Restoration Hardware 2015 Annual Report Download - page 73

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70
Website and Print Advertising
Website and print advertising expenses, which include e-commerce advertising, web creative content and direct marketing
activities such as print media, radio and other media advertising, are expensed as incurred or upon the release of the content or the
initial advertisement.
Property and Equipment
Property and equipment is recorded at cost, net of accumulated depreciation and amortization. Depreciation is calculated using
the straight-line method, generally using the following useful lives:
Category of Property and Equipment Useful Life
Building and building improvements ............................................ 40 years
Machinery, equipment and aircraft ............................................... 3 to 10 years
Furniture, fixtures and equipment ................................................. 3 to 7 years
Computer software ........................................................................ 3 to 7 years
The cost of leasehold improvements and lease acquisitions is amortized over the lesser of the useful life of the asset or the
applicable lease term.
The Company expenses all internal-use software costs incurred in the preliminary project stage and capitalizes certain direct
costs associated with the development and purchase of internal-use software, including external costs of materials and services and
internal payroll costs related to the software project, within property and equipment. Capitalized costs are amortized on a straight-line
basis over the estimated useful lives of the software, generally between three and seven years.
Interest is capitalized on construction in progress and software projects during the period in which expenditures have been
made, activities are in progress to prepare the asset for its intended use and interest expense is being incurred. The Company
capitalized interest of $2.3 million, $1.6 million and $0.9 million in fiscal 2015, fiscal 2014 and fiscal 2013, respectively. During
fiscal 2015, all of the $2.3 million capitalized interest relates to the capitalization of non-cash interest associated with the amortization
of the convertible senior notes debt discount. During fiscal 2014, $1.1 million of the $1.6 million capitalized interest relates to the
capitalization of non-cash interest associated with the amortization of the convertible senior notes debt discount.
Property and equipment acquired under non-cancelable leases, which meet the criteria of capital leases, are capitalized and
amortized over the lesser of the useful life of the asset or the lease term. For buildings held under capital lease, unless the fair value of
the land at lease inception exceeds 25% of the aggregate fair value of the leased land and building, rent payments under the leases are
recognized using the effective interest method as a reduction of the capital lease obligation and interest expense. Pursuant to
Accounting Standards Codification (“ASC”) 840—Leases (“ASC 840”), at lease inception, if the fair value of the underlying land
exceeds 25% of the fair value of the real estate (land and building), the Company allocates a portion of the cash payments under the
lease to land rent expense equal to the product of the fair value of the leased land at construction commencement and the Company’s
incremental borrowing rate. The remaining cash payment is treated as debt-service payments and recognized as a reduction of the
capital lease obligation and an increase in interest expense.
The land purchased by the Company is recorded at cost and is a non-depreciable asset.
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of assets may not be recoverable.
Intangible Assets
Intangible assets reflect the value assigned to trademarks, domain names and the fair market value of the Company’s leases. The
Company does not amortize trademarks and domain names as the Company defines the life of these assets as indefinite.