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Case Study: LBOPresentation to Sponsors

Team SevenHeather Jiang, Bryan Koch, Jake Mattison, Austin Pritchett, Steve Tabor

Strictly Private and Confidential0Financial Highlights, Timeline and LBO CandidacyWilliams-Sonoma Overview12Why Go After Williams-SonomaOur proposal is to LBO WSM and immediately sell the Williams-Sonoma brand in order to focus on the faster growing brands. The majority (54%) of WSM revenue is generated by West Elm and Pottery Barn which are better positioned to take advantage of the growing housing and consumer discretionary marketsWilliams-Sonoma Branded stores are only growing 0.01% while the other brands are growing at 8%Pottery Barn and West Elm are able to quickly identify and capitalize on trends as they design 90% of their own products Over 80% of furniture is made-to-order thus reducing the need for costly inventory Pottery Barn and West Elm have been able to leverage the showrooming approach to retail were they utilize small retail operations to drive significant online salesWSM was trading at a premium to the consumer discretionary index over the last year but recently began to convergeThe Williams-Sonoma brand is tied closely to the luxury products market as people tend to be able to afford the luxury items sold in those stores at times when the luxury market at as a whole is improvingThe West Elm and Pottery Barn brands are more closely correlated with consumer discretionary spendingThe luxury and consumer discretionary markets were growing at similar rates for the last 2 years but recently the consumer discretionary market has started to take offHistorical Performance Stock PerformanceSource: WSM 2014 Investor Presentation and Capital IQ

Deal Overview Consumer Discretionary Index vs Luxury Index 2In 1956 Chuck Williams, turned a passion for cooking and eating with friends and opened a store in Sonoma, California, to sell the French cookware High-quality products for the kitchen and home243 Retail Locations6,600 sqf per store3.8% FY14 Revenue Growth3Source:JPMorgan, Bloomberg, Capital IQ

WSM currently trades at 9.7x LTM EBITDAShare price has fallen 5% since January 26th compared to a 3% return on the S&P500. Shares influenced by negative revenue guidance per managements conference callEBITDAR Margins remain healthy at 14% and are above close peersGrowth remains strong with new store openings planned: 3 year revenue CAGR of 8.1%Rebounding housing market acts as a strong tailwindFirm remains under levered at 0.0x LTM Debt/EBITDA However: $1.8 billion in pro-forma capitalized debt if leases are treated as debt-likeGiven recent stagnation in WSMs stock, a premium of 10-15% could result in a deal. Equates to at least $87.70/share or an equity check of at least $3.1 billionTransaction would be completed at 13.5x EBITDAR, similar retail transactions recently completed in the 8.0x 9.0x rangeResulting leverage places WSM at 7.8x Debt/EBITDAR for 2015, dropping to 6.9x by 201770.5% of total senior debt paid down by year 6 and 83.3% paid down by year 7A key component of this deal involves selling the WSM core kitchen retail brand, preliminary work can be done before LBO closes to find buyersStrong margins and Low LeverageLBO TimelineLBO Timeline and Strategy

Year 2015 2016 2017 2018 2019 May 2015October 2015CAPEX cut Management Focuses on Operations / Cost cuttingInc. CAPEX Focus on West Elm and Rev. GrowthWSM Kitchen Retail SaleBegin IPO / Exit Process

4HighlightsWilliams-Sonoma (WSM), is a large household goods and furniture firm in the U.S. with revenue CAGR over last 3 years at 8.1%, above industry average at 7.2%Growing brand equity abroad via entering new markets such as the Philippines and MexicoStrong and stable operating results (EBITDAR CAGR of 12.4% over the last five years), with steady Capex at 5% of Sales over last 3 yearsThe majority of WSMs property is leased, limiting the companys ability to convert EBITDAR to free cash flow; but rent expense has remained stable over last 3 years at 4.8% of salesDiversified revenue streams across strong brands and multiple channels positioning WSM to capture an significant share within the home furnishings spaceFY2014 Performance Compared to Peers$mmFY2014 Revenue Contribution in PercentageHistorical Performance$mmSource: Capital IQ, Morgan Stanley Research Report, UBS Research Report

Financial Highlights5HighlightsPerformance differs by brand; revenue CAGR over last 3 years for Pottery Barn, West Elm, Pottery Barn Kids, PbTeen and Williams-Sonoma are 8.1%, 25.8%, 6.2%, 7.1% and 0.01%, respectivelyThere are opportunities for operational enhancement, including sale of the non performing Williams-Sonoma flagship stores, better working capital management and CapEx reductionsMinimum debt and interest expense (Adj. Debt/EBITDAR of 0.26x over last 3 years), providing space for leverageViable strategic buyers for the company or some of its brandsMeaningful cost savings by reducing expenditures on organic cottons and socially responsible sourced woodSales per Square Foot by Brands (2)Historical Leverage (1)Historical Revenue by Brands$mmSource: Capital IQ, Wall Street Research1 Adjusted debt / EBITDAR is calculated as a sum of adjusted rent and total debt capacity divided by LTM EBITDAR and is a relevant leverage ratio for the retail industry2 Calculated based on 2014 Form 10-K$mmAdj. Debt/EBITDARAdj. Debt/(EBITDAR - CapEx)Historical EBITDA

$mmWSM as an LBO CandidateHigh Yield Bond and ConsumerMarket Overview6Overview of Consumer Market7HighlightsConsumer confidence has been trending upward over the last two quarters of 2014With consumer confidence rising spending on household furniture and kitchen upgrades will increaseNew home sales have been climbing consistently since the crash and will continue to do so in 2015. Expect strong furniture sales to continue as wellNew home permits have been climbing throughout the end of 2014 into the beginning of 2015 which means new homes are on the way and new furniture will continue to be neededNew Home Permit / Beginning ConstructionNew Home SalesConsumer ConfidenceSource: Bloomberg

HomebuildersOverview of HY Bond Market8HighlightsHigh yield bond flow has been relatively stable throughout the first quarter and a half of 2015, signifying a rather positive outlook from the market. (Below)Many of the largest banks have been leading the market in the issuance of HY Bonds. (Right)There is a money in the market that will be willing to fund an LBO of Williams-Sonoma. HY Bond Issuance Per Quarter Last Two YearsLeaders in HY Bond Issuances 2014 Source: Thomson One, Bloomberg$ Bn

Assumptions, Comps and Return AnalysisLBO Model9Summary of Assumptions10Revenue growth slows down in 2015 2016 due to fewer store openingsSG&A expense improves due to managements focus on operating with few employees and outsourcing some manufacturing operationsCapex is cut immediately post-LBO to 1% of sales in order to meet debt payments, however, Capex can be increased by 2018 in reparation for an exit via an IPO or sale to strategic This implies that new store openings will temporarily cease or meaningfully slow downInventories days outstanding is improved as management shifts focus from opening new stores to improving operational efficiency, potential efficiencies include consolidating the supply chain from the current 50 countries to fewer than 20WSM is the 22nd largest importer of shipping containers in the U.S.

11Economics of a leveraged buyout hinge on the amount of rent adjusted leverage that Williams-Sonoma could absorb in todays markets

OCC guidance on leveraged lending standards suggests that leverage not exceed 6.0x and that at least 50 percent of total debt to be repaid by the tenor year of the raised debt

Due to cost synergies and optimistic forecasts, many recent transactions have garnered greater than 6.0x leverage in some case exceeding 8.0x on a pro-forma basis

Despite Williams-Sonoma's strong cash flow, the companys significant amount of operating leases limits its ability to raise significant funds requiring a 40 percent equity check from a sponsor Average Leverage of Large LBOs

Sources and Uses

Summary Financial Ratios (1)PF 201520162017EBITDAR$599.6 $564.6 $601.3 EBITDAR/Cash Interest1.8x 2.2x 2.5x EBITDAR-CapEx/Cash Interest1.2x 2.1x 2.3x Senior Debt/EBITDAR2.4x 2.2x 1.7x Total Debt/EBITDAR7.9x 8.0x 6.9x Equity as % of Total Capitalization46.2% 48.6% 51.9% Year 6 Year 7 Cumulative Senior Debt Paydown70.5% 83.3% Returns Summary to Equity Holders(1)EBITDAR Exit Multiple:4 Year5 Year6 Year12.5x15.4% 16.6% 17.4% 13.5x19.0% 19.3% 19.6% 14.5x22.3% 21.8% 21.5% Multiple Analysis(1)Transaction ValuePF 20152016$8,074.0 TV/Sales1.72x2.03xTV/EBITDAR13.5x14.3xTV/EBIT13.5x14.3x121 Adjusted debt / EBITDAR is calculated as a sum of adjusted rent and total debt capacity divided by LTM EBITDAR

Return AnalysisEconomics of a leveraged buyout hinge on the amount of rent adjusted leverage that Williams-Sonoma could absorb in todays markets

OCC guidance on leveraged lending standards suggests that leverage not exceed 6.0x and that at least 50 percent of total debt to be repaid by the tenor year of the raised debt

Due to cost synergies and optimistic forecasts, many recent transactions have garnered greater than 6.0x leverage in some case exceeding 8.0x on a pro-forma basis

Given the aggressive debt pay down and the sale of the Williams-Sonoma kitchen division, leverage ratios should not raise an issue amongst regulators

- 83% Senior Debt paid down by year 7

- Debt / EBITDAR never in excess of 8.0x

Despite Williams-Sonoma's strong cash flow, the companys significant amount of operating leases limits its ability to raise significant funds requiring a 36 percent equity check from a sponsorWilliams-SonomaPro FormaProjected Fiscal YearKitchen Division2014 2015 2016 2017 2018 2019 2020 2021 Williams-Sonoma Division Revenue$944.7 $956 $967 $979 $991 $1,003 $1,015 $1,027 Implies EV/Sales Multiple2.0x Sales Proceeds$1,889.3 After tax Amount ( tax = 20%)$1,511.4 Division Revenue Growth:20143.8%20131.5% 1.2% average y/o/y growth2012-1.7%13HighlightsOur comparable companies were chosen primarily on the basis of similar business models, product mix, and revenue driversEBITDA margins of our comparable companies were also very similar, with a very narrow range (9.6% to 14.4%). WSM EBITDA margin came in near the high end of the range at 14.0%, only trailing Bed Bath and Beyonds 14.4%While it proved difficult to find comparable companies of similar size, we were able to find multiple domestically focused companies with similar business models and product mixWe chose to exclude Home Depot and Lowes from our comp set due to their size. We also chose to exclude pure play mattress retailers due to their narrow focus

Relative ValuationRelative Weightings Assigned

Selected Companies

We gave the highest weight (40%) to Restoration Hardware (RH) RH has the most similar business model, is closest in size to WSM, and also has similar margins (RH 12.7% EBITDAR margin) Pier 1 (PIR) and Bed Bath & Beyond (BBBY) also received higher weights (20% each), as they both provide a diverse mix of products in the home furnishing segmentEthan Allen and Havertys received the lowest weights (10% each) as they are more narrowly focused in the furniture segment

Based on the forward EV/EBITDAR ratios of comparable companies we value WSM at $79.12/share, slightly higher than the recent closing price of $76.91 (4/24/15)If we valued WSM strictly based on its closest comp (RH), WSM would be valued at $110.73/shareBased on relative valuation, we fell that WSM is underpriced relative to comparable companies, making them an even stronger candidate for a leveraged buyout

-See Appendix for detailed comparable company metrics and summary statistics

Comparable Company AnalysisAppendix1415Comparable Company Summary StatisticsComparable Company Detailed Metrics

WSMRHPIRBBBYETHHVTTotal Revenue (NTM) $4,989.7 $2,162.9 $1,948.4 $12,273.1 $786.2 $815.2 EBITDAR (NTM) 698.5 273.7 189.3 1,763.5 93.9 78.1 EBITDAR Margin (NTM)14.0%12.7%9.7%14.4%11.9%9.6%Net Income (NTM)316.9121.376.6978.1147.4030.5Net Debt-221.0225.1106.7514.4013.00-23.7Shareholders' Equity1,224.7702.9337.22,743.2376.1292.0S/O91.639.890.0185.628.922.6Current Share Price 76.9 91.8 13.2 72.5 25.3 22.5 Equity Value7,0483,6661,19613,462733511Enterprise Value 6,827 3,891 1,303 13,976 746 487 EV/EBITDAR9.8x14.2x6.9x7.9x7.9x6.2xPrice/Earnings22.2x30.2x15.6x13.8x15.5x16.7xRelative weights assigned 40%20%20%10%10%HighLowMeanMedianWeighted averageWSMTotal Revenue (NTM)$12,273$786$3,597$1,948$3,870 $4,989.7 EBITDAR (NTM)1,76478480189517 698.5 EBITDAR Margin (NTM)14.4%9.6%11.7%11.9%12.0%14.0%Net Income (NTM)978 31 251 77 267 316.9Net Debt514 (24)167 107 213 -221.0Shareholders' Equity2,743 292 890 376 964 1,224.7S/O186 23 73 40 76 91.642Current Share Price91.8913.2945.1225.3458.71 76.91 Equity Value13,4625113,9141,1964,5227,048Enterprise Value13,9764874,0811,3034,735 6,827.2 EV/EBITDAR14.2x6.2x8.6x7.9x10.1x9.8xPrice/Earnings30.2x13.8x18.4x15.6x21.2x22.2xWSM Valuation EV/EBITDAREV/EBITDAREVEquity ValueImplied Share PriceMin6.2x$4,355$4,576$49.93Mean10.1x$7,030$7,251$79.12Max14.2x$9,927$10,148$110.73Relative Valuation

Appendix: Comparable Companies16Potential Williams-Sonoma Strategic BuyersDue to the large amount of equity required to perform a leveraged buyout of WSM, our potential buyers are limited to the largest private equity firms, although we see the potential for smaller firms to co-invest in the dealOur selected potential buyers all have a history of making large investments in the domestic retail sector, including multiple leveraged buyoutsDue to the unique nature of our proposed transaction, we feel that there is potential to have co-investors in the LBO transaction, followed by the sale of the Williams-Sonoma segment to a strategic buyerPotential Financial Backers for LBO

HighlightsWe identified multiple home appliance manufacturers and retailers, who we expect could benefit from obtaining the Williams-Sonoma cookware/light appliance segment, gaining the ability to cross-sell amongst different brandsElectrolux Group focused on expanding through acquisitions, acquisition of GE appliances for $3.3 billion expected to close later this year, strong balance sheet with over $8bn in cashWhirlpool Corporation already owns KitchenAid, investment grade credit rating (Fitch/S&P - BBB, Moodys Baa2)

Subsidiary of Otto GMBH

2nd largest specialty retailer after WS

Appendix: Potential Buyers17Ownership Summary Common Stock HeldOwnership CommentaryNotable Insiders

Detailed Institutional Ownership

James A McMahan Former Director Emeritus 6,119,466 shares (6.7% CSO)

Patrick J. Connolly Chief Strategy & Business 493,136 shares (0.5% CSO)

Laura J. Alber Chief Executive Officer 350,189 shares (0.4% CSO)Insiders control a relatively small amount of total shares outstanding (