Restoration Hardware 2014 Annual Report Download

Download and view the complete annual report

Please find the complete 2014 Restoration Hardware annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 128

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 31, 2015
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-35720
RESTORATION HARDWARE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 45-3052669
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
15 Koch Road, Suite K
Corte Madera, CA 94925
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (415) 924-1005
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.0001 par value New York Stock Exchange, Inc.
(Title of class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ÈNo
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ÈNo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes ÈNo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ÈAccelerated filer
Non-accelerated filer (Do not check if a smaller reporting company) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes No È
As of August 1, 2014, the last business day of the registrant’s most recently completed second quarter, the approximate
market value of the registrant’s common stock held by non-affiliates was $2,144,566,000. Solely for purposes of this
disclosure, shares of common stock held by executive officers and directors of the registrant as of such date have been
excluded because such persons may be deemed to be affiliates.
As of March 20, 2015, 39,892,540 shares of registrant’s common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement for its 2015 Annual Meeting of Stockholders are incorporated by reference
in Part III of this Annual Report on Form 10-K where indicated. Such proxy statement will be filed with the Securities and
Exchange Commission within 120 days of the registrant’s fiscal year ended January 31, 2015.

Table of contents

  • Page 1
    ... year ended January 31, 2015 or ' TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-35720 RESTORATION HARDWARE HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware (State...

  • Page 2

  • Page 3
    ... Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions and Director Independence Principal Accountant Fees and Services PART IV. Exhibits and Financial...

  • Page 4
    ... AND MARKET DATA This annual report contains forward-looking statements that are subject to risks and uncertainties. Forwardlooking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business...

  • Page 5
    ... our stores, catalogs and websites. As of January 31, 2015, we operated a total of 67 retail stores throughout the United States and Canada, consisting of 57 Legacy Galleries, 7 larger format Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores. We have achieved strong growth in sales...

  • Page 6
    ...leverage our fixed corporate and other general and administrative expenses as we increase our sales. • • • Pursue International Expansion. We plan to strategically expand our business into select countries outside of the United States and Canada over the next several years. We believe that...

  • Page 7
    ... stores, catalogs and websites. We believe the level of integration among all of our channels and our approach to the market distinguishes us from most other retailers. For fiscal 2014, sales of products originating in our stores and from our direct business each represented 50% of our net revenues...

  • Page 8
    ...-alone Baby & Child Galleries in key markets. As of January 31, 2015, we operated a total of 67 retail stores throughout the United States and Canada, consisting of 57 Legacy Galleries, 7 larger format Galleries and 3 Baby & Child Galleries. The following list shows the number of retail stores in...

  • Page 9
    Outlet Stores As of January 31, 2015, we operated 17 outlet stores in 12 states in the United States and in Canada. Our outlet stores are branded as Restoration Hardware Outlet or RH Outlet and located primarily in large outlet malls. Our outlet stores serve as an efficient means to sell ...

  • Page 10
    ...events. We maintain a database of customers, which includes sales patterns, detailed purchasing information, demographic data, geographic locations and postal and email addresses. We use our customer database to tailor our programs and increase productivity of our marketing and promotion initiatives...

  • Page 11
    ... within the United States and houses our newest customer service center. This facility also serves as the furniture delivery hub for the greater Dallas metropolitan area and central Texas region. Our Chino, California facility is approximately 636,000 square feet. It is a short-term facility to...

  • Page 12
    ... productivity and service levels across our supply chain; Implementing enhanced special order capabilities optimizing processes to support our increasingly expanding product assortment; Upgrading our web commerce and in-store capabilities with state-of-the art technology to optimize performance...

  • Page 13
    ...-designed product offerings at high price points, including antique dealers and home furnishings retailers who market to the interior design community. We also compete with national and regional home furnishings retailers and department stores, as well as with mail order Source Books and online...

  • Page 14
    ... of Business Conduct, our Corporate Governance Guidelines and Code of Ethics governing our chief executive and senior financial officers and other related materials. The information on our websites is not part of this annual report. Our Investor Relations Department can be contacted at Restoration...

  • Page 15
    ... of sales from stores previously closed. In addition, these developments in our business could result in material changes in our operating costs, including increased merchandise inventory costs and costs for paper and postage associated with the mailing and shipping of Source Books and products. We...

  • Page 16
    ... retail home furnishings sector, including, among other things, the general state of the economy, capital and credit markets, consumer confidence, general business conditions, the availability and cost of consumer credit, the level of consumer debt, interest rates, level of taxes affecting consumers...

  • Page 17
    .... Our vendors could also initiate or expand sales of their products through their own stores or through the Internet to the retail market and therefore compete with us directly or sell their products through outlet centers or discount stores, increasing the competitive pricing pressure we face...

  • Page 18
    ...on a geographic market-by-market basis. We plan to optimize our real estate by continuing to open larger square footage 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...

  • Page 19
    ... incur leasing and other costs during the delay without associated store revenue at such location. New or remodeled stores may not be profitable or achieve our target return on investment. Unfavorable economic and business conditions and other events could also interfere with our plans to expand or...

  • Page 20
    ... date we have principally relied upon leases with landlords for our other locations. As we develop new Galleries in the future, we may explore other models for our real estate which could include joint ventures or other forms of equity ownership in the real estate interests associated with new sites...

  • Page 21
    ...a large number of new business initiatives. For example, we have developed and continue to refine and enhance our Gallery format which involves larger store square footage. We plan to continue to open larger format Galleries in select major metropolitan markets and we expect to close a number of our...

  • Page 22
    ... with mail order Source Books and online retailers focused on home furnishings. We compete with these and other retailers for customers, suitable retail locations, vendors, qualified employees and management personnel. Many of our competitors have significantly greater financial, marketing and other...

  • Page 23
    ... resulting in "out of stock" conditions in our stores, significantly higher costs and longer lead times associated with distributing our products to both our stores and online customers and the inability to process orders in a timely manner or ship goods to our customers. Further, any significant...

  • Page 24
    ... center in May 2013, opened a furniture distribution center in Grand Prairie, Texas in September 2013 and in-sourced three home furniture delivery facilities in 2013. During fiscal 2014, we in-sourced two additional home furniture delivery facilities in Atlanta, Georgia and Carmel, New York...

  • Page 25
    ...to risks and costs associated with protecting the integrity and security of our customers' information. A significant number of customer purchases across all of our channels are made using credit cards. Additionally, a significant number of our customer orders are placed through our websites, and we...

  • Page 26
    ... information, including credit card information, securely. We became fully compliant with Payment Card Industry, or PCI, Data Security Standards during the fourth quarter of fiscal 2014. There can be no assurance that we will be able to operate our facilities and our customer service and sales...

  • Page 27
    ...available for our catalog mailings, which could be changed or discontinued at any time. The market price for paper has fluctuated significantly during the past three fiscal years and may continue to fluctuate in the future. Future increases in shipping rates, paper costs or printing costs would have...

  • Page 28
    ...the kinds of children's products sold in our Baby & Child division. Certain of the products we sell are subject to the Lacey Act, prohibiting the importation and sale of products containing illegally harvested wood, among other things. Likewise, many of our products are subject to the California Air...

  • Page 29
    ... of products, product compliance enforcement actions and defending product liability claims can result in, among other things, lost sales, diverted resources, potential harm to our reputation and increased customer service costs, any of which could have a material adverse effect on our business and...

  • Page 30
    ..., real property insurance and real estate taxes. We purchased the building and land for our store in San Francisco, but to date we have principally relied upon leases with landlords for our other locations. As we develop new stores in the future, we may explore other models for our real estate which...

  • Page 31
    ... are complex and may increase the costs of regulatory compliance, or limit or restrict the products or services we sell or subject our business to the possibility of regulatory actions or proceedings. The United States Foreign Corrupt Practices Act, and other similar laws and regulations, generally...

  • Page 32
    ... future. Any such limitation on the timing of utilizing our net operating loss carryforwards would increase the use of cash to settle our tax obligations. We expect that throughout the year there could be ongoing variability in our quarterly tax rates as events occur and exposures are evaluated. In...

  • Page 33
    ... expenses, including costs resulting from public company reporting obligations under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act, and the listing requirements of the stock exchange on which...

  • Page 34
    ... well as the following quarterly variations in our operating results compared to market expectations; changes in preferences of our customers; announcements of new products or significant price reductions by us or our competitors; size of the public float; stock price performance of our competitors...

  • Page 35
    ...the NYSE listing requirements could result in us receiving a deficiency or delisting notice from the NYSE. On November 12, 2014, we notified the New York Stock Exchange (the "NYSE") that, due to the resignation of an independent director from our board of directors effective November 7, 2014, we had...

  • Page 36
    ... board of directors subsequently appointed a new independent director effective January 22, 2015 and we have regained compliance with Section 303A.01 of the NYSE Listed Company Manual. Risks Relating to Our Convertible Notes Financing We expect that our common stock may experience increased trading...

  • Page 37
    ... will rise or fall. The market price of our common stock will be influenced by a number of factors, including general market conditions, variations in our operating results, earnings per share, cash flows, deferred revenue, other financial and non-financial metrics and other factors described in...

  • Page 38
    ... over the term of the Notes. We will report lower net income in our financial results because ASC 470-20 will require interest to include the amortization of the debt discount, which could adversely affect our future financial results, the trading price of our common stock and the trading price of...

  • Page 39
    ... scheduled trading day is not a trading day, the immediately following trading day), and in all other instances, the 45 consecutive trading day period beginning on, and including, the third trading day immediately following the related conversion date. Accordingly, if the price of our common stock...

  • Page 40
    ... amount under the Restoration Hardware, Inc. revolving line of credit and term loan. The remaining proceeds are available to management to use for general corporate purposes, including to fund our real estate business initiative related to the development of our next generation Galleries. However...

  • Page 41
    ..., Texas Carmel, New York Corporate Facilities Corte Madera, California (1) Richmond, California San Rafael, California Pleasanton, California Distribution center / Customer service center Distribution center Distribution center / Home delivery / Customer service center Distribution center / Home...

  • Page 42
    ... by various federal and state agencies that regulate our business, including the U.S. Equal Employment Opportunity Commission. Often these cases raise... information, refer to Note 18-Commitments and Contingencies in our consolidated financial statements within Part II of this Annual Report on...

  • Page 43
    ... trades under the symbol "RH" on the NYSE. The following table sets forth the highest and lowest closing prices for our common stock on the NYSE for the periods indicated. Highest Lowest Fiscal 2013 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal 2014 First Quarter Second Quarter...

  • Page 44
    ...any filing of Restoration Hardware Holdings, Inc. under the Securities Act of 1933, as amended, or the Exchange Act. The following graph and table compare the cumulative total stockholder return for our common stock during the period from November 2, 2012 (the date our common stock commenced trading...

  • Page 45
    ... all of the outstanding shares of capital stock of Restoration Hardware, Inc. In connection with the initial public offering, common stock of Restoration Hardware Holdings, Inc. was issued in replacement of prior unit awards under the Team Resto Ownership Plan. These transactions are referred to as...

  • Page 46
    ... to our consolidated financial statements. Year Ended January 31, February 1, February 2, January 28, January 29, 2015 2014 2013 2012 2011 (dollars in thousands, excluding per square foot store data) Statement of Operations Data: Net revenues Cost of goods sold Gross profit Selling, general and...

  • Page 47
    ..., including Baby & Child Galleries, and direct net revenues. Comparable brand revenue growth excludes retail non-comparable store sales, closed store sales and outlet store net revenues. Comparable store sales have been calculated based upon retail stores, excluding outlet stores, that were open at...

  • Page 48
    ...management services agreement with Home Holdings, as well as fees and expense reimbursements paid to our board of directors prior to the initial public offering. (d) Fiscal 2013 includes a $33.7 million non-cash compensation charge related to the one-time, fully vested option granted to Mr. Friedman...

  • Page 49
    ... our Source Books and websites act as virtual extensions of our stores. As of January 31, 2015, we operated a total of 67 retail stores throughout the United States and Canada, consisting of 57 Legacy Galleries, 7 larger format Galleries and 3 Baby & Child Galleries, as well as 17 outlet stores. 45...

  • Page 50
    ... 70 locations in the United States and Canada. • Expand Our Offering and Increase Our Market Share. We believe we have a significant opportunity to increase our market share by Growing our merchandise assortment; Introducing new products and categories; Expanding our service offerings; Exploring...

  • Page 51
    ... generation Galleries, in a number of new locations, the optimization of our store sizes to better fit anticipated demand in a given market, the expansion of our product categories and services and changes in the ways in which we market with our Source Books. Although these initiatives are designed...

  • Page 52
    ...Net revenues reflect our sale of merchandise plus shipping and handling revenue collected from our customers, less returns and discounts. Revenues are recognized upon receipt of product by our customers. Gross Profit. Gross profit is equal to our net revenues less cost of goods sold. Gross profit as...

  • Page 53
    ...and marketing costs, credit card fees due to increased revenue and corporate occupancy costs associated with our corporate headquarters expansion and upgrade of our information technology systems. We expect these expenses to continue to increase as we continue to open new stores, develop new product...

  • Page 54
    ... of operations and other financial and operating data. Year Ended January 31, February 1, February 2, 2015 2014 2013 (dollars in thousands, excluding per square foot store data) Statement of Operations Data: Net revenues Cost of goods sold Gross profit Selling, general and administrative expenses...

  • Page 55
    ... of total revenues. January 31, 2015 Year Ended February 1, 2014 February 2, 2013 Statement of Operations Data: Net revenues Cost of goods sold Gross profit Selling, general and administrative expenses Income (loss) from operations Interest expense Income (loss) before income taxes Income tax...

  • Page 56
    ... increase in the page count of our 2014 Source Books, an increase in credit card fees of $7.2 million due to increased revenues and increases in corporate occupancy costs associated with our corporate headquarters expansion and upgrade of our information technology systems. The decrease in selling...

  • Page 57
    ... by strategic pricing on new product introductions and changes in product mix. In addition, gross profit as a percentage of net revenues decreased due to increased freight costs resulting from a larger percentage of furniture sales during the period, which incur higher shipping costs than our other...

  • Page 58
    ... Mr. Friedman in connection with the Reorganization and initial public offering, (iii) a $4.9 million charge incurred in connection with a legal claim alleging that the Company violated California's Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with...

  • Page 59
    ... for the entire year. Fiscal 2013 First Second Third Quarter (1) Quarter (2) Quarter Fiscal 2014 Fourth First Second Third Fourth Quarter Quarter (3) Quarter (4) Quarter (4) Quarter (3) (4) (dollars in thousands) Net revenues Cost of goods sold Gross profit Selling, general, and administrative...

  • Page 60
    ... with a legal claim alleging that the Company violated California's Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards. The fourth quarter of fiscal 2014 includes a reversal of estimated expenses associated with this matter based on...

  • Page 61
    ..., including Baby & Child Galleries, and direct net revenues. Comparable brand revenue growth excludes retail non-comparable store sales, closed store sales and outlet store net revenues. Comparable store sales have been calculated based upon retail stores, excluding outlet stores, that were open at...

  • Page 62
    ...investments in new stores, supply chain, information technology and systems infrastructure. During fiscal 2014, we made payments of $9.3 million to escrow accounts for future construction of certain Galleries. In addition, we made short-term and long-term investments in available-for-sale securities...

  • Page 63
    ... in supply chain and systems infrastructure and the purchase of a new domain name. Net Cash Provided By Financing Activities Financing activities consist primarily of borrowings related to the convertible notes offering, borrowing and repayments related to the revolving line of credit, term loan...

  • Page 64
    ... for such trading day was less than 98% of the product of the last reported sale price of our common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. On and after March 15, 2019, until the close of business on the second...

  • Page 65
    ... were expensed in fiscal 2014 and $0.9 million related to the previous facility will be amortized over the life of the new revolving line of credit, which has a maturity date of November 24, 2019. The availability of credit at any given time under the amended and restated credit agreement is limited...

  • Page 66
    ... payments for rent associated with build-to-suit lease transactions. In addition, includes approximately $8 million in fiscal 2015 related to our commitment to purchase real estate in Canada, the purchase of which is expected to close in June 2015. Other Commitments The Company enters into various...

  • Page 67
    ...related cost of goods sold when merchandise is received by our customers. Revenues from direct-to-customer and home-delivered sales are recognized when the merchandise is delivered to the customer. Revenues from "cash-and-carry" store sales are recognized at the point of sale in the store. Discounts...

  • Page 68
    ... primarily represent the costs associated with our catalog mailings, as well as print and website marketing. Capitalized Catalog Costs Capitalized catalog costs consist primarily of third-party incremental direct costs to prepare, print and distribute Source Books. Such costs are capitalized and...

  • Page 69
    ...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 gross domestic product growth; a change in our market share; budget-to-actual performance and consistency...

  • Page 70
    ... be required if the expected cash flow estimates, as projected, do not occur or if events change requiring us to revise our estimates. Lease Accounting We lease stores, distribution facilities, office space and, less significantly, certain machinery and equipment. We classify leases at the inception...

  • Page 71
    ... for restricted stock units is valued using the closing price of our stock on the date of grant. The fair value of each option award granted under our award plans subsequent to our initial public offering is estimated on the date of grant using a Black-Scholes Merton option pricing model with the...

  • Page 72
    .... 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 are more likely than not to be realized. Accordingly, in the fourth quarter of fiscal 2012, we released all...

  • Page 73
    .... The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Under the new guidance, transfer of control is...

  • Page 74
    ...significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates. We are subject to interest rate risk in connection with borrowings under our revolving line of credit which bears interest at...

  • Page 75
    Item 8. Financial Statements and Supplementary Data RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) January 31, 2015 February 1, 2014 ASSETS Current assets: Cash and cash equivalents Short-term investments Accounts receivable-net Merchandise ...

  • Page 76
    RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) January 31, 2015 Year Ended February 1, 2014 February 2, 2013 Net revenues Cost of goods sold Gross profit Selling, general and administrative expenses Income (loss) from ...

  • Page 77
    RESTORATION HARDWARE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) January 31, 2015 Year Ended February 1, 2014 February 2, 2013 Net income (loss) Gains (losses) from foreign currency translation Net unrealized holding gains (losses) on available-for-sale ...

  • Page 78
    ... Retained Additional Other Earnings Total Paid-In Comprehensive (Accumulated Treasury Stock Stockholders' Capital Income Deficit) Shares Amount Equity Balances-January 28, 2012 1,000 $- Stock-based compensation - - Conversion of Restoration Hardware Holdings, Inc. common stock upon Reorganization...

  • Page 79
    ... related deposits Purchase of trademarks and domain names Purchase of investments Maturities of investments Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Gross borrowings under revolving line of credit Gross repayments under revolving line of credit Repayment of term...

  • Page 80
    ..., décor, outdoor and garden, tableware and children's furnishings. These products are sold through the Company's stores, catalogs and websites. As of January 31, 2015, the Company operated a total of 67 retail stores and 17 outlet stores in 29 states, the District of Columbia and Canada, and had...

  • Page 81
    .... Taken together, the Company received total cash proceeds of $311.7 million, net of the initial purchasers' discounts and commissions and offering costs of $5.4 million. Refer to Note 9-Convertible Senior Notes. Credit Agreement On November 24, 2014, Restoration Hardware, Inc. and its Canadian...

  • Page 82
    ... Financial Statement Disclosures Allowance for Sales Returns During fiscal 2014, the Company identified an error related to its fiscal 2013 and fiscal 2012 allowance for sales returns footnote rollforward disclosure. The Company included merchandise exchanges within the provision for sales returns...

  • Page 83
    ... due to factors including the mix of the Company's inventory (which ranges from large furniture to decorative accessories) and execution against loss prevention initiatives in the Company's stores, distribution centers, off-site storage locations and with its third-party transportation providers. 79

  • Page 84
    ... primarily represent the costs associated with the Company's catalog mailings, as well as print and website marketing. Total advertising costs, recorded in selling, general and administrative expenses, were $114.7 million, $83.0 million, and $98.8 million in fiscal 2014, fiscal 2013, and fiscal 2012...

  • Page 85
    ... 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, domain names, core technologies and the fair market value of the Company's leases...

  • Page 86
    ... 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 gross domestic product growth; a change in the Company's market share; budget-to-actual performance and consistency...

  • Page 87
    ..., do not occur or if events change requiring the Company to revise its estimates. The Company recorded an impairment charge in fiscal 2013 of $1.4 million related to the underperformance of a stand-alone Baby & Child Gallery, which is included in selling, general and administrative expenses on...

  • Page 88
    ... to the revolving line of credit are amortized utilizing the straight-line method. Revenue Recognition The Company recognizes revenues and the related cost of goods sold when merchandise is received by its customers. Revenues from direct-to-customer and home-delivered sales are recognized when...

  • Page 89
    .... The Company provides an allowance for sales returns, net of cost of goods sold, based on historical return rates. A summary of the allowance for sales returns, presented net of cost of goods sold, is as follows (in thousands): January 31, 2015 Fiscal Year Ended February 1, February 2, 2014 2013 As...

  • Page 90
    ...the return on investment attained by certain of the equity investors in Home Holdings at defined liquidity events, including an initial public offering or certain sale or merger transactions. The Company estimated the fair value of performance-based units awarded to employees at the grant date based...

  • Page 91
    Company's stores, design and buying costs, occupancy costs related to store operations and supply chain, such as rent, property tax and common area maintenance, depreciation and amortization, and all logistics costs associated with shipping product to customers. Selling, General and Administrative ...

  • Page 92
    in the Company's consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally takes into account all expected future events then known to it, other than changes in the tax law or rates which have not yet been enacted and which are not permitted to be...

  • Page 93
    .... The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Under the new guidance, transfer of control is...

  • Page 94
    Other non-current assets consist of the following (in thousands): January 31, 2015 February 1, 2014 Construction related deposits Other deposits Deferred financing fees and convertible debt issuance costs Other non-current assets Total other non-current assets $ 9,250 6,193 3,670 3,793 $22,906 $ ...

  • Page 95
    ... lease. (2) The fair market write-down of leases is included in other non-current obligations on the consolidated balance sheets. The Company recorded amortization expense related to intangible assets of $0.7 million, $1.1 million, and $2.4 million in fiscal 2014, fiscal 2013, and fiscal 2012...

  • Page 96
    ... of the following (in thousands): January 31, 2015 February 1, 2014 Unredeemed gift card and merchandise credit liability Allowance for sales returns Federal, state and foreign tax payable Capital lease obligation-current Other liabilities Total other current liabilities NOTE 8-OTHER NON-CURRENT...

  • Page 97
    ... for such trading day was less than 98% of the product of the last reported sale price of the Company's common stock and the applicable conversion rate on such trading day; or (3) upon the occurrence of specified corporate transactions. On and after March 15, 2019, until the close of business on the...

  • Page 98
    ... its Canadian subsidiary, Restoration Hardware Canada, Inc., entered into a credit agreement (the "prior credit agreement") with Bank of America, N.A., as administrative agent, and certain other lenders. On November 24, 2014, the Company amended its existing revolving line of credit by entering into...

  • Page 99
    ... were expensed in fiscal 2014 and $0.9 million related to the previous facility will be amortized over the life of the new revolving line of credit, which has a maturity date of November 24, 2019. The availability of credit at any given time under the amended and restated credit agreement is limited...

  • Page 100
    ... related interest under the prior credit agreement of $154.8 million using proceeds from the issuance of the convertible senior notes. As of January 31, 2015, the Company did not have any amounts outstanding under the revolving line of credit. As of January 31, 2015 and February 1, 2014, the Company...

  • Page 101
    ...-for-sale and are carried at fair value. Assets measured at fair value were as follows (in thousands): January 31, 2015 Level 2 February 1, 2014 Level 1 Level 2 Total Level 1 Total Cash equivalents Money market funds Commercial paper Government agency obligations Total cash equivalents Short-term...

  • Page 102
    ...reconciliation of the federal statutory tax rate to the Company's effective tax rate is as follows: January 31, 2015 Year Ended February 1, 2014 February 2, 2013 Provision at federal statutory tax rate State income taxes-net of federal tax impact Stock-based compensation Valuation allowance Foreign...

  • Page 103
    ... January 31, 2015 Year Ended February 1, 2014 February 2, 2013 Balance at beginning of fiscal year Charged to expense Net changes in deferred tax assets and liabilities Balance at end of fiscal year $206 - (30) $176 $293 - (87) $206 $ 57,484 (57,185) (6) $ 293 The Company has recorded deferred...

  • Page 104
    ... subsidiary of the Company. Outstanding units issued by Home Holdings under its equity compensation plan, referred to as the Team Resto Ownership Plan, were replaced with common stock of the Company at the time of its initial public offering. Restoration Hardware, Inc. was a direct, wholly owned...

  • Page 105
    ... of promissory notes bearing interest at a weighted-average rate of approximately 5%, paid annually, with principal generally due at the end of an 8-year term. In fiscal 2013, the Company repurchased 40,353 shares of common stock from former employees pursuant to such repurchase right for fair value...

  • Page 106
    ... with the Reorganization, the Board of Directors granted options to purchase 1,264,036 shares of the Company's common stock to employees of the Company under the Stock Incentive Plan, which options were fully vested upon the completion of the initial public offering, with a weighted-average exercise...

  • Page 107
    ... estimated on the date of grant using the following assumptions: Fiscal 2014 Fiscal 2013 Fiscal 2012 Expected volatility Expected life (years) Risk-free interest rate Dividend yield 39.7% 6.5 2.0% - 39.7% 6.7 1.9% - 35.4% 5.3 1.6% - A summary of additional information about stock options is as...

  • Page 108
    ... Company grants restricted stock awards, which include restricted stock and restricted stock units, to its employees and members of its Board of Directors. A summary of restricted stock award activity under the Stock Incentive Plan for fiscal 2014 is as follows: Options Weighted-Average Grant Date...

  • Page 109
    ... associated with the grants of units by Home Holdings to the Company's directors, executive officers and employees was recorded by the Company. The Company recorded stock-based compensation expense for time-based units of $1.1 million in fiscal 2012. In connection with its initial public offering...

  • Page 110
    ... 2014, fiscal 2013, or fiscal 2012. NOTE 17-RELATED PARTY TRANSACTIONS Reappointment of Gary Friedman as Chairman and Co-Chief Executive Officer On July 2, 2013, at the time of Mr. Friedman's reappointment as Chairman of the Company's Board of Directors and Co-Chief Executive Officer, Mr. Friedman...

  • Page 111
    ... in fiscal 2015 related to the Company's commitment to purchase real estate in Canada, the purchase of which is expected to close in June 2015. Lease payments... 2014 and fiscal 2013, respectively. The remaining minimum rent payments in fiscal 2014 and fiscal 2013 are included in cost of goods sold on...

  • Page 112
    ... against Restoration Hardware, Inc. alleging principally that the Company violated California's Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from customers paying with credit cards. On May 23, 2014, in response to a directive from the Court, the parties filed a joint...

  • Page 113
    ..., 2015 Year Ended February 1, 2014 February 2, 2013 Furniture Non-furniture Total net revenues $1,070,981 796,441 $1,867,422 $ 868,650 682,311 $1,550,961 $ 628,092 564,954 $1,193,046 The Company is domiciled in the United States and operates stores in the United States and Canada. Revenues from...

  • Page 114
    ...July 2013. NOTE 21-SUBSEQUENT EVENTS In February 2015, the Company purchased an aircraft for a total purchase price of $9.5 million in order to facilitate more efficient business travel by the Company's management team in development of the Company's business. On March 27, 2015, Restoration Hardware...

  • Page 115
    ...'s internal control over financial reporting based on our audits (which were integrated audits in 2014 and 2013). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to...

  • Page 116
    ... of the Company's internal control over financial reporting as of January 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein. Changes in Internal Control Over Financial Reporting There was...

  • Page 117
    ...Directors, Executive Officers and Corporate Governance The information required by this item will be contained in our definitive Proxy Statement for the Annual... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this item will be...

  • Page 118
    ... the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013 Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2015, February 1, 2014 and February 2, 2013 Notes to the Consolidated Financial Statements Report of Independent Registered Public Accounting...

  • Page 119
    ... of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RESTORATION HARDWARE HOLDINGS, INC. By: /s/ Gary Friedman Gary Friedman Chairman and Chief Executive Officer Date: March 27, 2015 Know all persons by these presents, that...

  • Page 120
    Signature Title Date /s/ Thomas Mottola Thomas Mottola /s/ Ali Rowghani Ali Rowghani /s/ Leonard Schlesinger Leonard Schlesinger Director March 27, 2015 Director March 27, 2015 Director March 27, 2015 116

  • Page 121
    ... between Restoration Hardware, Inc. and Gary Friedman. Employment Agreement dated as of November 1, 2012, by and between Restoration Hardware, Inc. and Karen Boone. Amended and Restated Offer Letter, between Restoration Hardware, Inc. and Ken Dunaj. 2012 Equity Replacement Plan and related documents...

  • Page 122
    ... and 2012 Stock Option Plan related documents, as amended and restated. Form of Notice of Restricted Stock Unit Award and Restricted Stock Unit Agreement under 2012 Stock Incentive Plan. Form of Base Convertible Bond Hedge Confirmation, dated June 18, 2014, between Restoration Hardware Holdings, Inc...

  • Page 123
    ...Reference Date of File Number First Filing Exhibit Number Filed Herewith 10.13 Form of Additional Warrant Confirmation, dated June 19, 2014, between Restoration Hardware Holdings, Inc. and each of the Counterparties. Tenth Amended and Restated Credit Agreement dated as of November 24, 2014 among...

  • Page 124
    ...by Reference Date of File Number First Filing Exhibit Number Filed Herewith 32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial and Administrative Officer pursuant...

  • Page 125
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 126
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 127

  • Page 128