Restoration Hardware 2015 Annual Report Download - page 92

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The Company has recorded deferred tax assets and liabilities based upon estimates of their realizable value, such estimates are
based upon likely future tax consequences. In assessing the need for a valuation allowance, the Company considers both positive and
negative evidence related to the likelihood of realization of the deferred tax assets. If, based on the weight of available evidence, it is
more likely than not that the deferred tax assets will not be realized, the Company records a valuation allowance.
As of January 30, 2016, the Company has retained a valuation allowance totaling $0.2 million against deferred tax assets for its
Shanghai operations.
As of January 30, 2016, the Company had state net operating loss carryovers of $0.2 million. The state net operating loss
carryovers will expire in 2019. Internal Revenue Code Section 382 and similar state rules place a limitation on the amount of taxable
income which can be offset by net operating loss carryforwards after a change in ownership (generally greater than 50% change in
ownership). The Company cannot give any assurances that it will not undergo an ownership change in the future resulting in further
limitations on utilization of net operating losses.
A reconciliation of the exposures related to unrecognized tax benefits is as follows (in thousands):
Year Ended
January 30, January 31, February 1,
2016 2015 2014
Balance at beginning of fiscal year ..................................................... $ 940 $ 1,395 $ 1,841
Gross decreases—prior period tax positions....................................... (88) (122 ) (151)
Gross increases—current period tax positions .................................... 69 — —
Lapses in statute of limitations ........................................................... — (333 ) (295)
Balance at end of fiscal year ............................................................... $ 921 $ 940 $ 1,395
As of both January 30, 2016 and January 31, 2015, $0.9 million of the exposures related to unrecognized tax benefits would
affect the effective tax rate if realized and are included in other non-current obligations on the consolidated balance sheets. These
amounts are primarily associated with foreign tax exposures that would, if realized, reduce the amount of net operating losses that
would ultimately be utilized. As of January 30, 2016, the Company does not have any exposures related to unrecognized tax benefits
that are expected to decrease in the next 12 months.
The Company accounts for interest and penalties related to exposures as a component of income tax expense. The Company had
interest accruals of $0.2 million associated with exposures as of both January 30, 2016, and January 31, 2015.
This Company is subject to tax in the United States, Canada, Shanghai and Hong Kong. The Company could be subject to
United States federal and state tax examinations for years 2002 and forward by virtue of net operating loss carryforwards available
from those years. There are two tax examination currently in progress in the United States. The Company may also be subject to audits
in Canada for years 2008 and forward.
NOTE 13—NET INCOME PER SHARE
The weighted-average shares used for net income per share is as follows:
Year Ended
January 30, January 31, February 1,
2016 2015 2014
Weighted-average shares—basic .............................................. 40,190,448 39,457,491 38,671,564
Effect of dilutive stock-based awards ....................................... 2,066,111 1,920,719 1,745,066
Weighted-average shares—diluted ...................................... 42,256,559 41,378,210 40,416,630