Restoration Hardware 2014 Annual Report Download - page 104

As of January 31, 2015, the Company has retained a valuation allowance totaling $0.2 million against
deferred tax assets for its Shanghai operations.
As of January 31, 2015, the Company had state net operating loss carryovers of $5.9 million. The state net
operating loss carryovers will expire between 2016 and 2032. Internal Revenue Code Section 382 and similar
state rules place a limitation on the amount of taxable income which can be offset by net operating loss
carryforwards after a change in ownership (generally greater than 50% change in ownership). The Company
cannot give any assurances that it will not undergo an ownership change in the future resulting in further
limitations on utilization of net operating losses.
A reconciliation of the exposures related to unrecognized tax benefits is as follows (in thousands):
Year Ended
January 31,
2015
February 1,
2014
February 2,
2013
Balance at beginning of fiscal year $1,395 $1,841 $2,505
Gross decreases—prior period tax positions (122) (151) (57)
Lapses in statute of limitations (333) (295) (607)
Balance at end of fiscal year $ 940 $1,395 $1,841
As of January 31, 2015 and February 1, 2014, $0.9 million and $1.4 million, respectively, of the exposures
related to unrecognized tax benefits would affect the effective tax rate if realized and are included in other non-
current obligations on the consolidated balance sheets. These amounts are primarily associated with foreign tax
exposures that would, if realized, reduce the amount of net operating losses that would ultimately be utilized. As
of January 31, 2015, the Company does not have any exposures related to unrecognized tax benefits that are
expected to decrease in the next 12 months.
Adjustments required upon adoption of accounting for uncertainty in income taxes related to deferred tax
assets were offset by the related valuation allowance. Future changes to the Company’s assessment of the
realizability of those deferred tax assets will impact the effective tax rate. The Company accounts for interest and
penalties related to exposures as a component of income tax expense. The Company had interest accruals of $0.2
million and $0.3 million associated with exposures as of January 31, 2015, and February 1, 2014, respectively.
This Company is subject to tax in the United States, Canada, Shanghai and Hong Kong. The Company could
be subject to United States federal and state tax examinations for years 2001 and forward by virtue of net
operating loss carryforwards available from those years. There is one tax examination currently in progress in the
United States. The Company may also be subject to audits in Canada for years 2005 and forward. During fiscal
2012, the Canada Revenue Agency concluded, with no adjustments, its audit of Restoration Hardware Canada,
Inc. for the years ended 2006 and 2007 and for the period ended June 16, 2008.
NOTE 13—EARNINGS PER SHARE
On November 1, 2012, the Company acquired all of the outstanding shares of capital stock of Restoration
Hardware, Inc. and Restoration Hardware, Inc. became a direct, wholly owned 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 subsidiary of Home Holdings prior to the Company’s
initial public offering. As a result of these transactions, as of November 1, 2012, 32,188,891 shares of the
Company’s common stock were outstanding.
On November 7, 2012, the Company completed its initial public offering. In connection with its initial
public offering, the Company issued and sold 4,782,609 shares of its common stock.
100