Restoration Hardware 2014 Annual Report Download - page 65

not accounted for as derivatives. The net costs incurred in connection with the convertible note hedge and
warrant transactions were recorded as a reduction to additional paid-in capital on the consolidated balance sheets.
We recorded a deferred tax liability of $27.5 million in connection with the debt discount associated with
the Notes and recorded a deferred tax asset of $28.6 million in connection with the convertible note hedge
transactions. Both the deferred tax liability and deferred tax assets are included in non-current deferred tax assets
on the consolidated balance sheets.
Revolving Line of Credit
In August 2011, Restoration Hardware, Inc., along with its Canadian subsidiary, Restoration Hardware
Canada, Inc., entered into a credit agreement (the “prior credit agreement”) with Bank of America, N.A., as
administrative agent, and certain other lenders. On November 24, 2014, the existing credit agreement was
amended and restated (the “amended and restated credit agreement”) to, among other things, increase the existing
revolving line of credit by $182.5 million and eliminate the $15.0 million term loan facility under the existing
credit agreement. Under the amended and restated credit agreement, the Company has the option to increase the
amount of the revolving line of credit by up to an additional $200.0 million, subject to satisfaction of certain
customary conditions at the time of such increase. As a result of the amended and restated credit agreement,
unamortized deferred financing fees of $0.2 million related to the previous facility were expensed in fiscal 2014
and $0.9 million related to the previous facility will be amortized over the life of the new revolving line of credit,
which has a maturity date of November 24, 2019.
The availability of credit at any given time under the amended and restated credit agreement is limited by
reference to a borrowing base formula based upon numerous factors, including the value of eligible inventory and
eligible accounts receivable. As a result of the borrowing base formula, the actual borrowing availability under
the revolving line of credit could be less than the stated amount of the revolving line of credit (as reduced by the
actual borrowings and outstanding letters of credit under the revolving line of credit). All obligations under the
amended and restated credit agreement are secured by substantially all of Restoration Hardware, Inc.’s assets,
including accounts receivable, inventory, intangible assets, property, equipment, goods and fixtures.
Borrowings under the revolving line of credit are subject to interest, at the borrowers’ option, at either the
bank’s reference rate or LIBOR (or the BA Rate or the Canadian Prime Rate, as such terms are defined in the
amended and restated credit agreement, for Canadian borrowings denominated in Canadian dollars or the United
States Index Rate or LIBOR for Canadian borrowings denominated in United States dollars) plus an applicable
margin rate, in each case.
The amended and restated credit agreement contains various restrictive covenants, including, among others,
limitations on the ability to grant liens, make loans or other investments, incur additional debt, issue additional
equity, merge or consolidate with or into another person, sell assets, pay dividends or make other distributions or
enter into transactions with affiliates, along with other restrictions and limitations typical to credit agreements of
this type and size.
The amended and restated credit agreement does not contain any significant financial or coverage ratio
covenants unless the domestic availability under the revolving line of credit is less than the greater of (i) $20.0
million and (ii) 10% of the lesser of (A) the aggregate domestic commitments under the amended and restated
credit agreement and (B) the domestic borrowing base. If the availability under the amended and restated credit
agreement is less than the foregoing amount, then Restoration Hardware, Inc. is required to maintain a
consolidated fixed charge coverage ratio of at least one to one. Such ratio was approximately the ratio on the last
day of each month on a trailing twelve-month basis of (a) (i) consolidated EBITDA (as defined in the agreement)
minus (ii) capital expenditures, minus (iii) the income taxes paid in cash to (b) the sum of (i) debt service charges
plus (ii) certain dividends and distributions paid. As of January 31, 2015, Restoration Hardware, Inc. was in
compliance with all covenants of the amended and restated credit agreement, and if the availability under the
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