Restoration Hardware 2012 Annual Report Download - page 123

(n) Includes lease termination costs for retail stores that were closed prior to their respective lease
termination dates. The lease termination amounts in the third quarter of fiscal 2011 and the first and
second quarters of fiscal 2012 include changes in estimates regarding liabilities for future lease
payments for closed stores.
(o) 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.
(p) 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.
(q) 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.
(r) As of the end of fiscal 2012, our U.S. operations achieved a position of cumulative profits for the most
recent three-year period. We concluded that this record of cumulative profitability in recent years,
coupled with our business plan for profitability in future periods provided assurance that our future tax
benefits more likely than not would be realized. Accordingly, in the fourth quarter of fiscal 2012, we
released all of our U.S. valuation allowance against net deferred tax assets. In addition, income tax
items exclude the tax benefit related to the resolution of our Canada Revenue Agency examination in
the third quarter of fiscal 2012, exclude the tax benefit from the utilization of federal and state net
operating losses, and assume a normalized tax rate of 40% for all periods.
(7) Comparable store sales have been calculated based upon retail stores that were open at least fourteen full
months as of the end of the 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 the fourth quarter
of fiscal 2012 was a 14-week quarter, comparable store sales percentage for fourth quarter of fiscal 2012
excludes the extra week of sales.
Liquidity and Capital Resources
General
Our business relies on cash flows from operations and the revolving line of credit as our primary sources of
liquidity. Our primary cash needs are for merchandise inventories, Source Books and other catalogs, payroll,
store rent, capital expenditures associated with opening new stores and updating existing stores, as well as
infrastructure and information technology. The most significant components of our working capital are cash and
cash equivalents, merchandise inventories, accounts receivable, accounts payable and other current liabilities.
Our working capital is seasonal as a result of building inventory and paying for catalog costs for the key selling
seasons, and as a result, our borrowings are generally higher during these periods when compared to the rest of
our fiscal year. Our borrowings generally increase in our first fiscal quarter as we prepare for the outdoor selling
season, which is in our second fiscal quarter, and they generally increase in the third fiscal quarter as we prepare
for the holiday selling season, which is in our fourth fiscal quarter. We believe that cash expected to be generated
from operations, and borrowing availability under the revolving line of credit or other financing arrangements,
will be sufficient to meet working capital requirements, anticipated capital expenditures and payments due under
our revolving line of credit for at least the next 12 – 24 months. Our investments in capital expenditures for fiscal
2012 totaled $49 million, of which $28 million was for construction of new stores and $21 million was for our
infrastructure, including supply chain, information technology and renovations to our corporate headquarters. We
expect to have capital expenditures of approximately $95 million to $100 million in fiscal 2013, primarily related
to our efforts to continue our growth and expansion, including construction of Full Line Design Galleries and
infrastructure investments.
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Form 10-K