Restoration Hardware 2015 Annual Report Download - page 48

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Our quarterly results have historically varied depending upon a variety of factors, including our product offerings, promotional
events, store openings, shifts in the timing of holidays and the timing of Source Book releases, among other things. As a result of these
factors, our working capital requirements and demands on our product distribution and delivery network may fluctuate during the year
and results of a period shorter than a full year may not be indicative of results expected for the entire year.
Fiscal 2014 Fiscal 2015
First
Quarter (1) 
Second
Quarter (2) 
Third
Quarter (2) 
Fourth
Quarter (1) (2)
First
Quarter (1) (2)
Second
Quarter (1) (2)

Third
Quarter (1) (2)
Fourth
Quarter (1) (2) 
(dollars in thousands)
N
et revenues .................................................................. $ 366,254 $433,766 $484,675 $582,727 $422,445 $ 506,942 $ 532,411 $647,208
Cost of goods sold .......................................................... 241,905 265,857 304,302 364,584 279,027 312,679 341,661 422,947
Gross profit .................................................................... 124,349 167,909 180,373 218,143 143,418 194,263 190,750 224,261
Selling, general, and administrative expenses ................ 119,571 118,974 143,685 142,818 126,389 137,840 145,874 157,028
Income from operations ................................................. 4,778 48,935 36,688 75,325 17,029 56,423 44,876 67,233
Interest expense—net ..................................................... 2,056 4,346 5,210 5,939 5,649 7,406 11,003 11,619
Income before income taxes ........................................... 2,722 44,589 31,478 69,386 11,380 49,017 33,873 55,614
Income tax expense ........................................................ 927 17,336 12,049 26,861 4,224 19,082 13,163 22,312
N
et income ..................................................................... $ 1,795 $27,253 $19,429 $42,525 $7,156 $ 29,935 $ 20,710 $33,302
Adjusted net income (3) ...................................................  $ 7,153 $27,699 $20,287 $42,497 $9,842 $ 36,022 $ 27,736 $41,172
Comparable brand revenue growth (4) .............................  18% 13% 22% 24% 15% 16 % 7% 9 %
(1) The first quarter of fiscal 2014 includes charges 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. The fourth quarter of fiscal 2014 includes a reversal of estimated expenses associated with the legal claim based on a
revision of estimated class member response. The first, second, third and fourth quarters of fiscal 2015 include the estimated
cumulative impact of coupons redeemed in connection with the legal claim. For additional information, refer to Note 18—
Commitments and Contingencies in our consolidated financial statements.
(2) The second, third and fourth quarters of fiscal 2014 and the first quarter of fiscal 2015 include amortization of the debt discount
related to the convertible senior notes that were issued in June 2014 of $1.6 million, $3.2 million, $3.2 million and $3.3 million,
respectively. The second, third and fourth quarters of fiscal 2015 include amortization of the debt discount related to the
convertible senior notes that were issued in June 2014 and the debt discount related to the convertible senior notes that were
issued in June and July 2015 of $5.0 million, $6.9 million and $6.9 million, respectively.
(3) Adjusted net income is a supplemental measure of financial performance that is not required by, or presented in accordance
with, GAAP. We define adjusted net income as consolidated net income, 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,
the most directly comparable GAAP financial measure, to adjusted net income for the periods indicated below.
Fiscal 2014 Fiscal 2015
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
(in thousands)
N
et income ..................... $ 1,795 $ 27,253 $ 19,429 $ 42,525 $ 7,156 $ 29,935 $ 20,710 $ 33,302
Adjustments pre-tax:
Legal claim
(
a
)
...........  9,200 — — (1,500) 1,568 5,474 5,076 6,928
Amortization of debt
discount (b) ............  — 1,576 2,333 2,943 2,702 4,493 6,415 6,193
Subtotal adjusted
items .......................... 9,200 1,576 2,333 1,443 4,270 9,967 11,491 13,121
Impact of income tax
items (c) .................  (3,842 ) (1,130 ) (1,475) (1,471) (1,584) (3,880 ) (4,465) (5,251)
Adjusted net income....... $ 7,153 $ 27,699 $ 20,287 $ 42,497 $ 9,842 $ 36,022 $ 27,736 $ 41,172
(a) The first quarter of fiscal 2014 includes charges 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. The fourth quarter of fiscal 2014 includes a reversal of estimated expenses associated with the
legal claim based on a revision of estimated class member response. The adjustments in the first, second, third and fourth
quarters of fiscal 2015 represent the estimated cumulative impact of coupons redeemed in connection with the legal claim.
For additional information, refer to Note 18—Commitments and Contingencies in our consolidated financial statements.