Restoration Hardware 2015 Annual Report Download - page 25

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In fiscal 2015 we sourced 89% of our products from outside the United States, and we are increasing the level of our
international sourcing activities in an effort to obtain more of our products directly from vendors located outside the United States.
Additionally, we have expanded our business-to-business sales. The foreign and U.S. laws and regulations that are applicable to our
operations are complex and may increase the costs of regulatory compliance, or limit or restrict the products or services we sell or
subject our business to the possibility of regulatory actions or proceedings. The United States Foreign Corrupt Practices Act, and other
similar laws and regulations, generally prohibit companies and their intermediaries from making improper payments to foreign
governmental officials for the purpose of obtaining or retaining business. While our policies mandate compliance with applicable laws
and regulations, including anti-bribery laws and other anti-corruption laws, we cannot assure you that we will be successful in
preventing our employees or other agents from taking actions in violation of these laws or regulations. Such violations, or allegations
of such violations, could disrupt our business and result in a material adverse effect on our financial condition, results of operations
and cash flows.
Labor organizing and other activities could negatively impact us.
Currently, none of our employees are represented by a union. However, our employees have the right at any time to form or
affiliate with a union, and union organizational activities have occurred previously at our Baltimore distribution center. We cannot
predict the negative effects that any future organizing activities will have on our business and operations. If we were to become
subject to work stoppages, we could experience disruption in our operations and increases in our labor costs, either of which could
materially adversely affect our business, financial condition or results of operations.
In addition, several of our retail stores are currently under construction. If the contractors we hire to perform the construction
work do not employ union labor, our locations may be subject to picketing and other labor actions that could discourage our customers
from entering our stores, which could adversely affect our business at those locations and our results of operations, including our
same-store sales metrics.
Fluctuations in our tax obligations and effective tax rate and realization of our deferred tax assets, including net operating loss
carryforwards, may result in volatility of our results of operations.
We are subject to income taxes in the United States and certain foreign jurisdictions. We record income tax expense based on
our estimates of future payments, which include reserves for uncertain tax positions in multiple tax jurisdictions, and valuation
allowances related to certain net deferred tax assets, including net operating loss carryforwards. At any one time, many tax years are
subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the
ultimate settlement of these issues. Under United States federal and state income tax laws, if over a rolling three-year period, the
cumulative change in our ownership exceeds 50%, our ability to utilize our net operating loss carryforwards to offset future taxable
income may be limited. Changes in ownership can occur due to transactions in our stock or the issuance of additional shares of our
common stock or, in certain circumstances, securities convertible into our common stock. Certain transactions we have completed,
including our going private transaction in June 2008, and the sale of shares in our initial public offering may impact the timing of the
utilization of our net operating loss carryforwards. Furthermore, it is possible that transactions in our stock that may not be within our
control may cause us to exceed the 50% cumulative change threshold and may impose a limitation on the utilization of our net
operating loss carryforwards in the future. Any such limitation on the timing of utilizing our net operating loss carryforwards would
increase the use of cash to settle our tax obligations. We expect that throughout the year there could be ongoing variability in our
quarterly tax rates as events occur and exposures are evaluated.
In addition, our effective tax rate in a given financial statement period may be materially impacted by changes in the mix and
level of earnings, timing of the utilization of net operating loss carryforwards, changes in the valuation allowance for deferred taxes or
by changes to existing accounting rules or regulations. Further, tax legislation may be enacted in the future that could negatively
impact our current or future tax structure and effective tax rates.
Changes to accounting rules or regulations may adversely affect our results of operations.
New accounting rules or regulations and varying interpretations of existing accounting rules or regulations have occurred and
may occur in the future. A change in accounting rules or regulations may even affect our reporting of transactions completed before
the change is effective, and future changes to accounting rules or regulations or the questioning of current accounting practices may
adversely affect our results of operations.