What changed in this filing

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Item 1. Financial Statements

2022-06-03 compared with 2021-12-09 · 327 added, 462 removed, 372 unchanged (68% of the section changed)

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts) (Unaudited)

Current assets:

(in thousands)

Cash and cash equivalents

10 unchanged sentences

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable and accrued expenses

Deferred revenue and customer deposits

Convertible senior notes due 2023—net

Convertible senior notes due 2024—net

Convertible senior notes due 2023

Convertible senior notes due 2024

Convertible senior notes repurchase obligation (Note 9)

Operating lease liabilities

3 unchanged sentences

Term loan—net

Equipment promissory notes—net

Convertible senior notes due 2023—net

5 unchanged sentences

Commitments and contingencies (Note 16)

Mezzanine equity—convertible senior notes (Note 9)

Stockholders’ equity:

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of October 30, 2021 and January 30, 2021

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 21,465,133 shares issued and outstanding as of October 30, 2021;

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of April 30, 2022 and January 29, 2022

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 24,661,781 shares issued and outstanding as of April 30, 2022;

21,506,967 shares issued and outstanding as of January 29, 2022

1 unchanged sentence

Accumulated other comprehensive income (loss)

Retained earnings (accumulated deficit)

Retained earnings

Total stockholders’ equity

Total liabilities, mezzanine equity and stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share and per share amounts) (Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands, except share and per share amounts)

Cost of goods sold

3 unchanged sentences

Interest expense—net

Tradename impairment

(Gain) loss on extinguishment of debt

Loss on extinguishment of debt

Other income—net

Total other expenses

Income before income taxes

Income tax expense

Income tax expense (benefit)

Income before equity method investments

1 unchanged sentence

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

Basic net income per share

Basic net income per share (Note 13)

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

Diluted net income per share

Diluted net income per share (Note 13)

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

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FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands) (Unaudited)

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Net gains (losses) from foreign currency translation

2 unchanged sentences

FINANCIAL INFORMATION

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2022 FIRST QUARTER FORM 10-Q | 5

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts) (Unaudited)

THREE MONTHS ENDED

3 unchanged sentences

INCOME (LOSS)

Balances—July 31, 2021

(in thousands, except share amounts)

Balances—January 29, 2022

Stock-based compensation

1 unchanged sentence

Exercise of stock options

Settlement of convertible senior notes

Exercise of call option under bond hedge upon settlement of convertible senior notes

Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding―net

Net losses from foreign currency translation

Balances—October 30, 2021

Balances—August 1, 2020

Stock-based compensation

Vested and delivered restricted stock units

Exercise of stock options

Shares issued in connection with warrant agreements

Retirement of treasury stock

Settlement of convertible senior notes

Termination of common stock warrants

Termination of convertible note hedge

Impact of ASU 2020-06 adoption

Net losses from foreign currency translation

Balances—October 31, 2020

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FINANCIAL INFORMATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

(In thousands) (Unaudited)

NINE MONTHS ENDED

TREASURY STOCK

COMPREHENSIVE

STOCKHOLDERS'

INCOME (LOSS)

Balances—April 30, 2022

Balances—January 30, 2021

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Exercise of call option under bond hedge upon settlement of convertible senior notes

Reclassification of equity component to mezzanine equity related to early converted senior notes outstanding―net

Net losses from foreign currency translation

Balances—October 30, 2021

Balances—February 1, 2020

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Repurchases of common stock

Retirement of treasury stock

Shares issued in connection with warrant agreements

Settlement of convertible senior notes

( 1,131,645 )

Exercise of call option under bond hedge upon settlement of convertible senior notes

( 1,131,662 )

Net gains from foreign currency translation

Balances—October 31, 2020

Net losses from foreign currency translation

Balances—May 1, 2021

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

NINE MONTHS ENDED

THREE MONTHS ENDED

(in thousands)

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

Non-cash operating lease cost

Tradename impairment

Asset impairments

Loss on sale leaseback transaction

Amortization of debt discount

3 unchanged sentences

Deferred income taxes

(Gain) loss on extinguishment of debt

Loss on extinguishment of debt

Gain on derivative instruments—net

Share of equity method investments losses

12 unchanged sentences

Net cash provided by operating activities

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FINANCIAL INFORMATION

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(In thousands) (Unaudited)

NINE MONTHS ENDED

THREE MONTHS ENDED

(in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES

1 unchanged sentence

Equity method investments

Acquisition of business and assets

Proceeds from sale of assets

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under asset based credit facility

Repayments under asset based credit facility

Borrowings under term loan

Repayments under term loans

Repayments under promissory and equipment security notes

Debt issuance costs

Repayments of convertible senior notes

Principal payments under finance leases

Proceeds from termination of convertible senior note hedges

Payments for termination of common stock warrants

Proceeds from exercise of stock options

Tax withholdings related to issuance of stock-based awards

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effects of foreign currency exchange rate translation

11 unchanged sentences

Reclassification of assets from landlord assets under construction to finance lease right-of-use assets

Extinguishment of convertible senior notes related to repurchase obligation (Note 9)

Financing liability and embedded derivative arising from convertible senior notes repurchase (Note 9)

Shares issued on settlement of convertible senior notes

2 unchanged sentences

FINANCIAL INFORMATION

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1 unchanged sentence

Nature of Business

RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” or the “Company”), is a leading luxury retailer in the home furnishings market that offers merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings.

These products are sold through our retail locations, websites and Source Books.

As of October 30, 2021, we operated a total of 66 RH Galleries and 38 RH Outlet stores in 30 states, the District of Columbia and Canada, as well as 14 Waterworks Showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.

RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” “our” or the “Company”), is a leading retailer and luxury lifestyle brand operating primarily in the home furnishings market.

Our curated and fully integrated assortments are presented consistently across our sales channels, including our retail locations, websites and Source Books.

We offer merchandise assortments across a number of categories, including furniture, lighting, textiles, bathware, décor, outdoor and garden, and child and teen furnishings.

As of April 30, 2022, we operated a total of 67 RH Galleries and 39 RH Outlet stores in 31 states, the District of Columbia and Canada, as well as 14 Waterworks Showrooms throughout the United States and in the U.K., and had sourcing operations in Shanghai and Hong Kong.

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared from our records and, in our senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of October 30, 2021, and the results of operations for the three and nine months ended October 30, 2021 and October 31, 2020.

The accompanying unaudited interim condensed consolidated financial statements have been prepared from our records and, in our senior leadership team’s opinion, include all adjustments, consisting of normal recurring adjustments, necessary to fairly state our financial position as of April 30, 2022, and the results of operations for the three months ended April 30, 2022, and May 1, 2021.

Our current fiscal year, which consists of 52 weeks, ends on January 28, 2023 (“fiscal 2022”).

3 unchanged sentences

We have assessed various accounting estimates and other matters, including those that require consideration of forecasted financial information, in context of the unknown future impacts of the novel coronavirus disease (“COVID-19” or “the pandemic”) using information that is reasonably available to us at this time.

The accounting estimates and other matters we have assessed include, but were not limited to, sales return reserve, inventory reserve, allowance for doubtful accounts, goodwill, and intangible and other long-lived assets.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three and nine months ended October 30, 2021.

Our current assessment of these estimates is included in our condensed consolidated financial statements as of and for the three months ended April 30, 2022.

As additional information becomes available to us, our future assessment of these estimates, including our expectations at the time regarding the duration, scope and severity of the pandemic, as well as other factors, could materially and adversely impact our condensed consolidated financial statements in future reporting periods.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022 (the “2021 Form 10-K”).

The results of operations for the three and nine months ended October 30, 2021 and October 31, 2020 presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the pandemic as discussed in Recent Developments—COVID-19 below.

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The results of operations for the three months ended April 30, 2022, presented herein are not necessarily indicative of the results to be expected for the full fiscal year.

Our business, like the businesses of retailers generally, is subject to uncertainty surrounding the financial impact of the pandemic and other factors as discussed in COVID-19 Pandemic and Macro-Economic Factors below.

FINANCIAL INFORMATION

Recent Developments—COVID-19

The COVID-19 outbreak in the first quarter of fiscal 2020 caused disruption to our business operations beginning in the first quarter of fiscal 2020.

The pandemic has continued since the initial outbreak and has included spikes and operating restrictions in various locations around the world, as well as new strains of the COVID-19 virus such as the “Delta” and other variants.

In our initial response to the pandemic, we undertook immediate adjustments to our business operations including temporarily closing all of our retail locations and Restaurants, curtailing expenses, and delaying investments including scaling back some inventory orders while we assessed the status of our business.

Our approach to the crisis evolved quickly as our business trends substantially improved since the second quarter of fiscal 2020 as a result of both the reopening of most of our retail locations and strong consumer demand for our products.

Operational restrictions related to the pandemic affecting our retail locations and Restaurants continued to fluctuate through the second quarter of 2021 based upon changes in local conditions and regulations.

All of our retail locations and Restaurants were open during the third quarter of fiscal 2021.

While our business strengthened during the period from the second quarter of fiscal 2020 and continuing into fiscal 2021, consumer spending patterns may shift away from spending on the home and home-related categories, such as home furnishings, as pandemic restrictions are lifted and consumers return to pre-COVID consumption trends, such as spending on travel and leisure, and other activities.

In addition, various constraints in our supply chain, including port delays, have resulted in some delays in our ability to convert business demand into revenues at normal historical rates.

We anticipate that the backlog of orders for merchandise from our vendors, coupled with business conditions related to the evolving nature of the pandemic, will continue to adversely affect the capacity of our vendors and supply chain to meet our merchandise demand levels during the remainder of fiscal 2021.

It may take several quarters for inventory receipts and manufacturing to catch up to the increase in customer demand and, as a result, the exact timing cannot be accurately predicted due to ongoing uncertainty of the continuing impact of the pandemic on our global supply chain.

In particular, business circumstances and operational conditions in numerous international locations where our vendors operate are subject to ongoing risks, and regions in which our vendors have production facilities, most notably Vietnam, have experienced various surges in outbreaks and, in some cases, facility closures and other restrictions related to the pandemic.

As a result, the ongoing nature of the pandemic may continue to adversely affect our business operations in various jurisdictions, which could, in turn, have a negative impact on our vendors and supply chain, and therefore, our business.

Our decisions regarding the sources and uses of capital in our business will continue to reflect and adapt to changes in market conditions and our business including further developments with respect to the pandemic.

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COVID-19 Pandemic and Macro-Economic Factors

The COVID-19 pandemic continues to cause challenges in certain aspects of our business operations primarily related to our supply chain, including delays in our receipt of products from vendors, which have affected our ability to convert demand into revenues at normal historic rates.

While our performance during the pandemic demonstrates the desirability of our exclusive products, we may see consumer spending patterns shift away from spending on the home and home-related categories as customers return to pre-COVID consumption trends, such as spending on travel and leisure, and other activities.

There are a number of macro-economic factors and uncertainties affecting the overall business climate as well as our business including increased inflation and rising interest rates.

These factors may have a number of adverse effects on overall economic conditions and markets in which we operate.

A slowdown in the housing market or continued negative trends in stock market prices could have a negative impact on our customers and demand for our products.

Our decisions regarding the sources and uses of capital will continue to reflect and adapt to changes in market conditions and our business including further developments with respect to the pandemic.

For more information, refer to the section entitled “Risk Factors” in our 2021 Form 10-K.

1 unchanged sentence

New Accounting Standards or Updates Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12—Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The ASU impacts various topic areas within ASC 740, including accounting for taxes under hybrid tax regimes, accounting for increases in goodwill, allocation of tax amounts to separate company financial statements within a group that files a consolidated tax return, intra period tax allocation, interim period accounting, and accounting for ownership changes in investments, among other minor codification improvements.

The guidance in this ASU became effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

We adopted this standard in the first quarter of fiscal 2021 and the adoption did not have an impact on our condensed consolidated financial statements.

FINANCIAL INFORMATION

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New Accounting Standards or Updates Not Yet Adopted

Convertible Instruments and Contracts in an Entity’s Own Equity

In August 2020, the FASB issued ASU 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

The ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Specifically, the ASU removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature.

As a result, after adopting the ASU’s guidance, we will not separately present in equity an embedded conversion feature of such debt.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”).

ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Specifically, ASU 2020-06 removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature.

As a result, after adopting ASU 2020-06’s guidance, we no longer separately present in equity an embedded conversion feature of such debt.

Instead, we will account for a convertible debt instrument wholly as debt unless (i) a convertible instrument contains features that require bifurcation as a derivative or (ii) a convertible debt instrument was issued at a substantial premium.

Additionally, the ASU removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity.

The guidance in this ASU can be adopted using either a full or modified retrospective approach and becomes effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

We will adopt the ASU in the first quarter of fiscal 2022, and we are evaluating the effects that the adoption of this ASU will have on our condensed consolidated financial statements, including the adoption approach.

Additionally, ASU 2020-06 removes certain conditions for equity classification related to contracts in an entity’s own equity (e.g., warrants) and amends certain guidance related to the computation of earnings per share for convertible instruments and contracts on an entity’s own equity.

We adopted ASU 2020-06 in the first quarter of fiscal 2022 using a modified retrospective transition method.

Accordingly, the cumulative effect of the adoption on our opening fiscal 2022 condensed consolidated balance sheets was as follows:

(in thousands)

Property and equipment—net

Deferred tax assets

Convertible senior notes due 2023—net

Convertible senior notes due 2024—net

Additional paid-in capital

Retained earnings

FINANCIAL INFORMATION

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Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04 — Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) .

In January 2021, the FASB issued ASU 2021-01—Reference Rate Reform (Topic 848):

Scope , (“ASU 2021-01” and, together with ASU 2020-04, the “ASUs”).

The ASUs provide optional expedients and exceptions, if certain criteria are met, for applying U.S.

GAAP to contracts, hedging relationships, and other transactions affected by the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).

These transactions include contract modifications, hedge accounting, and the sale or transfer of debt securities classified as held-to-maturity.

The primary contracts for which we currently use LIBOR include our asset based credit facility and certain term loan debt arrangements.

The guidance was effective upon issuance and allows entities to adopt the amendments on a prospective basis through December 31, 2022.

All new arrangements are using alternative reference rates and we are evaluating the impact of adoption on our existing contracts.

NOTE 3—PREPAID EXPENSE AND OTHER ASSETS

Prepaid expense and other current assets consist of the following ( in thousands ):

Prepaid expense and other current assets consist of the following:

(in thousands)

Federal and state tax receivable (1)

Prepaid expense and other current assets

Tenant allowance receivable

Vendor deposits

Capitalized catalog costs

Tenant allowance receivable

Promissory notes receivable, including interest (2)

Vendor deposits

Right of return asset for merchandise

1 unchanged sentence

Total prepaid expense and other current assets

(1) Refer to Note 12— Income Taxes .

(2) Represents promissory notes, including principal and accrued interest, due from a related party.

Refer to Note 5— Equity Method Investments .

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FINANCIAL INFORMATION

Other non-current assets consist of the following ( in thousands ):

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Other non-current assets consist of the following:

(in thousands)

Landlord assets under construction—net of tenant allowances

3 unchanged sentences

Deferred financing fees

Acquisition related escrow deposits

Other non-current assets

Total other non-current assets

(1) Presented net of accumulated amortization of $ 2.9 million and $ 0.5 million as of October 30, 2021 and January 30, 2021, respectively.

(1) Presented net of accumulated amortization of $ 5.4 million and $ 4.0 million as of April 30, 2022 and January 29, 2022, respectively.

NOTE 4—GOODWILL, TRADENAMES, TRADEMARKS AND OTHER INTANGIBLE ASSETS

The following sets forth the goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks (See Note 17— Segment Reporting ) for the nine months ended October 30, 2021 ( in thousands ):

The following sets forth the goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks (Refer to Note 17— Segment Reporting ), for the three months ended April 30, 2022:

(in thousands)

Tradenames, trademarks and other intangible assets

1 unchanged sentence

Tradename (2)

(1) Waterworks reporting unit goodwill of $ 51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018, with $ 17.4 million and $ 33.7 million of impairment recorded in fiscal 2018 and fiscal 2017, respectively.

(2) Presented net of an impairment charge of $ 35.1 million, with $ 20.5 million and $ 14.6 million recorded in fiscal 2020 and fiscal 2018, respectively.

Waterworks Tradename Impairment

During the first quarter of fiscal 2020, as a result of the COVID-19 health crisis and related Showroom closures and slowdown in construction activity , management updated the long-term financial projections for the Waterworks reporting unit which resulted in a significant decrease in forecasted revenues and profitability.

We performed an interim impairment test on the Waterworks tradename and the estimated future cash flows of the Waterworks reporting unit indicated the fair value of the tradename asset was below its carrying amount.

We determined fair value utilizing a discounted cash flow methodology under the relief-from-royalty method.

Significant assumptions under this method include forecasted net revenues and the estimated royalty rate, expressed as a percentage of revenues, in addition to the discount rate based on the weighted-average cost of capital.

Based on the impairment test performed, we concluded that the Waterworks reporting unit tradename was impaired as of May 2, 2020.

As a result, we recognized a $ 20.5 million non-cash impairment charge for the Waterworks reporting unit tradename during the three months ended May 2, 2020.

FINANCIAL INFORMATION

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(1) Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.

(2) Presented net of an impairment charge of $ 35 million recognized in previous fiscal years.

NOTE 5—EQUITY METHOD INVESTMENTS

Equity method investments represent our 50 percent membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) which were formed during fiscal 2020, and have the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado.

Equity method investments represent our 50 percent membership interests in three privately-held limited liability companies in Aspen, Colorado (each, an “Aspen LLC” and collectively, the “Aspen LLCs” or the “equity method investments”) which were formed during fiscal 2020 for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado.

As we do not have a controlling financial interest in the Aspen LLCs but have the ability to exercise significant influence over the Aspen LLCs, we account for these investments using the equity method of accounting.

During the three and nine months ended October 30, 2021, we recorded our proportionate share of equity method investments losses of $ 2.3 million and $ 6.9 million, respectively, which is included in the condensed consolidated statements of income and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets as of October 30, 2021.

As of October 30, 2021, $ 16.1 million of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member, which are included in prepaid expense and other current assets on the condensed consolidated balance sheets.

As of April 30, 2022 and January 29, 2022, $ 9.6 million and $ 8.4 million, respectively, of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member, which are included in prepaid expense and other current assets on the condensed consolidated balance sheets.

These promissory notes are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs.

An affiliate of the managing member of the Aspen LLCs became the landlord of an additional RH Design Gallery in the first quarter of fiscal 2021.

In the third quarter of fiscal 2021, we purchased an additional 20 % interest in one of the Aspen LLCs, which continues to be accounted for as an equity method investment.

We have made $ 105 million in capital contributions to the Aspen LLCs as contractually required and no further capital contributions are required other than payments made under a management services arrangement.

Our maximum exposure to loss is the carrying value of our capital contributed to the equity method investments as of April 30, 2022.

FINANCIAL INFORMATION

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During the three months ended April 30, 2022 and January 29, 2022, we recorded our proportionate share of equity method investments losses of $ 1.4 million and $ 2.1 million, respectively, which is included in the condensed consolidated statements of income and a corresponding decrease to the carrying value of equity method investments on the condensed consolidated balance sheets as of April 30, 2022.

During the three months ended April 30, 2022, we did not receive any distributions or have any undistributed earnings of equity method investments.

NOTE 6—ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accounts payable and accrued expenses consist of the following ( in thousands ):

Accounts payable and accrued expenses consist of the following:

(in thousands)

Accounts payable

1 unchanged sentence

Accrued freight and duty

Accrued occupancy

Accrued sales taxes

Accrued occupancy

Accrued professional fees

Accrued catalog costs

Deferred consideration for asset purchase

Other accrued expenses

Total accounts payable and accrued expenses

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FINANCIAL INFORMATION

Other current liabilities consist of the following ( in thousands ):

Allowance for sales returns

Other current liabilities consist of the following:

(in thousands)

Unredeemed gift card and merchandise credit liability

Allowance for sales returns

Current portion of term loan

Current portion of equipment promissory notes

Finance lease liabilities

Current portion of equipment promissory notes

Federal and state tax payable (1)

1 unchanged sentence

Total other current liabilities

(1) Refer to Note 12— Income Taxes .

Contract Liabilities

We defer revenue associated with merchandise delivered via the home-delivery channel.

We expect that substantially all of the deferred revenue and customer deposits as of October 30, 2021 will be recognized within the next six months as the performance obligations are satisfied.

We expect that substantially all of the deferred revenue and customer deposits as of April 30, 2022 will be recognized within the next six months as the performance obligations are satisfied.

Deferred revenue also includes the unrecognized portion of the annual RH Members Program fee.

New membership fees are recorded as deferred revenue when collected from customers and recognized as revenue based on expected product revenues over the annual membership period, based on historical trends of sales to members.

Membership renewal fees are recorded as deferred revenue when collected from customers and are recognized as revenue on a straight-line basis over the membership period, or one year .

FINANCIAL INFORMATION

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In addition, we defer revenue when cash payments are received in advance of performance for unsatisfied obligations related to our gift cards.

During the three months ended October 30, 2021 and October 31, 2020, we recognized $ 4.4 million and $ 5.6 million, respectively, of revenue related to previous deferrals related to our gift cards.

During the nine months ended October 30, 2021 and October 31, 2020, we recognized $ 14.2 million and $ 16.2 million, respectively, of revenue related to previous deferrals related to our gift cards.

During the three months ended October 30, 2021 and October 31, 2020, we recorded gift card breakage of $ 0.5 million and $ 0.2 million, respectively.

During the nine months ended October 30, 2021 and October 31, 2020, we recorded gift card breakage of $ 1.4 million and $ 1.0 million, respectively.

We expect that approximately 75 % of the remaining gift card liabilities as of October 30, 2021 will be recognized when the gift cards are redeemed by customers.

During the three months ended April 30, 2022 and May 1, 2021, we recognized $ 4.7 million and $ 4.9 million, respectively, of revenue related to previous deferrals related to our gift cards .

We recognize breakage associated with gift cards proportional to actual gift card redemptions.

Breakage of $ 0.7 million and $ 0.4 million was recorded in net revenues in the three months ended April 30, 2022 and May 1, 2021, respectively.

We expect that approximately 75 % of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

NOTE 7—OTHER NON-CURRENT OBLIGATIONS

Other non-current obligations consist of the following ( in thousands ):

Deferred payroll taxes

Other non-current obligations consist of the following:

(in thousands)

Unrecognized tax benefits

Non-current portion of equipment promissory notes—net

Other non-current obligations

Total other non-current obligations

FINANCIAL INFORMATION

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NOTE 8—LEASES

Lease costs—net consist of the following ( in thousands ):

Lease costs—net consist of the following:

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Operating lease cost (1)

8 unchanged sentences

(2) Included in interest expense—net on the condensed consolidated statements of income.

(3) Represents variable lease payments under operating and finance lease agreements.

The amounts primarily represent contingent rent based on a percentage of retail sales over contractual levels of $ 6.9 million and $ 4.0 million for the three months ended October 30, 2021 and October 31, 2020, respectively, and $ 18.8 million and $ 8.3 million for the nine months ended October 30, 2021 and October 31, 2020, respectively.

Other variable costs, which include single lease cost related to variable lease payments based on an index or rate that were not included in the measurement of the initial lease liability and right-of-use asset, were not material in any period.

(4) Included in selling, general and administrative expenses on the condensed consolidated statements of income.

16 | 2021 THIRD QUARTER FORM 10-Q

(3) Represents variable lease payments under operating and finance lease agreements, primarily associated with contingent rent based on a percentage of retail sales over contractual levels of $ 6.7 million and $ 6.3 million for the three months ended April 30, 2022 and May 1, 2021, respectively, and charges associated with common area maintenance of $ 2.4 million and $ 2.1 million for the three months ended April 30, 2022 and May 1, 2021, respectively.

(4) Included as an offset to selling, general and administrative expenses on the condensed consolidated statements of income.

FINANCIAL INFORMATION

Lease right-of-use assets and lease liabilities consist of the following ( in thousands ):

2022 FIRST QUARTER FORM 10-Q | 14

Lease right-of-use assets and lease liabilities consist of the following:

(in thousands)

Balance Sheet Classification

16 unchanged sentences

(1) Finance lease right-of-use assets include capitalized amounts related to our completed construction activities to design and build leased assets, which are reclassified from other non-current assets upon lease commencement.

(2) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 162.9 million and $ 133.0 million as of October 30, 2021 and January 30, 2021, respectively.

(2) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 185 million and $ 174 million as of April 30, 2022 and January 29, 2022, respectively.

(3) Current portion of lease liabilities represents the reduction of the related lease liability over the next 12 months.

The maturities of lease liabilities are as follows as of October 30, 2021 ( in thousands ):

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 15

The maturities of lease liabilities are as follows as of April 30, 2022:

(in thousands)

Remainder of fiscal 2022

3 unchanged sentences

(1) Total lease payments include future obligations for renewal options that are reasonably certain to be exercised and are included in the measurement of the lease liability.

Total lease payments exclude $ 719.6 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of October 30, 2021, of which $ 6.4 million, $ 31.8 million, $ 37.5 million, $ 41.8 million, $ 44.0 million and $ 42.8 million will be paid in the remainder of fiscal 2021, fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025 and fiscal 2026, respectively, and $ 515.3 million will be paid subsequent to fiscal 2026.

FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 17

(2) Excludes future commitments under short-term lease agreements of $ 0.9 million as of October 30, 2021.

Total lease payments exclude $ 512 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of April 30, 2022, of which $ 17 million, $ 27 million, $ 33 million, $ 34 million, $ 33 million and $ 31 million will be paid in fiscal 2022, fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026 and fiscal 2027, respectively, and $ 337 million will be paid subsequent to fiscal 2027.

(2) Excludes future commitments under short-term lease agreements of $ 0.9 million as of April 30, 2022.

(3) Calculated using the discount rate for each lease at lease commencement.

Supplemental information related to leases consists of the following:

NINE MONTHS ENDED

THREE MONTHS ENDED

(in thousands)

Weighted-average remaining lease term (years)

4 unchanged sentences

Finance leases

Other information related to leases consists of the following (in thousands) :

NINE MONTHS ENDED

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 16

Other information related to leases consists of the following:

THREE MONTHS ENDED

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities

6 unchanged sentences

Finance leases

Build-to-Suit Asset

During the second quarter of fiscal 2021, we opened the Dallas Design Gallery.

During the construction period of this Design Gallery, we were the “deemed owner” for accounting purposes and classified the construction costs as build-to-suit asset within property & equipment—net on our condensed consolidated balance sheets.

Upon construction completion and lease commencement, we performed a sale-leaseback analysis and determined that we cannot derecognize the build-to-suit asset.

Therefore, the asset will remain classified as a build-to-suit asset within property and equipment—net and will depreciate over the term of the useful life of the asset.

Sale-Leaseback Transaction

During the second quarter of fiscal 2020, we executed a sale-leaseback transaction for the Minneapolis Design Gallery for sales proceeds of $ 25.5 million, which qualified for sale-leaseback accounting in accordance with ASC 842.

Concurrently with the sale, we entered into an operating leaseback arrangement with an initial lease term of 20 years and a renewal option for an additional 10 years .

We recognized a loss related to the execution of the sale transaction of $ 9.4 million in the second quarter of fiscal 2020, which was recorded in selling, general and administrative expenses on the condensed consolidated statements of income.

Long-lived Asset Impairment

During the first quarter of fiscal 2020, we recognized long-lived asset impairment charges of $ 3.5 million related to one RH Baby & Child and TEEN Gallery and one Waterworks showroom, comprised of lease right-of-use asset impairment of $ 2.0 million and property and equipment impairment of $ 1.5 million.

18 | 2021 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

NOTE 9—CONVERTIBLE SENIOR NOTES

In June 2018, we issued in a private offering $ 300 million principal amount of 0.00 % convertible senior notes due 2023 and issued an additional $ 35 million principal amount in connection with the overallotment option granted to the initial purchasers as part of the offering (collectively, the “2023 Notes”).

In September 2019, we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes” and, together with the 2023 Notes, the “Convertible Senior Notes” or the “Notes”).

Refer to Note 12— Convertible Senior Notes in our consolidated financial statements in our 2021 Form 10-K for further information and terms of the Notes, including the accounting policies related to the Notes that were in effect through fiscal 2021.

In connection with our adoption of ASU 2020-06 in the first quarter of fiscal 2022, we recombined the previously outstanding equity component, which resulted in an increase in the balance of convertible debt outstanding.

Refer to Note 2— Recently Issued Accounting Standards for further discussion of the impact of our adoption of ASU 2020-06 on our condensed consolidated financial statements.

The outstanding balances under the 2023 Notes and 2024 Notes were as follows:

(in thousands)

Convertible senior notes due 2023 (2)

Convertible senior notes due 2024 (3)

Total convertible senior notes

(1) As of April 30, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount.

As of January 29, 2022, the balance includes debt issuance costs inclusive of original issuers’ discount, as well as the previously outstanding equity component that was recombined upon the adoption of ASU 2020-06 in the first quarter of fiscal 2022, which was $ 5.7 million for the 2023 Notes and $ 30 million for the 2024 Notes.

Refer to Note 2 —Recently Issued Accounting Standards .

(2) As of April 30, 2022, $ 20 million of the 2023 Notes remains outstanding and is classified as convertible senior notes due 2023—net.

The 2023 Notes outstanding as of January 29, 2022 included a current portion of $ 9.4 million and a non-current portion of $ 59 million.

(3) As of April 30, 2022, $ 81 million of the 2024 Notes remains outstanding and is classified as convertible senior notes due 2024—net.

The 2024 Notes outstanding as of January 29, 2022 included a current portion of $ 3.6 million and a non-current portion of $ 184 million.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 17

2023 Notes and 2024 Notes—Bond Hedge and Warrant Terminations and Notes Repurchase

During the three months ended April 30, 2022, we entered into agreements with certain financial institutions (collectively, the “Counterparties”) to repurchase all of the warrants issued in connection with the 2023 Notes and 2024 Notes at an aggregate purchase price of $ 184 million and $ 203 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a volume weighted-average price measurement period of two or three days .

Upon entering into these agreements, the warrants were reclassified from stockholders’ equity to current liabilities on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding net loss on the fair value adjustment of the warrants of $ 4.2 million, which is classified within other income—net in the condensed consolidated statements of income.

Upon settlement of these agreements in April 2022, we paid an aggregate of $ 391 million in cash to terminate the warrants.

During the three months ended April 30, 2022, we entered into agreements with the Counterparties to terminate all of the convertible note bond hedges issued in connection with the 2023 Notes and 2024 Notes to receive an aggregate closing price of $ 56 million and $ 180 million, respectively, subject to adjustment for a settlement feature based on pricing formulations linked to the trading price of our common stock over a three day volume weighted-average price measurement period.

Upon entering into these agreements, the bond hedges were reclassified from stockholders’ equity to current assets on the condensed consolidated balance sheets, and accordingly, we recognized a corresponding loss on the fair value adjustment of the settlement feature of $ 4.3 million, which is classified within other income—net in the condensed consolidated statements of income.

Upon settlement of these agreements in April 2022, we received an aggregate of $ 232 million in cash for the termination of the bond hedges.

During the three months ended April 30, 2022, we entered into individual privately negotiated transactions with certain holders of the 2023 Notes and 2024 Notes to repurchase in cash $ 45 million and $ 135 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Notes Repurchase”).

The Notes Repurchase provided for an estimated settlement cost of $ 325 million, subject to adjustment to the final settlement cost for an embedded feature based on pricing formulations linked to the trading price of our common stock over a five day volatility weighted-average price measurement period that ended on April 29, 2022.

Upon execution of these agreements, we determined that we had modified the debt substantially and applied an extinguishment accounting model.

Accordingly, we derecognized the aggregate principal amount of $ 180 million of the Convertible Senior Notes related to the extinguishment of such notes, and subsequently recognized a new financing liability with a fair value of $ 325 million.

An embedded derivative related to the conversion feature was bifurcated from the new financing liability and separately recognized with an initial fair value of $ 278 million, with the remaining $ 47 million classified as debt and recognized at its amortized cost basis.

Accordingly, we recognized a loss on extinguishment of debt of $ 146 million upon the execution of these agreements, inclusive of acceleration of amortization of debt issuance costs of approximately $ 1.0 million.

Upon the completion of the price measurement period in April 2022, a total of $ 314 million was due to the holders, representing the combined carrying value of the debt liability of $ 47 million, as well as the fair value of the bifurcated embedded equity derivative of $ 267 million.

Accordingly, we recognized a gain on the fair value adjustment of the bifurcated embedded equity derivative of $ 11 million, which is classified within other income—net in the condensed consolidated statements of income.

The resulting debt liability and bifurcated embedded equity derivative were settled in full for $ 314 million in cash upon closing of the Notes Repurchase on May 3, 2022.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 18

$ 350 million 0.00 % Convertible Senior Notes due 2024

In September 2019 , we issued in a private offering $ 350 million principal amount of 0.00 % convertible senior notes due 2024 (the “2024 Notes”).

The 2024 Notes are governed by the terms of an indenture between the Company and U.S.

Bank National Association, as the Trustee.

The 2024 Notes will mature on September 15, 2024 , unless earlier purchased by us or converted.

The 2024 Notes will not bear interest, except that the 2024 Notes will be subject to “special interest” in certain limited circumstances in the event of our failure to perform certain of our obligations under the indenture governing the 2024 Notes.

The 2024 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.

Certain events are also considered “events of default” under the 2024 Notes, which may result in the acceleration of the maturity of the 2024 Notes, as described in the indenture governing the 2024 Notes.

Events of default under the indenture for the 2024 Notes include, among other things, the occurrence of an event of default by us as defined under any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any of its significant subsidiaries for money borrowed, if that event of default (i) constitutes the failure to pay when due indebtedness in the aggregate principal amount in excess of $ 20 million and (ii) such event of default continues for a period of 30 days after written notice is delivered to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25 % of the aggregate principal amount of the 2024 Notes then outstanding.

The initial conversion rate applicable to the 2024 Notes is 4.7304 shares of common stock per $ 1,000 principal amount of 2024 Notes, or a total of approximately 1.656 million shares for the total $ 350 million principal amount.

This initial conversion rate is equivalent to an initial conversion price of approximately $ 211.40 per share, which represents a 25 % premium to the $ 169.12 closing share price on the day the 2024 Notes were priced.

The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest.

In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2024 Notes, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2024 Notes in connection with such make-whole fundamental change.

Prior to June 15, 2024, the 2024 Notes are convertible only under the following circumstances:

2 unchanged sentences

or (3) upon the occurrence of specified corporate transactions.

The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended September 30, 2021 and, accordingly, holders were eligible to convert their 2024 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2024 Notes during the calendar quarter ending December 31, 2021.

The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended June 30, 2022 and, accordingly, holders were eligible to convert their 2024 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2024 Notes during the calendar quarter ending June 30, 2022.

On and after June 15, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2024 Notes at any time, regardless of the foregoing circumstances.

1 unchanged sentence

If the Company has not delivered a notice of its election of settlement method prior to the final conversion period, it will be deemed to have elected combination settlement with a dollar amount per note to be received upon conversion of $ 1,000 .

We may not redeem the 2024 Notes;

however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2024 Notes for cash at a price equal to 100 % of the principal amount of the 2024 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date.

FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 19

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 the issuance of the 2024 Notes, we separated the 2024 Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature.

The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2024 Notes and the fair value of the liability component of the 2024 Notes.

The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense using an effective interest rate of 5.74 % over the expected life of the 2024 Notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

Debt issuance costs related to the 2024 Notes were comprised of discounts upon original issuance of $ 3.5 million and third party offering costs of $ 1.3 million.

In accounting for the debt issuance costs related to the issuance of the 2024 Notes, we allocated the total amount incurred to the liability and equity components based on their relative values.

Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2024 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity.

Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2024 balance on the condensed consolidated balance sheets.

During both the three months ended October 30, 2021 and October 31, 2020, we recorded $ 0.2 million related to the amortization of debt issuance costs related to the 2024 Notes, respectively.

During both the nine months ended October 30, 2021 and October 31, 2020, we recorded $ 0.5 million related to the amortization of debt issuance costs related to the 2024 Notes, respectively.

During the second quarter of fiscal 2021, holders of $ 67.2 million in aggregate principal amount of the 2024 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2024 Notes converted and shares of our common stock for the remaining conversion value.

During the three months ended October 30, 2021, we paid $ 67.2 million in cash and delivered 219,738 shares of common stock to settle the early conversion of these 2024 Notes.

As a result, we recognized a loss on extinguishment of the liability component of $ 5.4 million in the three months ended October 30, 2021.

We also received 219,728 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2024 Notes as described below, and therefore, on a net basis issued ten shares of our common stock in respect to such settlement of the converted 2024 Notes.

During the third quarter of fiscal 2021, holders of $ 56.7 million in aggregate principal amount of the 2024 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2024 Notes converted and shares of our common stock for the remaining conversion value.

In accordance with the provisions for such combination settlements, the conversion value is to be determined based on the average conversion value over a 45 trading day observation period.

As of October 30, 2021, the observation periods of these converted 2024 Notes had not been completed and, as a result, these converted 2024 Notes remain outstanding as of October 30, 2021.

During the fourth quarter of fiscal 2021, we expect to pay $ 56.7 million in cash and to deliver shares of common stock to settle the early conversion of these 2024 Notes, net of the shares of common stock we expect to receive from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2024 Notes as described below.

Accordingly, as of October 30, 2021, we reclassified $ 56.7 million of the outstanding principal balance to current liabilities , as well as reclassified $ 8.6 million of the equity component of the 2024 Notes to mezzanine equity from permanent equity on our condensed consolidated balance sheets and statements of stockholders’ equity, representing the difference between the current portion of aggregate principal of our converted 2024 Notes required to be settled in cash based on our irrevocable elections and the current portion of the carrying value of the converted 2024 Notes outstanding as of October 30, 2021.

As the settlement of conversion of the remainder of the 2024 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock, the remaining liability for the 2024 Notes is classified within other non-current obligations on our condensed consolidated balance sheets.

20 | 2021 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

The carrying value of the 2024 Notes, excluding the discounts upon original issuance and third party offering costs, is as follows ( in thousands ):

Liability component

Debt discount

Net carrying amount (1)

Equity component (2)

(1) Includes $ 56.7 million classified within total current liabilities on the condensed consolidated balance sheets as of October 30, 2021 for the early conversion of $ 56.7 million in principal amount of 2024 Notes to be settled in the fourth quarter of fiscal 2021.

(2) Includes $ 8.6 million in mezzanine equity and the remaining amount in additional paid-in capital on the condensed consolidated balance sheets as of October 30, 2021.

As of January 30, 2021, the full amount is included in additional paid-in capital on the condensed consolidated balance sheets.

We recorded interest expense of $ 3.7 million and $ 4.0 million for the amortization of the debt discount related to the 2024 Notes during the three months ended October 30, 2021 and October 31, 2020, respectively.

We recorded interest expense of $ 12.0 million and $ 11.8 million for the amortization of the debt discount related to the 2024 Notes during the nine months ended October 30, 2021 and October 31, 2020, respectively.

2024 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2024 Notes and exercise of the overallotment option in September 2019 , we entered into convertible note hedge transactions whereby we have the option to purchase a total of approximately 1.656 million shares of our common stock at a price of approximately $ 211.40 per share.

The total cost of the convertible note hedge transactions was approximately $ 91.4 million.

In addition, we sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 1.656 million shares of our common stock at a price of $ 338.24 per share, which represents a 100 % premium to the $ 169.12 closing share price on the day the 2024 Notes were priced.

The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of approximately 3.3 million shares of common stock (which cap may also be subject to adjustment).

We received approximately $ 50.2 million in cash proceeds from the sale of these warrants.

Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2024 Notes until our common stock is above approximately $ 338.24 per share.

As these transactions meet certain accounting criteria, the convertible note hedges and warrants are recorded in stockholders’ equity, are not accounted for as derivatives and are not remeasured each reporting period.

The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

We recorded a deferred tax liability of $ 21.7 million in connection with the debt discount associated with the 2024 Notes and recorded a deferred tax asset of $ 22.7 million in connection with the convertible note hedge transactions.

The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets.

FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 21

During the three months ended April 30, 2022, holders of $ 3.6 million in aggregate principal amount of the 2024 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2024 Notes converted and shares of our common stock for the remaining conversion value.

During the three months ended April 30, 2022, we paid $ 3.6 million in cash and delivered 9,760 shares of common stock to settle the early conversion of these 2024 Notes.

We also received 9,760 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2024 Notes.

The remaining liability for the 2024 Notes is classified as a non-current obligation on our condensed consolidated balance sheets since the settlement of the outstanding 2024 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.

$ 335 million 0.00 % Convertible Senior Notes due 2023

In June 2018 , we issued in a private offering $ 300 million principal amount of 0.00 % convertible senior notes due 2023 and issued an additional $ 35 million principal amount in connection with the overallotment option granted to the initial purchasers as part of the offering (collectively, the “2023 Notes”).

The 2023 Notes are governed by the terms of an indenture between the Company and U.S.

Bank National Association, as the Trustee.

The 2023 Notes will mature on June 15, 2023 , unless earlier purchased by us or converted.

The 2023 Notes will not bear interest, except that the 2023 Notes will be subject to “special interest” in certain limited circumstances in the event of our failure to perform certain of our obligations under the indenture governing the 2023 Notes.

The 2023 Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries.

Certain events are also considered “events of default” under the 2023 Notes, which may result in the acceleration of the maturity of the 2023 Notes, as described in the indenture governing the 2023 Notes.

Events of default under the indenture for the 2023 Notes include, among other things, the occurrence of an event of default by us as defined under any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness of the Company or any of its significant subsidiaries for money borrowed, if that event of default (i) constitutes the failure to pay when due indebtedness in the aggregate principal amount in excess of $ 20 million and (ii) such event of default continues for a period of 30 days after written notice is delivered to the Company by the Trustee or to the Company and the Trustee by the holders of at least 25 % of the aggregate principal amount of the 2023 Notes then outstanding.

The initial conversion rate applicable to the 2023 Notes is 5.1640 shares of common stock per $ 1,000 principal amount of 2023 Notes, which is equivalent to an initial conversion price of approximately $ 193.65 per share.

The conversion rate will be subject to adjustment upon the occurrence of certain specified events, but will not be adjusted for any accrued and unpaid special interest.

In addition, upon the occurrence of a “make-whole fundamental change” as defined in the indenture governing the 2023 Notes, we will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its 2023 Notes in connection with such make-whole fundamental change.

Prior to March 15, 2023, the 2023 Notes are convertible only under the following circumstances:

2 unchanged sentences

or (3) upon the occurrence of specified corporate transactions.

The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended September 30, 2021 and, accordingly, holders were eligible to convert their 2023 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2023 Notes during the calendar quarter ending December 31, 2021.

The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended June 30, 2022 and, accordingly, holders were eligible to convert their 2023 Notes beginning in the calendar quarter ended December 31, 2020 and are currently eligible to convert their 2023 Notes during the calendar quarter ending June 30, 2022.

On and after March 15, 2023, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or a portion of their 2023 Notes at any time, regardless of the foregoing circumstances.

1 unchanged sentence

We may not redeem the 2023 Notes;

however, upon the occurrence of a fundamental change (as defined in the indenture governing the notes), holders may require us to purchase all or a portion of their 2023 Notes for cash at a price equal to 100 % of the principal amount of the 2023 Notes to be purchased plus any accrued and unpaid special interest to, but excluding, the fundamental change purchase date.

22 | 2021 THIRD QUARTER FORM 10-Q

FINANCIAL INFORMATION

Accordingly, in accounting for the issuance of the 2023 Notes, we separated the 2023 Notes into liability and equity components.

The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature.

The carrying amount of the equity component, which is recognized as a debt discount, represents the difference between the proceeds from the issuance of the 2023 Notes and the fair value of the liability component of the 2023 Notes.

The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

Debt issuance costs related to the 2023 Notes were comprised of discounts upon original issuance of $ 1.7 million and third party offering costs of $ 4.6 million.

In accounting for the debt issuance costs related to the issuance of the 2023 Notes, we allocated the total amount incurred to the liability and equity components based on their relative values.

Debt issuance costs attributable to the liability component are amortized to interest expense using the effective interest method over the expected life of the 2023 Notes, and debt issuance costs attributable to the equity component are netted with the equity component in stockholders’ equity.

Discounts and third party offering costs attributable to the liability component are recorded as a contra-liability and are presented net against the convertible senior notes due 2023 balance on the condensed consolidated balance sheets.

During both the three months ended October 30, 2021 and October 31, 2020, we recorded $ 0.2 million related to the amortization of debt issuance costs, respectively.

During both the nine months ended October 30, 2021 and October 31, 2020, we recorded $ 0.7 million related to the amortization of debt issuance costs, respectively.

In December 2020, holders of $ 2.4 million in aggregate principal amount of the 2023 Notes elected early conversion at the option of the noteholders.

During the three months ended May 1, 2021, we paid $ 2.4 million in cash and delivered 7,307 shares of common stock to settle the early conversion of these 2023 Notes.

As a result, we recognized a loss on extinguishment of the liability component of $ 0.1 million in the three months ended May 1, 2021.

We also received 7,305 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below, and therefore, on a net basis issued two shares of our common stock in respect to such settlement of the converted 2023 Notes.

During the second and third quarters of fiscal 2021, holders of $ 30.8 million in aggregate principal amount of the 2023 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2023 Notes converted and shares of our common stock for the remaining conversion value.

During the three months ended July 31, 2021, we paid $ 30.8 million in cash and delivered 112,297 shares of common stock to settle the early conversion of these 2023 Notes.

As a result, we recognized a loss on extinguishment of the liability component of $ 3.2 million in the three months ended July 31, 2021.

We also received 112,296 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below, and therefore, on a net basis issued one share of our common stock in respect to such settlement of the converted 2023 Notes.

During the third quarter of fiscal 2021, holders of $ 173.8 million in aggregate principal amount of the 2023 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2023 Notes converted and shares of our common stock for the remaining conversion value.

During the three months ended October 30, 2021, we paid $ 173.8 million in cash and delivered 644,352 shares of common stock to settle the early conversion of these 2023 Notes.

As a result, we recognized a loss on extinguishment of the liability component of $ 11.7 million in the three months ended October 30, 2021.

We also received 644,346 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below, and therefore, on a net basis issued six shares of our common stock in respect to such settlement of the converted 2023 Notes.

FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 23

During the third quarter of fiscal 2021, holders of $ 53.5 million in aggregate principal amount of the 2023 Notes elected to exercise the conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2023 Notes converted and shares of our common stock for the remaining conversion value.

In accordance with the provisions for such combination settlements, the conversion value is to be determined based on the average conversion value over a 45 trading day observation period.

As of October 30, 2021, the observation periods of these converted 2023 Notes had not been completed and, as a result, these converted 2023 Notes remain outstanding as of October 30, 2021.

During the fourth quarter of fiscal 2021, we expect to pay $ 53.5 million in cash and to deliver shares of common stock to settle the early conversion of these 2023 Notes, net of the shares of common stock we expect to receive from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes as described below.

Accordingly, as of October 30, 2021, we reclassified $ 53.5 million of the outstanding principal balance to current liabilities, as well as reclassified $ 5.0 million of the equity component of the 2023 Notes to mezzanine equity from permanent equity on our condensed consolidated balance sheets as of October 30, 2021, representing the difference between the current portion of aggregate principal of our converted 2023 Notes required to be settled in cash based on our irrevocable elections and the current portion of the carrying value of the converted 2023 Notes outstanding as of October 30, 2021.

As the settlement of conversion of the remainder of the 2023 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock, the remaining liability for the 2023 Notes is classified within other non-current obligations on our condensed consolidated balance sheets.

The carrying values of the 2023 Notes, excluding the discounts upon original issuance and third party offering costs, are as follows ( in thousands ):

Liability component

Debt discount

Net carrying amount (1)

Equity component (2)

(1) Includes $ 53.5 million classified within total current liabilities on the condensed consolidated balance sheets as of October 30, 2021 for the early conversion of $ 53.5 million in principal amount of 2023 Notes to be settled in the fourth quarter of fiscal 2021.

(2) Includes $ 5.0 million in mezzanine equity and the remaining amount in additional paid-in capital on the condensed consolidated balance sheets as of October 30, 2021.

As of January 30, 2021, the full amount is included in additional paid-in capital on the condensed consolidated balance sheets.

We recorded interest expense of $ 3.1 million and $ 4.4 million for the amortization of the debt discount related to the 2023 Notes during the three months ended October 30, 2021 and October 31, 2020, respectively.

We recorded interest expense of $ 12.3 million and $ 13.1 million for the amortization of the debt discount related to the 2023 Notes during the nine months ended October 30, 2021 and October 31, 2020, respectively.

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FINANCIAL INFORMATION

2023 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2023 Notes and exercise of the overallotment option in June 2018 , we entered into convertible note hedge transactions whereby we have the option to purchase a total of approximately 1.730 million shares of our common stock at a price of approximately $ 193.65 per share.

The total cost of the convertible note hedge transactions was approximately $ 91.9 million.

In addition, we sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 1.730 million shares of our common stock at a price of $ 309.84 per share.

The warrants contain certain adjustment mechanisms whereby the total number of shares to be purchased under such warrants may be increased up to a cap of approximately 3.5 million shares of common stock (which cap may also be subject to adjustment).

We received approximately $ 51.0 million in cash proceeds from the sale of these warrants.

Taken together, the purchase of the convertible note hedges and sale of the warrants are intended to offset any actual earnings dilution from the conversion of the 2023 Notes until our common stock is above approximately $ 309.84 per share.

The net costs incurred in connection with the convertible note hedge and warrant transactions were recorded as a reduction to additional paid-in capital on the condensed consolidated balance sheets.

We recorded a deferred tax liability of $ 22.3 million in connection with the debt discount associated with the 2023 Notes and recorded a deferred tax asset of $ 22.5 million in connection with the convertible note hedge transactions.

The deferred tax liability and deferred tax asset are recorded in deferred tax assets on the condensed consolidated balance sheets.

2022 FIRST QUARTER FORM 10-Q | 19

During the three months ended April 30, 2022, holders of $ 9.4 million in aggregate principal amount of the 2023 Notes elected to exercise the early conversion option and we elected to settle such conversions using combination settlement comprised of cash equal to the principal amount of the 2023 Notes converted and shares of our common stock for the remaining conversion value.

During the three months ended April 30, 2022, we paid $ 9.4 million in cash and delivered 27,213 shares of common stock to settle the early conversion of these 2023 Notes.

We also received 27,208 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2023 Notes, and therefore, on a net basis issued 5 shares of our common stock in respect to such settlement of the converted 2023 Notes.

The remaining liability for the 2023 Notes is classified as a non-current obligation on our condensed consolidated balance sheets since the settlement of the outstanding 2023 Notes will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.

NOTE 10—CREDIT FACILITIES

The outstanding balances under our credit facilities were as follows ( in thousands ):

The outstanding balances under our credit facilities were as follows:

(in thousands)

Asset based credit facility (1)

2 unchanged sentences

Total credit facilities

(1) Deferred financing fees associated with the asset based credit facility as of October 30, 2021 and January 30, 2021 were $ 4.4 million and $ 1.5 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets.

The deferred financing fees are amortized on a straight-line basis over the life of the revolving line of credit.

In July 2021, Restoration Hardware, Inc.

entered into the ABL Credit Agreement (defined below) which extended the maturity date of the revolving line of credit from June 28, 2022 to July 29, 2026.

(2) Represents the Term Loan Credit Agreement (defined below), of which $ 1,980.0 million outstanding and $ 20.0 million outstanding was included in term loan—net and other current liabilities on the condensed consolidated balance sheets, respectively.

(1) Deferred financing fees associated with the asset based credit facility as of April 30, 2022 and January 29, 2022, were $ 3.9 million and $ 4.1 million, respectively, and are included in other non-current assets on the condensed consolidated balance sheets.

The deferred financing fees are amortized on a straight-line basis over the life of the revolving line of credit, which has a maturity date of July 29, 2026.

(2) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 2.0 billion and $ 20 million were included in term loan—net and other current liabilities on the condensed consolidated balance sheets, respectively, in both periods presented.

The maturity date of the Term Loan Credit Agreement is October 20, 2028.

(3) Represents total equipment security notes secured by certain of our property and equipment, of which $ 18.9 million outstanding was included in other current liabilities on the condensed consolidated balance sheets.

The remaining $ 1.7 million outstanding, included in equipment promissory notes—net on the condensed consolidated balance sheets, has principal payments due of $ 0.5 million and $ 1.2 million in fiscal 2022 and fiscal 2023, respectively.

Asset Based Credit Facility

(3) Represents total equipment security notes secured by certain of our property and equipment, all of which was included in other current liabilities on the condensed consolidated balance sheets as of April 30, 2022.

Asset Based Credit Facility & Term Loan Facilities

On August 3, 2011, Restoration Hardware, Inc.

(“RHI”), a wholly-owned subsidiary of RH, along with its Canadian subsidiary, Restoration Hardware Canada, Inc., entered into the Ninth Amended and Restated Credit Agreement (as amended prior to June 28, 2017, the “Original Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent (the “ABL Agent”).

FINANCIAL INFORMATION

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On June 28, 2017, RHI entered into the Eleventh Amended and Restated Credit Agreement (as amended prior to July 29, 2021, the “11 th A&R Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the Original Credit Agreement.

FINANCIAL INFORMATION

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On July 29, 2021, RHI entered into the Twelfth Amended and Restated Credit Agreement (as amended, the “ABL Credit Agreement”) by and among RHI, Restoration Hardware Canada, Inc., certain other subsidiaries of RH named therein as borrowers or guarantors, the lenders party thereto and the ABL Agent, which amended and restated the 11 th A&R Credit Agreement.

5 unchanged sentences

All obligations under the ABL Credit Agreement are secured by substantial assets of the loan parties, including inventory, receivables and certain types of intellectual property.

Borrowings under the revolving line of credit (other than swing line loans, which are subject to interest at the base rate) bear interest, at the borrower’s option, at either the base rate or London Inter-bank Offered Rate (“LIBOR”) subject to a 0.00 % LIBOR floor (or, in the case of the Canadian borrowings, the “BA Rate” or the “Canadian Prime Rate”, as such terms are defined in the ABL Credit Agreement, for the Canadian borrowings denominated in Canadian dollars, or the “U.S.

Borrowings under the revolving line of credit (other than swing line loans, which are subject to interest at the base rate) bear interest, at the borrower’s option, at either the base rate or LIBOR subject to a 0.00 % LIBOR floor (or, in the case of the Canadian borrowings, the “BA Rate” or the “Canadian Prime Rate”, as such terms are defined in the ABL Credit Agreement, for the Canadian borrowings denominated in Canadian dollars, or the “U.S.

Index Rate”, as such term is defined in the ABL Credit Agreement, or LIBOR for Canadian borrowings denominated in United States dollars) plus an applicable interest rate margin, in each case.

The ABL Credit Agreement contains customary provisions addressing the transition from LIBOR.

The ABL Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size.

2 unchanged sentences

The FCCR Covenant ratio is set at 1.0 and measured on a trailing twelve-month basis.

As of October 30, 2021, RHI was in compliance with the FCCR Covenant.

As of April 30, 2022, RHI was in compliance with the FCCR Covenant.

The ABL Credit Agreement requires a daily sweep of all cash receipts and collections to prepay the loans under the agreement while (i) an event of default exists or (ii) when the unused availability under the ABL Credit Agreement drops below the greater of (A) $ 40 million and (B) an amount based on 10 % of the total borrowing availability at the time.

The ABL Credit Agreement contains customary representations and warranties, events of defaults and other customary terms and conditions for an asset based credit facility.

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FINANCIAL INFORMATION

The availability of the revolving line of credit at any given time under the ABL Credit Agreement is limited by the terms and conditions of the ABL Credit Agreement, including the amount of collateral available, a borrowing base formula based upon numerous factors, including the value of eligible inventory and eligible accounts receivable, and other restrictions contained in the ABL Credit Agreement.

As a result, actual borrowing availability under the revolving line of credit could be less than the stated amount of the revolving line of credit (as reduced by the actual borrowings and outstanding letters of credit under the revolving line of credit).

As of October 30, 2021, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 333.7 million, net of $ 19.9 million in outstanding letters of credit.

As of April 30, 2022, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 444 million, net of $ 20 million in outstanding letters of credit.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 21

Term Loan Credit Agreement

10 unchanged sentences

The Intercreditor Agreement establishes various customary inter-lender terms, including, without limitation, with respect to priority of liens, permitted actions by each party, application of proceeds, exercise of remedies in case of default, releases of liens and certain limitations on the amendment of the ABL Credit Agreement and the Term Loan Credit Agreement without the consent of the other parties.

The borrowings under the Term Loan Credit Agreement may be prepaid in whole or in part at any time, subject to a prepayment premium of 1.0 % in the event the facility is prepaid or repriced within the six months following the closing date of the Term Loan Credit Agreement.

The borrowings under the Term Loan Credit Agreement may be prepaid in whole or in part at any time, subject to a prepayment premium of 1.0 % in connection with any repricing transaction within the six months following the closing date of the Term Loan Credit Agreement.

The Term Loan Credit Agreement contains various restrictive and affirmative covenants, including required financial reporting, limitations on granting certain liens, limitations on making certain loans or investments, limitations on incurring additional debt, restricted payment limitations limiting the payment of dividends and certain other transactions and distributions, limitations on transactions with affiliates, along with other restrictions and limitations similar to those frequently found in credit agreements of a similar type and size, but provides for unlimited exceptions in the case of incurring indebtedness, granting of liens and making investments, dividend payments, and payments of material junior indebtedness, subject to satisfying specified leverage ratio tests.

1 unchanged sentence

The Term Loan Credit Agreement contains customary representations and warranties, events of defaults and other customary terms and conditions for a term loan credit agreement.

On May 13, 2022, subsequent to our first quarter of fiscal 2022, RHI entered into a 2022 Incremental Amendment (the “2022 Incremental Amendment”) with Bank of America, N.A., as administrative agent, amending the Term Loan Credit Agreement (the Term Loan Credit Agreement as amended by the 2022 Incremental Amendment, the “Amended Term Loan Credit Agreement”).

Pursuant to the terms of the 2022 Incremental Amendment, RHI incurred incremental term loans (the “2022 Incremental Term Debt”) in an aggregate principal amount equal to $ 500 million with a maturity date of October 20, 2028.

The 2022 Incremental Term Debt constitutes a separate class from the existing term loans under the Term Loan Credit Agreement.

The 2022 Incremental Term Debt bears interest at an annual rate based on the SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 3.25 % plus a credit spread adjustment of 0.10 %.

Other than the terms relating the 2022 Incremental Term Debt, the terms of the Amended Term Loan Credit Agreement remain substantially the same as the terms of the existing Term Loan Credit Agreement, including representations and warranties, covenants and events of default.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 22

Equipment Loan Facility

On September 5, 2017, RHI entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC (“BAL”) pursuant to which BAL and we agreed that BAL would finance certain equipment of ours from time to time, with each such equipment financing to be evidenced by an equipment security note setting forth the terms for each particular equipment loan.

On September 5, 2017, RHI entered into a Master Loan and Security Agreement with Banc of America Leasing & Capital, LLC (“BAL”) pursuant to which BAL and RHI agreed that BAL would finance certain equipment of ours from time to time, with each such equipment financing to be evidenced by an equipment security note setting forth the terms for each particular equipment loan.

Each equipment loan is secured by a purchase money security interest in the financed equipment.

As of April 30, 2022, the equipment security notes bore interest at a weighted-average rate of 4.53 %.

The maturity dates of the equipment security notes vary, but generally have a maturity of three or four years .

We are required to make monthly installment payments under the equipment security notes.

FINANCIAL INFORMATION

2021 THIRD QUARTER FORM 10-Q | 27

NOTE 11—FAIR VALUE MEASUREMENTS

Certain financial assets and liabilities are required to be carried at fair value.

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.

In determining the fair value, we utilize market data or assumptions that we believe market participants would use in pricing the asset or liability, which would maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, including assumptions about risk and the risks inherent in the inputs of the valuation technique.

The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability.

Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.

Financial instruments with readily available active quoted prices for which fair value can be measured generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value.

Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

Our financial assets and liabilities measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1—Quoted prices are available in active markets for identical investments as of the reporting date.

Level 2—Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Level 3—Pricing inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment.

The inputs used in the determination of fair value require significant management judgment or estimation.

A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Fair Value Measurements—Recurring

Amounts reported as cash and equivalents , accounts receivables—net , and accounts payable and accrued expenses approximate fair value due to the short-term nature of activity within these accounts.

The estimated fair value of the asset based credit facility approximates cost as the interest rate associated with the facility is variable and resets frequently.

The estimated fair value and carrying value of the 2023 Notes and 2024 Notes were as follows ( in thousands ):

Amounts reported as cash and equivalents, receivables, and accounts payable and accrued expenses approximate fair value due to the short-term nature of activity within these accounts.

The estimated fair value of the asset based credit facility approximates cost as the interest rate associated with the facility is variable and resets frequently (Level 2).

The estimated fair value of the Term Loan Credit Agreement approximates cost as it was recently issued and the interest rate associated with the credit agreement is variable and resets frequently (Level 2).

The estimated fair value and carrying value of the 2023 Notes and 2024 Notes were as follows:

(in thousands)

Convertible senior notes due 2023

Convertible senior notes due 2024

(1) Carrying value represents the principal amount less the equity component of the 2023 Notes and 2024 Notes classified in stockholders’ equity, and does not exclude the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third party offering costs, as applicable.

The fair value of each of the 2023 Notes and 2024 Notes was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our common stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).

(1) The carrying value as of April 30, 2022 represents the principal amount of the 2023 Notes and 2024 Notes following our adoption of ASU 2020-06 in the first quarter of fiscal 2022 (refer to Note 2— Recently Issued Accounting Standards ).

The carrying value as of January 29, 2022 represents the principal amount less the equity component of the 2023 Notes and 2024 Notes classified in stockholders’ equity , which was required prior to the adoption of ASU 2020-06.

The carrying value in both periods excludes the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third party offering costs, as applicable.

The fair value of each of the 2023 Notes and 2024 Notes was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).

Fair Value Measurements—Non-Recurring

The fair value of the Waterworks reporting unit tradename was determined based on unobservable (Level 3) inputs and valuation techniques, as discussed in Note 4— Goodwill, Tradenames, Trademarks and Other Intangible Assets .

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FINANCIAL INFORMATION

The fair value of the acquired goodwill and tradename associated with acquisitions by the RH Segment in fiscal 2020 were determined based on unobservable (Level 3) inputs and valuation techniques.

The fair value of the Waterworks reporting unit tradename was determined based on unobservable (Level 3) inputs and valuation techniques.

The fair value of the real estate assets associated with our investment in the Aspen LLCs in fiscal 2020, as discussed in Note 5— Equity Method Investments , were determined based on unobservable (Level 3) inputs and valuation techniques.

Upon settlement of our convertible senior notes, including the settlements in which holders of the 2023 Notes and 2024 Notes elected to exercise the early conversion option, we recognize a gain or loss on extinguishment of debt in the condensed consolidated statements of income, which represents the difference between the carrying value and fair value of the convertible senior notes immediately prior to the settlement date.

Prior to the adoption of ASU 2020-06 and through fiscal 2021, upon settlement of our convertible senior notes, including the settlements in which holders of the 2023 Notes and 2024 Notes elected to exercise the early conversion option, we recognized a gain or loss on extinguishment of debt in the condensed consolidated statements of income, which represented the difference between the carrying value and fair value of the convertible senior notes immediately prior to the settlement date.

The fair value of each of the 2023 Notes and 2024 Notes related to the settlement of the early conversions was determined based on inputs that are observable in the market or that could be derived from, or corroborated with, observable market data, including the trading price of our convertible notes, when available, our common stock price and interest rates based on similar debt issued by parties with credit ratings similar to ours (Level 2).

FINANCIAL INFORMATION

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NOTE 12—INCOME TAXES

We recorded income tax expense of $ 54.4 million and $ 49.2 million in the three months ended October 30, 2021 and October 31, 2020, respectively.

We recorded income tax expense of $ 99.1 million and $ 66.6 million in the nine months ended October 30, 2021 and October 31, 2020, respectively.

The effective tax rate was 22.8 % and 51.4 % for the three months ended October 30, 2021 and October 31, 2020, respectively.

The effective tax rate was 15.5 % and 32.0 % for the nine months ended October 30, 2021 and October 31, 2020, respectively.

The decrease in our effective tax rate for both the three and nine months ended October 30, 2021 as compared to the three and nine months ended October 31, 2020 is primarily due to higher discrete tax benefits related to net excess tax windfalls from stock-based compensation in fiscal 2021 as compared to fiscal 2020 and non-deductible stock-based compensation in fiscal 2020.

As of October 30, 2021, we had $ 8.7 million of unrecognized tax benefits, of which $ 8.0 million would reduce income tax expense and the effective tax rate, if recognized.

We recorded an income tax benefit of $ 163 million and an income tax expense of $ 41.7 million in the three months ended April 30, 2022 and May 1, 2021, respectively.

The effective tax rate was ( 438.3 )% and 24.2 % for the three months ended April 30, 2022 and May 1, 2021, respectively.

The decrease in the effective tax rate for the three months ended April 30, 2022 as compared to the three months ended May 1, 2021 is primarily attributable to significantly higher net excess tax benefits from stock-based compensation partially offset by nondeductible amounts related to the extinguishment of debt.

As of April 30, 2022, we had $ 8.6 million of unrecognized tax benefits, of which $ 7.9 million would reduce income tax expense and the effective tax rate, if recognized.

The remaining unrecognized tax benefits would offset other deferred tax assets, if recognized.

As of October 30, 2021, we had $ 6.2 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months .

As of April 30, 2022, we had $ 5.9 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months .

NOTE 13—NET INCOME PER SHARE

The weighted-average shares used for net income per share are as follows:

The calculation of our net income per share is as follows:

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands, except share and per share amounts)

Loss on extinguishment of debt

Net income available to common shareholders (1)

Weighted-average shares—basic

2 unchanged sentences

Weighted-average shares—diluted

(1) The $ 300 million aggregate principal amount of convertible senior notes that were issued in June and July 2015 (the “2020 Notes”), the 2023 Notes and the 2024 Notes would have an impact on our dilutive share count beginning at stock prices at or above $ 118.13 per share, $ 193.65 per share and $ 211.40 per share, respectively.

The 2020 Notes matured on July 15, 2020 and did not have an impact on our dilutive share count post-termination.

The warrants associated with our 2020 Notes, 2023 Notes and 2024 Notes have an impact on our dilutive share count beginning at stock prices at or above $ 189.00 per share, $ 309.84 per share and $ 338.24 per share, respectively.

The warrants associated with our 2020 Notes expired on January 7, 2021.

While the share price for our common stock trades above the applicable conversion price of each series of notes or the applicable exercise price of each series of warrants for the notes, these instruments will have a dilutive effect with respect to our common stock to the extent that the price per share of our common stock continues to exceed the applicable conversion or exercise price of the notes and warrants.

Basic net income per share

Diluted net income per share

(1) Effective the first quarter of fiscal 2022 upon adoption of ASU 2020-06, the loss on extinguishment of debt related to convertible securities is added back to net income to calculate net income per share.

(2) We adopted ASU 2020-06 in the first quarter of fiscal 2022, and the adoption requires the dilutive impact of the 2023 Notes and 2024 Notes for diluted net income per share purposes to be determined under the if-converted method which assumes share settlement of the entire convertible debt instrument.

Prior to adoption of ASU 2020-06, we applied the treasury stock method to determine the dilutive impact of the 2023 Notes and 2024 Notes for diluted net income per share purposes.

The 2023 Notes and the 2024 Notes have an impact on our dilutive share count beginning at stock prices of $ 193.65 per share and $ 211.40 per share, respectively.

The warrants associated with the 2023 Notes and 2024 Notes had an impact on our dilutive share count beginning at stock prices of $ 309.84 per share and $ 338.24 per share, respectively.

The warrants associated with the 2023 Notes and 2024 Notes were repurchased in April 2022 and, as a result, no warrant instruments are outstanding as of April 30, 2022.

Refer to Note 9— Convertible Senior Notes .

Accordingly, the warrants have no impact on our dilutive shares post-repurchase.

FINANCIAL INFORMATION

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Dilutive options of 121,587 and 311,242 were excluded from the calculation of diluted net income per share for the three months ended October 30, 2021 and October 31, 2020, respectively, because their inclusion would have been anti-dilutive.

Dilutive options of 86,474 and 451,559 were excluded from the calculation of diluted net income per share for the nine months ended October 30, 2021 and October 31, 2020, respectively, because their inclusion would have been anti-dilutive.

NOTE 14—SHARE REPURCHASE PROGRAM AND SHARE RETIREMENTS

Share Repurchases Program

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The following number of options and restricted stock units were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive:

THREE MONTHS ENDED

(in thousands)

Restricted stock units

Total anti-dilutive stock-based awards

NOTE 14—SHARE REPURCHASE PROGRAM

In 2018, our Board of Directors authorized a share repurchase program.

1 unchanged sentence

In fiscal 2019, we repurchased approximately 2.2 million shares of our common stock under this program at an average price of $ 115.36 per share, for an aggregate repurchase amount of approximately $ 250 million.

We did no t make any repurchases under this program during either the nine months ended October 30, 2021 or October 31, 2020.

The total current authorized size of the share repurchase program is up to $ 950 million (the “950 Million Repurchase Program”), of which $ 450 million remained available as of October 30, 2021 for future share investments.

Share Retirements

During the nine months ended October 31, 2020, we retired 600 shares of our common stock related to shares we had repurchased under equity plans and we retired 17 shares of our common stock related to shares we received upon the maturity of the 2020 Notes.

As a result of the retirements, we reclassified a total of $ 0.1 million from treasury stock to additional paid-in capital on the condensed consolidated balance sheets and on the condensed consolidated statements of stockholders’ equity as of October 31, 2020.

We did not make any repurchases under this share repurchase program during fiscal 2020, fiscal 2021 or the first quarter of fiscal 2022.

The total current authorized size of the share purchase program is up to $ 950 million (the “Share Repurchase Program”), of which $ 450 million remained available as of April 30, 2022 for future share repurchases under this share repurchase program.

On June 2, 2022, the Board of Directors authorized an additional $ 2.0 billion for the purchase of shares of our outstanding common stock, which is effective immediately and is an addition to the $ 450 million remaining under the Share Repurchase Program.

NOTE 15—STOCK-BASED COMPENSATION

We recorded stock-based compensation expense of $ 12.0 million and $ 118.8 million during the three months ended October 30, 2021 and October 31, 2020, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income.

We recorded stock-based compensation expense of $ 37.4 million and $ 131.5 million during the nine months ended October 30, 2021 and October 31, 2020, respectively.

We recorded stock-based compensation expense of $ 13 million and $ 15 million during the three months ended April 30, 2022 and May 1, 2021, respectively, which is included in selling, general and administrative expenses on the condensed consolidated statements of income.

No stock-based compensation cost has been capitalized in the accompanying condensed consolidated financial statements.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 25

2012 Stock Incentive Plan and 2012 Stock Option Plan

As of October 30, 2021, 7,844,306 options were outstanding with a weighted-average exercise price of $ 112.01 per share and 7,531,196 options were vested with a weighted-average exercise price of $ 106.68 per share.

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of October 30, 2021 was $ 4,298 million, $ 4,166 million, and $ 3,746 million, respectively.

Stock options exercisable as of October 30, 2021 had a weighted-average remaining contractual life of 3.13 years.

As of October 30, 2021, the total unrecognized compensation expense related to unvested options was $ 112.8 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.96 years.

In addition, as of October 30, 2021, the total unrecognized compensation expense related to a fully vested option grant made to Mr.

Information about stock options outstanding, vested or expected to vest, and exercisable as of April 30, 2022 is as follows:

OPTIONS OUTSTANDING

OPTIONS EXERCISABLE

RANGE OF EXERCISE PRICES

LIFE (IN YEARS)

$ 25.39 — $ 45.82

$ 50.00 — $ 50.00

$ 53.47 — $ 69.09

$ 75.43 — $ 75.43

$ 87.31 — $ 154.82

$ 156.40 — $ 380.53

$ 385.30 — $ 716.75

Vested or expected to vest

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of April 30, 2022 was $ 889 million, $ 856 million and $ 751 million, respectively.

Stock options exercisable as of April 30, 2022 had a weighted-average remaining contractual life of 4.45 years.

As of April 30, 2022, the total unrecognized compensation expense related to unvested options was $ 97 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.63 years.

In addition, as of April 30, 2022, the total unrecognized compensation expense related to the fully vested option grant made to Mr.

Friedman in October 2020 was $ 27 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant below).

As of October 30, 2021, we had 21,480 restricted stock units outstanding with a weighted-average grant date fair value of $ 278.37 per share.

During the three months ended October 30, 2021, 3,010 restricted stock units vested with a weighted-average grant date fair value of $ 47.67 per share.

During the nine months ended October 30, 2021, 68,770 restricted stock units vested with a weighted-average grant date fair value of $ 43.26 per share.

As of October 30, 2021, there was $ 4.2 million of total unrecognized compensation expense related to unvested restricted stock and restricted stock units, which is expected to be recognized over a weighted-average period of 2.29 years.

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FINANCIAL INFORMATION

As of April 30, 2022, we had 24,690 restricted stock units outstanding with a weighted-average grant date fair value of $ 423.88 per share.

During the three months ended April 30, 2022, 2,220 restricted stock units vested with a weighted-average grant date fair value of $ 193.82 per share.

As of April 30, 2022, there was $ 7.8 million of total unrecognized compensation expense related to unvested restricted stock and restricted stock units which is expected to be recognized over a weighted-average period of 4.37 years.

Chairman and Chief Executive Officer Option Grant

1 unchanged sentence

Friedman an option to purchase 700,000 shares of our common stock with an exercise price equal to $ 385.30 per share under the 2012 Stock Incentive Plan.

See Note 18— Stock-Based Compensation in the 2020 Form 10-K.

The option contains selling restrictions on the underlying shares that lapse upon the achievement of both time-based service requirements and stock price performance-based metrics as described further below.

The option is fully vested on the date of grant but the shares underlying the option remain subject to transfer restrictions to the extent the performance-based and time-based requirements have not been met.

The option will result in aggregate non-cash stock compensation expense of $ 173.6 million, of which $ 5.8 million and $ 17.6 million was recognized during the three and nine months ended October 30, 2021, respectively, and $ 111.2 million was recognized during the three months ended October 31, 2020 (which is included in the stock-based compensation expense noted above).

Refer to Note 18— Stock-Based Compensation in the 2021 Form 10-K.

The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 5.9 million was recognized during each of the three months ended April 30, 2022 and May 1, 2021 (which is included in the stock-based compensation expense recorded during the three months ended April 30, 2022 and May 1, 2021 noted above).

NOTE 16—COMMITMENTS AND CONTINGENCIES

We had no material off balance sheet commitments as of October 30, 2021.

We had no material off-balance sheet commitments as of April 30, 2022.

FINANCIAL INFORMATION

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Contingencies

13 unchanged sentences

The RH Segment and Waterworks operating segments (the “retail operating segments”) include all sales channels accessed by our customers, including sales through retail locations and outlets, websites, Source Books, and the commercial channel.

The Real Estate Development segment represents operations associated with our equity method investments entered into in fiscal 2020, as described in Note 5— Equity Method Investments .

The Real Estate Development segment represents operations associated with our equity method investments (refer to Note 5— Equity Method Investments ).

The retail operating segments are strategic business units that offer products for the home furnishings customer.

While RH Segment and Waterworks have a shared senior leadership team and customer base, we have determined that their results cannot be aggregated as they do not share similar economic characteristics, as well as due to other quantitative factors.

We use operating income to evaluate segment profitability for the retail operating segments.

Operating income is defined as net income before interest expense—net, tradename impairment, (gain) loss on extinguishment of debt, income tax expense and our share of equity method investments losses.

FINANCIAL INFORMATION

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Segment Information

The following table presents the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting ( in thousands ):

THREE MONTHS ENDED

Depreciation and amortization

NINE MONTHS ENDED

Depreciation and amortization

The Real Estate Development segment share of equity method investments losses were $ 2.3 million and $ 6.9 million during the three and nine months ended October 30, 2021, respectively.

The following table presents the balance sheet metrics as required under ASC 280— Segment Reporting ( in thousands ):

Tradenames, trademarks and other intangible assets (2)

Equity method investments

(1) The Waterworks reporting unit goodwill of $ 51.1 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018, with $ 17.4 million and $ 33.7 million impairment recorded in fiscal 2018 and fiscal 2017, respectively.

(2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35.1 million, with $ 20.5 million and $ 14.6 million recorded in fiscal 2020 and fiscal 2018, respectively.

We use segment operating income to evaluate segment performance and allocate resources.

Segment operating income excludes (i) a non-cash compensation charge related to a fully vested option grant made to Mr.

Friedman in October 2020, (ii) asset impairments and lease losses, (iii) product recall accruals, (iv) severance costs associated with reorganizations and (v) loss on sale leaseback transaction.

We use operating income to evaluate segment profitability for the retail operating segments and allocate resources.

Operating income is defined as net income before interest expense—net, loss on extinguishment of debt, other income—net, income tax expense (benefit) and our share of equity method investments losses.

Segment operating income excludes (i) employer payroll tax expense related to the option exercise by Mr.

Friedman, (ii) asset impairments, (iii) non-cash compensation amortization related to the fully vested option grant made to Mr.

Friedman in October 2020 and (iv) professional fee related to the 2023 Notes and 2024 Notes transactions (refer to Note 9— Convertible Senior Notes ).

These items are excluded from segment operating income in order to provide better transparency of segment operating results.

Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team review.

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Accordingly, these items are not presented by segment because they are excluded from the segment profitability measure that the CODM and our senior leadership team reviews.

FINANCIAL INFORMATION

The following table presents segment operating income and income before income taxes ( in thousands ):

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The following table presents segment operating income and income before income taxes:

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Operating income:

Employer payroll taxes on option exercise

Professional fee

Asset impairments

Non-cash compensation

Asset impairments and lease losses

Recall accrual

Reorganization related costs

Loss on sale leaseback transaction

Income from operations

Interest expense—net

(Gain) loss on extinguishment of debt

Tradename impairment

Loss on extinguishment of debt

Other income—net

Income before income taxes

The following table presents the statements of income metrics reviewed by the CODM to evaluate performance internally or as required under ASC 280— Segment Reporting :

THREE MONTHS ENDED

(in thousands)

Depreciation and amortization

In the three months ended April 30, 2022 and May 1, 2021, the Real Estate Development segment share of equity method investments losses were $ 1.4 million and $ 2.1 million, respectively.

FINANCIAL INFORMATION

2022 FIRST QUARTER FORM 10-Q | 28

The following table presents the balance sheet metrics as required under ASC 280— Segment Reporting :

(in thousands)

Tradenames, trademarks and other intangible assets (2)

Equity method investments

(1) The Waterworks reporting unit goodwill of $ 51 million recognized upon acquisition in fiscal 2016 was fully impaired as of fiscal 2018.

(2) Presented net of an impairment charge of $ 35 million recognized in previous fiscal years.

We classify our sales into furniture and non-furniture product lines.

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Non-furniture includes lighting, textiles, fittings, fixtures, surfaces, accessories and home décor.

Net revenues in each category were as follows ( in thousands ):

Net revenues in each category were as follows:

THREE MONTHS ENDED

NINE MONTHS ENDED

(in thousands)

Non-furniture

Total net revenues

During the third fiscal quarter of 2021, we reviewed our segments and product lines and updated certain products and categories in our reporting of furniture and non-furniture product lines.

While this reporting change did not impact our consolidated results, prior period segment data has been recast for consistency in reporting.

We are domiciled in the United States and primarily operate our retail and outlet locations in the United States.

As of October 30, 2021, we operated 4 retail and 2 outlet stores in Canada and 1 retail store in the U.K.

Geographical revenues in Canada and the U.K.

We are domiciled in the United States and primarily operate our retail locations and outlets in the United States.

As of April 30, 2022, we operated 4 retail locations and 2 outlets in Canada, and 1 retail location in the U.K.

Geographic revenues in Canada and the U.K.

are based upon revenues recognized at the retail locations in the respective country and were not material in any fiscal period presented.

Long-lived assets held internationally were not material in any fiscal period presented.

No single customer accounted for more than 10 % of our revenues in the three and nine months ended October 30, 2021 and October 31, 2020.

FINANCIAL INFORMATION

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NOTE 18—BUSINESS COMBINATION

On August 28, 2020, we acquired a furniture business in North America, for total consideration of $ 15.0 million funded through available cash, of which $ 1.9 million was deposited into an escrow account for any potential post-closing adjustments.

We have deposited into escrow an additional $ 5.0 million, which represents a deferred acquisition-related payment subject to mutually agreed to conditions and expected to be paid over two years .

We believe that this addition to the RH platform further positions us as a leader in the luxury design market as we continue to enhance the RH product assortment.

For the three and nine months ended October 31, 2020, we incurred $ 0.6 million and $ 1.3 million, respectively, of acquisition-related costs associated with the transaction.

These costs and expenses include fees associated with financial, legal and accounting advisors, and employment-related costs, and are included in selling, general and administrative expenses on the condensed consolidated statements of income.

The following table summarizes the purchase price allocation based on the fair value of the assets acquired and liabilities assumed ( in thousands ):

Tangible assets acquired and liabilities assumed—net

The tradename has been assigned an indefinite life and therefore is not subject to amortization.

The goodwill, included in the RH Segment, is representative of the benefits and expected synergies from the integration of the acquired company’s products, leadership team and employees, which do not qualify for separate recognition as an intangible asset.

The tradename and goodwill are expected to be deductible for tax purposes.

Results of operations of the acquired company have been included in our condensed consolidated statements of income since the August 28, 2020 acquisition date.

Pro forma results of the acquired business have not been presented as the results were not considered material to our consolidated financial statements for any periods presented and would not have been material had the acquisition occurred at the beginning of fiscal 2020.

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No single customer accounted for 10 % or more of our consolidated net revenues in the three months ended April 30, 2022 or May 1, 2021.

FINANCIAL INFORMATION

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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-Q

Item 1. Financial Statements