What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-30 compared with 2021-03-30 · 2 added, 180 removed, 30 unchanged (86% of the section changed)

23 unchanged sentences

(in millions)

November 1, 2020 to November 28, 2020

October 31, 2021 to November 27, 2021

November 28, 2021 to January 1, 2022

3 unchanged sentences

There were no shares repurchased under this plan during the three months ended January 29, 2022.

SELECTED CONSOLIDATED FINANCIAL DATA

The following tables present RH’s consolidated financial and operating data as of the dates and for the periods indicated.

The selected consolidated financial data as of January 30, 2021 and February 1, 2020 and for the fiscal years ended January 30, 2021, February 1, 2020 and February 2, 2019 were derived from consolidated financial statements included in Item 8 — Financial Statements and Supplementary Data .

The selected consolidated financial data as of February 2, 2019 and as of and for the periods ended February 3, 2018 and January 28, 2017 were derived from consolidated financial statements for such years not included herein.

The selected financial data as of and for the periods ended January 30, 2021, February 1, 2020, February 2, 2019 and February 3, 2018 reflect the modified retrospective application of the new lease accounting standard (Accounting Standards Update 2016-02— Leases ).

The selected consolidated financial data as of and for the period ended January 28, 2017 was not modified to reflect the impact of the new lease accounting standard.

The fiscal years ended January 30, 2021, February 1, 2020, February 2, 2019 and January 28, 2017 each consisted of 52 weeks.

The fiscal year ended February 3, 2018 consisted of 53 weeks.

FORM 10-K | 47

The selected historical consolidated data presented below should be read in conjunction with Item 1A — Risk Factors, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations , our consolidated financial statements and the notes to our consolidated financial statements.

(dollars in thousands, except per share amounts)

Consolidated Statements of Income (Loss):

Cost of goods sold

Selling, general and administrative expenses

Income from operations

Other expenses

Interest expense—net

Goodwill and tradename impairment

(Gain) loss on extinguishment of debt—net

Total other expenses

Income before income taxes

Income tax expense

Income (loss) before equity method investments

Share of equity method investments losses

Net income (loss)

Weighted-average shares used in computing basic net income (loss) per share

Basic net income (loss) per share

Weighted-average shares used in computing diluted net income (loss) per share

Diluted net income (loss) per share

Other Financial and Operating Data:

Adjusted net income (2)

Adjusted EBITDA (3)

Capital expenditures

Landlord assets under construction—net of tenant allowances

Adjusted capital expenditures (4)

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(in thousands)

Balance Sheet Data:

Cash and cash equivalents

Short-term and long-term investments (5)

Working capital (deficit) (6)

Financing obligations under build-to-suit lease transactions

Convertible senior notes due 2019—net (7)

Convertible senior notes due 2020—net (7)

Convertible senior notes due 2023—net (7)

Convertible senior notes due 2024—net (7)

Asset based credit facility

Equipment promissory notes

Promissory notes

Notes payable for share repurchases

Total debt (including current portion) (8)

Total stockholders’ equity (deficit)

(1) Fiscal period was not modified to reflect the impact of the new lease accounting standard.

(2) 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 consolidated net income (loss), adjusted for the impact of certain non-recurring and other items that we do not consider representative of our underlying operating performance.

Adjusted net income is included in this filing because our senior leadership team 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 senior leadership team uses this non-GAAP financial measure in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

FORM 10-K | 49

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.

(in thousands)

Net income (loss)

Adjustments pre-tax:

Non-cash compensation (a)

Amortization of debt discount (b)

Goodwill and tradename impairment (c)

Asset impairments and lease losses (d)

(Gain) loss on sale leaseback transaction (e)

Recall accrual (f)

Reorganization related costs (g)

(Gain) loss on extinguishment of debt—net (h)

Legal settlements (i)

Gain on sale of building and land (j)

Distribution center closures (k)

Impact of inventory step-up (l)

Anti-dumping exposure (m)

Legal claim (n)

Acquisition related costs (o)

Subtotal adjusted items

Impact of income tax items (p)

Share of equity method investments losses (q)

Adjusted net income

(a) The adjustment in fiscal 2020 represents non-cash compensation charges related to an option grant made to Mr.

Friedman in October 2020.

The adjustment in fiscal 2017 represents a non-cash compensation charge related to a fully vested option grant made to Mr.

Friedman in May 2017.

The adjustment in fiscal 2016 represents a non-cash compensation charge related to the fully vested option grants made in connection with our acquisition of Waterworks.

(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”), the $300 million aggregate principal amount of convertible senior notes that were issued in June and July 2015 (the “2020 Notes”), the $335 million aggregate principal amount of convertible senior notes that were issued in June 2018 (the “2023 Notes”) and the $350 million aggregate principal amount of convertible senior notes that were issued in September 2019 (the “2024 Notes”), we separated the 2019 Notes, 2020 Notes, 2023 Notes and 2024 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, 2020 Notes, 2023 Notes and 2024 Notes over their expected lives.

The equity components represent the difference between the proceeds from the issuance of the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes and the fair value of the liability components of the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes, respectively.

Amounts are presented net of interest capitalized for capital projects of $5.3 million, $3.7 million, $2.7 million, $2.5 million and $2.4 million during fiscal 2020, fiscal 2019, fiscal 2018, fiscal 2017 and fiscal 2016, respectively.

The 2019 Notes matured on June 15, 2019 and the 2020 Notes matured on July 15, 2020 and neither impacted amortization of debt discount post-maturity.

Refer to “Impairment” within Note 3— Significant Accounting Policies in our consolidated financial statements within Part II of this Annual Report on Form 10-K.

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(d) The adjustments in fiscal 2020 include asset impairments of $6.6 million, acceleration of depreciation expense of $3.9 million due to a change in the estimated useful lives of certain assets and asset impairment of $2.4 million related to Outlet inventory resulting from retail closures in response to the COVID-19 pandemic.

The adjustment in fiscal 2019 includes (i) asset impairments of $9.1 million, (ii) acceleration of depreciation expense of $6.2 million due to a change in the estimated useful lives of certain assets and a $0.5 million charge related to the termination of a service agreement associated with such assets, (iii) an RH Contemporary Art lease impairment of $4.6 million, resulting from an update to both the timing and the amount of future estimated lease related cash inflows, and (iv) other lease impairments of $1.5 million due to early exit of leased facilities.

The adjustment in fiscal 2018 includes an RH Contemporary Art lease impairment of $3.4 million, acceleration of depreciation expense of $2.6 million due to a change in the estimated useful life of certain assets and a $1.2 million inventory impairment charge related to holiday merchandise.

The adjustment in fiscal 2017 represents an RH Contemporary Art lease impairment.

The adjustment in fiscal 2016 includes the initial impairment associated with RH Contemporary Art, which was integrated into the broader RH platform and was no longer operational as a separate division, which resulted in inventory impairment of $1.1 million and impairment of $10.6 million related to the lease, property and equipment disposals, and donations.

Fiscal 2016 also includes a $1.0 million inventory impairment charge associated with RH Kitchen due to the alignment with the Waterworks Kitchen product line strategy.

(e) The adjustment in fiscal 2020 represents the loss on a sale-leaseback transaction related to one of our previously owned Design Galleries.

The adjustment in fiscal 2019 represents the gain on a real estate sale related to an asset previously classified as held for sale.

The adjustment in fiscal 2018 represents the impairment recorded upon reclassification of an owned Design Gallery as held for sale.

The adjustment in fiscal 2016 represents the impairment recorded upon reclassification of aircraft as asset held for sale.

(f) Represents adjustments to net revenues, cost of goods sold and inventory charges associated with product recalls, as well as accrual adjustments, and vendor and insurance claims.

The recall adjustments had the following effect on our income before taxes:

(Increase) decrease to net revenues

Increase (decrease) to cost of goods sold

(Increase) decrease to gross profit

Increase (decrease) to selling, general and administrative expenses

(Increase) decrease to income before income taxes

Represents adjustments to net revenues, cost of goods sold and inventory charges associated with product recalls, as well as accrual adjustments, and vendor and insurance claims.

The recall adjustments had the following effect on our income before taxes:

(g) Represents severance costs and related payroll taxes associated with reorganizations.

The fiscal 2017 and fiscal 2016 adjustments are partially offset by a reversal of stock-based compensation expense related to unvested equity awards.

(h) The adjustment in fiscal 2020 represents a gain on extinguishment of debt upon the maturity and settlement of the 2020 Notes in July 2020.

The adjustment in fiscal 2019 represents the loss on extinguishment of debt related to a second lien term loan which was repaid in full in September 2019 and the acceleration of debt issuance costs related to early repayment of the FILO term loan, partially offset by the gain on extinguishment of debt upon the maturity and settlement of the 2019 Notes in June 2019.

The adjustment in fiscal 2018 represents the loss on extinguishment of debt related to the LILO term loan, the promissory note secured by our aircraft and the equipment security notes, all of which were repaid in full in June 2018.

The adjustment in fiscal 2017 represents the loss on extinguishment of debt related to a second lien term loan which was repaid in full in October 2017.

(i) Represents legal settlements, net of related legal expenses.

(j) Represents the gain on the sale of building and land of one of our previously owned retail Galleries, and other land sales.

(k) Represents disposals of inventory and property and equipment, lease related charges, inventory transfer costs and other costs associated with distribution center closures.

(l) Represents the non-cash amortization of the inventory fair value adjustment recorded in connection with our acquisition of Waterworks.

(m) Represents the release of the remaining reserve for potential claims regarding anti-dumping duties which we believe have lapsed.

The reserve related to potential tariff obligations of one of our foreign suppliers following the U.S.

Department of Commerce’s review on the anti-dumping duty order on wooden bedroom furniture from China for the period from January 1, 2011 through December 31, 2011.

(n) 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.

(o) Represents costs incurred in connection with our acquisition of Waterworks including professional fees.

FORM 10-K | 51

(p) The adjustment in fiscal 2020 is based on an adjusted tax rate of 21.3%, which excludes the tax impact associated with the non-cash compensation charge related to an option grant made to Mr.

Friedman in the third quarter of fiscal 2020, the Waterworks reporting unit tradename impairment recorded in the first quarter of fiscal 2020 and our share of equity method investments losses in the fourth quarter of fiscal 2020.

The adjustment in fiscal 2019 is based on an adjusted tax rate of 17.4%, which is calculated using a 21% normalized tax rate for the first and second quarters and the effective tax rates of 13.7% and 14.9% for the third and fourth quarters, respectively.

Fiscal 2018 and fiscal 2017 assume a normalized tax rate of 21%.

Fiscal 2016 assumes a normalized tax rate of 39%.

(q) Represents our proportionate share of the losses of our equity method investments.

Refer to Note 8— Equity Method Investments in our consolidated financial statements within Part II of this Annual Report on Form 10-K.

(3) EBITDA and Adjusted EBITDA are supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP.

We define EBITDA as consolidated net income (loss) before depreciation and amortization, interest expense —net and income tax expense.

Adjusted EBITDA reflects further adjustments to EBITDA to eliminate the impact of non-cash compensation, as well as certain non-recurring and other items that we do not consider representative of our underlying operating performance.

EBITDA and Adjusted EBITDA are included in this filing because our senior leadership team believes that these metrics provide meaningful supplemental information for investors regarding the performance of our business and facilitate a meaningful evaluation of operating results on a comparable basis with historical results.

Our senior leadership team uses these non-GAAP financial measures in order to have comparable financial results to analyze changes in our underlying business from quarter to quarter.

Our measures of EBITDA and Adjusted EBITDA are not necessarily comparable to other similarly titled captions for other companies due to different methods of calculation .

The following table presents a reconciliation of net income (loss), the most directly comparable GAAP financial measure, to EBITDA and Adjusted EBITDA for the periods indicated below.

Net income (loss)

Depreciation and amortization

Interest expense—net

Income tax expense

Non-cash compensation (a)

Goodwill and tradename impairment (b)

(Gain) loss on sale leaseback transaction (b)

Asset impairment and lease losses (b)

Recall accrual (b)

Reorganization related costs (b)

Share of equity method investments losses (b)

Capitalized cloud computing amortization (c)

(Gain) loss on extinguishment of debt—net (b)

Legal settlements (b)

Gain on sale of building and land (b)

Distribution center closures (b)

Impact of inventory step-up (b)

Anti-dumping exposure (b)

Legal claim (b)

Acquisition related costs (b)

Adjusted EBITDA

(a) Represents non-cash compensation related to equity awards granted to employees, including the non-cash compensation charges related to an option grant made to Mr.

Friedman in October 2020 and May 2017, as well as a non-cash compensation charge related to the fully vested option grants made in connection with our acquisition of Waterworks in fiscal 2016.

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(b) Refer to the reconciliation of net income (loss) to adjusted net income table above and the related footnotes for additional information.

(4) We define adjusted capital expenditures as capital expenditures from investing activities and cash outflows of capital related to construction activities to design and build landlord-owned leased assets, net of tenant allowances received.

(5) As of the year ended fiscal 2016, $142.7 million of our investments were due within one year and $33.2 million of our investments were due within two years.

We held no investments as of fiscal 2020, fiscal 2019, fiscal 2018 or fiscal 2017.

(6) Working capital (deficit) is defined as current assets, less current liabilities, excluding the current portion of long-term debt.

(7) Represents our obligations, net of debt discount, related to the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes.

The aggregate principal amounts due under the 2023 Notes and 2024 Notes are $335 million and $350 million, respectively.

The aggregate principal amount under the 2020 Notes that matured on July 15, 2020 was $300 million.

The aggregate principal amount under the 2019 Notes that matured on June 15, 2019 was $350 million.

(8) Total debt (including current portion) includes the 2019 Notes, 2020 Notes, 2023 Notes and 2024 Notes, net of debt discount, asset based credit facility, term loan, equipment promissory notes, promissory notes and notes payable for share repurchases.

Fiscal 2016 total debt (including current portion) includes capital lease obligations and excludes financing obligations under build-to-suit lease transaction.

Not applicable.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity