Restoration Hardware 2012 Annual Report Download - page 143

Trademarks
The Company annually evaluates whether trademarks continue to have an indefinite life. Trademarks are
reviewed for impairment annually in the fourth quarter and may be reviewed more frequently if indicators of
impairment 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 option to qualitatively assess indefinite-lived intangible asset impairment
to determine whether it is more likely than not that the fair value of the asset is less than its carrying amount.
Accordingly, the Company performed a qualitative analysis examining key events and circumstances affecting
fair value and determined it is more likely than not that the asset’s fair value is greater than its carrying amount.
As such, no further analysis was required for purposes of testing of the Company’s trademarks for impairment.
If trademarks are not qualitatively assessed, an impairment review is performed by comparing the carrying
value to the estimated fair value, determined using a discounted cash flow methodology. Factors used in the
valuation of intangible assets with indefinite lives include, but are not limited to, management’s plans for future
operations, brand initiatives, recent operating results and projected future cash flows.
The Company tested the trademarks for impairment and concluded that there has been no impairment in any
period.
Long-Lived Assets
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. 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. If the sum of the estimated undiscounted future
cash flows related to the asset are less than the carrying value, the Company recognizes a loss equal to the
difference between the carrying value and the fair value, usually determined by the estimated discounted cash
flow analysis of the asset.
The Company evaluates long-lived tangible assets at an individual store level, which is the lowest level at
which independent cash flows can be identified. The Company evaluates corporate assets or other long-lived
assets that are not store-specific at the consolidated level.
Since there is typically no active market for the Company’s long-lived tangible assets, the Company
estimates fair values based on the expected future cash flows. The Company estimates future cash flows based on
store-level historical results, current trends, and operating and cash flow projections. The Company’s estimates
are subject to uncertainty and may be affected by a number of factors outside its control, including general
economic conditions and the competitive environment. While the Company believes its estimates and judgments
about future cash flows are reasonable, future impairment charges may be required if the expected cash flow
estimates, as projected, do not occur or if events change requiring the Company to revise its estimates.
The Company did not record an impairment charge on long-lived assets in fiscal 2012 or fiscal 2011.The
Company recorded a $2.1 million impairment charge on long-lived assets of certain underperforming stores in
fiscal 2010, which is included in cost of goods sold on the consolidated statements of operations.
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Form 10-K