Restoration Hardware 2014 Annual Report Download - page 32

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contemplated in our initial public offering may impact the timing of the utilization of our net operating loss
carryforwards. Furthermore, it is possible that transactions in our stock that may not be within our control may
cause us to exceed the 50% cumulative change threshold and may impose a limitation on the utilization of our
net operating loss carryforwards in the 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 addition, our effective tax rate in a given financial statement period may be materially impacted by
changes in the mix and level of earnings, timing of the utilization of net operating loss carryforwards, changes in
the valuation allowance for deferred taxes or by changes to existing accounting rules or regulations. Further, tax
legislation may be enacted in the future that could negatively impact our current or future tax structure and
effective tax rates.
Changes to accounting rules or regulations may adversely affect our results of operations.
New accounting rules or regulations and varying interpretations of existing accounting rules or regulations
have occurred and may occur in the future. A change in accounting rules or regulations may even affect our
reporting of transactions completed before the change is effective, and future changes to accounting rules or
regulations or the questioning of current accounting practices may adversely affect our results of operations.
Our total assets include intangible assets with an indefinite life, goodwill and trademarks, and substantial
amounts of long lived assets, principally property and equipment. Changes to estimates or projections used to
assess the fair value of these assets, or operating results that are lower than our current estimates at certain
store locations, may cause us to incur impairment charges that could adversely affect our results of
operations.
Our total assets include intangible assets with an indefinite life, goodwill and trademarks, and substantial
amounts of property and equipment. We make certain estimates and projections in connection with impairment
analyses for these long lived assets. We also review the carrying value of these assets for impairment whenever
events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. We will
record an impairment loss when the carrying value of the underlying asset, asset group or reporting unit exceeds
its fair value. These calculations require us to make a number of estimates and projections of future results. If
these estimates or projections change, we may be required to record additional impairment charges on certain of
these assets. If these impairment charges are significant, our results of operations would be adversely affected. In
that regard, we recorded $1.4 million and $2.1 million impairment charges on long-lived assets of certain
underperforming stores in fiscal 2013 and fiscal 2010, respectively, and we recorded charges amounting to $3.2
million related to retail store closures in fiscal 2011. No such related charges were recorded in fiscal 2014 or
fiscal 2012.
If we are unable to implement and maintain effective internal control over financial reporting in the future,
the accuracy and timeliness of our financial reporting may be adversely affected.
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”),
which requires us to maintain internal control over financial reporting and to report any material weaknesses in
such internal control. Management has concluded that our internal control over financial reporting was effective
as of January 31, 2015. However, if we identify in the future one or more material weaknesses in our internal
control over financial reporting, we will be unable to assert that our internal control over financial reporting is
effective. In addition, our independent registered public accounting firm is required to attest to the effectiveness
of our internal control over financial reporting. Therefore, even if our management concludes in the future that
our internal control over financial reporting is effective, our independent registered public accounting firm may
issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are
documented, designed, operated, or reviewed, or if they interpret the relevant requirements differently from us.
Material weaknesses and significant deficiencies may be identified during the audit process or at other times.
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