Restoration Hardware 2015 Annual Report Download - page 37

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(11) Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance
with, generally accepted accounting principles (“GAAP”). We define adjusted net income as net income (loss), adjusted for the
impact of certain non-recurring and other items that we do not consider representative of our ongoing operating performance.
Adjusted net income is included in this filing because management believes that adjusted net income provides meaningful
supplemental information for investors regarding the performance of our business and facilitates a meaningful evaluation of
actual results on a comparable basis with historical results. Our management uses this non-GAAP financial measure in order to
have comparable financial results to analyze changes in our underlying business from quarter to quarter. The following table
presents a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to adjusted net income for
the periods indicated below.
Year Ended
January 30, January 31, February 1, February 2, January 28,
2016 2015 2014 2013 2012
(in thousands)
N
et income (loss) .................................................................... $ 91,103 $ 91,002 $ 18,195 $ (12,789) $ 20,588
Adjustments pre-tax:
Legal claim
(
a
)
.................................................................... 19,046 7,700 — — —
Amortization of debt discount
(b)
........................................ 19,803 6,852 — — —
Management and pre-IPO board fees
(
c
)
............................ — — — 4,258 10,715
Non-cash and other one-time compensation
(d)
.................. — — 63,155 115,055 6,350
Terminated operations
(
e
)
................................................... — — — — 1,580
Severance and other transaction costs
(f)
............................ — — — — 621
Lease termination costs
(
g
)
................................................. — — — (386) 3,110
Special committee investigation and remediation
(h)
......... — — — 4,778 —
Initial public offering costs
(i)
............................................ — — — 10,755 —
Anti-dumping exposure
(j)
.................................................. — — — 3,250 —
Follow-on offering fees
(k)
................................................. — — 2,895 — —
Subtotal adjusted items ........................................................... 38,849 14,552 66,050 137,710 22,376
Impact of income tax items
(l)
............................................ (15,180) (7,918) (15,144 ) (87,182) (16,513)
Adjusted net income................................................................ $ 114,772 $ 97,636 $ 69,101 $ 37,739 $ 26,451
(a) Represents charges incurred or the estimated cumulative impact of coupons redeemed 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 in our consolidated
financial statements.
(b) Under GAAP, certain convertible debt instruments that may be settled in cash on conversion are required to be separately
accounted for as liability and equity components of the instrument in a manner that reflects the issuer’s non-convertible
debt borrowing rate. Accordingly, in accounting for GAAP purposes for the $350 million aggregate principal amount of
convertible senior notes that were issued in June 2014 (the “2019 Notes”) and for the $300 million aggregate principal
amount of convertible senior notes that were issued in June and July 2015 (the “2020 Notes”), we separated the 2019
Notes and 2020 Notes into liability (debt) and equity (conversion option) components and we are amortizing as debt
discount an amount equal to the fair value of the equity components as interest expense on the 2019 Notes and 2020 Notes
over their respective terms. The equity components represent the difference between the proceeds from the issuance of the
2019 Notes and 2020 Notes and the fair value of the liability components of the 2019 Notes and 2020 Notes, respectively.
Amounts are presented net of interest capitalized for capital projects of $2.3 million and $1.1 million during fiscal 2015
and fiscal 2014, respectively.
(c) Includes fees and expenses paid in accordance with our management services agreement with Home Holdings, as well as
fees and expense reimbursements paid to our board of directors prior to the initial public offering.
(d) Fiscal 2013 includes a $33.7 million non-cash compensation charge related to the one-time, fully vested option granted to
Mr. Friedman upon his reappointment as Chairman and Co-Chief Executive Officer in July 2013 and a $29.5 million non-
cash compensation charge related to the performance-based vesting of certain shares granted to Mr. Friedman. Fiscal 2012
includes 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
Mr. Alberini and Mr. Friedman. Fiscal 2011 includes a $6.4 million compensation charge related to the repayment of
loans owed to Home Holdings by Gary Friedman, through the reclassification by Home Holdings of Mr. Friedman’s
Class A and Class A-1 ownership units into an equal number of Class A Prime and Class A-1 Prime ownership units.
Mr. Friedman served as our Chairman and Co-Chief Executive Officer at the time of such loan repayment.
(e) Includes costs related to the restructuring of our Shanghai office location.
(f) Generally includes executive severance and other related costs.