Restoration Hardware 2014 Annual Report Download - page 69

During fiscal 2013, we modified our Source Book strategy and eliminated our Fall Source Book. We
therefore made changes to our assumptions regarding the estimated future revenues and the period over which
such revenues would be earned related to our Spring 2013 Source Books. As a result, the amortization period for
the Spring 2013 Source Books increased from an eight- to nine-month period to a twelve-month period.
Website and Print Advertising
Website and print advertising expenses, which include e-commerce advertising, web creative content and
direct marketing activities such as print media, radio and other media advertising, are expensed as incurred or
upon the release of the content or the initial advertisement.
Impairment of Goodwill and Long-Lived Assets
Goodwill
We evaluate goodwill annually to determine whether it is impaired. Goodwill is also tested between annual
impairment tests if an event occurs or circumstances change that would indicate that the fair value of a reporting
unit is less than its carrying amount. Conditions that may indicate impairment include, but are not limited to, a
significant adverse change in customer demand or business climate that could affect the value of an asset; general
economic conditions, such as increasing Treasury rates or unexpected changes in gross domestic product growth;
a change in our market share; budget-to-actual performance and consistency of operating margins and capital
expenditures; a product recall or an adverse action or assessment by a regulator; or changes in management or
key personnel. If an impairment indicator exists, we test the intangible asset for recoverability. We have
identified only one single reporting unit. We selected the fourth fiscal quarter to perform our annual goodwill
impairment testing.
We qualitatively assess goodwill impairment to determine whether it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. During fiscal 2014, we performed a qualitative analysis
examining key events and circumstances affecting fair value and determined it is more likely than not that the
reporting unit’s fair value is greater than its carrying amount. As such, no further analysis was required for
purposes of testing of our goodwill for impairment.
For goodwill not qualitatively assessed or if goodwill is qualitatively assessed and it is determined it is not
more likely than not that the reporting unit’s fair value is greater than its carrying amount, a two-step quantitative
approach is used. In the first step, we compare the fair value of the reporting unit, generally defined as the same
level as or one level below an operating segment, to its carrying value. If the fair value of the reporting unit
exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and we are
not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit
exceeds the fair value of the reporting unit, then we must perform the second step of the impairment test in order
to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference. The
assumptions used in such valuations are subject to volatility and may differ from actual results.
Our tests for impairment of goodwill resulted in a determination that the fair value of the Company
substantially exceeded the carrying value of our net assets as of January 31, 2015. We do not anticipate any
material impairment charges in the near term.
Long-Lived Assets
Long-lived assets, such as property and equipment and intangible assets subject to amortization, are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in
65