Restoration Hardware 2014 Annual Report Download - page 92

in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the
Company generally takes into account all expected future events then known to it, other than changes in the tax
law or rates which have not yet been enacted and which are not permitted to be considered. Accordingly, the
Company may record a valuation allowance to reduce its net deferred tax assets to the amount that is more-
likely-than-not to be realized. The determination as to whether a deferred tax asset will be realized is made on a
jurisdictional basis and is based upon management’s best estimate of the recoverability of the Company’s net
deferred tax assets. Future taxable income and ongoing prudent and feasible tax planning are considered in
determining the amount of the valuation allowance, and the amount of the allowance is subject to adjustment in
the future. Specifically, in the event the Company were to determine that it is not more-likely-than-not able to
realize its net deferred tax assets in the future, an adjustment to the valuation allowance would decrease income
in the period such determination is made. This allowance does not alter the Company’s ability to utilize the
underlying tax net operating loss and credit carryforwards in the future, the utilization of which is limited to
achieving future taxable income.
The accounting standard for uncertainty in income taxes prescribes a recognition threshold that a tax
position is required to meet before being recognized in the financial statements and provides guidance on
derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and
transition issues. Differences between tax positions taken in a tax return and amounts recognized in the financial
statements generally result in an increase in liability for income taxes payable or a reduction of an income tax
refund receivable, or a reduction in a deferred tax asset or an increase in a deferred tax liability, or both. The
Company recognizes interest and penalties related to unrecognized tax benefits in tax expense.
Comprehensive Income (Loss)
Comprehensive income is comprised of net income and other gains and losses affecting equity that are
excluded from net income. The components of other comprehensive income consist of gains (losses) on foreign
currency translation, net of tax, and net unrealized holding gains (losses) on investments, net of tax.
Foreign Currency Translation
Local currencies are generally considered the functional currencies outside the United States of America.
Assets and liabilities denominated in non-U.S. currencies are translated at the rate of exchange prevailing on the
date of the consolidated balance sheets and revenues and expenses are translated at average rates of exchange for
the period. The related translation gains (losses) are reflected in the accumulated other comprehensive income
(loss) section of the consolidated statements of stockholders’ equity. Foreign currency gains (losses) resulting
from foreign currency transactions are included in selling, general and administrative expenses on the
consolidated statements of operations and are not material for all periods presented.
Recently Issued Accounting Standards
Accounting for Leases
The Financial Accounting Standards Board (“FASB”) is currently working on amendments to existing
accounting standards governing a number of areas including, but not limited to, accounting for leases. In May
2013, the FASB issued an Accounting Standards Update (Revised), Leases (Topic 842) (the “Exposure Draft”),
which would replace the existing guidance in ASC 840—Leases (“ASC 840”). Under the Exposure Draft, among
other changes in practice, a lessee’s rights and obligations under most leases, including existing and new
arrangements, would be recognized as assets and liabilities, respectively, on the balance sheet. Other significant
provisions of the Exposure Draft include (i) defining the “lease term” to include the noncancellable period
together with periods for which there is a significant economic incentive for the lessee to extend or not terminate
the lease; (ii) defining the initial lease liability to be recorded on the balance sheet to contemplate only those
variable lease payments that depend on an index or that are in substance “fixed”; and (iii) a dual approach for
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