|  | | | | | Page | Index to Consolidated Financial Statements
| | | | | Reports of Independent Registered Public Accounting Firm | | | 45 | 37 | Consolidated Balance Sheets as of December 31, 20172020 and 20162019 | | | 47 | 42 | Consolidated Statements of Operations for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | | 48 | 43 | Consolidated Statements of Comprehensive LossIncome (Loss) for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | | 49 | 44 | Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | | 50 | 45 | Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162020, 2019 and 20152018 | | | 51 | 46 | Notes to Consolidated Financial Statements | | | 52 | 47 |
Report of Independent Registered Public Accounting Firm To the StockholdersShareholders and the Board of Directors of Lumber Liquidators Holdings, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lumber Liquidators Holdings, Inc. (the Company) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations, comprehensive loss,income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes and Financial Statement Schedule II — Analysis of Valuation and Qualifying Accountslisted in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with the U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 26, 2018March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. | | | | | Loss Contingencies | Description of the Matter | | As discussed in Note 10 of the consolidated financial statements, the Company is involved in various lawsuits, claims, investigations, and proceedings for which it has not yet reached a settlement agreement or other resolution. The Company recognizes a liability when it is both probable that a loss has been incurred and the amount can be reasonably estimated. If the Company determines that a loss is reasonably possible and a loss or range of the loss can be estimated, they disclose such amounts. For certain matters, particularly where a settlement agreement has not yet been reached, judgment is required to determine the probability and estimate the loss or range of loss. The Company assesses each legal matter and any related provisions to reflect the impact of negotiations, settlements, rulings, and the advice of legal counsel. Auditing management's evaluation of whether a loss for contingencies is probable, reasonably possible or remote, the measurement of the amount or range of possible loss, and the related disclosures, was subjective and required more complex auditor judgment. For instance, auditing management's judgments related to claims where the matter has not yet been tried in court or where the Company has not otherwise agreed to a settlement with plaintiffs was more complex due to the judgment applied in evaluating the likelihood of the outcomes related to the matters. | How We Addressed the Matter in Our Audit | | We tested the Company's internal controls that address the risks of material misstatement related to the recognition, measurement and disclosure of loss contingencies for which a settlement agreement has not yet been reached. For example, we tested controls over management’s review of the evaluation of loss contingencies for which a settlement agreement has not yet been reached. To test the Company's accounting for and disclosure of loss contingencies for which a settlement agreement has not yet been reached, our substantive audit procedures included, among others, testing the Company's evaluation of the probability of outcome and range of loss, if estimable, through inspection of responses to inquiry letters sent to both internal and external legal counsel, discussions with internal and external legal counsel to confirm our understanding of the allegations and related merits, and by obtaining written representations from executives of the Company. When applicable, we also compared the Company's evaluation of these matters with its relevant history, or those of other entities, for similar loss contingencies that have been settled or otherwise resolved. In addition, we evaluated the adequacy of the Company’s financial statement disclosures. |
| | | | | Tax Valuation Allowance | Description of the Matter | | As discussed in Note 8 of the consolidated financial statements, at December 31, 2020, the Company had gross deferred tax assets related to deductible temporary differences and carryforwards of $60.3 million. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. At December 31, 2020, the Company has a valuation allowance of $5.6 million for the portion of its deferred tax assets that management determined was not more likely than not to be realized. Auditing management’s assessment of the realizability of its deferred tax assets involved more complex auditor judgment because management’s estimate of future taxable income is judgmental as it requires the evaluation of positive and negative evidence of realization, including the consideration of historical operating losses, and is based on assumptions that may be affected by future performance, market or economic conditions. | How We Addressed the Matter in Our Audit | | We tested the Company’s internal controls that address the risks of material misstatement related to the realizability of deferred tax assets. This included controls over management’s scheduling of the future reversal of existing taxable temporary differences and projections of future taxable income. To test the Company’s assessment of the realizability of its deferred tax assets, our substantive audit procedures included, among others, testing the Company’s scheduling of the reversal of existing temporary taxable differences. We evaluated the assumptions used by the Company to develop tax planning strategies, if any, and projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also assessed the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company and performed sensitivity analysis of the significant assumptions to evaluate whether changes in realizability of deferred tax assets would result from variability of the assumptions. In addition, we evaluated the adequacy of the Company’s financial statement disclosures. |
/s/ Ernst & Young LLP We have served as the Company’s auditor since 2003.
Richmond, Virginia
February 26, 2018
March 1, 2021 TABLE OF CONTENTS
Report of Independent Registered Public Accounting FirmTo the StockholdersShareholders and the Board of Directors of Lumber Liquidators Holdings, Inc. Opinion on Internal Control overOver Financial Reporting We have audited Lumber Liquidators Holdings, Inc.’s internal control over financial reporting as of December 31, 2017,2020, based on criteria established in Internal Control — Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lumber Liquidators Holdings, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20172020 consolidated financial statements of the Companyand our report dated February 26, 2018March 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Richmond, Virginia
February 26, 2018
March 1, 2021
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Consolidated Balance Sheets
(in thousands) | | | | | | | | | December 31, | | December 31, | | | 2020 | | 2019 | Assets | | | | | | Current Assets: | | | | | | | Cash and Cash Equivalents | | $ | 169,941 | | $ | 8,993 | Merchandise Inventories | | | 244,409 | | | 286,369 | Prepaid Expenses | | | 9,370 | | | 8,288 | Deposit for Legal Settlement | | | — | | | 21,500 | Tariff Recovery Receivable | | | 4,078 | | | 27,025 | Other Current Assets | | | 10,354 | | | 6,938 | Total Current Assets | | | 438,152 | | | 359,113 | Property and Equipment, net | | | 97,557 | | | 98,733 | Operating Lease Right-of-Use Assets | | | 109,475 | | | 121,796 | Goodwill | | | 9,693 | | | 9,693 | Deferred Tax Asset | | | 11,611 | | | — | Other Assets | | | 7,860 | | | 6,674 | Total Assets | | $ | 674,348 | | $ | 596,009 | | | | | | | | Liabilities and Stockholders’ Equity | | | | | | | Current Liabilities: | | | | | | | Accounts Payable | | $ | 70,543 | | $ | 59,827 | Customer Deposits and Store Credits | | | 61,389 | | | 41,571 | Accrued Compensation | | | 15,347 | | | 11,742 | Sales and Income Tax Liabilities | | | 5,793 | | | 7,225 | Accrual for Legal Matters and Settlements - Current | | | 30,398 | | | 67,471 | Operating Lease Liabilities - Current | | | 33,024 | | | 31,333 | Other Current Liabilities | | | 25,761 | | | 18,937 | Total Current Liabilities | | | 242,255 | | | 238,106 | Other Long-Term Liabilities | | | 13,293 | | | 13,757 | Operating Lease Liabilities - Long-Term | | | 90,194 | | | 100,470 | Deferred Tax Liability | | | — | | | 426 | Credit Agreement | | | 101,000 | | | 82,000 | Total Liabilities | | | 446,742 | | | 434,759 | | | | | | | | Stockholders’ Equity: | | | | | | | Common Stock ($0.001 par value; 35,000 shares authorized; 30,229 and 29,959 shares issued and 28,911 and 28,714 shares outstanding at December 31, 2020 and 2019, respectively | | | 30 | | | 30 | Treasury Stock, at cost (1,318 and 1,245 shares, respectively) | | | (142,977) | | | (142,314) | Additional Capital | | | 222,628 | | | 218,616 | Retained Earnings | | | 147,925 | | | 86,498 | Accumulated Other Comprehensive Loss | | | — | | | (1,580) | Total Stockholders’ Equity | | | 227,606 | | | 161,250 | Total Liabilities and Stockholders’ Equity | | $ | 674,348 | | $ | 596,009 |
| | | | | | | December 31,
2017 | | December 31,
2016 | Assets
| | | | | | | | | Current Assets:
| | | | | | | | | | Cash and Cash Equivalents | | $ | 19,938 | | | $ | 10,271 | | | Merchandise Inventories | | | 262,280 | | | | 301,892 | | | Prepaid Expenses | | | 9,108 | | | | 5,367 | | | Refundable Income Taxes | | | 1,298 | | | | 31,429 | | | Other Current Assets | | | 5,372 | | | | 5,346 | | | Total Current Assets | | | 297,996 | | | | 354,305 | | | Property and Equipment, net | | | 100,491 | | | | 115,004 | | | Goodwill | | | 9,693 | | | | 9,693 | | | Other Assets | | | 2,615 | | | | 3,542 | | | Total Assets | | $ | 410,795 | | | $ | 482,544 | | Liabilities and Stockholders’ Equity
| | | | | | | | | Current Liabilities:
| | | | | | | | | | Accounts Payable | | $ | 67,676 | | | $ | 120,647 | | | Customer Deposits and Store Credits | | | 38,546 | | | | 32,639 | | | Accrued Compensation | | | 12,101 | | | | 9,193 | | | Sales and Income Tax Liabilities | | | 4,273 | | | | 4,249 | | | Accrual for MDL and Related Other Matters | | | 36,960 | | | | — | | | Other Current Liabilities | | | 18,605 | | | | 19,984 | | | Total Current Liabilities | | | 178,161 | | | | 186,712 | | | Other Long-Term Liabilities | | | 19,235 | | | | 21,142 | | | Deferred Tax Liability | | | 552 | | | | 3,798 | | | Revolving Credit Facility | | | 15,000 | | | | 40,000 | | | Total Liabilities | | | 212,948 | | | | 251,652 | | Stockholders’ Equity:
| | | | | | | | | | Common Stock ($0.001 par value; 35,000 shares authorized; 31,397 and 31,102 shares issued and 28,490 and 28,249 shares outstanding at December 31, 2017 and 2016, respectively) | | | 31 | | | | 31 | | | Treasury Stock, at cost (2,907 and 2,853 shares, respectively) | | | (140,875 | ) | | | (139,420 | ) | | Additional Capital | | | 208,629 | | | | 202,700 | | | Retained Earnings | | | 131,214 | | | | 169,037 | | | Accumulated Other Comprehensive Loss | | | (1,152 | ) | | | (1,456 | ) | | Total Stockholders’ Equity | | | 197,847 | | | | 230,892 | | | Total Liabilities and Stockholders’ Equity | | $ | 410,795 | | | $ | 482,544 | |
See accompanying notes to consolidated financial statementsstatements.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Operations
(in thousands except per share amounts) | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | | | | | | | | | Net Sales | | | | | | | | | | Net Merchandise Sales | | $ | 974,829 | | $ | 956,041 | | $ | 955,949 | Net Services Sales | | | 122,873 | | | 136,561 | | | 128,687 | Total Net Sales | | | 1,097,702 | | | 1,092,602 | | | 1,084,636 | Cost of Sales | | | | | | | | | | Cost of Merchandise Sold | | | 574,944 | | | 586,918 | | | 596,411 | Cost of Services Sold | | | 95,046 | | | 101,998 | | | 95,285 | Total Cost of Sales | | | 669,990 | | | 688,916 | | | 691,696 | Gross Profit | | | 427,712 | | | 403,686 | | | 392,940 | Selling, General and Administrative Expenses | | | 371,430 | | | 386,970 | | | 443,513 | Operating Income (Loss) | | | 56,282 | | | 16,716 | | | (50,573) | Other Expense | | | 2,642 | | | 3,764 | | | 2,827 | Income (Loss) Before Income Taxes | | | 53,640 | | | 12,952 | | | (53,400) | Income Tax (Benefit) Expense | | | (7,787) | | | 3,289 | | | 979 | Net Income (Loss) | | $ | 61,427 | | $ | 9,663 | | $ | (54,379) | Net Income (Loss) per Common Share—Basic | | $ | 2.13 | | $ | 0.34 | | $ | (1.90) | Net Income (Loss) per Common Share—Diluted | | $ | 2.10 | | $ | 0.34 | | $ | (1.90) | Weighted Average Common Shares Outstanding: | | | | | | | | | | Basic | | | 28,830 | | | 28,689 | | | 28,571 | Diluted | | | 29,247 | | | 28,793 | | | 28,571 |
| | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | Net Sales | | $ | 1,028,933 | | | $ | 960,588 | | | $ | 978,776 | | | Cost of Sales | | | 659,872 | | | | 656,719 | | | | 699,918 | | | Gross Profit | | | 369,061 | | | | 303,869 | | | | 278,858 | | | Selling, General and Administrative Expenses | | | 406,027 | | | | 397,504 | | | | 362,051 | | | Operating Loss | | | (36,966 | ) | | | (93,635 | ) | | | (83,193 | ) | | Other Expense | | | 1,591 | | | | 638 | | | | 234 | | | Loss Before Income Taxes | | | (38,557 | ) | | | (94,273 | ) | | | (83,427 | ) | | Income Tax Benefit | | | (734 | ) | | | (25,710 | ) | | | (26,994 | ) | | Net Loss | | $ | (37,823 | ) | | $ | (68,563 | ) | | $ | (56,433 | ) | | Net Loss per Common Share – Basic | | $ | (1.33 | ) | | $ | (2.51 | ) | | $ | (2.08 | ) | | Net Loss per Common Share – Diluted | | $ | (1.33 | ) | | $ | (2.51 | ) | | $ | (2.08 | ) | Weighted Average Common Shares Outstanding:
| | | | | | | | | | | | | | Basic | | | 28,407 | | | | 27,284 | | | | 27,082 | | | Diluted | | | 28,407 | | | | 27,284 | | | | 27,082 | |
See accompanying notes to consolidated financial statementsstatements.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Comprehensive Loss
Income (Loss) (in thousands) | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | | | | | | | | | | | | | | | | | | | Net Income (Loss) | | $ | 61,427 | | $ | 9,663 | | $ | (54,379) | Other Comprehensive Income (Loss): | | | | | | | | | | Foreign Currency Translation Adjustments | | | 823 | | | (195) | | | (233) | Reclassification of Foreign Currency Translation to Earnings | | | 757 | | | — | | | — | Total Other Comprehensive Income (Loss) | | | 1,580 | | | (195) | | | (233) | Comprehensive Income (Loss) | | $ | 63,007 | | $ | 9,468 | | $ | (54,612) |
| | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | Net Loss | | $ | (37,823 | ) | | $ | (68,563 | ) | | $ | (56,433 | ) | Other Comprehensive Income (Loss):
| | | | | | | | | | | | | | Foreign Currency Translation Adjustments | | | 304 | | | | 209 | | | | (869 | ) | | Total Other Comprehensive Income (Loss) | | | 304 | | | | 209 | | | | (869 | ) | | Comprehensive Loss | | $ | (37,519 | ) | | $ | (68,354 | ) | | $ | (57,302 | ) |
See accompanying notes to consolidated financial statementsstatements.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Accumulated | | | | | | | | | | | | | | | | | | | | | | Other | | Total | | | Common Stock | | Treasury Stock | | Additional | | Retained | | Comprehensive | | Stockholders’ | | | Shares | | Par Value | | Shares | | Value | | Capital | | Earnings | | Income (Loss) | | Equity | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2017 | | 28,490 | | $ | 31 | | 2,907 | | $ | (140,875) | | $ | 208,629 | | $ | 131,214 | | $ | (1,152) | | $ | 197,847 | | | | | | | | | | | | | | | | | | | | | | | | Stock-Based Compensation Expense | | — | | | — | | — | | | — | | | 4,346 | | | — | | | — | | | 4,346 | Exercise of Stock Options | | 44 | | | — | | — | | | — | | | 770 | | | — | | | — | | | 770 | Release of Restricted Shares | | 93 | | | 1 | | — | | | — | | | (1) | | | — | | | — | | | — | Common Stock Repurchased | | — | | | — | | 44 | | | (953) | | | — | | | — | | | — | | | (953) | Translation Adjustment | | — | | | — | | — | | | — | | | — | | | — | | | (233) | | | (233) | Net Loss | | — | | | — | | — | | | — | | | — | | | (54,379) | | | — | | | (54,379) | December 31, 2018 | | 28,627 | | $ | 32 | | 2,951 | | $ | (141,828) | | $ | 213,744 | | $ | 76,835 | | $ | (1,385) | | $ | 147,398 | | | | | | | | | | | | | | | | | | | | | | | | Stock-Based Compensation Expense | | — | | | — | | — | | | — | | | 4,872 | | | — | | | — | | | 4,872 | Release of Restricted Shares | | 87 | | | — | | — | | | — | | | — | | | — | | | — | | | — | Common Stock Repurchased | | — | | | (2) | | (1,706) | | | (486) | | | — | | | — | | | — | | | (488) | Translation Adjustment | | — | | | — | | — | | | — | | | — | | | — | | | (195) | | | (195) | Net Income | | — | | | — | | — | | | — | | | — | | | 9,663 | | | — | | | 9,663 | December 31, 2019 | | 28,714 | | $ | 30 | | 1,245 | | $ | (142,314) | | $ | 218,616 | | $ | 86,498 | | $ | (1,580) | | $ | 161,250 | | | | | | | | | | | | | | | | | | | | | | | | Stock-Based Compensation Expense | | — | | | — | | — | | | — | | | 3,333 | | | — | | | — | | | 3,333 | Exercise of Stock Options | | 40 | | | — | | — | | | — | | | 679 | | | — | | | — | | | 679 | Release of Restricted Shares | | 157 | | | — | | — | | | — | | | — | | | — | | | — | | | — | Common Stock Repurchased | | — | | | — | | 73 | | | (663) | | | — | | | — | | | — | | | (663) | Translation Adjustment | | — | | | — | | — | | | — | | | — | | | — | | | 823 | | | 823 | Reclassification of Foreign Currency Translation to Earnings | | — | | | — | | — | | | — | | | — | | | — | | | 757 | | | 757 | Net Income | | — | | | — | | — | | | — | | | — | | | 61,427 | | | — | | | 61,427 | December 31, 2020 | | 28,911 | | $ | 30 | | 1,318 | | $ | (142,977) | | $ | 222,628 | | $ | 147,925 | | $ | — | | $ | 227,606 |
| | | | | | | | | | | | | | | | | | | Common Stock | | Treasury Stock | | Additional
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income (Loss) | | Total
Stockholders’
Equity | | | | Shares | | Par
Value | | Shares | | Value | | December 31, 2014 | | | 27,069 | | | $ | 30 | | | | 2,817 | | | $ | (138,692 | ) | | $ | 177,479 | | | $ | 294,033 | | | $ | (796 | ) | | $ | 332,054 | | | Stock-Based Compensation Expense | | | — | | | | — | | | | — | | | | — | | | | 4,080 | | | | — | | | | — | | | | 4,080 | | | Exercise of Stock Options | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | Excess Tax Benefits on Stock Option Exercises | | | — | | | | — | | | | — | | | | — | | | | (969 | ) | | | — | | | | — | | | | (969 | ) | | Release of Restricted Shares | | | 19 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | Common Stock Repurchased | | | — | | | | — | | | | 8 | | | | (295 | ) | | | — | | | | — | | | | — | | | | (295 | ) | | Translation Adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (869 | ) | | | (869 | ) | | Net Income | | | — | | | | — | | | | — | | | | — | | | | — | | | | (56,433 | ) | | | — | | | | (56,433 | ) | | December 31, 2015 | | | 27,088 | | | $ | 30 | | | | 2,825 | | | $ | (138,987 | ) | | $ | 180,590 | | | $ | 237,600 | | | $ | (1,665 | ) | | $ | 277,568 | | | Stock-Based Compensation Expense | | | — | | | | — | | | | — | | | | — | | | | 5,487 | | | | — | | | | — | | | | 5,487 | | | Exercise of Stock Options | | | 59 | | | | — | | | | — | | | | — | | | | 539 | | | | — | | | | — | | | | 539 | | | Tax Effect of Stock-Based Compensation | | | — | | | | — | | | | — | | | | — | | | | (675 | ) | | | — | | | | — | | | | (675 | ) | | Stock Issued upon Legal Settlement | | | 1,000 | | | | 1 | | | | | | | | | | | | 16,759 | | | | | | | | | | | | 16,760 | | | Release of Restricted Shares | | | 101 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | Common Stock Repurchased | | | — | | | | — | | | | 29 | | | | (433 | ) | | | — | | | | — | | | | — | | | | (433 | ) | | Translation Adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 209 | | | | 209 | | | Net Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (68,563 | ) | | | — | | | | (68,563 | ) | | December 31, 2016 | | | 28,248 | | | $ | 31 | | | | 2,854 | | | $ | (139,420 | ) | | $ | 202,700 | | | $ | 169,037 | | | $ | (1,456 | ) | | $ | 230,892 | | | Stock-Based Compensation Expense | | | — | | | | — | | | | — | | | | — | | | | 4,582 | | | | — | | | | — | | | | 4,582 | | | Exercise of Stock Options | | | 88 | | | | — | | | | — | | | | — | | | | 1,347 | | | | — | | | | — | | | | 1,347 | | | Release of Restricted Shares | | | 154 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | Common Stock Repurchased | | | — | | | | — | | | | 53 | | | | (1,455 | ) | | | | | | | — | | | | — | | | | (1,455 | ) | | Translation Adjustment | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 304 | | | | 304 | | | Net Loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (37,823 | ) | | | — | | | | (37,823 | ) | | December 31, 2017 | | | 28,490 | | | $ | 31 | | | | 2,907 | | | $ | (140,875 | ) | | $ | 208,629 | | | $ | 131,214 | | | $ | (1,152 | ) | | $ | 197,847 | |
See accompanying notes to consolidated financial statementsstatements.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands) | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | | | | | | | | | Cash Flows from Operating Activities: | | | | | | | | | | Net Income (Loss) | | $ | 61,427 | | $ | 9,663 | | $ | (54,379) | Adjustments to Reconcile Net Income (Loss): | | | | | | | | | | Depreciation and Amortization | | | 17,645 | | | 17,465 | | | 18,425 | Deferred Income Taxes (Benefit) Provision | | | (12,037) | | | (366) | | | 240 | Stock-Based Compensation Expense | | | 3,333 | | | 4,848 | | | 4,091 | Provision for Inventory Obsolescence Reserves | | | 3,036 | | | 1,888 | | | 3,108 | Impairment of Operating Lease Right-Of-Use | | | 935 | | | — | | | — | Reclassification of Foreign Currency Translation to Earnings | | | 757 | | | — | | | — | (Gain) Loss on Disposal of Fixed Assets | | | (211) | | | (221) | | | 1,818 | Changes in Operating Assets and Liabilities: | | | | | | | | | | Merchandise Inventories | | | 38,617 | | | 28,941 | | | (59,179) | Accounts Payable | | | 9,910 | | | (13,640) | | | 4,852 | Customer Deposits and Store Credits | | | 19,818 | | | 1,353 | | | 1,685 | Tariff Recovery Receivable | | | 22,947 | | | (27,025) | | | — | Prepaid Expenses and Other Current Assets | | | (4,094) | | | (88) | | | 2,902 | Deposit for Legal Settlement | | | — | | | — | | | (21,500) | Accrual for Legal Matters and Settlements | | | 2,507 | | | 4,575 | | | 63,951 | Payments for Legal Matters and Settlements | | | (18,080) | | | (34,729) | | | (2,904) | Deferred Payroll Taxes | | | 5,131 | | | — | | | — | Other Assets and Liabilities | | | 5,405 | | | 7,665 | | | (6,096) | Net Cash Provided by (Used in) Operating Activities | | | 157,046 | | | 329 | | | (42,986) | | | | | | | | | | | Cash Flows from Investing Activities: | | | | | | | | | | Purchases of Property and Equipment | | | (15,828) | | | (19,906) | | | (14,332) | Other Investing Activities | | | 966 | | | 422 | | | 871 | Net Cash Used in Investing Activities | | | (14,862) | | | (19,484) | | | (13,461) | | | | | | | | | | | Cash Flows from Financing Activities: | | | | | | | | | | Borrowings on Credit Agreement | | | 45,000 | | | 104,500 | | | 74,000 | Payments on Credit Agreement | | | (26,000) | | | (87,500) | | | (24,000) | Proceeds from the Exercise of Stock Options | | | 679 | | | — | | | 770 | Payments on Financed Insurance Obligations | | | — | | | — | | | (612) | Other Financing Activities | | | (901) | | | (1,119) | | | (953) | Net Cash Provided by Financing Activities | | | 18,778 | | | 15,881 | | | 49,205 | Effect of Exchange Rates on Cash and Cash Equivalents | | | (14) | | | 702 | | | (1,131) | Net Increase (Decrease) in Cash and Cash Equivalents | | | 160,948 | | | (2,572) | | | (8,373) | Cash and Cash Equivalents, Beginning of Year | | | 8,993 | | | 11,565 | | | 19,938 | Cash and Cash Equivalents, End of Year | | $ | 169,941 | | $ | 8,993 | | $ | 11,565 | | | | | | | | | | | Supplemental disclosure of non-cash operating and financing activities: | | | | | | | | | | Release of Deposit for Legal Settlement and Liability | | $ | 21,500 | | $ | — | | $ | — | Tenant Improvement Allowance for Leases | | | (726) | | | (2,962) | | | — |
| | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | Cash Flows from Operating Activities:
| | | | | | | | | | | | | | Net Loss | | $ | (37,823 | ) | | $ | (68,563 | ) | | $ | (56,433 | ) | Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities:
| | | | | | | | | | | | | | Depreciation and Amortization | | | 17,739 | | | | 17,505 | | | | 17,392 | | | Deferred Income Taxes (Benefit) Provision | | | (3,246 | ) | | | 14,205 | | | | (12,064 | ) | | Stock-Based Compensation Expense | | | 4,735 | | | | 5,568 | | | | 3,941 | | | Provision for Inventory Obsolescence Reserves | | | 6,349 | | | | 3,723 | | | | 26,162 | | | Impairment and Loss on Disposal of Fixed Assets | | | 1,498 | | | | — | | | | 4,392 | | | Stock-Based Portion of Provision for Securities Class Action | | | — | | | | 16,760 | | | | — | | | Deconsolidation of Variable Interest Entity | | | — | | | | — | | | | 1,457 | | Changes in Operating Assets and Liabilities:
| | | | | | | | | | | | | | Merchandise Inventories | | | 32,614 | | | | (62,054 | ) | | | 42,773 | | | Accounts Payable | | | (52,475 | ) | | | 64,025 | | | | (21,450 | ) | | Customer Deposits and Store Credits | | | 6,001 | | | | (988 | ) | | | (1,075 | ) | | Prepaid Expenses and Other Current Assets | | | 28,962 | | | | (11,411 | ) | | | (18,385 | ) | | Accrual for MDL and Related Other Matters | | | 36,960 | | | | — | | | | — | | | Other Assets and Liabilities | | | (1,922 | ) | | | (6,317 | ) | | | 22,494 | | | Net Cash Provided by (Used in) Operating Activities | | | 39,392 | | | | (27,547 | ) | | | 9,204 | | Cash Flows from Investing Activities:
| | | | | | | | | | | | | | Purchases of Property and Equipment | | | (7,411 | ) | | | (8,908 | ) | | | (22,478 | ) | | Proceeds from Disposal of Fixed Assets | | | 2,273 | | | | — | | | | — | | | Other Investing Activities | | | 800 | | | | 575 | | | | — | | | Net Cash Used in Investing Activities | | | (4,338 | ) | | | (8,333 | ) | | | (22,478 | ) | Cash Flows from Financing Activities:
| | | | | | | | | | | | | | Payments on Revolving Credit Facility | | | (65,000 | ) | | | (17,000 | ) | | | (19,000 | ) | | Borrowings on Revolving Credit Facility | | | 40,000 | | | | 37,000 | | | | 39,000 | | | Proceeds from the Exercise of Stock Options | | | 1,347 | | | | 539 | | | | — | | | Payments for Stock Repurchases | | | (1,455 | ) | | | (433 | ) | | | (295 | ) | | Payments on Financed Insurance Obligations | | | (734 | ) | | | — | | | | — | | | Payments on Capital Lease Obligations | | | (351 | ) | | | (469 | ) | | | — | | | Payments for Debt Issuance Costs | | | — | | | | (933 | ) | | | — | | | Net Cash (Used in) Provided by Financing Activities | | | (26,193 | ) | | | 18,704 | | | | 19,705 | | | Effect of Exchange Rates on Cash and Cash Equivalents | | | 806 | | | | 744 | | | | (15 | ) | | Net Increase (Decrease) Increase in Cash and Cash Equivalents | | | 9,667 | | | | (16,432 | ) | | | 6,416 | | | Cash and Cash Equivalents, Beginning of Year | | | 10,271 | | | | 26,703 | | | | 20,287 | | | Cash and Cash Equivalents, End of Year | | $ | 19,938 | | | $ | 10,271 | | | $ | 26,703 | | Supplemental disclosure of non-cash operating and financing activities:
| | | | | | | | | | | | | | Financed Insurance Premiums | | $ | 1,346 | | | $ | — | | | | — | | Supplemental disclosure of non-cash investing and financing activities:
| | | | | | | | | | | | | | Borrowing on Capital Lease Obligation to Acquire Equipment | | $ | — | | | $ | 351 | | | $ | — | |
See accompanying notes to consolidated financial statementsstatements.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts) Note 1. Summary of Significant Accounting Policies Nature of Business Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hardwoodhard-surface flooring, and hardwoodhard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, water-resistant vinyl plank and wood-look ceramicporcelain tile flooring direct to the consumer. The Company also features the renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlay,underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to certain of its customers. The Company primarily sells primarily to homeowners or to contractors on behalf of homeowners through a network of 393 store locations in primary or secondary metropolitan areas. The Company’s stores spanned 4647 states in the United States (“U.S.”) and included eight stores in Canada at December 31, 2017.2020. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its callcustomer relationship center in Toano,Richmond, Virginia, and its website,digital platform, www.lumberliquidators.comLLFlooring.com. The Company finishes the majority of the Bellawood products on its finishing lines in Toano, Virginia, which along with the call center, corporate offices, and a distribution center, represent the “Corporate Headquarters.” Organization and Basis of Financial Statement Presentation The consolidated financial statements of Lumber Liquidators Holdings, Inc., a Delaware corporation, include the accounts of its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation. In 2014, the Company entered into an arrangement to begin to vertically integrate its domestic hardwood supply to feed its finishing lines. During 2015, the Company decided to discontinue certain of these vertical integration initiatives, which were previously consolidated as a variable interest entity, and terminated its prior arrangement. As a result, the Company recorded a charge of $1,457 in cost of sales in its consolidated statements of operations upon deconsolidation of the variable interest entity. The charge was measured as the difference between the fair value of the assets received upon termination and the carrying value of the related net assets.
Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During 2018, the Company recognized significant liabilities related to various legal and regulatory matters. While the payment of these liabilities in 2020, 2019, and 2018 has had, and is expected to have, a material adverse impact on the Company’s liquidity and cash flow from operations, the Company estimates that it has sufficient liquidity through amounts available under its Revolving Credit Facility and forecasted cash flows from operations to fund its working capital, including these legal and regulatory liabilities. The Company prepares its forecasted cash flow and liquidity estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual resultsfuture cash flows could differ from thosethese estimates. Cash and Cash Equivalents The Company had cash and cash equivalents of $19,938$170 million and $10,271$9 million at December 31, 20172020 and 2016,2019, respectively. The Company maintained a high balance at the end of 2020 to provide financial flexibility during the COVID-19 uncertainty. The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents, of which there was zerowere 0 at December 31, 20172020 and 2016,2019, respectively. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash equivalents totaled $13,332 $7.9 millionand $9,609$6.5 million at December 31, 20172020 and 2016,2019, respectively. Credit Programs Credit is offered to the Company’s customers through a proprietary credit card, underwritten by a third-party financial institution and generally at no recourse to the Company. A credit line is offered to the
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
Company’s professional customers through the Lumber Liquidators Commercial Credit Program. This commercial credit program is underwritten by a third-party financial institution, generally with no recourse to the Company. As part of the credit program, the Company’s customers may tender their Lumber Liquidators credit card to receive installation services. As of December 31, 2017, we2020, the Company utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of ourits flooring products by third-party independent contractors in 391all of ourits stores. In our remaining stores, installation services are provided through a national arrangement with a third-party. Fair Value of Financial Instruments The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The fair value of the Company’s long-term debt was approximately $106 million at December 31, 2020 assuming the current debt levels remain outstanding until maturity. The Company estimates the fair value of its long-term debt using Level 3 inputs which are based upon the current interest rates available to the Company for debt of similar terms and maturities. The carrying amount of obligations under our revolving credit facilityits Credit Agreement approximates fair value due to the variable rate of interest. The fair value of the revolving credit facility is classified as Level 1 as defined in the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) fair value hierarchy.interest at December 31, 2019. During 2017, certain non-financial assets, including property and equipment, have been written down and measured in the consolidated financial statements at fair value. Fair value was based on expected future cash flows using Level 2 inputs under the fair value hierarchy. During 2015, certain non-financial assets, including property and equipment, were written down and measured in the consolidated financial statements at fair value. Fair value was based on expected future cash flows using Level 3 inputs under the fair value hierarchy.
Merchandise InventoriesThe Company values merchandise inventories at the lower of cost andor net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form. The Company addsrelies on a select group of international suppliers to provide imported flooring products that meet the Company’s specifications. The Company is subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing, including due to the COVID-19 pandemic. While the Company continues to be uncertain as to the full impact of COVID-19 to the supply chain, the Company is executing contingency plans to minimize anticipated and potential disruptions to supply chain, domestic distribution centers and store operations. The reduction in inventory as of December 31, 2020 compared to December 31, 2019 was primarily driven by managing our inventory purchases as a direct result of COVID-19, followed by supply chain disruption on replenishment and strong second half sales that kept inventory below our targeted level for year end. Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. Prior to the sale of the finishing line equipment in 2018, the Company would add the finish to, and boxes,box, various species of unfinished product, to produce certain proprietary products, primarily Bellawood, at its finishing facility. TheseBellawood. Any finishing and boxing costs arewere included in the average unit cost of related merchandise inventory. TheIn addition, the Company maintains an inventory reserve for loss or obsolescence based on historical results and current sales trends. This reserve was $5.6$6.7 million and $7.1$6.9 million at December 31, 20172020 and 2016,2019, respectively. During the year ended December 31, 2015, the Company recorded inventory impairment charges
Included in merchandise inventories are tariff related to its laminate flooring sourcedcosts, including Section 301 tariffs on certain products imported from China in connectionrecent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time. The Company has deployed strategies to mitigate tariffs and improve gross margin, including alternative country sourcing, partnering with changescurrent vendors to lower costs and introduce new products, and adjusting its pricing. The following chart provides a timeline and tariff levels for the key events related to Section 301 Tariffs. | | | | | | | Section 301 tariff | | Corresponding approximate | Event | Timing | level on imports | Tariff level on | percentage of Company's | | | from China | Subset Products | merchandise subject to tariff | Imposition of Tariffs | September 2018 | 10% | 10% then 0%1 | 48% | Increase in Tariffs | June 2019 | 25% | 25% then 0%1 | 44% | Retroactive Exemption on Subset Products1 | November 2019 | 25% | 0% | 10% | Exemption Not Renewed and Tariffs Re-imposed on Subset Products | August 2020 | 25% | 25% | 32% | | December 31, 2020 | 25% | 25% | 34% |
1 On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the executive management teamSection 301 Tariffs section above bringing the rate to 0%. The Company continues to monitor market pricing and basedpromotional strategies to inform and guide its decisions. The Company has recorded a $4.1 million and $27 million receivable as of December 31, 2020 and 2019, respectively, related to the retroactive exclusion tariffs in the caption “Tariff Recovery Receivable” on the evaluation of the alternatives for disposal, and it was determined that it would not sell the inventory of laminate flooring sourced from China in its stores. As a result of that decision, theconsolidated balance sheets. The Company recorded a chargeexpects to reducereceive the remaining carrying value of this laminate flooring and related moldings to its net realizable value of zero. The Company recorded total charges related to laminate flooring sourced from China of $22.5 million in cost of sales for the year ended December 31, 2015 in the accompanying consolidated statements of operations. The Company disposed of most of this flooring in the fourth quarter of 2017 at a cost of $1.7 million.payments during 2021. During the year ended December 31, 2015, the Company determined that it would refocus on its core business and it would not pursue an expansion into the tile flooring business in the near term. As a result, the Company recorded a lower of cost or market adjustment of $3.7 million for certain tile flooring and related accessories, which is recorded in cost of sales for the year ended December 31, 2015 in the accompanying consolidated statements of operations.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
Impairment of Long-Lived AssetsThe Company evaluates potential impairment losses on long-lived assets and right-of-use assets used in operations when events and circumstances indicate that the assets may be impaired, and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. If impairment exists and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets, an impairment loss is recorded based on the difference between the carrying value and fair value of the assets. The Company recorded a $0.9 million impairment on operating lease right-of-use assets in 2020 in conjunction with the store closures described in Note 11. In the third quarter of 2017,During 2018, the Company determined thatdecided to exit the carrying valuefinishing business and entered into an agreement to sell this equipment to a third party, which altered the Company’s expectations of future cash flows from these long-lived assets. As a result, the Company tested certain long-lived assets that had once been part of a discontinued vertical integration strategy was above their fair value,for impairment and recorded ana $1.8 million impairment charge of $1.5 million in within selling, general and administrative (“SG&A&A”) expenses in theits accompanying consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under the fair value hierarchy)ASC 820) of the assets and the carrying value of the related net assets based on athe contract to sell to a third party.
No impairment charges were recognized in 2016.
In the third quarter of 2015, During 2019, the Company finalizedreceived $0.9 million in connection with this transaction and had $0.1 million in assets held-for-sale included in Other Current Assets on the terminationConsolidated Balance Sheet as of its agreement relating to certain vertical integration initiatives which changed the Company’s expectations of future cash flows from related long-lived assets. As a result,December 31, 2019. During 2020, the Company tested certain long-lived assets for impairment. The Company recorded a $3received $0.1 million impairment charge within selling, generalin connection with this transaction and administrative (“SG&A”) expenses. The impairment charge was measured under an income approach utilizing forecasted discounted cash flows. Fair value was based on expected future cash flows using Level 3 inputs under the fair value hierarchy. The most significant unobservable input used in the fair value analysis relates to the estimated sales price of the long-lived assets.
In the second quarter of 2015, the Company concluded that its decision not to pursue an expansion into the tile flooring business in the near term was a triggering event requiring assessment of recoverability for certain of its long-lived assets. As a result, the Company tested the long-lived assets for impairmenthad 0 balance remaining related to its store locations selling a significant assortmentit on the Consolidated Balance Sheet as of tile flooring. The Company recorded a $1.4 million impairment charge, which is recorded within SG&A expenses for the year ended December 31, 3015 in the accompanying consolidated statements of income. The impairment charge was measured under an income approach utilizing forecasted discounted cash flows. Fair value was based on expected future cash flows using Level 3 inputs under fair value hierarchy. The most significant unobservable input used in the fair value analysis relates to the estimated sales price of the long-lived assets.2020.
Goodwill and Other Indefinite-Lived Intangibles Goodwill represents the costs in excess of the fair value of net assets acquired associated with acquisitions by the Company. Other assets include $0.8 million for an indefinite-lived intangible asset for the phone number 1-800-HARDWOOD and related internet domain names. The Company evaluates these assetsgoodwill for impairment on an annual basis, or whenever events or changes in circumstance indicate that the asset carrying value exceeds its fair value. Based on the analysis performed, the Company has concluded that no0 impairment in the value of these assetsgoodwill has occurred. Self-Insurance The Company is self-insured for certain employee health benefit claims and for certain workers’ compensation claims. The Company estimates a liability for aggregate losses below stop-loss coverage limits based on estimates of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical and industry trends and economic conditions. This liability could
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31, 20172020 and 2016,2019, the Company had accruals of $2.1$2.9 million and $2.5 million, respectively, related to estimated claims was included in other current liabilities. Recognition of Net Sales The Company recognizes net salesgenerates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for products purchased atits customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the timecustomer’s invoice(s) and the customer takes possessionoften purchases flooring merchandise without purchasing installation or delivery services. Sales occur through a network of 410 stores, which spanned 47 states at December 31, 2020. In addition, both the merchandise. Servicemerchandise and services can be ordered through a call center and from the Company’s digital platform, LLFlooring.com. The Company’s agreements with its customers are of short duration (less than a year), and as such the Company has elected not to disclose revenue primarily installation revenue and freight charges for in-home delivery, is includedpartially satisfied contracts that will be completed in net sales and recognized when the service has been rendered.days following the end of a period as permitted by GAAP. The Company reports salesits revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, and net of an allowance for anticipated sales returnsconsistent with past practice. Revenue is based on historicalconsideration specified in a contract with a customer and currentexcludes any sales trendsincentives from vendors and experience.amounts collected on behalf of third parties. The sales returns allowanceCompany recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing service for a customer. Revenues from installation and related changes were not significant for 2017, 2016freight services are recognized when the delivery is made or 2015. In total, we offer more than 400 different flooring product stock-keeping units; however, no single flooring product represented more than 2%the installation is complete, which approximates the recognition of our sales mix. By major product category, our sales mix was as follows:
| | | | | | | | | | | | | | | 2017 | | 2016 | | 2015 | | Solid and Engineered Hardwood | | $ | 358,379 | | | | 35 | % | | $ | 318,397 | | | | 33 | % | | $ | 378,501 | | | | 38 | % | | Bamboo and Cork | | | 138,827 | | | | 13 | % | | | 137,801 | | | | 14 | % | | | 153,512 | | | | 16 | % | | Vinyl Plank | | | 94,838 | | | | 9 | % | | | 85,614 | | | | 9 | % | | | 48,506 | | | | 5 | % | | Laminate | | | 132,654 | | | | 13 | % | | | 149,745 | | | | 16 | % | | | 153,722 | | | | 16 | % | | Moldings and Accessories and Other | | | 213,311 | | | | 21 | % | | | 204,173 | | | | 21 | % | | | 203,902 | | | | 21 | % | | Installation and Delivery Services | | | 90,924 | | | | 9 | % | | | 64,858 | | | | 7 | % | | | 40,633 | | | | 4 | % | | Total | | $ | 1,028,933 | | | | 100 | % | | $ | 960,588 | | | | 100 | % | | $ | 978,776 | | | | 100 | % |
revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when purchasingordering merchandise inventories not regularly carried in a given store location or not currently in stock. These deposits are includedIn addition, the Company generally does not extend credit to its customers with payment due in customer deposits and store credits untilfull at the time the customer takes possession of merchandise or when the merchandise. Installationservice is provided. Customer payments and freightdeposits received in advance of the customer taking possession of the merchandise or receiving the services are requiredrecorded as deferred revenues in the accompanying consolidated balance sheet caption “Customer Deposits and Store Credits”. The following table shows the activity in this account for the periods noted: | | | | | | | | | | Year Ended December 31, | | 2020 | | 2019 | | 2018 | Customer Deposits and Store Credits, Beginning Balance | $ | (41,571) | | $ | (40,332) | | $ | (38,546) | New Deposits | | (1,191,673) | | | (1,163,691) | | | (1,155,019) | Recognition of Revenue | | 1,097,702 | | | 1,092,602 | | | 1,084,636 | Sales Tax included in Customer Deposits | | 68,681 | | | 67,029 | | | 67,125 | Other | | 5,472 | | | 2,821 | | | 1,472 | Customer Deposits and Store Credits, Ending Balance | $ | (61,389) | | $ | (41,571) | | $ | (40,332) |
Subject to be paidthe Company’s policy, return of unopened merchandise is generally accepted for 90 days, subject to the discretion of the store manager. The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics. The Company reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the consolidated balance sheet. The Company continues to estimate the amount of returns based on the historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in advance (unless prohibited by law).the “Other Current Assets” caption of the accompanying consolidated balance sheet. This amount was $1.3 million and $1.2 million at December 31, 2020 and 2019, respectively. The Company recognizes sales commissions as incurred since the amortization period is less than one year. In total, the Company offers hundreds of different flooring products; however, no single flooring product represented a significant portion of its sales mix. By major product category, the Company’s sales mix was as follows: | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | | 2020 | | 2019 | | 2018 | | Manufactured Products 1 | | $ | 505,333 | | 46 | % | $ | 452,914 | | 41 | % | $ | 392,512 | | 36 | % | Solid and Engineered Hardwood | | | 299,012 | | 27 | % | | 319,582 | | 29 | % | | 367,026 | | 34 | % | Moldings and Accessories and Other | | | 170,484 | | 16 | % | | 183,545 | | 17 | % | | 196,411 | | 18 | % | Installation and Delivery Services | | | 122,873 | | 11 | % | | 136,561 | | 13 | % | | 128,687 | | 12 | % | Total | | $ | 1,097,702 | | 100 | % | $ | 1,092,602 | | 100 | % | $ | 1,084,636 | | 100 | % |
1 | Includes laminate, vinyl, engineered vinyl plank and porcelain tile. |
Cost of Sales Cost of sales includes the cost of products sold, including tariffs, the product sold, cost of installation services, and transportation costs from vendorvendors to the Company’s distribution centers or store locations,locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, reduced bywhich are net of vendor allowances. The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This reserve was $1.6$1.1 million and $1.8$0.9 million at December 31, 20172020 and 2016,2019, respectively. The Company is able to seekseeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales. Accrual for Air Quality Emissions Screening Test Costs
The Company offers a free indoor air quality testing program for customers who purchased laminate flooring sourced from China during the period from February 22, 2012 to February 27, 2015. The Company established a reserve to provide for the estimated future expenses required to support the program. Reserve estimates are based on management’s judgment, considering such factors as cost per air quality testing request, recent historical experience, and the anticipated number of future requests for the duration of the program. Management reviews and adjusts these estimates, if necessary, on a quarterly basis based on any differences in actual and expected program cost experience.
During the second quarter of 2017, the Company reduced its estimate of the number of test kit requests based on its experience, and reduced its estimate of the administrative costs of the Air Quality Testing Program. The revised estimates were in part prompted by the CPSC’s July 2017 decision to close this case with the Company and terminate its monitoring activity of the Air Quality Testing Program. The Company will continue to offer tests kits to qualifying customers, but the lower total estimated future costs of the Air Quality Testing Program resulted in a reduction in the reserve and the corresponding offset to cost of sales of $1 million. At December 31, 2017, the Company’s estimate of its future costs for the Air Quality Testing Program through June 30, 2018 is approximately $0.1 million. Beyond that time the Company expects the costs of the Air Quality Testing Program, if any, to be negligible.
Advertising CostsAdvertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances, were $76,586, $80,079$62 million, $75 million and $77,455$74 million in 2017, 20162020, 2019 and 2015,2018, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance are included in prepaid expenses and totaled $1,077 and $747$0.4 million at December 31, 20172020 and 2016, respectively.2019. Store Opening Costs Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support. Other Vendor Consideration Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as an offset to SG&A expenses when earned. Depreciation and Amortization Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods for which renewal is not reasonably assured,certain, the Company uses the original lease term, excluding optional renewal periods, to
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
determine the appropriate estimated useful lives. Capitalized software costs are capitalized from the time that technological feasibility is established until the software is ready for use. The estimated useful lives are generally as follows: | | | |
| Years | Buildings and Building Improvements | | | 7 to 40 | | Property and Equipment | | | 3 to 15 | 10 | Computer Software and Hardware | | | 3 to 10 | | Leasehold Improvements | | | 1 to 15 | 10 |
Operating
Leases The Company hasdetermines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities on the consolidated balance sheet. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also is adjusted for its stores, Corporate Headquarters,any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of its distribution facilities, supplemental office facilities and certain equipment. The lease agreements for certain stores and distribution facilities contain rent escalation clauses, rent holidays and tenant improvement allowances. For scheduled rent escalation clauses during the lease terms or for rental payments commencing at a date other than the date of initial occupancy,exercise, the Company recordsincludes the renewal period in its lease term. Many of the Company’s leases include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Lease expense for minimum rental expenses in SG&A expenseslease payments is recognized on a straight-line basis over the termsterm of the leases. agreement. The difference between the rental expense and rent paid is recorded as deferred rentCompany made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheets. For tenant improvement allowances,sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement. In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions obtained as a result of the COVID-19 pandemic. Under existing lease guidance, the Company records deferred rentwould have to determine, on a lease-by-lease basis, if a lease concession obtained was a result of a new arrangement reached with the lessor (treated within the lease modification accounting framework) or if a lease concession obtained was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows lessees, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply this practical expedient for the period beginning as of April 1, 2020 for those agreements where total payments under the modified lease are substantially the same or less than the original agreement. Included in “Operating Lease Liabilities - Current” on the consolidated balance sheets and amortizessheet is the remaining $2.9 million liability as of December 31, 2020 related to deferred payments (net of repayments) as a result of COVID-19 rent overconcessions, as well as an additional remaining $0.1 million included in “Operating Lease Liabilities - Long-Term.” The deferred payments will be made in accordance with each concession agreement for periods up the termsremainder of the leases as reductions to rental expense.lease term. Stock-Based Compensation The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with FASB ASC 718. The Company may issue incentive awards, including performance-based awards, in the form of stock options, restricted shares and other equity awards to employees, non-employee directors and other service providers. The Company recognizes expense for the majority of its stock-based compensation based on the fair value of the awards that are granted. For awards granted to non-employee directors, expense is recognized based on the fair value of the award at the end of a reporting period. For performance-based awards granted to certain members of senior management, the Company recognizes expense after assessing the probability of the achievement of certain financial metrics on a periodic basis. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Measured compensation cost is recognized ratably over the requisite service period of the entire related stock-based compensation award. Business Interruption Insurance Proceeds In August 2019, the Company experienced a network security incident caused by malware that prevented access to several of the Company’s information technology systems and data. In 2020 the company recorded $2.5 million from the final settlement of the business interruption insurance claim in SG&A during the third quarter of 2020. Foreign Currency Translation The Company’s former Canadian operations useused the Canadian dollar as the functional currency. Assets and liabilities arewere translated at exchange rates in effect at the balance sheet date. Revenues and expenses arewere translated at the average monthly exchange rates during the year. Resulting translation adjustments arehave been recorded as a component of accumulated other comprehensive income on the consolidated balance sheets. As discussed in Note 11 to the consolidated financial statements, we closed all our stores in Canada in December 2020. The Company realized expense of $0.8 million for the year ending December 31, 2020 for the reclassification of the remaining cumulative translation adjustments to earnings that were previously included in Other Comprehensive Loss on its consolidated balance sheet. Income Taxes Income taxes are accounted for in accordance with FASB ASC 740 (“ASC 740”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are reflected on the consolidated balance sheets as deferred income taxes and measured using the effective tax rate expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company takes into account various factors, including the nature, frequency and severity of current and cumulative losses, expected level of future taxable income, the duration of statutory carryforward periods and tax planning alternatives. In future periods, any valuation allowance will be re-evaluated in accordance with ASC 740, and a change, if required, will be recorded through income tax expense in the period such determination is made.
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense. Net Income per Common Share Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive. Recent Accounting Pronouncements
In November 2015, the FASB issued ASU 2015-17, which amends ASC Topic 740, Balance Sheet Classification of Deferred Taxes. In summary, the core principle of Topic 740 is that an entity classifies both current and noncurrent deferred income tax assets and liabilities in the noncurrent section of the statement of financial position. The amendments in ASU 2015-17 became effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The Company adopted this new guidance during the first quarter of 2017 on a retrospective basis, and accordingly reclassified approximately $6,090 of current deferred tax assets to long-term deferred tax liabilities, such that the December 31, 2016 balance sheet reflects a noncurrent deferred tax liability of $3,798 and a current deferred tax asset of zero. The adoption of this guidance had no impact on the Company’s results of operations or cash flows.
In March 2016, the FASB issued Accounting Standards Update No. 2016-09, which amends ASC Topic 718,Compensation — Stock Compensation, which simplifies the accounting for employee share-based payments. The new standard requires the immediate recognition of all excess tax benefits and deficiencies in the income statement (rather than equity), and was adopted in the first quarter of 2017 on a prospective basis. The standard also requires classification of excess tax benefits as an operating activity as opposed to a financing activity in the statements of cash flows. The Company applied this amendment of the standard on a retrospective basis starting in the first quarter of 2017. At December 31, 2016, the Company presented cash flows from excess tax benefits of approximately $54 within financing activities. The standard also clarifies that all cash payments made to taxing authorities on the employees’ behalf for shares withheld should be presented as financing activities on the statements of cash flows, which was consistent with the Company’s existing practice. Finally, the standard provides for a policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur. The Company continues to include the impact of estimated forfeitures when determining share-based compensation expense.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which creates ASC Topic 606,Revenue from Contracts with Customers, and supersedes the revenue recognition requirements in Topic 605,Revenue Recognition, including most industry-specific revenue recognition guidance throughout the Industry Topics of the Codification. In addition, ASU 2014-09 supersedes the cost guidance in Subtopic 605-35,Revenue Recognition — Construction-Type and Production-Type Contracts, and creates new Subtopic 340-40,Other Assets and Deferred Costs — Contracts with Customers. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, FASB issued ASU 2015-14,Revenue from Contracts with
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 1. Summary of Significant Accounting Policies – (continued)
Customers (Topic 606): Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 to reporting periods beginning after December 15, 2017. The Company adopted this ASU on January 1, 2018 using the modified retrospective approach. There was no need to adjust Retained Earnings. The Company established a cross-functional team in 2016 to review its current accounting policies and practices, assess the effect of the standard on its revenue contracts and identify potential differences. In addition, the Company has refined its business processes and controls to support recognition and disclosure under the new standard. The Company has concluded that (i) its merchandise and installation sales order arrangements each independently meet the definition of a contract when each arrangement is delivered to its customers; (ii) the transaction price as impacted by sales returns and promotional activities will be similar to what it has recognized in the past, including financing arrangements it offers to its customers; (iii) sales commission costs it pays to its employees will be recognized in a fashion similar to its current practice; and (iv) installation sales will continue to be recognized on a gross basis.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), which creates ASC Topic 842,Leases, and supersedes the lease accounting requirements in Topic 840,Leases. In summary, Topic 842 requires organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The amendments in ASU 2016-02 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Therefore, the amendments in ASU 2016-02 will become effective for the Company at the beginning of its 2019 fiscal year. The Company is currently assessing the impact of implementing the new guidance on its consolidated financial statements including educating employees of the breadth of the new standard, and having providers provide demonstrations of software capabilities and requirements, and evaluation contracts in light of the new standard. When implemented, the standard is expected to have a material impact as operating leases discussed in Note 5 will be recognized on the Company’s consolidated balance sheet.
Note 2. Property and Equipment Property and equipment consisted of: | | | | | | | | | December 31, | | | 2020 | | 2019 | Land | | $ | 4,937 | | $ | 4,937 | Building | | | 44,527 | | | 44,395 | Property and Equipment | | | 58,371 | | | 57,047 | Computer Software and Hardware | | | 61,581 | | | 51,437 | Leasehold Improvement | | | 55,311 | | | 54,139 | Assets under Construction | | | 1,508 | | | 1,549 | | | | 226,235 | | | 213,504 | Less: Accumulated Depreciation and Amortization | | | 128,678 | | | 114,771 | Property and Equipment, net | | $ | 97,557 | | $ | 98,733 |
| | | | | | | December 31, | | | | 2017 | | 2016 | | Land | | $ | 4,937 | | | $ | 5,951 | | | Building | | | 44,299 | | | | 44,283 | | | Property and Equipment | | | 60,337 | | | | 61,358 | | | Computer Software and Hardware | | | 50,415 | | | | 47,637 | | | Leasehold Improvement | | | 40,277 | | | | 38,361 | | | Assets under Construction | | | 596 | | | | 1,102 | | | | | | 200,861 | | | | 198,692 | | | Less: Accumulated Depreciation and Amortization | | | 100,370 | | | | 83,688 | | | Property and Equipment, net | | $ | 100,491 | | | $ | 115,004 | |
As of December 31, 20172020 and 2016,2019, the Company had cumulatively capitalized $37,905 $48 millionand $35,650$42 million of computer software costs, respectively. Amortization expense related to these assets was $3,875, $3,604$4.4 million, $4.6 million and $3,501$4.3 million for 2017, 20162020, 2019 and 2015,2018, respectively.
TABLE OF CONTENTSLumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 3. Other Liabilities Other long-term liabilities consisted of: | | | | | | | | | December 31, | | | 2020 | | 2019 | Antidumping and Countervailing Duties Accrual, Including Accrued Interest | | $ | 10,136 | | $ | 12,795 | Deferred Payroll Taxes | | | 2,566 | | | — | Other | | | 591 | | | 962 | Other Long Term Liabilities | | $ | 13,293 | | $ | 13,757 |
| | | | | | | December 31, | | | | 2017 | | 2016 | | Antidumping and Countervailing Accrual | | $ | 10,372 | | | $ | 10,372 | | | Deferred Rent | | | 5,150 | | | | 5,858 | | | Lease Incentive Obligation | | | 2,872 | | | | 3,038 | | | Other | | | 841 | | | | 1,874 | | | Other Long Term Liabilities | | $ | 19,235 | | | $ | 21,142 | |
As a result of the CARES Act, the Company has Deferred Payroll Taxes of approximately $2.6 million that are to be paid by the end of 2021, with the remaining approximately $2.6 million to be paid by the end of 2022. Note 4. Revolving Credit Agreement On August 17, 2016, theThe Company Lumber Liquidators, Inc. (“LLI”) and Lumber Liquidators Services, LLC (“LL Services” and collectively with LLI, the “Borrowers”), entered intohas a Third Amended and Restated Credit Agreementcredit agreement (the “Credit Agreement”) with Bank of America, N.A. (the “Bank”) and Wells Fargo Bank, N.A. (“Wells Fargo” and, collectively withNational Association (the “Lenders”). On April 17, 2020, the Bank,Company entered into a First Amendment to the “Lenders”Credit Agreement (the “Amendment”) with the Bank as administrative agent and collateral agent (in this capacity,Lenders. The execution of the “Agent”) and Wells Fargo as syndication agent. TheAmendment, among other things, temporarily increased the maximum amount of borrowings under the revolving credit agreementRevolving Credit Facility (the “Revolving Credit Facility”) is $150from $175 million (butto $212.5 million until August 30, 2020, subject to the borrowing base asbases described inbelow.
The total size of the Credit Agreement). The Borrowers also haveAgreement temporarily increased to $237.5 million, inclusive of the option to increase thefirst in-last out $25 million term loan (the “FILO Term Loan”). The Revolving Credit Facility up to a maximum total amount of $200 million subject to the satisfaction of the conditions to such increase specified in the Credit Agreement. At December 31, 2017, the Company had $126 million available to borrow under the Revolving Credit Facility, which was net of $3.7 million in outstanding letters of credit, $15 million in outstanding borrowings and certain limitations based on the borrowing base and the fixed charge coverage ratio covenant.
The Credit Agreement maturesFILO Term Loan mature on August 17, 2021, is guaranteed by the CompanyMarch 29, 2024 and its other domestic subsidiaries other than LLI and LL Services andare secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and accountscredit card receivables, and the Company’s East Coast distribution center located in Sandston, Virginia. Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.
The Revolving Credit Facility has no mandated payment provisions and a fee of 0.25% per annum onAmendment permanently increased the average daily unused portion, paid quarterly in arrears. Loans outstanding under the Revolving Credit Facility can bear interest based on the Base Rate or themargin for LIBOR Rate each asLoans (as defined in the Credit Agreement. Interest on BaseAmendment) to (i) 2.50% to 3.00% over the applicable LIBOR Rate loans is charged at varying per annum rates computed(as defined in the Amendment) with respect to Revolving Loans (as defined in the Amendment) and (ii) 3.75% to 4.50% over the applicable LIBOR Rate with respect to FILO Term Loans (as defined in the Amendment), in each case (for one, two, three or six month interest periods as selected by applying a margin ranging from 0.50% to 0.75% (dependentthe Company) depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter) overquarter. The Amendment also permanently increased the unused commitment fee of 0.25% per annum to 0.50% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. As of December 31, 2020, the Company’s Revolving Credit Facility carried an average interest rate of 3.75% and the FILO Term Loan carried an interest rate of 5.125%. Prior to the Amendment, loans outstanding under the Credit Agreement bore interest based on the LIBOR Rate (as defined in the Credit Agreement) or the Base Rate.Rate (as defined in the Credit Agreement). Interest on LIBORBase Rate loans and fees for standby letters of credit arewas charged at varying per annum rates computed by applying a margin ranging from 1.50%(i) 0.25% to 1.75% (dependent0.75% over the Base Rate with respect to revolving loans and (ii) 1.25% to 2.00% over the Base Rate with respect to the FILO Term Loan, in each case depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter)quarter. Interest on LIBOR Rate loans and fees for standby letters of credit were charged at varying per annum rates computed by applying a margin ranging from (i) 1.25% to 1.75% over the applicable LIBOR rate for one, two, threeRate with respect to revolving loans and (ii) 2.25% to 3.00% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on the Company’s’ average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter. As of December 31, 2020, a total of $76 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan. The Company also had $4 million in letters of credit which factor into its remaining availability. As of December 31, 2020, there was $44 million of availability under the Revolving Credit Facility and $170 million of cash and cash equivalents on the consolidated balance sheet. The Revolving Credit Facility is available to the Company up to the lesser of (1) $175 million (had been temporarily increased to $212.5 million until August 30, 2020 under the Amendment) or six month interest periods as selected(2) a revolving borrowing base equal to the sum of specified percentages of the Company’s eligible inventory (including eligible in-transit inventory), eligible credit card receivables, and eligible owned real estate, less certain reserves, all of which are defined by the Company.terms of the Credit Agreement (the “Revolving Borrowing Base”). If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), the amount of such excess reduces availability under the Revolving Borrowing Base. The Company retained an option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement. The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective in the event that the Company’s excess borrowingonly when specified availability under the Revolving Credit Facility falls below the greater of $15$17.5 million or 10% of the maximum revolver amount. This covenant was met at December 31, 2017. It was not met at December 31, 2016.Combined Loan Cap (as defined in the Credit Agreement). TABLE OF CONTENTSTable of Contents
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 5. Leases The Company has operating leases for its stores, Corporate Headquarters and West Coastcorporate headquarters in Richmond, Virginia, its distribution center on the west coast, supplemental office facilities and certain equipment. The store location leases are operating leases and generally have five-year base periods with one1 or more five-year renewal periods. The Corporate Headquarters and thecorporate headquarters in Richmond, Virginia has base terms running through December 31, 2029. The supplemental office facility in Richmond, Virginia have operating leases withhas base terms running through December 31, 2019.2023. The West Coast distribution center on the west coast has an operating lease with a base termterms running through October 31, 2024. As of December 31, 2016 and 2015, the Company leased the Corporate Headquarters, which includes a store location and 29 and 30 of its locations, representing 7.8% and 8.3% of the total number of store leases in operation, respectively, from the Company’s founder. During 2016 and 2015, the Company also leased a warehouse from its founder, which was subsequently vacated in December 2017. Effective December 31, 2016, upon the departure of the Company’s founder from the board of directors, these entities no longer meet the criteria of a related party. Rent expense to this related party was $3.4 million and $3.1 million in 2016 and 2015, respectively. Total rent expense was $32.5$37 million, $30.3$37 million and $28.8$34 million in 2017, 20162020, 2019 and 2015,2018, respectively.
The cost components of the Company’s operating leases recorded in SG&A on the consolidated statement of operations were as follows for the periods shown: | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 | | Store Leases | | Other Leases | | Total | | Store Leases | | Other Leases | | Total | | | | | | | | | | | | | | | | | | | Operating lease costs | $ | 33,652 | | $ | 3,905 | | $ | 37,557 | | $ | 32,759 | | $ | 4,078 | | $ | 36,837 | Variable lease costs | | 8,604 | | | 771 | | | 9,375 | | | 8,381 | | | 1,007 | | | 9,388 | Total | $ | 42,256 | | $ | 4,676 | | $ | 46,932 | | $ | 41,140 | | $ | 5,085 | | $ | 46,225 |
Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities, which are paid as incurred. Other information related to leases were as follows: | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, 2020 | | | Year Ended December 31, 2019 | | | Store Leases | | Other Leases | | Total | | | Store Leases | | Other Leases | | Total | | | | | | | | | | | | | | | | | | | | | | Supplemental Cash Flows Information | | | | | | | | | | | | | | | | | | | | Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | | | | | | | | | | | | | | Operating cash flows from operating leases | $ | 31,284 | | $ | 4,199 | | $ | 35,483 | | | $ | 33,590 | | $ | 4,252 | | $ | 37,842 | | | | | | | | | | | | | | | | | | | | | | Right-of-use assets obtained or modified in exchange for operating lease obligations | $ | 16,363 | | $ | 1,124 | | $ | 17,487 | | | $ | 25,745 | | $ | 9,828 | | $ | 35,573 | | | | | | | | | | | | | | | | | | | | | | Weighted Average Remaining Lease Term (years) | | 4.66 | | | 6.63 | | | 4.99 | | | | 4.81 | | | 7.60 | | | 5.28 | | | | | | | | | | | | | | | | | | | | | | Weighted Average Discount Rate | | 5.7 | % | | 5.3 | % | | 5.6 | % | | | 5.8 | % | | 5.5 | % | | 5.7 | % |
At December 31, 2017,2020, the future minimum rental payments under non-cancellable operating leases were as follows: | | | | | | | | | | | | Operating Leases | | | | | | | | Total | | | | | | Other | | Operating | | | Store Leases | | Leases | | Leases | 2021 | | $ | 34,579 | | | 4,221 | | $ | 38,800 | 2022 | | | 26,055 | | | 4,104 | | | 30,159 | 2023 | | | 20,468 | | | 4,104 | | | 24,572 | 2024 | | | 13,861 | | | 3,593 | | | 17,454 | 2025 | | | 8,691 | | | 1,560 | | | 10,251 | Thereafter | | | 12,868 | | | 6,680 | | | 19,548 | Total minimum lease payments | | | 116,522 | | | 24,262 | | | 140,784 | Less imputed interest | | | (13,771) | | | (3,795) | | | (17,566) | Total | | $ | 102,751 | | $ | 20,467 | | $ | 123,218 |
| | | | | | | | | | | Operating Leases | | | | Headquarters
Lease | | Store Leases | | Distribution
Centers & Other
Leases | | Total
Operating
Leases | | 2018 | | $ | 1,348 | | | $ | 28,762 | | | $ | 2,820 | | | $ | 32,930 | | | 2019 | | | 1,389 | | | | 24,377 | | | | 2,418 | | | | 28,184 | | | 2020 | | | — | | | | 20,742 | | | | 2,383 | | | | 23,125 | | | 2021 | | | — | | | | 14,928 | | | | 2,097 | | | | 17,025 | | | 2022 | | | — | | | | 8,959 | | | | 2,133 | | | | 11,092 | | | Thereafter | | | — | | | | 8,758 | | | | 4,239 | | | | 12,997 | | | Total minimum lease payments | | $ | 2,737 | | | $ | 106,526 | | | $ | 16,090 | | | $ | 125,353 | |
Note 6. Stockholders’ Equity Net Income per Common Share The following table sets forth the computation of basic and diluted net income per common share: | | | | | | | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | Net Income (Loss) | | $ | 61,427 | | $ | 9,663 | | $ | (54,379) | Weighted Average Common Shares Outstanding—Basic | | | 28,830 | | | 28,689 | | | 28,571 | Effect of Dilutive Securities: | | | | | | | | | | Common Stock Equivalents | | | 417 | | | 104 | | | — | Weighted Average Common Shares Outstanding—Diluted | | | 29,247 | | | 28,793 | | | 28,571 | Net Income (Loss) per Common Share—Basic | | $ | 2.13 | | $ | 0.34 | | $ | (1.90) | Net Income (Loss) per Common Share—Diluted | | $ | 2.10 | | $ | 0.34 | | $ | (1.90) |
| | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | Net Loss | | $ | (37,823 | ) | | $ | (68,563 | ) | | $ | (56,433 | ) | | Weighted Average Common Shares Outstanding – Basic | | | 28,407 | | | | 27,284 | | | | 27,082 | | Effect of Dilutive Securities:
| | | | | | | | | | | | | | Common Stock Equivalents | | | — | | | | — | | | | — | | | Weighted Average Common Shares Outstanding – Diluted | | | 28,407 | | | | 27,284 | | | | 27,082 | | | Net Loss per Common Share – Basic | | $ | (1.33 | ) | | $ | (2.51 | ) | | $ | (2.08 | ) | | Net Loss per Common Share – Diluted | | $ | (1.33 | ) | | $ | (2.51 | ) | | $ | (2.08 | ) |
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 6. Stockholders’ Equity – (continued)
The following have been excluded from the computation of Weighted Average Common Shares Outstanding — Outstanding—Diluted because the effect would be antidilutive: | | | | | | | | | | | | | | | | As of December 31, | | | 2020 | | 2019 | | 2018 | Stock Options | | 209 | | 604 | | 643 | Restricted Shares | | 118 | | 187 | | 407 |
| | | | | | | | | As of December 31, | | | | 2017 | | 2016 | | 2015 | | Stock Options | | | 653,019 | | | | 666,538 | | | | 650,759 | | | Restricted Shares | | | 432,777 | | | | 516,072 | | | | 225,027 | |
Stock Issuance
On November 17, 2016, the Company issued 1 million shares of its common stock to a court approved settlement fund in connection with a final court approval of a definitive settlement agreement as discussed in Note 10. These shares were valued at $16.8 million based on the closing price of the Company shares of $16.76 on the settlement date. These shares have been included in the Company’s calculation of weighted average common shares outstanding from the date of issuance.
Stock Repurchase ProgramIn 2012, theThe Company’s Boardboard of Directors (“Board”)directors has authorized the repurchase of up to $100$150 million of the Company’s common stock from time to time on the open market or in privately negotiated transactions. In January 2014, the Company’s Board authorized the repurchase of up to an additional $50 million of the Company’s common stock, bringing the total authorization to $150 million and atstock. At December 31, 2015,2020, the Company had $14.7approximately $14.7 million remaining under this authorization. The Company did not0t purchase any shares under this program during the yearsthree-years ended December 31, 2017, December 31, 2016 or December 31, 2015.2020.
Note 7. Stock-Based Compensation Overview The Company has an equity incentive plan (the “Plan”) for employees, non-employee directors and other service providers from which the Company may grant stock options, restricted shares, stock appreciation rights (“SARs”) and other equity awards. The total number of shares of common stock authorized for issuance under the Plan is 6.17.8 million. As of December 31, 2017, 1.12020, 2.5 million shares of common stock were available for future grants. Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted shares on a grant by grantgrant-by-grant basis at the discretion of the Board. The Company issues new shares of common stock upon exercise of stock options and vesting of restricted shares. The Company also maintains the Lumber Liquidators Holdings, Inc. Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees until departure from the Board. A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units. Deferred stock units must be settled in common stock upon the director’s departure from the Board. There were 122,007183,851 and 131,506158,283 deferred stock units outstanding at December 31, 20172020 and 2016,2019, respectively.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 7. Stock-Based Compensation – (continued)
Stock OptionsThe following table summarizes activity related to stock options: | | | | | | | | | | | | Shares | | Weighted
Average
Exercise
Price | | Remaining
Average
Contractual
Term (Years) | | Aggregate
Intrinsic
Value | | | Balance, December 31, 2014 | | | 652,808 | | | $ | 42.81 | | | | 6.9 | | | $ | 18,113 | | | | | | | | | | | | | | | | | | | | | | | Remaining | | | | | | | | | Weighted | | Average | | Aggregate | | | | | | Average | | Contractual | | Intrinsic | | | | Shares | | Exercise Price | | Term (Years) | | Value | Balance, December 31, 2017 | | | 689,668 | | $ | 25.31 | | 7.7 | | $ | 8,530 | | Granted | | | 410,164 | | | | 25.34 | | | | | | | | | | | 215,297 | | | 20.54 | | | | | | | Exercised | | | — | | | | 0.00 | | | | | | | | | | | (43,510) | | | 17.70 | | | | | | | Forfeited | | | (370,196 | ) | | | 44.71 | | | | | | | | | | | (128,870) | | | 33.25 | | | | | | | Balance, December 31, 2015 | | | 692,776 | | | $ | 31.45 | | | | 7.7 | | | $ | 1,283 | | | Balance, December 31, 2018 | | | 732,585 | | $ | 22.97 | | 7.3 | | $ | — | Granted | | | 110,535 | | | 8.47 | | | | | | Forfeited | | | (149,657) | | | 25.16 | | | | | | Balance, December 31, 2019 | | | 693,463 | | $ | 20.18 | | 7.1 | | $ | 144 | | Granted | | | 443,147 | | | | 13.51 | | | | | | | | | | | 236,307 | | | 12.00 | | | | | | | Exercised | | | (60,781 | ) | | | 9.37 | | | | | | | | | | | (39,824) | | | 17.04 | | | | | | | Forfeited | | | (239,528 | ) | | | 27.16 | | | | | | | | | | | (335,990) | | | 18.27 | | | | | | | Balance, December 31, 2016 | | | 835,614 | | | $ | 24.86 | | | | 7.5 | | | $ | 1,167 | | | | Granted | | | 127,984 | | | | 22.09 | | | | | | | | | | | | Exercised | | | (87,955 | ) | | | 15.31 | | | | | | | | | | | | Forfeited | | | (185,975 | ) | | | 25.62 | | | | | | | | | | | | Balance, December 31, 2017 | | | 689,668 | | | $ | 25.31 | | | | 7.7 | | | $ | 8,530 | | | | Exercisable at December 31, 2017 | | | 264,916 | | | $ | 33.70 | | | | | | | $ | 2,575 | | | | Vested and expected to vest December 31, 2017 | | | 689,668 | | | $ | 25.31 | | | | | | | $ | 8,530 | | | Balance, December 31, 2020 | | | 553,956 | | $ | 18.08 | | 7.8 | | $ | 8,508 | | | | | | | | | | | | | Exercisable at December 31, 2020 | | | 217,780 | | $ | 26.31 | | | | $ | 2,450 | Vested and expected to vest December 31, 2020 | | | 553,956 | | $ | 18.08 | | | | $ | 8,508 |
The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on December 31. The intrinsic value of the stock options exercised during 2017, 20162020 and 20152018 was $828, $343$0.5 million and zero,$0.3 million, respectively. There were 0 stock options exercised during 2019. As of December 31, 2017,2020, total unrecognized compensation cost related to unvested options was approximately $2,729,$1.3 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.52.8 years. The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes-Merton option pricing model. The weighted average fair value of options granted during 2017, 20162020, 2019 and 20152018 was $11.20, $6.75$6.20, $4.32 and $11.87,$10.69, respectively. The following are the ranges ofaverage assumptions for the periods noted: | | | | | | | | | | Year Ended December 31, | | | | | 2017 | | 2016 | | 2015 | | | | | | | | | | | | | | Year Ended December 31, | | | | | 2020 | | 2019 | | 2018 | | | Expected dividend rate | | | 0% | | | | 0% | | | | 0% | | | 0 | % | 0 | % | 0 | % | | Expected stock price volatility | | | 55% | | | | 55% | | | | 50% | | | 57 | % | 55 | % | 55 | % | | Risk-free interest rate | | | 1.7% | | | | 1.3% | | | | 1.7% | | | 1.1 | % | 2.1 | % | 2.8 | % | | Expected term of options | | | 5.5 years | | | | 5.5 years | | | | 5.5 years | | | 5.5 | years | 5.5 | years | 5.5 | years |
The expected stock price volatility is based on the historical volatility of the Company’s stock price. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The expected term of the options represents the estimated period of time until exercise and is determined by considering the contractual terms, vesting schedule and expectations of future employee behavior.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 7. Stock-Based Compensation – (continued)
Restricted SharesThe following table summarizes activity related to restricted shares: | | | | | | | | Shares | | Weighted
Average Grant
Date Fair
Value | | | Nonvested, December 31, 2014 | | | 157,089 | | | $ | 49.98 | | | | | | | | | | | | | | | Weighted Average | | | | | | Grant Date Fair | | | | Shares | | Value | Nonvested, December 31, 2017 | | | 479,746 | | $ | 18.71 | | Granted | | | 386,517 | | | | 18.30 | | | 224,835 | | | 22.39 | | Released | | | (27,187 | ) | | | 55.59 | | | (137,064) | | | 18.67 | | Forfeited | | | (54,748 | ) | | | 45.93 | | | (80,305) | | | 17.98 | | Nonvested, December 31, 2015 | | | 461,671 | | | $ | 23.61 | | | Nonvested, December 31, 2018 | | | 487,212 | | $ | 20.54 | | Granted | | | 343,517 | | | | 12.41 | | | 661,784 | | | 10.35 | | Released | | | (130,523 | ) | | | 24.23 | | | (130,721) | | | 11.09 | | Forfeited | | | (88,478 | ) | | | 18.29 | | | (107,309) | | | 14.71 | | Nonvested, December 31, 2016 | | | 586,187 | | | $ | 17.71 | | | Nonvested, December 31, 2019 | | | 910,966 | | $ | 15.18 | | Granted | | | 207,196 | | | | 19.56 | | | 474,877 | | | 10.53 | | Released | | | (205,349 | ) | | | 18.31 | | | (230,696) | | | 12.85 | | Forfeited | | | (108,288 | ) | | | 15.68 | | | (283,121) | | | 13.70 | | Nonvested, December 31, 2017 | | | 479,746 | | | $ | 18.71 | | | Nonvested, December 31, 2020 | | | 872,026 | | $ | 13.75 |
The fair value of restricted shares released during 2017, 20162020, 2019 and 20152018 was $5,151, $1,617$2.0 million, $1.5 million and $941,$2.9 million, respectively. As of December 31, 2017,2020, total unrecognized compensation cost related to unvested restricted shares was approximately $3,947,$4.7 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.22.3 years. The Company granted a target of 94,591 performance-based awards with a grant date fair value of $0.9 million during 2020 and a target of 100,281 performance-based awards with a grant date fair value of $1.1 million during 2019. The 2020 performance-based awards were granted to certain members of senior management in connection with the achievement of specific key financial metrics and a relative total shareholder return multiple measured over a three-year period and also vest over a three-year period. The number of 2020 performance-based awards that will ultimately vest is contingent upon the achievement of these key financial metrics and the results of the relative total shareholder return multiple by the end of year three. The Company assesses the probability of achieving these metrics on a quarterly basis. The 2019 performance-based awards were granted to certain members of senior management in connection with the achievement of specific key financial metrics measured over a two-year period and vest over a three-year period. As of December 31, 2020 the number of performance-based awards that will ultimately vest, assuming the service period is reached, was finalized based on the achievement of specific key financial metrics. For these performance-based awards, the Company recognizes the fair value expense ratably over the performance and vesting period. There were 105,165 and 4,000 and performance-based shares forfeited during 2020 and 2019, respectively. Performance-based awards grants and forfeitures are included above in the Restricted Shares table. Stock Appreciation Rights The following table summarizes activity related to SARs: | | | | | | | | | | | | Shares | | Weighted
Average
Exercise
Price | | Remaining
Average
Contractual
Term (Years) | | Aggregate
Intrinsic
Value | | | Balance, December 31, 2014 | | | 16,227 | | | $ | 42.81 | | | | 6.9 | | | $ | 389 | | | | Granted | | | — | | | | 0.00 | | | | | | | | | | | | Forfeited | | | (170 | ) | | | 93.68 | | | | | | | | | | | | Balance, December 31, 2015 | | | 16,057 | | | $ | 47.58 | | | | 6.8 | | | $ | — | | | | Granted | | | 13,071 | | | | 15.31 | | | | | | | | | | | | Forfeited | | | (460 | ) | | | 62.87 | | | | | | | | | | | | Balance, December 31, 2016 | | | 28,668 | | | $ | 32.63 | | | | 7.5 | | | $ | 6 | | | | | | | | | | | | | | | | | | | | | | | Remaining | | | | | | | | Weighted | | Average | | Aggregate | | | | | | Average | | Contractual | | Intrinsic | | | | Shares | | Exercise Price | | Term (Years) | | Value | Balance, December 31, 2017 | | | 16,550 | | $ | 18.10 | | 8.6 | | $ | 251 | | Granted | | | 2,899 | | | | 17.39 | | | | | | | | | | | 1,738 | | | 23.31 | | | | | | | Exercised | | | (165 | ) | | | 24.35 | | | | | | | | | | | — | | | — | | | | | | | Forfeited | | | (14,852 | ) | | | 45.93 | | | | | | | | | | | (335) | | | 86.16 | | | | | | | Balance, December 31, 2017 | | | 16,550 | | | $ | 18.10 | | | | 8.6 | | | $ | 251 | | | | Exercisable at December 31, 2017 | | | 3,847 | | | $ | 25.73 | | | | 8.1 | | | $ | 53 | | | Balance, December 31, 2018 | | | 17,953 | | $ | 17.33 | | 7.8 | | $ | — | Granted | | | — | | | — | | | | | | Exercised | | | — | | | — | | | | | | Forfeited | | | (17,708) | | | 16.44 | | | | | | Balance, December 31, 2019 | | | 245 | | $ | 82.08 | | 3.4 | | $ | — | Granted | | | — | | | — | | | | | | Exercised | | | — | | | — | | | | | | Forfeited | | | — | | | — | | | | | | Balance, December 31, 2020 | | | 245 | | $ | 82.08 | | 2.4 | | $ | 0 | | | | | | | | | | | | | Exercisable at December 31, 2020 | | | 245 | | $ | 82.08 | | 2.4 | | $ | — |
The fair value method, estimated by management using the Black-Scholes-Merton option pricing model, is used to recognize compensation cost associated with SARs.
TABLE OF CONTENTSLumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 8. Income Taxes The Tax Cuts and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act reduced the U.S. federal corporate tax rate from 35% to 21% and eliminated the 20-year limit on the carryforward of losses, and resulted in the Company remeasuring its existing deferred tax balances. In addition, generally beginning in 2018, the Tax Act alters the deductibility of certain items (e.g., certain compensation, interest, entertainment expenses), and allows qualifying capital expenditures to be deducted fully in the year of purchase. As of December 31, 2017, the Company has not fully completed its analysis of the tax effects of the Tax Act; however, it has made a reasonable estimate of the effects on its deferred tax balances. The Company remeasured deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The Company’s valuation allowance was remeasured based on the new provisions in the Tax Act including the elimination of the 20-year net operating loss carryforward, the 80% limitation on the usage of certain net operating losses going forward and the impact of these provisions on the Company’s indefinite-lived deferred tax assets and liabilities. The Company will continue to analyze certain aspects of the Tax Act and refine the calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the remeasurement of the deferred tax balance and valuation allowance was $8.1 million. The net effect of the Tax Act was a $3.1 million tax benefit.
The components of Lossincome (loss) before income taxes were as follows: | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | United States | | $ | 55,874 | | $ | 13,830 | | $ | (52,473) | Foreign | | | (2,234) | | | (878) | | | (927) | Total Income (Loss) before Income Taxes | | $ | 53,640 | | $ | 12,952 | | $ | (53,400) |
The benefit(benefit) expense for income taxes consisted of the following: | | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | Current
| | | | | | | | | | | | | | Federal | | $ | 2,254 | | | $ | (36,801 | ) | | $ | (14,088 | ) | | State | | | 146 | | | | (3,269 | ) | | | (975 | ) | | Foreign | | | 112 | | | | 155 | | | | 133 | | | Total Current | | | 2,512 | | | | (39,915 | ) | | | (14,930 | ) | Deferred
| | | | | | | | | | | | | | Federal | | | (2,087 | ) | | | 11,184 | | | | (9,276 | ) | | State | | | (1,159 | ) | | | 3,021 | | | | (2,788 | ) | | Total Deferred | | | (3,246 | ) | | | 14,205 | | | | (12,064 | ) | | Income Tax Benefit | | $ | (734 | ) | | $ | (25,710 | ) | | $ | (26,994 | ) |
| | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | Current | | | | | | | | | | Federal | | $ | 1,868 | | $ | 2,550 | | $ | — | State | | | 2,315 | | | 1,015 | | | 607 | Foreign | | | 67 | | | 90 | | | 132 | Total Current | | | 4,250 | | | 3,655 | | | 739 | | | | | | | | | | | Deferred | | | | | | | | | | Federal | | | (9,671) | | | (203) | | | 140 | State | | | (2,366) | | | (163) | | | 100 | Total Deferred | | | (12,037) | | | (366) | | | 240 | Income Tax (Benefit) Expense | | $ | (7,787) | | $ | 3,289 | | $ | 979 |
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 8. Income Taxes – (continued)
Excess tax benefitsTax expense in the amount of $146 were$0.8 million and $0.5 million was recognized as a component of income tax expense during 20172020 and 2019, respectively, resulting from the exercise of stock options and the release of restricted shares. Prior to the adoption
| | | | | | | | | | | | | | | | | Year Ended December 31, | | | 2020 | | 2019 | | 2018 | | Income Tax Expense (Benefit) at Federal Statutory Rate | $ | 11,264 | | 21.0 | % | $ | 2,720 | | 21.0 | % | $ | (11,214) | | 21.0 | % | | | | | | | | | | | | | | | | | Increases (Decreases): | | | | | | | | | | | | | | | | State Income Taxes, Net of Federal Income Tax Benefit | | 1,949 | | 3.6 | % | | 425 | | 3.3 | % | | 723 | | (1.3) | % | Valuation Allowance | | (21,363) | | (39.8) | % | | 668 | | 5.2 | % | | 3,897 | | (7.3) | % | Foreign Operations | | 2,431 | | 4.5 | % | | 90 | | 0.7 | % | | 132 | | (0.3) | % | Uncertain Tax Positions | | — | | — | % | | 174 | | 1.3 | % | | 2,919 | | (5.5) | % | Non-Deductible Fines and Penalties | | 2 | | — | % | | 6 | | — | % | | 4,011 | | (7.5) | % | CARES Act Rate Differential | | (1,751) | | (3.3) | % | | — | | — | % | | — | | — | % | Other | | (319) | | (0.5) | % | | (794) | | (6.1) | % | | 511 | | (0.9) | % | Income Tax (Benefit) Expense | $ | (7,787) | | (14.5) | % | $ | 3,289 | | 25.4 | % | $ | 979 | | (1.8) | % |
| | | | | | | | | | | | | | | Year Ended December 31, | | | | 2017 | | 2016 | | 2015 | | Income Tax Benefit at Federal Statutory Rate | | $ | (13,495 | ) | | | 35.0 | % | | $ | (32,995 | ) | | | 35.0 | % | | $ | (29,200 | ) | | | 35.0 | % | (Decreases) Increases:
| | | | | | | | | | | | | | | | | | | | | | | | | | State Income Taxes, Net of Federal Income Tax Benefit | | | (740 | ) | | | 1.9 | % | | | (2,275 | ) | | | 2.4 | % | | | (2,401 | ) | | | 2.9 | % | | Valuation Allowance | | | 3,826 | | | | (10.0 | )% | | | 15,207 | | | | (16.1 | )% | | | 210 | | | | (0.2 | )% | | Foreign Operations | | | 221 | | | | (0.5 | )% | | | (2,465 | ) | | | 2.6 | % | | | 1,075 | | | | (1.3 | )% | | Non-Deductible Penalty | | | 1,156 | | | | (3.0 | )% | | | 875 | | | | (0.9 | )% | | | 3,887 | | | | (4.7 | )% | | Federal Rate Change | | | 8,088 | | | | (21.0 | )% | | | — | | | | — | % | | | — | | | | — | % | | Capital Loss | | | — | | | | — | % | | | (4,020 | ) | | | 4.3 | % | | | — | | | | — | % | | Other | | | 210 | | | | (0.5 | )% | | | (37 | ) | | | — | % | | | (565 | ) | | | 0.7 | % | | Income Tax Benefit | | $ | (734 | ) | | | 1.9 | % | | $ | (25,710 | ) | | | 27.3 | % | | $ | (26,994 | ) | | | 32.4 | % |
The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a 21% and 35% federal rate in 2017both 2020 and 2016, respectively,2019, are as follows: | | | | | | | | December 31, | | | | | 2017 | | 2016 | | | | | | | | | | | | | December 31, | | | | 2020 | | 2019 | Deferred Tax Liabilities:
| | | | | | | | | | | | | | | Operating Lease Right-of-Use Assets | | | $ | (28,579) | | $ | (31,804) | | Depreciation and Amortization and Other | | $ | (11,664 | ) | | $ | (19,157 | ) | | | (14,532) | | | (9,676) | | Total Gross Deferred Tax Liabilities | | | (11,664 | ) | | | (19,157 | ) | | | (43,111) | | | (41,480) | | | | | | | | | Deferred Tax Assets:
| | | | | | | | | | | | | | | Operating Lease Liabilities | | | | 31,365 | | | 34,419 | | Stock-Based Compensation Expense | | | 2,375 | | | | 3,941 | | | | 2,155 | | | 2,611 | | Reserves and Accruals | | | 14,718 | | | | 10,241 | | | Legal Settlement Reserves | | | | 7,998 | | | 11,774 | Other Accruals and Reserves | | | | 4,718 | | | 5,054 | | Employee Benefits | | | 1,745 | | | | 1,144 | | | | 3,616 | | | 1,169 | | Inventory Reserves | | | 1,708 | | | | 3,336 | | | | 1,241 | | | 1,311 | | Inventory Capitalization | | | 2,647 | | | | 5,218 | | | | 2,790 | | | 3,194 | | Foreign Net Operating Losses | | | 2,891 | | | | 2,781 | | | | Loss Carryforwards and Other | | | 6,604 | | | | 6,338 | | | Foreign Net Operating Loss Carryforwards | | | | 2,674 | | | 3,341 | Net Operating Loss Carryforwards | | | | 250 | | | 2,444 | Capital Loss Carryforwards and Other | | | | 3,538 | | | 2,723 | | Total Gross Deferred Tax Assets | | | 32,688 | | | | 32,999 | | | | 60,345 | | | 68,040 | | Less Valuation Allowance | | | (21,576 | ) | | | (17,640 | ) | | | Total Net Deferred Tax Assets | | | 11,112 | | | | 15,359 | | | | Net Deferred Tax Liability | | $ | (552 | ) | | $ | (3,798 | ) | | Less: Valuation Allowance | | | | (5,623) | | | (26,986) | Total Deferred Tax Assets | | | | 54,722 | | | 41,054 | Net Deferred Tax Asset (Liability) | | | $ | 11,611 | | $ | (426) |
For 2017
The Company continues to monitor developments by federal and 2016,state rulemaking authorities regarding tax law changes and recognizes the Company’s U.S. operations wereimpact of these law changes in a cumulative loss position. the period in which they are enacted. As such,of December 31, 2019, the Company has recordedhad a full valuation allowance onof $27 million recorded against its net deferred tax assets.assets as the Company was in a consolidated cumulative three-year loss position, and the Company was not relying upon projections of future taxable income in assessing their recoverability. The valuation allowance increased by $3,826 and $14,859 forCompany assesses the years ended December 31, 2017 and 2016, respectively. In future periods,available evidence on a quarterly basis to assess if, based on the allowance could be reduced if sufficientweight of all available evidence, exists indicating that it is more likely than not that asome portion, or all, of thesethe deferred tax assets will not be realized.
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts The Company was no longer in thousands, except share data and per share amounts)
Note 8. Income Taxes – (continued)
In both 2017 and 2016,a consolidated cumulative three-year loss position at December 31, 2020. Based on the Company’s Canadian operations were inevaluation at a cumulative loss position. As such,jurisdictional level as of December 31, 2020, the Company has recorded a fullreleased valuation allowances of $20 million in the fourth quarter of 2020 in jurisdictions where the Company believes sufficient future taxable income, including consideration of future performance, market or economic conditions, will be generated to use existing deferred tax assets. This release of the valuation allowance onresulted in noncash income tax benefit in the netfourth quarter of 2020 of $20 million. At December 31, 2020 the Company’s remaining valuation allowance was $5.6 million including the release of the valuation allowance and a $1.7 million adjustment to valuation allowances associated with deferred taxes for foreign operations. The amount of the deferred tax assets considered realizable could be adjusted in Canada. The valuation allowance increased by $110 and $348 for the years ended December 31, 2017 and 2016, respectively. In future periods the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not thatwarrants such a portion or all of these deferred tax assets will be realized.change.
As of December 31, 20172020 and 2016,2019, the Company had 0 remaining U.S. federal net operating loss carryforwards of $5,351 and zero, respectively, which begin to expire in 2037.carryforward. As of December 31, 2017,2020 and 2019, respectively, the Company had state net loss carryforwards of $48,091$4 million and $44,666,$39 million, which begin to expire in 2022.2025. The Company had foreign net operating loss carryforwards of $13,068$14 million and 12,912$12 million at December 31, 20172020 and 2016,2019, respectively, which begin to expire in 2030. The Company received income tax refunds of $29,467 and $27,422 in 2017 and 2016, respectively. The Company paid income taxes (net of $7,855refunds) of $10 million and $0.2 million in 2015.2020 and 2019, respectively. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company amended its 2018 tax return with respect to CARES Act items and carried the 2018 NOL back to 2013 resulting in a cash tax refund of $5 million, received in the third quarter 2020. As of December 31, 2017,2020 and 2019, the Company had $27$0.2 million of gross unrecognized tax benefits $21related to Uncertain Tax Positions ($0.2 million net of which, if recognized, would affect the effectivefederal tax rate.benefit). It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the uncertain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change in uncertain tax positions to have a significant effect on its results of operations, financial position or cash flows. As A reconciliation of December 31, 2016, the Company had $208beginning and ending amount of gross unrecognized tax benefits, $135 of which, if recognized, would affect the effective tax rate.excluding interest and penalties, is as follows: | | | | | | | | Year Ended December 31, | | 2020 | 2019 | Balance at beginning of year | $ | 225 | | $ | 3,610 | | Increase for tax positions related to current year | | — | | | 174 | | Decrease for tax positions related to prior years | | — | | | (3,443) | | Settlements | | — | | | (116) | | Balance at end of year | $ | 225 | | $ | 225 | |
The Company files income tax returns with the U.S. federal government and various state and foreign jurisdictions. TheIn the normal course of business, the Company is subject to examination by taxing authorities. As of December 31, 2020, the Internal Revenue Service has completed audits of the Company’s income tax returns for the years 2013 through 2016 and the results of which are included in tax expense in the consolidated income statement.2016. Note 9. 401(k) Plan The Company maintains a plan, qualified under Section 401(k) of the Internal Revenue Code, for all eligible employees. Employees are eligible to participate following the completion of three months of service and attainment of age 21. The plan is a safe harbor plan, with company matching contributions of 100% of the first 3% of employee contributions and 50% of the next 2% of employee contributions. Both deferrals and Roth contributions are allowed up to 50% of an employee’s eligible compensation, subject to annual IRS limits. Additionally, employees are immediately 100% vested in the Company’s matching contributions. The Company’s matching contributions, included in SG&A expenses, totaled $2,284, $2,286$3.8 million, $2.8 million and $2,019$2.6 million in 2017, 20162020, 2019 and 2015,2018, respectively. Note 10. Commitments and Contingencies The Company has been actively resolving various legalfollowing chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and otherSettlements-Current”. The matters themselves are described in greater detail in the paragraphs that have arisen in recent years. Certain other matters remain outstanding. More detailed discussion of many offollow the matters noted below are included in this Form 10-K under the caption “Item 3 Legal Proceedings.”chart. 2017 and 2016 Settlements and Resolutions
During 2017 and 2016, the Company settled (or agreed to settle) or resolved several outstanding legal matters. These include:
| | | | | | | | | | | | | | | | | | | | January 1, 2019 | | | | | | | | | | | | December 31, 2019 | | Litigation Matter | | | Accrual for Legal Matters | | | | | | | | | | | | Accrual for Legal Matters | | Description | | | and Settlements - Current | | | Accruals | | | Settlement Payments | | | Vouchers Redeemed | | | and Settlements - Current | | MDL | | $ | 35,500 | | $ | — | | $ | — | | $ | — | | $ | 35,500 | | SEC/DOJ | | | 33,000 | | | — | | | (33,000) | | | — | | | — | | Gold | | | 28,000 | | | — | | | (1,000) | | | — | | | 27,000 | | Kramer | | | — | | | 4,750 | | | — | | | — | | | 4,750 | | Other Matters | | | 1,125 | | | 350 | | | (1,254) | | | — | | | 221 | | | | $ | 97,625 | | $ | 5,100 | | $ | (35,254) | | $ | — | | $ | 67,471 | | | | | | | | | | | | | | | | | | | | | | January 1, 2020 | | | | | | | | | | | | December 31, 2020 | | Litigation Matter | | | Accrual for Legal Matters | | | | | | | | | | | | Accrual for Legal Matters | | Description | | | and Settlements - Current | | | Accruals | | | Settlement Payments | | | Vouchers Redeemed | | | and Settlements - Current | | MDL | | $ | 35,500 | | $ | — | | $ | (21,500) | 1 | $ | — | | $ | 14,000 | 2 | SEC/DOJ | | | — | | | — | | | — | | | — | | | — | | Gold | | | 27,000 | | | 2,000 | | | (13,000) | | | — | | | 16,000 | 2 | Kramer | | | 4,750 | | | — | | | (4,750) | | | — | | | — | | Other Matters | | | 221 | | | 507 | | | (330) | | | — | | | 398 | | | | $ | 67,471 | | $ | 2,507 | | $ | (39,580) | | $ | — | | $ | 30,398 | |
| •1 | $21.5 million was paid into an escrow account for MDL Class Actions Matters — On October 23, 2017,in 2019 and recorded as “Deposit Legal Settlement” on the Company entered into a Memorandumconsolidated balance sheet. In the fourth quarter of Understanding (“MOU”) to settle formaldehyde2020, the liability and abrasion class-action claims brought on behalf |
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies – (continued)
| | of purchasers of Chinese-made laminate flooring sold bydeposit were relieved as the Company between January 1, 2009 and May 31, 2015. Under the MOU, the Company will contribute $22 million in cash (currently expected to be funded in mid-2018) and provide $14 million in store-credit vouchers over a three-year period.funds were distributed. |
| •2 | Lacey Act Related Matters — On October 7, 2015, the Company reached a settlement with the Department of Justice (DOJ) with respect to its allegations of violations of the Lacey Act in its importation of certain wood flooring products and the court entered final judgment on February 3, 2016. In connection with this settlement the Company agreed to pay a total of $10 million in fines, community service payments and forfeited proceeds and is subject to a five-year probation period and implemented the Lacey Compliance Plan. The Company has paid the settlement amount including the remaining $1.8 million in the first quarter of 2018. In addition, the Company also reached a settlement with the DOJ and paid $3.2 million with respect to certain engineered hardwood flooring determined by the Company to have Lacey Act compliance concerns. |
| • | California Air Resources Board — In March 2016, the Company entered into a settlement agreement with the California Air Resources Board (“CARB”), which did not constitute an admission of wrongdoing by the Company and provided that CARB release the Company from any and all claims that CARB may have had related to certain of its laminate products imported from China. Under the terms of the settlement agreement, the Company paid a total of $2.5 million. Additionally, the Company agreed to implement certain voluntary measures, including a risk-based supplier audit program and testing research program. |
| • | Consumer Product Safety Commission Matter — On June 15, 2016, the Company entered into an agreement with the Office of Compliance and Field Operations of the Consumer Product Safety Commission (“CPSC”) with respect to its laminate products sourced from China. The agreement marked the completion of the CPSC’s evaluation of the safety of those products and did not constitute an admission of wrongdoing by the Company. Under the terms of the agreement, the Company has continued to offer an indoor air quality testing program to its customers at no cost. The CPSC ceased its monitoring of the Company’s program in July of 2017. |
| • | Securities Class Action — On November 17, 2016, the Company received final court approval of the Securities Class Action Stipulation. As a result of the Securities Class Action Stipulation, the Company, through its insurers and in conjunction with the settlement of the Derivative Class Action Settlement described below, contributed $26 million to a settlement fund thataccrual will be used to compensate individuals who purchased the Company’s shares of common stock between February 22, 2012 and February 27, 2015. Additionally, the Company issued 1 million shares of its common stock to the settlement fund on November 17, 2016, valued at $16.8 million in the aggregate based on the closing price of the shares at that date.fulfilled by redeeming vouchers as discussed below. |
| • | Derivative Litigation Matters — On November 17, 2016, the Company received final court approval the Consolidated Derivative Stipulation. As a result of the Consolidated Derivative Stipulation, the Company implemented certain corporate governance changes, received a $26 million insurance payment (which the Company used to fully fund the securities class action settlement summarized above), and paid additional net expenses of $2.5 million related to the derivative class action settlement. |
Governmental Investigations
Employment Cases Mason Lawsuit In 2015August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and early 2016,Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, installation sales managers and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company received subpoenas issuedviolated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a criminal investigation being conductedclass action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages. In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period. In May 2019, the magistrate judge granted plaintiffs’ motion for conditional certification. The litigation is in the discovery stage, which was extended by the U.S. Department of Justice (the “DOJ”)Court from May 2020 to December 18, 2020, and the U.S. Securities and Exchange Commission (the “SEC”). Baseddeadline has again been extended to May 30, 2021. On January 6, 2021, the magistrate judge ruled in favor of a motion by the Company to exclude from the Mason Putative Class the claims of 55 opt-in plaintiffs who participated in a prior California state class-action settlement that released all claims arising from the same facts on which the subpoenas and the Company’s discussions to date, theMason matter is based.
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies – (continued)
Company believes the focus of both investigations primarily relates to compliance with disclosure, financial reporting and trading requirements under the federal securities laws since 2011. The Company is fully cooperating withdisputes the investigationsMason Putative Class Employees’ claims and continues to produce documentsdefend the matter vigorously. The Company has agreed to participate in a mediation early in the second quarter of 2021. Given the uncertainty of litigation, and other information responsivethe fact that a significant amount of discovery has yet to the subpoenas and other requests received from the parties. Given that the investigations are still ongoing and that no civil or criminal claims have been brought to date,be completed, the Company cannot predict the outcome of the investigations, the timing of the ultimate resolution of these matters, or reasonably estimate the possible loss or range of loss, if any, that may result from these matters. Accordingly,this action and therefore no accruals haveaccrual has been made with respectrelated to these matters. Any action by the DOJ or SEC with respect to these matters could include civil or criminal proceedings and could involve fines, damage awards, regulatory consequences or other sanctions which could have a material adverse effect, individually or collectively, on the Company’s liquidity, financial condition or results of operations.
Litigation Relating to Chinese Laminates
As noted above, the Company entered into a Memorandum of Understanding (“MOU”) to settle formaldehyde and abrasion class-action claims brought on behalf of purchasers of Chinese-made laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. Under the terms, the Company has agreed to contribute $22 million in cash and provide $14 million in store-credit vouchers for an aggregate settlement of $36 million to settle all claims brought on behalf of purchasers of Chinese-made laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Company may fund the $22 million through a combination of cash and/or common stock. There can be no assurance that a settlement will be finalized and approved by the courts or as to the ultimate outcome of the litigation. If a final, court-approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for, among other things, class certification and success on the merits. The Company does not believe it has insurance coverage with respect to these matters.
In addition to those purchasers who opt out of the above settlement (“the Opt Outs”), the Company remains subject to a class action lawsuit in Canada (the “Steele” matter), and there are a number of individual claims and lawsuits alleging (i) damages due to excessive formaldehyde emissions, including personal injury claims, and (ii) damages due to durability claims (collectively, the “Other Matters”). Certain of these Other Matters are in advanced stages of settlement negotiations and the Company recognized a further $1 million charge during the fourth quarter of 2017. For the remaining Other Matters, while the Company believes that a loss associated with the Opt Outs, the Steele matter, or Other Matters is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss.this matter. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.
The Company has determined that a probable loss has been incurred and has recognized $37 million in charges within selling general and administrative expense in 2017Savidis Lawsuit
On April 9, 2020, Lumber Liquidators was served with a corresponding liabilitylawsuit filed by Tanya Savidis, on its balance sheet related tobehalf of herself and all others similarly situated (collectively, the potential settlement covered by the MOU and Other Matters as of December 31, 2017. If the court does not approve a final settlement agreement or incurs losses with the respect to the Opt Outs, the Steele matter, or Other Matters, the ultimate resolution of these actions could still have a material adverse effect on the Company’s results of operations, financial condition, and liquidity. Gold Matter
Beginning in 2014 and subsequently amended, Dana Gold (“Gold”“Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit alleging that certain bamboo flooring that the Company sells is defective. On February 13, 2015, Gold filed an amended complaint that added three additional plaintiffs (collectively with Gold, “Gold Plaintiffs”). Gold Plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and costs, Gold Plaintiffs seek (i) a declaration that the Company’s actions violate the law and that it is financially responsible for notifying all purported class members, (ii) injunctive relief requiring the Company to replace
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Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies – (continued)
and/or repair all of the Bamboo Product installed in structures owned by the purported class members, and (iii) a declaration that the Company must disgorge, for the benefit of the purported classes, all or part of the profits received from the sale of the allegedly defective Bamboo Product and/or to make full restitution to Gold Plaintiffs and the purported class members. The Company has participated in arbitration discussions on the matter that did not result in a settlement agreement.
In addition, there are a number of other claims and lawsuits alleging damages similar to those in the Gold matter. The Company disputes these and the Gold Plaintiffs’ claims and intends to defend such matters vigorously. Given the uncertaintySuperior Court of litigation, the preliminary stageCalifornia, County of the case, and the legal standards that must be met for, among other things, class certification and successAlameda on the merits, the Company is unable to estimate the amount of loss, or range of possible loss, at this time that may result from this action. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition, and liquidity.
Employee Classification Matter
In the second half of 2017, certain former and current store managers, store managers in training, and similarly situated current and former employees holding comparable positions but different titles (collectively, the “SM Plaintiffs”) filed purported class action lawsuits in New York and CaliforniaMarch 6, 2020, on behalf of all current and former store managers, store managersLumber Liquidators employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in training and similarly situated current and former employees holding comparable positions but different titles (collectively,unfair business practices (the “Savidis matter”). On or about May 22, 2020, the “SM Employees”) alleging thatSavidis Plaintiffs provided notice to the Company violatedCalifornia Department of Industrial Relations requesting they be permitted to seek penalties under the Fair Labor StandardsCalifornia Private Attorney General Act and certain state laws by classifyingfor the SM Employeessame substantive alleged violations asserted in the Complaint. The Savidis Plaintiffs seek certification of a class action covering the prior four-year period prior to the filing of the complaint to the date of class certification (the “California Employee Class”), as exempt.well as a subclass of class members who separated their employment within three years of the filing of the suit to the date of class certification (the “Waiting Time Subclass”). The SMSavidis Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the SM Plaintiffs seek class certification,statutory penalties, unspecified amountamounts for unpaid wages, benefits, and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive reliefinterest, and other damages. damages.
The Company disputes the SM Plaintiffs’Savidis Putative Class Employees’ claims and intends to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company is unable tocannot estimate the amount ofreasonably possible loss or range of possible loss, at this timeif any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. Visnack Lawsuit On June 29, 2020, Michael Visnack, on behalf of himself and all others similarly situated (collectively, the “Visnack Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of San Diego, on behalf of all current and former store managers, and others similarly situated. The Complaint alleges violation of the California Labor Code including, among other items, failure to pay wages and overtime, wage statement violations, meal and rest break violations, unpaid reimbursements and waiting time, and engaging in unfair business practices (the “Visnack matter”). The Visnack Plaintiffs seek certification of a class period beginning September 20, 2019, through the date of Notice of Class Certification, if granted. The Visnack Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, they seek unspecified amounts for each of the causes of action such as unpaid wages and overtime wages, failure to provide meal periods and rest breaks, payroll record and wage statement violations, failure to reimburse expenses and waiting time, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages. On December 14, 2020, the court ruled in favor of a motion by the Company to compel arbitration for Michael Visnack under the existing agreement between the Company and Mr. Visnack. The court declined to outright dismiss the putative class claims but stayed the putative class claims and Private Attorneys General Act claims pending arbitration. The court denied plaintiff’s request to conduct discovery. The Company is evaluating the Visnack Putative Class Employees' claims and intends to defend itself vigorously in this matter. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. In December 2020, the Company began contacting individuals who constitute the purported classes under both the Savidis and Visnack Lawsuits and has offered individual settlements in satisfaction of their claims. To the extent individuals accept these settlement offers, they will release the Company from the claims and be removed from the purported class. As of February 15, 2021, the Company had reached agreement with a portion of the purported classes incurring approximately $200 thousand in fees, taxes, and other costs. The Company included those amounts in “Other Matters” in the chart above. Kramer lawsuit In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”). The Company reached settlement for this matter for $4.75 million in the third quarter of 2019 and paid that amount to the settlement administrator in the second quarter of 2020 for distribution to class members. Antidumping and Countervailing Duties Investigation In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) filed a petition seeking the imposition of antidumping (“AD”)and countervailing duties (“CVD”) with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against imports of multilayered wood flooring from China. This ruling applies to companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 8%, 7%4% and 6% of its flooring purchases in 2017, 20162020 and 2015,2019, respectively. The Company’s consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized. As such, it has appealed the original imposition of AD and CVD fees. As part of its processes in these proceedings, the DOC conducts annual reviews of the CVDAD and ADCVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are subject to comment by interested parties. After consideration of the comments received, the DOC will issue final rates for the applicable period, which may lag by a year or more. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and and/or the domestic manufacturers can appeal the final rate for any period and can place a hold on final settlement by U.S. Customs and Border Protection while the appeals are pending.
TABLE OF CONTENTS
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies – (continued)
In addition to its overall appeal of the imposition of AD and CVD, which is still pending, the Company as well as other involved parties have appealed many of the final rate determinations. ThoseCertain of those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table that follows.below. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of CVDAD and ADCVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold. In the fourth quarter of 2017, the 5-year Sunset Review of the antidumping and countervailing duty orders on multilayered wood flooring (the “Sunset Review”) by the ITC resulted in the AD and CVD orders remaining in place. The Company as well as others have appealed this determination.
Results by period for the Company are shown below. The column labeled “December‘December 31, 2017”2020 Receivable/Liability Balance’ represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time. The Company recorded net interest income related to antidumping and countervailing duties of $0.6 million for the year ended December 31, 2020 compared to net interest expense of $0.6 million for the year ended December 31, 2019. The amounts for both years are included in other expense on the Statements of Operations. The estimated associated interest payable and receivable for each period is not included in the table below and is included in the same financial statement line item on the Company’s consolidated balance sheet as the associated liability and receivable balance for each period. | | | | | Review | | Rates at which | | December 31, 2020 | Period | Period Covered | Company | Final Rate | Receivable/Liability | | | Deposited | | Balance | Antidumping | 1 | May 2011 through | 6.78% and 3.3% | 0.73%1 | $1.3 million | | November 2012 | | | receivable1 | 2 | December 2012 through | 3.30% | 3.92% 2 | $0.2 million | | November 2013 | | | liability2 | 3 | December 2013 through | 3.3% and 5.92% | 0.0%3 | $4.7 million | | November 2014 | | | liability3 | 4 | December 2014 through | 5.92% and 13.74% | 0.00% | Settled | | November 2015 | | | | 5 | December 2015 through | 5.92%. 13.74%. and 17.37% | 0.00% | Settled | | November 2016 | | | | 6 | December 2016 through | 17.37% and 0.00% | 42.57% and 0.0%4 | $0.5 million receivable | | November 2017 | | | $1.5 million liability4 | 7 | December 2017 through | 0.00% | Pending5 | NA | | November 2018 | | | | | | | Included on the Consolidated Balance Sheet in Other Current Assets | $0.5 million | | | | Included on the Consolidated Balance Sheet in Other Assets | $1.3 million | | | | Included on the Consolidated Balance Sheet in Other Long-Term Liabilities | $6.4 million | Countervailing | 1&2 | April 2011 through | 1.50% | 0.83% / 0.99% | $0.2 million | | December 2012 | | | receivable | 3 | January 2013 through
December 2013 | 1.50% | 1.38% | $0.05 million
receivable | 4 | January 2014 through
December 2014 | 1.50% and 0.83% | 1.06% | $0.02 million
receivable | 5 | January 2015 through
December 2015 | 0.83% and 0.99% | Final at 0.11% and 0.85%6 | $0.07 million
receivable 6 | 6 | January 2016 through
December 2016 | 0.99% and 1.38% | Final at 3.10% and 2.96% | $0.04 million
liability 7 | 7 | January 2017 through
December 2017 | 1.38% and 1.06% | 20.75%8 | $1.7 million
liability 8 | 8 | January 2018 through
December 2018 | 1.06% | Pending | NA | | | | Included on the Consolidated Balance Sheet in Other Current Assets | $0.07 million | | | | Included on the Consolidated Balance Sheet in Other Assets | $0.3 million | | | | Included on the Consolidated Balance Sheet in Other Current Liabilities | $0.04 million | | | | Included on the Consolidated Balance Sheet in Other Long-Term Liabilities | $1.7 million |
| (1)1 | DOC has recommended reducingIn the second quarter of 2018, the Court of International Trade sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%) through remand. The court had not yet accepted this recommendation as of year-end. Should this rate hold through. As a result, the appeal process, Lumber Liquidators would reverse the $0.8Company reversed its $0.8 million liability and recordrecorded a receivable.$1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018. |
| 2 | In the second quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the second annual review period to 3.92% (from 13.74%). The recommendation was accepted by the CIT in the fourth quarter of 2020, and the Company reversed $3.9 million of its $4.1 million liability, with a corresponding reduction to cost of sales. |
| 3 | In the third quarter of 2020, the CIT received a recommendation from the DOC to reduce the rate for the third annual review period to 0.0% from 17.37%. If accepted by the CIT, the Company will reverse the entire $4.7 million liability currently recorded, with a corresponding reduction of cost of sales, as well as an additional $2.1 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates during the quarter when it is accepted. |
| 4 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor. As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of December 31, 2020 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2020 was included in other long-term liabilities on the condensed consolidated balance sheet. |
| 5 | In the first quarter of 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period. |
| 6 | In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor. As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales. |
| 7 | In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor. As a result, the Company recorded a liability of $0.4 million with a corresponding increase to cost of sales during the year ended December 31, 2019. The remaining balance, after payments, was approximately $40 thousand as of December 31, 2020. |
| 8 | In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of $1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020. |
Governmental Investigations: DOJ Deferred Prosecution Agreement and SEC Resolution Beginning in 2015, the Company received subpoenas in connection with a criminal investigation conducted by the DOJ and the SEC. The focus of the investigations related to compliance with disclosure and financial reporting and requirements under the federal securities laws. The Company cooperated with the investigations and produced documents and other information responsive to subpoenas and other requests. The Company reached an agreement with the U.S. Attorney, the DOJ and SEC regarding the investigation (the “Settlement Agreements”). In March of 2019, the Company entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Attorney and the DOJ and a Cease-and-Desist Order (the “Order”) with the SEC, under which, among other things, the Company (1) paid a fine in the amount of $19.1 million to the United States Treasury, (2) forfeited to the U.S. Attorney and the DOJ the sum of $13.9 million, of which up to $6.1 million was submitted by the Company to the SEC in disgorgement and prejudgment interest under the Order and (3) is required to adopt a new compliance program, or modify its existing one, including internal controls, compliance policies, and procedures in order to ensure that the Company maintains an effective system of internal account controls designed to ensure the making and keeping of fair and accurate books, records and accounts, as well as a compliance program designed to prevent and detect violations of certain federal securities laws throughout its operations. The DPA is effective for a period of three years, during which the Company submits annual reports to the DOJ concerning the compliance program. The Settlement Agreements also provide that the Company will continue to cooperate with the U.S. Attorney, the DOJ and the SEC in all matters relating to the conduct described in the Settlement Agreements and, at the request of the U.S. Attorney, the DOJ or the SEC, the Company will cooperate fully with other domestic or foreign law enforcement authorities and agencies in any investigation of the Company in any and all matters relating to the Settlement Agreements. In the event the Company breaches the DPA, there is a risk the government would seek to impose remedies provided for in the DPA, including instituting criminal prosecution against the Company. The Company accrued a charge of $33 million within selling, general and administrative (SG&A) expenses in its December 31, 2018 financial statements, reflecting the amounts owed under the Settlement Agreements. During the second quarter of 2019, the Company remitted $33 million due to the applicable governmental parties and relieved the applicable portion of the liability in the caption “Accrual for Legal Matters and Settlements Current” on its balance sheet. LitigationRelatingtoBamboo Flooring Dana Gold filed a purported class action lawsuit in the United States District Court for the Northern District of California alleging that the Morning Star bamboo flooring that the Company sells was defective (the “Gold Litigation”). In the third quarter of 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, to resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company contributed $14 million in cash (the “Gold Cash Payment”) and provided $16 million in store-credit vouchers, for an aggregate settlement of up to $30 million. The settlement agreement made clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account.Notice has been disseminated to class members by the settlement administrator, and final approval was granted by the court on October 22, 2020. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation. The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable. During the third quarter of 2020, the Company recognized an additional charge to earnings for in-store vouchers of $2 million within selling, general and administrative expense as the Company became aware that a threshold in the settlement agreement was met. The Company paid the remaining $13 million of the Gold Cash Payment in the fourth quarter of 2020. As of December 31, 2020, the remaining accrual related to these matters was $16 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on its consolidated balance sheet. Based on a current court order, the vouchers are expected to be issued late in the second quarter of 2021. In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously. Litigation Related to Formaldehyde-Abrasion MDLs Beginning in 2015, numerous purported class action cases were filed in various United States federal district courts and state courts involving claims of excessive formaldehyde emissions and product claims about durability and abrasion from the Company’s Chinese-manufactured laminate flooring products. The United States Judicial Panel on Multidistrict Litigation transferred and consolidated the federal cases to the United States District Court for the Eastern District of Virginia (the “Virginia Court”) as two cases: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products Liability Litigation (the “Formaldehyde MDL”) and Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation (the “Abrasion MDL”). In 2018, the Company entered into a settlement agreement to jointly settle the Formaldehyde MDL and the Abrasion MDL. Under the terms of the settlement agreement, the Company agreed to fund $22 million (the “MDL Cash Payment”) and provide $14 million in store-credit vouchers for an aggregate settlement amount of $36 million to settle claims brought on behalf of purchasers of Chinese-manufactured laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Court approved the settlement in the fourth quarter of, 2018 and the Company paid $21.5 million in cash into the plaintiffs’ settlement escrow account. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of 2020 upon order of the Virginia Court.The Company will monitor and evaluate the redemption of vouchers on a quarterly basis. In order to reach an estimate, the Company will consider redemption velocity and patterns, remaining value – both on individual vouchers as well as collectively – of vouchers, and the passage of time. The Company will also consider consumer behaviors across both the MDL and Gold Settlements. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended. The $36 million aggregate settlement amount was accrued in 2017. The Company had held $21.5 million of the Settlement as a deposit pending the appeals and the distribution of cash by the administrator, which occurred in the fourth quarter of 2020. As of December 31, 2020, the remaining accrual related to these matters was $14 million for vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements – Current” on its consolidated balance sheet. In addition to those purchasers who elected to opt out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019. The Company did 0t have any expense for these matters for the year ended December 31, 2020. As of December 31, 2020, the remaining accrual related to these matters was $0.1 million, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on the consolidated balance sheet. For the year ended December 31, 2019, the Company recognized charges to earnings of $0.4 million within SG&A expenses for these Remaining Laminate Matters. While the Company believes that a further loss associated with the Opt Outs and Related Laminate Matters is possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. Canadian Litigation On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Section 301 Tariffs Since September 2018, pursuant to Section 301 of the Trade Act of 1974, the United States Trade Representative (“USTR”) has imposed tariffs on certain goods imported from China over four tranches or Lists. Products imported by the Company fall within Lists 3 and 4 for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the CIT challenging the Section 301 tariffs under Lists 3 and 4. The Company has also filed a companion case at the CIT challenging Section 301 tariffs it has paid. The action is in its early stages and the Company is unable to predict the timing or outcome of the ruling by the CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs. Other Matters The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity. TABLE OF CONTENTSTable of Contents
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 11. Selected Quarterly Financial Information (unaudited)Canadian and U.S. Store Closure Costs During the third quarter of 2020, the Company completed a review of its store footprint and performance. As a result of that review, the Company made the decision to close its 8 Canadian stores as well as 6 stores in the United States. The following tables presentclosure of the Canadian stores reflected the fact that the Company’s unaudited quarterly resultsperformance in these stores has been challenging for 2017a number of years and 2016. | | | | | | | | | | | Quarter Ended | | | | March 31,
2017 | | June 30,
2017 | | September 30,
2017 | | December 31,
2017 | | Net Sales | | $ | 248,389 | | | $ | 263,500 | | | $ | 257,185 | | | $ | 259,859 | | | Gross Profit | | $ | 86,799 | | | $ | 97,455 | | | $ | 92,687 | | | $ | 92,120 | | | Selling, General and Administrative Expenses | | $ | 112,215 | | | $ | 92,335 | | | $ | 109,962 | | | $ | 91,515 | | | Operating (Loss) Income | | $ | (25,416 | ) | | $ | 5,120 | | | $ | (17,275 | ) | | $ | 605 | | | Net (Loss) Income | | $ | (26,372 | ) | | $ | 4,475 | | | $ | (18,915 | ) | | $ | 2,989 | | | Net (Loss) Income per Common Share – Basic | | $ | (0.93 | ) | | $ | 0.16 | | | $ | (0.66 | ) | | $ | 0.10 | | | Net (Loss) Income per Common Share – Diluted | | $ | (0.93 | ) | | $ | 0.16 | | | $ | (0.66 | ) | | $ | 0.10 | | | Number of Stores Opened in Quarter, net | | | 2 | | | | 0 | | | | 2 | | | | 6 | | | Comparable Store Net Sales Increase | | | 4.7 | % | | | 8.8 | % | | | 3.8 | % | | | 4.5 | % |
| | | | | | | | | | | Quarter Ended | | | | March 31,
2016 | | June 30,
2016 | | September 30,
2016 | | December 31,
2016 | | Net Sales | | $ | 233,513 | | | $ | 238,092 | | | $ | 244,082 | | | $ | 244,901 | | | Gross Profit | | $ | 76,109 | | | $ | 70,584 | | | $ | 76,689 | | | $ | 80,487 | | | Selling, General and Administrative Expenses | | $ | 117,236 | | | $ | 89,900 | | | $ | 100,661 | | | $ | 89,707 | | | Operating Loss | | $ | (41,127 | ) | | $ | (19,316 | ) | | $ | (23,972 | ) | | $ | (9,220 | ) | | Net Loss | | $ | (32,402 | ) | | $ | (12,230 | ) | | $ | (18,438 | ) | | $ | (5,493 | ) | | Net Loss per Common Share – Basic | | $ | (1.20 | ) | | $ | (0.45 | ) | | $ | (0.68 | ) | | $ | (0.20 | ) | | Net Loss per Common Share – Diluted | | $ | (1.20 | ) | | $ | (0.45 | ) | | $ | (0.68 | ) | | $ | (0.20 | ) | | Number of Stores Opened in Quarter | | | 1 | | | | 4 | | | | 1 | | | | 3 | | | Comparable Store Net Sales (Decrease) Increase | | | (13.9 | )% | | | (7.2 | )% | | | 1.0 | % | | | 2.8 | % |
that all but one of the stores’ leases are expiring in early 2021. The following tables present certain items impacting gross profit and SG&ACompany believed investing in the Company’s unaudited quarterly resultsother stores would provide stronger returns. The 6 U.S. stores were underperforming and their prospects for 2017 and 2016. Operating loss for eachimprovement were uncertain due to local market conditions, demographics, and/or the competitive landscape. The stores collectively represented approximately 1.5% of the quarterly periods was impacted byCompany’s annualized revenue and their absence is not expected to have a meaningful impact on cash flow. The Company incurred expense of $3.8 million to close these stores in the unusual itemssecond half of 2020, including an approximately $0.8 million reclassification of cumulative translation adjustments to earnings that were previously included in both gross profitOther Comprehensive Loss on its consolidated balance sheet. Approximately $2.6 million of this expense related to lease and SG&A discussed aboveinventory write-downs, employee termination benefits and summarized below. These items either relate to revised estimatesfixed asset write-offs. All 14 stores were closed as of legacy reserves, orDecember 31, 2020, although certain clean-up activities will not be fully completed until early in 2021. A summary of the store closure costs incurred during 2020 is as follows: | | | | | | Year Ended December 31, | | | 2020 | | | | | Cost of Merchandise Sold: | | | | Inventory write-down and other inventory adjustments | | $ | 822 | Cost of Merchandise Sold Subtotal | | | 822 | Selling, General, & Administrative Expenses: | | | | Employee termination benefits | | | 411 | Write-downs of lease and fixed assets | | | 1,362 | Reclassification of Foreign Currency Translation to Earnings | | | 757 | Other SG&A store closure costs | | | 432 | Selling, General, & Administrative Expenses Subtotal | | | 2,962 | Total Store Closure Costs | | $ | 3,784 |
A reconciliation of the Company’s liability for employee termination benefits and other store closure costs for the 2020 annual period are significant and infrequent in nature.as follows: | | | | | | | | | | | | Employee | | | | | | | | | Termination Benefits | | Other Costs | | Total | | | | | | | | | | | Balance as of January 1, 2020 | | $ | - | | $ | - | | $ | - | Accrued costs charged to expense | | | 411 | | | 385 | | | 796 | Payments | | | (60) | | | - | | | (60) | Balance as of December 31, 2020 | | $ | 351 | | $ | 385 | | $ | 736 |
. | | | | | | | | | | | Quarter Ended | | | | March 31,
2017 | | June 30,
2017 | | September 30,
2017 | | December 31,
2017 | Gross Margin Items:
| | | | | | | | | | | | | | | | | | Antidumping Adjustments | | $ | — | | | $ | (2,797 | ) | | $ | — | | | $ | — | | | Indoor Air Quality Testing Program Income | | | — | | | | (993 | ) | | | — | | | | — | | | Sub-Total Items above | | $ | — | | | $ | (3,790 | ) | | $ | — | | | $ | — | | SG&A Items:
| | | | | | | | | | | | | | | | | | Accrual for MDL and Other Matters | | $ | 18,000 | | | $ | — | | | $ | 18,000 | | | $ | 960 | | | Legal and Professional Fees(1) | | | 2,408 | | | | 3,526 | | | | 2,940 | | | | 2,440 | | | All Other(2) | | | — | | | | — | | | | 1,459 | | | | 1,687 | | | Sub-Total Items above | | $ | 20,408 | | | $ | 3,526 | | | $ | 22,399 | | | $ | 5,087 | |
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TABLE OF CONTENTSTable of Contents
Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 11. Selected Quarterly Financial Information (unaudited) – (continued)
| | | | | | | | | | | Quarter Ended | | | | March 31,
2016 | | June 30,
2016 | | September 30,
2016 | | December 31,
2016 | Gross Margin Items:
| | | | | | | | | | | | | | | | | | Antidumping Adjustments | | $ | — | | | $ | 5,450 | | | $ | — | | | $ | — | | | Indoor Air Quality Testing Program | | | 2,895 | | | | 3,292 | | | | — | | | | — | | | Sub-Total Items above | | $ | 2,895 | | | $ | 8,742 | | | $ | — | | | $ | — | | SG&A Items:
| | | | | | | | | | | | | | | | | | Securities and Derivatives Class Action | | $ | 18,520 | | | $ | (600 | ) | | $ | 4,250 | | | $ | (2,910 | ) | | Legal and Professional Fees(1) | | | 10,414 | | | | 8,294 | | | | 6,321 | | | | 3,385 | | | All Other(2) | | | 1,275 | | | | 945 | | | | 580 | | | | — | | | Sub-Total Items above | | $ | 30,209 | | | $ | 8,639 | | | $ | 11,151 | | | $ | 475 | |
| (1) | Represents charges to earnings related to our defense of various significant legal actions during the period. This does not include all legal costs incurred by the Company. |
| (2) | All other primarily relates to various payroll factors, including our retention initiatives, and impairment charges related to discontinuing non-core investments. |
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.
Item 9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are intendeddesigned to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the ChiefPrincipal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision, and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2017.2020. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2017,2020, and designed to ensureprovide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our ChiefPrincipal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. (b) Management’s Report on Internal Control Overover Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process, designed by, or under the supervision of the Company’s principal executive and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made only in accordance with management and Board authorizations; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate. Management under the supervision of, and with the participation of the Company’s principal executive and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172020 based on the framework and criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on the foregoing, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 20172020 based on the specified criteria. Our internal control over financial reporting as of December 31, 20172020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, as shown in Item 8. “Consolidated Financial Statements and Supplementary Data.”
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(c) Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2017,2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information. None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item is incorporated by reference from the definitive proxy statement for our 20182021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2017.2020. Code of Ethics We have a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries. Our Code of Business Conduct and Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, and applies to our Chief Executive Officer, Chief Financial Officer (who is our principal financial officer), as well as all other employees. Our Code of Business Conduct and Ethics also meets the requirements of a code of conduct under Rule 303A.10 of the NYSE Listed Company Manual. Our Code of Business Conduct and Ethics is posted on our website atwww.lumberliquidators.comwww.LLFlooring.com in the “Corporate Governance” section of our Investor Relations home page. We intend to provide any required disclosure of an amendment to or waiver from our Code of Business Conduct and Ethics on our website atwww.lumberliquidators.comwww.LLFlooring.com in the “Corporate Governance” section of our Investor Relations home page promptly following the amendment or waiver. We may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our website is not incorporated by reference in this report and should not be considered part of this or any other report that we file with or furnish to the SEC.
Item 11. Executive Compensation. The information required by this Item is incorporated by reference from the definitive proxy statement for our 20182021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2017.2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required by this Item is incorporated by reference from the definitive proxy statement for our 20182021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2017.2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is incorporated by reference from the definitive proxy statement for our 20182021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2017.2020.
Item 14. Principal Accountant Fees and Services. The information required by this Item is incorporated by reference from the definitive proxy statement for our 20182021 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2017.2020.
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PART IV
Item 15. Exhibits, Financial Statement Schedules. (a) The following documents are filed as part of this annual report:
Consolidated Financial Statements Refer to the financial statements filed as part of this annual report in Part II, Item 8. 1.
Financial Statement Schedules. The following financial statement schedule is filed as part of this annual report under Schedule II —– Analysis of Valuation and Qualifying Accounts for the years ended December 31, 2017, 20162020, 2019 and 2015.2018. All other financial statement schedules have been omitted because the required information is either included in the financial statements or the notes thereto or is not applicable. 2.
Exhibits The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.
Item 16. Form 10-K Summary. None.
Lumber Liquidators Holdings, Inc.
Schedule II —– Analysis of Valuation and Qualifying Accounts
For the Years Ended December 31, 2017, 20162020, 2019 and 2015
2018 (in thousands) | | | | | | | | | | | | | | | | | | | | Additions | | | | | | | | | Balance | | Charged to | | | | | | | | | Beginning | | Cost and | | | | | | Balance End | | | of Year | | Expenses | | Deductions (1) | | Other | | of Year | For the Year Ended December 31, 2018 | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 5,631 | | $ | 3,108 | | $ | (1,932) | | $ | — | | $ | 6,807 | Income tax valuation allowance | | $ | 21,576 | | $ | 4,742 | | $ | — | | $ | — | | $ | 26,318 | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2019 | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 6,807 | | $ | 1,888 | | $ | (1,795) | | $ | — | | $ | 6,900 | Income tax valuation allowance | | $ | 26,318 | | $ | 668 | | $ | — | | $ | — | | $ | 26,986 | | | | | | | | | | | | | | | | | For the Year Ended December 31, 2020 | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 6,900 | | $ | 3,036 | | $ | (3,199) | | $ | — | | $ | 6,737 | Income tax valuation allowance | | $ | 26,986 | | $ | — | | $ | (21,363) | | $ | — | | $ | 5,623 |
| | | | | | | | | | | | | Balance
Beginning
of Year | | Additions
Charged to
Cost and
Expenses | | Deductions(1) | | Other | | Balance End
of Year | For the Year Ended December 31, 2015
| | | | | | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies
| | | | | | | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 3,242 | | | $ | 28,897 | (2) | | $ | (5,257 | ) | | $ | — | | | $ | 26,882 | | | Income tax valuation allowance | | $ | 2,223 | | | $ | 210 | | | $ | — | | | $ | — | | | $ | 2,433 | | For the Year Ended December 31, 2016
| | | | | | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies
| | | | | | | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 26,882 | | | $ | 3,723 | | | $ | (23,535 | ) | | $ | — | | | $ | 7,070 | | | Income tax valuation allowance | | $ | 2,433 | | | $ | 15,207 | | | $ | — | | | $ | — | | | $ | 17,640 | | For the Year Ended December 31, 2017
| | | | | | | | | | | | | | | | | | | | | Reserve deducted from assets to which it applies
| | | | | | | | | | | | | | | | | | | | | | Inventory reserve for loss or obsolescence | | $ | 7,070 | | | $ | 6,349 | | | $ | (7,788 | ) | | $ | — | | | $ | 5,631 | | | Income tax valuation allowance | | $ | 17,640 | | | $ | 3,936 | (3) | | $ | — | | | $ | — | | | $ | 21,576 | |
| 1 | (1) | Deductions for the inventory reserve are for the purposes for which the reserve was created. The deductions for the income tax valuation allowance is described in Note 8. |
| (2) | Includes $22,499 for laminate flooring sourced from China and $3,663 related to the tile exit. |
| (3) | Includes the impact of the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. |
| | | Exhibit
Number | | Exhibit Description | 3.01 | | Certificate of Incorporation of Lumber Liquidators Holdings, Inc. (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference) | 3.02 | | By-Laws of Lumber Liquidators Holdings, Inc. (as revised effective December 1, 2016)February 5, 2020) (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on DecemberFebruary 6, 20162020 (File No. 001-33767), and incorporated by reference) | 4.01 | | Form of Certificate of Common Stock of Lumber Liquidators Holdings, Inc. (filed as Exhibit 4.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference) | 10.1*4.02 | | Description of Capital Stock (filed as Exhibit 4.02 to the Company’s annual report on Form 10-K, filed on February 25, 2020 (File No. 001-33767), and incorporated by reference) | 10.1* | | Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Form 8-K, filed May 23, 2019 (File No. 001-33767), and incorporated by reference) | 10.2* | | Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 25, 2016 (File No. 001-33767), and incorporated by reference) | 10.2*10.3* | | Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan (filed as Exhibit A to the Company’s definitive Proxy Statement, filed April 6, 2011 (File No. 001-33767), and incorporated by reference)
| 10.3* | | Lumber Liquidators 2007 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s Post-effectivePost –effective Amendment No. 1 to its Registration Statement on Form S-8, filed January 4, 2010 (File No. 333-147247), and incorporated by reference) | 10.4* | | Offer Letter Agreement with Marco Pescara (filed as Exhibit 10.06 to the Company’s Registration Statement on Form S-1, filed April 23, 2007 (File No. 333-142309), and incorporated by reference)
| 10.5 | | Lease by and between ANO LLC and Lumber Liquidators (relating to Toano facility) (filed as Exhibit 10.08 to the Company’s Amendment No. 1 to its Registration Statement on Form S-1, filed May 30, 2007 (File No. 333-142309), and incorporated by reference) | 10.6* | | Form of Option Award Agreement, effective November 16, 2007 (filed as Exhibit 10.10 to the Company’s annual report on Form 10-K, filed on March 12, 2008 (File No. 001-33767), and incorporated by reference) | 10.7* | | Form of Option Award Agreement, effective December 31, 2010 (filed as Exhibit 10.13 to the Company’s annual report on Form 10-K, filed on February 23, 2011 (File No. 001-33767), and incorporated by reference) | 10.8*10.5* | | Form of Option Award Agreement, effective May 6, 2011 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed May 6, 2011 (File No. 001-33767), and incorporated by reference) | 10.9 10.6 | | ThirdFourth Amended and Restated Credit Agreement, dated as of August 17, 2016,March 29, 2019, among Lumber Liquidators Holdings, Inc. and its domestic subsidiaries, including Lumber Liquidators, Inc. and Lumber Liquidators Services, LLC (collectively, the “Borrowers”), Bank of America, N.A. as administrative agent and collateral agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as lenders (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed August 19, 2016March 29, 2019 (File No. 001-33767), and incorporated by reference)
| 10.10*10.7 | | First Amendment to Fourth Amended and Restated Credit Agreement, dated as of April 17, 2020, among Lumber Liquidators Holdings, Inc. and its domestic subsidiaries, including Lumber Liquidators, Inc. and Lumber Liquidators Services, LLC (collectively, the “Borrowers”), Bank of America, N.A. as administrative agent and collateral agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as Lenders (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on April 20, 2020 (File No. 001- 33767) and incorporated by reference) | 10.8* | | Amended and Restated Annual Bonus Plan (filed as Exhibit 10.17 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) | 10.11*10.9* | | Form of Option Award Agreement, effective January 24, 2013 (filed as Exhibit 10.18 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) |
| | | Exhibit
Number10.10* | | Exhibit Description | 10.12*
| | Form of Restricted Stock Agreement, effective January 24, 2013 (filed as Exhibit 10.19 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference) | 10.13*10.11* | | Form of Stock Appreciation Right Agreement, effective January 24, 2013 (filed as Exhibit 10.20 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference)
| 10.14* | | Form of Option Award Agreement (Employee), effective November 23, 2015 (filed as Exhibit 10.22 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference) | 10.15*10.12* | | Form of Restricted Stock Agreement (Employee), effective November 23, 2015 (filed as Exhibit 10.24 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference)
| 10.16* | | Form of Option Award Agreement (Employee), effective August 1, 2016 (filed as Exhibit 10.24 to the Company’s annual report on Form 10-K, filed on February 21, 2017 (File No. 001-33767), and incorporated by reference) |
10.17*10.13* | | Form of Restricted Stock Agreement (Employee), effective August 1, 2016 (filed as Exhibit 10.26 to the Company’s annual report on Form 10-K, filed on February 21, 2017 (File No. 001-33767), and incorporated by reference)
| 10.18* | | Form of Restricted Stock Agreement (Director), effective May 24, 2017 (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on August 1, 2017 (File No. 001-33767), and incorporated by reference) | 10.19*10.14* | | Offer LetterForm of Restricted Award Agreement with Gregory A. Whirley, Jr.(Director), dated April 24, 2015effective February 7, 2018 (filed as Exhibit 10.310.2 to the Company’s currentquarterly report on Form 8-K,10-Q, filed on April 29, 2015May 1, 2018 (File No. 001-33767), and incorporated by reference)
| 10.20*10.15* | | Separation and ReleaseForm of Restricted Award Agreement between Lumber Liquidators, Inc. and its affiliated entities and Gregory Whirley, dated June 29, 2017(Director), effective May 22, 2019 (filed as Exhibit 10.110.2 to the Company’s currentquarterly report on Form 8-K,10-Q, filed on June 30, 2017August 7, 2019, 2018 (File No. 001-33767), and incorporated by reference)
| 10.21*10.16 | | Form of Severance Benefit Agreement (filed as Exhibit 99.2 to the Company’s current report on Form 8-K, filed August 5, 2015 (File No. 001-33767) and incorporated by reference)
| 10.22* | | Form of Retention Agreement (filed as Exhibit 99.3 to the Company’s current report on Form 8-K, filed August 1, 2015 (File No. 001-33767) and incorporated by reference) | 10.23 | | Plea Agreement between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference) | 10.24 10.17 | | Stipulation for Settlement and Joint Motion for Entry of Consent Order of Forfeiture between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference) | 10.25 10.18 | | Class Action Settlement Agreement in Formaldehyde MDL and ReleaseDurability MDL dated March 15, 2018 by and between Plaintiffs in the Formaldehyde MDL and the Durability MDL and Lumber Liquidators, Inc. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference) | 10.19 | | Deferred Prosecution Agreement, dated March 12, 2019, by and between Lumber Liquidators Services, LLCHoldings, Inc., the United States Attorney’s Office for the Eastern District of Virginia and the StateUnited States Department of California Air Resources BoardJustice, Criminal Division, Fraud Section. (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed March 22, 201612, 2019 (File No. 001-33767) and incorporated by reference) | 10.26 10.20 | | Corrective Action PlanOrder Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, dated March 12, 2019, between the Office of ComplianceUnited States Securities and Field Operations of the Consumer Product SafetyExchange Commission and Lumber Liquidators, Holdings, Inc. (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed June 17, 2016 (File No. 001-33767) and incorporated by reference)
|
| | | Exhibit
Number | | Exhibit Description | 10.27 | | Stipulation and Agreement of Settlement dated June 15, 2016 by and between Gregg Kiken, Keith Foster, David Lorenzo and Charles Hickman (collectively “Lead Plaintiffs”), on behalf of themselves and the Settlement Class and Lumber Liquidators Holdings, Inc. and defendants Thomas D. Sullivan, Robert M. Lynch, Daniel E. Terrell and William K. Schlegel (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed July 12, 2016 (File No. 001-33767) and incorporated by reference) | 10.28 | | Stipulation of Settlement dated July 18, 2016, by and between Lead Plaintiff Amalgamated Bank, as Trustee for the Longview 600 Small Cap Index Fund, plaintiff R. Andre Klein, plaintiff Phuc Doan, on behalf of themselves and derivatively on behalf of Lumber Liquidators Holdings, Inc., and defendants Thomas D. Sullivan, Douglas T. Moore, John M. Presley, Macon F. Brock, Jr., Peter B. Robinson, Martin F. Roper, Jimmie L. Wade, Nancy M. Taylor, Daniel E. Terrell, Carl R. Daniels, Robert M. Lynch, Jeffrey W. Griffiths, and William K. Schlegel, and nominal defendant Lumber Liquidators Holdings, Inc.(filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed July 22, 2016 (File No. 001-33767) and incorporated by reference) | 10.29* | | Option Award Agreement with John M. Presley, dated November 9, 2015 (filed as Exhibit 10.37 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference) | 10.30* | | Offer Letter Agreement with Carl R. Daniels, dated September 7, 2011 (filed as Exhibit 10.38 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference) | 10.31* | | Executive Employment Agreement with John M. Presley (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed February 29, 2016 (File No. 001-33767) and incorporated by reference) | 10.32* | | Offer Letter Agreement with Dennis R. Knowles, dated February 23, 2016 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed February 29, 2016March 12, 2019 (File No. 001-33767) and incorporated by reference) | 10.33*10.21 | | Amendment,Class Action Settlement in the Kramer Litigation dated November 7, 2016, to Offer Letter, dated as of February 23, 2016,September 9, 2019 by and between the Plaintiffs in the Kramer Litigation and Lumber Liquidators, Holdings, Inc. and Dennis R. Knowles (filed as Exhibit 10.1 to the Company’s currentquarterly report on Form 8-K,10-Q, filed November 7, 20166, 2019 (File No. 001-33767) and incorporated by reference)
| 10.34*10.22 | | Offer Letter Agreement with Martin D. Agard,of Compromise and Settlement in the Gold Litigation dated August 31, 2016September 30, 2019 by and between the Plaintiffs in the Gold Litigation and Lumber Liquidators, Inc. (filed as Exhibit 10.110.2 to the Company’s currentquarterly report on Form 8-K,10-Q, filed September 9, 2016November 6, 2019 (File No. 001-33767) and incorporated by reference)
| 10.35*10.23* | | Offer Letter Agreement with Timothy J. Mulvaney, dated March 22, 2017 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 26, 2017 (File No. 001-33767) and incorporated by reference) | 10.36*10.24 | | Office Deed of Lease Agreement dated October 19, 2018, by and between LM Retail, LLC and Lumber Liquidators Services, LLC (filed as Exhibit 10.35 to the Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) | 10.25* | | Offer Letter Agreement with Michael L. Reeves,Jennifer Bohaty, dated June 16, 2017March 30, 2018 (filed as Exhibit 10.36 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) | 21.1 10.26* | | Offer Letter Agreement with Charles E. Tyson, dated May 17, 2018 (filed as Exhibit 10.37 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference) | 10.27* | | Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Jennifer Bohaty (filed herewith) | 10.28* | | Severance Agreement, dated as of March 15, 2019, between the Company and Timothy J. Mulvaney (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on March 18,2019 (file No. 001-33767) and incorporated by reference) | 10.29* | | Offer Letter Agreement with Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001-33767) and incorporated by reference) |
10.30* | | Severance Agreement, effective as of September 9, 2019 between the Company and Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001-33767) and incorporated by reference) | 10.31* | | Offer Letter Agreement with Christopher Thomsen, dated August 8, 2016 (filed as Exhibit 10.45 to the Company’s annual report on Form 10-K, filed February 25, 2020 (file No. 001-337-67) and incorporated by reference) | 10.32* | | Severance Agreement, effective as of July 26, 2018 between the Company and Christopher Thomsen (filed herewith) | 10.33* | | Waiver and Release Agreement for Dennis R. Knowles, dated as of February 5, 2020 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference) | 10.34* | | Amendment to Severance Agreement for Nancy A. Walsh, dated as of February 5, 2020 (filed as Exhibit 10.3 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference) | 10.35* | | Severance Agreement, dated as of May 27, 2020, by and between Lumber Liquidators Holdings, Inc. and Charles E. Tyson (filed herewith) | 10.36* | | Offer Letter Agreement with Matthew Argano, dated March 28, 2020 (filed herewith) | 10.37* | | Severance Agreement, dated as of April 20, 2020, by and between Lumber Liquidators Holdings, Inc. and Matthew Argano (filed herewith) | 21.1 | | Subsidiaries of Lumber Liquidators Holdings, Inc. | 23.1 | | Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm | 31.1 | | Certification of Principal Executive Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 31.2 | | Certification of Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | 32.1 | | Certification of Principal Executive Officer and Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley act of 2002 |
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| | | Exhibit
Number101 | | Exhibit Description | 101 | | The following financial statements from the Company’s Form 10-K for the year ended December 31, 2017,2020, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss),Loss, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements |
104 | * | Cover Page Interactive Data File (embedded within the Inline XBRL document) | * | | Indicates a management contract or compensation plan, contract or agreement. |
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 1, 2021. | | LUMBER LIQUIDATORS HOLDINGS, INC. | | | (Registrant) | | | | | By: | /s/ Charles E. Tyson | | | Charles E. Tyson | | Chief Executive Officer |
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2021. | | | Signature | | Title | |
| | /s/ Charles E. Tyson | | Chief Executive Officer | Charles E. Tyson | | (Principal Executive Officer) | | | | /s/ Nancy A. Walsh | | Chief Financial Officer | Nancy A. Walsh | | (Principal Financial Officer) | | | | /s/ Timothy J. Mulvaney | | Chief Accounting Officer | Timothy J. Mulvaney | | (Principal Accounting Officer) | | | | /s/ Nancy M. Taylor | | Chairperson of the Board | Nancy M. Taylor | | | /s/ Terri F. Graham | | Director | Terri F. Graham | | | | | | /s/ David A. Levin | | Director | David A. Levin | | | | | | /s/ Douglas T. Moore | | Director | Douglas T. Moore | | | | | | /s/ Joseph M. Nowicki, Jr. | | Director | Joseph M. Nowicki, Jr. | | | | | | /s/ Famous P. Rhodes | | Director | Famous P. Rhodes | | | | | | /s/ Martin F. Roper | | Director | Martin F. Roper | | | | | | /s/ Jimmie L. Wade | | Director | Jimmie L. Wade | | | | | |
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