Restoration Hardware 2015 Annual Report Download - page 77

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A summary of the allowance for sales returns, presented net of cost of goods sold, is as follows (in thousands):
Year Ended
January 30, January 31, February 1,
2016 2015 2014
Balance at beginning of fiscal year ........................................... $ 10,235 $ 12,142 $ 5,206
Provision for sales returns ........................................................ 104,028 87,217 86,541
Actual sales returns ................................................................... (101,575) (89,124 ) (79,605)
Balance at end of fiscal year ..................................................... $ 12,688 $ 10,235 $ 12,142
Deferred Revenue and Customer Deposits
Deferred revenue represents the revenue associated with orders that have been shipped by the Company to its customers but
have not yet been received by the customer. As the Company recognizes revenue when the merchandise is received by its customers,
it is included as deferred revenue on the consolidated balance sheets while in-transit.
Customer deposits represent payments made by customers on custom orders. At the time of purchase the Company collects
deposits for all custom orders equivalent to 50% of the customer purchase price. Custom order deposits are recognized as revenue
when the merchandise is received by the customer.
Gift Cards, Gift Certificates and Merchandise Credits
The Company sells gift cards, gift certificates and issues merchandise credits to its customers in its stores and through its
websites and product catalogs. Such gift cards, gift certificates and merchandise credits do not have expiration dates. Revenue
associated with gift cards, gift certificates and merchandise credits is deferred until either (i) redemption of the gift cards, gift
certificate and merchandise credits or (ii) when the likelihood of redemption is remote and there exists no legal obligation to remit the
value of unredeemed gift cards, gift certificates or merchandise credits to the relevant jurisdictions (breakage). The breakage rate is
based on monitoring of cards and certificates issued, actual card and certificate redemptions and the Company’s analysis of when it
believes it is remote that redemptions will occur. Breakage resulted in a reduction of selling, general and administrative expenses on
the consolidated statements of income of $2.0 million, $3.1 million, and $2.9 million in fiscal 2015, fiscal 2014, and fiscal 2013,
respectively.
Self Insurance
The Company maintains insurance coverage for significant exposures, as well as those risks that, by law, must be insured. In the
case of the Company’s health care coverage for employees, the Company has a managed self insurance program related to claims
filed. Expenses related to this self insured program are computed on an actuarial basis, based on claims experience, regulatory
requirements, an estimate of claims incurred but not yet reported (“IBNR”) and other relevant factors. The projections involved in this
process are subject to uncertainty related to the timing and amount of claims filed, levels of IBNR, fluctuations in health care costs and
changes to regulatory requirements. The Company had liabilities of $2.1 million and $3.0 million related to health care coverage as of
January 30, 2016 and January 31, 2015, respectively.
The Company is self-insured for all workers’ compensation claims related to incidents incurred after November 1, 2013 and
prior to November 1, 2007. The Company had liabilities of $3.0 million and $2.6 million related to workers’ compensation claims as
of January 30, 2016 and January 31, 2015, respectively.