Restoration Hardware 2015 Annual Report Download - page 88

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The availability of credit at any given time under the amended and restated credit agreement is limited by reference to a
borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable. As a
result of the borrowing base formula, the actual borrowing availability under the revolving line of credit could be less than the stated
amount of the revolving line of credit (as reduced by the actual borrowings and outstanding letters of credit under the revolving line of
credit). All obligations under the amended and restated credit agreement are secured by substantially all of the Company’s assets,
including accounts receivable, inventory, intangible assets, property, equipment, goods and fixtures.
Borrowings under the revolving line of credit are subject to interest, at the borrowers’ option, at either the bank’s reference rate
or LIBOR (or the Bank of America “BA” Rate or the Canadian Prime Rate, as such terms are defined in the credit agreement, for
Canadian borrowings denominated in Canadian dollars or the United States Index Rate or LIBOR for Canadian borrowings
denominated in United States dollars) plus an applicable margin rate, in each case.
The credit agreement contains various restrictive covenants, including, among others, limitations on the ability to incur liens,
make loans or other investments, incur additional debt, issue additional equity, merge or consolidate with or into another person, sell
assets, pay dividends or make other distributions, or enter into transactions with affiliates, along with other restrictions and limitations
typical to credit agreements of this type and size. As of January 30, 2016, the Company was in compliance with all covenants
contained in the credit agreement.
Borrowings under the revolving line of credit are subject to interest, at the borrowers’ option, at either the bank’s reference rate
or LIBOR (or the BA Rate or the Canadian Prime Rate, as such terms are defined in the credit agreement, for Canadian borrowings
denominated in Canadian dollars or the United States Index Rate or LIBOR for Canadian borrowings denominated in United States
dollars) plus an applicable margin rate, in each case. The amended and restated credit agreement contains various restrictive
covenants, including, among others, limitations on the ability to grant liens, make loans or other investments, incur additional debt,
issue additional equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions or enter
into transactions with affiliates, along with other restrictions and limitations typical to credit agreements of this type and size. The
amended and restated credit agreement does not contain any significant financial or coverage ratio covenants unless the domestic
availability under the revolving line of credit is less than the greater of (i) $20.0 million and (ii) 10% of the lesser of (A) the aggregate
domestic commitments under the amended and restated credit agreement and (B) the domestic borrowing base. If the availability
under the amended and restated credit agreement is less than the foregoing amount, then the Company is required to maintain a
consolidated fixed charge coverage ratio of at least one to one. Such ratio is approximately the ratio on the last day of each month on a
trailing twelve-month basis of (a) (i) consolidated EBITDA (as defined in the amended and restated credit agreement) minus (ii)
capital expenditures, minus (iii) the income taxes paid in cash to (b) the sum of (i) debt service charges plus (ii) certain dividends and
distributions paid. The amended and restated credit agreement requires a daily sweep of cash to prepay the loans under the agreement
while (i) an event of default exists or (ii) the availability under the revolving line of credit for extensions of credit to the Company is
less than the greater of (A) $20.0 million and (B) 10% of the lesser of the domestic commitments and the domestic borrowing base.
On June 27, 2014, the Company paid off the principal balance and related interest under the prior credit agreement of $154.8
million using proceeds from the issuance of the 2019 Notes. As of January 30, 2016, the Company did not have any amounts
outstanding under the revolving line of credit. As of January 30, 2016 and January 31, 2015, the Company had $15.0 million and
$20.2 million in outstanding letters of credit, respectively. As of January 30, 2016, the Company had $535.4 million undrawn
borrowing availability under the revolving line of credit.
NOTE 11—FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Assets and Liabilities
Certain financial assets and liabilities are required to be carried at fair value. Fair value is the price that would be received to sell
an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. In determining
the fair value, the Company utilizes market data or assumptions that it believes market participants would use in pricing the asset or
liability, which would maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible,
including assumptions about risk and the risks inherent in the inputs of the valuation technique.
The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing
observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the
financial instrument is new to the market and not yet established and the characteristics specific to the transaction. Financial
instruments with readily available active quoted prices for which fair value can be measured generally will have a higher degree of
pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or
not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.