Restoration Hardware 2014 Annual Report Download - page 48

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this non-GAAP financial measure in order to have comparable financial results to analyze changes in our
underlying business from quarter to quarter. The following table presents a reconciliation of net income
(loss), the most directly comparable GAAP financial measure, to adjusted net income for the periods
indicated below.
Year Ended
January 31,
2015
February 1,
2014
February 2,
2013
January 28,
2012
January 29,
2011
(in thousands)
Statement of Operations Data:
Net income (loss) $91,002 $ 18,195 $ (12,789) $ 20,588 $ (7,051)
Adjustments pre-tax:
Legal claim (a) 7,700 — — — —
Amortization of debt discount (b) 6,852 — — — —
Management and pre-IPO board fees (c) — — 4,258 10,715 4,793
Non-cash and other one-time
compensation (d) — 63,155 115,055 6,350 —
Terminated operations (e) — — — 1,580 352
Severance and other transaction costs (f) — — — 621 1,797
Impairment of long-lived assets (g) — — — — 2,115
Lease termination costs (h) — — (386) 3,110 —
Special committee investigation and
remediation (i) — — 4,778 — —
Initial public offering costs (j) — — 10,755 — —
Anti-dumping exposure (k) — — 3,250 — —
Non-capitalized IPO costs (l) — — — — 2,351
Follow-on offering fees (m) — 2,895 — — —
Subtotal adjusted items 14,552 66,050 137,710 22,376 11,408
Impact of income tax items (n) (7,918) (15,144) (87,182) (16,513) (1,332)
Adjusted net income $97,636 $ 69,101 $ 37,739 $ 26,451 $ 3,025
(a) Represents charges incurred in connection with a legal claim alleging that the Company violated
California’s Song-Beverly Credit Card Act of 1971 by requesting and recording ZIP codes from
customers paying with credit cards.
(b) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are
required to be separately accounted for as liability and equity components of the instrument in a
manner that reflects the issuer’s non-convertible debt borrowing rate. Accordingly, in accounting for
GAAP purposes for the $350 million principal amount of convertible senior notes that were issued in
June 2014 (the “Notes”), we separated the Notes into liability (debt) and equity (conversion option)
components and we are amortizing as debt discount an amount equal to the fair value of the equity
component as interest expense on the Notes over the term of the Notes. The equity component
represents the difference between the proceeds from the issuance of the Notes and the fair value of the
liability component of the Notes. Amounts are presented net of interest capitalized for capital projects
of $1.1 million during fiscal 2014.
(c) Includes fees and expenses paid in accordance with our management services agreement with Home
Holdings, as well as fees and expense reimbursements paid to our board of directors prior to the initial
public offering.
(d) Fiscal 2013 includes a $33.7 million non-cash compensation charge related to the one-time, fully
vested option granted to Mr. Friedman upon his reappointment as Chairman and Co-Chief Executive
Officer in July 2013 and a $29.5 million non-cash compensation charge related to the performance-
based vesting of certain shares granted to Mr. Friedman. Fiscal 2012 includes a $92.0 million non-cash
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