Restoration Hardware 2014 Annual Report Download - page 58

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Selling, general and administrative expenses
Selling, general and administrative expenses decreased $3.5 million, or 0.7%, to $502.0 million in fiscal
2013 compared to $505.5 million in fiscal 2012.
Selling, general and administrative expenses in fiscal 2013 included: (i) a $33.7 million non-cash compensation
charge related to the one-time, fully vested option to Mr. Friedman upon his reappointment as Chairman and Co-Chief
Executive Officer, (ii) a $29.5 million non-cash compensation charge related to the performance-based vesting of
certain shares granted to Mr. Friedman in connection with the Reorganization and initial public offering, (iii) a $4.9
million charge 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 and (iv) $2.9
million of costs incurred in connection with our follow-on offerings in May 2013 and July 2013.
Selling, general and administrative expenses for fiscal 2012 included (i) a $92.0 million non-cash
compensation charge related to equity grants at the time of the Reorganization and initial public offering, (ii) a
$23.1 million non-cash compensation charge related to the performance-based vesting of certain shares granted
to Mr. Alberini and Mr. Friedman in connection with the Reorganization and initial public offering, (iii) $10.8
million of costs incurred in connection with our initial public offering, including a fee of $7.0 million to
Catterton, Tower Three and Glenhill in accordance with our management services agreement, payments of $2.2
million to certain former executives and bonus payments to employees of $1.3 million, and (iv) $4.8 million of
legal and other professional fees incurred in connection with the investigation conducted by the special
committee of the board of directors relating to Mr. Friedman and our subsequent remedial actions.
The increase in selling, general and administrative expenses, excluding the one-time and non-cash
compensation items mentioned above, was primarily related to an increase in employment costs, an increase in
credit card fees due to increased revenues and an increase in corporate occupancy costs. These increases were
partially offset by a decrease in advertising and marketing costs as a result of modifying our Source Book
strategy in fiscal 2013 to eliminate the Fall Source Book.
The improvement in selling, general and administrative expenses as a percentage of net revenues, excluding the
charge incurred in connection with a legal claim and the one-time and non-cash compensations items mentioned above,
was primarily driven by a decrease in advertising and marketing costs due to the change in the Source Book strategy.
Interest expense
Interest expense was $5.7 million in fiscal 2013 and consisted of interest incurred under our revolving line
of credit of $4.6 million, which includes standby and letter of credit interest, interest of $1.1 million related to
accounting for build-to-suit lease transactions under ASC 840, amortization of deferred financing fees of $0.7
million, interest on capital leases of $0.1 million and interest of $0.1 million for notes payable for share
repurchases. In addition, we capitalized interest expense of $0.9 million for capital projects in fiscal 2013.
Interest expense was $5.8 million in fiscal 2012 and consisted of interest incurred under our revolving line
of credit and term loan of $5.5 million, which includes standby and letter of credit interest, amortization of
deferred financing fees of $0.7 million and interest on capital leases of $0.5 million. In addition, we capitalized
interest expense of $0.9 million for capital projects in fiscal 2012.
Income tax expense (benefit)
Income tax expense increased $92.9 million to a $30.9 million expense in fiscal 2013 compared to a benefit
of $62.0 million in fiscal 2012. Our effective tax rate was 62.96% in fiscal 2013 compared to 82.91% in fiscal
2012. The fiscal 2013 effective tax rate was significantly impacted by (i) non-deductible stock-based
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