Restoration Hardware 2015 Annual Report Download - page 26

23
Our total assets include intangible assets with an indefinite life, goodwill and trademarks, and substantial amounts of long-lived
assets, principally property and equipment. Changes to estimates or projections used to assess the fair value of these assets, or
results of operations that are lower than our current estimates at certain store locations, may cause us to incur impairment charges
that could adversely affect our results of operations.
Our total assets include intangible assets with an indefinite life, goodwill and trademarks, and substantial amounts of property
and equipment. We make certain estimates and projections in connection with impairment analyses for these long-lived assets. We
also review the carrying value of these assets for impairment whenever events or changes in circumstances indicate that the carrying
value of the asset may not be recoverable. We will record an impairment loss when the carrying value of the underlying asset, asset
group or reporting unit exceeds its fair value. These calculations require us to make a number of estimates and projections of future
results. If these estimates or projections change, we may be required to record additional impairment charges on certain of these
assets. If these impairment charges were significant, our results of operations would be adversely affected. In that regard, we recorded
$1.4 million of impairment charges on long-lived assets of certain underperforming stores in fiscal 2013, and we recorded charges
amounting to $3.2 million related to retail store closures in fiscal 2011. No such related charges were recorded in fiscal 2015, fiscal
2014 or fiscal 2012.
If we are unable to implement and maintain effective internal control over financial reporting in the future, the accuracy and
timeliness of our financial reporting may be adversely affected.
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), which requires us to
maintain internal control over financial reporting and to report any material weaknesses in such internal control. Management has
concluded that our internal control over financial reporting was effective as of January 30, 2016. However, if we identify in the future
one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal control
over financial reporting is effective. In addition, our independent registered public accounting firm is required to attest to the
effectiveness of our internal control over financial reporting. Therefore, even if our management concludes in the future that our
internal control over financial reporting is effective, our independent registered public accounting firm may issue a report that is
qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated, or reviewed,
or if they interpret the relevant requirements differently from us. Material weaknesses and significant deficiencies may be identified
during the audit process or at other times.
Our reporting obligations as a public company place a significant strain on our management and our operational and financial
resources and systems and will continue to do so for the foreseeable future. If we fail to timely achieve and maintain the adequacy of
our internal control over financial reporting, we may not be able to produce reliable financial reports. Our failure to achieve and
maintain effective internal control over financial reporting could prevent us from filing our periodic reports on a timely basis, which
could result in the loss of investor confidence in the reliability of our financial statements, harm our business, and negatively impact
the trading price of our common stock.
Our operations are subject to risks of natural disasters, acts of war, terrorism or widespread illness, any one of which could result
in a business stoppage and negatively affect our results of operations.
Our business operations depend on our ability to maintain and protect our facilities, computer systems and personnel. Our
operations and consumer spending may be affected by natural disasters or other similar events, including floods, hurricanes,
earthquakes, widespread illness or fires. In particular, our corporate headquarters is located in Northern California, certain of our
distribution centers are located in California and other parts of our operations are located in Northern and Southern California, each of
which is vulnerable to the effects of disasters, including fires and earthquakes that could disrupt our operations and affect our results
of operations. Many of our vendors are also located in areas that may be affected by such events. Moreover, geopolitical or public
safety conditions which affect consumer behavior and spending may impact our business. Terrorist attacks in the United States or
threats of terrorist attacks in the United States in the future, as well as future events occurring in response to or in connection with
them, could again result in reduced levels of consumer spending. Any of these occurrences could have a significant impact on our
results of operations, revenue and costs.
If we encounter difficulties associated with any of our facilities or if any of our facilities were to shut down for any reason,
including as a result of a natural disaster, we could face shortages of inventory resulting in backorders, significantly higher costs and
longer lead times associated with distributing our products to both our stores and online customers and the inability to process orders
in a timely manner or ship goods to our customers. Further, any significant interruption in the operation of our customer service
centers could also reduce our ability to receive and process orders and provide products and services to our stores and customers,
which could result in lost sales, cancelled sales and a loss of loyalty to our brand and have a material adverse effect on our business,
financial condition and results of operations.