Restoration Hardware 2015 Annual Report Download - page 47

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44
Selling, general and administrative expenses in fiscal 2013 included: (i) a $33.7 million non-cash compensation charge related
to the fully vested option granted to Mr. Friedman upon his reappointment as Chairman and Co-Chief Executive Officer, (ii) a $29.5
million non-cash compensation charge related to the performance-based vesting of certain shares granted to Mr. Friedman in
connection with the initial public offering, (iii) a $4.9 million charge incurred in connection with a legal claim alleging that the
Company violated California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying
with credit cards and (iv) $2.9 million of costs incurred in connection with our May 2013 and July 2013 follow-on offerings.
The increase in selling, general and administrative expenses, excluding the charge incurred in connection with the legal claim
and the one-time and non-cash compensation items mentioned above, was primarily related to an increase in employment costs of
$44.3 million due to company growth, an increase in advertising and marketing costs of $31.7 million associated with the increase in
the page count of our 2014 Source Books, an increase in credit card fees of $7.2 million due to increased revenues and increases in
corporate occupancy costs associated with our corporate headquarters expansion and upgrade of our information technology systems.
Selling, general and administrative expenses were 27.7% and 27.8% of net revenues in fiscal 2014 and fiscal 2013, respectively,
excluding the charge incurred in connection with the legal claim and the one-time and non-cash compensations items mentioned
above. The decrease in selling, general and administrative expenses as a percentage of net revenues was primarily driven by leverage
in Gallery and distribution center employment, and by travel and entertainment expenses, professional fees and other corporate costs
increasing at a lower rate than our growth in net revenues. These decreases were partially offset by advertising and marketing costs
associated with the significant increase in the page count of our 2014 Source Books.
Interest expense—net
Interest expense increased $11.8 million to $17.6 million in fiscal 2014 compared to $5.7 million in fiscal 2013. Interest expense
consisted of the following:
Year Ended
 January 31, February 1,
 2015 2014
 (in thousands)
Amortization of convertible senior notes debt
discount ................................................................. $ 7,969 $ —
Build-to-suit lease transactions .................................. 5,465 1,086
Revolving line of credit ............................................. 3,111 4,642
Other interest expense ................................................ 2,706 926
Capitalized interest for capital projects ...................... (1,639) (904 )
Interest income ........................................................... (61) (17 )
Total interest expense—net .................................. $ 17,551 $ 5,733
Income tax expense
Income tax expense was $57.2 million in fiscal 2014 compared to $30.9 million in fiscal 2013. Our effective tax rate was 38.6%
in fiscal 2014 compared to 63.0% in fiscal 2013. The decrease in the effective tax rate in fiscal 2014 was primarily due to the fact that
the effective tax rate in fiscal 2013 was significantly impacted by our reporting a net loss before income taxes, non-deductible stock-
based compensation and other non-deductible expenses.
Quarterly Results
The following table sets forth our historical quarterly consolidated statements of income for each of the last eight fiscal quarters
ended through January 30, 2016. This quarterly information has been prepared on the same basis as our annual audited financial
statements and includes all adjustments that we consider necessary to fairly state the financial information for the fiscal quarters
presented. The quarterly data should be read in conjunction with our consolidated financial statements and the related notes included
in Item 8—Financial Statements and Supplementary Data.