Restoration Hardware 2014 Annual Report Download - page 100

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On June 27, 2014, the Company paid off the principal balance and 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 had $20.2 million and $18.9 million in outstanding letters of credit,
respectively. As of January 31, 2015, the Company had $401.3 million undrawn borrowing availability under the
revolving line of credit.
NOTE 11—FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Assets and Liabilities
Certain financial assets and liabilities are required to be carried at fair value. Fair value is the price that
would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market
participants at the measurement date. In determining the fair value, the Company utilizes market data or
assumptions that it believes market participants would use in pricing the asset or liability, which would maximize
the use of observable inputs and minimize the use of unobservable inputs to the extent possible, including
assumptions about risk and the risks inherent in the inputs of the valuation technique.
The degree of judgment used in measuring the fair value of financial instruments generally correlates to the
level of pricing observability. Pricing observability is impacted by a number of factors, including the type of
financial instrument, whether the financial instrument is new to the market and not yet established and the
characteristics specific to the transaction. Financial instruments with readily available active quoted prices for
which fair value can be measured generally will have a higher degree of pricing observability and a lesser degree
of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will
generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.
The Company’s financial assets and liabilities measured and reported at fair value are classified and
disclosed in one of the following categories:
• Level 1—Quoted prices are available in active markets for identical investments as of the reporting
date.
• Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or
indirectly observable as of the reporting date, and fair value is determined through the use of models or
other valuation methodologies.
• Level 3—Pricing inputs are unobservable for the investment and include situations where there is little,
if any, market activity for the investment. The inputs used in the determination of fair value require
significant management judgment or estimation.
A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement.
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