Restoration Hardware 2012 Annual Report Download - page 81

We depend on our ability to generate cash flows from operating activities, as well as revolving borrowings
under the Restoration Hardware, Inc. revolving line of credit, to finance the carrying costs of our inventory, to
pay for capital expenditures and operating expenses and to support our growth strategy. As of February 2, 2013,
we had borrowed $82.5 million under the revolving line of credit and had $188.5 million available for borrowing.
Various factors may impact our lenders’ willingness to provide funds to us, including:
• our continuing compliance with the terms of our revolving line of credit;
• the amount of availability under the revolving line of credit, which depends on various factors,
including the amount of collateral available under the revolving line of credit, which relies on a
borrowing base formula tied principally to the value of our assets, including our inventory; and
• our lenders’ financial strength and ability to perform under the revolving line of credit.
If the cash flows from our operating activities are not sufficient to finance the carrying costs of inventory and to
pay for capital expenditures and operating costs, and if we are unable to borrow a sufficient amount under the
revolving line of credit to finance or pay for such expenditures and costs, it could have a significant negative
effect on our business.
We currently believe that our cash flow from operations and funds available under the revolving line of
credit will satisfy our capital and operating requirements for the next twelve months. However, any weakening
of, or other adverse developments concerning our sales performance or adverse developments concerning the
availability of credit under the revolving line of credit, could limit the overall amount of funds available to us.
In addition, we may experience cash flow shortfalls in the future, and we may otherwise require additional
external funding, or we may need to raise funds to take advantage of unanticipated opportunities, to make
acquisitions of other businesses or companies or to respond to changing business conditions or unanticipated
competitive pressures. However, we cannot assure you that we will be able to raise funds on favorable terms, if at
all, or that future financing requirements would not be dilutive to holders of our capital stock. If we fail to raise
sufficient additional funds, we may be required to delay or abandon some of our planned future expenditures or
aspects of our current operations.
A number of factors that affect our ability to successfully open new stores within the time frames we initially
target or optimize our store footprint are beyond our control, and these factors may harm our ability to execute
our strategy of sizing stores to the potential of the market, which may negatively affect our results of
operations.
We are focused on sizing our assortments and our stores to the potential of the market by adjusting the
square footage and number of stores on a geographic market-by-market basis. We plan to optimize our real estate
by continuing to open larger square footage Full Line Design Galleries in key markets and relocating or closing
selected stores in these or adjacent markets. When we address the introduction of new stores in a particular
market or changes to, or closure of, existing stores, we must make a series of decisions regarding the size and
location of new stores (or the existing stores slated to undergo changes or closure) and the impact on our other
existing stores in the area.
Our ability to maximize the productivity of our retail store base, depends on many factors, including, among
others, our ability to:
• identify suitable locations, the availability of which is largely outside of our control;
• size the store locations to the market opportunity;
• retain customers in certain geographic markets when we close stores in that market;
• negotiate acceptable new lease terms or lease renewals, modifications or terminations;
• efficiently build and equip new stores or further remodel existing locations;
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Form 10-K