Restoration Hardware 2012 Annual Report Download - page 142

Interest is capitalized on construction in progress and software projects during the period in which
expenditures have been made, activities are in progress to prepare the asset for its intended use and actual interest
costs are being incurred.
Assets acquired under non-cancelable leases, which meet the criteria of capital leases, are capitalized in
property and equipment and amortized over the lesser of the useful life of the asset or the applicable lease term.
The land purchased by the Company is recorded at cost and is a non-depreciable asset.
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of assets may not be recoverable.
Intangible Assets
Intangible assets reflect the value assigned to trademarks, customer relationships, core technologies and the
fair market value of the Company’s leases. Customer relationships, core technologies and the fair market value of
the leases are amortized over their useful life. The Company does not amortize trademarks as the Company
defines the life of the asset as indefinite.
Impairment
Goodwill
The Company evaluates goodwill annually to determine whether it is impaired. Goodwill is also tested
between annual impairment tests if an event occurs or circumstances change that would indicate that the fair
value of a reporting unit is less than its carrying amount. 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; 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 recall or an adverse action or assessment by a regulator; or changes
in management, key personnel, etc. If an impairment indicator exists, the Company tests the intangible asset for
recoverability. The Company has identified only one single reporting unit. The Company selected the fourth
fiscal quarter to perform its annual goodwill impairment testing.
The Company qualitatively assesses goodwill impairment to determine whether it is more likely than not
that the fair value of a reporting unit is less than its carrying amount. During fiscal 2012, the Company performed
a qualitative analysis examining key events and circumstances affecting fair value and determined it is more
likely than not that the reporting unit’s fair value is greater than its carrying amount. As such, no further analysis
was required for purposes of testing of the Company’s goodwill for impairment.
If goodwill is not qualitatively assessed, a two-step quantitative approach is used. In the first step, the
Company compares the fair value of the reporting unit, generally defined as the same level as or one level below
an operating segment, to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the
net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform
further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the
reporting unit, then the Company must perform the second step of the impairment test in order to determine the
implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its
implied fair value, then the Company would record an impairment loss equal to the difference.
The Company’s tests for impairment of goodwill resulted in a determination that the fair value of the
Company substantially exceeded the carrying value of the Company’s net assets in fiscal 2012 and fiscal 2011.
No impairment to goodwill has been recorded in any period.
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