Restoration Hardware 2014 Annual Report Download - page 31

Because of our international operations, we could be adversely affected by violations of applicable U.S.
federal and state or foreign laws and regulations, such as the United States Foreign Corrupt Practices Act and
similar worldwide anti-bribery, anti-corruption and anti-kickback laws.
We source substantially all of our products abroad, and we are increasing the level of our international
sourcing activities in an effort to obtain more of our products directly from vendors located abroad. Additionally,
we have expanded our business-to-business sales. The foreign and U.S. laws and regulations that are applicable
to our operations 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 prohibit
companies and their intermediaries from making improper payments to foreign governmental officials for the
purpose of obtaining or retaining business. While our policies mandate compliance with applicable laws and
regulations, including anti-bribery laws and other anti-corruption laws, we cannot assure you that we will be
successful in preventing our employees or other agents from taking actions in violation of these laws or
regulations. Such violations, or allegations of such violations, could disrupt our business and result in a material
adverse effect on our financial condition, results of operations and cash flows.
Our operations are subject to risks of natural disasters, acts of war, terrorism or widespread illness, any one of
which could result in a business stoppage and negatively affect our operating results.
Our business operations depend on our ability to maintain and protect our facilities, computer systems and
personnel. Our operations and consumer spending may be affected by natural disasters or other similar events,
including floods, hurricanes, earthquakes, widespread illness or fires. In particular, our corporate headquarters is
located in Northern California, and other parts of our operations including distribution facilities are located in
Northern and Southern California, each of which is in a seismically active region susceptible to earthquakes that
could disrupt our operations and affect our operating results. Many of our vendors are also located in areas that
may be affected by such events. Moreover, geopolitical or public safety conditions which affect consumer
behavior and spending may impact our business. Terrorist attacks in the United States or threats of terrorist
attacks in the United States in the future, as well as future events occurring in response to or in connection with
them, could again result in reduced levels of consumer spending. Any of these occurrences could have a
significant impact on our operating results, revenue and costs.
We have experienced net losses in the past and we may experience net losses in the future.
We experienced a net loss of $7.1 million in fiscal 2010. We achieved profitability in fiscal 2011 with net
income of $20.6 million. We experienced a GAAP net loss of $12.8 million in fiscal 2012 as a result of certain
non-recurring and other items. We may experience net losses in the future, and we cannot assure you that we will
be profitable in future periods.
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets, including
net operating loss carryforwards, may result in volatility of our operating results.
We are subject to income taxes in the United States and certain foreign jurisdictions. We record income tax
expense based on our estimates of future payments, which include reserves for uncertain tax positions in multiple
tax jurisdictions, and valuation allowances related to certain net deferred tax assets, including net operating loss
carryforwards. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of
these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. Under
United States federal and state income tax laws, if over a rolling three-year period, the cumulative change in our
ownership exceeds 50%, our ability to utilize our net operating loss carryforwards to offset future taxable income
may be limited. Changes in ownership can occur due to transactions in our stock or the issuance of additional
shares of our common stock or, in certain circumstances, securities convertible into our common stock. Certain
transactions we have completed, including our going private transaction in June 2008, and the sale of shares
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