Restoration Hardware 2014 Annual Report Download - page 91

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Company’s stores, design and buying costs, occupancy costs related to store operations and supply chain, such as
rent, property tax and common area maintenance, depreciation and amortization, and all logistics costs associated
with shipping product to customers.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include all operating costs not included in cost of goods sold.
These expenses include payroll and payroll related expenses, store expenses other than occupancy and expenses
related to many of the Company’s operations at its corporate headquarters, including utilities, depreciation and
amortization, credit card fees and marketing expense, which primarily includes catalog production, mailing and
print advertising costs. All store pre-opening costs are included in selling, general and administrative expenses
and are expensed as incurred.
Selling, general and administrative expenses for fiscal 2014 included an approximately $8 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. Refer to Note
18—Commitments and Contingencies.
Selling, general and administrative expenses for fiscal 2013 include a $33.7 million non-cash compensation
charged related to the one-time, fully vested option granted to Gary Friedman upon his reappointment as
Chairman and Co-Chief Executive Officer in July 2013, a $29.5 million non-cash compensation charge related to
the performance-based vesting of certain shares granted to Mr. Friedman, 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 $2.9 million of costs
incurred in connection with the Company’s follow-on offerings in May 2013 and July 2013.
Selling, general and administrative expenses for fiscal 2012 include a $92.0 million non-cash compensation
charge related to equity grants at the time of the Reorganization, as well as a non-cash compensation charge of
$23.1 million related to the performance-based vesting of certain shares granted to the Company’s then Co-Chief
Executive Officers, Mr. Friedman and Carlos Alberini. Costs incurred in connection with the initial public
offering, including a fee of $7.0 million to Catterton Management Company, LLC (“Catterton”), Tower Three
Partners LLC (“Tower Three”) and GJK Capital Advisors, LLC (“Glenhill”) in accordance with the Company’s
management services agreement, payments of $2.2 million to certain former executives and bonus payments to
employees of $1.3 million, were included in selling, general and administrative expenses in fiscal 2012. In
addition, legal and other professional fees of $4.8 million, incurred in connection with the investigation
conducted by the special committee of the board of directors relating to Mr. Friedman and the Company’s
subsequent remedial actions, are included in fiscal 2012 selling, general and administrative expenses.
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed as net income (loss) divided by the weighted-average number of
common shares outstanding for the period. Diluted earnings (loss) per share is computed as net income (loss)
divided by the weighted-average number of common shares outstanding for the period plus common stock
equivalents consisting of shares subject to stock-based awards with exercise prices less than or equal to the
average market price of the Company’s common stock for the period, to the extent their inclusion would be
dilutive. Potential dilutive securities are excluded from the computation of diluted earnings (loss) per share if
their effect is anti-dilutive.
Income Taxes
The Company accounts for income taxes under an asset and liability approach that requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized
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