Restoration Hardware 2012 Annual Report Download - page 119

In the third quarter of fiscal 2012, we changed our accounting policy for recognizing stock-based
compensation expense which has been applied retrospectively to the periods presented below. See footnote 1 to
the table below for further detail.
Our business is seasonal and we have historically realized a higher portion of our net revenues and net
income in the second and fourth fiscal quarters due primarily to the outdoor selling season in the second fiscal
quarter and the holiday selling season in the fourth fiscal quarter. Working capital requirements are typically
higher in the first and third fiscal quarters due to inventory-related working capital requirements in advance of
the outdoor selling season and the holiday selling season. During these peak periods of working capital
requirements, we have historically increased our borrowings under the Restoration Hardware, Inc. revolving line
of credit. As such, results of a period shorter than a full year may not be indicative of results expected for the
entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods.
Fiscal 2011 Fiscal 2012
First
Quarter
Second
Quarter
Third
Quarter (1)
Fourth
Quarter
First
Quarter
Second
Quarter (2)
Third
Quarter (2)
Fourth
Quarter (3)
(dollars in thousands)
Net revenues $184,760 $235,623 $232,459 $305,242 $217,914 $292,906 $284,171 $398,055
Cost of goods sold 121,576 144,377 148,066 187,716 142,646 178,779 182,291 252,881
Gross profit 63,184 91,246 84,393 117,526 75,268 114,127 101,880 145,174
Selling, general, and
administrative
expenses (4) 68,707 81,688 88,496 90,615 77,365 94,465 99,886 233,769
Income (loss) from
operations (5,523) 9,558 (4,103) 26,911 (2,097) 19,662 1,994 (88,595)
Interest expense (899) (989) (1,598) (1,648) (1,575) (1,479) (1,544) (1,178)
Income (loss) before
income taxes (6,422) 8,569 (5,701) 25,263 (3,672) 18,183 450 (89,773)
Income tax expense
(benefit) (204) 987 (871) 1,209 56 567 (1,235) (61,411)
Net income (loss) $ (6,218) $ 7,582 $ (4,830) $ 24,054 $ (3,728) $ 17,616 $ 1,685 $ (28,362)
Adjusted EBITDA (5) $ 5,333 $ 22,414 $ 11,102 $ 41,305 $ 6,159 $ 28,738 $ 12,973 $ 48,701
Adjusted net income
(loss) (6) $ (2,118) $ 8,003 $ 1,076 $ 19,490 $ (1,324) $ 12,245 $ 2,662 $ 24,156
Comparable store
sales (7) 25% 17% 36% 22% 26% 31% 29% 26%
(1) The third quarter of fiscal 2011 includes a $6.4 million compensation charge related to the repayment of
loans 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 Co-Chief Executive Officer at the time
of such loan repayment.
(2) The second and third quarters of fiscal 2012 include $2.0 million and $2.8 million, respectively, of 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.
(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, (ii) a non-cash compensation charge of $23.1 million related
to the performance-based vesting of certain shares granted to Mr. Alberini and Mr. Friedman, (iii) 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 and (iv) $3.3 million incurred
as a result of increased tariff obligations of one of our foreign suppliers following the U.S. Department of
63
Form 10-K