Restoration Hardware 2014 Annual Report Download - page 23

Disruptions in the global financial markets may make it difficult for us to borrow a sufficient amount of
capital to finance the carrying costs of inventory and to pay for capital expenditures and operating costs,
which could negatively affect our business.
In the past, disruptions in the global financial markets and banking systems have made credit and capital
markets more difficult for companies to access, even for some companies with established revolving or other
credit facilities. Under the credit agreement governing the Restoration Hardware, Inc. revolving line of credit,
each financial institution that is part of the syndicate for the revolving line of credit is responsible for providing a
portion of the loans to be made under the revolving line of credit. Factors that have previously affected our
borrowing ability under the revolving line of credit have included the borrowing base formula limitations,
adjustments in the appraised value of our inventory used to calculate the borrowing base and the availability of
each of our lenders to advance its portion of requested borrowing drawdowns under the facility. If, in connection
with a disruption in the global financial markets or otherwise, any participant, or group of participants, with a
significant portion of the commitments in the revolving line of credit fails to satisfy its obligations to extend
credit under the facility, and if we are unable to find a replacement for such participant or group of participants
on a timely basis (if at all), then our liquidity and our business may be materially adversely affected.
Reductions in the volume of mall traffic or closing of shopping malls as a result of unfavorable economic
conditions or changing demographic patterns could significantly reduce our sales and leave us with unsold
inventory.
Most of our stores are currently located in shopping malls. Sales at these stores are derived, in part, from the
volume of traffic in those malls. These stores benefit from the ability of the malls’ “anchor” tenants, generally
large department stores and other area attractions, to generate consumer traffic in the vicinity of our stores and
the continuing popularity of the malls as shopping destinations. Unfavorable economic conditions, particularly in
certain regions, have adversely affected mall traffic and resulted in the closing of certain anchor stores and have
threatened the viability of certain commercial real estate firms which operate major shopping malls. A
continuation of this trend, including failure of a large commercial landlord or continued declines in the popularity
of mall shopping generally among our customers, could reduce our sales and leave us with excess inventory. We
may respond by increasing markdowns or initiating marketing promotions to reduce excess inventory, which
would further adversely impact our results of operations.
Our business depends upon the successful operation of our distribution facilities, furniture home delivery
hubs and customer service center, as well as our ability to fulfill orders and to deliver our merchandise to our
customers in a timely manner.
Our business depends upon the successful operation of our distribution centers, furniture home delivery
hubs and customer service center, as well as our order management and fulfillment services and the re-stocking
of inventories within our stores. The efficient flow of our merchandise requires that our facilities have adequate
capacity to support our current level of operations, and any anticipated increased levels that may follow from any
growth of our business.
If we encounter difficulties associated with any of our facilities or if any of our facilities were to shut down
for any reason, including as a result of fire, earthquakes (to which our California-based distribution and home
delivery facilities in Tracy and Mira Loma, and in the future Patterson, and our corporate headquarters in Corte
Madera are particularly vulnerable), power outages or other natural disasters, we could face shortages of
inventory 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 interruption in the operation of
our customer service center could also reduce our ability to receive and process orders and provide products and
services to our stores and customers, which could result in lost sales, cancelled sales and a loss of loyalty to our
brand.
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