Restoration Hardware 2012 Annual Report Download

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2012
ANNUAL
REPORT
NOTICE OF 2013 ANNUAL
SHAREHOLDER MEETING AND
PROXY STATEMENT

Table of contents

  • Page 1
    2012 ANNUAL REPORT NOTICE OF 2013 ANNUAL SHAREHOLDER MEETING AND PROXY STATEMENT

  • Page 2

  • Page 3
    ...: 2012 marked the best year ever for RH. We achieved record financial results while delivering upon our growth initiatives, including the expansion of our product offering and services and the transformation of our real estate. We successfully completed our initial public offering in November 2012...

  • Page 4
    ... in over 20 markets including New York, Chicago, Miami, Denver and San Diego, to name a few. The next-generation Full Line Design Galleries will be larger to accommodate our expanded furniture and Small Spaces assortments, Baby & Child, Objects of Curiosity and Tableware products, in addition to...

  • Page 5
    NOTICE OF 2013 ANNUAL MEETING AND PROXY STATEMENT Proxy Statement

  • Page 6
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  • Page 7
    ... Investor Services, by email through their website at www.computershare.com/contactus or by phone at (877) 282-1168 (within the U.S. and Canada) or (781) 575-2879 (outside the U.S. and Canada). BY ORDER OF THE BOARD OF DIRECTORS Carlos Alberini Chief Executive Officer Corte Madera, California...

  • Page 8
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  • Page 9
    ... Information about Solicitation and Voting The accompanying proxy is solicited on behalf of the board of directors of Restoration Hardware Holdings, Inc. (the "Company") for use at the Company's 2013 Annual Meeting of Stockholders (the "Annual Meeting") to be held at the St. Regis Hotel located...

  • Page 10
    ... enclosed proxy card and return it before the Annual Meeting in the envelope provided...Annual Meeting? A majority of our outstanding shares as of the record date must be present at the meeting in order to hold the meeting and conduct business...effect on the election of directors (Proposal 1). For the ...

  • Page 11
    ... firm to revoke any prior voting instructions. Where can I find the voting results? The final results will be tallied by the inspector of elections and filed with the Securities and Exchange Commission (the "SEC") in a current report on Form 8-K within four business days of the Annual Meeting. 3

  • Page 12
    ...of their requirements, will be disclosed on our website or as required by applicable law or New York Stock Exchange ("NYSE") listing requirements. Composition of our Board of Directors Our board of directors consists of seven directors, including our Chief Executive Officer, and we expect to add two...

  • Page 13
    ... the nominating committee. Each of these committees reports to our board of directors as it deems appropriate and as our board of directors may request. With respect to the roles of Chairman of our board of directors and Chief Executive Officer, our Corporate Governance Guidelines provide that the...

  • Page 14
    ... the closing price of our common stock on the date of grant, which shares shall vest in full one year after the date of grant. • Mr. Chu and Mr. Forrest, as designees of Home Holdings, and Mr. Alberini and Ms. Chaya, as Company employees, are not participants in any director compensation program...

  • Page 15
    ... be performed by our independent registered public accounting firm; (5) overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC; (6) reviewing and monitoring...

  • Page 16
    ... on the audit committee within the time period specified by the NYSE rules. Our board of directors has adopted a written charter for the audit committee, which is available on our investor relations website, accessible through our principal corporate websites at www.restorationhardware.com and www...

  • Page 17
    ...statement under "Additional Information-Stockholder Proposals for the 2014 Annual Meeting." Contacting the Board Any stockholder who wishes to contact members of our Board may do so by mailing written communications to: Restoration Hardware Holdings, Inc. 15 Koch Road, Suite J Corte Madera, CA 94925...

  • Page 18
    ... Chairman of the board of directors of Cosi, Mr. Demilio served as Chairman of the company's audit committee. From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a publicly traded managed specialty healthcare...

  • Page 19
    ... audit services principally related to the year-end examination and the quarterly reviews of the Company's consolidated financial statements, consultation on matters that arise during a review or audit, review of SEC filings, audit services performed in connection with the Company's acquisitions and...

  • Page 20
    ... are required to periodically report to the audit committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. All of the services relating to the fees described...

  • Page 21
    ...the Company. 4. Based on the reviews and discussions referred to above, the Audit Committee recommended to our board of directors that the financial statements referred to above be included in the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2013 for filing with the SEC...

  • Page 22
    ... Advisor 57 39 46 39 55 57 52 64 52 Chief Executive Officer and Director Chief Financial Officer Chief Operating Officer Director Director Director Director Director Director Gary Friedman Directors and Executive Officers 55 Chairman Emeritus, Creator and Curator Carlos Alberini joined us...

  • Page 23
    ... Pacific in Hong Kong, and as Chief Financial Officer and Chief Operating Officer of various operating companies owned or controlled by First Pacific in both the United States and Europe. First Pacific is a Hong Kong publicly listed investment and management company where he was employed from 1983...

  • Page 24
    ... Chairman of the board of directors of Cosi, Mr. Demilio served as Chairman of the company's audit committee. From December 2000 until his retirement in October 2008, Mr. Demilio served as the Chief Financial Officer of Magellan Health Services, Inc., a publicly traded managed specialty healthcare...

  • Page 25
    .... He serves on the Board of Directors of The Estée Lauder Companies, Mammoth Mountain, Ellen Tracy, Field & Stream and National Golf. He serves as Vice Chairman of Robin Hood and is on the boards of the Pension Real Estate Association (PREA), the Dreamland Film & Performing Arts Center, Juvenile...

  • Page 26
    ... the address for each beneficial owner is c/o Restoration Hardware, Inc., 15 Koch Road, Suite J, Corte Madera, CA 94925. Name Number Percent 5% Stockholders: Home Holdings, LLC (1) Catterton (1)(2) Tower Three (1)(3) Glenhill (1)(4) Gary Friedman (5) Executive Officers and Directors Carlos Alberini...

  • Page 27
    ... Section 16 of the Exchange Act requires the Company's directors, executive officers and any persons who own more than 10% of the Company's common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish the...

  • Page 28
    ... "named executive officers" for fiscal 2012 Carlos Alberini, Chief Executive Officer Karen Boone, Chief Financial Officer Ken Dunaj, Chief Operating Officer Gary Friedman, Chairman Emeritus, Creator and Curator (Former Chairman and Co-Chief Executive Officer) Our board of directors has established...

  • Page 29
    ... in a later year. Mr. Alberini, Ms. Boone and Mr. Dunaj received annual base salaries in 2012 of $1,100,000, $475,000 and $550,000, respectively. We increased Mr. Alberini's annual base salary from $1,000,000 to $1,100,000 in November 2012 in connection with the Company's initial public offering. In...

  • Page 30
    ..."Selected Historical Consolidated Financial and Operating Data" contained in our Annual Report on Form 10-K for the fiscal year ended February 2, 2013. The MIP bonus for our named executive officers is based on the achievement of corporate goals, rather than individual performance, in order to focus...

  • Page 31
    ...-term performance, thereby encouraging our named executive officers to focus on our long-term goals. In connection with our initial public offering in November 2012, we completed the Reorganization. In connection with these events, our board of directors adopted the Restoration Hardware 2012 Equity...

  • Page 32
    ... vesting commencement dates. These options were granted in order to continue to provide these named executive officers with incentive to build shareholder value over the long-term. Our board of directors has also adopted the Restoration Hardware 2012 Stock Incentive Plan, which we refer to as the...

  • Page 33
    ... our board of directors (other than the Chief Executive Officer), or the compensation committee, meeting in executive session, will determine the compensation of the Chief Executive Officer, including his annual incentive targets. Compensation Committee Report The compensation committee has reviewed...

  • Page 34
    ... Year Stock Awards Option Awards (1) Non-Equity Incentive Plan All Other Compensation (2) Compensation (3) Name and Principal Position Salary Bonus Total Carlos Alberini Chief Executive Officer Karen Boone (4) Chief Financial Officer Ken Dunaj Chief Operating Officer Gary Friedman (5) Chairman...

  • Page 35
    ... the total number of performance-based restricted shares for which restrictions would lapse based on the price of our common stock reaching a ten-trailing day average price per share of at least $31.00 for at least ten consecutive trading days, and the amount shown in the "target" column represent...

  • Page 36
    ... held time-based and performancebased units that vested at the Reorganization. Restrictions on these shares will lapse only when our common stock reaches a ten-trailing day average price per share of $46.50 for at least ten consecutive days. Outstanding Equity Awards at Fiscal Year-End The...

  • Page 37
    ... until the end of fiscal 2012. Unit Awards Value Realized on Vesting of TROP Units (1) Stock Awards Value Realized Number of Restricted on Vesting of Replacement Plan Replacement Shares Vested Plan Shares (2) Name Number TROP Units Vested Carlos Alberini Karen Boone Ken Dunaj Gary Friedman 2,038...

  • Page 38
    ... or suppliers to reduce their business or contractual relationship with us. Karen Boone In connection with our initial public offering, we entered into an employment agreement with Ms. Boone, our Chief Financial Officer. Ms. Boone's employment agreement provides for an annual base salary of $475,000...

  • Page 39
    ... other conditions. Gary Friedman We have entered into an advisory services agreement with Mr. Friedman, pursuant to which he will devote approximately 80% of his business time to providing services to us as assigned by our Chief Executive Officer in the areas of design, products, store development...

  • Page 40
    ... discussed below, any actual amounts paid or distributed in the event of an officer's termination or a change in control may be different. Factors that could affect these amounts include the timing during the year of any such event. Carlos Alberini Benefits and Payments Termination Without Causeor...

  • Page 41
    ... of $400,000, which corresponds to Mr. Friedman's annual bonus amount for fiscal 2012. Employee Benefit and Stock Plans 2012 Equity Replacement Plan In connection with our initial public offering, our board of directors adopted the Restoration Hardware 2012 Equity Replacement Plan, which we refer to...

  • Page 42
    ... Incentive Plan. In addition, the 2012 Stock Incentive Plan provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with our fiscal year following the year of our initial public offering, equal to the lowest of...

  • Page 43
    ... certain changes in our capitalization, to prevent enlargement of the benefits or potential benefits available under the 2012 Stock Incentive Plan, the administrator will make adjustments to one or more of the number of shares that are covered by outstanding awards, the exercise or purchase price of...

  • Page 44
    ... AND RELATED PARTY TRANSACTIONS Reorganization The Company was incorporated as a Delaware corporation on August 18, 2011, by Home Holdings, for the purpose of acquiring all of the stock of Home Holdings' wholly owned subsidiary, Restoration Hardware, Inc. Until November 1, 2012, Home Holdings...

  • Page 45
    ... of the Company's initial public offering; the payment, declaration or setting aside of dividends or distributions on our capital stock; redemptions or repurchases of our capital stock (other than repurchases of shares from employees upon termination of employment pursuant to terms of equity...

  • Page 46
    .... Gary Friedman has a controlling interest in Hierarchy. We have the right to acquire all or a portion of Home Holdings' interest in Hierarchy between the second and third anniversary of the initial public offering, at the greater of then fair market value and the price paid by Home Holdings...

  • Page 47
    ... $120,000 in any calendar year, subject to certain exceptions. A "Related Party" is any of our executive officers, directors or director nominees, any stockholder directly or indirectly beneficially owning in excess of 5% of our stock or securities exchangeable for our stock, or any immediate family...

  • Page 48
    ... Company's Annual Report on Form 10-K for fiscal year 2012, including the financial statements, schedule and list of exhibits, and any exhibit specifically requested. Requests should be sent to: Restoration Hardware Holdings, Inc. 15 Koch Road, Suite J Corte Madera, CA 94925 Attn: Investor Relations...

  • Page 49
    ... broker or other holder of record to request information about householding or the Company's Investor Relations department at the address or telephone number listed above. OTHER MATTERS Our board of directors does not presently intend to bring any other business before the meeting and, so far as is...

  • Page 50
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  • Page 51
    2012 ANNUAL REPORT ON FORM 10-K Form 10-K

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  • Page 53
    ... È As of July 28, 2012, the last business day of the registrant's most recently completed second quarter, there was no established public market for the registrant's common stock. The registrant's common stock began trading on the New York Stock Exchange on November 2, 2012. As of February 2, 2013...

  • Page 54
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  • Page 55
    ... Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III. Item 10. Directors, Executive Officers and Corporate...

  • Page 56
    ... DATA This annual report contains forward-looking statements that are subject to risks and uncertainties. Forwardlooking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can...

  • Page 57
    ...consisting of our stores, catalogs and websites. As of February 2, 2013, we operated a total of 71 retail stores, consisting of 65 Galleries, 3 Full Line Design Galleries and 3 Baby & Child Galleries, as well as 13 outlet stores throughout the United States and Canada. In fiscal 2012, we distributed...

  • Page 58
    ... and to consult with our highly qualified sales associates and interior designers to develop design solutions for their homes. We complement our stores with targeted catalog mailings, emails and apps for smartphones and tablets. In our stores, our sales associates use iPads and other devices to...

  • Page 59
    ... open new Full Line Design Galleries in iconic or high profile locations that are representative of our luxury brand positioning. We believe, based on our analysis of the market, that we have the opportunity to more than double our current selling square footage in the United States and Canada over...

  • Page 60
    ... us to change the highly fragmented luxury home furnishings landscape and grow our market share. We apply our unique design aesthetic and superior product development capabilities to bring a fresh and differentiated perspective to existing and new product categories, new services and new businesses...

  • Page 61
    ... 80% of our product assortment at the time of publication. This strategy contributed to an 81% increase in the number of catalog pages circulated and a 30% increase in net revenues for our direct business in fiscal 2012. Digital Initiatives. We are investing in enhanced marketing initiatives for our...

  • Page 62
    ... business model and infrastructure. Over the last twelve years, we have built a new company through the following initiatives: • Elevated Our Brand Positioning-We significantly enhanced the quality and design of our merchandise, elevating our brand to a luxury positioning. We believe this strategy...

  • Page 63
    ... the old Restoration Hardware to the new RH: Old Restoration Hardware New RH Merchandise Strategy Product Development Go-to-Market Strategy Retail Strategy Nostalgic, discovery items Internally designed and developed (12 - 18 months lead time) Conventional channel-focused marketing Multiple small...

  • Page 64
    ... in total sales, and textiles represented the second largest segment. We believe that our dominant merchandise assortments and differentiated product designs in these key categories will enable us to increase our market share. Carpet & Floor Coverings Outdoor Furniture Lighting 3% 3% 5% Bath 7% 43...

  • Page 65
    ... number of categories, including furniture, lighting, textiles, bathware, décor, outdoor, garden, and baby and child products. The following is a description of our primary product categories: Category Select Products Offered Select Product Highlights Furniture Bedroom Dining Upholstery Home...

  • Page 66
    ... style and function. Décor Decorative Accessories Home Accessories Wall Art Gifts Tableware Dinnerware Serveware Glassware Flatware Entertaining Table Linens Outdoor & Garden Furniture Textiles Lighting Accessories Fire Shade Baby & Child Furniture Bedding Window Coverings...

  • Page 67
    ... product categories, including Outdoor in Spring 2006, Baby & Child in Spring 2008, Garden in Spring 2010 and Small Spaces in Spring 2012. Each of these new product categories was introduced as a new, standalone catalog. Historically, once a category is tested and proven in our direct business...

  • Page 68
    ... us to grow these businesses. Stores Retail Stores As of February 2, 2013, we operated a total of 71 retail stores throughout the United States and Canada, consisting of 65 Galleries, 3 Full Line Design Galleries and 3 Baby & Child Galleries. Our retail stores are located primarily in upscale malls...

  • Page 69
    ..., in approximately 20 markets including New York City, Chicago, Miami, Denver, Dallas and San Diego. We believe this strategy will enhance our sales, profitability and return on invested capital in key markets while making a powerful brand statement, as our Full Line Design Galleries heighten the...

  • Page 70
    ..., we operated 13 outlet stores in 12 states. Our outlet stores are branded as Restoration Hardware Outlet and located primarily in large outlet malls. Our outlet stores serve as an efficient means to sell discontinued or irregular inventory outside of our core sales channels. Source Books We produce...

  • Page 71
    ... and email addresses. We use this information to tailor our programs and increase productivity of our marketing and promotion initiatives. We leverage our marketing and advertising expenses across all our channels as we seek to optimize the efficiency of our investment. Our stores and our catalogs...

  • Page 72
    ... regions of the United States and Canada, as well as a furniture home delivery hub for the greater Los Angeles metropolitan area. Our Tracy, California facility is approximately 151,000 square feet. It serves as a furniture home delivery hub for the San Francisco Bay Area market. In December 2011...

  • Page 73
    ... chain operations through a number of key initiatives in 2013 designed to improve our fulfillment and delivery logistics performance and achieve greater efficiencies in the management of our inventories. Management and Information Technology We use industry-standard information technology systems...

  • Page 74
    ... custom-designed product offerings at high price points, including antique dealers and home furnishings retailers who market to the interior design community. We also compete with national and regional home furnishings retailers and department stores, as well as with mail order catalogs and online...

  • Page 75
    ...and senior financial officers and other related materials. The information on our websites is not part of this annual report. Our Investor Relations Department can be contacted at Restoration Hardware, Inc., 15 Koch Road, Suite J, Corte Madera, CA 94925, Attention: Investor Relations; telephone: 415...

  • Page 76
    ... merchandise or product categories may not continue over time if customer demand levels are not sustained. The level of customer response to our Full Line Design Galleries may vary in different markets and store locations. Similarly, the level of customer response to our Source Book catalog format...

  • Page 77
    ...We plan to continue to open Full Line Design Galleries in select major metropolitan markets and we expect to close a number of our older stores and replace them with the Full Line Design Gallery format. We also continue to add new product categories and to expand product assortments. For example, we...

  • Page 78
    ...on our business. We may not be able to locate and develop relationships with a sufficient number of new vendors, which could lead to product shortages and customer backorders, which could harm our business. In the event that one or more of our vendors is unable to meet the quantity or quality of our...

  • Page 79
    ... the second and third anniversaries of our initial public offering, at the greater of the then fair market value and the price paid by Home Holdings. Further, Home Holdings has assigned to us its right of first offer and co-sale right over the sale by Mr. Friedman of his interests in Hierarchy, its...

  • Page 80
    ... plan to continue our growth and expansion, including opening Full Line Design Galleries in select major metropolitan markets, pursuing category extensions of our brand, and exploring new business areas. We purchased the building and land for our store in San Francisco but we have relied upon leases...

  • Page 81
    ... real estate by continuing to open larger square footage Full Line Design Galleries in key markets and relocating or closing selected stores in these or adjacent markets. When we address the introduction of new stores in a particular market or changes to, or closure of, existing stores, we must make...

  • Page 82
    ... address challenges such as those listed above could adversely affect our ability to successfully open new stores or change our store footprint in a timely and cost-effective manner and could have a material adverse effect on our business, results of operations and financial condition. Our operating...

  • Page 83
    ... business platform. We have developed a number of new product categories and extensions over the last several years, including Garden & Outdoor, Baby & Child and Small Spaces. We also have introduced other merchandise categories that enhance the customer experience in our Full Line Design Galleries...

  • Page 84
    ...things, the quality of our product selection, our brand, our merchandise presentation and value proposition, customer service, pricing and store locations. We may not ultimately succeed in competing with other retailers in our market. Disruptions in the global financial markets may make it difficult...

  • Page 85
    ... in Corte Madera are particularly vulnerable), power outages or other natural disasters, we could face shortages of inventory resulting in "out of stock" conditions in our stores, significantly higher costs and longer lead times associated with distributing our products to both our stores and online...

  • Page 86
    ... channels are made using credit cards. Additionally, a significant number of our customer orders are placed through our websites. In order for our business to function successfully, we and other market participants must be able to handle and transmit confidential information, including credit card...

  • Page 87
    ... we were forced to cease our business operations for any length of time as a result of our inability to comply fully with any such law, our business, operating results and financial condition could be adversely affected. Material damage to, or interruptions in, our information systems as a result of...

  • Page 88
    ... reduced the number of catalog mailings. We rely on customary discounts from the basic postal rate structure that are available for our catalog mailings, which could be changed or discontinued at any time. The market price for paper has fluctuated significantly during the past three fiscal years and...

  • Page 89
    ... claims against us, particularly as we expand our business to include new products and product categories and move into other geographic markets. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. Successful infringement...

  • Page 90
    ... new leases or renew existing leases on terms acceptable to us or be released from our obligations under leases or other obligations for stores that we close could materially adversely affect our business and results of operations. Compliance with laws may be costly, and changes in laws could make...

  • Page 91
    ... our operations and affect our operating results. Many of our vendors are also located in areas that may be affected by such events. Moreover, geopolitical or public safety conditions which affect consumer behavior and spending may impact our business. Terrorist attacks in the United States or...

  • Page 92
    ... the sale of shares contemplated in our initial public offering may impact the timing of the utilization of our net operating loss carryforwards. Furthermore, it is possible that transactions in our stock that may not be within our control may cause us to exceed the 50% cumulative change threshold...

  • Page 93
    ... prevent us from filing our periodic reports on a timely basis, which could result in the loss of investor confidence in the reliability of our financial statements, harm our business, and negatively impact the trading price of our common stock. We incur new costs as a newly public company, and our...

  • Page 94
    ... results compared to market expectations; changes in preferences of our customers; announcements of new products or significant price reductions by us or our competitors; size of the public float; stock price performance of our competitors; fluctuations in stock market prices and volumes; default...

  • Page 95
    ... stock in the public market, or if the public perceives that such sales could occur, this could have an adverse impact on the market price of our common stock, even if there is no relationship between such sales and the performance of our business. We, our executive officers and directors, Home...

  • Page 96
    ...upon results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant. Accordingly, realization of a gain on your investment will depend on the appreciation of the price of our common stock, which may...

  • Page 97
    ...approximately 935,000 gross square feet for our 65 Galleries, 3 Full Line Design Galleries, 3 Baby & Child Galleries and 13 outlet stores that were open as of February 2, 2013. The initial lease term of our retail stores is generally 10 - 15 years. Certain leases contain renewal options for up to 20...

  • Page 98
    ... of warehouse space. Owned Properties We currently own one store, our approximately 8,000 square foot Gallery in San Francisco's Design District. We believe that our current offices and facilities are in good condition, are being used productively and are adequate to meet our requirements for the...

  • Page 99
    ... respect to trademarks and trade dress, and claims asserting unfair competition and unfair business practices by third parties. In addition, from time to time, we are subject to product liability and personal injury claims for the products that we sell and the stores we operate. Subject to certain...

  • Page 100
    ... presented below represent the highest and lowest closing prices for our common stock on the NYSE for each full quarterly period since our initial public offering. Highest Lowest Fiscal 2012 Fourth Quarter (from November 2, 2012) $37.99 $31.10 The number of stockholders of record of our common...

  • Page 101
    .... Use of Proceeds from the Initial Public Offering On November 1, 2012, our Registration Statement on Form S-1, as amended (File No. 333-176767), was declared effective, pursuant to which we registered the offering and sale of 4,782,609 shares of common stock by Restoration Hardware Holdings...

  • Page 102
    ... of and for the periods ended January 30, 2010, January 31, 2009 and June 16, 2008, were derived from consolidated financial statements for such years not included herein. In the third quarter of fiscal 2012, we changed our accounting policy for recognizing stock-based compensation expense which has...

  • Page 103
    ..., June 16, 2013 2012 2011 2010 2009 2008 (dollars in thousands, excluding share, per share and per square foot data) Successor Other Financial and Operating Data: Growth in net revenues: Stores (3) Direct Total Retail (4): Comparable store sales change (5) Retail stores open at end of period Total...

  • Page 104
    ... reporting period and did not change square footage by more than 20% between periods. If a store is closed for seven days during a month, that month will be excluded from comparable store sales. Comparable store net revenues exclude revenues from outlet stores. Because fiscal 2012 was a 53-week year...

  • Page 105
    ... is our cash based-incentive compensation program designed to motivate and reward annual performance for eligible employees. Additionally, EBITDA is frequently used by analysts, investors and other interested parties to evaluate companies in our industry. We use EBITDA and adjusted EBITDA, alongside...

  • Page 106
    ... ownership units. Mr. Friedman served as our Chairman and Co-Chief Executive Officer at the time of such loan repayment. In addition, amounts include stock-based compensation expense incurred prior to the initial public offering. (d) Includes the impact of divesting our Brocade Home brand, closing...

  • Page 107
    ... our brand, while our catalogs and websites act as virtual extensions of our stores. As of February 2, 2013, we operated 65 Galleries, 3 Full Line Design Galleries and 3 Baby & Child Galleries, as well as 13 outlet stores throughout the United States and Canada. In order to drive growth across our...

  • Page 108
    ... fiscal 2012. In April 2013 we opened our fourth Full Line Design Gallery in Boston. • Expand Our Offering and Increase Our Market Share. We believe we have a significant opportunity to increase our market share by: • Growing our merchandise assortment and introducing new products and categories...

  • Page 109
    ...development of new larger Full Line Design Galleries in a number of new locations, the optimization of our store sizes to better fit anticipated demand in a given market, the expansion of our product categories and services and changes in the ways in which we market with our catalogs. Although these...

  • Page 110
    ... to increase as we continue to open new stores, develop new product categories and otherwise grow our business. Adjusted EBITDA and Adjusted Net Income. We believe that adjusted EBITDA and adjusted net income are useful measures of operating performance, as the adjustments eliminate non-recurring...

  • Page 111
    ... capital stock of Restoration Hardware, Inc. was acquired on June 16, 2008, by Home Holdings, which we refer to as the "Acquisition," through a transaction that was accounted for under Statement of Financial Accounting Standards 141, "Business Combinations." The purchase price was allocated to state...

  • Page 112
    ... expense (benefit) Net income (loss) Other Financial and Operating Data: Growth in net revenues: Stores (1) Direct Total Retail (2): Comparable store sales change (3) Retail stores open at beginning of period Stores opened Stores closed Retail stores open at end of period Total leased square footage...

  • Page 113
    ... reporting period and did not change square footage by more than 20% between periods. If a store is closed for seven days during a month, that month will be excluded from comparable store sales. Comparable store net revenues exclude revenues from outlet stores. Because fiscal 2012 was a 53-week year...

  • Page 114
    ... conducted by the special committee of the board of directors relating to our former Chairman and Co-Chief Executive Officer, Gary Friedman, and our subsequent remedial actions. Represents costs incurred in connection with our initial public offering, including a fee of $7.0 million to Catterton...

  • Page 115
    ...table shows a summary of our Stores revenues, which include all sales for orders placed in retail stores as well as sales through outlet stores, and our Direct revenues which include sales through our catalogs and websites. February 2, 2013 Year Ended January 28, 2012 (in thousands) January 29, 2011...

  • Page 116
    ... ownership units in Home Holdings held by Mr. Friedman at that time. The increase in selling, general and administrative expenses, excluding the one-time and non-cash compensation items mentioned above, was primarily related to advertising and marketing costs associated with increased catalog...

  • Page 117
    .... We had 74 and 91 retail stores open at January 28, 2012, and January 29, 2011, respectively. This decrease in the number of retail stores was part of our strategy to consolidate stores in markets where we open new Full Line Design Galleries and to close stores that do not meet our profitability...

  • Page 118
    ... and marketing costs associated with increased circulated catalog pages, an increase in management fees to Catterton, Tower Three and Glenhill and an increase in credit cards fees due to the growth in sales revenues. During fiscal 2011, we closed four retail store locations in advance of the related...

  • Page 119
    ... of the board of directors relating to our former Chairman and Co-Chief Executive Officer, Gary Friedman, and our subsequent remedial actions. (3) The fourth quarter of fiscal 2012 includes (i) a $92.0 million non-cash compensation charge related to equity grants at the time of the Reorganization...

  • Page 120
    Commerce's review of the anti-dumping duty order on wooden bedroom furniture from China for the period from January 1, 2011 through December 31, 2011. In addition, as of the end of fiscal 2012, our U.S. operations achieved a position of cumulative profits (adjusted for permanent differences) for the...

  • Page 121
    ... conducted by the special committee of the board of directors relating to our former Chairman and Co-Chief Executive Officer, Gary Friedman, and our subsequent remedial actions. (g) Represents costs incurred in connection with our initial public offering, including a fee of $7.0 million to Catterton...

  • Page 122
    ... owed to Home Holdings by Gary Friedman, through the reclassification by Home Holdings of Mr. Friedman's Class A and Class A-1 ownership units into an equal number of Class A Prime and Class A-1 Prime ownership units. Mr. Friedman served as our Chairman and CoChief Executive Officer at the time of...

  • Page 123
    ... conducted by the special committee of the board of directors relating to our former Chairman and Co-Chief Executive Officer, Gary Friedman, and our subsequent remedial actions. (p) Represents costs incurred in connection with our initial public offering, including a fee of $7.0 million to Catterton...

  • Page 124
    ... million due to the timing of shipments made at fiscal year end, as well as increases in deferred rent and lease incentives of $10.9 million primarily due to entering into new lease agreements for Full Line Design Gallery locations. For fiscal 2011, net cash provided by operating activities was $17...

  • Page 125
    ... orders as well as timing of shipments made at period end. Net Cash Used In Investing Activities Investing activities consist primarily of investments in capital expenditures related to new store openings and improvements and in supply chain and systems infrastructure. For fiscal 2012, net cash used...

  • Page 126
    ...provision. On November 7, 2012, Restoration Hardware, Inc. made payments of $75.7 million on its revolving line of credit and repaid its outstanding term loan of $15.0 million in full. Such payments were funded from the proceeds received as a result of our initial public offering. Upon the repayment...

  • Page 127
    ... accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts reported in our consolidated financial statements and related notes, as well as the related disclosure of contingent assets and liabilities at the...

  • Page 128
    ... financial statements. Revenue Recognition We recognize revenues and the related cost of goods sold when merchandise is received by our customers. Revenues from "cash-and-carry" store sales are recognized at the point of sale in the store. Revenues from directto-customer and home-delivered sales...

  • Page 129
    ... change in customer demand or business climate that could affect the value of an asset; general economic conditions, such as increasing Treasury rates or unexpected changes in gross domestic product growth; a change in our market share; budget-to-actual performance and consistency of operating...

  • Page 130
    ... for the fair value of awards that actually vest. Fair value for restricted stock units is valued using the closing price of our stock on the date of grant. The fair value of each option award granted under our award plans subsequent to our initial public offering is estimated on the date of grant...

  • Page 131
    ...connection with the initial public offering, shares of our common stock with substantially similar restrictions, terms and conditions were issued in replacement of these performance-based units. In connection with Gary Friedman's resignation as Chairman and Co-Chief Executive Officer and new role as...

  • Page 132
    ...rate on the revolving line of credit during the year ended February 2, 2013, and to the extent that borrowings were outstanding, we do not believe that a 10% change in the interest rate would have a material effect on our consolidated results of operations or financial condition. Impact of Inflation...

  • Page 133
    ... current liabilities Revolving line of credit Term loan Deferred rent and lease incentives Deferred tax liabilities Other long-term obligations Total liabilities Commitments and contingencies (See Note 15 to the consolidated financial statements) Stockholders' equity: Common stock, $0.0001 par value...

  • Page 134
    RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) February 2, 2013 Year Ended January 28, 2012 January 29, 2011 Net revenues Cost of goods sold Gross profit Selling, general and administrative expenses Income (loss) from ...

  • Page 135
    RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) February 2, 2013 Year Ended January 28, 2012 January 29, 2011 Net income (loss) Foreign currency translation adjustment-net of tax Total comprehensive income (loss) $(12,789) 61 $(12,728) $20...

  • Page 136
    ...Restoration Hardware Holdings, Inc. Balances-January 28, 2012 Stock-based compensation Conversion of Restoration Hardware Holdings, Inc. common stock upon Reorganization Issuance of common stock upon Reorganization Issuance of common stock...integral part of these Consolidated Financial Statements. 80

  • Page 137
    RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) February 2, 2013 Year Ended January 28, January 29, 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (12,789) $ 20,588 $ (7,051) Adjustments to reconcile net income (loss) to net cash provided...

  • Page 138
    ... offers a growing number of categories including furniture, lighting, textiles, bathware, decorative accessories, outdoor and children's furnishings. These products are sold through the Company's stores, catalogs and websites. As of February 2, 2013, the Company operated a total of 71 retail stores...

  • Page 139
    ...the comparative effect of the change in accounting method and its impact on key components of the Company's consolidated statements of operations (dollar amounts in thousands): Year Ended January 28, 2012 As Reported As Revised January 29, 2011 As Reported As Revised Net revenues Cost of goods sold...

  • Page 140
    ... of 53 weeks and the fiscal years ended January 28, 2012 ("fiscal 2011") and January 29, 2011 ("fiscal 2010") each consisted of 52 weeks. Use of Accounting Estimates The preparation of the Company's consolidated financial statements in conformity with GAAP requires management to make estimates and...

  • Page 141
    ...'s annual physical inventory count. Actual inventory shrinkage and obsolescence can vary from estimates due to factors including the mix of the Company's inventory (which ranges from large furniture to decorative accessories) and execution against loss prevention initiatives in the Company's stores...

  • Page 142
    ... business climate that could affect the value of an asset; general economic conditions, such as increasing Treasury rates or unexpected changes in GDP growth; a change in the Company's market share; budget-to-actual performance and consistency of operating margins and capital expenditures; a product...

  • Page 143
    ... are present. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by a regulator. In 2012, the Company adopted the...

  • Page 144
    ...leases are accounted for as operating leases. The Company leases stores, distribution facilities, office space and certain machinery and equipment under various operating leases. Most real estate lease agreements contain, among other terms and conditions, tenant improvement allowances, rent holidays...

  • Page 145
    ... Actual sales returns Balance at end of fiscal year Deferred Revenue and Customer Deposits $ 3,181 134,909 (132,884) 5,206 $ 3,403 102,875 (103,097) 3,181 $ 3,145 83,393 (83,135) $ 3,403 $ $ Deferred revenue represents the revenue associated with orders that have been shipped by the Company...

  • Page 146
    ... or upon the return on investment attained by certain of the equity investors in Home Holdings at defined liquidity events, including an initial public offering or certain sale or merger transactions. The Company estimated the fair value of performance-based units awarded to employees at the grant...

  • Page 147
    ... charge of $23.1 million related to the performance-based vesting of certain shares granted to the Company's Chief Executive Officer, Carlos Alberini, and Gary Friedman, who serves as the Company's Creator and Curator. Costs incurred in connection with the initial public offering, including a fee of...

  • Page 148
    ... a higher degree of judgment used in measuring fair value. The Company's financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories: • • Level 1-Quoted prices are available in active markets for identical investments as of...

  • Page 149
    ... 2012 annual indefinite-lived intangible assets impairment test. The adoption of this guidance resulted in a change in how the Company performed its indefinite-lived intangible assets impairment assessment; however, the adoption did not have a material impact on the Company's consolidated financial...

  • Page 150
    ...): Gross Carrying Amount Foreign Currency Translation Net Book Value January 28, 2012 Accumulated Amortization Useful Life Intangible assets subject to amortization: Core technologies Fair value of leases Fair market write-up Fair market write-down Total intangible assets subject to amortization...

  • Page 151
    ... credit liability Allowance for sales returns Capital lease obligation-current Other liabilities Total other current liabilities $18,435 5,206 2,925 5,862 $32,428 $20,742 3,181 4,114 2,824 $30,861 NOTE 9-LINE OF CREDIT AND TERM LOAN In August 2011, Restoration Hardware, Inc., along with its...

  • Page 152
    ... On November 7, 2012, Restoration Hardware, Inc. made payments of $75.7 million on its revolving line of credit and repaid its outstanding term loan of $15.0 million in full. Such payments were funded from the proceeds received as a result of the Company's initial public offering. Upon the repayment...

  • Page 153
    ... or (ii) the availability under the revolving line of credit for extensions of credit to Restoration Hardware, Inc. is less than the greater of ... Company's effective tax rate is as follows: February 2, 2013 Year Ended January 28, 2012 January 29, 2011 Provision at federal statutory tax rate State ...

  • Page 154
    ... of the end of fiscal year 2012, the Company's U.S. operations achieved a position of cumulative profits (adjusted for permanent differences) for the most recent three-year period. The Company concluded that this record of cumulative profitability in recent years, coupled with its business plan for...

  • Page 155
    ... of the change over a four-year period beginning with its January 28, 2012 tax return. The Company reduced its balance of unrecognized tax benefits by $6.5 million for the impact of the approval on this uncertain tax position. This Company is subject to tax in the United States, Canada, Shanghai and...

  • Page 156
    .... All stock-based compensation expense associated with the grants of units by Home Holdings to the Company's directors, executive officers and employees was recorded by the Company. On November 7, 2012, the Company completed its initial public offering and at the time of the initial public offering...

  • Page 157
    ...grant using a Monte Carlo method with the following weighted-average assumptions: Expected volatility Expected life (years) Risk-free interest rate Dividend yield 56% 0.8 0.19% - As of February 2, 2013, all compensation expense related to time-based units was recorded by the Company. No stock-based...

  • Page 158
    ... their performance-based units, such shares shall begin to vest during the 36-month period following the initial public offering when the 10-day average closing price of the Company's common stock exceeds the initial public offering price of $24.00 per share for at least 10 consecutive trading days...

  • Page 159
    ...resale restrictions will lapse on dates after the initial public offering on which the 10-day average closing price per share of the Company's common stock reaches specified levels ranging from $50.75 to $111.25 for at least 10 consecutive trading days. Aside from these options granted in connection...

  • Page 160
    ...to be recognized on a straight-line basis over a weighted-average period of 3.80 years. No stock-based compensation cost has been capitalized in the accompanying consolidated financial statements. NOTE 13-EMPLOYEE BENEFIT PLANS The Company has a 401(k) plan for its employees who meet certain service...

  • Page 161
    ... and Curator with respect to product development, merchandising and other creative matters. The agreement has a five-year term and is renewable for an additional five-year period. In addition, in connection with the Company's initial public offering, Home Holdings has agreed to invest $5 million...

  • Page 162
    ... Restoration Ownership Plan units. The loan, together will all interest accrued but unpaid, is due and payable on the first to occur of (i) December 31, 2015, (ii) ninety days following termination of employment, (iii) the date of any sale of the Company, (iv) the date of an initial public offering...

  • Page 163
    ... payments for insurance, real estate taxes and repair and maintenance to which the Company is obligated are excluded from minimum lease payments. Minimum and contingent rental expense under operating leases is as follows (in thousands): February 2, 2013 Year Ended January 28, 2012 January 29, 2011...

  • Page 164
    ... its sales into furniture and non-furniture product lines. Furniture includes both indoor and outdoor furniture from the Company's business lines. Non-furniture includes lighting, textiles, accessories and home décor. Net revenues in each category were as follows (in thousands): Year Ended February...

  • Page 165
    ... the U.S. Department of Commerce's review of the anti-dumping duty order on wooden bedroom furniture from China for the period from January 1, 2011 through December 31, 2011. In addition, as of the end of fiscal 2012, the Company's U.S. operations had returned to a position of cumulative profits...

  • Page 166
    ... of the board of directors relating to Mr. Friedman and its subsequent remedial actions. The three months ended October 29, 2011 includes a $6.4 million compensation charge related to the repayment of loans owed to Home Holdings by Mr. Friedman, through the reclassification by Home Holdings of...

  • Page 167
    ...Restoration Hardware Holdings, Inc. and its subsidiaries at February 2, 2013 and January 28, 2012 and the results of their operations and their cash flows for each of the three years in the period ended February 2, 2013 in conformity with accounting principles generally accepted in the United States...

  • Page 168
    ..., our Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this annual report our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or...

  • Page 169
    ...Directors, Executive Officers and Corporate Governance The information required by this item will be contained in our definitive Proxy Statement for the Annual.... Item 13. Certain Relationships and Related Transactions and Director Independence The information required by this item will be contained...

  • Page 170
    ...Statements The following financial statements are included in Part II, Item 8 of this Annual Report on Form 10-K Consolidated Balance Sheets as of February 2, 2013 and January 28, 2012 Consolidated Statements of Operations for the fiscal years ended February 2, 2013, January 28, 2012 and January 29...

  • Page 171
    ... 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. RESTORATION HARDWARE HOLDINGS, INC. By: /s/ Carlos Alberini Carlos Alberini Chief Executive Officer Date: April 26, 2013 Know all...

  • Page 172
    ... entered into by and between Restoration Hardware Holdings, Inc. and each of its directors. First Amendment to Ninth Amended and Restated Credit Agreement dated as of January 6, 2012, by and among Restoration Hardware, Inc., as lead borrower, Restoration Hardware Canada, Inc., as Canadian borrower...

  • Page 173
    ... Form Incorporated by Reference Date of File Number First Filing Exhibit Number Filed Herewith 10.3 Ninth Amended and Restated Credit Agreement dated as of August 3, 2011, by and among Restoration Hardware, Inc., as lead borrower, Restoration Hardware Canada, Inc., as Canadian borrower, the...

  • Page 174
    ... as of November 1, 2012, by and between Restoration Hardware, Inc. and Karen Boone. Amended and Restated Offer Letter, between Restoration Hardware, Inc. and Ken Dunaj. 2012 Equity Replacement Plan and related documents. 2012 Stock Incentive Plan and related documents. 2012 Stock Option Plan and...

  • Page 175
    ... Form Incorporated by Reference Date of File Number First Filing Exhibit Number Filed Herewith 31.1 Certification of Chief Executive Officer pursuant to Rule 13a14(a) of the Securities Exchange Act of 1934, as amended. Certification of Chief Financial Officer pursuant to Rule 13a14(a) of the...

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  • Page 178
    ...15 Koch Road, Suite J Corte Madera, California 94925 www.restorationhardware.com Investor Relations Phone: 415-945-4998 Email: [email protected] ir.restorationhardware.com Stock Exchange Restoration Hardware Holdings, Inc. is listed on the New York Stock Exchange under the symbol RH. Transfer...

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