Restoration Hardware 2012 Annual Report Download - page 107

(g) Includes lease termination costs for retail stores that were closed prior to their respective lease
termination dates. The amount in fiscal 2012 relates to changes in estimates regarding liabilities for
future lease payments for closed stores.
(h) Represents non-cash impact of amortizing the net fair value adjustment to inventory recorded in
connection with the purchase price allocation for the Acquisition over the period of the inventory turn.
(i) Represents costs related to our efforts to pursue an initial public offering.
(j) Represents legal and other professional fees, incurred in connection with the investigation 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.
(k) Represents costs incurred in connection with our initial public offering, including a fee of $7.0 million
to Catterton, Tower Three and Glenhill in accordance with our management services agreement,
payments of $2.2 million to certain former executives and bonus payments to employees of $1.3
million.
(l) Represents expense incurred as a result of increased tariff obligations of one of our foreign suppliers
following 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.
(m) Represents items which management believes are not indicative of our ongoing operating performance.
The 2008 Successor period includes consulting fees related to organizational matters following the
Acquisition. Fiscal 2009 adjustments include one-time start-up costs associated with Baby & Child and
occupancy costs for corporate office space exited by us as part of the Acquisition. Fiscal 2010 and
fiscal 2011 adjustments include consulting fees related to organizational matters and state franchise tax
amounts. All periods include foreign exchange gains and losses.
(11) Working capital is defined as current assets, excluding cash and cash equivalents, less current liabilities,
excluding the current portion of long-term debt.
(12) Total debt (including current portion) includes the revolving line of credit, term loan, and capital lease
obligations.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading luxury retailer in the home furnishings marketplace. Our collections of timeless, updated
classics and reproductions are presented consistently across our sales channels in sophisticated and unique
lifestyle settings that we believe are on par with world-class interior designers. We offer dominant merchandise
assortments across a growing number of categories, including furniture, lighting, textiles, bathware, décor,
outdoor and garden, tableware and children’s furnishings. Our business is fully integrated across our multiple
channels of distribution, consisting of our stores, catalogs and websites. We position our stores as showrooms for
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 business, we are focused on the following key strategies:
•Transform Our Real Estate Platform. We believe we have an opportunity to significantly increase our
sales by transforming our real estate platform from our existing retail footprint to a portfolio focused on
Full Line Design Galleries. Our Full Line Design Galleries are sized based on the market potential and
the size of our assortment. As of February 2, 2013, we had three Full Line Design Galleries that
averaged approximately 21,800 selling square feet, more than three times the size of our average
Gallery. We have found that we experience higher sales across all of our channels when we showcase
more of our assortment. We have identified approximately 50 key metropolitan markets where we can
open new Full Line Design Galleries in iconic or high-profile locations that are representative of our
luxury brand positioning.
We opened our first three Full Line Design Galleries in Los Angeles in June 2011, Houston in November
2011 and Scottsdale in November 2012. In the Los Angeles and Houston markets, store demand increased
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Form 10-K