) 5,626,543 5,109,153 5,581,057 Form 10-K 2 Intrinsic value for outstanding and vested options is defined as the excess of the market value on the last business day of the fiscal year (or $7.92) over the exercise price...

  • Page 74
    ... to the appreciation in the fair market value of our common stock between the date the award was granted and the conversion date for the number of shares vested. The following table summarizes our stock-settled stock appreciation right activity during fiscal 2008 and fiscal 2007: Weighted Average...

  • Page 75
    ... the market value on the last business day of the fiscal year (or $7.92). Weighted Average Grant Date Fair Value Form 10-K Tax Effect We present tax benefits resulting from the exercise of stock-based awards as operating cash flows, and tax deductions in excess of the cumulative compensation cost...

  • Page 76
    ... Benefits We have a defined contribution 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). Prior to January 1, 2009, the Plan permitted eligible employees to make salary...

  • Page 77
    ...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 78
    ... related to an incentive payment received from a landlord to compensate us for terminating a store lease prior to its original expiration. Unallocated costs before income taxes in fiscal 2008 includes an approximate $16.0 million benefit related to a gain on sale of our corporate aircraft, an $11...

  • Page 79
    ... opinions. A company's 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...

  • Page 80
    ... statements, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, on January 29, 2007. /s/ DELOITTE & TOUCHE LLP San Francisco, California April 2, 2009...

  • Page 81
    ... Financial Information (Unaudited) Dollars in thousands, except per share amounts Fiscal 2008 (52 Weeks) Net revenues Gross margin Earnings before income taxes5 Net earnings7 Basic earnings per share6 Diluted earnings per share6 Stock price (as of quarter-end) 7 Fiscal 2007 (53 Weeks) Net revenues...

  • Page 82
    ...to financial statement preparation. Further, because of changes in conditions, the effectiveness of any internal control may vary over time. Our management assessed the effectiveness of the company's internal control over financial reporting as of February 1, 2009. In making this assessment, we used...

  • Page 83
    ... "Election of Directors," "Information Concerning Executive Officers," "Committee Reports-Nominations and Corporate Governance Committee Report," "Committee Reports-Audit and Finance Committee Report," "Corporate Governance Guidelines and Corporate Code of Conduct" and "Section 16(a) Beneficial...

  • Page 84
    ... of Cash Flows for the fiscal years ended February 1, 2009, February 3, 2008 and January 28, 2007 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm Quarterly Financial Information (a)(2) Financial Statement Schedules: Schedules have been omitted...

  • Page 85
    ... 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: April 2, 2009 By /s/ W. HOWARD LESTER Chief Executive Officer Pursuant to...

  • Page 86
    EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 1, 2009 EXHIBIT NUMBER EXHIBIT DESCRIPTION ARTICLES OF INCORPORATION AND BYLAWS 3.1 Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the ...

  • Page 87
    ... by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the period ended November 2, 2008 as filed with the Commission on December 12, 2008, File No. 001-14077) Reimbursement Agreement between the Company and The Bank of New York dated as of July 1, 2005 (incorporated by...

  • Page 88
    ... Reimbursement Agreement between the Company and The Bank of New York Mellon, formerly known as The Bank of New York, dated as of July 1, 2005 (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the period ended November 2, 2008 as filed with the Commission...

  • Page 89
    ...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 Company's Registration Statement on Form...

  • Page 90
    ... 10.27 to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2008 as filed with the Commission on April 3, 2008, File No. 001-14077) Form of Williams-Sonoma, Inc. 2001 Long-Term Incentive Plan Restricted Stock Unit Award Term Sheet for Director Grants (incorporated by...

  • Page 91
    ... the Distribution Facility at 4600 and 4650 Sonoma Cove, Memphis, Tennessee between the Company and Hewson-Memphis Partners, dated as of August 1, 1990 (incorporated by reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for the fiscal year ended January 28, 2001 as filed with the...

  • Page 92
    ... 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 93
    ... reference to Exhibit 10.77 to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 2002 as filed with the Commission on April 29, 2002, File No. 001-14077) Amendment, dated as of November 11, 2008, to Employment Agreement between the Company and Laura Alber, dated March 19...

  • Page 94
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 95
    Notice of 2009 Annual Meeting of Shareholders PROXY STATEMENT Proxy WILLIAMS-SONOMA, INC. 2008 ANNUAL REPORT

  • Page 96
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 97
    ... Time Williams-Sonoma, Inc. 3250 Van Ness Avenue San Francisco, California 94109 1) 2) The election of our Board of Directors; The ratification of the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending January 31, 2010; A shareholder...

  • Page 98
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 99
    ... Meeting will be held at our corporate headquarters located at 3250 Van Ness Avenue, San Francisco, California 94109. Our Annual Report to Shareholders for the fiscal year ended February 1, 2009, or fiscal 2008, including our financial statements for fiscal 2008, is also included with hard copies...

  • Page 100
    ...registered public accounting firm for the fiscal year ending January 31, 2010 and "AGAINST" the shareholder proposal. What are the directions to attend the Annual Meeting and vote in person? The following are directions to attend the Annual Meeting from various locations around the San Francisco Bay...

  • Page 101
    ... person or through the Internet, telephone or signed proxy card, and abstentions and broker non-votes, will be included in the calculation of the number of shares considered to be present for purposes of determining whether there is a quorum at the Annual Meeting. What is a broker non-vote? The term...

  • Page 102
    ... and voting in person. What is householding? Householding is a cost-cutting procedure used by us and approved by the SEC. Under the householding procedure, we send only one Notice or Annual Report and Proxy Statement to shareholders of record who share the same address and last name, unless one of...

  • Page 103
    ... Skinner & Company to assist in the solicitation of proxies at an estimated cost to us of $3,500. Some of our officers or employees may solicit proxies personally or by telephone or other means. None of those officers or employees will receive special compensation for such services. Proxy 5

  • Page 104
    ... interested parties may send written communications to the Board or to any of our 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 105
    ...closing price of our common stock on the trading day prior to the grant date: Value of Restricted Stock Unit Awards Initial Election to the Board ...Annual Grant for Board Service(1) ...Annual Grant to Chairperson of the Audit and Finance Committee ...Annual Grant to Chairperson of the Compensation...

  • Page 106
    ... 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 2008 for financial statement reporting purposes as determined pursuant...

  • Page 107
    ... an aggregate grant date fair value of $70,740, disregarding forfeiture assumptions. Fiscal 2008 expense associated with a stock-settled stock appreciation right award of 6,750 shares of common stock made on November 1, 2007 at an exercise price of $31.44 per share, with a fair value as of the grant...

  • Page 108
    ... table sets forth information, as of March 27, 2009, with respect to each director nominee. Each director nominee furnished the biographical information set forth in the table. Executive Officers: Nominee Director Since Position with the Company and Recent Business Experience W. Howard Lester...

  • Page 109
    ...Chairman and Director of The Body Shop International plc (personal care products), 2002 - 2008 • Director, The Gap, Inc. (clothing) since 1995 • Chairman of the Audit and Finance Committee • Executive Vice President, Finance and Administration, and Chief Financial Officer, Agilent Technologies...

  • Page 110
    .... Director Emeritus Since Director Emeritus Position with the Company and Business Experience Charles E. Williams ...Age 93 2003 • Director, 1973 - 2003 • Vice Chairman, 1986 - 2003 • Founder • Director, 1979 - 2003 • Chief Executive Officer of McMahan Furniture Stores (furniture...

  • Page 111
    ...Committee Report" and "Shareholder Proposals" sections of this Proxy Statement. Are there any disclosures relating to Compensation Committee interlocks and insider participation? During fiscal 2008, none of our executive officers served as a member of the board of directors or compensation committee...

  • Page 112
    ... of our internal control and (iii) our 401(k) plan; • Review of our quarterly condensed consolidated financial statements; and • Audit services related to periodic filings made with the SEC. In fiscal 2008, Deloitte also performed certain audit-related and tax services, and discussed...

  • Page 113
    ...20% owner of a firm that is a paid adviser or consultant to the Company; • employed by a significant Company customer or supplier; • a party to a personal services contract with the Company, as well as with the Company's Chair, CEO or other executive officer; • an employee, officer or director...

  • Page 114
    ...corporate governance structure provide effective independent oversight of management; • Adopting a policy requiring the Board to select an independent director as Chairman would force the Board to make a change, which we believe would not be in the best interests of the company or its shareholders...

  • Page 115
    ... a policy to appoint an independent director who has not served as one of our executive officers to serve as Chairman. This proposal, by its terms, is drafted as a recommendation, and its approval by the shareholders will not mandate its adoption by the Board. If this proposal is approved, there...

  • Page 116
    ... 27, 2009. Our executive officers are appointed by our Board and serve at the pleasure of our Board, subject to rights, if any, under employment contracts. Name Position with the Company and Business Experience W. Howard Lester ...Age 73 Laura J. Alber ...Age 40 Group President, Williams-Sonoma...

  • Page 117
    ...fair market value assumptions used in the calculation of these amounts for fiscal 2008 and fiscal 2007 are included in Note I to our Consolidated Financial Statements, which is included in our Annual Report on Form 10-K for the fiscal year ended February 1, 2009. Total income (loss) in the Executive...

  • Page 118
    ...the company, based on current estimated market rates. Effective January 1, 2009, the company eliminated the parking subsidy. Individual executives are now personally responsible for paying for parking on site. Represents the maximum company matching contribution to the 401(k) plan for fiscal 2008 of...

  • Page 119
    ... Bonus Plan is equal to three times the executive's base salary as of February 2, 2009, the first day of fiscal 2009. To ensure deductibility under our shareholder-approved 2001 Incentive Bonus Plan (intended to qualify as performance-based compensation under Internal Revenue Code Section 162...

  • Page 120
    Outstanding Equity Awards at Fiscal Year-End The following tables set forth information regarding equity awards held by our named executive officers at February 1, 2009: Option Awards(1) Equity Incentive Plan Number of Securities Number of Securities Awards: Number of Underlying Underlying ...

  • Page 121
    ...total number of shares subject to the stock-settled stock appreciation rights per year, with remaining vesting dates of 3/15/2009, 3/15/2010 and 3/15/2011. Stock Awards Equity Incentive Equity Incentive Plan Plan Awards: Market Value of Awards: Number of Market or Payout Value of Number of Shares or...

  • Page 122
    ...,901 - - - - Executive Deferral Plan. Participation in the plan is limited to a group of select management and highly compensated employees. Effective January 1, 2008, participants can defer up to 100% of their base salary and/or bonus, net of applicable employment and withholding taxes and subject...

  • Page 123
    ... price of our common stock on January 30, 2009, the last business day of fiscal 2008. (4) Based on a monthly health insurance premium of $1,436 to be paid by the company for 18 months, which is the period provided under COBRA. (5) Value of outplacement services based on current estimate of costs...

  • Page 124
    ... price of our common stock on January 30, 2009, the last business day of fiscal 2008. (4) Based on a monthly health insurance premium of $494 to be paid by the company for 18 months, which is the period provided under COBRA. (5) Value of outplacement services based on current estimate of costs...

  • Page 125
    ... than the Chief Executive Officer. Each of the named executive officers during fiscal 2008 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...

  • Page 126
    ...responsibilities from time to time. During fiscal 2008, Frederic W. Cook provided the Compensation Committee with peer group proxy and other publicly disclosed data related to named executive officers and director compensation. Frederic W. Cook also provided certain services to management, primarily...

  • Page 127
    ... executive officer compensation programs are designed to enable the company to attract, retain, motivate and reward highly qualified executive officers while maintaining strong and direct links between executive pay, individual performance, the company's financial performance and shareholder returns...

  • Page 128
    ... awards, are structured to encourage 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 and for remaining with the company. The named...

  • Page 129
    ... following 19 public retail companies: Abercrombie & Fitch, American Eagle Outfitters, Ann Taylor, Barnes & Noble, Bed Bath & Beyond, Borders Group, Cost Plus, Ethan Allen Interiors, The Gap, Limited Brands, Men's Wearhouse, Nordstrom, Office Depot, Pier 1 Imports, PetSmart, Ross Stores, Starbucks...

  • Page 130
    ...the Chief Executive Officer recommended no annual merit increases or adjustments to the base salaries of the named executive officers for fiscal 2008. In light of this recommendation and the expected continued weakness of the overall retail industry, the Compensation Committee made no changes to the...

  • Page 131
    ... Revenue Code rules, the Bonus Plan payout criteria are specified by the Compensation Committee in the first quarter of each fiscal year. For fiscal 2008, the Bonus Plan limited the maximum payout to each executive to three times the executive's base salary as of February 4, 2008, the first day...

  • Page 132
    ...the Compensation Committee determined that target bonuses as a percentage of base salary would remain the same for the named executive officers, including our Chief Executive Officer, in fiscal 2009 as in fiscal 2008. The target bonuses under the Bonus Plan for fiscal 2008 and fiscal 2009 are listed...

  • Page 133
    ... compensation awards are important for motivating executive officers and other employees to increase shareholder value over the long term. The equity awards granted to named executive officers are designed to be competitive with those offered by comparable companies for each named executive officer...

  • Page 134
    ... review of the compensation levels of named executive officers in similar positions in our proxy peer group, at levels to ensure that the long-term incentive amounts, when coupled with base salaries and target annual incentives, resulted in total target direct compensation for each named executive...

  • Page 135
    ... Compensation Committee make a special grant of stock-settled stock appreciation rights to the named executive officers? The Compensation Committee believes that it is extremely important that its compensation program provide adequate incentives to increase shareholder value. After careful analysis...

  • Page 136
    ...price of our common stock prior to or following the release of material information regarding the company. The Compensation Committee does not currently intend to make equity grants in fiscal 2009 to its named executive officers. Were any material changes made during fiscal 2008 to the equity awards...

  • Page 137
    ... policy for our executive officers. However, 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? Although we...

  • Page 138
    ...; the development of the company's international strategies; and improvements to the company's e-commerce capabilities. Using the same analysis of business conditions and review process of company and individual performance that it applied to the other named executives, the Compensation Committee...

  • Page 139
    ... superior employees for key positions. The company provides certain perquisites to its named executive officers, including premiums for term life insurance in excess of $50,000, a matching contribution for investments in our 401(k) plan, a $500 monthly car allowance and an annual executive medical...

  • Page 140
    ...the named executive officers that had been provided in fiscal 2007. How does the Compensation Committee address Internal Revenue Code Section 162(m)? Under Section 162(m) of the Internal Revenue Code of 1986, as amended, and regulations adopted under it by the Internal Revenue Service, publicly held...

  • Page 141
    ... possible director candidates for election at next year's Annual Meeting. A shareholder that desires to recommend a candidate 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...

  • Page 142
    ... to the Board. There are no differences in the manner in which the Nominations and Corporate Governance Committee evaluates nominees for director based on whether the nominee is recommended by a shareholder, management or a search firm. How did we perform our responsibilities in fiscal 2008? The...

  • Page 143
    ...; • Prepare the report that 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. Proxy How do...

  • Page 144
    How did we perform our responsibilities in fiscal 2008? The Audit and Finance Committee held a total of ten meetings during fiscal 2008, and we took the following actions, among other things: • Reviewed and discussed the company's audited financial statements for fiscal 2008 with management and ...

  • Page 145
    ... any shareholder by writing to: Secretary, Williams-Sonoma, Inc., 3250 Van Ness Avenue, San Francisco, California 94109. To date, there have been no waivers that apply to our Chief Executive Officer, Chief Financial Officer, Controller or persons performing similar functions under our Corporate Code...

  • Page 146
    ...associate may face a real or perceived conflict of interest with the Company. Our Corporate Code of Conduct is distributed to all employees on an annual basis and made available throughout the year in our internal document database. It is also available on our website and in print to any shareholder...

  • Page 147
    ... the thirty-six months of the lease term through May 15, 2011. We are also responsible for all use-related costs associated with the aircraft, including fixed costs such as crew salaries and benefits, insurance and hangar costs, and all direct operating costs. Closing costs associated with the Lease...

  • Page 148
    ... for their fiscal year 2008 transactions and (ii) information provided to us by them, we believe that all reporting requirements under Section 16(a) were met in a timely manner by the persons who were executive officers, members of the Board of Directors or greater than 10% shareholders during such...

  • Page 149
    ...days of March 27, 2009. 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, MA 02109 James A. McMahan ...2237 Colby Avenue Los Angeles, CA 90064 Taube Hodson Stonex Partners...

  • Page 150
    ... owned in the Williams-Sonoma, Inc. Stock Fund by $10.70, the closing price of Williams-Sonoma, Inc. common stock on March 27, 2009. (7) Mr. Connolly owns $343,010 in the Williams-Sonoma, Inc. Stock Fund under our 401(k) plan, as of March 27, 2009. The number of shares listed in the table includes...

  • Page 151
    ... closing price of Williams-Sonoma, Inc. common stock on March 27, 2009. (11) Includes 4,400 shares owned by Mr. Robertson's wife. (12) The directors and officers as a group own $569,799 in the Williams-Sonoma, Inc. Stock Fund under our 401(k) plan, as of March 27, 2009. The number of shares listed...

  • Page 152
    ... 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 2010 Annual Meeting...

  • Page 153
    ... website at www.williams-sonomainc.com/investors/annual-reports.html 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 April 9, 2009 Proxy...

  • Page 154
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 155
    ... 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 156
    ... 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 or annual...

  • Page 157
    ... Members of the Compensation Committee shall 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...

  • Page 158
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 159
    ... 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 160
    ... 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 161
    ...March 20, 2009) 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 retention...

  • Page 162
    ... 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 163
    ... design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls. Oversight of the Company's Relationship with the Independent Auditor • Review and evaluate the lead partner...

  • Page 164
    ... 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 165
    ... frequently than four times per year. • The Committee shall meet at least annually with management, the internal auditors, and the independent auditor in separate executive sessions. The Committee may request any officer or employee of the Company or the Company's outside counsel or independent...

  • Page 166
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 167
    ... 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 168
    Cert no. SCS-COC-00648