What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-28 compared with 2023-03-29 · 456 added, 509 removed, 977 unchanged (50% of the section changed)

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Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of RH and its subsidiaries (the “Company”) as of January 28, 2023 and January 29, 2022, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended January 28, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 28, 2023 and January 29, 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2023 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of January 28, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because a material weakness in internal control over financial reporting existed as of that date as the Company did not design and maintain an effective control activity over the presentation and disclosure of net income per share, specifically the application of authoritative guidance, including new accounting standards, to the net income per share computations.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the fiscal 2022 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

We have audited the accompanying consolidated balance sheets of RH and its subsidiaries (the “Company”) as of February 3, 2024 and January 28, 2023, and the related consolidated statements of income, of comprehensive income, of stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended February 3, 2024, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company’s internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of February 3, 2024 and January 28, 2023, and the results of its operations and its cash flows for each of the three years in the period ended February 3, 2024 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 3, 2024, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

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Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company’s internal control over financial reporting based on our audits.

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Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

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PART II — FINANCIAL STATEMENTS

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinions .

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PART II — FINANCIAL STATEMENTS

Definition and Limitations of Internal Control over Financial Reporting

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Consolidation of Variable Interest Entities

As described in Notes 3 and 8 to the consolidated financial statements, when the Company has a variable interest in another legal entity, management evaluates whether that legal entity is within the scope of the variable interest entity (“VIE”) model and, if so, whether the Company is the primary beneficiary of the VIE.

Management consolidates a VIE if the Company’s involvement indicates that it is the primary beneficiary.

The Company is the primary beneficiary of a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

The determination of the power to direct the activities that most significantly impact economic performance requires judgement and is impacted by numerous factors, including the purpose of the VIE, rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among the variable interest holders and other agreements with the legal entity and its variable interest holders.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 65

In fiscal 2022, the Company formed eight privately-held limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs”) for real estate development activities related to Gallery transformation and global expansion strategies.

The Member LLCs are qualitatively determined to be VIEs due to their having insufficient equity investment at risk to finance their activities without additional subordinated financial support.

Upon the formation of each Member LLC, the Company determined that the power to direct the most significant activities of each Member LLC is either controlled by the Company or shared between the members of the Member LLCs.

In the instances where there is shared power between the members, the Company determined that the Company is most closely associated with each Member LLC.

Accordingly, the Company is the primary beneficiary of the Member LLCs and consolidates the results of operations, financial condition and cash flows of the Member LLCs in the consolidated financial statements.

As of January 28, 2023, the carrying amounts of these VIEs’ total assets and liabilities included in the consolidated balance sheet are $201 million and $26 million, respectively.

The principal considerations for our determination that performing procedures relating to the consolidation of the Member LLCs as VIEs is a critical audit matter are (i) the significant judgment by management when determining whether the Company is the primary beneficiary of the VIE based on whether the Company has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the purpose of each Member LLC, rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among variable interest holders, and other agreements with the legal entity and its variable interest holders.

Determination of the Classification of New Real Estate Lease Contracts

As described in Notes 3 and 10 to the consolidated financial statements, certain of the Company’s real estate leases are classified as finance leases.

Leases that do not meet the definition of a finance lease are considered operating leases.

For the year ended February 3, 2024, lease right-of-use assets obtained in exchange for lease obligations-net of lease terminations totaled $171 million related to operating leases and $2 million related to finance leases, of which a significant portion of the operating leases relate to new real estate leases.

Lease characteristics that management evaluates to determine lease classification include, but are not limited to, the reasonably certain lease term, incremental borrowing rate, and fair value of the leased asset.

The principal considerations for our determination that performing procedures relating to the determination of the classification of new real estate lease contracts is a critical audit matter are (i) a high degree of auditor subjectivity and effort in performing procedures and evaluating audit evidence related to the determination of the classification of new real estate lease contracts and management’s significant assumption related to the incremental borrowing rate of the leased asset;

and (ii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of management’s controls over the assessment of each Member LLC for consolidation, including controls over the judgments used to reach consolidation conclusions regarding these entities.

These procedures also included, among others (i) reading the operating agreements;

(ii) evaluating management’s determination of whether each Member LLC constitutes a variable interest entity;

and (iii) evaluating management’s determination of which member has the power to direct the most significant activities and the obligation to absorb losses or the right to receive benefits that could potentially be significant to each Member LLC based on numerous factors, including the purpose of the VIE, rights and obligations of the variable interest holders, mechanisms for the resolution of disputes among the variable interest holders and other agreements with the legal entity and its variable interest holders .

These procedures included testing the effectiveness of controls relating to lease accounting, including controls over management’s determination of the classification of new real estate lease contracts based on the lease characteristics.

These procedures also included, among others (i) reading certain of the lease agreements;

(ii) testing management’s process for determining the classification of new real estate lease contracts based on the lease characteristics;

(iii) testing the completeness and accuracy of the underlying data used by management;

and (iv) evaluating the reasonableness of the significant assumption used by management related to the incremental borrowing rate of the leased asset.

Evaluating management’s significant assumption related to the incremental borrowing rate of the leased asset involved evaluating whether the significant assumption used by management was reasonable considering (i) consistency with external market and industry data;

and (ii) whether the significant assumption was consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating the reasonableness of the significant assumption related to the incremental borrowing rate of the leased asset .

/s/ PricewaterhouseCoopers LLP

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We have served as the Company’s auditor since 2008.

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PART II — FINANCIAL STATEMENTS

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CONSOLIDATED BALANCE SHEETS

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Other non-current assets

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Accounts payable and accrued expenses

Deferred revenue and customer deposits

Convertible senior notes due 2023—net

Convertible senior notes due 2023

Convertible senior notes due 2024—net

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Term loan B-2—net

Real estate loans

Convertible senior notes due 2023—net

Real estate loans—net

Convertible senior notes due 2024—net

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Commitments and contingencies (Note 19)

Stockholders’ equity:

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of January 28, 2023 and January 29, 2022

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 22,045,385 shares issued and outstanding as of January 28, 2023;

Stockholders’ equity (deficit):

Preferred stock—$ 0.0001 par value per share, 10,000,000 shares authorized, no shares issued or outstanding as of February 3, 2024 and January 28, 2023

Common stock— $ 0.0001 par value per share, 180,000,000 shares authorized, 18,315,613 shares issued and outstanding as of February 3, 2024;

22,045,385 shares issued and outstanding as of January 28, 2023

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Accumulated other comprehensive loss

Retained earnings

Total stockholders’ equity

Total liabilities and stockholders’ equity

Retained earnings (accumulated deficit)

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

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

PART II — FINANCIAL STATEMENTS

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PART II — FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF INCOME

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Interest expense—net

(Gain) loss on extinguishment of debt

Tradename impairment

Loss on extinguishment of debt

Other expense—net

Total other expenses

Income before income taxes and equity method investments

Income before taxes and equity method investments

Income tax expense (benefit)

Income before equity method investments

Share of equity method investments losses

Share of equity method investments loss

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

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

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PART II — FINANCIAL STATEMENTS

FORM 10-K | 67

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

Net gains (losses) from foreign currency translation

Net gain (loss) from foreign currency translation

Comprehensive income

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

PART II — FINANCIAL STATEMENTS

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

PART II — FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

TREASURY STOCK

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INCOME (LOSS)

EQUITY (DEFICIT)

(in thousands, except share amounts)

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—January 30, 2021

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( 1,377,479 )

Net losses from foreign currency translation

Net loss from foreign currency translation

Balances—January 29, 2022

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Non-cash equity compensation related to consolidated variable interest entities

Net losses from foreign currency translation

Net loss from foreign currency translation

Balances—January 28, 2023

Stock-based compensation

Issuance of restricted stock

Vested and delivered restricted stock units

Exercise of stock options

Settlement of convertible senior notes

Repurchase of common stock—including excise tax

( 3,887,965 )

( 1,261,187 )

Retirement of treasury stock

( 1,250,811 )

( 3,887,965 )

Net gain from foreign currency translation

Balances—February 3, 2024

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

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Non-cash operating lease cost

Tradename impairment

Asset impairments

Loss on sale leaseback transaction

Amortization of debt discount

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Non-cash finance lease interest expense

Product recalls

Deferred income taxes

(Gain) loss on extinguishment of debt

Share of equity method investments losses

Loss on extinguishment of debt

Share of equity method investments loss

Other non-cash items

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Net cash provided by operating activities

PART II — FINANCIAL STATEMENTS

FORM 10-K | 71

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditures

Proceeds from sale of asset

Equity method investments

Acquisition of business and assets

Deposits on asset under construction

Proceeds from sale of asset

Net cash used in investing activities

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PART II — FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings under asset based credit facility

Repayments under asset based credit facility

Borrowings under term loans

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Repayments under real estate loans

Borrowings under promissory and equipment security notes

Repayments under promissory and equipment security notes

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Payments for termination of common stock warrants

Repurchases of common stock

Repurchases of common stock—inclusive of excise taxes paid

( 1,252,899 )

( 1,000,000 )

Proceeds from exercise of stock options

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Net cash provided by (used in) financing activities

( 1,283,031 )

Effects of foreign currency exchange rate translation

Net increase (decrease) in cash and cash equivalents, restricted cash and restricted cash equivalents

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PART II — FINANCIAL STATEMENTS

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

( 1,388,075 )

Cash and cash equivalents, restricted cash and restricted cash equivalents

Beginning of period—cash and cash equivalents

Beginning of period—restricted cash

Beginning of period—restricted cash equivalents (acquisition related escrow deposits)

Beginning of period—cash and cash equivalents and restricted cash equivalents

Beginning of period—cash and cash equivalents, restricted cash and restricted cash equivalents

End of period—cash and cash equivalents

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Cash paid for taxes

PART II — FINANCIAL STATEMENTS

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CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(in thousands)

Non-cash transactions:

Property and equipment additions in accounts payable and accrued expenses at period-end

Property and equipment additions acquired under real estate loans

Landlord asset additions in accounts payable and accrued expenses at period-end

Excise tax from share repurchases in accounts payable and accrued expenses at period-end

Property and equipment additions acquired under real estate loans

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

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Conversion of loan receivables into equity of consolidated variable interest entities

Promissory notes forgiven in exchange for assets

Conversion of loan receivables into equity method investments

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

PART II — FINANCIAL STATEMENTS

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PART II — FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1—NATURE OF BUSINESS

RH, a Delaware corporation, together with its subsidiaries (collectively, “we,” “us,” 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.

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 Sourcebooks.

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

As of January 28, 2023, we operated a total of 67 RH Galleries and 37 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.

In September 2022, we opened our first RH Guesthouse in New York.

As of February 3, 2024, we operated a total of 70 RH Galleries and 42 RH outlet stores, one RH Guesthouse and 14 Waterworks Showrooms throughout the United States, Canada, the United Kingdom and Germany.

We also have sourcing operations in Shanghai and Hong Kong.

NOTE 2—ORGANIZATION

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On December 15, 2016, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to change our name to “RH,” effective January 1, 2017.

Macroeconomic Factors

There are a number of macroeconomic factors and uncertainties affecting the overall business climate as well as our business, including increased inflation and rising interest and mortgage rates, which impacted consumer spending on the home and the home-related categories.

These factors may have a number of adverse effects on macroeconomic conditions and markets in which we operate, with the potential for an economic recession and a sustained downturn in the housing market.

Factors such as a slowdown in the housing market or negative trends in stock market prices could have a negative impact on demand for our products.

We believe that these macroeconomic factors have contributed to the slowdown in demand that we have experienced in our business over the last several fiscal quarters.

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 macroeconomic factors.

NOTE 3—SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (“GAAP”).

The consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, as well as the financial information of variable interest entities (“VIEs”) where we represent the primary beneficiary and have the power to direct the activities that most significantly impact the entity’s performance (refer to Note 7— Variable Interest Entities ).

Accordingly, all intercompany balances and transactions have been eliminated through the consolidation process.

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PART II — FINANCIAL STATEMENTS

Our fiscal year ends on the Saturday closest to January 31.

As a result, our fiscal year may include 53 weeks.

Our fiscal years ended January 28, 2023 (“fiscal 2022”), January 29, 2022 (“fiscal 2021”) and January 30, 2021 (“fiscal 2020”) each consisted of 52 weeks.

Our next 53-week fiscal year is the fiscal year ending February 3, 2024 (“fiscal 2023”).

Our fiscal year ended February 3, 2024 (“fiscal 2023”) consisted of 53 weeks.

The fiscal years ended January 28, 2023 (“fiscal 2022”) and January 29, 2022 (“fiscal 2021”) each consisted of 52 weeks.

Use of Accounting Estimates

The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.

The preparation of our consolidated financial statements, in conformity with GAAP, requires our senior leadership team to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates and such differences could be material to the consolidated financial statements.

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We consider all highly liquid investments with original maturities of 90 days or less to be cash equivalents.

PART II — FINANCIAL STATEMENTS

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Concentration of Credit Risk

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Restricted Cash

Our restricted cash deposits represent an escrow balance for one real estate development limited liability company that is a consolidated variable interest entity.

Our restricted cash deposits as of January 28, 2023 represent an escrow balance for one real estate development limited liability company that is a consolidated variable interest entity.

Refer to Note 7— Variable Interest Entities .

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Accounts receivable consist primarily of receivables from our credit card processors for sales transactions, receivables related to our Contract business and other miscellaneous receivables.

Accounts receivable is presented net of allowance for expected credit losses of $ 3.4 million and $ 3.6 million as of January 28, 2023 and January 29, 2022, respectively.

Accounts receivable is presented net of allowance for expected credit losses of $ 3.2 million and $ 3.4 million as of February 3, 2024 and January 28, 2023, respectively.

The allowance for expected credit losses is determined by considering a number of factors, including the length of time amounts are past due and the party’s financial condition and ability to pay the obligations.

Merchandise Inventories

Our merchandise inventories consist primarily of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method.

To determine if the value of inventory should be marked down below original cost, we use estimates to determine the lower of cost or net realizable value, which considers current and anticipated demand and the merchandise age.

The inventory value is adjusted periodically to reflect current market conditions, which requires judgments that may significantly affect the ending inventory valuation, as well as gross margin.

The estimates used in inventory valuation are lower of cost or net realizable value reserves and obsolescence (including excess and slow-moving inventory).

In addition, we estimate and accrue for inventory shrinkage.

Our inventory reserves contain uncertainties that require us to make assumptions and to apply judgment regarding a number of factors, including market conditions, the selling environment, historical results and current inventory trends.

We adjust inventory reserves for net realizable value and obsolescence based on trends, aging reports, specific identification and estimates of future retail sales prices.

Reserves for shrinkage are estimated and recorded throughout the year as a percentage of shipped sales for the direct channels, and as a percentage of cost of goods sold for the outlet business, based on historical shrinkage results and current inventory levels.

Our merchandise inventories are comprised of finished goods and are carried at the lower of cost or net realizable value, with cost determined on a weighted-average cost method and net realizable value adjusted periodically for current market conditions.

Net realizable value requires judgments that may significantly affect the ending inventory valuation, as well as gross margin.

We adjust our inventory reserves for net realizable value and obsolescence (including excess and slow-moving inventory) based on current and anticipated demand trends, merchandise aging reports, specific product identification, estimates of future retail sales prices and historical results.

In addition, we estimate and accrue for inventory shrinkage throughout the year as a percentage of shipped sales for the direct channels, and as a percentage of cost of goods sold for the outlet business, based on historical shrinkage results and current inventory levels.

Actual shrinkage is recorded throughout the year based upon periodic physical inventory counts.

Actual inventory shrinkage and obsolescence can vary from estimates due to factors, including the volume of inventory movement and execution against loss prevention initiatives in our distribution centers, home delivery center locations, off-site storage locations and with our third-party transportation providers.

Our inventory reserve balances were $ 40 million and $ 24 million as of January 28, 2023 and January 29, 2022, respectively.

Actual inventory shrinkage and obsolescence can vary from estimates due to various factors, including the volume of inventory movement and execution against loss prevention initiatives in our distribution centers, home delivery center locations, off-site storage locations and with our third-party transportation providers.

Our inventory reserves were $ 46 million and $ 40 million as of February 3, 2024 and January 28, 2023.

Product Recalls

When necessary, we initiate product recalls for certain of our products, as well as adjust accruals related to certain product recalls previously initiated due to changes in estimates based on customer response and vendor and insurance recoveries.

The product recall accrual was $ 6.9 million and $ 5.5 million as of January 28, 2023 and January 29, 2022, respectively, and is included in other current liabilities on the consolidated balance sheets.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 75

The product recall accrual was $ 3.8 million and $ 6.9 million as of February 3, 2024 and January 28, 2023, respectively, and is included in other current liabilities on the consolidated balance sheets.

Advertising Expenses

Advertising expenses primarily represent the costs associated with our catalog mailings, which we refer to as Source Books, as well as print and website marketing.

Advertising expenses primarily represent the costs associated with our catalog mailings, which we refer to as Sourcebooks, as well as website and print advertising.

Total advertising expense, which is recorded in selling, general and administrative expenses on the consolidated statements of income, was $ 107 million, $ 71 million and $ 40 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

Our advertising expenses may vary due to the timing and volume of our Source Book circulation.

Our advertising expenses may vary due to the timing and volume of our Sourcebook circulation.

Capitalized Catalog Costs

Capitalized catalog costs consist primarily of third-party incremental direct costs to prepare, print and distribute our Source Books.

Such costs are capitalized and recognized as expense upon the delivery of the Source Books to the carrier.

In the case of multiple printings of a Source Book, the creative costs will be expensed in full upon the initial delivery of Source Books to the carrier.

We had $ 27 million and $ 22 million of capitalized catalog costs as of January 28, 2023 and January 29, 2022, respectively, which are included in prepaid expense and other current assets on the consolidated balance sheets.

Capitalized catalog costs consist primarily of third-party incremental direct costs to prepare, print and distribute our Sourcebooks, which are capitalized and recognized as expense upon the delivery of the Sourcebooks to the carrier.

In the case of multiple printings of a Sourcebook, the creative costs will be expensed in full upon the initial delivery of Sourcebooks to the carrier.

We had $ 28 million and $ 27 million of capitalized catalog costs as of February 3, 2024 and January 28, 2023, respectively, which are included in prepaid expense and other current assets on the consolidated balance sheets.

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PART II — FINANCIAL STATEMENTS

Website and Print Advertising

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Property and Equipment

Property and equipment is recorded at cost, net of accumulated depreciation and amortization.

Property and equipment is recorded at cost, net of accumulated depreciation.

Depreciation is calculated using the straight-line method, generally using the following useful lives:

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Building and building improvements

40 to 55 years

Machinery, equipment and aircraft

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We capitalized interest of $ 5.6 million, $ 4.9 million and $ 12 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

During fiscal 2021 and fiscal 2020, $ 10 million and $ 5.3 million, respectively, of the $ 12 million and $ 5.6 million capitalized interest relates to the capitalization of non-cash interest associated with the amortization of the convertible senior notes debt discount.

No amortization of the debt discounts were recognized during fiscal 2022, as we recombined the previously outstanding equity component of the 2023 Notes and 2024 Notes upon the adoption of Accounting Standards Update (“ASU”) 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) in the first quarter of fiscal 2022.

During fiscal 2021, $ 10 million of the $ 12 million capitalized interest relates to the capitalization of non-cash interest associated with the amortization of the convertible senior notes debt discount.

No amortization of the debt discounts was recognized during fiscal 2023 or fiscal 2022, as we recombined the previously outstanding equity component of the 2023 Notes and 2024 Notes upon the adoption of Accounting Standards Update (“ASU”) 2020-06—Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”) in fiscal 2022.

Land purchases are recorded at cost and are non-depreciable assets.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable.

Refer to “Impairment—Long-Lived Assets.”

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PART II — FINANCIAL STATEMENTS

Cloud Computing Costs

We incur costs to implement cloud computing arrangements that are hosted by third parties.

Such costs are capitalized during the application development phase and are included in other non-current assets on the consolidated balance sheets.

Once a project is substantially complete and ready for its intended use, we amortize the costs on a straight-line basis over the contractual term of the cloud computing arrangement, which is typically one to seven years .

Lease Accounting

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We account for lease and non-lease components as a single lease component for real estate leases, and for all other asset classes we account for the components separately.

We determine the lease classification and begin to recognize lease and any related financing expenses upon lease commencement, which for real estate leases is generally upon store opening or, to a lesser extent, when we take possession or control of the asset.

We determine the lease classification and begin to recognize lease costs upon lease commencement when we have access to, or control of, the asset, which generally occurs for our newly-constructed Design Galleries upon Gallery opening and upon possession for all other locations.

We sublease certain real estate locations to third parties under operating leases and recognize rental income received on a straight-line basis over the lease term, which is recorded as an offset to selling, general and administrative expenses on the consolidated statements of income.

PART II — FINANCIAL STATEMENTS

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Lease arrangements may require the landlord to provide tenant allowances directly to us.

Standard tenant allowances received from landlords, typically those received under operating lease agreements, are recorded as cash and cash equivalents with an offset recorded in lease right-of-use assets on the consolidated balance sheets.

Tenant allowances that are reasonably certain to be received subsequent to lease commencement are reflected as a reduction of both the lease liabilities and right-of-use assets on the consolidated balance sheets at the commencement date.

Standard tenant allowances received from landlords are recorded as cash and cash equivalents with an offset recorded in lease right-of-use assets on the consolidated balance sheets.

Tenant allowances that are reasonably certain to be received under finance leases subsequent to lease commencement are reflected as a reduction of both the lease liabilities and right-of-use assets on the consolidated balance sheets at the commencement date.

In the case of leases with associated construction, tenant allowances are provided for us to design and build the leased asset.

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In recognizing the lease right-of-use assets and lease liabilities, we utilize the lease term for which we are reasonably certain to use the underlying asset, including consideration of options to extend or terminate the lease.

At lease commencement, we evaluate whether it is reasonably certain to exercise available options based on consideration of a variety of economic factors and the circumstances related to the leased asset.

At lease commencement, we evaluate whether we are reasonably certain to exercise available options based on consideration of a variety of economic factors and the circumstances related to the leased asset.

Factors considered include, but are not limited to, (i) the contractual terms compared to estimated market rates, (ii) the uniqueness or importance of the asset or its location, (iii) the potential costs of obtaining an alternative asset, (iv) the potential costs of relocating or ceasing use of the asset, including the consideration of leasehold improvements and other invested capital, and (v) any potential tax consequences.

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Although the above factors are considered in our analysis, the assessment involves subjectivity considering our strategy, expected future events and market conditions.

While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur which may require us to reassess this determination.

PART II — FINANCIAL STATEMENTS

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While we believe our estimates and judgments in determining the lease term are reasonable, future events may occur which may require us to reassess such estimates and judgments.

Leases, or lease extensions, with a term of twelve months or less are not recorded on the consolidated balance sheets, and we recognize lease expense as incurred over the lease term.

Lease Payments

The majority of our real estate lease agreements include minimum rent payments which are subject to stated lease escalations over the lease term and eligible renewal periods.

The majority of our real estate lease agreements include minimum rent payments that are subject to stated lease escalations over the lease term and eligible renewal periods.

These stated fixed payments, through the reasonably certain lease term, are included in our measurement of the lease right-of-use assets and lease liabilities upon lease commencement.

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PART II — FINANCIAL STATEMENTS

Certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels.

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Due to the variable and unpredictable nature of such payments, we do not recognize a lease right-of-use asset and lease liability related to such payments.

Estimated variable rental payments are included in accounts payable and accrued expenses on the consolidated balance sheets in the period they are incurred and until such payments are made, and the related lease cost is included in cost of goods sold on the consolidated statements of income.

These estimated variable rental payments that are contingent based on a percentage of retail sales are included in accounts payable and accrued expenses on the consolidated balance sheets in the period they are incurred and until such payments are made, and the related lease cost is included in cost of goods sold on the consolidated statements of income.

In addition, many of our real estate leases require landlord reimbursement for costs such as common area maintenance, real estate taxes and insurance.

Such costs are typically subject to an annual reconciliation process and are included as variable lease payments in cost of goods sold and selling, general and administrative expenses on the consolidated statements of income based on our accounting policy.

We have a small group of real estate leases that include rental payments periodically adjusted for inflation (e.g., based on the consumer price index).

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Changes due to differences between the variable lease payments estimated at lease commencement and actual amounts incurred are recognized in the consolidated statements of income in the period such costs are incurred.

Lease concessions granted in fiscal 2020 related to the effects of the COVID-19 pandemic that did not result in a substantial increase in the rights of the lessor or our obligations as the lessee were accounted for as if no change to the lease contract were made.

Under this approach, we recognized a separate non-interest bearing payable for any deferred payments in the concession period, which was recorded in accounts payable and accrued expenses on the consolidated balance sheets, and there was no change to the recognized lease expense on the consolidated statements of income.

We accounted for COVID-19 related rent abatements as variable lease payments on the consolidated statements of income.

Remaining lease concessions for operating and finance lease agreements included in accounts payable and accrued expenses on the consolidated balance sheets as of January 28, 2023 and January 29, 2022 were immaterial.

For finance leases this expense is included in interest expense—net on the consolidated statements of income.

For operating leases, this expense is included in cost of goods sold or selling, general and administrative expenses on the consolidated statements of income based on our accounting policy.

Incremental Borrowing Rate

As our real estate leases and most of our equipment leases do not include an implicit interest rate, we determine the discount rate for each lease based upon the incremental borrowing rate (“IBR”) in order to calculate the present value of lease payments at the commencement date.

As our real estate leases and most of our equipment leases do not include a stated or implicit interest rate, we determine the discount rate for each lease based upon the incremental borrowing rate (“IBR”) in order to calculate the present value of lease payments at the commencement date.

The IBR is computed as the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the total lease payments in a similar economic environment.

We utilize our outstanding debt facilities, including our asset based credit facility or our Term Loan Credit Agreement issued in October 2021 and amended in May 2022, as the basis for determining the applicable IBR for each lease.

We estimate the incremental borrowing rate for each lease primarily by reference to yield rates on debt issuances by companies of a similar credit rating, the weighted-average lease term and adjustments for differences between the yield rates and the actual term of the credit facility.

In determining the yield rates, for newly constructed Design Galleries or significant distribution centers we utilize market information on the lease commencement date and, for all other leases, we utilize market information as of the beginning of the quarter in which the lease commenced.

We utilize our outstanding debt facilities, including our asset based credit facility or our Term Loan Credit Agreement, as the basis for determining the applicable IBR for each lease.

We estimate the IBR for each lease primarily by reference to yield rates on debt issuances by companies of a similar credit rating, the weighted-average lease term and adjustments for differences between the yield rates and the remaining actual term of the credit facility or Term Loan Credit Agreement.

We determine the fair value of the underlying asset, considering lease components such as land and building, for purposes of determining the lease classification and allocating our contractual rental payments to the lease components.

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Where real estate valuation expertise is required, we obtain independent third-party appraisals to determine the fair value of the underlying asset and lease components.

While determining fair value requires a variety of input assumptions and judgment, we believe our estimates of fair value are reasonable.

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PART II — FINANCIAL STATEMENTS

Construction Related Activities

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Over the lease term, these non-cash additions to property and equipment do not impact our cash outflows, nor do they impact net income on the consolidated statements of income.

PART II — FINANCIAL STATEMENTS

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Upon completion of the construction project where we are the deemed owner, we perform a sale-leaseback analysis to determine if we can derecognize the build-to-suit asset and corresponding financing obligation.

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A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed.

As of January 28, 2023 and January 29, 2022, goodwill relates to the RH Segment only.

PART II — FINANCIAL STATEMENTS

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Goodwill is not amortized, but rather is subject to impairment testing annually to determine whether it is impaired or whenever events occur or circumstances change that would indicate that the fair value of a reporting unit is less than its carrying amount.

As of February 3, 2024 and January 28, 2023, goodwill relates to the RH Segment only.

Goodwill is not amortized, but rather is subject to impairment testing at least annually or more frequently if events or changes in circumstances indicate that the asset may be impaired.

Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer demand or business climate that could affect the value of an asset;

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We will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, limited to the total amount of goodwill of the reporting unit.

RH Segment Reporting Unit

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PART II — FINANCIAL STATEMENTS

During fiscal 2023, fiscal 2022 and fiscal 2021, we reviewed the RH Segment reporting unit goodwill for impairment by assessing qualitative factors to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount.

Based on the qualitative tests performed in each fiscal year, we determined that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount for fiscal 2022, fiscal 2021 and fiscal 2020, and therefore we did not recognize goodwill impairment with respect to the RH Segment in any such fiscal year.

Based on the qualitative tests performed in each fiscal year, we determined that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount in any fiscal year, and therefore we did not recognize goodwill impairment.

Tradenames, Trademarks and Other Intangible Assets

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Factors used in the valuation of intangible assets with indefinite lives include, but are not limited to, our plans for future operations, brand initiatives, recent results of operations and projected future cash flows.

In the event we quantitatively assess a reporting unit’s indefinite-lived intangible asset for impairment, we perform an impairment test which utilizes the discounted cash flow methodology under the relief-from-royalty method.

In the event we quantitatively assess a reporting unit’s indefinite-lived intangible assets for impairment, we perform an impairment test which utilizes the discounted cash flow methodology under the relief-from-royalty method.

Under the relief-from-royalty method, significant assumptions include the forecasted future revenues and the estimated royalty rate, expressed as a percentage of revenues.

RH Segment Reporting Unit

During the fourth quarters of fiscal 2022, fiscal 2021 and fiscal 2020, we qualitatively assessed the indefinite-lived intangible assets of the RH Segment reporting unit for impairment and determined it was not more likely than not that the fair value of the assets were less than their carrying amounts.

Based on the qualitative tests performed in each fiscal year, we did not perform quantitative impairment tests in any year.

We did not recognize any impairment with respect to intangible assets for the RH Segment reporting unit in fiscal 2022, fiscal 2021 and fiscal 2020.

Waterworks Reporting Unit

During fiscal 2020, as a result of the COVID-19 health crisis and related temporary showroom closures, we updated the long-term financial projections for the Waterworks reporting unit which resulted in a significant decrease in forecasted revenues and profitability.

We recognized a $ 20 million non-cash impairment charge for the Waterworks tradename in the first quarter of fiscal 2020.

The impairment charge was recorded in tradename impairment on the consolidated statements of income.

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PART II — FINANCIAL STATEMENTS

During the fourth quarters of fiscal 2022, fiscal 2021 and fiscal 2020, we performed a qualitative impairment test on the Waterworks tradename and determined it was not more likely than not that the fair value of the asset was less than its carrying amount.

Accordingly, we did not recognize any further impairment with respect to the Waterworks reporting unit tradename in any period.

The carrying value of the Waterworks indefinite-lived tradename asset as of both January 28, 2023 and January 29, 2022 was $ 17 million.

During fiscal 2023, fiscal 2022 and fiscal 2021, we qualitatively assessed our intangible assets, including the RH Segment indefinite-lived intangible assets and the Waterworks tradename, for impairment and determined it was not more likely than not that the fair value of the assets was less than their carrying amount.

Based on the qualitative tests performed in each fiscal year, we did not perform quantitative impairment tests in any year and did not recognize any impairment with respect to the assets.

Long-Lived Assets

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If the sum of the estimated undiscounted future cash flows over the remaining life of the primary asset is less than the carrying value, we recognize a loss equal to the difference between the carrying value and the fair value, usually determined by the estimated discounted cash flow analysis of the asset or asset group.

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for the stores is the individual Gallery level.

The asset group is defined as the lowest level for which identifiable cash flows are available and largely independent of the cash flows of other groups of assets, which for our stores is generally the individual Gallery level.

Since there is typically no active market for our long-lived assets, we estimate fair values based on the expected future cash flows of the asset or asset group, using a discount rate commensurate with the related risk.

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We recognized long-lived asset impairment charges related to such construction expenditures of $ 4.7 million, $ 13 million and $ 9.6 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

During the first quarter of fiscal 2020, as a result of the COVID-19 health crisis and related temporary retail location closures, we performed an impairment review of long-lived assets at the individual retail location level.

As a result of such analysis, we recognized long-lived asset impairment charges of $ 3.5 million related to one RH Baby & Child Gallery and one Waterworks showroom, comprising lease right-of-use asset impairment of $ 2.0 million and property and equipment impairment of $ 1.5 million.

Except as noted above, we did not record impairment for long-lived tangible assets at the individual retail location level in fiscal 2022, fiscal 2021 and fiscal 2020.

From time to time, we record impairment for certain corporate assets and other long-lived assets, including our home delivery location centers, resulting from an update to both the timing and the amount of future estimated lease related cash inflows based on present market conditions.

PART II — FINANCIAL STATEMENTS

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From time to time, we record impairment for certain corporate assets and other long-lived assets resulting from changes to the expected use of the assets and an update to both the timing and the amount of future estimated lease related cash flows based on present market conditions.

Such impairment charges are included in s elling, general and administrative expenses on the consolidated statements of income.

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We are the primary beneficiary of a VIE if we have both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

PART II — FINANCIAL STATEMENTS

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We determined these assumptions based on entity specific considerations of (i) the primary expected future cash flows of property rents and expected debt and debt service payments, (ii) discount rates appropriate for the economic environment and anticipated future interest rates and (iii) expected volatility based on historical observed stock prices of publicly traded peer companies, including those involved in real estate development.

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PART II — FINANCIAL STATEMENTS

Equity Method Investments

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We account for such investments using the equity method of accounting.

Our investments are presented as equity method investments on the consolidated balance sheets and our proportionate share of earnings or losses of the equity method investments are included in share of equity method investments losses on the consolidated statements of income.

We do not elect the fair value option and the equity method investments are initially measured at cost.

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If specialized expertise is required we obtain independent third-party appraisals to determine the fair value of the underlying assets and liabilities.

While determining fair value requires a variety of input assumptions and judgment, we believe our estimates of fair value are reasonable.

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PART II — FINANCIAL STATEMENTS

The operating agreements for each equity method investment specify distributions from operations and upon liquidation that may be disproportionate to the members’ relative ownership percentages.

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Revenue recognized for merchandise delivered via the home delivery channel is recognized upon delivery.

Revenue recognized for merchandise delivered via all other delivery channels are recognized upon shipment.

Revenue from “cash-and-carry” store sales are recognized at the point of sale in the store.

Revenue recognized for merchandise delivered via all other delivery channels is recognized upon shipment.

Revenue from “cash-and-carry” store sales are recognized at the point of sale.

Discounts or other accommodations provided to customers are accounted for as a reduction of net revenues on the consolidated statements of income.

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We apply this policy consistently across all of our distribution channels.

In instances where revenue is recognized for the related merchandise upon delivery to customers, the related costs of shipping and handling activities are accrued for in the same period.

In instances where revenue is recognized for the related merchandise prior to delivery to customers (i.e., revenue recognized upon shipment), the related costs of shipping and handling activities are accrued for in the same period.

The related costs of shipping and handling activities are accrued for in the same period as revenue is recognized.

Costs of shipping and handling are included in cost of goods sold on the consolidated statements of income.

Sales tax collected is not recognized as revenue but is included in accounts payable and accrued expenses on the consolidated balance sheets as it is ultimately remitted to governmental authorities.

Our customers may return purchased items for a refund.

Sales tax or value added tax (VAT) collected is not recognized as revenue but is included in accounts payable and accrued expenses on the consolidated balance sheets as it is ultimately remitted to governmental authorities.

PART II — FINANCIAL STATEMENTS

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Our customers may return purchased items for a refund in accordance with our policies.

Projected merchandise returns, which are often resalable merchandise, are reserved on a gross basis based on historical return rates.

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Merchandise exchanges of the same product and price are not considered merchandise returns and, therefore, are excluded when calculating the sales returns reserve.

PART II — FINANCIAL STATEMENTS

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A summary of the allowance for sales returns is as follows:

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Custom order deposits are recognized as revenue when the customer obtains control of the merchandise.

We expect that substantially all of the deferred revenue and customer deposits as of January 28, 2023 will be recognized within the next six months as the performance obligations are satisfied, and membership fees will be recognized over the membership period.

We sell gift cards to our customers in our stores and through our websites and Source Books.

We expect that substantially all of the deferred revenue and customer deposits as of February 3, 2024 will be recognized within the next six months as the performance obligations are satisfied, and membership fees will be recognized over the membership period.

We sell gift cards to our customers in our Galleries and through our websites and Sourcebooks.

Such gift cards and merchandise credits do not have expiration dates.

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During fiscal 2023, fiscal 2022 and fiscal 2021, we recognized $ 24 million, $ 21 million and $ 20 million, respectively, of revenue related to previous deferrals related to our gift cards.

Customer liabilities related to gift cards was $ 27 million and $ 23 million as of January 28, 2023 and January 29, 2022, respectively.

Customer liabilities related to gift cards was $ 25 million and $ 27 million as of February 3, 2024 and January 28, 2023, respectively.

We recognize breakage income associated with gift cards proportional to actual gift card redemptions in net revenues on the consolidated statements of income.

We expect that approximately 70 % of the remaining gift card liabilities will be recognized when the gift cards are redeemed by customers.

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

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PART II — FINANCIAL STATEMENTS

Self-Insurance

We maintain insurance coverage for significant exposures as well as those risks that, by law, must be insured.

In the case of our health care coverage for employees, we have a managed self-insurance program related to claims filed.

In the case of our health care coverage for our employees, we have a managed self-insurance program related to claims filed.

Expenses related to this self-insured program are computed on an actuarial basis, based on claims experience, regulatory requirements, an estimate of claims incurred but not yet reported (“IBNR”) and other relevant factors.

The projections involved in this process are subject to uncertainty related to the timing and amount of claims filed, levels of IBNR, fluctuations in health care costs and changes to regulatory requirements.

We had liabilities of $ 3.6 million and $ 2.9 million related to health care coverage as of January 28, 2023 and January 29, 2022, respectively.

We had liabilities of $ 3.2 million and $ 3.6 million related to health care coverage as of February 3, 2024 and January 28, 2023, respectively.

We carry workers’ compensation insurance subject to a deductible amount for which we are responsible on each claim.

We had liabilities of $ 5.6 million and $ 4.8 million related to workers’ compensation claims, primarily for claims that do not meet the per-incident deductible, as of January 28, 2023 and January 29, 2022, respectively.

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PART II — FINANCIAL STATEMENTS

We had liabilities of $ 5.6 million related to workers’ compensation claims, primarily for claims that do not meet the per-incident deductible, as of both February 3, 2024 and January 28, 2023.

Stock-Based Compensation

We recognize the fair value of stock-based awards as compensation expense over the requisite service period and include the expense within selling, general and administrative expenses on the consolidated statements of income.

We recognize the fair value of stock-based awards as compensation expense over the requisite service period within selling, general and administrative expenses on the consolidated statements of income.

For service-only awards, compensation expense is recognized on a straight-line basis, net of forfeitures, over the requisite service period for the fair value of awards that actually vest.

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Under the “simplified” calculation method, the expected term is calculated as an average of the vesting period and the contractual life of the options.

We calculate expected volatility using a blended approach based on equal weighting of historical volatility and implied volatility.

For awards with performance-based criteria, compensation expense is recognized on an accelerated basis over the requisite service period.

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We determined these assumptions based on consideration of (i) future exercise behavior based on the historical observed exercise pattern of the award recipient, (ii) expected volatility based on our historical observed common stock prices measured over the full trading history of our common stock and implied volatility based on 180-day average trading prices of our common stock and (iii) a discount for illiquidity estimated using the Finnerty method.

Refer to “ Consolidated Variable Interest Entities and Noncontrolling Interests ” for discussion of compensation expense related to noncontrolling interests.

Refer to Note 3— Consolidated Variable Interest Entities and Noncontrolling Interests for discussion of compensation expense related to noncontrolling interests.

Cost of Goods Sold

Cost of goods sold includes, but is not limited to, the direct cost of purchased merchandise, inventory reserves and write-downs, inventory shrinkage, inbound freight, all freight costs to get merchandise to our retail and outlet locations, design and buying costs, occupancy costs related to retail operations and supply chain, such as rent, utilities, depreciation and amortization, property tax and common area maintenance and all logistics costs associated with shipping product to customers.

Cost of goods sold includes the direct cost of purchased merchandise;

inventory shrinkage, inventory reserves and write-downs and lower of cost or net realizable value reserves;

inbound freight;

all freight costs to get merchandise to our retail locations and outlets;

design, buying and allocation costs;

occupancy costs related to retail and outlet operations and our supply chain, such as rent and common area maintenance for our leases;

depreciation and amortization of leasehold improvements, equipment and other assets in our retail locations, outlets and distribution centers.

In addition, cost of goods sold includes all logistics costs associated with shipping product to our customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include all operating costs not included in cost of goods sold.

These expenses include payroll and payroll-related expenses, retail related expenses other than occupancy, and the expense related to the operations at our corporate headquarters, including rent, utilities, depreciation and amortization, credit card fees and marketing expense, which primarily includes catalog production, mailing and print advertising costs.

These expenses include payroll and payroll-related expenses, retail related expenses other than occupancy, and expenses related to the operations at our corporate headquarters, including rent, utilities, depreciation and amortization, credit card fees and marketing expense, which primarily includes Sourcebook production, mailing and print advertising costs.

All retail pre-opening costs are included in selling, general and administrative expenses and are expensed as incurred.

PART II — FINANCIAL STATEMENTS

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Interest Expense—Net

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Refer to Note 12— Credit Facilities and Note 10— Leases.

Amounts in fiscal 2021 and fiscal 2020 also include amortization of convertible senior notes debt discount, prior to the adoption of ASU 2020-06 in the first quarter of fiscal 2022.

Amounts in fiscal 2021 also include amortization of convertible senior notes debt discount, prior to the adoption of ASU 2020-06 in fiscal 2022.

Interest income primarily represents interest received related to our cash and cash equivalent balances.

PART II — FINANCIAL STATEMENTS

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Interest expense—net consists of the following:

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The if-converted method is applicable for the convertible senior notes beginning in fiscal 2022 due to the adoption of ASU 2020-06.

The treasury stock method was applied in fiscal 2021 and fiscal 2020 prior to the adoption of this accounting standard update discussed in “Recently Issued Accounting Standards.”

The treasury stock method was applied in fiscal 2021 prior to the adoption of ASU 2020-06.

Treasury Stock

We record our purchases of treasury stock at cost as a separate component of stockholders’ equity in the consolidated financial statements.

Upon retirement of treasury stock, we allocate the excess of the purchase price over par value to additional paid-in capital subject to certain limitations with any remaining purchase price allocated to retained earnings .

The excise tax on share repurchases initiated on and after January 1, 2023 is included in the cost basis of treasury stock.

The cost basis of treasury stock includes excise tax on share repurchases initiated on and after January 1, 2023 and the outstanding balance of excise tax is included in accounts payable and accrued expenses on the consolidated balance sheets.

We account for income taxes under an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our consolidated financial statements or tax returns.

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This allowance does not alter our ability to utilize the underlying tax net operating loss and credit carryforwards in the future, the utilization of which is limited to achieving future taxable income.

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PART II — FINANCIAL STATEMENTS

The accounting standard for uncertainty in income taxes prescribes a recognition threshold that a tax position is required to meet before being recognized in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues.

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We recognize interest and penalties related to unrecognized tax benefits in income tax expense (benefit) on the consolidated statements of income.

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PART II — FINANCIAL STATEMENTS

Foreign Currency Matters

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dollar currencies are translated at the rate of exchange prevailing on the date of the consolidated balance sheets, and revenues and expenses are translated at average rates of exchange for the period.

The related translation gains and losses are reflected in the accumulated other comprehensive income (loss) section on the consolidated statements of stockholders’ equity, and net gains (losses) on foreign currency translation , which includes intercompany gains and losses, is presented net of tax on the consolidated statements of comprehensive income.

The related translation gains and losses are reflected in the accumulated other comprehensive loss section on the consolidated statements of stockholders’ equity (deficit), and net gain (loss) from foreign currency translation , which includes intercompany gains and losses, is presented net of tax on the consolidated statements of comprehensive income.

Transaction gains and losses resulting from intercompany balances of a long-term investment nature are also classified as accumulated other comprehensive loss on the consolidated balance sheets.

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dollars by our international subsidiaries other than those of a long-term investment nature, where repayment is not planned or anticipated in the foreseeable future.

The foreign exchange gains and losses arising on the revaluation of intercompany loans of a long-term investment nature are reported within accumulated other comprehensive loss on the consolidated balance sheets.

Recently Issued Accounting Standards

New Accounting Standards or Updates Adopted

Convertible Instruments and Contracts in an Entity’s Own Equity

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 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 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, 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 that affects our computation of net income per share.

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 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

PART II — FINANCIAL STATEMENTS

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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 in December 2022, the FASB issued ASU 2022-06— Reference Rate Reform:

Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”), together with ASU 2020-04 and ASU 2021-01, the “ASUs”.

The ASUs provide optional expedients and exceptions, if certain criteria are met, for applying 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 Term Loan B (as defined in Note 13 — Credit Facilities ).

The guidance was effective upon issuance and allows entities to adopt the amendments on a prospective basis through the deferred date of December 31, 2024.

All new arrangements use alternative reference rates and we are evaluating the impact of adoption on our existing contracts, including with respect to our Term Loan B.

We anticipate the Term Loan B will transition to SOFR in fiscal 2023.

New Accounting Standards or Updates Not Yet Adopted

Disclosure of Supplier Finance Program Obligations

In September 2022, the FASB issued ASU 2022-04 — Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”).

In September 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-04—Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”).

ASU 2022-04 requires entities to disclose a program’s nature, activity during the period, changes from period to period and potential magnitude.

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The rollforward requirement is effective for fiscal years beginning after December 15, 2023, and is required to be applied prospectively.

We are evaluating the impact that ASU 2022-04 will have on our consolidated financial statements and related disclosures, but do not believe the adoption will impact our financial condition, results of operations or cash flows.

We will disclose the information required under ASU 2020-04 beginning with the first quarter of fiscal 2023.

We adopted ASU 2022-04 in the first quarter of fiscal 2023.

Supplier Finance Program

We facilitate a voluntary supply chain financing program (the “Financing Program”) with a third-party financial institution (the “Bank”) to provide participating suppliers with the opportunity to receive early payment on invoices, net of a discount charged to the supplier by the Bank.

We are not a party to the supplier agreements with the Bank, and the terms of our payment obligations to suppliers are not impacted by a supplier’s participation in the Financing Program.

Our responsibility is limited to making payments to the Bank on the terms originally negotiated with our suppliers, which are typically between 30 days and 60 days.

There are no assets pledged as security or other forms of guarantees provided under the Financing Program.

The Financing Program is not indicative of a borrowing arrangement and the liabilities under the Financing Program are included in accounts payable and accrued expenses on the consolidated balance sheets and associated payments are included within operating activities on the consolidated statements of cash flows.

As of February 3, 2024 and January 28, 2023, supplier invoices that have been confirmed as valid under the Financing Program included in accounts payable and accrued expenses were $ 28 million and $ 26 million, respectively.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 85

New Accounting Standards or Updates Not Yet Adopted

Joint Venture Formations:

Recognition and Initial Measurement

In August 2023, the FASB issued ASU 2023-05—Business Combinations—Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement (“ASU 2023-05”).

ASU 2023-05 applies to the formation of a “joint venture” or a “corporate joint venture” and requires a joint venture to initially measure all contributions received upon its formation at fair value.

The guidance does not impact accounting by the venturers.

The new guidance is applicable to joint venture entities with a formation date on or after January 1, 2025 on a prospective basis.

While ASU 2023-05 is not currently applicable to us because our existing arrangements in variable interest entities do not meet the definition of joint ventures as described in the updated standard, we will apply this guidance in future reporting periods after the guidance is effective to any future arrangements we enter into that meet the definition of a joint venture.

Segment Reporting:

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07—Improvements to Reportable Segment Disclosures .

This new guidance is designed to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

Early adoption is permitted.

We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.

Income Taxes:

Improvements to Income Tax Disclosures

In December 2023, the FASB issued ASU 2023-09 — Improvements to Income Tax Disclosures .

This new guidance is designed to enhance the transparency and decision usefulness of income tax disclosures.

The amendments of this update are related to the rate reconciliation and income taxes paid, requiring consistent categories and greater disaggregation of information in the rate reconciliation as well as income taxes paid disaggregated by jurisdiction.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.

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PART II — FINANCIAL STATEMENTS

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(in thousands)

Capitalized catalog costs

Prepaid expenses

Capitalized catalog costs

Vendor deposits

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Right of return asset for merchandise

Interest income receivable

Promissory notes receivable, including interest (2)

Interest income receivable

Other current assets

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(1) Refer to Note 14— Income Taxes .

(2) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs (refer to Note 8— Variable Interest Entities ).

(2) Represents promissory notes, including principal and accrued interest, due from an affiliate of the managing member of the Aspen LLCs.

Refer to Note 7— Variable Interest Entities .

Other non-current assets consist of the following:

(in thousands)

Initial direct costs prior to lease commencement

Landlord assets under construction—net of tenant allowances

Initial direct costs prior to lease commencement

Capitalized cloud computing costs—net (1)

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Total other non-current assets

(1) Presented net of accumulated amortization of $ 11 million and $ 4.0 million as of January 28, 2023 and January 29, 2022.

(1) Presented net of accumulated amortization of $ 19 million and $ 11 million as of February 3, 2024 and January 28, 2023.

PART II — FINANCIAL STATEMENTS

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Leasehold improvements (2)

Computer software

Building and building improvements (3)

Computer software

Furniture, fixtures and equipment

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(1) Refer to “Lease Accounting” within Note 3— Significant Accounting Policies and Note 10— Leases .

(2) Includes construction in progress of $ 8.0 million and $ 48 million as of January 28, 2023 and January 29, 2022, respectively.

The balance as of January 29, 2022 was disclosed as $ 11 million in our fiscal 2021 Form 10-K and has been updated with the amount presented herein.

(3) Includes $ 92 million and $ 51 million of owned buildings under construction related to future Design Galleries as of January 28, 2023 and January 29, 2022, respectively.

(4) Includes accumulated amortization related to finance lease right-of-use assets of $ 224 million and $ 174 million as of January 28, 2023 and January 29, 2022, respectively.

(2) Includes construction in progress of $ 39 million and $ 8.0 million as of February 3, 2024 and January 28, 2023 , respectively.

(3) Includes $ 126 million and $ 92 million of owned buildings under construction related to future Design Galleries as of February 3, 2024 and January 28, 2023, respectively.

Additionally, includes the purchase of the RH Guesthouse New York building in fiscal 2023.

Refer to Note 10— Leases .

We recorded depreciation and amortization of property and equipment, excluding amortization for finance lease right-of-use assets, of $ 56 million, $ 52 million and $ 59 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

NOTE 6—BUSINESS COMBINATIONS

On August 28, 2020, we acquired a business for total consideration of $ 15 million funded through available cash, of which $ 1.9 million was deposited into an escrow account for any potential post-closing adjustments.

We deposited into escrow an additional $ 5.0 million, which represented a deferred acquisition related payment subject to mutually agreed to conditions and was paid over two years .

Acquisition related escrow deposits, included within prepaid expense and other current assets on the consolidated balance sheets, were $ 4.0 million as of January 29, 2022 and were paid in fiscal 2022.

On December 7, 2020, we acquired the net assets of a business for $ 4.7 million funded through available cash, of which $ 0.5 million was deposited into an escrow account for any potential post-closing adjustments and was fully paid in fiscal 2020.

Additional consideration of $ 4.6 million is expected to be paid over five years , of which $ 2.3 million was paid as of January 28, 2023.

During fiscal 2020, we incurred acquisition-related costs associated with these transactions such as financial, legal and accounting advisors, as well as employment related costs, which are included in selling, general and administrative expenses on the consolidated statements of income.

No additional acquisition-related costs were incurred in fiscal 2021 or fiscal 2022.

Results of operations of the acquired companies have been included in our consolidated statements of income since their respective acquisition dates.

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

(4) During 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 a build-to-suit asset.

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 remains classified as a build-to-suit asset and is depreciated over the term of the useful life of the asset.

(5) Includes accumulated amortization related to finance lease right-of-use assets of $ 268 million and $ 224 million as of February 3, 2024 and January 28, 2023, respectively.

Refer to Note 10— Leases.

We recorded depreciation of property and equipment, excluding amortization for finance lease right-of-use assets, of $ 64 million, $ 56 million and $ 52 million in fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

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PART II — FINANCIAL STATEMENTS

We believe that these additions to the RH platform further position us as a leader in the luxury design market as we continue to enhance the RH product assortment.

Results of operations of the acquired companies have been included in our consolidated statements of income since their respective acquisition dates.

NOTE 6—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:

Goodwill, tradenames, trademarks and other intangible assets activity for the RH Segment and Waterworks consists of the following:

TRADEMARKS AND

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January 29, 2022

Foreign current translation

January 29, 2022

Foreign current translation

Foreign currency translation

January 28, 2023

Foreign currency translation

February 3, 2024

(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, with $ 20 million recorded in fiscal 2020 .

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

There are no goodwill, tradenames, trademarks and other intangible assets for the Real Estate Segment.

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In fiscal 2022, we formed eight privately-held limited liability companies (each, a “Member LLC” and collectively, the “Member LLCs” or the “consolidated variable interest entities”) for real estate development activities related to our Gallery transformation and global expansion strategies.

We hold a 50 percent membership interest in seven of the Member LLCs, and the remaining noncontrolling interest of 50 percent in each Member LLC is held by a third-party real estate development partner who is also the managing member of the Aspen LLCs (as defined in “Equity Method Investments” below).

In one Member LLC we hold approximately 75 percent membership interest with the remaining noncontrolling interest of approximately 25 percent held by the same Aspen LLCs managing member.

We hold a 50 percent membership interest in seven of the Member LLCs, and the remaining noncontrolling interest of 50 percent in each Member LLC is held by a third-party real estate development partner affiliated with the managing member of the Aspen LLCs (as defined in “Equity Method Investments” below).

In one Member LLC we hold approximately 75 percent membership interest with the remaining noncontrolling interest of approximately 25 percent held in the same way by the same development partner.

The Member LLCs are qualitatively determined to be VIEs due to their having insufficient equity investment at risk to finance their activities without additional subordinated financial support.

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Accordingly, we are the primary beneficiary of the Member LLCs and we consolidate the results of operations, financial condition and cash flows of the Member LLCs in our consolidated financial statements.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 91

In fiscal 2022, we recognized compensation expense of $ 4.5 million related to the equity interests given to the noncontrolling interest holders of the consolidated VIEs, of which $ 3.6 million is included in additional paid-in capital and $ 0.9 million is included in other non-current obligations on the consolidated balance sheets.

Six locations represent current and future RH locations and are included in the RH Segment, two of which are operational as of February 3, 2024.

Two locations represent properties for the purpose of use by RH or others related to developing, operating and selling such real estate, and are part of the Real Estate segment.

In fiscal 2022, we recognized compensation expense of $ 4.5 million related to the equity interests given to the noncontrolling interest holders of the consolidated VIEs, of which $ 3.6 million was recorded to additional paid-in capital and $ 0.9 million was recorded to other non-current obligations on the consolidated balance sheets.

The additional paid-in capital portion relates to equity-classified compensation arrangements and represents the fair-value-based measure of the equity interests upon the noncontrolling interest holders being admitted as a member of the VIEs.

The other non-current obligations portion relates to liability-classified compensation arrangements and represents the fair-value-based measure of the equity interests at the end of the reporting period.

There are no explicit or implicit vesting conditions associated with these compensation arrangements.

PART II — FINANCIAL STATEMENTS

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We measure the noncontrolling interests in the consolidated variable interest entities using the distribution provisions set out in the operating agreements of each Member LLC.

As of January 28, 2023, the noncontrolling interest holders had no claim to the net assets of each Member LLC based upon such distribution provisions .

Accordingly, we did not recognize any noncontrolling interests as of and in fiscal 2022.

As of February 3, 2024 and January 28, 2023, the noncontrolling interest holders had no claim to the net assets of each Member LLC based upon such distribution provisions.

Accordingly, we did not recognize any noncontrolling interests in fiscal 2023 and fiscal 2022 .

The carrying amounts and classification of the VIEs’ assets and liabilities included in the consolidated balance sheets were as follows:

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Accounts payable and accrued expenses

Real estate loans (3)

Other current liabilities

Total current liabilities

Real estate loans—net (3)

Other non-current obligations

Total liabilities

(1) Restricted cash deposits are held in escrow for one Member LLC and represent a portion of the proceeds from the issuance of the Promissory Note (defined below) that are required to be used for tenant allowances specified in a lease agreement between us and the Member LLC.

(2) Includes $ 125 million of construction in progress, which is included in “building and building improvements” within property and equipment —net .

(1) Restricted cash deposits as of January 28, 2023 represented amounts held in escrow for one Member LLC representing a portion of the proceeds from the issuance of the Promissory Note (defined below) that were required to be used for tenant allowances specified in a lease agreement between us and the Member LLC.

All amounts have been utilized during fiscal 2023 and, accordingly, there is no restricted cash remaining as of February 3, 2024.

(2) Includes $ 77 million and $ 125 million of construction in progress as of February 3, 2024 and January 28, 2023, respectively, which is included in “building and building improvements” within property and equipment —net .

(3) Real estate loans are secured by the assets of each respective Member LLC and the associated creditors do not have recourse against RH’s general assets.

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The Promissory Note bears interest at a fixed rate per annum equal to 5.37 % until September 15, 2027, on which date the interest rate will reset based on the five-year treasury rate plus 2.00 % , subject to a total interest rate 3.00 % floor.

Real estate loans—net exclude $ 0.1 million of current obligations related to such loans that are included in other current liabilities on the consolidated balance sheets as of February 3, 2024.

There was no current obligation under these loans as of January 28, 2023.

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Equity Method Investments

Equity method investments represent our 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”) that were formed for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado.

Equity method investments primarily represent our 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”) that were formed for the purpose of acquiring, developing, operating and selling certain real estate projects in Aspen, Colorado.

We hold a 50 percent membership interest in two of the Aspen LLCs and a 70 percent membership interest in the third Aspen LLC.

The Aspen LLCs are VIEs, however, we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance.

The Aspen LLCs are VIEs, however, we are not the primary beneficiary of these VIEs because we do not have the power to direct the activities of each VIE that most significantly impact the VIE’s economic performance.

Accordingly, we account for these investments using the equity method of accounting.

As of January 28, 2023 and January 29, 2022, $ 3.0 million and $ 8.4 million, respectively, of promissory notes receivable, inclusive of accrued interest, are outstanding with the managing member or entities affiliated with the managing member for the Aspen LLCs, which promissory notes are included in prepaid expense and other current assets on the consolidated balance sheets.

Promissory notes related specifically to the Aspen LLCs are expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs.

We have made in excess of $ 100 million in capital contributions to the Aspen LLCs as contractually required.

Our maximum exposure to loss with respect to these equity method investments is the carrying value of the equity method investments as of January 28, 2023.

During fiscal 2022, fiscal 2021 and fiscal 2020, we recorded our proportionate share of equity method investments losses of $ 2.1 million, $ 8.2 million and $ 0.9 million, respectively, which is included on the consolidated statements of income with a corresponding decrease to the carrying value of equity method investments on the consolidated balance sheets as of January 28, 2023 and January 29, 2022.

As of February 3, 2024 and January 28, 2023 the aggregate balance of the investment in the Aspen LLCs was $ 125 million and $ 101 million, respectively.

As of February 3, 2024 and January 28, 2023, $ 3.3 million and $ 3.0 million, respectively, of a promissory notes receivable, inclusive of accrued interest, was outstanding with the managing member or entities affiliated with the managing member for the Aspen LLCs, which promissory notes were included in prepaid expense and other current assets on the consolidated balance sheets.

The promissory note related specifically to the Aspen LLCs is expected to be settled in cash and not converted into additional equity investment in the Aspen LLCs.

During fiscal 2023, fiscal 2022 and fiscal 2021, we recorded our proportionate share of equity method investments loss of $ 11 million, $ 2.1 million and $ 8.2 million, respectively, which is included on the consolidated statements of income with a corresponding decrease to the carrying value of equity method investments on the consolidated balance sheets as of February 3, 2024 and January 28, 2023.

We did not receive any distributions or have any undistributed earnings of equity method investments in any fiscal year.

In February 2023, subsequent to fiscal 2022, we made equity contributions to two of the Aspen LLCs totaling $ 31 million whereby such funding was used to repay a portion of third-party debt secured by certain real estate assets held by the Aspen LLCs.

We have previously made contractually required contributions to the Aspen LLCs in an aggregate amount of $ 105 million in prior periods.

In February 2023, we elected to make equity contributions to two of the Aspen LLCs totaling $ 31 million whereby such funding was used to repay a portion of third-party debt secured by certain real estate assets held by the Aspen LLCs.

In April 2023, we made an additional equity contribution to one Aspen LLC of $ 1.8 million whereby such funding was used in connection with the acquisition of additional real estate assets.

Inclusive of the equity contributions made during fiscal 2023, we have made in excess of $ 135 million in capital contributions to the Aspen LLCs.

Our maximum exposure to loss with respect to these equity method investments is the carrying value of the equity method investments as of February 3, 2024.

PART II — FINANCIAL STATEMENTS

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Accrued occupancy

Accrued sales taxes

Accrued sales and use tax (1)

Accrued legal settlements (1)(2)

Accrued freight and duty

Accrued interest

Accrued legal reserves

Excise tax payable on share repurchases (1)

Accrued professional fees

Accrued catalog costs

Accrued legal contingencies (1)(2)

Accrued interest

Other accrued expenses (1)

Total accounts payable and accrued expenses

(1) Prior year amounts have been adjusted to conform to the current period presentation.

(2) Refer to Note 19 ¾ Commitments and Contingencies .

Reorganization

We implemented a restructuring on March 24, 2023 that included workforce and expense reductions in order to improve and simplify our organizational structure, streamline certain aspects of our business operations and better position us for further growth.

The workforce reduction associated with the initiative included the elimination of numerous leadership and other positions throughout the organization, which affected approximately 440 roles.

The reorganization was completed during the first quarter of fiscal 2023.

During the year ended February 3, 2024, we incurred total charges relating to the reorganization of $ 7.6 million consisting primarily of severance costs and related taxes.

As of February 3, 2024, we had accruals of $ 0.3 million included in accounts payable and accrued expenses on the consolidated balance sheets related to the reorganization.

Other current liabilities consist of the following:

(in thousands)

Unredeemed gift card and merchandise credit liability

Current portion of term loans

Unredeemed gift card and merchandise credit liability

Allowance for sales returns

Finance lease liabilities

Federal tax payable

Foreign tax payable

Current portion of equipment promissory notes

Federal and state tax payable

Other current liabilities

Total other current liabilities

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PART II — FINANCIAL STATEMENTS

NOTE 9—OTHER NON-CURRENT OBLIGATIONS

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Total other non-current obligations

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PART II — FINANCIAL STATEMENTS

NOTE 10—LEASES

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Total lease costs—net

(1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or s elling, general and administrative expenses on the consolidated statements of income based on our accounting policy.

(1) Operating lease costs and amortization of finance lease right-of-use assets are included in cost of goods sold or selling, general and administrative expenses on the consolidated statements of income based on our accounting policy.

Refer to Note 3— Significant Accounting Policies .

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(1) Includes 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) Recorded net of accumulated amortization of $ 224 million and $ 174 million as of January 28, 2023 and January 29, 2022, respectively.

(3) Includes $ 39 million and $ 41 million as of January 28, 2023 and January 29, 2022, respectively, related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs (refer to Note 8— Variable Interest Entities ).

(2) Recorded net of accumulated amortization of $ 268 million and $ 224 million as of February 3, 2024 and January 28, 2023, respectively.

(3) Includes $ 37 million and $ 39 million as of February 3, 2024 and January 28, 2023, respectively, related to an RH Design Gallery lease with a landlord that is an affiliate of the managing member of the Aspen LLCs.

Refer to Note 7— Variable Interest Entities .

(4) During fiscal 2023, we purchased the building and land of our RH Guesthouse New York location and terminated the lease associated with the property.

As a result, the right-of-use asset and lease liability was reclassified to property and equipment—net on the consolidated balance sheets as of the purchase date.

Refer to Note 5— Property and Equipment .

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

The maturities of lease liabilities were as follows as of January 28, 2023:

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PART II — FINANCIAL STATEMENTS

The maturities of lease liabilities were as follows as of February 3, 2024:

(in thousands)

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Present value of lease liabilities

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PART II — FINANCIAL STATEMENTS

(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 $ 663 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of January 28, 2023, of which $ 28 million, $ 38 million, $ 42 million, $ 42 million and $ 40 million will be paid in fiscal 2023, fiscal 2024, fiscal 2025, fiscal 2026 and fiscal 2027, respectively, and $ 473 million will be paid subsequent to fiscal 2027.

(2) Excludes an immaterial amount of future commitments under short-term lease agreements as of January 28, 2023.

Total lease payments exclude $ 686 million of legally binding payments under the non-cancellable term for leases signed but not yet commenced under our accounting policy as of February 3, 2024, of which $ 26 million, $ 41 million, $ 38 million, $ 40 million and $ 41 million will be paid in fiscal 2024, fiscal 2025, fiscal 2026, fiscal 2027 and fiscal 2028, respectively, and $ 500 million will be paid subsequent to fiscal 2028.

(2) Excludes an immaterial amount of future commitments under short-term lease agreements as of February 3, 2024.

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

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Finance leases

PART II — FINANCIAL STATEMENTS

FORM 10-K | 95

Other information related to leases consists of the following:

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Total cash outflows from leases

Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations (non-cash)

Non-cash transactions:

Lease right-of-use assets obtained in exchange for lease obligations—net of lease terminations

Operating leases

Finance leases

(1) Represents the principal portion of finance lease payments offset by tenant allowances received subsequent to lease commencement of $ 4.7 million in fiscal 2022.

No such tenant allowances were received in fiscal 2021 or fiscal 2020.

Build-to-Suit Asset

During 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 and equipment—net on our 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 remains classified as a build-to-suit asset within property and equipment—net and is depreciated over the term of the useful life of the asset.

PART II — FINANCIAL STATEMENTS

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Sale-Leaseback Transaction

During fiscal 2020, we executed a sale-leaseback transaction for the Minneapolis Design Gallery for sales proceeds of $ 26 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 fiscal 2020, which was recorded in selling, general and administrative expenses on the consolidated statements of income.

Reclassification of finance lease right-of-use asset to property and equipment (2)

Reclassification of finance lease liability to property and equipment (2)

(1) Represents the principal portion of finance lease payments offset by tenant allowances received under finance leases subsequent to lease commencement of $ 2.4 million and $ 4.7 million in fiscal 2023 and fiscal 2022, respectively.

No such tenant allowances were received in fiscal 2021.

(2) Represents the reclassification of the right-of-use asset and lease liability upon the purchase of the building and land of our RH Guesthouse New York location and termination of the associated lease agreement.

Refer to Note 5— Property and Equipment .

NOTE 11—CONVERTIBLE SENIOR NOTES

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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 Recently Issued Accounting Standards in Note 3— Significant Accounting Policies for further discussion of the impact of our adoption of ASU 2020-06 in our consolidated financial statements.

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

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Total convertible senior notes

(1) As of January 28, 2023, 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 Recently Issued Accounting Standards in Note 3— Significant Accounting Policies .

(2) As of January 28, 2023, the 2023 Notes outstanding are classified as convertible senior notes due 2023—net within current liabilities .

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 January 28, 2023, the 2024 Notes outstanding are classified as convertible senior notes due 2024—net within non-current liabilities .

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

(1) The 2023 Notes outstanding were classified as convertible senior notes due 2023 within current liabilities as of January 28, 2023.

The 2023 Notes matured and were repaid in June 2023 and, as of February 3, 2024, the 2023 Notes are no longer outstanding.

(2) The 2024 Notes outstanding were classified as convertible seniors notes due 2024—net within current liabilities as of February 3, 2024 and within non-current liabilities as of January 28, 2023.

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PART II — FINANCIAL STATEMENTS

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

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

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PART II — FINANCIAL STATEMENTS

During fiscal 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.

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

During the second quarter of fiscal 2022, we entered into additional individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $ 18 million and $ 39 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Additional Notes Repurchase”).

During fiscal 2022, we entered into additional individual privately negotiated transactions with a limited number of sophisticated investors that were holders of the 2023 Notes and/or the 2024 Notes to repurchase in cash $ 18 million and $ 39 million in aggregate principal amount of the 2023 Notes and 2024 Notes, respectively (the “Additional Notes Repurchase”).

The Additional Notes Repurchase provided for an estimated settlement cost of $ 80 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 one day volatility weighted-average price measurement period occurring in July 2022.

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The first condition was satisfied from the calendar quarter ended September 30, 2020 through the calendar quarter ended March 31, 2022.

However, this condition was not met for the calendar quarters ended June 30, 2022, September 30, 2022 and December 31, 2022, as a result, the 2024 Notes were not convertible as of December 31, 2022.

However, this condition was not met for the calendar quarter ended June 30, 2022 through the calendar quarter ended June 30, 2023, but was met for the calendar quarter ended September 30, 2023, and as a result, the 2024 Notes were convertible as of September 30, 2023.

This condition was not met for the calendar quarter ended December 31, 2023.

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.

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We also received 419,172 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 10 shares of our common stock in respect to such settlement of the converted 2024 Notes.

The remaining liability for the 2024 Notes is classified as a non-current obligation on the 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.

The remaining liability for the 2024 Notes is classified as a current obligation on the consolidated balance sheets as of February 3, 2024 since the settlement date of the outstanding 2024 Notes is in September 2024.

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 upon settlement.

$ 335 million 0.00 % Convertible Senior Notes due 2023

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

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

(1) during any calendar quarter commencing after September 30, 2018, if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of our common stock on such trading day is greater than or equal to 130 % of the applicable conversion price on such trading day;

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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 December 31, 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 through March 15, 2023.

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.

Upon conversion, the 2023 Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.

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 .

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 were eligible to convert their 2023 Notes through March 15, 2023.

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

98 | FORM 10-K

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We also received 958,307 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 23 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 current obligation on the consolidated balance sheets since the settlement of the outstanding 2023 Notes is due on June 15, 2023.

The settlement of additional early conversions received, if any, will be made, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.

$ 300 million 0.00 % Convertible Senior Notes due 2020

In June 2015 , we issued in a private offering $ 250 million principal amount of 0.00 % convertible senior notes due 2020 and, in July 2015 , we issued an additional $ 50 million principal amount pursuant to the exercise of the overallotment option granted to the initial purchasers as part of our June 2015 offering (collectively, the “2020 Notes”).

The 2020 Notes were governed by the terms of an indenture between the Company and U.S.

Bank National Association, as the Trustee.

The 2020 Notes did not bear interest, except that the 2020 Notes were 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 2020 Notes.

The 2020 Notes were unsecured obligations and did 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 were also considered “events of default” under the 2020 Notes, which could have resulted in the acceleration of the maturity of the 2020 Notes, as described in the indenture governing the 2020 Notes.

The 2020 Notes were guaranteed by our primary operating subsidiary, Restoration Hardware, Inc., as Guarantor.

In May 2020, $ 9.4 million in aggregate principal amount of 2020 Notes were converted at the option of the noteholders.

We paid $ 9.2 million in cash and delivered 14,927 shares of common stock to settle the converted 2020 Notes.

As a result, we recognized a gain on extinguishment of the liability component of $ 0.2 million in fiscal 2020.

We also received 14,927 shares of common stock from the exercise of a portion of the convertible bond hedge we purchased concurrently with the issuance of the 2020 Notes as described below, and therefore, on a net basis did not issue any shares of our common stock in respect to such settlement of the 2020 Notes.

In July 2020, upon the maturity of the 2020 Notes, the remaining $ 291 million in aggregate principal amount of the 2020 Notes settled for $ 291 million in cash and 1,116,718 shares of common stock.

No gain or loss arose on extinguishment of the liability component.

We also received 1,116,735 shares of common stock from the exercise of the remainder of the convertible bond hedge we purchased concurrently with the issuance of the 2020 Notes as described below, and therefore, on a net basis received 17 shares of our common stock (which were recorded as treasury stock within the consolidated statements of stockholders’ equity in respect to such settlement of the 2020 Notes.

We recorded interest expense of $ 8.9 million for the amortization of the debt discount related to the 2020 Notes and $ 0.6 million related to the amortization of debt issuance costs in fiscal 2020.

2020 Notes—Convertible Bond Hedge and Warrant Transactions

In connection with the offering of the 2020 Notes in June 2015 and the exercise in full of the overallotment option in July 2015, we entered into convertible note hedge transactions and warrant transactions.

For more information, refer to “2020 Notes—Convertible Bond Hedge and Warrant Transactions” within Note 12— Convertible Senior Notes in our 2021 Form 10-K.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 101

As a result of the operation of the bond hedge in connection with the maturity of the 2020 Notes, we were not required to issue any new shares to settle the notes as these shares were delivered to us under the terms of the bond hedge.

The bond hedge was exercised in connection with the maturity date of the 2020 Notes.

During fiscal 2020, we delivered 1,386,580 shares upon exercise of the warrants under the terms of the warrant agreements.

The warrants expired on January 7, 2021.

In June 2023, upon the maturity of the 2023 Notes, the remaining $ 1.7 million in aggregate principal amount of the 2023 Notes settled for $ 1.7 million in cash.

During fiscal 2023 through the maturity of the 2023 Notes, we issued in aggregate 1,931 shares of common stock upon settlement of the 2023 Notes.

NOTE 12—CREDIT FACILITIES

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Term loan B-2 (4)

Equipment promissory notes (5)

Equipment promissory note (5)

Total credit facilities

(1) The interest rates for the asset based credit facility, term loans and equipment promissory notes represent the weighted-average interest rates as of January 28, 2023.

(2) Deferred financing fees associated with the asset based credit facility as of January 28, 2023 and January 29, 2022 were $ 3.5 million and $ 4.1 million, respectively, and are included in other non-current assets on the consolidated balance sheets.

(1) Interest rates for the asset based credit facility and term loans represent the weighted-average interest rates as of February 3, 2024.

(2) Deferred financing fees associated with the asset based credit facility as of February 3, 2024 and January 28, 2023 were $ 2.5 million and $ 3.5 million, respectively, and are included in other non-current assets on the 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.

(3) Represents the outstanding balance of the Term Loan B (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 1,955 million and $ 20 million were included in term loan B—net and other current liabilities , respectively, on the consolidated balance sheets as of January 28, 2023.

Outstanding amounts of $ 1,975 million and $ 20 million were included in term loan—net and other current liabilities , respectively, on the consolidated balance sheets as of January 29, 2022.

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

(4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 494 million and $ 5.0 million were included in term loan B-2—net and other current liabilities , respectively, on the consolidated balance sheets as of January 28, 2023.

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

(5) Represents the net carrying amount of equipment security notes secured by certain of our property and equipment.

The remaining $ 1.2 million outstanding balance, included in other current liabilities on the consolidated balance sheets as of January 28, 2023, represents principal payments due in fiscal 2023.

Outstanding amounts of $ 14 million were included in other current liabilities on the consolidated balance sheets as of January 29, 2022.

(3) Represents the Term Loan Credit Agreement (defined below), of which outstanding amounts of $ 1,935 million and $ 1,955 million were included in term loan—net on the consolidated balance sheets as of February 3, 2024 and January 28, 2023, respectively, and $ 20 million was included in other current liabilities on the consolidated balance sheets as of both February 3, 2024 and January 28, 2023.

(4) Represents the outstanding balance of the Term Loan B-2 (defined below) under the Term Loan Credit Agreement, of which outstanding amounts of $ 489 million and $ 494 million were included in term loan B-2—net on the consolidated balance sheets as of February 3, 2024 and January 28, 2023, respectively, and $ 5.0 million was included in other current liabilities on the consolidated balance sheets as of both February 3, 2024 and January 28, 2023.

(5) Represents equipment security note secured by certain of our property and equipment, which was included in other current liabilities on the consolidated balance sheets as of January 28, 2023.

The equipment security note was repaid in full in April 2023 and, as of February 3, 2024, is no longer outstanding.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 99

Asset Based Credit Facility & Term Loan Facilities

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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 “11th 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.

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PART II — FINANCIAL STATEMENTS

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 11th A&R Credit Agreement.

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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.

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).

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.

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

As of January 28, 2023, RHI was in compliance with the FCCR Covenant.

As of February 3, 2024, 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.

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 of January 28, 2023, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 533 million, net of $ 27 million in outstanding letters of credit.

PART II — FINANCIAL STATEMENTS

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PART II — FINANCIAL STATEMENTS

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

As of February 3, 2024, the amount available for borrowing under the revolving line of credit under the ABL Credit Agreement was $ 448 million, net of $ 45 million in outstanding letters of credit.

Term Loan Credit Agreement

On October 20, 2021, RHI entered into a Term Loan Credit Agreement (the “Term Loan Credit Agreement”) by and among RHI as the borrower, the lenders party thereto and Bank of America, N.A.

as administrative agent and collateral agent (in such capacities, the “Term Agent”) with respect to an initial term loan (the “Term Loan B”) in an aggregate principal amount equal to $ 2,000,000,000 with a maturity date of October 20, 2028.

The Term Loan B bears interest at an annual rate based on LIBOR subject to a 0.50 % LIBOR floor plus an interest rate margin of 2.50 % (with a stepdown of the interest rate margin if RHI achieves a specified public corporate family rating).

LIBOR is a floating interest rate that resets periodically during the life of the Term Loan B.

Through July 31, 2023, the Term Loan B bore interest at an annual rate based on LIBOR subject to a 0.50 % LIBOR floor plus an interest rate margin of 2.50 % (with a stepdown of the interest rate margin if RHI achieves a specified public corporate family rating).

LIBOR was a floating interest rate that reset periodically during the life of the Term Loan B.

At the date of borrowing, the interest rate was set at the LIBOR floor of 0.50 % plus 2.50 % and the Term Loan B was issued at a discount of 0.50 % to face value.

The Term Loan Credit Agreement contains customary provisions addressing future transition from LIBOR.

Effective August 1, 2023, the Term Loan B bears interest at an annual rate based on SOFR subject to a 0.50 % SOFR floor plus an interest rate margin of 2.50 % plus a credit spread adjustment.

On May 13, 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”).

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We incurred debt issuance costs of $ 28 million and $ 26 million in fiscal 2022 and fiscal 2021, respectively, in connection with the issuance of the Term Loan Credit Agreement.

No debt issuance costs were incurred in fiscal 2023.

All obligations under the Term Loan B are guaranteed by certain domestic subsidiaries of RHI.

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The Term Loan Credit Agreement does not contain a financial maintenance covenant.

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.

104 | FORM 10-K

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

PART II — FINANCIAL STATEMENTS

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 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.

The maturity dates of the equipment security notes varied, but generally had a maturity of three or four years and required us to make monthly installment payments.

As of January 28, 2023, one equipment security note remains outstanding with a maturity date in April 2023.

FORM 10-K | 101

NOTE 13—FAIR VALUE MEASUREMENTS

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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 real estate loans approximate their carrying values as they were recently issued.

The estimated fair value and carrying value of the 2023 Notes and 2024 Notes and the Term Loan Credit Agreement were as follows:

The estimated fair value and carrying value of the 2023 Notes, the 2024 Notes, the Term Loan Credit Agreement and the real estate loans were as follows:

(in thousands)

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Term loan B-2

(1) The carrying value of the convertible senior notes as of January 28, 2023 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 3— Significant Accounting Policies ).

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 carrying values of the Term Loan B and Term Loan B-2 represent the outstanding amount under each class excluding discounts upon original issuance and third-party offering costs.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 105

Real estate loans

(1) The principal carrying value of the 2023 Notes and 2024 Notes excludes the discounts upon original issuance, discounts and commissions payable to the initial purchasers and third-party offering costs, as applicable.

The principal carrying values of the Term Loan B and Term Loan B-2 represent the outstanding amount under each class and exclude discounts upon original issuance and third-party offering costs.

The real estate loans represent the outstanding principal balance and exclude debt issuance costs.

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).

The estimated fair values of the Term Loan B and Term Loan B-2 were derived from discounted cash flows using risk-adjusted rates (Level 2).

The fair values of the Term Loan B, Term Loan B-2 and real estate loans were derived from discounted cash flows using risk-adjusted rates (Level 2).

102 | FORM 10-K

PART II — FINANCIAL STATEMENTS

Fair Value Measurements—Non-Recurring

The fair value of the non-cash compensation related to noncontrolling interests in the Member LLCs in fiscal 2022, as discussed in “Consolidated Variable Interest Entities and Noncontrolling Interests” within Note 3— Significant Accounting Policies and Note 7— Variable Interest Entities , were 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 “Variable Interest Entities (VIE)” within Note 3— Significant Accounting Policies and Note 8— Variable Interest Entities , were determined based on unobservable (Level 3) inputs and valuation techniques.

The fair value of the Waterworks tradename was determined based on unobservable (Level 3) inputs and valuation techniques, as discussed in “Impairment” within Note 3— Significant Accounting Policies .

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 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.

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NOTE 14—INCOME TAXES

The following table presents our income before income taxes, inclusive of our share of equity method investments losses:

The following table presents our income before income taxes, inclusive of our share of equity method investments loss:

(in thousands)

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PART II — FINANCIAL STATEMENTS

The following table presents a summary of our income tax expense (benefit):

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Total current tax expense

Total deferred tax benefit

Total deferred tax expense (benefit)

Total income tax expense (benefit)

PART II — FINANCIAL STATEMENTS

FORM 10-K | 103

A reconciliation of the federal statutory tax rate to our effective tax rate was as follows:

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State income taxes—net of federal tax impact

Federal rehabilitation tax credit (1)

Stock compensation—excess benefits

Tax impact of convertible senior notes repurchase

Non-deductible stock-based compensation

impact of foreign operations (1)

Valuation allowance

Tax impact of convertible senior notes repurchase

Tax rate adjustments and other (1)

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Effective tax rate

We have recorded deferred tax assets and liabilities based upon estimates of their realizable value, such estimates are based upon likely future tax consequences.

(1) Prior year rates have been adjusted to conform to the current period presentation.

We have recorded deferred tax assets and liabilities based upon estimates of their realizable value, and such estimates are based upon likely future tax consequences.

In assessing the need for a valuation allowance, we consider both positive and negative evidence related to the likelihood of realization of the deferred tax assets.

If, based on the weight of available evidence, it is more likely than not that the deferred tax assets will not be realized, we record a valuation allowance.

PART II — FINANCIAL STATEMENTS

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PART II — FINANCIAL STATEMENTS

Significant components of our deferred tax assets and liabilities were as follows:

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Lease liabilities

Interest expense carryforwards

Net operating loss carryforwards

Accrued expenses

Interest expense carryforwards

Stock-based compensation

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Deferred revenue

Deferred lease credits

Convertible senior notes

Non-current deferred tax assets

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Balance at end of fiscal year

As of January 28, 2023, we had federal, state and foreign net operating loss carryovers of $ 478 million, $ 217 million and $ 16 million, respectively.

As of February 3, 2024, we had federal, state and foreign net operating loss carryovers of $ 204 million, $ 108 million and $ 38 million, respectively.

The federal net operating losses do not expire.

The state and foreign net operating losses will begin to expire in 2023.

The state net operating loss carryovers will begin to expire in 2024 and continue to expire at various times depending upon individual state carryforward rules.

The foreign net operating losses will begin to expire in 2029.

Internal Revenue Code Section 382 and similar state rules place a limitation on the amount of taxable income which can be offset by net operating loss carryforwards after a change in ownership (generally greater than 50 % change in ownership).

We cannot give any assurances that it will not undergo an ownership change in the future resulting in further limitations on utilization of net operating losses.

108 | FORM 10-K

PART II — FINANCIAL STATEMENTS

FORM 10-K | 105

A reconciliation of the exposures related to unrecognized tax benefits was as follows:

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Balance at end of fiscal year

As of January 28, 2023, $ 7.6 million of our unrecognized tax benefits would reduce income tax expense and the effective tax rate, if recognized.

As of February 3, 2024, $ 7.9 million of our unrecognized tax benefits 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.

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An income tax benefit related to this refund claim could be recorded in a future period upon settlement with the respective taxing authority.

As of January 28, 2023, we have $ 5.5 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months .

As of February 3, 2024, we have $ 5.4 million of exposures related to unrecognized tax benefits that are expected to decrease in the next 12 months .

We are subject to taxation in the United States and various states and foreign jurisdictions.

As of January 28, 2023, we are subject to examination by the tax authorities for fiscal 2018 through fiscal 2022.

With few exceptions, as of January 28, 2023, we are no longer subject to U.S.

As of February 3, 2024, we are subject to examination by the tax authorities for fiscal 2020 through fiscal 2023.

With few exceptions, as of February 3, 2024, we are no longer subject to U.S.

federal, state, local, or foreign examinations by tax authorities for years prior to fiscal 2020.

We have not provided U.S.

income or foreign withholding taxes on the undistributed earnings of our foreign subsidiaries as of January 28, 2023 because we intend to permanently reinvest such earnings outside of the U.S.

income or foreign withholding taxes on the undistributed earnings of our foreign subsidiaries as of February 3, 2024 because we intend to permanently reinvest such earnings outside of the U.S.

If these foreign earnings were to be repatriated in the future, the related U.S.

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The IRA includes implementation of a new alternative minimum tax, an excise tax on stock buybacks, and significant tax incentives for energy and climate initiatives, among other provisions.

We are evaluating the provisions included under the IRA and do not expect the provisions to have a material impact to our consolidated financial statements.

PART II — FINANCIAL STATEMENTS

We have evaluated the provisions included under the IRA and do not expect the provisions to have a material impact on our consolidated financial statements.

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PART II — FINANCIAL STATEMENTS

NOTE 15—NET INCOME PER SHARE

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

The weighted-average shares used for net income per share are presented in the table below.

Weighted-average shares—basic

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Weighted-average shares—diluted

(1) We adopted ASU 2020-06 in the first quarter of fiscal 2022, and the adoption requires the dilutive impact of the convertible senior 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, and the 2020 Notes, 2023 Notes and the 2024 Notes impact our dilutive share count beginning at stock prices of $ 118.13 per share, $ 193.65 per share and $ 211.40 per share, respectively.

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

The warrants associated with our 2020 Notes expired in January 2021.

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 January 28, 2023.

(1) The dilutive effect of the 2023 Notes and 2024 Notes is calculated under the if-converted method, which assumes share settlement of the entire convertible debt instrument.

The 2023 Notes terminated in June 2023 and did not have an impact on our diluted share count post-termination.

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 were outstanding as of and after April 30, 2022.

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

Refer to Note 11— Convertible Senior Notes .

We adopted ASU 2020-06 in the first quarter of fiscal 2022, and the adoption requires the dilutive impact of the convertible senior 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 for fiscal 2021, 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, and the 2020 Notes, 2023 Notes and the 2024 Notes impact our dilutive share count beginning at stock prices of $ 118.13 per share, $ 193.65 per share and $ 211.40 per share, respectively.

The following number of options and restricted stock units, as well as shares issuable under convertible senior notes prior to extinguishment in fiscal 2022, were excluded from the calculation of diluted net income per share because their inclusion would have been anti-dilutive:

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On June 2, 2022, the Board of Directors authorized an additional $ 2.0 billion for the purchase of shares of our outstanding common stock, increasing the total authorized size of the share repurchase program to $ 2,450 million (the “Share Repurchase Program”).

We did no t make any repurchases under this program during either fiscal 2021 or fiscal 2020.

In fiscal 2022, we repurchased 3,719,550 shares of our common stock under the Share Repurchase Program at an average price of $ 268.83 per share, for an aggregate repurchase amount of approximately $ 1.0 billion.

As of January 28, 2023, $ 1,450 million remains available for future share repurchases under this program.

In fiscal 2023, we repurchased 3,887,965 shares of our common stock under the Share Repurchase Program at an average price of $ 321.28 per share, for an aggregate repurchase amount of approximately $ 1,261 million, inclusive of $ 12 million of excise taxes.

The excise tax liability is recorded in accounts payable and accrued expenses on the consolidated balance sheets and was $ 12 million and $ 3.7 million as of February 3, 2024 and January 28, 2023, respectively.

As of February 3, 2024, $ 201 million remains available for future share repurchases under this program.

PART II — FINANCIAL STATEMENTS

FORM 10-K | 107

Share Retirements

In fiscal 2022, we retired 3,719,550 shares of common stock related to shares we repurchased under the Share Repurchase Program.

As a result of this retirement, we reclassified a total of $ 444 million and $ 560 million from treasury stock to additional paid-in capital and retained earnings , respectively, on the consolidated balance sheets and consolidated statements of stockholders’ equity.

As a result of this retirement, we reclassified a total of $ 444 million and $ 560 million from treasury stock to additional paid-in capital and retained earnings (accumulated deficit) , respectively, on the consolidated balance sheets and consolidated statements of stockholders’ equity (deficit).

In fiscal 2023, we retired 3,887,965 shares of common stock related to shares we repurchased under the Share Repurchase Program.

As a result of this retirement, we reclassified a total of $ 10 million and $ 1,251 million from treasury stock to additional paid-in capital and retained earnings (accumulated deficit) , respectively, on the consolidated balance sheets and consolidated statements of stockholders’ equity (deficit).

There was no impact on the consolidated statements of income or cash flows related to the share retirement activity.

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PART II — FINANCIAL STATEMENTS

NOTE 17—STOCK-BASED COMPENSATION

We recorded stock-based compensation expense of $ 44 million, $ 48 million and $ 146 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively, which is included in selling, general and administrative expenses on the consolidated statements of income.

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

2012 Stock Incentive Plan and 2012 Stock Option Plan

The Restoration Hardware 2012 Stock Incentive Plan (the “Stock Incentive Plan”) was adopted on November 1, 2012.

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Aside from these options granted on November 1, 2012, no other awards were granted under the Option Plan.

As of January 29, 2022, there were a total of 1,185,322 shares issuable under the Stock Incentive Plan.

On January 31, 2022, an additional 430,139 shares became issuable under the Stock Incentive Plan in accordance with the Stock Incentive Plan evergreen provision, increasing the total number of shares issuable under the Stock Incentive Plan to 1,615,461 .

Awards under the plans reduced the number of shares available for future issuance.

Cancellations and forfeitures of awards previously granted under the Stock Incentive Plan increased the number of shares available for future issuance.

Cancellations and forfeitures of awards previously granted under the Option Plan were immediately retired and were no longer available for future issuance.

On November 1, 2022, both the Stock Incentive Plan and Option Plan expired.

Upon expiration of the Stock Incentive Plan, a total of 1,607,508 shares that were available for future issuance under the plan were cancelled and were no longer available for the grant of awards under the plan.

2012 Stock Incentive Plan and 2012 Stock Option Plan—Stock Options

A summary of stock option activity under the Stock Incentive Plan and the Option Plan was as follows:

The RH 2023 Stock Incentive Plan (the “2023 Stock Incentive Plan”, together with the Stock Incentive Plan and Option Plan, “the Plans”) was approved by stockholders on April 4, 2023.

The 2023 Stock Incentive Plan provides for the grant of incentive stock options to our employees and the grant of non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights and any combination thereof to our employees, directors and consultants and our parent and subsidiary corporations’ employees, directors and consultants.

The maximum number of shares that may be issued pursuant to all awards under the 2023 Stock Incentive Plan is (i) 3,000,000 , plus (ii) any shares of our common stock covered by any outstanding award (or portion of any such award) that has been granted under the Stock Incentive Plan if such award (or a portion of such award) is forfeited, is canceled or expires (whether voluntarily or involuntarily) without the issuance of shares of our common stock or if the shares underlying such award (or a portion of such award) that are surrendered or withheld in payment of the award’s exercise or purchase price or in satisfaction of tax withholding obligations with respect to an award would be deemed not to have been issued for purposes of determining the maximum number of shares of our common stock that may be issued under the 2023 Stock Incentive Plan had such award been an award granted under the 2023 Stock Incentive Plan.

The 2023 Stock Incentive Plan has a ten-year term.

Awards under the 2023 Stock Incentive Plan reduce the number of shares available for future issuance.

Cancellations and forfeitures of awards previously granted under the 2023 Stock Incentive Plan increase the number of shares available for future issuance.

Shares issued as a result of award exercises under the 2023 Stock Incentive Plan will be funded with the issuance of new shares.

As of February 3, 2024, a total of 2,677,311 shares were available for future issuance under the 2023 Stock Incentive Plan.

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PART II — FINANCIAL STATEMENTS

Stock Options Under the Plans

A summary of stock option activity was as follows:

WEIGHTED-AVERAGE

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Outstanding—January 28, 2023

( 4,249,285 )

Outstanding—January 28, 2023

Outstanding—February 3, 2024

The fair value of stock options granted was estimated on the date of grant using the following assumptions:

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Dividend yield

PART II — FINANCIAL STATEMENTS

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A summary of additional information about stock options was as follows:

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Fair value of stock options vested

(1) The fair value of stock options vested in fiscal 2021 was disclosed as $ 59,074 in our fiscal 2021 Form 10-K and has been updated with the amount presented herein.

Information about stock options outstanding, vested or expected to vest, and exercisable as of January 28, 2023 is as follows:

PART II — FINANCIAL STATEMENTS

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Information about stock options outstanding, vested or expected to vest, and exercisable as of February 3, 2024 is as follows:

OPTIONS OUTSTANDING

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Vested or expected to vest

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of January 28, 2023 was $ 537 million, $ 516 million and $ 427 million, respectively.

Stock options exercisable as of January 28, 2023 had a weighted-average remaining contractual life of 5.15 years.

We recorded stock-based compensation expense related to stock options of $ 41 million, $ 45 million and $ 140 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

The expense includes $ 18 million, $ 24 million and $ 117 million, respectively, associated with the option grant to Mr.

Friedman in October 2020 (refer to Chairman and Chief Executive Officer Option Grant below).

As of January 28, 2023, the total unrecognized compensation expense related to unvested options was $ 83 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.13 years.

In addition, as of January 28, 2023, the total unrecognized compensation expense related to the fully vested option grant made to Mr.

Friedman in October 2020 was $ 15 million, which will be recognized on an accelerated basis through May 2025 (refer to Chairman and Chief Executive Officer Option Grant below).

Chairman and Chief Executive Officer Option Grant

The aggregate intrinsic value of options outstanding, options vested or expected to vest, and options exercisable as of February 3, 2024 was $ 373 million, $ 366 million and $ 323 million, respectively.

Stock options exercisable as of February 3, 2024 had a weighted-average remaining contractual life of 4.4 years.

Stock-based compensation expense related to stock options, which is included in selling, general and administrative expenses on the consolidated statements of income, was as follows:

(in thousands)

Stock-based compensation expense (1)

(1) On October 18, 2020, our Board of Directors granted Mr.

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

The option will result in aggregate non-cash stock compensation expense of $ 174 million, of which $ 9.6 million, $ 18 million and $ 24 million was recognized during fiscal 2023, fiscal 2022 and fiscal 2021, respectively.

As of February 3, 2024, the total unrecognized compensation expense related to unvested options was $ 99 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 4.4 years.

In addition, as of February 3, 2024, the total unrecognized compensation expense related to the fully vested option grant made to Mr.

Friedman in October 2020 was $ 5.4 million, which will be recognized on an accelerated basis through May 2025.

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PART II — FINANCIAL STATEMENTS

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.

The option was 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 $ 174 million, of which $ 18 million, $ 24 million and $ 117 million was recognized in fiscal 2022, fiscal 2021 and fiscal 2020, respectively (which is included in the stock-based compensation expense amounts noted above).

2012 Stock Incentive Plan—Restricted Stock Awards

Restricted Stock Awards Under the Plans

We grant restricted stock awards, which include restricted stock and restricted stock units, to our employees and members of our Board of Directors.

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GRANT DATE FAIR

Outstanding—January 29, 2022

(in thousands)

Outstanding—January 28, 2023

Outstanding—February 3, 2024

A summary of additional information about restricted stock awards is as follows:

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Grant date fair value of awards released (in thousands)

We recorded stock-based compensation expense related to restricted stock awards of $ 3.0 million, $ 3.0 million and $ 4.9 million in fiscal 2022, fiscal 2021 and fiscal 2020, respectively.

As of January 28, 2023, the total unrecognized compensation expense related to unvested restricted stock awards was $ 7.2 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.97 years.

Stock-based compensation expense related to restricted stock awards, which is included in selling, general and administrative expenses on the consolidated statements of income, was as follows:

(in thousands)

Stock-based compensation expense

As of February 3, 2024, the total unrecognized compensation expense related to unvested restricted stock awards was $ 5.4 million, which is expected to be recognized on a straight-line basis over a weighted-average period of 3.3 years.

Compensation Related to Consolidated VIEs

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NOTE 19—COMMITMENTS AND CONTINGENCIES

We had no material off balance sheet commitments as of January 28, 2023.

We had no material off balance sheet commitments as of February 3, 2024.

PART II — FINANCIAL STATEMENTS

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In addition, we are subject to governmental and regulatory examinations, information requests, and investigations from time to time at the state and federal levels.

Certain legal proceedings that we currently face involve various class-action allegations regarding employment practices, including under state wage-and-hour laws.

We have faced similar litigation in the past.

Due to the inherent difficulty of predicting the course of legal actions related to these class-action allegations, such as the eventual scope, duration or outcome, we may be unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters.

Our assessment of these legal proceedings, as well as other lawsuits, could change from future determinations or the discovery of facts that are not presently known.

We continue to defend such cases and our estimates may evolve over time.

Accordingly, the ultimate costs to resolve these cases may be substantially higher or lower than our estimates.

Certain legal proceedings that we currently face involve various class-action allegations, including cases related to our employment practices, the application of state wage-and-hour laws and other causes of action.

We have faced similar litigation in the past, including class action cases.

Due to the inherent difficulty of predicting the course of legal actions related to complex legal matters, including class-action allegations, such as the eventual scope, duration or outcome, we may be unable to estimate the amount or range of any potential loss that could result from an unfavorable outcome arising from such matters.

Our assessment of these legal proceedings, as well as other lawsuits, could change based upon the discovery of facts that are not presently known or developments during the course of the litigation.

We have settled certain class action cases, but continue to defend a variety of legal actions and our estimates of our exposure in such cases may evolve over time.

Accordingly, the ultimate costs to resolve litigation, including class action cases, may be substantially higher or lower than our estimates.

With respect to such contingencies, we review the need for any loss contingency reserves and establish reserves when, in the opinion of our senior leadership team, it is probable that a matter would result in liability, and the amount of loss, if any, can be reasonably estimated.

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RH Segment, Waterworks and Real Estate.

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, including hospitality, websites, Source Books, and the Trade and Contract channels.

The Real Estate segment represents operations associated with our equity method investments and certain of our consolidated variable interest entities that are non-wholly owned subsidiaries and have operations that are not directly related to RH’s operations (refer to Note 8— Variable Interest Entities ).

The Real Estate segment represents operations associated with certain of our equity method investments and consolidated variable interest entities that are non-wholly-owned subsidiaries and have operations that are not directly related to RH’s operations.

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

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

Segment operating income excludes (i) asset impairments, (ii) the amortization of the non-cash compensation charge related to the fully vested option grant made to Mr.

Friedman in October 2020, (iii) employer payroll tax expense related to the option exercises by Mr.

Friedman, (iv) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 12— Convertible Senior Notes ), (v) non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities (refer to Note 8— Variable Interest Entities ), (vi) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary, (vii) product recalls, (viii) favorable legal settlement, (ix) gain on sale of building and land, (x) loss on sale leaseback transaction and (xi) severance costs associated with reorganizations.

Segment operating income excludes (i) non-cash compensation amortization related to an option grant made to Mr.

Friedman in October 2020, (ii) legal settlements, (iii) severance costs associated with a reorganization, (iv) asset impairments, (v) product recalls, (vi) employer payroll tax expense related to option exercises by Mr.

Friedman, (vii) professional fees related to the 2023 Notes and 2024 Notes transactions (refer to Note 11— Convertible Senior Notes ), (viii) non-cash compensation attributed to the noncontrolling interests holder of our consolidated variable interest entities (refer to Note 7— Variable Interest Entities ), (ix) compensation settlements related to the Rollover Units and Profit Interest Units in the Waterworks subsidiary and (x) gain on sale of building and land.

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 reviews.

The following table presents segment operating income and income before income taxes and equity method investments:

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.

The following table presents segment operating income and a reconciliation to income from operations and income before taxes and equity method investments :

(in thousands)

Operating income:

Asset impairments

Total segment operating income

Non-cash compensation

Legal settlements

Reorganization related costs

Asset impairments

Recall accrual

Employer payroll taxes on option exercises

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Compensation settlements

Recall accrual

Legal settlement

Gain on sale of building and land

Loss on sale leaseback transaction

Reorganization related costs

Income from operations

Interest expense—net

(Gain) loss on extinguishment of debt

Loss on extinguishment of debt

Other expense—net

Income before income taxes and equity method investments

Income before taxes and equity method investments

PART II — FINANCIAL STATEMENTS

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Depreciation and amortization

In fiscal 2022, fiscal 2021 and fiscal 2020, the Real Estate segment share of equity method investments losses were $ 2.1 million, $ 8.2 million and $ 0.9 million, respectively.

Our share of income from equity method investments for the Waterworks segment was immaterial.

In fiscal 2023, fiscal 2022 and fiscal 2021, the Real Estate segment share of equity method investments loss was $ 11 million, $ 2.1 million and $ 8.2 million, respectively.

Our share of income from equity method investments for the Waterworks segment was immaterial in all periods presented.

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

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

(2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35 million.

(2) The Waterworks reporting unit tradename is presented net of an impairment charge of $ 35 million recognized in prior fiscal years.

(3) The Waterworks segment balance represents membership interests in two European entities, whereby we hold a 50 percent membership interest in one entity and an approximately 25 percent membership interest in the other, and we are not the primary beneficiary of these VIEs.

Refer to Note 7— Variable Interest Entities related to the Real Estate segment equity method investments.

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

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

As of January 28, 2023 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.

No single customer accounted for more than 10 % of our revenues in fiscal 2022, fiscal 2021 or fiscal 2020.

As of February 3, 2024 we operated four retail locations and one outlet in Canada, two retail locations and one outlet in the United Kingdom and two retail locations in Germany.

Geographic revenues in Canada, the United Kingdom and Germany are based upon revenues recognized at the retail locations in the respective country and were not material in any fiscal period presented.

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PART II — FINANCIAL STATEMENTS

The following table presents our long-lived assets by geographic information:

The following table presents our long-lived assets by geographic location:

(in thousands)

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Total long-lived assets

Long-lived assets held internationally were not material as of January 29, 2022.

PART II — FINANCIAL STATEMENTS

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data