Our customers say it best!
” I replaced our carpet with bamboo
“ We replaced carpet with Pebble Stone
flooring; what a difference! Easier to clean,
Oak laminate in our condo in North
and I feel better about my kids and pets
Myrtle Beach. Looks awesome! The guys
being on the floor now. I think it makes an
at Lumber Liquidators were fantastic to
ordinary room look extraordinary!”
work with! Highly recommend.”
-Dan, VA
-Cory, PA
” We decided to replace our carpet with
” This is a beautiful floor, we’re very happy
engineered hardwood. We love it and
with it. My installers said it was easy to
would recommend Lumber Liquidators
install I would definitely recommend it!”
to anyone. The installers were
professional and very hardworking.”
-Cheryl, TX
-Kelly, CA
2018 ANNUAL
REPORT
From inspiration to installation,
our passion is to make beautiful fl ooring
possible and easy for all.
“We love our new floor!” -Kim, FL
Year Ended December 31, 2018
159073 T0PPAN -- OUTSIDE -- 1/4" HT -- CYAN MAGENTA YELLOW BLACK --
TENNESSEE
UTAH
WISCONSIN
Chattanooga - 4295 Cromwell Rd, Suite 401 • 423.933.3201
Lindon - 1451 West 40 South • 801.429.9465
Appleton - 1820 North Casaloma Dr • 920.666.2870
Kingsport - 2637 East Stone Dr • 423.343.4168
Riverdale - 4040 Riverdale Road, Suite A1 • 385.205.8034
De Pere - 1452 Mid Valley Dr • 920.351.4570
Knoxville - 504 Carden Jennings Lane, Suite 104 • 865.622.3740
Salt Lake City - 389 West 1830 South, #800 • 801.886.8878
Kenosha - 7650 75th St, Suite 3 • 262.835.1100
La Vergne - 131 Charter Place • 615.793.6993
Madison - 1553 Gallatin Pike North • 615.997.0021
Memphis - 6949 Appling Farm Pkwy, Suite 106 • 901.743.3339
TEXAS
Amarillo - 2008 South Soncy Rd • 806.553.4655
Arlington - 808 Interstate 20 • 817.789.6160
Austin - 8627 North I-35 • 512.444.0244
Austin - 801 East William Cannon Dr #125 • 512.537.8078
Beaumont - 4395 West Cardinal Dr, Suite 200 & 300 • 409.299.3645
VERMONT
VIRGINIA
Williston - 329 Harvest Lane, Suite 200 • 802.316.4113
Chantilly - 14310 Sullyfield Circle, Suite 500A • 703.563.4321
Danville - 119 Piney Forest Road • 434.548.0700
CANADA
ONTARIO
Madison - 4615 Verona Rd • 608.620.7306
Sun Prairie - 2255 McCoy Rd • 608.318.4140
West Allis - 6740 Greenfield Ave • 414.386.0425
Fredericksburg - 4507 Jefferson Davis Highway • 540.446.5035
Barrie - 106 Saunders Rd, Unit 10 & 11 • 705.242.1050
Hampton - 2326 West Mercury Blvd • 757.952.0620
Leesburg - 1065 Edwards Ferry Rd NE • 571.762.0541
Lorton - 8245 Backlick Rd, Suite I • 703.339.1180
Cambridge - 611 Hespeler Rd • 226.887.4278
Mississauga - 3145 Dundas St West, Unit 11 • 289.326.0360
Pickering - 1095 Kingston Rd, Unit 5 • 647.930.0352
Lynchburg - 3700 Candlers Mountain Rd • 434.845.1207
Stoney Creek - 442 Millen Rd, Unit 111 & 112 • 289.205.0402
Toronto - 1400 O’Connor Dr, Suite 6 • 647.933.2490
Toronto - 470 Norfinch Dr • 647.955.4850
Windsor - 1925 Provincial Rd • 519.916.1103
Carrollton - 1620 North I-35, Suite 300 • 972.323.5077
Corpus Christi - 1910 S Padre Island Dr • 361.356.4910
Dallas - 2984 West Wheatland Rd, Suite A-1 • 214.390.3678
Denton - 2311 Colorado Boulevard • 940.312.1292
El Paso - 1111 Barranca Dr, Suite 100 • 915.590.3300
Fort Worth - 425 Sherry Lane • 682.207.6770
Houston - 5829 West Sam Houston Pkwy • 832.467.9993
Houston - 6148 South Loop East • 713.649.3900
Hurst - 842 Airport Freeway • 682.730.6778
Irving - 3578 West Airport Freeway • 469.607.0441
Katy - 455 Katy Ft Bend Road • 281.819.2900
Killeen - 1101 South Fort Hood St. • 254.242.3384
League City - 2227 Gulf Freeway • 281.724.4546
Lubbock - 5004 Frankford Ave, Suite 700 • 806.577.4109
McAllen - 3401 West Expressway 83 • 956.467.5679
Mesquite - 3301 Interstate 30, Suite 101 • 214.453.0442
Plano - 1717 North Central Expressway • 972.422.0727
San Antonio - 2200-2 NW Loop 410 • 210.524.9996
San Antonio - 3142 SE Military Dr • 210.504.3000
Selma - 15403 Interstate 35 North • 210.570.1425
Sherman - 1215 S Sam Rayburn Freeway • 903.487.0368
Spring - 21755 I-45 • 281.825.5255
Stafford - 13911 Murphy Rd • 713.481.5930
Tyler - 3216 West Gentry Pkwy • 903.705.4242
Woodway - 6802 Woodway Dr • 254.230.1755
Manassas - 10356 Festival Lane • 571.535.4352
Norfolk - 416 Campostella Rd • 757.494.7900
North Chesterfield - 9990 Robious Rd • 804.404.7292
Richmond - 8818-B West Broad St • 804.404.7856
Salem - 356 Apperson Dr • 540.765.4200
Toano - 3000 John Deere Rd • 757.566.7546
Virginia Beach - 317 Village Rd • 757.215.0856
Woodbridge - 14516 Potomac Mills Rd • 571.343.4000
WASHINGTON
Bellevue - 2021 130th Ave NE, Suite E - 425.458.3671
Kennewick - 6300 West Deschutes Ave, Bld B101 • 509.396.6912
Mukilteo - 11338 Mukilteo Speedway • 425.320.3980
Olympia - 1520 Cooper Point Rd SW • 360.529.4481
Seattle - 3300 1st Ave South, Suite 200 • 206.625.5200
Shoreline - 15505 Westminster Way North • 206.962.4165
Spokane Valley - 12918 E Indiana Ave • 509.891.0111
Tacoma - 3001 South Huson St, Suite A1 • 253.617.0071
Tukwila - 120 Andover Park East • 253.333.9830
WEST VIRGINIA
Martinsburg - 85 Lynn Haven Dr Unit E • 304.596.0920
Nitro - 4200 1st Ave #209 • 304.759.8639
Parkersburg - 2838 Pike St Suite 1A • 681.315.4007 -Coming Soon!
Wheeling - 2738 Chapline St • 304.907.0137
159073 T0PPAN -- INSIDE -- 1/4" HT -- CYAN MAGENTA YELLOW BLACK --
Our customers
say it best!
”Great product, great price,
”From old to new.
“I love the look of the
easy installation. Will continue
The WOW factor! I love
products. The fl oors were
to buy fl ooring from Lumber
my new bedroom
simple to install and give a
Liquidators from now on.”
fl ooring so much. Thank
rich, warm fi nished touch
-Craig, MO
you Lumber Liquidators
to my home.”
for great prices
and knowledgeable
service.” -Kathleen, OR
-Fernie, CO
b
o
j
.
N
R
P
t
x
T
3
7
0
9
5
1
1
Dear Fellow Shareholders,
Our mission is to provide beautiful floors that are accessible for all. Since my letter a year ago,
we executed on our strategic initiatives and laid the foundation for our future. Despite facing
several headwinds, I believe 2018 will be viewed as an inflection point on our journey.
Throughout the year, we accomplished important and encouraging milestones that we believe
better position us for the future. In 2018, we expanded our digital and technological
capabilities, revamped our marketing strategy, strengthened our inventory management,
adjusted our global sourcing strategies, and improved our product mix and regionalization. We
also introduced a first-of-its-kind store design for Lumber Liquidators in Altamonte Springs,
Florida equipped with more in-stock inventory, a Pro Desk, and a Design Center, setting a new
standard for our customer’s flooring experience.
I am proud of our devoted associates who are a critical part of our strategy to capture new
market share. Our team has dedicated an immense amount of time in training and support to
ensure our knowledgeable employees deliver a differentiated experience to our customers.
Today, our employee turnover is at its lowest level that I have seen in my tenure, and I am
thankful for our associates’ drive and passion as they serve our customers.
For 2018, we noted four key areas of emphasis: Operational Excellence, Enhancing the
Customer Experience, Expanding Our Business and Improving Profitability. We progressed on all
of these in 2018, but importantly laid the groundwork to propel our long-term growth.
Operational Excellence
Our priority is to focus on operational excellence through improved service, merchandising,
assortment, and value. We are taking the necessary steps to strengthen our service offerings,
product assortment and value proposition, and data analytics are fueling decisions to enhance
our omni-channel strategy. We are utilizing data to identify shopping behaviors and understand
our customers’ purchase decisions, and we also continue to use the critical feedback we receive
from customer surveys.
Our Installation and Pro businesses continue to grow at healthy levels and are major growth
drivers of our business. As of December 31, 2018, Installation and delivery services and Pro
customers represented 11.9% and 28.5% of our sales, respectively, and we anticipate that both
will continue to grow over time. These two businesses are truly differentiators for our
Company, demonstrating our commitment to servicing all customers’ end-to-end needs.
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Sig 1
]
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Yellow
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Magenta
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Black
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Cyan
] 8.25 x10.75 - 1/4 HT & 3/16 Spine - 48 page on 46x52.5
1
11
We are building a model that supports all of our customers’ needs, no matter where they are in
their flooring shopping journeys. In turn, we are improving sales, increasing our average ticket
size, and most importantly, strengthening our relationships with our customers.
Enhancing Value Proposition and Customer Experience
Our progress in enhancing the value proposition and customer experience is evidenced in both
our new store format in Altamonte Springs, Florida and in our outreach to customers driven
through digital and technological advancements. More and more, our customers’ journeys
start online. We are integrating digital into our business, ensuring that our customers are
aware of our products and capabilities, and are armed with the knowledge to make the best
choices.
It is critical to our success that we integrate our online and in-store environments and improve
our inventory strategy. We revamped our website, including improvements in site
performance, speed, and navigation for our customers. We are also in the process of launching
interactive capabilities, where our customers can communicate seamlessly with our associates
both online and on their mobile devices.
We are particularly proud of our updated marketing mix, which we have transitioned to a more
contemporary approach. Gone are the days of direct mail being the primary form for
communications with customers. We are focusing our efforts on hyper-local marketing and
actively adjusting our ad spend, utilizing channels in which we gain higher returns on our
investments. We believe our enhanced customer experience, omnichannel sales, and new store
prototypes, coupled with a transformative marketing approach will improve traffic in the long-
run.
Expanding our Business
We completed our rollout of installation to all stores and grew installation revenues to 12% of
total revenues. We opened 21 stores in key, target markets in 2018, bringing us to 413 stores at
year-end, including the new store format in Altamonte Springs. Although it is early, we are
pleased with the initial results and feedback we receive from our local customers. We have
identified a number of locations in high-traffic areas where opportunities exist to open stores
similar to this format or transition current stores to this format. We plan to continue refining
and testing this format before making a decision on further rollout. We also continue to
innovate our product assortment to drive sales on the merchandising side. In the fourth
quarter, we launched our new AquaSeal water-resistant products for both 24-hour and 72-hour
performance, that enhance our offerings in the growing, water-resistant category. With more
products, additional locations and new store prototypes, we are working to effectively position
ourselves to win with more customers, whether they fall within the do-it-yourself, do-it-for-me,
or professional segments.
11
1
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Yellow
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Magenta
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Black
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Cyan
] 8.25 x10.75 - 1/4 HT & 3/16 Spine - 48 page on 46x52.5
Improving Profitability
We faced some headwinds in 2018 in the form of higher transportation costs and new trade
tariffs on goods from China. While these had a material impact on our business in 2018, we
took a fresh look at our business, specifically related to cost and sourcing, and we renegotiated
lower costs from our vendors. We expect that the lower product costs will fully take root in
2019. Our team is diligently moving sourcing to other countries, and believe that these efforts,
along with the potential for repeal of the Chinese goods tariffs, will expand margins in the
future. We also understood the importance of getting the right talent to aid in this process and
hired a new head of sourcing late in 2018. Despite challenges with tariffs, we were still able to
grow our gross margins modestly in 2018, which we believe showcases both our success in
mitigation and our commitment to reduce cost and expand margins.
All of these efforts led to a 5.4% increase in sales in 2018, driven by a comparable store sales
gain of 2.6%. Our business growth was primarily driven by strength in our Installation and
delivery services business, which increased to 11.9% of our total revenue in 2018. Additionally,
our Pro business continues to accelerate and represented 28.5% of total revenue. Our gross
margin expanded 40 basis points driven primarily by improvements in price and mix despite a
difficult tariff environment.
Looking Ahead…
Subsequent to year end, we reached resolution with the United States Attorney’s Office for the
Eastern District of Virginia, the Department of Justice and the Securities and Exchange
Commission concerning their criminal and civil investigations into the public disclosures the
Company made in March 2015 regarding whether its Chinese-made laminates were compliant
with certain California state regulatory requirements. It is important to note that neither the
DOJ nor the SEC made any findings regarding the safety or quality of our laminate flooring
previously sourced from China. Additionally, we reached a memorandum of understanding in a
matter related to certain Morningstar strand bamboo product. These matters have demanded
management’s attention and have been a financial drag on the business for the past several
years. We are happy to put these matters behind us so that we can focus on providing high-
quality products, services, and experiences for our customers.
We enter 2019 with momentum we built in 2018, and we continue to be guided by the idea
that accessibility is key to driving growth. We are reshaping the way our customers engage and
shop with us, prioritizing digital, product and customer experience innovation, tactical
advertising, product mix and a unique shopping experience. Our efforts in 2018 are the
foundation on which we will build 2019 to create value for our stockholders.
In 2019, we launched a floor visualizer that is state-of-the-art and enables a customer to upload
a photo of any room in their home and envision what a Lumber Liquidators floor would look
like. We are particularly excited about this digital innovation. In addition to digital
11
1
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Yellow
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Magenta
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Black
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side A Cyan
] 8.25 x10.75 - 1/4 HT & 3/16 Spine - 48 page on 46x52.5
b
o
j
.
N
R
P
t
x
T
3
7
0
9
5
1
1
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Sig 1
]
enhancements, we are also focused on driving traffic through renewed and targeted marketing
so we can deliver a differentiated customer experience through our knowledgeable associates,
integrating our online and in-store customer experiences strengthen our competitive
advantages, which should enable us to capture additional market share. While we expect some
moderation in the economic backdrop, particularly as it relates to new and existing homes
sales, we believe the ongoing consumer shift away from carpeting will ultimately sustain
demand for our wide variety of hard surface flooring products.
We are planning to test several larger store format prototype stores in key markets that are
designed to better meet the needs of our customers, and we will look to continue optimizing
our marketing mix and expanding our assortment. These initiatives provide us with more
opportunities to engage our customers and drive top and bottom-line growth.
Thank you for your continued interest in our Company and investing in what we believe will be
a successful and prosperous future. I also want to thank our customers, employees, suppliers
and partners for their continued support. We believe 2018 has positioned us well for the
future. We have a strong Board of Directors and management team and dedicated employees,
and, most importantly, we have the vision and drive to succeed. We are excited for what is to
come in 2019 and the strategic objectives that we will accomplish at Lumber Liquidators.
Dennis R. Knowles
President and Chief Executive Officer
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements made herein that relate to future events or our expectations, projections, estimates, intentions, goals, targets, and strategies are
made pursuant to the Private Securities Litigation Reform Act of 1995. You are cautioned that all forward-looking statements are based upon
current expectations and estimates. We assume no obligation to update this information. Because actual results may differ materially from
those expressed or implied by these forward-looking statements, we caution readers not to place undue reliance on these statements. Our
business, financial condition, cash flow, and operating results are influenced by many factors, which are often beyond our control, which can
cause actual results to differ from those expressed or implied by the forward-looking statements. For a discussion of risk factors and other
important factors affecting forward-looking statements, please see the Form 10-K filed with the Securities and Exchange Commission, which
factors are specifically incorporated by reference herein.
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Yellow
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Magenta
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Black
159073 TOPPAN tv516073_Lumber Liquidators Holdings_Text_Cover Signature 1 Side B Cyan
] 8.25 x10.75 - 1/4 HT & 3/16 Spine - 48 page on 46x52.5
1
11
2018 Financial Highlights
Net Sales
$1,047.4
$978.8
$960.6
$1,028.9
$1,084.6
2014
2015
2016
2017
2018
Stores Open
374
22
383
9
413
20
393
10
352
374
383
393
352
34
318
2014
2015
2016
2017
2018
Net Income (Loss)
$63.4
2014
$(56.4)
2015
$(68.6)
2016
$(37.8)
$(54.4)
2017
2018
Adjusted Operating Income (Loss)*
$104.1
$5.5
$10.7
$20.2
2014
2015
$(31.5)
2016
2017
2018
* Adjusted Operating Income (Loss) is a non-GAAP financial measure, which is defined as Operating
Income (Loss), as reported (GAAP) less certain gross margin items and certain SG&A items, and may
not be comparable to the definition of Operating Income (Loss) used by other companies. For further
discussion and a reconciliation to GAAP of this non-GAAP financial measure, please see our fiscal 2018
Form 10-K. 2014 had no adjustments to GAAP Operating Income.
BOARD OF DIRECTORS
Nancy M. Taylor
Chairperson of the Board
Lumber Liquidators Holdings, Inc.
OFFICERS
Dennis R. Knowles
President and Chief Executive Officer
W. Stephen Cannon
Chairperson
Constantine Cannon LLP
Terri Funk Graham
Former Senior Vice President
and Chief Marketing Officer
Jack in the Box, Inc.
Timothy J. Mulvaney
Interim Chief Financial Officer
and Senior Vice President,
Chief Accounting Officer
Jennifer Bohaty
Chief Ethics and
Compliance Officer
Dennis R. Knowles
President and Chief Executive Officer
Lumber Liquidators Holdings, Inc.
M. Lee Reeves
Senior Vice President, Chief Legal
Officer and Corporate Secretary
David A. Levin
Former President and Chief Executive
Officer Destination XL Group, Inc.
Christopher N. Thomsen
Senior Vice President
Chief Information Officer
Douglas T. Moore
President and Chief Executive Officer
Med-Air Homecare; Senior Vice
President First Street, Inc.
Charles E. Tyson
Chief Customer
Experience Officer
Famous P. Rhodes
Executive Vice President and
Chief Marketing Officer
Bluegreen Vacations Corporation
Martin F. Roper
Retired President and
Chief Executive Officer
The Boston Beer Company, Inc.
Jimmie L. Wade
Retired President and Former
Member Board of Directors
Advance Auto Parts, Inc.
SHAREHOLDER
INFORMATION
Corporate Address
Lumber Liquidators Holdings, Inc.
3000 John Deere Road
Toano, VA 23168
(757) 259-4280
Independent Registered
Public Accounting Firm
Ernst & Young LLP
Transfer Agent & Registrar
Computershare
P.O. Box 30170
College Station, TX 77842
(800) 662-7232
New York Stock Exchange
Ticker Symbol: LL
Investor Relations
Lumber Liquidators Holdings, Inc.
3000 John Deere Road
Toano, VA 23168
(757) 566-7512
ir@lumberliquidators.com
http://ir.lumberliquidators.com
ANNUAL MEETING
May 22, 2019, 10:00 am
Virginia Crossings Hotel
1000 Virginia Center Parkway
Glen Allen, VA 23059
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-33767
Lumber Liquidators Holdings, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of incorporation or organization)
27-1310817
(I.R.S. Employer Identification No.)
3000 John Deere Road, Toano, Virginia
(Address of principal executive offices)
23168
(Zip Code)
(757) 259-4280
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
As of June 30, 2018, the last business day of the registrant’s most recent second quarter, the aggregate market value of the registrant’s common stock held by
non-affiliates of the registrant was $686.4 million based on the closing sale price as reported on the New York Stock Exchange.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of March 1, 2019:
Title of Class
Common Stock, $0.001 par value
Number of Shares
28,640,264
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant’s proxy statement for the 2019 annual meeting of stockholders, which will be filed no later than
120 days after the close of the registrant’s fiscal year ended December 31, 2018.
LUMBER LIQUIDATORS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Cautionary note regarding forward-looking statements
PART I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Item 6. Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
Page
4
4
9
19
19
20
26
26
26
28
30
44
45
77
77
78
78
78
79
79
79
79
79
79
80
85
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENT
This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute
“forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995. These
statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar
terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and
information currently available to, the Company’s management as of the date of such statements. These statements are
subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s
control. These risks include, without limitation, the impact on us of any of the following:
the outcomes of government investigations and legal proceedings, and the related impact on liquidity;
reputational harm;
obligations related to and impacts of new laws and regulations, including pertaining to tariffs;
obtaining products from abroad, including the effects of tariffs, as well as the effects of antidumping and
countervailing duties;
obligations under various settlement agreements and other compliance matters;
disruptions related to our corporate headquarters relocation;
impact of the Tax Cuts and Jobs Act (the “Tax Act”);
the inability to open new stores and fund other capital expenditures needs;
managing growth;
managing third-party installers and product delivery companies, including the quality of service;
increased transportation costs;
damage to our assets;
disruption in our ability to distribute our products;
operating stores in Canada and an office in China;
renewing store or warehouse leases;
having sufficient suppliers;
our, and our suppliers’, compliance with complex and evolving rules, regulations, and laws at the federal, state,
and local level;
disruption in our ability to obtain products from our suppliers;
product liability claims;
availability of suitable hardwood, including due to disruptions from the impacts of severe weather;
changes in economic conditions, both domestic and abroad;
sufficient insurance coverage;
access to capital;
disruption due to cybersecurity threats;
the handling of confidential customer information, including the impacts from the California Consumer Privacy
Act;
alternative e-commerce offerings;
our advertising strategy;
anticipating consumer trends;
competition;
impact of changes in accounting guidance, including implementation guidelines and interpretations;
management information systems disruptions;
maintenance of valuation allowances on deferred tax assets and the impacts thereof;
internal controls;
stock price volatility; and
anti-takeover provisions.
3
The Company specifically disclaims any obligation to update these statements, which speak only as of the dates
on which such statements are made, except as may be required under the federal securities laws. These risks and other
factors include those listed in this Item 1A. “Risk Factors” and elsewhere in this report.
References to “we,” “our,” “us,” “the Company” and “Lumber Liquidators” generally refers to Lumber
Liquidators Holdings, Inc. and its consolidated subsidiaries collectively and, where applicable, individually.
PART I
Item 1. Business.
Overview
Lumber Liquidators is one of the leading specialty retailers of hard-surface flooring in North America, offering
a complete purchasing solution across an extensive assortment of domestic and exotic hardwood species, engineered
hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile. We also feature the renewable flooring
products, bamboo and cork, and provide a wide selection of flooring enhancements and accessories, including moldings,
noise-reducing underlayment, adhesives and flooring tools. We offer installation and delivery services through third-
party independent contractors for customers who purchase our floors. We operate as a single business segment, with our
call center, website and customer service network supporting our retail store operations.
We believe we have achieved a reputation for offering great value, superior service and a broad selection of
high-quality hard-surface flooring products. With a balance of selection, quality, availability, service and price, we
believe our value proposition is the most complete within a highly fragmented hard-surface flooring market. The
foundation for our value proposition is strengthened by our unique store model, the industry expertise of our people, and
our singular focus on hard-surface flooring.
Lumber Liquidators is a Delaware corporation with its headquarters in Toano, Virginia. We were founded in
1994 and our initial public offering was in November 2007. Our common stock trades on the New York Stock Exchange
under the symbol “LL.” We operate in a holding company structure with Lumber Liquidators Holdings, Inc. serving as
our parent company and certain direct and indirect subsidiaries, including Lumber Liquidators, Inc., Lumber Liquidators
Services, LLC, Lumber Liquidators Production, LLC, and Lumber Liquidators Canada, ULC, conducting our operations.
Our Business
Market
According to the July 2018 Issue of Floor Covering Weekly, U.S. installed floor covering product sales in 2017
were $40.8 billion, not including labor. Within this market, U.S. hardwood, laminate and vinyl flooring sales accounted
for 38.7% of the total. Flooring sales are driven by a number of factors including discretionary income and the housing
market. Including installation, the overall flooring industry has grown at a compound annual growth rate of 5.4% from
2012 through 2017. Over the same period, hardwood, laminate and vinyl flooring sales, including the cost of installation
grew at a compound annual growth rate of 8.3%. We believe improvements in the quality and construction of certain
products, increasing resiliency and water-tolerance of products, ease of installation, availability in a broad range of retail
price points, and movement away from soft surfaces will drive continued hard-surface flooring share gain versus soft
surface flooring in the future.
Competition
We compete for customers in a highly fragmented marketplace, where we believe no one retailer has captured
more than a 17% share of the consumer market for hard-surface flooring. Although the market includes the national
home improvement warehouse chains, warehouse clubs and online retailers, we believe nearly half of the industry
4
consists of local one-store flooring retailers, small chains of stores that may specialize in one or two flooring categories,
and a limited number of regional chains.
Customers
We target several distinct customer groups who each have varied needs with respect to their flooring purchases,
including do-it-yourself (“DIY”) customers, do-it-for-me (“DIFM”) customers, and commercial customers. We believe
that each of the customer groups we serve is passionate about their flooring purchase and value our wide assortment of
flooring products, availability, and the quality of those products. While our offering to each of these groups begins with
the same broad assortment, convenient stores, and knowledgeable store associates, each of these customer groups require
unique service components based on the ability of our associates to share detailed product knowledge and preferred
installation methods. We offer DIFM customers installation services, while our DIY and commercial customers receive
more personal attention when completing their purchase, including dedicated call center resources. All customer groups
are offered delivery services.
Products and Services
Product Selection
We offer an extensive assortment of hard-surface flooring under more than 15 proprietary brand names, led by
our flagship, Bellawood®. We have invested significant resources developing these national brand names, as well as the
Lumber Liquidators name. Our hard-surface flooring products are available in various widths and lengths and are
generally differentiated in terms of quality and price based on wood versus manufactured materials, the species, wood
grade and durability of finish. Prefinished floors are the dominant choice for residential customers over unfinished wood
planks that have a finish applied after installation. We also offer an assortment of flooring enhancements, installation
services and accessories, including moldings, underlays and tools.
Direct Sourcing
We source directly from mills and other vendors which enables us to offer a broad assortment of high-quality,
proprietary products to our customers at a consistently competitive cost. We seek to establish strong, long-term
relationships with our vendor partners around the world. In doing so, we look for vendors that have demonstrated an
ability to meet our demanding specifications, our rigorous compliance standards and the capability to provide sustainable
and growing supplies of high-quality innovative, trend-right products. We source from both domestic and international
vendors, and in 2018, approximately 47% of our product was sourced from Asia, 7% was sourced from Europe and
Australia, and 5% was sourced from South America.
Supply Chain
Our supply chain is wholly focused on delivering a complete assortment of products to our customers in an
efficient manner. We operate a 500,000 square foot leased distribution center in Pomona, California as the primary
distribution center for our western stores. We own a one million square foot distribution center on approximately 100
acres of land in Henrico County, Virginia, which serves the East Coast stores. A number of our vendors maintain certain
inventory levels for shipment directly to our stores or our customers. Our product is generally transported boxed and
palletized, and the weight of our product is a key driver of our supply chain costs.
Compliance and Quality Control
Our compliance programs are designed to ensure the products we sell are safe and responsibly sourced, and
meet all regulatory and statutory requirements, including without limitation requirements associated with the Lacey Act,
Environment Protection Agency ("EPA") and the California Air Resources Board (“CARB”). We utilize a variety of due
diligence processes and controls, including supplier audits, periodic on-site visits, and product testing. We utilize a risk-
based approach to implement and operate the various aspects of our compliance program. Our compliance program
considers, among other things, product risk, the level of vertical integration at our suppliers’ mills, legality concerns
5
noted by both private and government parties, and the results of on-site audits that we perform. Our evaluation of
sourcing risk is a key component in our allocation of resources to ensure we meet our standards for product compliance
and safety. Compliance and Quality Control teams located in the United States and in China are supplemented with
external resources that provide independent analyses, which are incorporated into our review processes and monitor our
sourcing efforts across all areas from which we source product. Compliance programs are continually under review,
updated and enhanced as appropriate to stay current with statutory and regulatory requirements. Our compliance and
regulatory affairs committee of the board of directors provides oversight of our compliance programs.
Additionally, we maintain and operate a 1,500 square foot lab within our East Coast distribution center. The lab
features two temperature and humidity controlled conditioning rooms and two emission chambers correlated to a CARB-
approved Third-Party Certifier standard. We believe this equipment mirrors the capabilities of CARB and other state-of-
the-art emission testing facilities. This lab, along with our third-party providers, supports our process to ensure
compliance with CARB and EPA requirements.
Installation
Approximately one in 10 of our customers purchase professional installation services through us to measure and
install flooring at competitive prices. We offer these services at all of our stores. As of December 31, 2018, we utilized a
network of associates to perform certain customer-facing, consultative services and coordinate the installation of our
flooring products by third-party independent contractors in our stores. Service revenue for installation transactions we
control along with freight is included in net services sales, with the corresponding costs in cost of services sold. We
believe our greater interaction with the customer and better relationships with the third-party independent contractors on
services provided will ultimately result in a better customer experience and higher utilization by the customer.
Store Model
As of December 31, 2018, we operated 413 retail stores, with 405 located in 47 states in the United States and
eight in Ontario, Canada. We opened 21 new stores and closed one store in 2018. We historically had sought locations
with lower rent than retailers requiring high traffic or impulse purchases and are able to adapt a range of existing
buildings to our format, from freestanding buildings to strip centers to small shopping centers. Our stores are typically
6,500 to 7,500 square feet. We enter into short leases, generally for a base term of five to seven years with renewal
options, to maximize our real estate flexibility.
We routinely evaluate our store site selection criteria and are currently targeting retail corridors within a market
over the more industrial locations we historically sought. We consistently monitor performance of current stores as well
as the market opportunity for new locations, adjusting as needed to optimize the profitability and growth potential of our
network. We have recently opened a larger store format in a single-test location. This format includes a showroom that is
four times the size of our traditional store, and includes more items in stock and other amenities.
Sales Approach
We strive to have an integrated multi-channel sales model that enables our stores, call center, website and
catalogs to work together in a coordinated manner. We believe that due to the average size of the sale and the general
infrequency of a flooring purchase, many of our customers conduct extensive research using multiple channels before
making a purchase decision. Though our customers utilize a range of these channels in the decision-making process, the
final sale is most often completed in the store, working with our flooring experts. Our customers typically plan well in
advance for the inconvenience of removing old flooring and installing new flooring. In larger, more complex projects,
greater lead time and preparation is often required. Our research indicates that the length of a hardwood flooring
purchase can vary significantly from initial interest to final sale.
Our objective is to help the customer through the entire purchase cycle from inspiration to installation, whether
in our store or in their home. Our goal is to provide our customers with everything needed to complete their flooring
project – to remove the existing floor, install the new floor with complementary moldings and accessories, and finally,
maintain the floor for its lifetime.
6
Our sales strategy emphasizes customer service by providing superior, convenient, educational tools for our
customers to learn about our products and the installation process. We invest heavily in training our store associates on
all of our products and install techniques. Flooring samples of most of the products we offer are available in our stores,
or can be ordered through our call center and website. Once an order is placed, customers may choose to either have
their purchases delivered or pick them up at a nearby store location.
We are committed to responding to our potential and existing customers in a timely manner. Our call center is
staffed by flooring experts cross-trained in sales, customer service and product support. In addition to receiving
telephone calls, our call center associates chat online with visitors to our website, respond to emails from our customers
and engage in telemarketing activities. Customers can contact our call center to place an order, to make an inquiry or to
order a catalog.
Knowledgeable Salespeople
We believe a large segment of residential homeowners are in need of a trusted expert, whether as a guide
through a range of flooring alternatives and services or as a resource to both DIY and DIFM customers. We train and
position our store management and associates to establish these individual customer relationships, which often last
beyond the current purchase to subsequent purchases of additional flooring.
We place an emphasis on identifying, hiring and empowering employees who share a passion for our business
philosophy. Many of our store managers have previous experience with the home improvement, retail flooring or
flooring installation industries. We provide continuous training focused on selling techniques and in-depth product
knowledge for our store associates, who, we believe, are a key driver in a customer’s purchasing decision.
Digital / Omni-Channel
Our website contains a broad range of information on our products and services, including a comprehensive
knowledge base on all things related to flooring. We also offer extensive product reviews, before and after photos from
previous customers, product information and how-to installation videos. A customer also has the ability to chat live with
a flooring expert, either online or over the phone, regarding questions about a flooring purchase or installation. We
continue to develop new features and functionality to assist customers, and to ensure they have robust tools at their
disposal that are effective at helping them make the ideal flooring choice as they move between online and offline
channels. We also have an active presence on Facebook, Instagram, Pinterest, YouTube and Twitter.
Advertising and Financing
Advertising: We utilize a mix of traditional and online media, ecommerce, direct mail, social media, and
financing offers to emphasize product credibility, value, brand awareness, customer education and direct selling. We
increase brand awareness in a variety of ways, including through sports, celebrity endorsements and product placement
opportunities. Overall, we actively manage the mix of our media to efficiently drive sales while building brand
awareness of our value proposition. We are investing in enhanced digital capabilities.
Financing: We offer our residential customers a financing alternative through a proprietary credit card, the
Lumber Liquidators credit card, underwritten by a third-party financial institution, generally with no recourse to us. This
program serves the dual function of providing financial flexibility to our customers and offering us promotional
opportunities featuring deferred interest, which we often combine with product promotions. Our customers may also use
their Lumber Liquidators credit card for installation services. We also offer our commercial customers a financing
alternative, which is also underwritten by a third-party financial institution, generally at no recourse to us. The
commercial credit program provides our professional customers a range of additional services that we believe add
efficiency to their businesses.
7
Employees
As of December 31, 2018, we had approximately 2,200 employees, 95% of whom were full-time and none of
whom were represented by a union. Of these employees, 72% work in our stores, 18% work in corporate store support
infrastructure or similar functions (including our call center employees) and 10% work in one of our distribution centers.
We believe that we have good relations with our employees.
Seasonality and Quarterly Results
Our quarterly results of operations can fluctuate depending on the timing of our advertising expenses and the
timing of, and income contributed by, our new stores. Our net sales fluctuate slightly as a result of seasonal factors, and
we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise
inventories. Generally, we experience higher than average net sales in the spring and fall, when more home remodeling
activities typically are taking place, and lower than average net sales in the colder winter months and during the hottest
summer months.
Intellectual Property and Trademarks
We have a number of marks registered in the United States, including Lumber Liquidators®, Hardwood Floors
For Less!®, Bellawood®, 1-800-HARDWOOD®, Quickclic®, Virginia Mill Works Co. Hand Scraped and Distressed
Floors®, Morning Star Bamboo Flooring®, Dream Home Laminate Floors®, Builder’s Pride®, Schön Engineered
Floors®, Casa de Colour Collection®, Avella®, Coreluxe® and other product line names. We have also registered
certain marks in jurisdictions outside the United States, including the European Union, Canada, China, Australia and
Japan. We regard our intellectual property as having significant value and these names are an important factor in the
marketing of our brands. Accordingly, we take steps intended to protect our intellectual property including, where
necessary, the filing of lawsuits and administrative actions to enforce our rights.
Government Regulation
We are subject to extensive and varied federal, provincial, state and local government regulations in the
jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees and
customers, independent, third-party installers, public health and safety, zoning, accommodations for persons with
disabilities, and fire codes. We are also subject to a number of compliance obligations pursuant to various settlement
agreements we have entered into over the past few years. We operate each of our stores, offices and distribution centers
in accordance with standards and procedures designed to comply with all applicable laws, codes, licensing requirements
and regulations. Certain of our operations and properties are also subject to federal, provincial, state and local laws and
regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and
disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of contaminated
properties, including off-site disposal locations. We do not currently incur significant costs complying with the laws and
regulations related to hazardous materials. However, we could be subject to material costs, liabilities or claims relating
to compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation,
as well as the passage of new laws and regulations.
Our suppliers are subject to the laws and regulations of their home countries, as well as those relative to the
import of their products into the United States, including, in particular, laws regulating labor, forestry and the
environment. Our suppliers are subject to periodic compliance audits, onsite visits and other reviews, as appropriate, in
efforts to ensure that they are in compliance with all laws and regulations. We also support social and environmental
responsibility among our supplier community and our suppliers agree to comply with our expectations concerning
environmental, labor and health and safety matters. Those expectations include representations and warranties that our
suppliers comply with the laws, rules and regulations of the countries in which they operate.
Products that we import into the United States and Canada are subject to laws and regulations imposed in
conjunction with such importation, including those issued and/or enforced by U.S. Customs and Border Protection and
the Canadian Border Services Agency. In addition, certain of our products are subject to laws and regulations relating to
8
the importation, acquisition or sale of illegally harvested plants and plant products and the emissions of hazardous
materials. We work closely with our suppliers to address the applicable laws and regulations in these areas.
Available Information
We maintain a website at www.lumberliquidators.com. The information on or available through our website is
not, and should not be considered, a part of this annual report on Form 10-K. You may access our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, as well as
other reports relating to us that are filed with or furnished to the Securities and Exchange Commission (“SEC”) free of
charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to,
the SEC. The SEC also maintains an Internet site, www.sec.gov, which contains reports, proxy and information
statements, and other information that we file electronically with the SEC.
Item 1A. Risk Factors.
The risks described below could materially and adversely affect our business, results of operations, financial
condition and cash flows. These risks are not the only risks that we face. Our business operations could also be affected
by additional factors that apply generally to companies operating in the U.S. and globally, as well as other risks that are
not presently known to us or that we currently consider to be immaterial.
Risks Related to Our Operations
Unfavorable allegations, government investigations and legal actions surrounding our products or us could harm our
reputation and impair our ability to grow or sustain our business.
We have been involved in a number of government investigations and legal actions, many of which have
resulted from unfavorable allegations regarding our products and us. Negative publicity surrounding these government
investigations and legal actions could continue to harm our reputation and the demand for our products. Additional
unfavorable allegations, government investigations and legal actions involving our products and us could also affect our
perception in the market and our brands and negatively impact our business and financial condition. For instance,
unfavorable allegations surrounding the product quality of our laminates sourced from China has negatively affected and
could continue to negatively affect our operations. If this negative impact is significant, our ability to maintain our
liquidity and grow or sustain our business could be jeopardized. The cost to defend ourselves and our former employees
could be significant.
We are involved in a number of legal proceedings and, while we cannot predict the outcomes of these proceedings
and other contingencies with certainty, some of the outcomes of these proceedings could adversely affect our business
and financial condition.
We are, or may become, involved in legal proceedings, government and agency investigations, and consumer,
employment, tort and other litigation (see discussion of Legal Proceedings in Item 3 of this Annual Report). While we
have accrued material liabilities in connection with certain of these proceedings, we cannot predict with certainty the
ultimate outcomes. The outcome of some of these legal proceedings could require us to take actions which could be
costly to implement or otherwise negatively affect our operations or could require us to pay substantial amounts of
money that could have a material adverse effect on our liquidity, financial condition and results of operations and could
affect our ability to obtain capital or access our revolving loan and continue as a going concern. Additionally, defending
against lawsuits and legal proceedings involves significant expense and diversion of management’s attention and
resources.
9
Our overall compliance program, including the Lacey Compliance Plan, is complex and costly to maintain. A failure
to manage these programs could adversely affect our ability to conduct business, result in significant fines and other
penalties, damage our brand and reputation, and, consequently, negatively impact our financial position and results
of operations.
As disclosed on October 7, 2015, we reached a settlement with the United States Department of Justice (“DOJ”)
regarding our compliance with the Lacey Act. In connection with that settlement, we agreed to implement the Lacey
Compliance Plan, and we are subject to a probation period of five years. Our implementation of the Lacey Compliance
Plan, together with requirements resulting from other settlement agreements we have entered into over the past few years
(including the Deferred Prosecution Agreement (the “DPA”) with the United States Attorney’s Office for the Eastern
District of Virginia (the “U.S. Attorney”) and the DOJ entered into on March 12, 2019), is costly and, if the
implementation costs are more than we anticipate, could adversely affect our operating results. In the event we fail to
fully implement and comply with the Lacey Compliance Plan as required and in accordance with set deadlines, the
government may require us to cease the importation of hardwood flooring from China until the DOJ determines that we
are in full compliance with the Lacey Compliance Plan. If we have to cease the importation of hardwood flooring, our
ability to operate would be substantially harmed and our business, including our results of operations, would be
adversely affected. In the event we breach the DPA, there is a risk the U.S. Attorney and the DOJ would seek to impose
remedies provided for in the DPA, including criminal prosecution. Further, the failure to properly manage our overall
compliance program and fully comply with the obligations imposed upon us by these various settlement agreements or
implement any of the compliance requirements arising from these obligations could adversely affect our ability to
conduct business, result in significant fines and other penalties, damage our brand and reputation and negatively impact
our financial position and results of operations.
Federal, provincial, state or local laws and regulations, including tariffs, or our failure to comply with such laws and
regulations, and our obligations under certain settlement agreements related to our products could increase our
expenses, restrict our ability to conduct our business and expose us to legal risks.
We are subject to a wide range of general and industry-specific laws and regulations imposed by federal,
provincial, state and local authorities in the countries in which we operate, including those related to tariffs, customs,
foreign operations (such as the Foreign Corrupt Practices Act), truth-in-advertising, consumer protection, privacy,
zoning and occupancy matters as well as the operation of retail stores and warehouse, production and distribution
facilities and provision of installation services. In addition, various federal, provincial and state laws govern our
relationship with and other matters pertaining to our employees, including wage and hour-related laws. If we fail to
comply with these laws and regulations, we could be subject to legal risk, our operations could be impacted negatively
and our reputation could be damaged. Likewise, if such laws and regulations should change, our costs of compliance
may increase, thereby impacting our results and hurting our profitability.
Certain portions of our operations are subject to laws and regulations governing hazardous materials and
wastes, the remediation of contaminated soil and groundwater and the health and safety of employees. If we are unable
to comply with, extend or renew a material approval, license or permit required by such laws, or if there is a delay in
renewing any material approval, license or permit, our net sales and operating results could deteriorate or otherwise
cause harm to our business.
With regard to our products, we spend significant resources in order to comply with applicable advertising,
importation, exportation, environmental and health and safety laws and regulations. If we should violate these laws and
regulations, we could experience delays in shipments of our goods, be subject to fines, penalties, criminal charges, or
other legal risks, be liable for costs and damages, or suffer reputational harm, which could reduce demand for our
merchandise and hurt our business and results of operations. Further, if such laws and regulations should change we may
experience increased costs in order to adhere to the new standards. We are also subject to a number of settlement
agreements that impose certain obligations on us with respect to the operation of our business. If we fail to comply with
these obligations, we may experience additional costs and expenses and could be subject to additional legal risks.
10
Our growth strategy depends in part on our ability to open new stores and is subject to many unpredictable factors.
As of December 31, 2018, we had 413 stores throughout the United States and Canada. Assuming the continued
success of our store model and satisfaction of our internal criteria, we plan to continue our selective approach to future
openings over the next several years. This growth strategy and the investment associated with the development of each
new store may cause our operating results to fluctuate and be unpredictable or decrease our profits. Our future results
and ability to implement our growth strategy will depend on various factors, including the following:
as we open more stores, our rate of expansion relative to the size of our store base will decline;
consumers in new markets may be less familiar with our brands, and we may need to increase brand
awareness in those markets through additional investments in advertising;
new stores may have higher construction, occupancy or operating costs, inventory requirements, or
may have lower average store net sales, than stores opened in the past;
competitive pressures could cause changes to our store model and making necessary changes could
prove costly;
newly opened stores may reach profitability more slowly than we expect in the future, as we enter
more mid-sized and smaller markets and add stores to larger markets where we already have a
presence; and
our Canadian stores may require additional investment in advertising due to our limited penetration in
the Canadian market.
Failure to manage our growth effectively could harm our business and operating results.
Our plans call for our selective approach in the addition of new stores over the next several years, and increased
orders from our website, call center and catalogs. Our existing management information systems, including our store
management systems, compliance procedures and financial and reporting controls, may be unable to support our
expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and
controls and to hire, train and retain regional and store managers and personnel for our compliance and financial and
reporting departments. We may not respond quickly enough to the changing demands that our expansion will impose on
us. Any failure to manage our growth effectively could harm our business and operating results.
Increased transportation costs could harm our results of operations.
The efficient transportation of our products through our supply chain is a critical component of our operations.
If the cost of fuel or other costs, such as import tariffs, duties and international container rates, rise, it could result in
increases in our cost of sales due to additional transportation charges and fees. Additionally, there are a limited number
of delivery companies capable of efficiently transporting our products from our suppliers. Consolidation within this
industry could result in increased transportation costs. A reduction in the availability of qualified drivers and an increase
in driver regulations could continue to increase our costs. We may be unable to increase the price of our products to
offset increased transportation charges, which could cause our operating results to deteriorate.
Damage, destruction or disruption of our distribution centers could significantly impact our operations and impede
our ability to distribute certain of our products.
We have two distribution centers which house products for the direct shipment of flooring to our stores or to
our customers. If either of our distribution centers or our inventory held in those locations were damaged or destroyed by
fire, wood infestation or other causes, our distribution processes would be disrupted, which could cause significant
11
delays in delivery. This could impede our ability to stock our stores and deliver products to our customers, and cause our
net sales and operating results to deteriorate.
The operation of stores in Canada and our representative office in China may present increased legal and operational
risks.
We currently operate eight store locations in Canada. As a result of our limited penetration in the Canadian
market, these stores may continue to be less successful than we expect. Additionally, investments in advertising and
promotional activity may be required to continue to build brand awareness in that market.
We also have a representative office in Shanghai, China to facilitate our product sourcing in Asia. We have
limited experience with the legal and regulatory environments and market practices outside of the United States and
cannot guarantee that we will be able to operate profitably in these markets or in a manner and with results similar to
those in the United States. We may also incur increased costs in complying with applicable Canadian and Chinese laws
and regulations as they pertain to both our products and our operations. Further, if we fail to comply with applicable
laws and regulations, we could be subject to, among other things, litigation and government and agency investigations.
Failure to effectively manage our third-party installers may present increased legal and operational risks.
We manage third-party installers who provide installation services to some of our customers. In some of these
jurisdictions, we are subject to regulatory requirements and risks applicable to general contractors, which include
management of licensing, permitting and quality of our third-party installers. We have established procedures designed
to manage these requirements and ensure customer satisfaction with the services provided by our third-party installers. If
we fail to manage these procedures effectively or provide proper oversight of these services, we may be subject to
regulatory enforcement and litigation and our net sales and our profitability and reputation could be harmed.
Our founder is the lessor on a significant number of our leases and the satisfactory renewal of these as each comes
due is a risk to our occupancy costs and store count.
As of December 31, 2018, we leased our Toano facility, which includes a store location, a warehouse and 29 of
our other store locations from entities owned, in whole or in part, by Tom Sullivan, our founder. Although our
percentage of total stores leased from such entities has decreased and our lease at the Toano facility ends on December
31, 2019, this concentration of leases subjects us to the risk of increased costs or reduction of store count in the event of
an adverse action or inaction by Mr. Sullivan or such entities. Mr. Sullivan no longer serves as an employee or as a
director of the Company.
Our success depends upon the retention of our personnel.
We believe that our success has depended and continues to depend on the efforts and capabilities of our
employees. The loss of the services of key employees due to any negative market or industry perception, the Company’s
stock price, the Company’s headquarters move, and/or litigation may prevent us from achieving operational goals and
harm our reputation.
12
Risks Related to Our Suppliers, Products and Product Sourcing
Our ability and cost to obtain cost-effective products, especially from China and other international suppliers, and the
operations of many of our international suppliers are subject to risks that may be beyond our control and that could
harm our operations and profitability.
We rely on a select group of international suppliers to provide us with imported flooring products that meet our
specifications. In 2018, our imported product was sourced from Asia, Europe, Australia and South America. As a result,
we are subject to risks associated with obtaining products from abroad, including:
the imposition of duties (including antidumping and countervailing duties), tariffs, taxes and/or other
charges on exports or imports;
political unrest, terrorism and economic instability resulting in the disruption of trade from foreign
countries where our products originate;
currency exchange fluctuations;
the imposition of new laws and regulations, including those relating to environmental matters and
climate change issues, labor conditions, quality and safety standards, trade restrictions, and restrictions
on funds transfers;
disruptions or delays in production, shipments, delivery or processing through ports of entry; and
differences in product standards, acceptable business practices and legal environments of the country
of origin.
In 2018, we sourced approximately 47% of our products from China. Virtually all of these products had a 10%
tariff imposed upon them in late 2018 and many of these products could increase further should the tariff rate increase as
has been announced but postponed indefinitely, go into effect. Potential costs and any attendant impact on pricing arising
from these tariffs could have a material adverse effect on our results of operations, financial condition and liquidity.
These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to
us cost-effectively or at all, which could harm our operations. If our product costs and consumer demand are adversely
affected by foreign trade issues (including import tariffs and other trade restrictions with China), our sales and
profitability may suffer.
Failure to identify and develop relationships with a sufficient number of qualified suppliers could affect our ability to
obtain products that meet our high quality standards.
We purchase flooring directly from mills located around the world. We believe that these direct supplier
relationships are important to our business. In order to retain the competitive advantage that we believe results from
these relationships, we need to continue to identify, develop and maintain relationships with qualified suppliers that can
satisfy our high standards for quality and our requirements for the delivery of hardwood in a timely and efficient manner.
We expect the need to develop new relationships to be particularly important as we seek to expand our operations,
enhance our product offerings, and expand our product assortment and geographic source of origin in the future. Any
inability to do so could reduce our competitiveness, slow our plans for further expansion and cause our net sales and
operating results to deteriorate.
We rely on a concentrated number of suppliers for a significant portion of our supply needs. We generally do
not have long-term contracts with our suppliers. In the future, our suppliers may be unable to supply us, or supply us on
acceptable terms, due to various factors, which could include political instability in the supplier’s country, insufficient
production capacity, product line failures, collusion, a supplier’s financial instability, inability or refusal to comply with
13
applicable laws, trade restrictions, tariffs or our standards, duties, insufficient transport capacity and other factors beyond
our control. In these circumstances, we could experience deterioration in our net sales and operating results.
The failure of our suppliers to comply with applicable laws, use ethical practices, and meet our quality standards
could result in our suspending purchasing from them, negatively impacting net sales, and could expose us to
reputational and legal risks.
While our suppliers agree to operate in compliance with applicable laws and regulations, we do not control our
suppliers. Accordingly, despite our continued investment in quality control, we cannot guarantee that they comply with
such laws and regulations or operate in a legal, ethical and responsible manner. While we monitor our suppliers’
adherence to our quality standards, there is no guarantee that we will be able to identify non-compliance. Moreover, the
failure of our suppliers to adhere to applicable legal requirements and the quality standards that we set for our products
could lead to government investigations, litigation, write-offs and recalls, which could damage our reputation and our
brands, increase our costs, and otherwise hurt our business.
Product liability claims could adversely affect our reputation, which could adversely affect our net sales and
profitability.
We have faced and continue to face the risk of exposure to product liability claims in the event that the use of
our products is alleged to have resulted in economic loss, personal injury or property damage or violated environmental
or other laws. In the event that any of our products proves to be defective or otherwise in violation of applicable laws,
we may be required to recall or redesign such products. Further, in such instances, we may be subject to legal action. We
maintain insurance against some forms of product liability claims, but such coverage may not be available or adequate
for the liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage, or
any claim or product recall that results in significant adverse publicity against us, may have a material adverse effect on
our net sales and operating results.
Our ability to offer hardwood flooring, particularly products made of more exotic species of hardwood, depends on
the continued availability of sufficient suitable hardwood at reasonable cost.
Our business strategy depends on offering a wide assortment of hardwood flooring to our customers. We sell
flooring made from species ranging from domestic maple, oak and pine to imported cherry, koa, mahogany and teak.
Some of these species are scarce, and we cannot be assured of their continued availability. Our ability to obtain an
adequate volume and quality of hard-to-find species depends on our suppliers’ ability to furnish those species, which, in
turn, could be affected by many things including events such as forest fires, insect infestation, tree diseases, prolonged
drought and other adverse weather and climate conditions. Government regulations relating to forest management
practices also affect our suppliers’ ability to harvest or export timber, and changes to regulations and forest management
policies, or the implementation of new laws or regulations, could impede their ability to do so. If our suppliers cannot
deliver sufficient hardwood and we cannot find replacement suppliers, our net sales and operating results may be
negatively impacted.
The cost of the various species of hardwood that are used in our products is important to our profitability.
Hardwood lumber costs fluctuate as a result of a number of factors including changes in domestic and international
supply and demand, labor costs, competition, market speculation, product availability, environmental restrictions,
government regulation and trade policies, duties, weather conditions, processing and freight costs, and delivery delays
and disruptions. We generally do not have long-term supply contracts or guaranteed purchase amounts. As a result, we
may not be able to anticipate or react to changing hardwood costs by adjusting our purchasing practices, and we may not
always be able to increase the selling prices of our products in response to increases in supply costs. If we cannot address
changing hardwood costs appropriately, it could cause our operating results to deteriorate.
14
Risks Related to Economic Factors and Our Access to Capital
Cyclicality in the home flooring industry, coupled with our lack of diversity in our lines of business, could cause
volatility and risk to our business.
The hardwood flooring industry is highly dependent on the remodeling of existing homes and new home
construction. Remodeling and new home construction are cyclical and depend on a number of factors which are beyond
our control, including interest rates, tax policy, employment levels, consumer confidence, credit availability, real estate
prices, demographic trends, weather conditions, natural disasters and general economic conditions.
In the event of a decrease in discretionary spending, home remodeling activity or new home construction,
demand for our products, including hardwood flooring, could be impacted negatively and our business and operating
results could be harmed.
Our insurance coverage and self-insurance reserves may not cover existing or future claims.
With the large number of pending cases and government investigations, we may be required to defend ourselves
and our officers, directors and former employees and we may be subject to financial harm in the event such cases or
investigations are adversely determined and insurance coverage will not, or is not sufficient to, cover any related losses.
We maintain various insurance policies, including directors and officers insurance, as well as the following:
We are self-insured on certain health insurance plans and workers’ compensation coverage and are
responsible for losses up to a certain limit for these respective plans.
We continue to be responsible for losses up to a certain limit for general liability and property damage
insurance.
Our professional liability and cyber security insurance policies contain limitations on the amount and
scope of coverage.
For policies under which we are responsible for losses, we record a liability that represents our estimated cost of
claims incurred and unpaid as of the balance sheet date. Unanticipated changes may produce materially different
amounts of expense than those recorded, which could adversely impact our operating results. Additionally, our recent
experience could limit our ability to obtain satisfactory insurance coverage, subjecting us to further loss, or could require
significantly increased premiums.
The inability to access our Revolving Credit Facility or other sources of capital, could cause our financial position,
liquidity, and results of operations to suffer.
We have relied on and expect to continue to rely on a bank credit agreement to fund our seasonal needs for
working capital. We have signed a commitment letter to increase the amounts available under this Revolving Credit
Facility and may need to access additional sources of capital to satisfy our liquidity needs. Our access to the Revolving
Credit Facility depends on our ability to meet the conditions for borrowing, including that all representations are true and
correct at the time of the borrowing. There is no assurance that we will be able to consummate the commitment letter.
Also, there is no assurance that we could obtain additional financing on acceptable terms, if at all. Our failure to meet
these requirements or obtain additional or alternative sources of capital could impact:
our ability to fund working capital, capital expenditures, store expansion and other general corporate
purposes;
our ability to meet our liquidity needs, arising from, among other things, legal matters; and
15
our flexibility in planning for, or reacting to, changes in our business and the industry in which we
operate.
Risks Related to Our Information Technology
We may incur costs and losses resulting from security risks we face in connection with our electronic processing,
transmission and storage of confidential customer information.
We accept electronic payment cards for payment in our stores and through our call center. In addition, our
online operations depend upon the secure transmission of confidential information over public networks, including
information permitting cashless payments. As a result, we may become subject to claims for purportedly fraudulent
transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to
lawsuits or other proceedings relating to these types of incidents. Further, a compromise of our security systems that
results in our customers’ personal information being obtained by unauthorized persons could adversely affect our
reputation with our customers and others, as well as our operations, results of operations and financial condition, and
could result in litigation against us or the imposition of penalties. A security breach could also require that we expend
significant additional resources related to the security of information systems and could result in a disruption of our
operations, particularly our online sales operations.
Additionally, privacy and information security laws and regulations change, and compliance with them may
result in cost increases due to necessary systems changes and the development of new administrative processes. If we
fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged,
possibly resulting in lost future business, and we could be subjected to additional legal risk as a result of non-
compliance.
If our management information systems, including our website or our call center, experience disruptions, it could
disrupt our business and reduce our net sales.
We depend on our management information systems to integrate the activities of our stores, website and call
center, to process orders, to respond to customer inquiries, to manage inventory, to purchase merchandise and to sell and
ship goods on a timely basis. We may experience operational problems with our information systems as a result of
system failures, viruses, computer “hackers” or other causes. We may incur significant expenses in order to repair any
such operational problems. Any significant disruption or slowdown of our systems could cause information, including
data related to customer orders, to be lost or delayed, which could result in delays in the delivery of products to our
stores and customers or lost sales. Moreover, our entire corporate network, including our telephone lines, is on an
Internet-based network, which is vulnerable to certain risks and uncertainties, including changes in required technology
interfaces, website downtime and other technical failures, security breaches and customer privacy concerns.
Accordingly, if our network is disrupted or if we cannot successfully maintain our website and call center in good
working order, we may experience delayed communications within our operations and between our customers and
ourselves, and may not be able to communicate at all via our network, including via telephones connected to our
network.
Alternative e-commerce and online shopping offerings may erode our customer base and adversely affect our
business.
Our long-term future depends heavily upon the general public’s willingness to use our stores as a means to
purchase goods. In recent years, e-commerce has become more widely accepted as a means of purchasing consumer
goods and services, which could adversely impact customer traffic in our stores. Additionally, certain of our competitors
offer alternative e-commerce and online shopping. If consumers use alternative e-commerce and online shopping
offerings to conduct business as opposed to our store locations, it could materially adversely impact our net sales and
operating results.
16
Risks Relating to Our Competitive Positioning
A tarnished brand or ineffectiveness of our advertising strategy could result in reduced customer traffic, thereby
impacting net sales and profitability.
We believe that our growth thus far was achieved in part through our successful investment in local and
national advertising. Historically, we have used extensive advertising to encourage customers to drive to our stores,
which were generally located some distance from population centers in areas that have lower rents than traditional retail
locations. Further, a significant portion of our advertising was directed at the DIY and DIFM customers. While our
marketing strategy continues to support these strategies, we have broadened the reach and frequency of our advertising
to increase the awareness of our value proposition and the number of customers served. If there is are negative
perceptions about our brand to our customers, our advertisements fail to draw customers in the future, or if the cost of
advertising or other marketing materials increases significantly, we could experience declines in our net sales and
operating results.
Competition could cause price declines, decrease demand for our products and decrease our market share.
We operate in the wood flooring industry, which is highly fragmented and competitive. We face significant
competition from national and regional home improvement chains, national and regional specialty flooring chains,
Internet-based companies and privately owned single-site enterprises. We compete on the basis of price, customer
service, store location and the range, quality and availability of the hardwood flooring that we offer our customers. If our
positioning with regard to one or more of these factors should erode, deteriorate, fail to resonate with consumers or
misalign with demand or expectations, our business and results may be negatively impacted.
Our competitive position is also influenced by the availability, quality and cost of merchandise, labor costs,
distribution and sales efficiencies and our productivity compared to that of our competitors. Further, as we expand into
new and unfamiliar markets, we may face different competitive environments than in the past. Likewise, as we continue
to enhance and develop our product offerings, we may experience new competitive conditions.
Some of our competitors are larger organizations, have existed longer, are more diversified in the products they
offer and have a more established market presence with substantially greater financial, marketing, personnel and other
resources than we have. In addition, our competitors may forecast market developments more accurately than we do,
develop products that are superior to ours, produce similar products at a lower cost or adapt more quickly to new
technologies or evolving customer requirements than we do. Intense competitive pressures from one or more of our
competitors could cause price declines, decrease demand for our products and decrease our market share.
Hardwood flooring may become less popular as compared to other types of floor coverings in the future. For
example, our products are made using various hardwood species, including rare exotic hardwood species, and concern
over the environmental impact of tree harvesting could shift consumer preferences towards synthetic or inorganic
flooring. In addition, hardwood flooring competes against carpet, vinyl sheet, vinyl tile, ceramic tile, natural stone and
other types of floor coverings. If consumer preferences shift toward types of floor coverings that we do not sell, we may
experience decreased demand for our products.
All of these competitive factors may harm us and reduce our net sales and operating results.
Risks Related to Accounting Standards and Internal Controls
Changes in accounting standards, subjective assumptions, estimates and judgments by management related to
complex accounting matters, and failures in internal control could significantly affect our financial results.
Generally accepted accounting principles and related accounting pronouncements, implementation guidelines
and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to,
consolidation, revenue recognition, stock-based compensation, lease accounting, sales returns reserves, inventories, self-
insurance, income taxes, deferred taxes, valuation allowances, unclaimed property laws and litigation, are highly
17
complex and involve many subjective assumptions, estimates and judgments by our management. Changes in these rules
or their interpretation or changes in underlying assumptions, estimates or judgments by our management could
significantly change our reported or expected financial performance, which may have a material effect on our results of
operation.
Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our
results of operation and financial condition.
Effective internal and disclosure controls are necessary for us to provide reliable financial reports and
effectively prevent fraud, and to operate successfully as a public company. If we cannot provide reliable financial reports
or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal
control, we may discover material weaknesses or significant deficiencies in internal control that require remediation.
In the current period, we identified a material weakness as discussed in Item 9A. Additionally, we have in the
past discovered, and may in the future discover, areas of internal controls that need improvement. Regardless, we
continue to work to remediate and improve our internal controls. We cannot be certain that these measures will ensure
that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to
maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls
could, among other things, result in losses from fraud or error, harm our reputation, or cause investors to lose confidence
in the reported financial information, all of which could have a material adverse effect on our results of operation and
financial condition.
Risks Relating to Our Common Stock
Our common stock price may be volatile and all or part of any investment in our common stock may be lost.
The market price of our common stock could fluctuate significantly based on various factors, including, but not
limited to:
unfavorable market reactions to allegations regarding the safety of our products and the related
litigation and/or government investigations resulting therefrom, as well as any payments, judgments or
other losses in connection with such lawsuits and/or investigations;
trading activity of our current or future stockholders, including common stock transactions by our
directors and executive officers;
industry-related trends and growth prospects; and
our concentration in the cyclical home furnishings industry.
In addition, the stock market may experience significant price and volume fluctuations. These fluctuations may
be unrelated to the operating performance of particular companies but may cause declines in the market price of our
common stock. The price of our common stock could fluctuate based upon factors that have little or nothing to do with
us or our performance.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of research analysts
and investors due to various factors.
Research analysts and investors develop expectations on how we may perform using a variety of metrics,
including, but not limited to, sales, comparable store sales and gross profit. However, in any given quarter, actual
performance may vary from these expectations, causing significant fluctuations in our stock price.
18
Our anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might
absent such provisions.
Our certificate of incorporation and bylaws contain provisions that may make it more difficult or expensive for
a third party to acquire control of us without the approval of our board of directors. These provisions include a staggered
board, the availability of “blank check” preferred stock, provisions restricting stockholders from calling a special
meeting of stockholders or from taking action by written consent and provisions that set forth advance notice procedures
for stockholders’ nominations of directors and proposals of topics for consideration at meetings of stockholders. Our
certificate of incorporation also provides that Section 203 of the Delaware General Corporation Law, which relates to
business combinations with interested stockholders, applies to us. These provisions may delay, prevent or deter a
merger, or other transaction that might otherwise result in our stockholders receiving a premium over the market price
for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than
it might absent such provisions.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
As of March 1, 2019, we operated 412 stores located in 47 states and Canada, including one opening and two
closings since December 31, 2018. In addition to our eight stores in Ontario, Canada, the table below sets forth the
locations (alphabetically by state) of our 404 U.S. stores in operation as of March 1, 2019.
State
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Idaho
Illinois
Indiana
State
Stores
6
6
2
45
9
8
4
31
11
2
15
8
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Stores
3
3
5
6
3
10
10
11
7
3
5
1
State
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Stores
2
4
5
14
1
21
14
1
13
3
8
20
State
Stores
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
1
10
1
6
29
3
1
15
9
3
6
We lease all of our stores as well as our corporate headquarters, which is currently located in Toano, Virginia.
Our corporate headquarters is located on a 74-acre plot, is 307,784 square feet, of which approximately 32,000 square
feet are office space, and includes our call center, corporate offices, a distribution facility and two finishing lines. In July
2018, we announced that we will relocate our corporate headquarters and call center from Toano, Virginia to Richmond,
Virginia. On October 19, 2018, we entered into an agreement to lease the new headquarters location, which covers an
existing building consisting of approximately 53,000 rentable square feet. We currently lease space near the new
headquarters location as a satellite office for various administrative functions and expect to continue that lease or lease
similar property in Richmond, Virginia for our call center operations. We expect the relocation to the new headquarters
to take place in late 2019. Based on the Company’s internal review of its Bellawood products finishing operation and
related equipment in 2018, the Company ceased finishing flooring in January 2019 and outsourced this business to focus
on its core retail operations.
In addition, we own a one million square foot distribution center on approximately 100 acres of land in Henrico
County, Virginia. We lease a 504,016 square foot facility in Pomona, California, which, along with our facility in
Virginia, serve as our primary distribution facilities.
19
Item 3. Legal Proceedings.
Governmental Investigations
In March 2015, the Company received a grand jury subpoena issued in connection with a criminal investigation
being conducted by the U.S. Attorney’s Office for the Eastern District of Virginia (the “U.S. Attorney”). In addition, on
May 19, 2015, July 13, 2015 and March 11, 2016, the Company received subpoenas from the New York Regional Office
of the SEC in connection with an inquiry by the SEC staff. The focus of the investigations primarily related to
compliance with disclosure, financial reporting and trading requirements under the federal securities laws. The Company
cooperated with the investigations and produced documents and other information responsive to subpoenas and other
requests received from the parties.
The Company has recently concluded negotiations with the U.S. Attorney, the DOJ and the SEC concerning the
resolution of their criminal and civil investigations into the public disclosures the Company made in March 2015
concerning whether its Chinese made laminates were compliant with certain California state regulatory requirements
(the “Investigations”). In connection with the Investigations, the Company (i) entered into a Deferred Prosecution
Agreement (“DPA”) with the U.S. Attorney and the DOJ on March 12, 2019 and (ii) submitted an Offer of Settlement to
the SEC on March 12, 2019. On March 12, 2019 the SEC approved the Offer and issued an Order 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 (the “Order”). The DPA and the Order are collectively referred to herein as the “Agreements”.
Pursuant to the DPA, the U.S. Attorney and the DOJ filed a one count criminal information in the United States District
Court for the Eastern District of Virginia, charging the Company with securities fraud in connection with the March
2015 8-K. The U.S. Attorney and the DOJ agreed that if the Company fully complies with all of its obligations under the
DPA, the U.S. Attorney and the DOJ will, at the conclusion of the DPA’s three-year term, seek dismissal with prejudice
of the criminal information filed against the Company. Pursuant to the Order, the SEC ordered the Company to cease
and desist from committing or causing any violations and any future violations of the relevant provisions of the federal
securities laws and required disgorgement as discussed in the following paragraph.
Under the DPA, the Company is required, among other things, to (1) pay a fine in the amount of $19,095,648 to
the United States Treasury, (2) forfeit to the U.S. Attorney and the DOJ the sum of $13,904,352, of which up to
$6,097,298 will be submitted by the Company to the SEC in disgorgement and prejudgment interest under the Order and
(3) 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 Company will
also be required to report to the U.S. Attorney and DOJ annually during the term of the DPA regarding remediation and
implementation of the compliance measures described in the DPA.
The 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 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 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 has accrued a charge of $33 million within selling, general and administrative expenses in its
December 31, 2018 financial statements, reflecting the amounts owed under the Agreements. The Company expects to
remit all amounts within 30 days of entering into the Agreements and has included the liability in the caption “Accrual
for Legal Matters and Settlements Current” on its balance sheet. The Company expects to remit all amounts within 30
days of entering into the Agreements and has included the liability in the caption “Accrual for Legal Matters and
Settlements Current” on its balance sheet.
20
Litigation Relating to Bamboo Flooring
On or about December 8, 2014, Dana Gold (“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 is defective (the “Gold Litigation”). Plaintiffs have narrowed the complaint to the Company’s Morning Star Strand
Bamboo flooring (the “Strand Bamboo Product”) sold to residents of California, Florida, Illinois, Minnesota,
Pennsylvania and West Virginia for personal, family or household use. The Gold Litigation plaintiffs allege that the
Company has engaged in deceptive trade practice acts in conjunction with the sale of the Strand Bamboo Products. The
plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and costs, the
plaintiffs sought a declaration that the Company’s actions violate the law and that it is financially responsible for
notifying all purported class members, injunctive relief requiring the Company to replace and/or repair all of the Strand
Bamboo Product installed in structures owned by the purported class members and 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 Strand Bamboo Product and/or to make full restitution to the plaintiffs and the purported class members. In
November 2017, the court granted the plaintiffs’ motion for class certification with respect to the six states. The
Company appealed the decision, but the petition for appeal was denied. On January 2, 2019, the court denied the
Company’s motion for summary judgment. The Company has participated in court-ordered mediation sessions. Trial,
which was previously scheduled for February 25, 2019, has been postponed.
Following settlement discussions with the respect to the Gold Litigation, on March 15, 2019, the Company
entered into a Memorandum of Understanding with Gold and certain other lead plaintiffs in the Gold Litigation (the
“MOU”), which would resolve all disputes on a nationwide basis. Under the terms of the MOU, the Company will
contribute $14 million in cash and provide $14 million in store-credit vouchers, with a potential additional $2 million in
store-credit vouchers based on obtaining a claim’s percentage of more than 7%, for an aggregate settlement of up to $30
million. The MOU is subject to certain contingencies, including the execution of a definitive settlement agreement,
board approval of the definitive settlement agreement, and court approvals. The entry into the MOU or any subsequent
execution of a definitive settlement agreement does not constitute an admission by the Company of any fault or liability
and the Company does not admit any fault or liability. There can be no assurance that a settlement will be finalized and
approved 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, success on the merits. The Company has notified its insurance carriers and continues to
pursue coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related
to the Gold Litigation.
As a result of these developments, the Company has determined that a probable loss has been incurred and has
recognized a charge to earnings of $28 million within selling general and administrative expense during the fourth
quarter of 2018 with the offset in the caption “Accrual for Legal Matters – Current” on its balance sheet related to this
potential settlement as of December 31, 2018. If the Company does not execute a definitive settlement agreement
consistent with the MOU or incurs losses with the respect to the Bamboo Flooring Litigation, the actual losses that may
result from these actions may exceed this amount. 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 addition, there are a number of other claims and lawsuits alleging damages similar to those in the Gold
Litigation (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 Relating to Chinese Laminates
Formaldehyde-Abrasion MDLs
Beginning on or about March 3, 2015, numerous purported class action cases were filed in various U.S. federal
district courts and state courts involving claims of excessive formaldehyde emissions from the Company’s Chinese-
21
manufactured laminate flooring products. The purported classes consisted of all U.S. consumers that purchased the
relevant products during certain time periods. Plaintiffs in these cases challenged the Company’s labeling of its products
as compliant with the California Air Resources Board Regulation and alleged claims for fraudulent concealment, breach
of warranty, negligent misrepresentation and violation of various state consumer protection statutes. The plaintiffs
sought various forms of declaratory and injunctive relief and unquantified damages, including restitution and actual,
compensatory, consequential and, in certain cases, punitive damages, as well as interest, costs and attorneys’ fees
incurred by the plaintiffs and other purported class members in connection with the alleged claims. The United States
Judicial Panel on Multidistrict Litigation (the “MDL Panel”) transferred and consolidated the federal cases to the United
States District Court for the Eastern District of Virginia (the “Virginia Court”). The consolidated case in the Virginia
Court is captioned In re: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and
Products Liability Litigation (the “Formaldehyde MDL”).
Beginning on or about May 20, 2015, multiple class actions were filed in the United States District Court for
the Central District of California and other district courts located in the place of residence of each non-California
plaintiffs consisting of U.S. consumers who purchased the Company’s Chinese-manufactured laminate flooring products
challenging certain representations about the durability and abrasion class ratings of such products. These plaintiffs
asserted claims for fraudulent concealment, breach of warranty and violation of various state consumer protection
statutes. The plaintiffs did not quantify any alleged damages in these cases; however, in addition to attorneys’ fees and
costs, they did seek an order (i) certifying the action as a class action, (ii) adopting the plaintiffs’ class definitions and
finding that the plaintiffs are their proper representatives, (iii) appointing their counsel as class counsel, (iv) granting
injunctive relief to prohibit the Company from continuing to advertise and/or sell laminate flooring products with false
abrasion class ratings, (v) providing restitution of all monies the Company received from the plaintiffs and class
members and (vi) providing damages (actual, compensatory and consequential), as well as punitive damages. On
October 3, 2016, the MDL Panel transferred and consolidated the abrasion class actions to the Virginia Court. The
consolidated case is captioned In re: Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability
Marketing and Sales Practices Litigation (the “Abrasion MDL”).
On March 15, 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 has agreed to fund $22 million (the
“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-made laminate flooring sold by the Company between January
1, 2009 and May 31, 2015. The $36 million aggregate settlement amount was accrued in 2017. On June 16, 2018, the
Virginia Court issued an order that, among other things, granted preliminary approval of the settlement agreement.
Following the preliminary approval, and pursuant to the terms of the settlement agreement, the Company, in June, paid
$0.5 million for settlement administration costs, which is part of the Cash Payment, to the plaintiffs’ settlement escrow
account. Subsequent to the Final Approval and Fairness Hearing held on October 3, 2018, the Court approved the
settlement on October 9, 2018 and, as a result, the Company paid $21.5 million in cash into the plaintiffs’ settlement
escrow account. To date, insurers have denied coverage with respect to the Formaldehyde MDL and Abrasion MDL.
On November 8, 2018, an individual filed a Notice of Appeal in the United States Court of Appeals for the
Fourth Circuit (the “Appeals Court”) challenging the settlement. On December 14, 2018, another individual filed a
Notice of Appeal in the Appeals Court. Subsequently, the Appeals Court consolidated both appeals and entered a
briefing schedule. Vouchers, which generally have a three-year life, will be distributed by the administrator upon order
of the Court. At December 31, 2018, the Company’s obligations related to Formaldehyde MDL and Abrasion MDL
consisted of a short-term payable of $35.5 million with $14 million expected to be satisfied by the issuance of vouchers.
If the appeals were to result in the settlement being set aside, the Company would receive $21.5 million back from the
escrow agent. Accordingly, the Company has accounted for the payment of $21.5 million as a deposit in the
accompanying consolidated financial statements. The Company has no liability accrued related to the appeals.
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 “Remaining Laminate Matters”). Certain of these
Remaining Laminate Matters were settled in 2018. The Company recognized charges to earnings of $3 million and $1
million for the years ended December 31, 2018 and 2017, respectively, within selling, general and administrative
22
expenses for these Remaining Laminate Matters. While the Company believes that a further loss associated with the Opt
Outs and Remaining 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. 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 possible, the Company is unable to reasonably estimate the amount or
range of possible loss.
Employment Cases
Mason Lawsuit
On or about August 15, 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and 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 holding comparable positions but different titles (collectively, the “Putative Class Employees”) alleging that
the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the
Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs seek
certification of the Putative Class Employees for (i) a collective action covering the period beginning three years and 115
days prior to the filing of the complaint through the disposition of this action for the Putative Class Employees
nationwide in connection with FLSA and (ii) a class action covering the period beginning six years and 115 days prior to
the filing of the complaint through the disposition of this action for members of the 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 amount 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 Putative Class Employees who worked within the federal statute of limitations period. The Company filed its
opposition to this motion, which is now pending before the court.
Kramer Lawsuit
On or about November 17, 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 (collectively, the “CSM Employees”) 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
Plaintiffs seek certification of the CSM Employees for a class action covering the prior four-year period prior to the
filing of the complaint through the disposition of this action for the CSM Employees who currently are or were
employed in California (the “California SM Class”). The Kramer Plaintiffs did not quantify any alleged damages but, in
addition to attorneys’ fees and costs, the Kramer Plaintiffs seek unspecified amounts for unpaid wages and overtime
wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other
damages. The Company disputes the Kramer Plaintiffs’ 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 cannot estimate the reasonably possible loss or range
23
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.
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 7% and 8% of its flooring purchases in 2018 and 2017, 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 part of its processes in these proceedings, following the original investigation, the DOC conducts annual
administrative reviews of the CVD and AD 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. As rates are adjusted through the
administrative reviews, the Company adjusts its payments prospectively based on the final rate. The Company will begin
to pay the finalized rates on each applicable future purchase when recognized by U.S. Customs and Border Protection.
The DOC made its initial determinations in the original investigation regarding CVD and AD rates on April 6,
2011 and May 26, 2011, respectively. On December 8, 2011, orders were issued setting final AD and CVD rates at a
maximum of 3.3% and 1.5%, respectively. These rates became effective in the form of additional duty deposits, which
the Company has paid, and applied retroactively to the DOC initial determinations.
Following the issuance of these orders, a number of appeals were filed by several parties, including the
Company, with the Court of International Trade (“CIT”) challenging, among other things, certain facts and
methodologies that may impact the validity of the AD and CVD orders and the applicable rates. The Company
participated in appeals of both the AD order and CVD order. On February 15, 2017, the Court of Appeals for the Federal
Circuit (“CAFC”) vacated the CIT’s prior decision and remanded with instructions to the DOC to recalculate its AD rate.
On remand, the DOC granted a 0% AD rate to eight Chinese suppliers, but did not exclude them permanently from the
AD order. Nor did the CIT terminate the AD order. In July 2018, the CIT issued a judgment sustaining the DOC’s
calculation of 0% for the eight suppliers, but also excluded three of them from the AD order. Certain Chinese suppliers
and the Petitioners have appealed this judgment to the CAFC. The Company is evaluating the impact of the CIT’s
judgment on its previously recorded expense related to the AD rates in the original investigation and subsequent annual
reviews discussed below. Because of the length of time for finalization of rates as well as appeals, any subsequent
adjustment of CVD and AD rates typically flows through a period different from those in which the inventory was
originally purchased and/or sold.
In the first DOC annual review in this matter, AD rates for the period from May 26, 2011 through November
30, 2012, and CVD rates from April 6, 2011 through December 31, 2011, were modified to a maximum of 5.92% and a
maximum of 0.83%, respectively, which resulted in an additional payment obligation for the Company, based on best
estimates and shipments during the applicable window, of $0.8 million. The Company recorded this as a long-term
liability on its accompanying consolidated balance sheet and in cost of sales in its second quarter 2015 financial
statements. These AD rates were appealed to the CIT by several parties, including the Company. On remand from the
CIT, the DOC has reduced the AD rate to 0.73%. In June 2018, the CIT sustained the reduced AD rate of 0.73% but did
remand back to the DOC the issue regarding the calculation of the electricity rate, which, depending on that outcome,
may cause a revision to the final AD rate. That remand from the DOC is still pending. This ruling from the CIT resulted
in the Company reversing the $0.8 million accrual and recording a receivable of approximately $1.3 million during the
second quarter of 2018.
24
The second annual review of the AD and CVD rates was initiated in February 2014. Pursuant to the second
annual review, in early July 2015, the DOC finalized the AD rate for the period from December 1, 2012 through
November 30, 2013 at a maximum of 13.74% and the CVD rate for the period from January 1, 2012 through December
31, 2012 at a maximum of 0.99%. The Company believes the best estimate of the probable additional amounts owed was
$4.1 million for shipments during the applicable time periods, which was recorded as a long-term liability on its
accompanying consolidated balance sheet and included in cost of sales in its second quarter 2015 financial statements.
Beginning in July 2015, the Company began depositing these rates on each applicable purchase. The Company and other
parties appealed the AD rates relating to this second annual review to the CIT. In June 2018, the court remanded the case
back to the DOC to recalculate several of its adjustments, which is likely to cause a revision to the AD rate. The DOC
has requested an extension to issue its recalculation on remand to the CIT until November 2018. However, that remand
from the DOC is still pending.
The third annual review of the AD and CVD rates was initiated in February 2015. The third AD review covered
shipments from December 1, 2013 through November 30, 2014. The third CVD review covered shipments from January
1, 2013 through December 31, 2013. In May 2016, the DOC issued the final CVD rate in the third review, which was a
maximum of 1.38%. On July 13, 2016, the DOC set the final AD rate at a maximum of 17.37%. The Company appealed
the AD rates to the CIT. In November 2018, the CIT issued an opinion sustaining the DOC’s results, that decision was
appealed to the CAFC by certain plaintiff interveners in January 2019. The Company’s best estimate of the probable
additional amounts owed associated with AD and CVD is approximately $5.5 million for shipments during the
applicable time periods. During the quarter ended June 30, 2016, the Company recorded this amount in other long-term
liabilities in its balance sheet and as a charge to earnings in cost of sales on its statement of operations.
In February 2016, the DOC initiated the fourth annual review of AD and CVD rates, which followed a similar
schedule as the preceding review. The AD review covered shipments from December 1, 2014 through November 30,
2015. The CVD review covered shipments from January 1, 2014 through December 31, 2014. In May 2017, the DOC
issued the final CVD rate in the fourth review, which was a maximum of 1.45%, and, in June 2017, the final AD rate in
the fourth review, which was a maximum of 0.00%. In October 2017, Petitioners withdrew their CIT appeal of the AD
rates. As a result, the CIT dismissed the case and these rates are now final. The Company paid AD rates in excess of the
final rates during the periods impacted by the fourth annual review in the amount of $2.5 million and recorded a benefit
in cost of sales with a corresponding receivable. The Company collected most of this receivable during 2018 and as of
December 31, 2018, had a $0.1 million receivable remaining.
The DOC initiated the fifth annual review of AD and CVD rates in February 2017. The AD review covers
shipments from December 1, 2015 through November 30, 2016. The CVD review covers shipments from January 1,
2015 through December 31, 2015. In June 2018, the DOC issued the final CVD rate in the fifth review, which was a
maximum of 0.85% (with one company having a rate of 0.11%). In July 2018, the DOC issued the final AD rate in the
fifth review, which was a maximum of 0.00% and, the Company recorded a receivable in the amount of $2.8 million in
other current assets in its balance sheet. In connection with the issuance of the final CVD rate, with one company having
a rate of 0.11%, the Company recorded a receivable of less than $100 thousand.
The first 5-year Sunset Review of the AD and CVD orders on multilayered wood flooring (the “Sunset
Review”) began in November 2016 at the ITC to determine whether to terminate the orders. The Company participated
fully in this Sunset Review. In December 2017, the ITC determined that the AD and CVD orders will remain in place.
The appeal of this determination by certain importers was filed but not subsequently pursued.
The DOC initiated the sixth annual review of AD and CVD rates in February 2018. The AD review covers
shipments from December 1, 2016 through November 30, 2017. The CVD review covers shipments from January 1,
2016 through December 31, 2016. In December 2018, the DOC issued non-binding preliminary results in the sixth
annual review for CVD rates and AD rates. The preliminary AD rate was a maximum of 48.26% due in part to one of the
two individually reviewed companies’ failure to respond fully to the DOC’s request for information. The preliminary
CVD rate was a maximum of 2.81%. The final CVD and AD rates in the sixth annual review are currently expected to
be issued in April 2019. If the preliminary AD rate were to be finalized, the Company currently expects that it would
appeal such ruling. If the preliminary ruling regarding the AD Rate were to be finalized, the Company anticipates it
would record a net liability of approximately $1.1 million.
25
The DOC initiated the seventh annual review of the AD and CVD rates in March 2019, which is expected to
follow the same schedule as the preceding reviews. The AD review covers shipments from December 1, 2017 through
November 30, 2018. The CVD review covers shipments from January 1, 2017 through December 31, 2017.
Outstanding AD and CVD duties are subject to interest based on the IRS quarterly published rate. The
Company has recorded a net $1.2 million of interest expense through the line item Other Expense on the Statement of
Operations.
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.
Item 4. Mine Safety Disclosures.
None.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Market Information
Our common stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “LL.” We are
authorized to issue up to 35,000,000 shares of common stock, par value $0.001. Total shares of common stock
outstanding at March 1, 2019 were 28,640,264 and we had six stockholders of record.
Issuer Purchases of Equity Securities
The following table presents our share repurchase activity for the quarter ended December 31, 2018 (dollars in
thousands, except per share amounts):
Period
October 1, 2018 to October 31, 2018
November 1, 2018 to November 30, 2018
December 1, 2018 to December 31, 2018
Total
Total Number
of Shares
Purchased1
—
—
—
—
Average
Price Paid
Per Share1
—
—
—
—
of Shares
Total Number Maximum Dollar Value
of Shares That May Yet
Be Purchased as
Part of Publicly
Announced
Programs2
Purchased as
Part of Publicly
Announced
Programs2
—
—
—
—
—
—
—
—
1 We repurchased 1,567 shares of our common stock, at an average price of $12.57, in connection with the net
settlement of shares issued as a result of the vesting of restricted shares during the quarter ended December 31,
2018.
2 Our initial stock repurchase program, which authorized the repurchase of up to $50 million in common stock, was
authorized by our board of directors and publicly announced on February 22, 2012. Our board of directors
subsequently authorized two additional stock repurchase programs, each of which authorized the repurchase of up to
an additional $50 million in common stock. These programs were publicly announced on November 15, 2012 and
26
February 19, 2014, respectively, and are currently indefinitely suspended until we are better able to evaluate the
long-term customer demand and assess our estimates of operations and cash flow. At December 31, 2018, we had
approximately $14.7 million remaining under this authorization.
Dividend Policy
We have never paid any dividends on our common stock and do not expect to pay them in the near future.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” for information regarding securities authorized for issuance under our equity compensation plans.
Performance Graph
The following graph compares the performance of our common stock during the period beginning
December 31, 2013 through December 31, 2018, to that of the total return index for the NYSE Composite and a Custom
Peer Group whose members are listed below assuming an investment of $100 on December 31, 2013. In calculating total
annual stockholder return, reinvestment of dividends, if any, is assumed. The indices are included for comparative
purpose only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the
relative performance of our common stock.
27
12/31/2013 12/31/2014 12/31/2015 12/30/2016 12/31/2017 12/31/2018
Lumber Liquidators Holdings, Inc.
100.00
64.45
16.87
15.30
30.51
9.25
NYSE Composite
Peer Group1
100.00
106.87
102.62
115.02
136.76
124.72
100.00
132.38
158.26
160.76
227.44
214.61
1 The Peer Group consists of industry competitors and other retailers of a similar size to the Company. They include:
The Home Depot, Inc., Lowe’s Companies, Inc., Floor & Décor Holdings, Inc., Tile Shop Holdings, Inc., The
Sherwin-Williams Company, Pier 1 Imports, Inc., Vitamin Shoppe, Inc., Hibbett Sports, Inc. and Haverty Furniture
Companies, Inc. Mattress Firm Holding Corp. ceased trading so they have been omitted from our peer group.
Item 6. Selected Financial Data.
The selected statements of income data for the years ended December 31, 2018, 2017 and 2016 and the balance
sheet data as of December 31, 2018 and 2017 have been derived from our audited consolidated financial statements
included in Item 8. “Consolidated Financial Statements and Supplementary Data” of this report. This information should
be read in conjunction with those audited financial statements, the notes thereto, and Item 7. “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” of this report.
The selected balance sheet data set forth below as of December 31, 2016, 2015 and 2014, and income data for
the years ended December 31, 2015 and 2014 are derived from our audited consolidated financial statements contained
in reports previously filed with the SEC, which are not included herein. Our historical results are not necessarily
indicative of our results for any future period.
Year Ended December 31,
2018 1
2017 2
2016 3
(dollars in thousands, except per share amounts)
2015 4
2014
Statement of Income Data
Net Sales
Comparable Store Net Sales Increase
(Decrease) 5
Cost of Sales
Gross Profit
Selling, General and Administrative
Expenses
Operating (Loss) Income
Other Expense
(Loss) Income Before Income Taxes
Income Tax Expense (Benefit)
Net (Loss) Income
Net (Loss) Income per Common Share:
Basic
Diluted
Weighted Average Common Shares
Outstanding:
Basic
Diluted
$ 1,084,636
$ 1,028,933
$ 960,588
$ 978,776
$ 1,047,419
2.6 %
5.4 %
(4.6)%
(11.1)%
(4.3)%
691,696
392,940
443,513
(50,573)
2,827
(53,400)
979
(54,379)
(1.90)
(1.90)
$
$
$
659,872
369,061
656,719
303,869
699,918
278,858
406,027
(36,966)
1,591
(38,557)
(734)
(37,823)
397,504
(93,635)
638
(94,273)
(25,710)
$ (68,563)
362,051
(83,193)
234
(83,427)
(26,994)
$ (56,433)
(1.33)
(1.33)
$
$
(2.51)
(2.51)
$
$
(2.08)
(2.08)
629,252
418,167
314,094
104,073
490
103,583
40,212
63,371
2.32
2.31
$
$
$
$
$
$
28,571
28,571
28,407
28,407
27,284
27,284
27,082
27,082
27,265
27,486
1 Results for the year ended December 31, 2018 include: (i) a favorable adjustment of antidumping costs and
countervailing duties of $4.9 million associated with applicable shipments of engineered hardwood from China in a
28
prior period, (ii) duties related to prior periods, (iii) incremental legal and professional fees and settlement expenses,
related to our defense of various legal matters of approximately $75.7 million and (iv) other expenses primarily
related to an impairment of certain assets related to our decision to exit the finishing business totaling approximately
$1.8 million.
2 Results for the year ended December 31, 2017 include: (i) a favorable adjustment of antidumping costs and
countervailing duties of $2.8 million associated with applicable shipments of engineered hardwood from China in a
prior period, (ii) reduced reserves for estimated costs to be incurred related to our indoor air quality testing program
by approximately $1 million, (iii) incremental legal and professional fees and settlement expenses, related to our
defense of various legal matters of approximately $48.3 million and (iv) other expenses primarily related to costs to
dispose of certain Chinese laminate products whose sales were discontinued in 2015 and an impairment of certain
assets related to a vertical integration initiative totaling approximately $3.1 million.
3 Results for the year ended December 31, 2016 include: (i) an unfavorable adjustment of antidumping costs and
countervailing duties of $5.5 million associated with applicable shipments of engineered hardwood from China in a
prior period, (ii) pre-tax expenses of $6.2 million related to the purchase of testing kits and professional fees in
connection with our indoor air quality testing program, (iii) incremental legal and professional fees and settlement
expenses, related to our defense of various legal matters of approximately $47.7 million and (iv) other expenses
primarily related to employee retention initiatives totaling approximately $2.8 million.
4 Results for the year ended December 31, 2015 include: (i) the write down of our laminates and associated moldings
sourced from China totaling approximately $22.5 million and other inventory adjustments of $6.6 million, (ii) an
adjustment of antidumping costs and countervailing duties of $4.9 million associated with applicable shipments of
engineered hardwood from China in a prior period, (iii) pre-tax expenses of $9.4 million related to the purchase of
testing kits and professional fees in connection with our indoor air quality testing program, (iv) incremental legal
and professional fees and settlement expenses, related to our defense of various legal matters of approximately
$34.2 million and (v) other expenses related to the simplification of our business and employee retention totaling
approximately $11.1 million.
5 A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.
2018
2017
Year Ended December 31,
2016
(dollars in thousands)
2015
2014
Balance Sheet Data
Cash and Cash Equivalents
Merchandise Inventories
Total Assets
Customer Deposits and Store Credits
Total Debt and Capital Lease Obligations
Total Stockholders’ Equity
Working Capital1
Other Data
Total Stores in Operation (end of period)
Average Sale2
$ 11,565
318,272
475,517
40,332
65,000
147,398
124,179
$ 19,938
262,280
410,795
38,546
15,000
197,847
119,835
$ 10,271 $ 26,703
244,402
445,564
33,771
20,000
277,568
195,044
301,892
482,544
32,639
40,351
230,892
173,683
$ 20,287
314,371
482,904
34,943
—
332,054
213,030
413
1,355
393
1,310
383
1,255 $
374
1,230
$
$
$
352
$ 1,260
1 Working capital is defined as current assets minus current liabilities.
2 Average Sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as
transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).
29
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
Lumber Liquidators is one of the leading specialty retailers of hard-surface flooring in North America, offering
a complete purchasing solution across an extensive assortment of domestic and exotic hardwood species, engineered
hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile. We also feature the renewable flooring
products, bamboo and cork, and provide a wide selection of flooring enhancements and accessories, including moldings,
noise-reducing underlayment, adhesives and flooring tools. We offer installation and delivery services through third-
party independent contractors for customers who purchase our floors. At December 31, 2018, we sold our products
through 413 Lumber Liquidators stores in 47 states in the United States and in Canada, a call center and website.
We believe we have achieved a reputation for offering great value, superior service and a broad selection of
high-quality flooring products. With a balance of price, selection, quality, availability and service, we believe our value
proposition is the most complete within a highly fragmented hard-surface flooring market. The foundation for our value
proposition is strengthened by our unique store model, the industry expertise of our people, our singular focus on hard-
surface flooring, and our advertising reach and frequency.
To supplement the financial measures prepared in accordance with GAAP, we use the following non-GAAP
financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as
a percentage of sales; (v) Adjusted Operating Income or Loss; (vi) Adjusted Operating Margin and (vii) Adjusted
Earnings per Diluted Share. The non-GAAP financial measures should be viewed in addition to, and not in lieu of,
financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be
comparable to, similarly titled measures by other companies.
The non-GAAP financial measures are presented because management and analysts use these non-GAAP
financial measures to evaluate our operating performance and management uses them to determine incentive
compensation and/or to address questions it receives. Therefore, we believe that the presentation of non-GAAP financial
measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented
non-GAAP financial measures exclude items that management does not believe reflect our core operating performance,
which include regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and
countervailing duties from prior periods, as such items are outside of our control or due to their inherent unusual, non-
operating, unpredictable, non-recurring, or non-cash nature.
Executive Summary
In 2018, we focused on several key initiatives related to our core business that we believed strengthened our
sales and operating margin and provided an improved shopping experience to our customers. These initiatives were
improving operational effectiveness, enhancing the customer experience, responsible, compliant sourcing activities and
expanding our business to better serve our customers.
Our results for the year ended December 31, 2018 were as follows:
Net sales for the year ended December 31, 2018 increased $55.7 million, or 5.4%, to $1.08 billion
from $1.03 billion in the year ended December 31, 2017. Net sales in comparable stores increased
$26.6 million, or 2.6%, and net sales in non-comparable stores increased $29.1 million. We opened 21
new stores and closed one during 2018, for a total of 413 stores as of December 31, 2018.
Gross margin was 36.2% and 35.9% for the years ended December 31, 2018 and 2017, respectively.
Gross profit was slightly negatively affected by the tariffs imposed on our Chinese-sourced products
beginning September 24, 2018, reflecting only a partial impact of the currently imposed 10% tariff rate
due to timing of goods flowing through inventory.
30
Selling, general and administrative (“SG&A”) expenses increased $37.5 million, or 9.2%, in 2018 to
$443.5 million from $406.0 million in 2017. Excluding the items shown in the table that follows in
Results of Operations, Adjusted SG&A (a non-GAAP measure) increased $11.5 million in 2018,
driven by a combination of higher payroll and occupancy costs, which are primarily related to the 21
new stores opened this year, and increases in on-going professional fees and credit card and banking
fees. These increases were partially offset by a $2.3 million, or 3.1%, reduction in advertising.
Included in SG&A were legal-related costs and settlements of $75.7 million and $48.3 million in 2018
and 2017, respectively.
Operating loss for the year ended December 31, 2018 was $50.6 million compared to an operating loss
of $37.0 million in the year ended December 31, 2017. Operating loss for both periods was impacted
by the unusual items summarized in the tables that follow in Results of Operations. Excluding these
items, Adjusted Operating Income (a non-GAAP measure) was $20.2 million and Adjusted Operating
Margin (a non-GAAP measure) was 1.9% in 2018, compared to $10.7 million, or 1.0%, in 2017.
Net loss for the year ended December 31, 2018 was $54.4 million, or $1.90 per diluted share,
compared to a net loss of $37.8 million, or $1.33 per diluted share for the year ended December 31,
2017. Losses related to both periods were the result of litigation-related costs and settlements.
Adjusted Earnings per Diluted Share (a non-GAAP measure) was $0.57 in 2018 and $0.34 in 2017.
On March 8, 2019, we entered into a commitment letter with the lenders, subject to customary closing
conditions, that provides for an increase in the Revolving Loan up to a maximum amount of $175
million, and a new “First in Last Out” tranche of $25 million incremental to the $175 million but
within the same Revolving Credit Facility. This will also extend the term of the Revolving Credit
Facility until March 2024. We expect to close on this expanded Revolving Credit Facility in late
March or early April 2019.
As we head into 2019, our focus will be on driving DIY, DIFM and Pro traffic into our stores, enhancing the
customer experience across both our digital platform and within our stores and improving operational effectiveness. Our
research indicates that the initial interest in purchasing a floor begins with digital browsing. We believe that by providing
an improved digital experience and better website performance, we will not only grow our e-commerce sales, but also
drive traffic into our stores. Once customers are in our stores, we believe that our store model provides a competitive
advantage by allowing our knowledgeable sales associates to assist customers throughout the project design and
purchase process in a more intimate environment, from product selection to installation.
Working capital and liquidity
At December 31, 2018, we had $79.5 million in liquidity, comprised of $11.6 million of cash and $67.9 million
in availability under our asset-based revolving loan (the “Revolving Loan”). We also had $318.3 million in inventory
and $73.4 million in accounts payable, while borrowings against our Revolving Loan were $65 million. At
December 31, 2017, we had $145.9 million in liquidity, comprised of $19.9 million of cash and $126 million in
availability under our Revolving Loan. We also had $262.3 million in inventory and $67.7 million in accounts payable,
while borrowings against our Revolving Loan were $15 million. The reduction in liquidity at December 31, 2018 from
the year earlier was driven primarily by a $56 million investment in inventory, and the $22 million cash deposit made to
fund our obligation under the settlement related to the MDL litigation matter.
31
Results of Operations
We believe the selected sales data, the percentage relationship between Net Sales and major categories in the
Consolidated Statements of Operations and the percentage change in the dollar amounts of each of the items presented
below are important in evaluating the performance of our business operations.
% Increase (Decrease)
% of Net Sales
Year Ended December 31,
2018
2017
2016 vs. 2017
in Dollar Amounts
2017
2018
vs. 2016
Net Sales
Net Merchandise Sales
Net Services Sales
Total Net Sales
Gross Profit
Selling, General, and Administrative Expenses
Operating Loss
Other Expense (Income)
Loss Before Income Taxes
Income Tax Expense (Benefit)
Net Loss
SELECTED SALES DATA
Average Sale1
Average Retail Price per Unit Sold2
Comparable Store Sales Increase (Decrease) (%)
Number of Stores Open, end of period
Number of Stores Opened in Period, net
Number of Stores Relocated in Period3
88.1 %
11.9 %
93.2 %
91.2 %
6.8 %
8.8 %
100.0 % 100.0 % 100.0 %
31.6 %
35.9 %
41.4 %
39.5 %
(9.8) %
(3.6)%
— %
(0.2)%
(9.8) %
(3.8)%
(2.7) %
(0.1)%
(7.1) %
(3.7)%
36.2 %
40.9 %
(4.7)%
0.2 %
(4.9)%
0.1 %
(5.0)%
1.9 %
41.9 %
5.4 %
6.5 %
9.2 %
36.8 %
77.7 %
38.5 %
(233.3)%
43.8 %
4.8 %
39.5 %
7.1 %
21.5 %
2.1 %
(60.5)%
149.5 %
(59.1)%
(97.1)%
(44.8)%
$ 1,355
$ 1,310
$ 1,255
3.4 %
4.3 %
(0.8)%
2.6 %
0.4 %
5.4 %
(4.0) %
(4.6) %
413
20
1
393
10
—
383
9
3
Comparable Stores4 (% change to prior year):
Customers Invoiced5
Net Sales of Stores Operating for 13 to 36 months
Net Sales of Stores Operating for more than 36 months
(0.8)%
13.1 %
2.3 %
1.1 %
14.2 %
5.0 %
(6.7) %
0.4 %
(5.2) %
Net Sales in Markets with all Stores Comparable (no
cannibalization)
3.4 %
6.1 %
(2.8) %
1 Average Sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as
transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).
2 Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold
is calculated on a total company basis and excludes non-merchandise revenue.
3 A relocated store remains a comparable store as long as it is relocated within the primary trade area.
4 A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.
5 Change in number of customers invoiced is calculated by applying the average sale to total net sales at comparable
stores.
The definitions of average sale and customers invoiced were revised in the quarter ended December 31, 2018 to
improve the reporting of our Pro customers to better reflect separate Pro projects and transactions that had been
32
aggregated into single larger transactions under the previous definition. All historical periods have been restated under
this new definition. The average sale and change in customers invoiced amounts under both the old and new definitions
for the quarterly and annual periods in 2018 and 2017 are shown below:
March 31,
2018
June 30,
2018
September 30,
2018
December 31,
2018
Quarter Ended
Year Ended
December 31,
2018
New Definition1
Average Sale
Change in Customers Invoiced
Previous Definition2
Average Sale
Change in Customers Invoiced
$ 1,300
-1.2%
$ 1,371
1.0%
$ 1,706
-1.8%
$ 1,784
0.1%
$ 1,384
-1.7%
$ 1,830
-3.4%
$ 1,365
-1.8%
$ 1,791
-2.7%
$ 1,355
-0.8%
$ 1,777
-1.9%
March 31,
2017
June 30,
2017
September 30,
2017
December 31,
2017
Quarter Ended
Year Ended
December 31,
2017
New Definition1
Average Sale
Change in Customers Invoiced
Previous Definition2
Average Sale
Change in Customers Invoiced
$ 1,249
0.0%
$ 1,322
4.2%
$ 1,630
-0.1%
$ 1,706
5.4%
$ 1,333
0.3%
$ 1,735
0.8%
$ 1,336
0.2%
$ 1,738
1.1%
$ 1,310
1.1%
$ 1,700
1.7%
1 The new definition of average sale is defined as the average invoiced sales order, measured quarterly, excluding
returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing
orders). Invoiced sales orders include all merchandise and services added to an individual order over the course of a
calendar quarter. An individual customer with multiple orders in the same quarter (often due to multiple projects)
count as two or more transactions in calculating average sale and customer count. The new definition of the change
in number of customers invoiced is calculated by applying the revised definition of average sale, described above, to
total net sales at comparable stores.
2 The previous definition of average sale, calculated on a total company basis, is defined as the average invoiced sale
per customer, measured on a monthly basis, excluded transactions less than $250 (which are generally sample
orders, or add-ons or fill-ins to previous orders) and more than $30,000 (which are usually contractor orders). It also
aggregated Pro transactions into a single large transaction, rather than treating these as multiple projects, which they
often are. The previous definition of the change in number of customers invoiced is calculated by applying the
average sale to total net sales at comparable stores.
For an understanding of the significant factors that influenced our performance during the past three years, the
following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements presented in this report.
Net Sales
Net sales in 2018 increased $55.7 million, or 5.4%, from 2017 as net sales in comparable stores increased $26.6
million, or 2.6%, and the net sales in non-comparable stores increased $29.1 million. The growth in comparable store
33
sales reflected a 3.4% increase in average sale, which was driven by larger sales transactions from the additional
attachment of installation services to transactions, as well as the growth in the mix of Pro customers. This increase was
partially offset by a 0.8% decrease in the number of customers invoiced. The increased transaction size and decreased
transaction count in part reflect reduced promotional activity and increased focus on Pro customers and customers
seeking installation, both of which have a more involved and larger sales transaction. Installation and delivery services
represented 11.9% of our sales for the year, which increased through the year, reaching 12.9% in the fourth quarter of
2018. Our Pro customer sales represented 28.5% of merchandise sales, up from 23% in the prior year.
The comparable store growth of 2.6% consisted of a decline in merchandise sales of (0.6)%, more than offset
by an increase in installation sales of 41%. The growth in installation sales reflects the expansion of this program into
Florida and California in late 2017 that generated incremental sales throughout 2018. The decline in merchandise sales
reflect the reduced promotional activity and declines in the bamboo and hardwood categories. We believe industry
softness in the fourth quarter and other competitive pressures also contributed to the declines in comparable store
merchandise sales growth. In terms of categories, the manufactured category consisting of vinyl and laminate products
grew 24.5% compared to prior year, reaching 36% of our merchandise sales in 2018, while the hardwood category
declined 13.3% and represented 34% of our sales in 2018. The vinyl sub-category within manufactured products
continues to drive the growth in that category due to its outstanding aesthetics, high resilience and waterproof
characteristics.
Net sales in 2017 increased $68.3 million, or 7.1%, from 2016 as net sales in comparable stores increased $52.2
million, or 5.4%, and the net sales in non-comparable stores increased $16.1 million. The growth in comparable store
sales reflected a combination of an increase of 1.1% in the number of customers invoiced and an increase of 4.3% in the
average sale. We believe the number of customers invoiced rose due to improved customer experience in our stores, our
more complete assortment and waning negative impact of unfavorable media and assortment limitations during the first
half of 2016. The increase in average sale was driven by higher attachment of installation services, the growth in our Pro
business that carries higher average ticket size, and improvements in the average selling price of our products.
Gross Profit
Gross profit in 2018 increased 6.5% to $392.9 million from $369.1 million in 2017. Both years’ gross margins
were favorably impacted by the unusual items highlighted in the table that follows, and, when excluding these items,
Adjusted Gross Margin (a non-GAAP measure) improved by 10 basis points. This was driven by a favorable category
mix toward vinyl products with improved margins, offset by higher transportation costs, dilution from increased
installation sales mix that have lower margins, and tariffs that were imposed on goods received starting September 24,
2018. This tariff impact of approximately 40 basis points reflects only a partial impact of the currently imposed 10%
tariff rate on Chinese-sourced products due to the timing of goods flowing through inventory. We expect this adverse
effect to continue in 2019 as the goods are fully cycled through inventory, and could increase further should the tariff
rate increase. (See Risk Factors for more details on these tariffs).
Gross profit in 2017 increased 21.5% to $369 million from $303.9 million in 2016. Gross margin increased to
35.9% from 31.6% in 2016. This comparison was favorably impacted by the unusual items highlighted in the table
below, and when excluding these items, Adjusted Gross Margin (a non-GAAP measure) improved from 32.8% to
35.5%, or 270 basis points. This was driven by a shift in mix toward vinyl and engineered products with improved
margins, lower transportation costs, as well as improved margins within engineered, vinyl, laminate, and tile categories
due to sourcing and pricing initiatives. These advances were slightly offset by a higher mix of installation sales that carry
lower margins, and higher warranty costs.
34
We believe that each of the items below can distort the visibility of our ongoing performance and that the
evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude
the impact of these items.
Gross Profit/Margin, as reported (GAAP)
Antidumping Adjustments 1
HTS Classification Adjustments 2
Indoor Air Quality Testing Program 3
Sub-Total Items above
Adjusted Gross Profit/Margin (non-GAAP measures)
2018
Year Ended December 31,
2017
$
% of Sales
$
% of Sales
(dollars in thousands)
2016
$
% of Sales
$ 392,940
36.2 % $
369,061
35.9 % $ 303,869
31.6 %
(4,948)
(1,711)
—
(6,659)
(0.5)%
(0.1)%
— %
(0.6)%
(2,797)
—
(993)
(3,790)
(0.3)%
— %
(0.1)%
(0.4)%
5,450
—
6,187
11,637
0.6 %
— %
0.6 %
1.2 %
$ 386,281
35.6 % $
365,271
35.5 % $ 315,506
32.8 %
1 We recognized adjustments to countervailing and antidumping duties of a favorable $4.9 million, a favorable $2.8
million and an unfavorable $5.5 million associated with applicable shipments of engineered hardwood from China
related to prior periods for the years ended December 31, 2018, 2017 and 2016, respectively.
2 We recognized classification adjustments related to Harmonized Tariff Schedule (“HTS”) duty categorization in
prior periods during the year ended December 31, 2018.
3 Prior to June 30, 2016, $3.1 million of costs related to our indoor air quality testing program agreed to with the
Consumer Product Safety Commission (“CPSC”) were expensed as incurred. During the second quarter of 2016, we
recorded an accrual of $3 million, which represented our best estimate of costs to be incurred in the future periods
related to this program and is included in the total for 2016. In the second quarter 2017, we reduced the reserve for
estimated costs to be incurred related to the testing program by approximately $1 million. Costs in 2018 were
nominal and expensed as incurred.
Selling, General and Administrative Expenses
SG&A expenses in 2018 increased 9.2% to $443.5 million from $406.0 million in 2017. Excluding the items
shown in the table that follows, Adjusted SG&A (a non-GAAP measure) increased $11.5 million, primarily driven by
increases in payroll of $4.7 million and occupancy of $3.3 million, both of which are primarily related to the 21 new
stores opened this year and full-year effects of the 11 stores opened in 2017. Adjusted SG&A (a non-GAAP measure)
was also negatively impacted by promotional financing fees of $3.0 million, ongoing legal and professional fees of $1.8
million, and depreciation of $1 million. These increases were partially offset by lower advertising costs of $2.3 million.
Payroll related costs as a percentage of sales were 14.2% in 2018 and 14.5% in 2017.
SG&A expenses in 2017 increased 2.1% in 2017 to $406.0 million from $397.5 million in 2016. Excluding the
items shown in the table below, Adjusted SG&A (a non-GAAP measure) increased $7.6 million, driven by $7.5 million
in higher payroll-related costs due to greater store level staffing, commissions, and investments in corporate capabilities
and $3.0 million in higher occupancy costs, both of which were offset by $2.9 million in other decreases, primarily lower
advertising and promotion costs. Excluding retention-related costs, payroll related costs as a percentage of sales were
14.5% in 2017 and 2016, respectively.
35
We believe that each of these items can distort the visibility of our ongoing performance and that the evaluation
of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact
of these items.
2018
% of Sales
$
Year Ended December 31,
2017
$
% of Sales
$
(dollars in thousands)
2016
% of Sales
SG&A, as reported (GAAP)
$ 443,513
40.9 % $ 406,027
39.5 % $ 397,504
41.4 %
Accrual for Legal Matters and Settlements 1
Securities and Derivatives Class Action 2
Legal and Professional Fees 3
All Other 4
Sub-Total Items above
63,951
—
11,707
1,769
77,427
5.9 %
— %
1.1 %
0.2 %
7.2 %
36,960
—
11,314
3,146
51,420
3.6 %
— %
1.1 %
0.3 %
5.0 %
—
19,260
28,414
2,800
50,474
— %
2.0 %
3.0 %
0.3 %
5.3 %
Adjusted SG&A (a non-GAAP measure)
$ 366,086
33.7 % $ 354,607
34.5 % $ 347,030
36.1 %
1 This amount represents the charge to earnings related to Bamboo Flooring Litigation, governmental investigations
and Related Laminate Matters in 2018 as well as the charge to earnings in 2017 related to the Formaldehyde MDL
and Abrasion MDL settlements, all of which are described more fully in the Legal Proceedings section of this
Annual Report.
2 This amount represents the net charge to earnings related to the stock-based element of our settlement in the
securities class action lawsuit in addition to $2.5 million related to our derivatives class action lawsuit.
3 Represents charges to earnings related to our defense of significant legal actions, described in notes 1 and 2 above,
during the period. This does not include all legal costs incurred by the Company.
4 All Other consisted of the following: an impairment of certain assets related to our decision to exit the finishing
business in 2018, an impairment of certain assets related to a vertical integration initiative discontinued in 2017 and
a retention initiative and the net impact of the CARB and Prop 65 settlements in 2016.
Operating Loss and Operating Margin
Operating loss in 2018 was $50.6 million compared to an operating loss of $37.0 million in 2017. Excluding the
items shown in the table that follows, 2018 resulted in an Adjusted Operating Income (a non-GAAP measure) of $20.2
million, or an Adjusted Operating Margin (a non-GAAP measure) of 1.9%, compared to $10.7 million, or 1.0%, in
2017. The improvement primarily reflects the growth in sales from both new and comparable stores, and slightly higher
gross margin, which was partially offset by the $11.5 million growth in Adjusted SG&A (a non-GAAP measure).
Operating loss in 2017 was $37.0 million compared to an operating loss of $93.6 million in 2016. Excluding the
items shown below, Adjusted Operating Income (a non-GAAP measure) in 2017 was $10.7 million, and Adjusted
Operating Margin (a non-GAAP measure) was 1.0%, compared to an Adjusted Operating Loss (a non-GAAP measure)
of $31.5 million, or (3.3)% in 2016. The improvement primarily reflects the growth in sales and higher gross margin.
36
We believe that each of these items can distort the visibility of our ongoing performance and that the evaluation
of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact
of these items.
2018
% of Sales
$
Year Ended December 31,
2017
$
% of Sales
$
(in thousands)
2016
% of Sales
Operating Loss, as reported (GAAP)
Gross Margin Items:
Antidumping Adjustments 1
HTS Classification Adjustments 2
Indoor Air Quality Testing Program (Income) Charges 3
Gross Margin Subtotal
SG&A Items:
Accrual for Legal Matters and Settlements 4
Securities and Derivatives Class Action 5
Legal and Professional Fees 6
All Other 7
SG&A Subtotal
$ (50,573)
(4.7)% $ (36,966)
(3.6) %$ (93,635)
(4,948)
(1,711)
—
(6,659)
63,951
—
11,707
1,769
77,427
(0.5)%
(0.1)%
— %
(0.6)%
(2,797)
—
(993)
(3,790)
(0.3)%
— %
(0.1)%
(0.4)%
5,450
—
6,187
11,637
5.9 %
— %
1.1 %
0.2 %
7.2 %
36,960
—
11,314
3,146
51,420
3.6 %
— %
1.1 %
0.3 %
5.0 %
—
19,260
28,414
2,800
50,474
Adjusted Operating Income (Loss) (a non-GAAP measure)
$ 20,195
1.9 % $ 10,664
1.0 %$ (31,524)
1,2,3 See the Gross Margin section above for more detailed explanations of these individual items.
4,5,6,7 See the SG&A section above for more detailed explanations of these individual items.
(9.8)%
0.6 %
— %
0.6 %
1.2 %
— %
2.0 %
3.0 %
0.3 %
5.3 %
(3.3)%
Provision for Income Taxes
We have a full valuation allowance recorded against our net deferred tax assets which effectively offsets our
federal taxes at the statutory rate of 21% and have had this in place for each of the years ended December 31, 2018, 2017
and 2016. However, we record as tax expense each period for income taxes incurred in certain state and foreign
jurisdictions resulting in an effective tax rate of (1.8)%, 1.9% and 27.3% for the years ended December 31, 2018, 2017
and 2016, respectively.
The Tax Act, which was enacted on December 22, 2017, reduced the U.S. federal corporate tax rate from 35%
to 21%, eliminated the 20-year limit on the carryforward of losses, and resulted in the Company remeasuring its existing
deferred tax balances in 2017. Generally, the Tax Act became effective in 2018, and it altered the deductibility of certain
items (e.g., certain compensation, interest, entertainment expenses), and allowed qualifying capital expenditures to be
deducted fully in the year of purchase. As of December 31, 2018, the Company has completed the analysis of the tax
effects of the Tax Act and has reflected all applicable changes in its financial statements, based on guidance issued to-
date. The Company continues to monitor developments by federal and state rulemaking authorities regarding
implementation of the Tax Act. As further guidance and clarification is issued by the IRS or state tax jurisdictions, the
Company will recognize the impact through its provision for income taxes in the period that the guidance becomes
effective.
We intend to maintain a valuation allowance on our deferred tax assets until there is sufficient evidence to
support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a
significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and
amount of any reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we
achieve in future periods.
37
We file income tax returns with the U.S. federal government and various state and foreign jurisdictions. In the
normal course of business, we are subject to examination by taxing authorities. During 2017, the Internal Revenue
Service completed audits of our income tax returns through 2016.
Diluted Earnings per Share
Net loss for the year ended December 31, 2018 was $54.4 million, or $1.90 per diluted share. Net loss for
the year ended December 31, 2017 was $37.8 million, resulting in a loss of $1.33 per diluted share. Net loss for the year
ended December 31, 2016 was $68.6 million, resulting in a loss of $2.51 per diluted share.
We believe that each of these items can distort the visibility of our ongoing performance and that the evaluation
of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact
of these items.
Year Ended December 31,
2018
2017
Net Loss, as reported (GAAP)
Net Loss per Diluted Share (GAAP)
Gross Margin Items:
Antidumping Adjustments 1
HTS Classification Adjustments 2
Indoor Air Quality Testing Program (Income) Charges 3
Gross Margin Subtotal
SG&A Items:
Accrual for Legal Matters and Settlements 4
Securities and Derivatives Class Action 5
Legal and Professional Fees 6
All Other 7
SG&A Subtotal
Tax Impact of Adjustments to Net Loss 8
$
$
(in thousands)
(54,379)
(1.90)
$
$
(4,948)
(1,711)
—
(6,659)
63,951
—
11,707
1,769
77,427
—
Adjusted Earnings
Adjusted Earnings per Diluted Share (a non-GAAP measure)
$
$
16,389
0.57
$
$
(37,823)
(1.33)
(2,797)
—
(993)
(3,790)
36,960
—
11,314
3,146
51,420
(3,108)
6,699
0.23
1,2,3 See the Gross Margin section above for more detailed explanations of these individual items.
4,5,6,7 See the SG&A section above for more detailed explanations of these individual items.
8 We considered the tax impact related to the pre-tax adjustments above. The Company has a full valuation
allowance recorded against its net deferred tax assets, which effectively offsets its federal taxes, other than a $3.1
million tax benefit the Company recognized related to the Tax Act.
Liquidity and Capital Resources
Our principal liquidity and capital requirements are for capital expenditures to maintain and grow our business,
satisfying our obligations on the recent settlements for the governmental investigations and litigation related to bamboo
flooring, working capital, and general corporate purposes. Our principal sources of liquidity at December 31, 2018 were
$11.6 million of cash and cash equivalents and $67.9 million of availability under our Revolving Loan. As December 31,
2018, the outstanding balance of the Revolving Loan was $65 million and it carried an interest rate of 4.125%.
38
We expect the DOJ and SEC settlements totaling $33 million will be paid in the next 30 days. We anticipate
funding $1.0 million of the cash portion of the Gold Litigation upon the court’s preliminary approval in the next few
months and then fund the remaining $13 million upon the court’s final approval, which may be as early as the fourth
quarter of 2019, and as late as 2020, which would be at the end of the claims notice period.
Our liquidity at year end was $79.5 million. After funding the above mentioned items our liquidity would be
$45.5 million. We expect to rebuild liquidity by reducing inventory that was purposefully purchased in advance of an
announced, but subsequently postponed, 25% tariff on purchases of Chinese goods, expanding our Revolving Loan to
add incremental borrowing capacity of $35 million, as discussed in more detail under the Revolving Credit Facility
header in this MD&A, through operating cash flows expected as the business benefits from the resolution of historical
legal matters.
In 2018, the Company reported a use of cash of $43.0 million. This included building inventory, net of
payables, by $54.3 million for and funding of the MDL of $21.5 million. If we set those two items aside which are not
expected to recur, cash from operations would have been a positive $32.8 million in 2018. The Company also generated
a positive cash from operations of $39.4 million in 2017, which was favorably affected by income tax refunds but
unfavorably impacted by a net outflow to pay down extended trade payables carried into 2017. The Company brought
terms current so it could again take advantage of vendor discounts.
We currently expect capital expenditures for 2019 to total between $15 million and $18 million, but we will
continue to assess and adjust our level of capital expenditures based on changing circumstances. Included in our capital
requirement for 2019, is the funding to open 10 to 15 stores, remodel and/or relocate some existing stores and meet any
obligations related to the relocation of our corporate headquarters.
Although certain matters remain outstanding, we have taken significant steps to eliminate uncertainty
associated with legal and regulatory matters previously discussed. We believe that cash flow from operations, together
with liquidity sources mentioned above, will be sufficient to fund our settlements and operations and anticipated capital
expenditures for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions
that we believe to be reasonable, but are also inherently uncertain. Actual future cash flows could differ from these
estimates.
Merchandise Inventories
Merchandise inventory is our most significant asset and is considered either “available for sale” or “inbound in-
transit,” based on whether we have physically received and inspected the products at an individual store location, in our
distribution centers or in another facility where we control and monitor inspection. During the fourth quarter of 2018, we
purposefully purchased inventory in advance of an announced, but subsequently postponed, 25% tariff on purchases of
Chinese goods.
Merchandise inventories and available inventory per store in operation on December 31 were as follows:
Inventory – Available for Sale
Inventory – Inbound In-Transit
Total Merchandise Inventories
Available Inventory Per Store
As of
As of
As of
December 31, 2018 December 31, 2017 December 31, 2016
$
$
$
(in thousands)
$
275,036
43,236
318,272 $
226,750 $
35,530
262,280 $
257,537
44,355
301,892
666 $
577 $
672
Available inventory per store at December 31, 2018 was higher than available inventory per store at
December 31, 2017 and close to the amount at December 31, 2016. In addition to the tariff-related purchases, the higher
level at December 31, 2018 was primarily due to our holding extra inventory as we transitioned the finishing lines out of
Toano, increased safety stock to improve customer service and an initiative to have more of our top-selling floors on-
39
hand in store for customers to take with them, as well as an initiative to expand our engineered assortment with new
looks to meet customer demand. Available inventory per store at December 31, 2016 reflected a higher level of
inventory related to new product expansion.
Inbound in-transit inventory generally varies due to the timing of certain international shipments and certain
seasonal factors, including international holidays, rainy seasons and specific merchandise category planning.
Cash Flows
The following table summarizes our cash flow activities for the years ended December 31, 2018, 2017 and
2016:
Net Cash (used in) provided by:
Operating Activities
Investing Activities
Financing Activities
Effect of Exchange Rates
Total
Year Ended December 31,
2017
2018
2016
(42,986)
(13,461)
49,205
(1,131)
(8,373)
39,392
(4,338)
(26,193)
806
9,667
(27,547)
(8,333)
18,704
744
(16,432)
Operating Activities. Net cash used in operating activities was $43.0 million in 2018 and was primarily due to
a $54.3 million increase in inventory, net of payables, which was the result of the build in inventory previously
discussed, as well payments of $21.5 million on the remaining cash portion of the Formaldehyde MDL and Abrasion
MDL obligation. Absent the build in inventory and the settlement payment, cash from operating activities would have
been a positive $32.8 million.
Net cash provided by operating cash flows was $39.4 million in 2017. The overall improvement in operating
cash flows for 2017 was due to higher sales, improved gross margin and lower SG&A expenses as a percentage of net
sales. Cash for certain working capital items also affected operating cash flows. During 2017, operating cash flows
benefited by a $29.2 million tax refund related to our 2016 carry-back, and a $32.5 million reduction in merchandise
inventories, offset by a $52.5 million reduction in accounts payable.
Net cash used in operating activities was $27.5 million in 2016 and included a net loss of $68.6 million, which
included non-cash amounts for depreciation and amortization of $17.5 million, changes in deferred taxes of $14.2
million, stock-based compensation of $5.6 million, a charge related to the settlement of the Securities Class Action of
$16.8 million and lower of cost or market inventory adjustments of $3.7 million. After these adjustments, the cash flow
from earnings was a use of cash of $10.8 million. Inclusive in this, is a cash refund of $22.1 million in taxes received in
the third quarter related to our carryback of 2015 net operating losses, and a noncash tax benefit recorded that reflects a
similar carryback of the 2016 net losses. This use of cash was negatively impacted by the elevated legal and professional
fees discussed in the SG&A section above. In 2016, we also generated cash of $2.0 million through increased trade
payables, net of increases in inventory, by extending terms with vendors, used cash of $6.2 million related to the
settlement of the Lacey Act investigation that was finalized in October 2015 and used $2.5 million in cash related to the
settlement of the Derivatives Class Action.
Investing Activities. Net cash used in investing activities was $13.5 million in 2018, $4.3 million in 2017 and
$8.3 million in 2016. Net cash used in investing activities in each year tracks with our store openings which were 21, 11
and 9 for the years ended December 31, 2018, 2017 and 2016, respectively. In addition, 2018 included elevated
investments in our information technology initiatives.
Financing Activities. Net cash provided by financing activities was $49.2 million in 2018 and was primarily
attributable to $50 million in net borrowings on the Revolving Loan. Net cash used in financing activities was $26.2
million in 2017 and was primarily attributable to $25 million in net payments on the Revolving Loan. Net cash provided
40
by financing activities was $18.7 million in 2016 and was primarily attributable to $20 million in net borrowings on the
Revolving Loan.
Revolving Credit Facility
On August 17, 2016, we entered into a Third Amended and Restated Credit Agreement (the “Revolving Credit
Facility”) with Bank of America, N.A. (the “Bank”) and Wells Fargo Bank, N.A. (“Wells Fargo” and, collectively with
the Bank, the “Lenders”) with the Bank as administrative agent and collateral agent and Wells Fargo as syndication
agent. Under the Revolving Credit Facility, which matures on August 17, 2021, the Lenders agreed to provide us with
the Revolving Loan under which we may obtain loans and letters of credit from the Bank up to a maximum aggregate
outstanding principal amount of the lesser of $150 million or a calculated borrowing base.
The Revolving Credit Facility requires customary covenants, including a financial covenant to maintain a fixed
charge coverage ratio of at least 1.0 to 1.0, calculated quarterly on a trailing four quarters basis that becomes effective
only when specified availability under the Revolving Loan falls below the greater of $15 million or 10% of the
maximum revolver amount. At December 31, 2018, we had $67.9 million available to borrow under this facility, which
was net of $2.1 million in outstanding letters of credit, $65 million in outstanding borrowings and subject to certain
limitations as a result of our borrowing base and the fixed charge coverage ratio covenant, as of December 31, 2018.
On March 8, 2019, we entered into a commitment letter with the Lenders, subject to customary closing
conditions, that provides for an increase in the Revolving Loan up to a maximum amount of $175 million, and a new
“First in Last Out” tranche of $25 million incremental to the $175 million but within the same Revolving Credit Facility.
This will also extend the term of the loan until March 2024. We expect to close on this expanded Revolving Credit
Facility in late March or early April 2019.
Contractual Commitments and Contingencies
Our significant contractual obligations and commitments as of December 31, 2018 are summarized in the
following table:
Contractual Obligations
Operating Lease Obligations 1
Purchase Obligations 2
Total Debt Obligations, including current
maturities
Total Contractual Obligations
Total
Less Than 1 Year 1 to 3 Years 3 to 5 Years 5+ Years
Payments Due by Period
(in thousands)
$ 155,213
196
65,000
$ 220,409
$
$
36,074
196
$
59,390 $ 35,321
—
—
$ 24,428
—
—
36,270
65,000
—
$ 124,390 $ 35,321
—
$ 24,428
1 Included in this table is the base period or current renewal period for our operating leases. The operating leases
generally contain varying renewal provisions.
2 Purchase obligations represent capital expenditure commitments.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.
New Accounting Pronouncements
See Summary of Significant Accounting Policies in Note 1 that is included in Item 8 of this Form 10-K for
further information about new accounting pronouncements adopted during 2018 and accounting pronouncements issued
but not yet effective.
41
Critical Accounting Policies and Estimates
Critical accounting policies are those that we believe are both significant and that require us to make difficult,
subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base
our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under
the circumstances. Actual results may differ from these estimates, and we might obtain different estimates if we used
different assumptions or conditions. We believe the following critical accounting policies affect our more significant
judgments and estimates used in the preparation of our financial statements:
Loss Contingencies
We are involved in various lawsuits, claims, investigations, and proceedings. Certain of these matters include
speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe that it is
both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is
reasonably possible and a loss or range of the loss can be estimated, we disclose such amounts. Significant judgment is
required to determine both probability and the estimated amount of any loss or range of loss. We assess each legal matter
and any related provisions at least quarterly and adjust them accordingly to reflect the impact of negotiations,
settlements, rulings, advice of legal counsel, and updated information.
Until a final resolution related to loss contingencies for legal and other contingencies is reached, there may be
an exposure to loss in excess of the amount we have recorded, and such amounts could be material, either individually or
in the aggregate, to our business, consolidated financial position, results of operations, or cash flows. Therefore, if one or
more of these matters were resolved against us for amounts in excess of management’s expectations, our results of
operations and financial condition, including in a particular reporting period, could be materially adversely affected.
Valuation of Deferred Tax Assets
We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, “Income
Taxes.” Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax
basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse.
We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in
estimates in the valuation allowance. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The
current year analysis was impacted by the new tax law in December. At December 31, 2018, we had a valuation
allowance of $26.3 million primarily attributable to the uncertainty related to the realizability of our deferred tax assets.
We considered all available evidence, both positive and negative, in determining the need for a valuation allowance.
Based upon this analysis, including a consideration of our cumulative loss history in the three-year period ended
December 31, 2018, we determined that it is not more likely than not that our deferred tax assets will be realized.
Significant management judgment is required in determining our provision for income taxes, deferred tax assets
and liabilities and the valuation allowance recorded against our net deferred tax assets, if any. Management considers
estimates of the amount and character of future taxable income in assessing the likelihood of realization of deferred tax
assets. Our actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts
of various items, including changes in income tax laws, tax planning and the Company’s forecasted financial condition
and results of operations in future periods. Although management believes current estimates are reasonable, actual
results could differ from these estimates.
Stock-Based Compensation
We currently utilize a single equity incentive plan under which we may grant non-qualified stock options,
restricted shares, stock appreciation rights and other equity awards to employees, non-employee directors and other
service providers. We recognize expense for our stock-based compensation based on the fair value of the awards that are
granted. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the
date of grant based on our historical experience and future expectations. Measured compensation cost is recognized
ratably over the service period of the entire related stock-based compensation award.
42
The fair value of stock options was estimated at the date of grant using the Black-Scholes-Merton valuation
model. In order to determine the related stock-based compensation expense, we used the following assumptions for stock
options granted during 2018:
Expected life of 5.5 years;
Expected stock price volatility of 55%;
Risk-free interest rate of 2.8%; and
Dividends are not expected to be paid in any year.
The expected stock price volatility is based on the historical volatility of our stock price. The volatility is
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. We have never paid a dividend. Had we arrived at different
assumptions of stock price volatility or expected terms of our options, our stock-based compensation expense and results
of operations could have been different.
Recognition of Net Sales
We recognize net sales for products purchased at the time the customer takes possession of the merchandise.
We recognize service revenue, which consists primarily of installation revenue and freight charges for in-home delivery,
when the service has been rendered. We report sales exclusive of sales taxes collected from customers and remitted to
governmental taxing authorities. Net sales are reduced by an allowance for anticipated sales returns that we estimate
based on historical and current sales trends and experience. We believe that our estimate for sales returns is an accurate
reflection of future returns. Any reasonably likely changes that may occur in the assumptions underlying our allowance
estimates would not be expected to have a material impact on our financial condition or operating performance. Actual
sales returns did not vary materially from estimated amounts for 2018, 2017 or 2016.
In addition, customers who do not take immediate delivery of their purchases are generally required to pay a
deposit, equal to approximately half of the retail sales value, with the balance payable when the customer takes
possession of the merchandise. These customer deposits benefit our cash flow and return on investment capital, because
we receive partial payment for our customers’ purchases immediately. We record these deposits as a liability on our
balance sheet in Customer Deposits and Store Credits until the customer takes possession of the merchandise.
Merchandise Inventories
We value our merchandise inventories at the lower of cost or net realizable value. We determine merchandise
cost using the weighted average method. All of the hardwood flooring we purchase from suppliers is either prefinished
or unfinished, and in immediate saleable form. Inventory cost includes the costs of bringing an article to its existing
condition and location such as shipping and handling and import tariffs. To the extent that we finish and box unfinished
products, we include those costs in the average unit cost of related merchandise inventory. In determining market value,
we make judgments and estimates as to the market value of our products, based on factors such as historical results and
current sales trends. Any reasonably likely changes that may occur in those assumptions in the future may require us to
record charges for losses or obsolescence against these assets, but would not be expected to have a material impact on
our financial condition or operating performance. Actual losses and obsolescence charges did not vary materially from
estimated amounts for 2018, 2017 or 2016.
43
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk
We are exposed to interest rate risk through the investment of our cash and cash equivalents and our Revolving
Loan. We may invest our cash in short-term investments with maturities of three months or less. Changes in interest
rates affect the interest income we earn, and therefore impact our cash flows and results of operations. Borrowings under
our Revolving Loan are exposed to interest rate risk due to the variable rate of the Revolving Credit Facility. As of
December 31, 2018, we had $65 million outstanding under our Revolving Loan. If the interest rate had varied by 1% in
either direction throughout 2018, interest expense would have fluctuated by $650,000.
We currently do not engage in any interest rate hedging activity and have no current intention to do so.
However, in the future, in an effort to mitigate losses associated with these risks, we may at times enter into derivative
financial instruments, although we have not historically done so. We do not, and do not intend to, engage in the practice
of trading derivative securities for profit.
Exchange Rate Risk
Less than two percent of our revenue, expense and capital purchasing activities are transacted in currencies
other than the U.S. dollar, including the Euro, Canadian dollar, Chinese yuan and Brazilian real.
We currently do not engage in any exchange rate hedging activity as the vast majority of our foreign purchases
are denominated in U.S. dollars. However, in the future, in an effort to mitigate losses associated with these risks, we
may at times engage in transactions involving various derivative instruments to hedge revenues, inventory purchases,
assets and liabilities denominated in foreign currencies. If the exchange rate on December 31, 2018 had varied by 10% in
either direction, net income from Canadian operations would have fluctuated nominally.
44
Item 8. Consolidated Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2017
Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017 and 2016
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
Notes to Consolidated Financial Statements
Page
46
49
50
51
52
53
54
45
Report of Independent Registered Public Accounting Firm
To the Stockholders 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, 2018 and 2017, the related consolidated statements of operations, comprehensive income (loss),
stockholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related
notes and Financial Statement Schedule II - Analysis of Valuation and Qualifying Accounts (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, 2018 and 2017, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with 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’s internal control over financial reporting as of December 31, 2018, 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 March 18, 2019 expressed an adverse opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company'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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2003.
Richmond, Virginia
March 18, 2019
46
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Lumber Liquidators Holdings, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Lumber Liquidators Holdings, Inc.’s internal control over financial reporting as of December 31, 2018,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect
of the material weakness described below on the achievement of the objectives of the control criteria, Lumber
Liquidators Holdings, Inc. (the Company) has not maintained effective internal control over financial reporting as of
December 31, 2018, based on the COSO criteria.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will
not be prevented or detected on a timely basis. The following material weakness has been identified and included in
management’s assessment. Management has identified a material weakness in transaction level and review controls
related to the calculation and measurement of import tariff obligations on inventory purchases.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the 2018 consolidated financial statements of the Company. This material weakness was considered in
determining the nature, timing and extent of audit tests applied in our audit of the 2018 consolidated financial
statements, and this report does not affect our report dated March 18, 2019, which 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
47
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
March 18, 2019
48
Lumber Liquidators Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
Assets
Current Assets:
Cash and Cash Equivalents
Merchandise Inventories
Prepaid Expenses
Deposit for Legal Settlement
Other Current Assets
Total Current Assets
Property and Equipment, net
Goodwill
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable
Customer Deposits and Store Credits
Accrued Compensation
Sales and Income Tax Liabilities
Accrual for Legal Matters and Settlements Current
Other Current Liabilities
Total Current Liabilities
Other Long-Term Liabilities
Deferred Tax Liability
Revolving Credit Facility
Total Liabilities
Stockholders’ Equity:
December 31, December 31,
2018
2017
$
$
$
11,565 $
318,272
6,299
21,500
8,667
366,303
93,689
9,693
5,832
19,938
262,280
9,108
—
6,670
297,996
100,491
9,693
2,615
475,517 $ 410,795
73,412 $
40,332
9,265
4,200
97,625
17,290
242,124
20,203
792
65,000
328,119
67,676
38,546
12,101
4,273
36,960
18,605
178,161
19,235
552
15,000
212,948
Common Stock ($0.001 par value; 35,000 shares authorized; 31,578 and 31,397 shares
issued and 28,627 and 28,490 shares outstanding at December 31, 2018 and 2017,
respectively)
Treasury Stock, at cost (2,951 and 2,907 shares, respectively)
Additional Capital
Retained Earnings
Accumulated Other Comprehensive Loss
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
31
32
(140,875)
(141,828)
208,629
213,744
131,214
76,835
(1,152)
(1,385)
147,398
197,847
475,517 $ 410,795
$
See accompanying notes to consolidated financial statements.
49
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Operations
(in thousands except per share amounts)
Year Ended December 31,
2017
2018
2016
Net Sales
Net Merchandise Sales
Net Services Sales
Total Net Sales
Cost of Sales
Cost of Merchandise Sold
Cost of Services Sold
Total Cost of Sales
Gross Profit
Selling, General and Administrative Expenses
Operating Loss
Other Expense
Loss Before Income Taxes
Income Tax Expense (Benefit)
Net Loss
Net Loss per Common Share—Basic
Net Loss per Common Share—Diluted
Weighted Average Common Shares Outstanding:
Basic
Diluted
$
955,949 $
128,687
1,084,636
938,269 $ 895,612
64,976
90,664
960,588
1,028,933
596,411
95,285
691,696
392,940
443,513
(50,573)
2,827
(53,400)
979
$ (54,379) $
(1.90) $
$
(1.90) $
$
591,087
68,785
659,872
369,061
406,027
(36,966)
1,591
(38,557)
(734)
608,834
47,885
656,719
303,869
397,504
(93,635)
638
(94,273)
(25,710)
(37,823) $ (68,563)
(2.51)
(2.51)
(1.33) $
(1.33) $
28,571
28,571
28,407
28,407
27,284
27,284
See accompanying notes to consolidated financial statements.
50
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Comprehensive Loss
(in thousands)
Year Ended December 31,
2017
2016
2018
Net Loss
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments
Total Other Comprehensive (Loss) Income
Comprehensive Loss
$ (54,379) $ (37,823) $ (68,563)
(233)
(233)
209
209
$ (54,612) $ (37,519) $ (68,354)
304
304
See accompanying notes to consolidated financial statements.
51
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Stockholders’ Equity
Common Stock
Treasury Stock
Shares Par Value Shares Value
Additional Retained Comprehensive Stockholders’
Capital
Earnings Income (Loss)
Equity
Accumulated
Other
Total
December 31, 2015
27,088 $
30
2,825 $ (138,987) $ 180,590 $ 237,600 $
(1,665) $
277,568
Stock-Based
Compensation Expense
Exercise of Stock Options
Tax Effect of Stock-Based
Compensation
Stock Issued upon Legal
Settlement
Release of Restricted
Shares
Common Stock
Repurchased
Translation Adjustment
Net Loss
December 31, 2016
Stock-Based
Compensation Expense
Exercise of Stock Options
Release of Restricted
Shares
Common Stock
Repurchased
Translation Adjustment
Net Loss
December 31, 2017
Stock-Based
Compensation Expense
Exercise of Stock Options
Release of Restricted
Shares
Common Stock
Repurchased
Translation Adjustment
Net Loss
December 31, 2018
—
59
—
1,000
101
—
—
—
28,248 $
—
88
154
—
—
—
28,490 $
—
44
93
—
—
—
28,627 $
—
—
—
1
—
—
—
—
31
—
—
—
—
—
—
31
—
—
1
—
—
—
32
—
—
—
—
29
—
—
—
—
—
—
(433)
—
—
5,487
539
(675)
16,759
—
—
—
—
—
—
—
—
—
—
(68,563)
2,854 $ (139,420) $ 202,700 $ 169,037 $
—
—
—
53
—
—
—
—
—
(1,455)
—
—
4,582
1,347
—
—
—
—
—
—
—
—
—
(37,823)
2,907 $ (140,875) $ 208,629 $ 131,214 $
—
—
—
44
—
—
—
—
—
(953)
—
—
4,346
770
(1)
—
—
—
—
—
—
—
—
(54,379)
2,951 $ (141,828) $ 213,744 $ 76,835 $
See accompanying notes to consolidated financial statements.
—
—
—
—
5,487
539
(675)
16,760
—
—
209
—
(1,456) $
(433)
209
(68,563)
230,892
—
—
—
4,582
1,347
—
—
304
—
(1,152) $
(1,455)
304
(37,823)
197,847
—
—
—
4,346
770
—
—
(233)
—
(1,385) $
(953)
(233)
(54,379)
147,398
52
Lumber Liquidators Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Cash Flows from Operating Activities:
Net Loss
Adjustments to Reconcile Net Loss:
Depreciation and Amortization
Deferred Income Taxes (Benefit) Provision
Stock-Based Compensation Expense
Provision for Inventory Obsolescence Reserves
Impairment and Loss on Disposal of Fixed Assets
Stock-Based Portion of Provision for Securities Class Action
Changes in Operating Assets and Liabilities:
Merchandise Inventories
Accounts Payable
Customer Deposits and Store Credits
Prepaid Expenses and Other Current Assets
Accrual for Legal Matters and Settlements
Deposit for Legal Settlement
Other Assets and Liabilities
Net Cash (Used in) Provided by Operating Activities
Cash Flows from Investing Activities:
Purchases of Property and Equipment
Proceeds from Disposal of Fixed Assets
Other Investing Activities
Net Cash Used in Investing Activities
Cash Flows from Financing Activities:
Borrowings on Revolving Credit Facility
Payments on Revolving Credit Facility
Proceeds from the Exercise of Stock Options
Payments for Stock Repurchases
Payments on Financed Insurance Obligations
Payments on Capital Lease Obligations
Payments for Debt Issuance Costs
Net Cash Provided by (Used in) Financing Activities
Effect of Exchange Rates on Cash and Cash Equivalents
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents, Beginning of Year
Cash and Cash Equivalents, End of Year
Year Ended December 31,
2018
2017
2016
$ (54,379) $ (37,823) $ (68,563)
18,425
240
4,091
3,108
1,818
—
(59,179)
4,852
1,685
2,902
63,951
(21,500)
(9,000)
(42,986)
17,739
(3,246)
4,735
6,349
1,498
—
32,614
(52,475)
6,001
28,962
36,960
—
(1,922)
39,392
17,505
14,205
5,568
3,723
—
16,760
(62,054)
64,025
(988)
(11,411)
—
—
(6,317)
(27,547)
(14,332)
871
—
(13,461)
(7,411)
2,273
800
(4,338)
(8,908)
—
575
(8,333)
74,000
(24,000)
770
(953)
(612)
—
—
49,205
(1,131)
(8,373)
19,938
11,565 $
40,000
(65,000)
1,347
(1,455)
(734)
(351)
—
(26,193)
806
9,667
10,271
19,938 $
37,000
(17,000)
539
(433)
—
(469)
(933)
18,704
744
(16,432)
26,703
10,271
$
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 statements.
53
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 hard-surface flooring, and hard-
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,
waterproof vinyl plank and porcelain 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 underlayment, adhesives and flooring tools. The Company also provides in-home delivery and
installation services to its customers. The Company sells primarily to homeowners or to contractors on behalf of
homeowners through a network of store locations in metropolitan areas. The Company’s stores spanned 47 states in the
United States (“U.S.”) and included eight stores in Canada at December 31, 2018. In addition to the store locations, the
Company’s products may be ordered, and customer questions/concerns addressed, through both its call center in Toano,
Virginia, and its website, www.lumberliquidators.com. The Company finished the majority of its 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.” In July of 2018, the Company announced its plan to sell its finishing line
equipment to an unaffiliated third-party purchaser and to relocate its corporate headquarters to Richmond, Virginia, in
2019. The Company ceased finishing floors in January 2019.
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 order to conform to the current year presentation, the Company has reclassified net services sales and net
cost of services sold on the accompanying consolidated statements of operations for the years ended December 31, 2017
and 2016, respectively, to separate line items from total net sales with the remainder being classified as net merchandise
sales and cost of merchandise sold.
Use of Estimates
The 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 and 2017, the Company has recognized significant liabilities related to
various legal and regulatory matters. While the payment of these liabilities 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
future cash flows could differ from these estimates.
Cash and Cash Equivalents
The Company had cash and cash equivalents of $11.6 million and $19.9 million at December 31, 2018 and
2017, respectively. 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 zero at December 31, 2018 and 2017, respectively. The
54
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 $7.3 million and $13.3 million at December 31, 2018 and 2017,
respectively.
Credit Programs
Credit is offered to the Company’s customers through a proprietary credit card, underwritten by a third-party
financial institution and at no recourse to the Company. A credit line is offered to the 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, 2018, the Company utilized a network of associates to perform certain
customer-facing, consultative services and coordinate the installation of its flooring products by third-party independent
contractors in all of its stores.
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 carrying amount of obligations
under its Revolving Credit Facility approximates fair value due to the variable rate of interest.
Merchandise Inventories
The Company values merchandise inventories at the lower of cost and 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. 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 box, various species of unfinished product,
to produce certain proprietary products, primarily Bellawood. Any finishing and boxing costs were included in the
average unit cost of related merchandise inventory. In addition, the Company maintains an inventory reserve for loss or
obsolescence based on historical results and current sales trends. This reserve was $6.8 million and $5.6 million at
December 31, 2018 and 2017, respectively.
Impairment of Long-Lived Assets
The Company evaluates potential impairment losses on long-lived 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.
During 2018, the Company decided to exit the finishing 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 for impairment and recorded a $1.8 million impairment charge
within selling, general and administrative (“SG&A”) expenses in its accompanying consolidated statements of
operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC 820) of the
assets and the carrying value of the related net assets based on the contract to sell to a third party. The Company received
$0.8 million in connection with this transaction during 2018 and has $1.0 million in assets held-for-sale, included in
Other Current Assets on the Consolidated Balance Sheet as of December 31, 2018.
55
During 2017, the Company determined that the carrying value of certain assets that had once been part of a
discontinued vertical integration strategy was above their fair value and recorded an impairment charge of $1.5 million
within SG&A expenses in the consolidated statements of operations. The charge was measured as the difference between
the fair value (Level 2 inputs under the fair value hierarchy) of the assets and the carrying value of the related net assets
based on a contract to sell to a third party.
No impairment charges were recognized in 2016.
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 assets 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 no impairment in the value of these assets 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 be affected if future occurrences and claims differ from
these assumptions and historical trends. As of December 31, 2018 and 2017, the Company had accruals of $2.4 million
and $2.1 million, respectively, related to estimated claims was included in other current liabilities.
Recognition of Net Sales
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“Topic 606”), Revenue from
Contracts with Customers, which superseded the revenue recognition requirements in Topic 605, Revenue Recognition,
including most industry-specific revenue recognition guidance. 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 and when control of those
goods and services has passed to the customer. The Company adopted Topic 606 as of January 1, 2018 using the
modified retrospective transition method. However, because adoption of the standard did not change the timing or
amount of the Company’s recognition of revenue and because the Company does not recognize revenues for partial
contracts, there was no adjustment to retained earnings needed as part of the adoption of the new standard.
The Company generates revenues primarily by retailing merchandise in the form of hardwood and porcelain
flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install
this merchandise for its customers; it considers these services to be separate performance obligations. The separate
performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring
merchandise without purchasing installation or delivery services. Sales occur through a network of 413 stores, which
spanned 47 states, including eight stores in Canada at December 31, 2018. In addition, both the merchandise and
services can be ordered through a call center and from the Company’s website, www.lumberliquidators.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 for partially satisfied contracts that will be completed in the days following the end of a period as
permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted
to governmental taxing authorities, consistent with past practice.
Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from
vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a
performance obligation by transferring control over a product to a customer or performing service for a customer.
56
Revenues from installation and freight services are recognized when the delivery is made or the installation is complete,
which approximates the recognition of 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 ordering merchandise not regularly carried in a given location or not
currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at
the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits
received in advance of the customer taking possession of the merchandise or receiving the services are recorded 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:
Customer Deposits and Store Credits, Beginning Balance
New Deposits
Recognition of Revenue
Sales Tax included in Customer Deposits
Other
Customer Deposits and Store Credits, Ending Balance
2018
Year Ended December 31,
2017
(38,546)
(1,155,019)
1,084,636
67,125
1,472
(40,332)
$
$
(32,639) $
(1,101,841)
1,028,933
66,028
973
(38,546) $
$
$
2016
(33,771)
(1,021,880)
960,588
63,422
(998)
(32,639)
Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days.
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
previously recognized revenue in full, recorded an allowance for expected returns (contra-revenue) and recorded a
separate refund liability for expected returns. The Company reduces revenue by the amount of expected returns and
records it within Accrued Expenses and Other 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 the Other Current Assets caption of the accompanying consolidated
balance sheet. This amount was $1.2 million at December 31, 2018. The Company recognizes sales commissions as
incurred since the amortization period is less than one year. The Company offers a range of limited warranties for the
durability of the finish on its prefinished products. 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. Warranty costs are recorded in Cost of Sales.
We offer hundreds of different flooring products; however, no single flooring product represented a significant
portion of our sales mix. By major product category, our sales mix was as follows:
Manufactured Products 1
Solid and Engineered Hardwood
Moldings and Accessories and Other
Installation and Delivery Services
Total
Year Ended December 31,
2017
36 % $ 315,369
$
2018
392,512
367,026 34 %
423,301
18 %
196,411
199,599
90,664
12 %
128,687
100 % $ 1,028,933
$ 1,084,636
31 % $ 248,234
26 %
41 % 452,248 47 %
20 %
19 % 195,130
7 %
64,976
9 %
100 %
100 % $ 960,588
2016
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 cost of installation services, and
transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable
57
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, which 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 $1.4 million and $1.6 million at December 31, 2018 and
2017, respectively. The Company seeks recovery from its vendors and third-party independent contractors of installation
services for certain amounts paid.
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 was approximately $0.1 million. Since that time,
costs related to the Company’s Air Quality Testing Program have been expensed as incurred and have not been
significant.
Advertising Costs
Advertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances,
were $74,242, $76,586 and $80,079 in 2018, 2017 and 2016, 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 $564
and $1,077 at December 31, 2018 and 2017, respectively.
Store Opening Costs
Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.
58
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, the
Company uses the original lease term, excluding optional renewal periods, to 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:
Buildings and Building Improvements
Property and Equipment
Computer Software and Hardware
Leasehold Improvements
Operating Leases
Years
7 to 40
3 to 15
3 to 10
1 to 15
The Company has operating leases for its stores, current corporate headquarters in Toano, Virginia, 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, the Company records minimum rental expenses in SG&A expenses on a straight-line basis over the terms of
the leases. The difference between the rental expense and rent paid is recorded as deferred rent on the consolidated
balance sheets. For tenant improvement allowances, the Company records deferred rent on the consolidated balance
sheets and amortizes the deferred rent over the terms of the leases as reductions to rental expense.
Stock-Based Compensation
The Company records compensation expense associated with stock options and other forms of equity
compensation in accordance with 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.
Foreign Currency Translation
The Company’s Canadian operations use the Canadian dollar as the functional currency. Assets and liabilities
are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the
average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of
accumulated other comprehensive income on the consolidated balance sheets.
59
Income Taxes
Income taxes are accounted for in accordance with 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.
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 Not Yet Adopted
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. The
Company adopted this ASU on January 1, 2019 on a modified retrospective basis and will not restate prior periods. The
Company has implemented software to track and account for the leases, assessed the impact of the new guidance on its
consolidated financial statements and financial controls. Presentation of leases within the consolidated statements of
operations and consolidated statements of cash flows will be generally consistent with the current lease accounting
guidance. The Company elected the package of practical expedients permitted under the transition guidance within the
new standard, which among other things, will allow the Company to carryforward the historical lease classification. On
January 1, 2019, the Company will make 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 Sheet but will be recognized in the
Consolidated Statements of Operations on a straight-line basis over the term of the agreement. The Company estimates
that the adoption of the standard will result in recognition of right-of-use lease assets and lease liabilities in the
approximate range of $115 million to $125 million on the Company’s consolidated Balance Sheet primarily related to
more than 400 store operating leases.
In August 2018, the FASB issued Accounting Standards Update No. 2018-15 (“ASU 2018-15”), which
provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement
that is a service contract, as initially published in Accounting Standards Update No. 2015-05, Intangibles—Goodwill and
Other—Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In summary,
the new standard requires customers of cloud computing services to recognize an intangible asset for the software license
and, to the extent that payments attributable to the software license are made over time, a liability is also recognized.
60
The new standard also allows customers of cloud computing services to capitalize certain implementation costs. The
amendments in ASU 2018-15 are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. Therefore, the new standard will become effective for the Company at the beginning of its 2020
fiscal year, although early adoption is permitted for all entities. The Company will evaluate the impact of ASU 2018-15
when recording cloud computing arrangements.
Note 2. Property and Equipment
Property and equipment consisted of:
Land
Building
Property and Equipment
Computer Software and Hardware
Leasehold Improvement
Assets under Construction
Less: Accumulated Depreciation and Amortization
Property and Equipment, net
December 31,
$
2017
2018
4,937 $
44,319
53,411
54,375
46,297
767
204,106
110,417
4,937
44,299
60,337
50,415
40,277
596
200,861
100,370
93,689 $ 100,491
$
As of December 31, 2018 and 2017, the Company had cumulatively capitalized $40,230 and $37,905 of
computer software costs, respectively. Amortization expense related to these assets was $4,331, $3,875 and $3,604 for
2018, 2017 and 2016, respectively.
Note 3. Other Liabilities
Other long-term liabilities consisted of:
Antidumping and Countervailing Duties Accrual
Deferred Rent
Lease Incentive Obligation
Other
Other Long Term Liabilities
Note 4. Revolving Credit Facility
December 31,
2018
11,456 $
4,850
2,864
1,033
20,203 $
2017
10,372
5,150
2,872
841
19,235
$
$
On August 17, 2016, the Company, Lumber Liquidators, Inc. (“LLI”) and Lumber Liquidators Services, LLC
(“LL Services” and collectively with LLI, the “Borrowers”), entered into a Third Amended and Restated Credit
Agreement (the “Revolving Credit Facility”) with Bank of America, N.A. (the “Bank”) and Wells Fargo Bank, N.A.
(“Wells Fargo” and, collectively with the Bank, the “Lenders”) with the Bank as administrative agent and collateral
agent (in this capacity, the “Agent”) and Wells Fargo as syndication agent. The maximum amount of borrowings under
the Revolving Credit Facility is $150 million (but subject to the borrowing base as described in the agreement).
At December 31, 2018, the Company had $67.9 million available to borrow under the Revolving Loan, which
was net of $2.1 million in outstanding letters of credit, $65 million in outstanding borrowings and certain limitations
based on the borrowing base and the fixed charge coverage ratio covenant.
The Revolving Credit Facility matures on August 17, 2021, is guaranteed by the Company and its other
domestic subsidiaries other than LLI and LL Services and secured by security interests in the Collateral (as defined in
61
the agreement), which includes substantially all assets of the Company including, among other things, the Company’s
inventory and accounts receivables and the Company’s East Coast distribution center located in Sandston, Virginia.
Under the terms of the 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 on 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 the LIBOR Rate, each as defined in the agreement. Interest on
Base Rate loans is charged at varying per annum rates computed by applying a margin ranging from 0.50% to 0.75%
(dependent on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the
most recently completed fiscal quarter) over the Base Rate. Interest on LIBOR Rate loans and fees for standby letters of
credit are charged at varying per annum rates computed by applying a margin ranging from 1.50% to 1.75% (dependent
on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most
recently completed fiscal quarter) over the applicable LIBOR rate for one, two, three or six month interest periods as
selected by the Company. At December 31, 2018, the Company’s Revolving Credit Facility carried an interest rate of
4.125%.
The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective in the event that
the Company’s excess borrowing availability under the Revolving Credit Facility falls below the greater of $15 million,
or 10% of the maximum revolver amount. This covenant – though not currently operable – would not have been met at
December 31, 2018. This covenant was met at December 31, 2017.
On March 8, 2019, we entered into a commitment letter with the Lenders, subject to customary closing
conditions, that provides for an increase in the Revolving Loan up to a maximum amount of $175 million, and a new
“First in Last Out” tranche of $25 million incremental to the $175 million but within the same Revolving Credit Facility.
This will also extend the term of the loan until March 2024. We expect to close on this expanded Revolving Credit
Facility in late March or early April 2019.
Note 5. Leases
The Company has operating leases for its stores, current corporate headquarters in Toano, Virginia, West Coast
distribution center, supplemental office facilities and certain equipment. The Company has also entered into an
agreement for a future corporate headquarters in Richmond, Virginia which has a ten-year term that commences in late
2019 once the Company takes possession of the property. The store location leases are operating leases and generally
have five-year base periods with one or more five-year renewal periods. The current corporate headquarters in Toano,
Virginia and the supplemental office facility in Richmond, Virginia have operating leases with base terms running
through December 31, 2019. The West Coast distribution center has an operating lease with a base term running through
October 31, 2024. Total rent expense was $34.1 million, $32.5 million and $30.3 million in 2018, 2017 and 2016,
respectively.
As of December 31, 2016, the Company leased the current corporate headquarters, which includes a store
location and 29 of its locations, representing 7.8% of the total number of store leases then in operation from the
Company’s founder. During 2016, 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 in 2016.
62
At December 31, 2018, the future minimum rental payments under non-cancellable operating leases were as
follows:
2019
2020
2021
2022
2023
Thereafter
Operating Leases
Distribution
Headquarters & Centers & Other Operating
Total
$
Store Leases
Leases
33,689 $
30,697
24,402
18,492
12,496
22,374
2,385
2,123
2,168
2,147
2,186
2,054
Leases
$ 36,074
32,820
26,570
20,639
14,682
24,428
Total minimum lease payments
$
142,150 $
13,063
$ 155,213
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:
Net Loss
Weighted Average Common Shares Outstanding—Basic
Effect of Dilutive Securities:
Common Stock Equivalents
Weighted Average Common Shares Outstanding—Diluted
Net Loss per Common Share—Basic
Net Loss per Common Share—Diluted
Year Ended December 31,
2017
(37,823) $
28,407
2018
(54,379) $
28,571
2016
(68,563)
27,284
—
28,571
—
28,407
(1.90) $
(1.90) $
(1.33) $
(1.33) $
—
27,284
(2.51)
(2.51)
$
$
$
The following have been excluded from the computation of Weighted Average Common Shares Outstanding—
Diluted because the effect would be antidilutive:
Stock Options
Restricted Shares
Stock Issuance
2018
643,422
407,319
As of December 31,
2017
653,019
432,777
2016
666,538
516,072
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 Program
In 2012, the Company’s Board of Directors (“Board”) authorized the repurchase of up to $100 million of the
Company’s common stock from time to time on the open market or in privately negotiated transactions. In January 2014,
63
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 at December 31, 2015, the Company had $14.7 million remaining
under this authorization. The Company did not purchase any shares under this program during the three-years ended
December 31, 2018.
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 6.1 million. As of December 31, 2018, 0.8 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-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 132,348 and 122,007 deferred stock units outstanding at December 31, 2018 and 2017,
respectively.
Stock Options
The following table summarizes activity related to stock options:
Remaining
Average
Contractual
Weighted
Average
Exercise Price Term (Years)
$
7.7
Aggregate
Intrinsic
Value
$
1,283
Balance, December 31, 2015
Granted
Exercised
Forfeited
Balance, December 31, 2016
Granted
Exercised
Forfeited
Balance, December 31, 2017
Granted
Exercised
Forfeited
Balance, December 31, 2018
Exercisable at December 31, 2018
Vested and expected to vest December 31, 2018
Shares
692,776
443,147
(60,781)
(239,528)
835,614
127,984
(87,955)
(185,975)
689,668
215,297
(43,510)
(128,870)
732,585
303,898
732,585
$
$
$
$
$
31.45
13.51
9.37
27.16
24.86
22.09
15.31
25.62
25.31
20.54
17.70
33.25
22.97
28.47
22.97
7.5
$
1,167
7.7
$
8,530
7.3
$
$
$
—
—
—
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 2018, 2017 and
2016 was $341, $828 and $343, respectively.
64
As of December 31, 2018, total unrecognized compensation cost related to unvested options was approximately
$2,704, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately
2.2 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 2018, 2017 and 2016
was $10.69, $11.20 and $6.75, respectively.
The following are the average assumptions for the periods noted:
Expected dividend rate
Expected stock price volatility
Risk-free interest rate
Expected term of options
Year Ended December 31,
2017
2016
2018
— %
55 %
2.8 %
5.5 years
— %
55 %
1.7 %
5.5 years
— %
55 %
1.3 %
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.
Restricted Shares
The following table summarizes activity related to restricted shares:
Nonvested, December 31, 2015
Granted
Released
Forfeited
Nonvested, December 31, 2016
Granted
Released
Forfeited
Nonvested, December 31, 2017
Granted
Released
Forfeited
Nonvested, December 31, 2018
Weighted Average
Grant Date Fair
Shares
461,671 $
343,517
(130,523)
(88,478)
586,187 $
207,196
(205,349)
(108,288)
479,746 $
224,835
(137,064)
(80,305)
487,212 $
Value
23.61
12.41
24.23
18.29
17.71
19.56
18.31
15.68
18.71
22.39
18.67
17.98
20.54
The fair value of restricted shares released during 2018, 2017 and 2016 was $2,923, $5,151 and $1,617,
respectively. As of December 31, 2018, total unrecognized compensation cost related to unvested restricted shares was
approximately $3,953, net of estimated forfeitures, which is expected to be recognized over a weighted average period of
approximately 2.1 years.
During 2018, the Company granted 30,887 shares of performance-based restricted stock awards, vesting over a
three-year period, with a grant date fair value of approximately $0.7 million to certain members of senior management in
connection with the achievement of specific key financial metrics measured over a two-year period. The number of
awards that will ultimately vest is contingent upon the achievement of these key financial metrics by the end of year two.
The Company assesses the probability of achieving these metrics on a quarterly basis. Once these amounts have been
65
determined, half of the shares will vest at the end of year two and the remaining half will vest at the end of year three.
These awards are included above in Restricted Shares Granted for 2018.
Stock Appreciation Rights
The following table summarizes activity related to SARs:
Weighted
Average
Remaining
Average
Contractual
Exercise Price Term (Years)
$
6.8 $
Aggregate
Intrinsic
Value
—
Balance, December 31, 2015
Granted
Exercised
Forfeited
Balance, December 31, 2016
Granted
Exercised
Forfeited
Balance, December 31, 2017
Granted
Exercised
Forfeited
Balance, December 31, 2018
Exercisable at December 31, 2018
Shares
16,057
13,071
—
(460)
28,668
2,899
(165)
(14,852)
16,550
1,738
—
(335)
17,953
7,504
$
$
$
$
47.58
15.31
—
62.87
32.63
17.39
24.35
45.93
18.10
23.31
—
86.16
17.33
7.5 $
6
8.6 $
251
7.8 $
—
—
17.69
7.5 $
The fair value method, estimated by management using the Black-Scholes-Merton option pricing model, is used
to recognize compensation cost associated with SARs.
Note 8. Income Taxes
The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the fourth quarter of 2017. The Tax Act reduced the
U.S. federal corporate tax rate from 35% to 21%, eliminated the 20-year limit on the carryforward of losses, and resulted
in the Company remeasuring its existing deferred tax balances as of December 31, 2017. Generally, the Tax Act became
effective in 2018, and it altered the deductibility of certain items (e.g., certain compensation, interest, entertainment
expenses), and allowed qualifying capital expenditures to be deducted fully in the year of purchase. As of December 31,
2018, the Company has completed the analysis of the tax effects of the Tax Act based on guidance issued to-date and has
reflected all applicable changes (including, to executive compensation, deductibility of meals and entertainment
expenses, and interest expense) in its financial statements. Changes from our original estimates were minimal. The
Company continues to monitor developments by federal and state rulemaking authorities regarding implementation of
the Tax Act. As further guidance and clarification is issued by the IRS or state tax jurisdictions, the Company will
recognize the impact through its provision for income taxes in the period that the guidance becomes effective.
The Company’s deferred tax assets and liabilities are based on the rates at which they are expected to reverse in
the future, which is generally 21%. The Company’s valuation allowance is 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 amount recorded related to the remeasurement of the deferred tax balance and valuation allowance
was $8.1 million as of December 31, 2017. The net effect of the Tax Act was a $3.1 million tax benefit recorded in 2017.
66
The components of Loss before Income Taxes were as follows:
United States
Foreign
Total Loss before Income Taxes
The expense (benefit) for income taxes consisted of the following:
Year Ended December 31,
2017
(38,258) $
(299)
(38,557) $
2018
(52,473) $
(927)
(53,400) $
2016
(92,874)
(1,399)
(94,273)
$
$
Year Ended December 31,
2017
2018
2016
Current
Federal
State
Foreign
Total Current
Deferred
Federal
State
Total Deferred
$
— $
2,254 $
146
112
2,512
(36,801)
(3,269)
155
(39,915)
(2,087)
(1,159)
(3,246)
$
(734) $
11,184
3,021
14,205
(25,710)
607
132
739
140
100
240
979
Income Tax Expense (Benefit)
$
Tax expense in the amount of $216 was recognized as a component of income tax expense during 2018
resulting from the exercise of stock options and the release of restricted shares. Prior to the adoption of Accounting
Standards Update No. 2016-09, which amends ASC Topic 718, Compensation – Stock Compensation, in 2017, excess
tax benefits and shortfalls were recognized as adjustments to additional paid-in capital.
Income Tax Benefit at Federal Statutory Rate
$ (11,214) 21.0 % $ (13,495) 35.0 % $ (32,995) 35.0 %
2018
Year Ended December 31,
2017
2016
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax
Benefit
Valuation Allowance
Foreign Operations
Uncertain Tax Position related to Investigatory
Settlements
Non-Deductible Fines and Penalties
Federal Rate Change
Capital Loss
Other
Income Tax Expense (Benefit)
$
723
3,897
132
2,919
4,011
—
—
511
979
(1.3)%
(7.3)%
(0.3)%
(5.5)
(7.5)%
— %
— %
(0.9)%
(1.8)% $
(740)
3,826
221
—
1,156
8,088
—
210
(734)
1.9 %
(10.0)%
(0.5)%
(2,275)
15,207
(2,465)
2.4 %
(16.1)%
2.6 %
—
— %
875
(3.0)%
—
(21.0)%
(4,020)
— %
(0.5)%
(37)
1.9 % $ (25,710)
— %
(0.9)%
— %
4.3 %
— %
27.3 %
67
The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a
21% federal rate in both 2018 and 2017, are as follows:
Deferred Tax Liabilities:
Depreciation and Amortization and Other
Total Gross Deferred Tax Liabilities
Deferred Tax Assets:
Stock-Based Compensation Expense
Legal Settlement Reserves
Other Accruals and Reserves
Employee Benefits
Inventory Reserves
Inventory Capitalization
Foreign Net Operating Losses
Net Operating Loss Carryforwards
Capital Loss Carryforwards and Other
Total Gross Deferred Tax Assets
Less Valuation Allowance
Total Net Deferred Tax Assets
Net Deferred Tax Liability
December 31,
2018
2017
$
(10,672) $
(10,672)
(11,664)
(11,664)
2,348
14,251
4,811
1,018
1,896
3,492
3,153
2,445
2,784
36,198
(26,318)
9,880
(792) $
2,375
9,120
5,598
1,745
1,708
2,647
2,891
3,789
2,815
32,688
(21,576)
11,112
(552)
$
For 2018 and 2017, the Company’s U.S. operations were in a cumulative loss position. As such, the Company
has recorded a valuation allowance on its net deferred tax assets. The valuation allowance increased by $4,742 and
$3,826 for the years ended December 31, 2018 and 2017, respectively. In future periods, the allowance could be reduced
if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will
be realized.
In both 2018 and 2017, the Company’s Canadian operations were in a cumulative loss position. As such, the
Company has recorded a full valuation allowance on the net deferred tax assets in Canada. The valuation allowance
increased by $232 and $110 for the years ended December 31, 2018 and 2017, respectively. In future periods, the
allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of
these deferred tax assets will be realized.
As of December 31, 2018 and 2017, the Company had U.S. federal net operating loss carryforwards of $11,483
and $5,183, respectively, of which the pre-2018 net operating losses begin to expire in 2037. However, under the 2017
Tax Act net operating losses in years 2018 and future will not expire. As of December 31, 2018 and 2017, respectively,
the Company had state net loss carryforwards of $52,230 and $48,247, which begin to expire in 2022. The Company had
foreign net operating loss carryforwards of $12,239 and $11,522 at December 31, 2018 and 2017, respectively, which
begin to expire in 2030.
The Company received income tax refunds (net of payments) of $148, $29,467 and $27,422 in 2018, 2017 and
2016, respectively.
As of December 31, 2018 and 2017, the Company had $3,610 and $27, respectively of gross unrecognized tax
benefits related to Uncertain Tax Positions ($3,465 and $21, respectively net of federal tax 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 to have a significant
effect on its results of operations, financial position or cash flows.
68
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and
penalties, is as follows:
Balance at beginning of year
Increases for tax positions related to current year
Increases for tax positions related to prior years
Lapse of statue
Federal tax rate change
Balance at end of year
Year Ended December 31,
2018
2017
2016
27
3,583
—
—
—
3,610
$
208
—
33
(208)
(6)
27 $
396
123
—
(311)
—
208
$
Included in the additions of unrecognized tax benefits in the fiscal year ended December 31, 2018, is
approximately $3.6 million for an uncertain tax position related to the deductibility of the $33 million settlement related
to the governmental investigations.
The Company files income tax returns with the U.S. federal government and various state and foreign
jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities. As of
December 31, 2018, the Internal Revenue Service has completed audits of the Company’s income tax returns through
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 $2,642, $2,284 and $2,286 in 2018, 2017 and 2016, respectively.
Note 10. Commitments and Contingencies
The Company has been actively resolving various legal and other matters that have arisen in recent years.
Certain other matters remain outstanding. More detailed discussion of many of the matters noted below are included in
this Form 10-K under the caption “Item 3 Legal Proceedings.”
2018, 2017 and 2016 Settlements and Resolutions
During 2018, 2017 and 2016, the Company recorded accruals in accordance with GAAP related to several legal
matters. These include:
2018
Governmental Investigations
Litigation Related to Bamboo
2017
Formaldehyde-Abrasion MDLs
2016
Lacey Act Related Matter
California Air Resources Board
CPSC Matter
Securities Class Action
Derivative Litigation Matters
Governmental Investigations
In 2015 and early 2016, the Company received subpoenas issued in connection with a criminal investigation
being conducted by the DOJ and the SEC. The focus of the investigations primarily related to compliance with
disclosure, financial reporting and trading requirements under the federal securities laws. The Company cooperated
with the investigations, produced documents and other information responsive to subpoenas and other requests
69
received from the parties. Subsequent to year end, the Company reached an agreement with the U.S. Attorney, the DOJ
and SEC regarding the investigation. The Company has entered into a DPA with the U.S. Attorney and the DOJ and a
Cease-and-Desist Order with the SEC, under which it is required, among other things, to (1) pay a fine in the amount of
$19,095,648 to the United States Treasury, (2) forfeit to the U.S. Attorney and the DOJ the sum of $13,904,352, of
which up to $6,097,298 will be submitted by the Company to the SEC in disgorgement and prejudgment interest under
the Order and (3) 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 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 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 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 has accrued the fines in Selling, General, and Administrative expense in 2018, with $33 million
recorded in Accrual for Legal Matters and Settlements Current in its Consolidated Balance Sheet.
Litigation Relating to Bamboo Flooring
In 2014, Dana Gold (“Gold”) filed a purported class action lawsuit alleging that certain bamboo flooring that
the Company sells (the “Strand Bamboo Product”) is defective (the “Gold Litigation”). The plaintiffs sought financial
damages and, in addition to attorneys’ fees and costs, the plaintiffs wanted a declaration that the Company’s actions
violated the law. The trial was scheduled to begin in late February 2019.
Following settlement discussions with the respect to the Gold Litigation, on March 15, 2019, the Company
entered into a Memorandum of Understanding with Gold and certain other lead plaintiffs in the Gold Litigation (the
“MOU”), which would resolve all disputes on a nationwide basis. Under the terms of the MOU, the Company will
contribute $14 million in cash and provide $14 million in store-credit vouchers, with a potential additional $2 million in
store-credit vouchers based on obtaining a claim’s percentage of more than 7%, for an aggregate settlement of up to $30
million. The MOU is subject to certain contingencies, including the execution of a definitive settlement agreement,
board approval, and court approvals of the definitive settlement agreement. The entry into the MOU or any subsequent
execution of a definitive settlement agreement does not constitute an admission by the Company of any fault or liability
and the Company does not admit any fault or liability. There can be no assurance that a settlement will be finalized and
approved 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, success on the merits. The Company has accrued within SG&A a $28 million liability in
2018 with the offset in the caption “Other Current Liabilities”. The Company has notified its insurance carriers and
continues to pursue coverage. As the insurance claim is still pending, the Company has not recognized any insurance
recovery related to the Gold Litigation.
In addition, there are a number of other claims and lawsuits alleging damages similar to those in the Gold
Litigation. The Company disputes these claims and intends to defend such matters vigorously. Given the uncertainty
of litigation, the preliminary stage of the cases, and the legal standards that must be met for success 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 these
actions. Accordingly, no accruals have been made with respect to these matters. Any such losses could, potentially,
have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition,
and liquidity.
70
Litigation Relating to Chinese Laminates
Formaldehyde-Abrasion MDLs
On March 15, 2018, the Company entered into a settlement agreement with the lead plaintiffs in the
Formaldehyde MDL (as defined in Item 3 of this Form 10-K) and Abrasion MDL (as defined in Item 3 of this Form
10-K), cases more fully described in Item 3 of this Annual Report on Form 10-K. Under the terms of the settlement
agreement, the Company agreed to fund $22 million in cash and provide $14 million in store-credit vouchers for an
aggregate settlement of $36 million to settle 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 deposited $22 million into an escrow
account administered by the court and plaintiffs’ counsel in accordance with the final settlement. The final approval
order by the United States District Court for the Eastern District of Virginia has been appealed and is pending. The
Company does not anticipate any change to its obligations, but must wait until the appeals are adjudicated or withdrawn.
If the appeals were to result in the settlement being set aside, the Company would receive $21.5 million back from the
escrow agent. Accordingly, the Company has accounted for the payment of $21.5 million as a deposit in the
accompanying consolidated financial statements. To date, insurers have denied coverage with respect to the
Formaldehyde MDL and Abrasion MDL. The $36 million aggregate settlement amount was accrued within Selling,
General and Administrative expenses in 2017.
For approximately three years after a final ruling has been reached in this matter, plaintiffs will be able to
redeem vouchers for product. Some of the states have alternative expiration dates while others have an indefinite
amount of time to redeem vouchers. The Company will account for the sales of these products by relieving the relevant
liability, reducing inventory used in the transaction and offsetting SG&A expenses for any profit. The Company does
not know the timing or pace of voucher redemption.
In addition to those purchasers who opted 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 2018, while some remain in settlement negotiations. The Company recognized
charges to earnings of $3 million and $1 million for the years ended December 31, 2018 and 2017, respectively, within
selling, general and administrative expenses for these Remaining Laminate Matters. As of December 31, 2018 the
remaining accrual related to these matters is $1.0 million, which has been included in the Accrual for Legal Settlements
on the Consolidated Balance Sheet. While the Company believes that a further loss associated with the Opt Outs and
Related Laminate Matters is reasonably possible, the Company is unable to reasonably estimate the amount or range of
possible loss beyond what has been provided. If the Company incurs losses with the respect to the Opt Outs or further
losses with respect to Related Laminate Matters, the ultimate resolution of these actions could have a material adverse
effect 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. 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
loss associated with the Steele litigation is possible, the Company is unable to reasonably estimate the amount or range
of possible loss.
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
71
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 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 that
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.
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.
72
Employee Classification Matter
During the second half of 2017, current and former store managers, filed purported class action lawsuits in New
York and California on behalf of all current and former store managers, store managers in training, installation sales
managers, and similarly situated current and former employees holding comparable positions but different titles
(collectively, the “Putative Class Employees”), alleging that the Company violated the Fair Labor Standards Act and
certain state laws by classifying the Putative Class Employees as exempt. In both cases the plaintiffs did not quantify any
alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amount
for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory
penalties, injunctive relief and other damages. The Company disputes the claims and intends to defend both matters
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 to estimate the amount of
loss, or range of possible loss, at this time that may result from these actions. Accordingly, no accruals have been made
with respect to these matters. Any such losses could potentially have a material adverse effect, individually or
collectively, on the Company’s results of operations, financial condition, and liquidity.
Antidumping and Countervailing Duties Investigation
In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring 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 7%, 8%, and 7% of its flooring purchases in 2018, 2017 and 2016, 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 AD and CVD 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/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.
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. Those appeals are pending and, at times,
have resulted in delays in settling the shortfalls and refunds shown in the table below. Because of the length of time for
finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a
period different from those in which the inventory was originally purchased and/or sold.
The first 5-year Sunset Review of the AD and CVD orders on multilayered wood flooring (the “Sunset
Review”) determined, in December 2017, that the AD and CVD orders will remain in place.
Results by period for the Company are shown below. The column labeled ‘December 31, 2018
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 expense related to antidumping of $1.2 million, with the amount included in
other expense on the Statements of Operations. The estimated associated interest payable and receivable for each period
73
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
Period
Period Covered
May 2011 through
November 2012
December 2012 through
November 2013
December 2013 through
November 2014
December 2014 through
November 2015
December 2015 through
November 2016
December 2016 through
November 2017
December 2017 through
November 2018
April 2011 through
December 2012
January 2013 through
December 2013
January 2014 through
December 2014
January 2015 through
December 2015
January 2016 through
December 2016
January 2017 through
December 2017
January 2018 through
December 2018
Rates at which
Company
Deposited
Antidumping
6.78% and 3.3%
3.30%
3.3% and 5.92%
5.92% and 13.74%
5.92%. 13.74%. and 17.37%
17.37% and 0.0%
0.00%
Final Rate
0.73%1
13.74%
17.37%
0.0%
0.0%2
Pending3
Pending
Included on the Consolidated
Balance Sheet in Other Current
Assets
Included on the Consolidated
Balance Sheet in Other Assets
Included on the Consolidated
Balance Sheet in Other Long-
Term Liabilities
Countervailing
1.50%
0.83% / 0.99%
1.50%
1.50% and 0.83%
1.38%
1.06%
0.83% and 0.99%
Final at 0.11% and 0.85%4
0.99% and 1.38%
1.38% and 1.06%
1.06%
Pending
Pending
Pending
Included on the Consolidated
Balance Sheet in Other Current
Assets
Included on the Consolidated
Balance Sheet in Other Assets
December 31, 2018
Receivable/Liability
Balance
$1.3 million
receivable1
$4.1 million
liability
$5.5 million
liability
$0.03 million
receivable
$2.6 million
receivable2
NA
NA
$2.63 million
$1.3 million
$9.6 million
$0.2 million
receivable
$0.05 million
receivable
$0.02 million
receivable
$0.08 million
receivable 4
NA
NA
NA
$0.08 million
$0.27 million
In 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%). As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a
corresponding reduction of Cost of Sales during the year ended December 31, 2018.
In the third quarter of 2018, the DOC issued the final rates for review period 5 at 0.0%. As a result, the Company recorded a receivable of $2.8
million with a corresponding reduction of Cost of Sales during the year ended December 31, 2018.
The preliminary AD rate was a maximum of 48.26%. If the preliminary ruling regarding the AD Rate were to be finalized, the Company anticipates
it would record a net liability of approximately $1.1 million.
74
1
2
3
4
5
6
7
1&2
3
4
5
6
7
8
1
2
3
4
In June 2018, the DOC issued the final rates for review period 5 at 0.11% and 0.85% depending on 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.
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.
Note 11. Selected Quarterly Financial Information (unaudited)
The following tables present the Company’s unaudited quarterly results for 2018 and 2017.
Quarter Ended
March 31,
2018
June 30,
2018
September 30, December 31,
Net Sales
Gross Profit
Selling, General and Administrative Expenses
Operating (Loss) Income
Net (Loss) Income
Net (Loss) Income per Common Share - Basic
Net (Loss) Income per Common Share - Diluted
Number of Stores Opened in Quarter, net
Comparable Store Net Sales Increase
$ 261,772 $ 283,474 $
94,972
96,418
(1,446)
$ (1,972)
(0.07)
$
(0.07)
$
5
2.9 %
101,310
102,223
(913)
$ (1,454)
(0.05)
$
(0.05)
$
8
$
$
$
4.7 %
March 31,
2017
June 30,
2017
Quarter Ended
September 30, December 31,
Net Sales
Gross Profit
Selling, General and Administrative Expenses
Operating (Loss) Income
Net (Loss) Income
Net (Loss) Income per Common Share - Basic
Net (Loss) Income per Common Share - Diluted
Number of Stores Opened in Quarter
Comparable Store Net Sales Increase
$ 248,389 $ 263,500 $
86,799
112,215
(25,416)
$ (26,372)
(0.93)
$
(0.93)
$
2
4.7 %
$
$
$
97,455
92,335
5,120
4,475
0.16
0.16
$
$
$
—
8.8 %
2018
2018
270,469 $ 268,921
100,682
95,976
150,885
93,987
(54,909)
6,695
$ (56,876)
5,923
(1.99)
$
0.21
(1.99)
0.21
$
4
3
0.4 %
2.1 %
2017
2017
257,185 $ 259,859
92,120
92,687
91,515
109,962
605
(17,275)
2,989
(18,915)
0.10
(0.66)
0.10
(0.66)
6
2
4.5 %
3.8 %
$
$
$
The following tables present certain items impacting gross profit and SG&A in the Company’s unaudited
quarterly results for 2018 and 2017. Operating loss for each of the quarterly periods was impacted by the unusual items
75
in both gross profit and SG&A discussed above and summarized below. These items either relate to revised estimates of
legacy reserves, or are significant and infrequent in nature.
Gross Margin Items:
Antidumping Adjustments
Tariff Adjustments
Sub-Total Items above
SG&A Items:
Accrual for Legal Matters and Settlements
Legal and Professional Fees 1
All Other 2
Sub-Total Items above
Gross Margin Items:
Antidumping Adjustments
Indoor Air Quality Testing Program
Sub-Total Items above
SG&A Items:
Securities and Derivatives Class Action
Legal and Professional Fees 1
All Other 2
Sub-Total Items above
Quarter Ended
March 31,
June 30,
September 30, December 31,
2018
2018
2018
2018
$
$
— $ (2,126) $
—
—
— $ (2,126) $
(2,822) $
—
(2,822) $
—
(1,711)
(1,711)
$
250
3,067
—
$ 3,317
$
$
2,701
3,325
$
—
$
6,026
— $
2,991
1,769
4,760 $
61,000
2,324
—
63,324
Quarter Ended
March 31,
June 30,
September 30, December 31,
2017
2017
2017
2017
$
$
— $ (2,797) $
—
— $ (3,790) $
(993)
— $
—
— $
—
—
—
$ 18,000
2,408
—
$ 20,408
$
$
— $
3,526
—
3,526 $
18,000 $
2,940
1,459
22,399 $
960
2,440
1,687
5,087
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.
76
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period
covered by this report. Disclosure controls and procedures are designed to provide reasonable assurance that the
information required to be disclosed in the reports that we file or submit under the Exchange Act has been appropriately
recorded, processed, summarized and reported on a timely basis and are effective in ensuring that such information is
accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on such evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018, our disclosure
controls and procedures were not effective due to a material weakness in internal control over financial reporting,
described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining an adequate system of internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), pursuant to Rule 13a-15(c) of
the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
GAAP.
A company’s internal control over financial reporting includes policies and procedures that: (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company, and (iii) 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. Projections of any evaluation of effectiveness for 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.
Under the supervision and with the participation of our management, we assessed the effectiveness of our
internal control over financial reporting as of December 31, 2018, using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that
there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be
prevented or detected on a timely basis.
We identified a material weakness in our internal controls related to the classification of imported products
under the Harmonized Tariff System. This classification is the basis on which tariff obligations on imported products are
calculated. We believe that this weakness was the result of: inconsistent documentation of product specifications, an
overreliance upon the knowledge and expertise of certain individuals, and review controls that did not operate at a level
of precision to detect and correct these errors. Management believes that the design and operation of controls in place as
of December 31, 2018 created a reasonable possibility that a material misstatement to the consolidated financial
statements may not have been prevented or detected on a timely basis.
77
The Company’s independent registered public accounting firm, Ernst & Young LLP has issued an adverse audit
report on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, which
appears in Item 8 of this Annual Report.
As a result of the identification of the material weakness, and prior to filing this Annual Report, we performed
further analysis and completed additional procedures intended to ensure our consolidated financial statements for the
year ended December 31, 2018 were prepared in accordance with GAAP. Based on these procedures and analysis, and
notwithstanding the material weakness in our internal control over financial reporting, our management has concluded
that our consolidated financial statements and related notes thereto included in this Annual Report have been prepared in
accordance with GAAP. Our Chief Executive Officer and Chief Financial Officer have certified that, based on each such
officer’s knowledge, the financial statements, as well as the other financial information included in this Annual Report,
fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of,
and for, the periods presented in this Annual Report. In addition, Ernst & Young LLP has issued an unqualified opinion
on our financial statements, which is included in Item 8 of this Annual Report, and we have developed a remediation
plan for the material weakness, which is described below.
Remediation
In addition to the further analysis and procedures noted above to ensure that the financial statements were in
accordance with GAAP, management has been implementing and continues to implement measures designed to ensure
that control deficiencies contributing to the material weakness are remediated, such that these controls are designed,
implemented, and operating effectively. The remediation actions include: designing a process whereby 1) complete
specifications including a sample have been documented in a consistent manner, 2) multiple parties independently assign
a proposed tariff code, and 3) review processes are consistently applied for newly created products, and 4) review
processes are added to sample previously assigned codes to ensure continued applicability. Employees hired as part of
this process will have requisite experience and expertise with customs and duties. Management will also be providing
regular reporting on remediation measures to the Audit Committee of the Board.
We believe that these actions will remediate the material weakness. The weakness will not be considered
remediated, however, until the applicable controls operate for a sufficient period of time and our management has
concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material
weakness will be completed by the end of fiscal 2019.
Changes in Internal Control over Financial Reporting
Except for the material weakness identified above, as of December 31, 2018, there have been no other changes
in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) during
our fourth quarter ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. Other Information.
None.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item is incorporated by reference from the definitive proxy statement for our
2019 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2018.
78
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 at
www.lumberliquidators.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 at www.lumberliquidators.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
2019 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2018.
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
2019 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2018.
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
2019 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2018.
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference from the definitive proxy statement for our
2019 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2018.
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, 2018, 2017 and 2016. 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.
79
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.
80
Lumber Liquidators Holdings, Inc.
Schedule II – Analysis of Valuation and Qualifying Accounts
For the Years Ended December 31, 2018, 2017 and 2016
(in thousands)
For the Year Ended December 31, 2016
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence
Income tax valuation allowance
For the Year Ended December 31, 2017
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence
Income tax valuation allowance
For the Year Ended December 31, 2018
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence
Income tax valuation allowance
Additions
Balance Charged to
Beginning Cost and
Balance End
of Year
Expenses Deductions (1) Other
of Year
$ 26,882 $ 3,723 $ (23,535) $ — $
$ 2,433 $ 15,207 $
7,070
— $ — $ 17,640
$ 7,070 $ 6,349 $ (7,788) $ — $
$ 17,640 $ 3,936 (2) $
5,631
— $ — $ 21,576
$ 5,631 $ 3,108 $ (1,932) $ — $
6,807
— $ — $ 26,318
$ 21,576 $ 4,742 $
1 Deductions are for the purposes for which the reserve was created, including the write-off of laminate flooring in
2016.
2 Includes the impact of the Tax Act, which was enacted on December 22, 2017.
81
EXHIBIT INDEX
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) (filed as Exhibit 3.1
to the Company’s current report on Form 8-K, filed on December 6, 2016 (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* 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* 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 –
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
10.8* 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 Third Amended and Restated Credit Agreement, dated as of August 17, 2016, 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, 2016 (File No. 001-33767), and
incorporated by reference)
10.10* 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* 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)
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* 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)
82
10.15* 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* 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* Form of NEO Performance Award, effective March 1, 2018 (filed as Exhibit 10.3 to the Company’s
quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference)
10.20* Form of Restricted Award Agreement (Director), effective February 7, 2018 (filed as Exhibit 10.2 to the
Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by
reference)
10.21 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)
10.22 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)
10.23 Class Action Settlement Agreement in Formaldehyde MDL and Durability 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)
10.24 Deferred Prosecution Agreement, dated March 12, 2019, by and between Lumber Liquidators Holdings,
Inc., the United States Attorney’s Office for the Eastern District of Virginia and the United States
Department of Justice, Criminal Division, Fraud Section. (filed as Exhibit 10.1 to the Company’s current
report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated by reference)
10.25 Order 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 United
States Securities and Exchange Commission and Lumber Liquidators, Holdings, Inc. (filed as Exhibit 10.2
to the Company’s current report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated
by reference)
10.26* 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)
10.27* 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, 2016 (File No. 001-33767) and incorporated by
reference)
10.28* Amendment, dated November 7, 2016, to Offer Letter, dated as of February 23, 2016, between Lumber
Liquidators Holdings, Inc. and Dennis R. Knowles (filed as Exhibit 10.1 to the Company’s current report on
Form 8-K, filed November 7, 2016 (File No. 001-33767) and incorporated by reference)
10.29* Offer Letter Agreement with Martin D. Agard, dated August 31, 2016 (filed as Exhibit 10.1 to the
Company’s current report on Form 8-K, filed September 9, 2016 (File No. 001-33767) and incorporated by
reference)
83
10.30* 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)
10.31* Offer Letter Agreement with M. Lee Reeves, dated June 16, 2017 (filed as Exhibit 10.36 to the Company’s
annual report on Form 10-K, filed February 27, 2018 (File No. 001-33769) and incorporated by reference)
10.32* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Dennis R.
Knowles (filed as exhibit 10.1 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No.
001-33769) and incorporated by reference)
10.33* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Martin D.
Agard (filed as exhibit 10.2 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No.
001-33769) and incorporated by reference)
10.34* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and M. Lee
Reeves (filed as exhibit 10.3 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No.
001-33769) and incorporated by reference)
10.35 Office Deed of Lease Agreement dated October 19, 2018, by and between LM Retail, LLC and Lumber
Liquidators Services, LLC
10.36* Offer Letter Agreement with Jennifer Bohaty, dated March 30, 2018
10.37* Offer Letter Agreement with Charles E. Tyson, dated May 17, 2018
10.38* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Jennifer
Bohaty
10.39* Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Charles
E. Tyson
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
101 The following financial statements from the Company’s Form 10-K for the year ended December 31, 2018,
formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations,
(iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’
Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements
*
Indicates a management contract or compensation plan, contract or agreement.
84
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
18, 2019.
SIGNATURES
LUMBER LIQUIDATORS HOLDINGS, INC.
(Registrant)
By: /s/ Dennis R. Knowles
Dennis R. Knowles
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 18, 2019.
Signature
/s/ Dennis R. Knowles
Dennis R. Knowles
/s/ Martin D. Agard
Martin D. Agard
/s/ Timothy J. Mulvaney
Timothy J. Mulvaney
/s/ Nancy M. Taylor
Nancy M. Taylor
/s/ W. Stephen Cannon
W. Stephen Cannon
/s/ Terri F. Graham
Terri F. Graham
/s/ David A. Levin
David A. Levin
/s/ Douglas T. Moore
Douglas T. Moore
/s/ Famous P. Rhodes
Famous P. Rhodes
/s/ Martin F. Roper
Martin F. Roper
/s/ Jimmie L. Wade
Jimmie L. Wade
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Chief Accounting Officer
(Principal Accounting Officer)
Chairperson of the Board
Director
Director
Director
Director
Director
Director
Director
85
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
[This Page Intentionally Left Blank]
Store Locations
ALABAMA
Birmingham - 1805 Tin Valley Circle • 205.572.4850
Dothan - 3500 Ross Clark Circle, Suite 930 • 334.828.7491
Huntsville - 8402 Whitesburg Dr • 256.513.4656
Mobile - 3725 Airport Blvd • 251.545.3353
Montgomery - 4345 Atlanta Highway • 334.239.3488
Pelham - 2242 Pelham Parkway • 205.941.9955
ARIZONA
Chandler - 2460 East Germann Rd • 623.321.3590
Mesa- 1845 South Power Rd • 480.207.2516
Peoria - 9700 North 91st Ave #124 • 623.239.3062
Phoenix - 2120 South 7th St • 602.454.2552
Scottsdale - 8340 East Rain Tree Dr • 480.582.1400
Tucson - 3745 North I10 EB Frontage Rd, Suite 107 • 520.790.7029
ARKANSAS
Little Rock - 6 Freeway Dr, Suite 500 • 501.588.4735
Springdale - 1840 West Sunset Ave • 479.439.8544
CALIFORNIA
Albany - 1061 Eastshore Highway, Suite 120 • 510.292.4052
Bakersfield - 3601 Ming Ave, Suite A • 661.412.0063
Burlingame - 1501 Adrian Rd • 650.204.4663
City of Commerce - 6548 Telegraph Rd • 323.721.0800
City of Industry - 19555 East Walnut Dr S • 626.465.1560
Corona - 280 Teller St • 951.356.0223
Elk Grove - 8777 Elk Grove Blvd. • 916.226.1746
Fairfield - 1595 Holiday Lane, Suite B4 •707.439.8500
Fresno - 5091 North Fresno St • 559.708.4281
Lakewood - 5832 Lakewood Boulevard • 562.239.3669
Livermore - 6242 Preston Ave • 925.605.7309
Los Angeles - 11612 West Olympic Boulevard • 213.785.3456
Milipitas - 395 Jacklin Rd • 408.404.4000
Modesto - 3250 Dale Road, Suite A1 • 209.554.7291
Monrovia - 720 E Huntington Dr • 626.408.0611
Moreno Valley - 12125 Day St • 951.842.3520
Murrieta - 26540 Jefferson Ave • 951.837.4112
North Hills - 16735 Roscoe Boulevard • 818.232.0918
Pacheco - 110 2nd Ave South, Unit A-1 • 925.231.1059
Palm Desert - 73-806 Dinah Shore Dr • 760.469.4368
Pittsburg - 2685 E Leland Rd • 925.318.1426
Pomona - 1601 West Mission Boulevard • 909.566.1462
Rancho Cordova - 2863 Zinfandel Dr • 916.369.7300
Rancho Cucamonga - 10920 Foothill Blvd • 909.937.1122
Redding - 1345 Chum Creek Raod, Suite B • 916.407.3208
Redlands - 1448 Industrial Park Avenue • 909.321.2328
Roseville - 9400 Fairway Dr • 916.877.8106
Salinas - 1043 N Main St • 831.269.3995
San Diego - 7930 Miramar Rd • 858.689.0800
San Diego - 222 Verus St • 619.207.4667
San Francisco - 3150 Geary Boulevard • 415.373.0100
San Jose - 1575 Terminal Ave • 408.463.6300
San Jose - 942 Blossom Hill Rd • 669.444.1824
San Leandro - 2997 Teagarden St • 510.524.7800
San Luis Obispo - 170 Suburban Rd, Suite 130 • 805.706.0387
San Marcos - 860 Los Vallecitos Boulevard • 760.566.7926
Santa Ana - 1850 East Edinger Ave • 714.258.8100
Santa Barbara - 18 South Milpas St • 805.298.1266
Santa Clarita - 18821 Soledad Canyon Rd • 661.244.3800
Santa Rosa - 930 Piner Rd • 707.324.3630
Santee - 240-102 Town Center Parkway • 619.363.7661
Stockton - 963 West March Lane • 209.337.3704
Torrance - 1431 West Knox St • 424.271.0014
Ventura - 6250 Inez St • 805.256.7070
Westminister - 14741 Goldenwest St • 714.248.7425
COLORADO
Aurora - 14015 E. Exposition Avenue • 720.307.6645
Colorado Springs - 4624 Northpark Dr • 719.266.9299
Denver - 5060 Acoma St • 303.292.1515
Fort Collins - 2415 East Mulberry St, Suite 8 • 970.372.0197
Grand Junction - 2465 Highway 6 and 50 • 970.628.0160
Littleton - 8500 West Crestline Ave • 720.593.4350
Lone Tree - 8204-B East Park Meadows Dr • 720.259.4370
Longmont - 633 Frontage Rd • 720.204.3477
Loveland - 2985 North Garfield Ave • 970.624.1026
CONNECTICUT
Danbury - 71 Newtown Rd • 203.702.1430
Hartford - 121 Brainard Rd • 860.527.8434
Milford - 1389 Boston Post Rd • 203.693.4022
North Haven - 430 Universal Dr N • 203.889.4703
Norwalk - 651 Connecticut Ave • 203.842.0840
Torrington - 237 High St • 860.387.7032
Waterbury - 1012 Wolcott St • 203.721.6145
Waterford - 150 Cross Rd • 860.237.4545
DELAWARE
Claymont - 203 Naamans Rd • 302.798.1400
Delmar - 38491 Sussex Highway • 302.248.5345
Dover - 2940 North DuPont Highway • 302.747.5988
Newark - 23 University Dr • 302.273.8193
FLORIDA
Altamonte Springs - 475 West SR • 321.234.2135 -Now Open!
Brandon - 1045 West Brandon Blvd • 813.473.2830
Coral Springs - 8120 Wiles Road • 954.603.1417
Dania - 1906 Tigertail Boulevard • 954.922.3120
Florida City - 33550 SW Dixie Highway • 786.838.0638
Fort Myers - 5020 South Cleveland Ave • 239.332.2829
Fort Walton Beach - 99 Eglin Parkway, Suite 18 • 850.812.3461
Gainesville - 2607 NW 13th St • 352.340.2433
Holly Hill - 1757 North Nova Rd #103 • 386.868.1191
Jacksonville - 9300 Arlington Expressway • 904.404.9025
Jacksonville - 624 Beautyrest Ave • 904.783.6446
Lutz - 18448 US Highway 41 • 813.909.7744
Melbourne - 2525 West New Haven • 321.473.3510
Miami - 8785 SW 133 St • 786.507.8820
Miami Gardens - 3355 Northwest 167th St • 305.351.7666
Naples - 4404 Tamiami Trail East • 239.206.1171
New Port Richey - 5201 US-19 • 727.223.1212
Ocala - 3701 SW College Road • 352.541.2751
Orlando - 9655 S. Orange Blossom Trail • 407.999.0020
Panama City - 901 North East Ave • 850.387.4328
Pensacola - 4117 Davis Highway • 850.857.1333
Plant City - 4017 South Frontage Rd • 863.808.1058
Port St. Lucie - 317 NW Peacock Boulevard - 772.905.5044
St. Petersburg - 2599 22nd Ave North • 727.394.3255
Sanford - 2885 S Orlando Dr • 321.420.1176
Sarasota - 2214 North Washington Boulevard • 941.749.1200
Tallahassee - 1516 A Capital Circle SE • 850.942.0000
Tampa - 8444 West Hillsborough Avenue - 813.867.2760
Venice - 454 US 41 BYP N - 941.216.7784
Vero Beach - 2124 58th Avenue - 772.222.7838
West Palm Beach - 3200 Shawnee Avenue - 561.665.5061
GEORGIA
Alpharetta - 735 North Main St • 404.692.4483
Athens - 3654-C Atlanta Highway • 706.395.7103
Augusta - 3475 Old Petersburg Rd, Suite 330 • 706.955.2789
Byron - 170 Tower Center Dr • 478.225.4604
Columbus - 4211 Milgen Rd, Unit 3 • 706.405.3367
Conyers - 1820 Highway 20 SE, Suite 120 • 770.860.0606
Douglasville - 7424 Douglas Boulevard • 470.377.0055
Duluth - 3855 Venture Dr • 678.430.3953
Kennesaw - 2500 North Cobb Pkwy • 770.850.0606
Newnan - 33 Amlajack Boulevard • 678.228.2405
Savannah - 4131 Ogeechee Rd, Suite 101 • 912.480.0519
IDAHO
Boise - 7428 West Mossy Cup St • 208.286.1180
Idaho Falls - 1574 North Hitt Road, Suite 1 • 208.881.9782
ILLINOIS
Arlington Heights - 1460 East Algonquin Rd • 847.357.0400
Bolingbrook - 117 South Weber Rd • 630.364.4600
Champaign - 301 West Marketview Dr • 217.903.5632
Chicago - 1606 North Throop St • 773.696.2600
Crystal Lake - 4500 West Northwest Highway • 815.219.4832
East Peoria - 1467 North Main St • 309.740.1801
Fairview Heights - 5520 North Illinois St • 618.327.0090
Lombard - 543 East Roosevelt Rd • 630.426.1248
Naperville - 2603 Aurora Ave • 331.213.2462
Oak Lawn - 4145 West 95th St • 708.572.8888
Rockford - 3290 South Alpine Rd • 815.873.6631
South Elgin - 356 Randall Road • 847.481.6987
Springfield - 2731 North Dirksen Pkwy • 217.953.4006
Tinley Park - 16195 Harlem Ave • 708.928.6036
West Chicago (Geneva) - 33W461 Roosevelt Rd • 630.206.1535
INDIANA
Evansville - 1200 North Willow Rd, Suite 203 • 812.618.1301
Fort Wayne - 2639 Goshen Rd • 260.494.3210
Greenwood - 2117 Independence Dr • 317.522.0076
Indianapolis - 10207 East Washington St • 317.762.2341
Indianapolis - 8410 North Michigan Rd • 317.541.1444
Lafayette - 4315 Commerce Dr; Suite 410 • 765.588.3554
Merrillville - 1140 West 81st Ave • 219.801.7622
South Bend - 3725 Cleveland Rd, Suite 600 • 574.485.2524
Terre Haute - Coming Soon!
IOWA
Davenport - 321 West Kimberly Rd • 563.726.0682
Marion - 1418 Twixt Town Rd • 319.243.3035
Urbandale - 10131 Hickman Rd • 515.322.1465
KANSAS
Lenexa - 9800 Quivira Rd • 913.254.9800
Topeka - 5907 SW 21st St • 785.783.0608
Wichita - 8909 West Kellogg Dr #105 • 316.768.4552
KENTUCKY
Bowling Green - 1109 Lovers Lane, Suite 1-D • 270.282.0790
Florence - 7800 Connector Dr • 859.918.9961
Jeffersontown - 2223 Plantside Dr • 502.499.6600
Lexington - 2320 Fortune Dr, Suite 170 • 859.963.1441
Louisville - 5236 Dixie Highway • 502.915.2838
LOUISIANA
Baton Rouge - 11770 Airline Highway • 225.298.1388
Broussard - 3401 US 90 • 337.326.4683
Harahan - 800 South Clearview Pkwy • 504.733.6230
Lake Charles - 3415 Derek Dr • 337.214.2963
Shreveport - 343 Bert Kouns Industrial Loop • 318.402.0992
Slidell - 2170 Gause Boulevard West • 985.288.1890
MAINE
Auburn - 730 Center St, Suite 4 • 207.692.2236
Brewer - 510 Wilson St • 207.631.2370
Scarborough - 443 US Route 1 • 207.885.9900
MARYLAND
Annapolis - 10 Lincoln Court, Suite 1933 • 443.951.0202
Beltsville - 10711A Baltimore Ave • 301.931.3467
Edgewood - 2710 Pulaski Highway, Suite C • 443.490.0180
Frederick - 7311 North Grove Rd • 240.575.3065
Glen Burnie - 585-A East Ordnance Rd • 443.422.6758
Lutherville Timonium - 2151 York Rd • 443.846.0430
Middle River - 9902 C Pulaski Highway • 301.971.4772
Rockville - 800 Hungerford Dr • 301.971.4772
Waldorf - 2260 Crain Highway • 240.435.2092
Windsor Mill - 2707 North Rolling Rd, Suite 106 • 410.944.9988
MASSACHUSETTS
Braintree - 240 Wood Rd • 781.849.9663
Hyannis - 20 Charles St • 508.815.4121
Leominster - 110 Water Tower Plaza • 978.751.3745
Plymouth - 76 Shops at 5 Way • 508.927.1138
Shrewsbury - 835C Hartford Turnpike • 508.925.9070
Swansea - 207 Swansea Mall Dr • 508.689.5925
West Hatfield - 10 West St, North Building, Suite 1 • 413.349.4064
West Roxbury - 1455 VFW Pkwy • 617.327.1222
Wilbraham - 2148 Boston Rd • 413.682.1583
Woburn - 345 Washington St, Suite 13 • 781.935.4111
MICHIGAN
Auburn Hills - 2434 Pontiac Rd • 248.630.3941
Brighton - 9920 Village Place Blvd • 810.299.0066
Clinton Township - 35906 Groesbeck Highway • 586.863.0090
Comstock Park - 230 Lamoreaux Dr, NE • 616.997.2500
Kalamazoo - 4432 West Main St, Suite 20 • 269.743.0030
Lansing - 446 East Edgewood Blvd, Suite A-112 • 517.455.7672
Redford - 13080 Inkster Rd • 313.532.1200
Saginaw - 5901 Brockway Road • 989.321.2628
Taylor - 23267 Eureka Rd • 734.407.7983
Traverse City - 2404 S Airport Rd • 231.668.9207
Ypsilanti - 2623 Ellsworth Rd • 734.547.3143
MINNESOTA
Blaine - 40 County Rd 10 NE • 763.784.3440
Burnsville - 1355 141st St West • 507.298.2469
Chanhassen - 2973 Water Tower Place • 952.314.4975
Duluth - 367 Garfield Ave, Suite 5 • 218.260.4917
Rochester - 5139 Highway 52 North • 507.216.0978
St. Cloud - 3320 Division St
Woodbury - 7700 Hudson Rd, Suite 400 • 651.967.0260
MISSISSIPPI
Gulfport - 9444 Highway 49 • 228.206.2306
Horn Lake - 6550 Interstate Boulevard • 662.298.4764
Jackson - 950 West County Line Rd, Suite 104 • 601.991.9000
MISSOURI
Chesterfield -17724 Chesterfield Airport Rd • 636.237.6115 -Now Open!
Columbia - 3200 Clark Lane • 573.234.4453
Fenton - 958 S Highway Dr • 636.764.0429
Lees Summit - 300 NE 291 Highway • 816.272.2528
N. Kansas City - 2618 NE Vivian Rd • 816.548.1724 -Coming Soon!
Saint Peters - 4016 North Service Rd • 636.875.1044
Springfield - 3103 East Chestnut Expressway • 417.459.4421
MONTANA
Billings - 2549 Enterprise Ave 406.545.2400
NEBRASKA
Lincoln - 6401 Q St • 402.858.1927
Omaha - 4147 S 84th St • 402.218.1720
NEVADA
Henderson - 27 S Stephanie St, Suite 150 • 702.893.3338
Las Vegas - 4588 N Rancho Dr, Unit 3 • 702.802.0873
Las Vegas - 1276-1284 South Nellis Blvd. 702.430.2123
Reno - 9728 S Virginia St, Suite D • 775.851.4949
NEW HAMPSHIRE
Lebanon - 91 Mechanic St • 603.448.2778
Manchester - 1207 Hanover St • 603.666.0333
Nashua - 225 Daniel Webster Highway • 603.821.2136
North Hampton - 5 Lafayette Rd • 603.379.6024
Somersworth - 182 Tri City Plaza • 603.617.4760
NEW JERSEY
Cape May - 3845 Bayshore Rd • 609.224.1090 -Now Open!
Cherry Hill - 1205 Warren Ave • 856.324.4450
East Brunswick - 2 Claire Rd, Suite 2C • 732.387.4274
Fairfield - 311 RT-46, Unit F • 862.881.4606
Hamilton - 8 Commerce Way, Suite 110 • 609.588.8082
Hillsborough - 6 Old Camplain Rd • 908.428.6000
Millville - 2251 North 2nd St • 609.736.2404
Oakhurst - 1604 SR-35 • 732.963.2035
Pleasantville - 7034 Black Horse Pike • 609.910.0897
South Hackensack - 14 East Wesley St • 201.343.5255
Toms River - 1258 Hooper Ave • 848.480.0787
Union - 1603 Route 22 • 908.613.0843
Woodbridge - 507 King Georges Rd • 908.259.4170
Woodbury - 1450 Clements Bridge Rd, Suite 15 • 856.291.6500
NEW MEXICO
Albuquerque - 5300 Pan American Freeway • 505.883.7200
NEW YORK
Albany - 158B Railroad Ave, Unit B • 518.393.8430
Bronx - 999 Brush Ave • 347.773.2075
Brooklyn - 64 12th St • 347.756.4215
Cheektowaga - 1650 Walden Ave • 716.833.6777
Elmira - 830 County Rd 64, Suite 12 • 607.873.6603
Freeport - 137 E Sunrise Highway • 516.415.1607
Hauppauge - 22 Central Ave • 631.232.2020
Johnson City - 420 Harry L Dr, Suite E • 607.231.0328
Long Island City - 32-32 49th St • 347.527.7664
Middletown - 400 Route 211 East • 845.326.1503
Nanuet - 119 Rockland Center • 845.243.7068
New Hartford - 8619 Clinton St • 315.756.0096
New York - 30 East 18th St (Union Square) • 212.352.1111
New York - 95 Delancey St • 347.286.7552
Riverhead - 144 Kroemer Ave • 631.494.3142
Rochester - 3150 West Henrietta Rd, Suite 3 • 585.617.0973
Staten Island - 2040 Forest Avenue • 917.426.0580
Syracuse - 509 Liberty St • 315.476.1111
Wappingers Falls - 1708 US-9 • 845.223.7764
Westbury - 24 Kinkel St • 516.874.2033
Yonkers - 132 Saw Mill River Rd • 914.595.1411
NORTH CAROLINA
Arden - 495 Watson Rd • 828.483.4189
Charlotte - 1108 Thomasboro Dr • 704.509.5555
Durham - 3157 Hillsborough Rd • 919.246.9986
Fayetteville - 1916 Skibo Rd • 910.302.8180
Garner - 2558 Timber Dr • 919.617.7920
Gastonia - 2930-39/42 East Franklin Blvd • 704.879.2231
Greensboro - 3402 West Wendover Ave • 336.790.0060
Greenville - 315 SE Greenville Boulevard • 252.558.1559
Hickory - 527 US Highway 70 SW • 828.449.3282
Matthews - 11101 East Independence Boulevard • 704.749.2490
Morrisville -Coming Soon!
Raleigh - 2011 Raleigh Boulevard, Suite 106 • 919.828.4449
Salisbury - 403 Bendix Dr • 704.314.0664
Wilmington - 6816 Gordon Rd, Suite B • 910.795.0025
Winston-Salem - 244 Summit Square Blvd • 336.422.1289
OHIO
Canton - 6331 Promler Ave • 330.754.0005
Cincinnati - 454 Ohio Pike • 513.823.2544
Cincinnati - 4810 Peter Place • 513.942.4406
Cleveland - 540 Old Brookpark Rd • 216.661.2100
Columbus - 4242 West Broad St, Suite A • 614.851.4500
Columbus - 1454 Morse Rd • 614.636.4666
Dayton - 452 Springboro Pike • 937.684.9660
Mentor - 9690 Mentor Ave • 440.709.3000
North Olmsted - 26103 Lorain Rd • 440.252.3220
Ontario - 2178 West 4th St • 419.989.4240
Perrysburg - 26495 Southpoint Rd • 419.931.6770
Reynoldsburg - 2736 Brice Rd • 614.285.3101
Youngstown - 7661 South Ave • 330.259.3250
OKLAHOMA
Norman - 700 Ed Noble Pkwy • 405.896.8223
Oklahoma City - 5835 West Reno Ave • 405.948.1800
Tulsa - 9137 E 71st St, Suite B • 918.270.2111
OREGON
Bend - 20505 Robal Rd • 541.209.0772
Eugene - 4095 West 11th Ave • 541.393.2585
Medford - 980 Biddle Rd • 541.227.2109
Milwaukie - 10872 SE Oak St • 503.420.3097
Portland - 2245 NW Nicolai St • 503.221.4944
Portland - 12225 NE Glisan St • 503.308.8901
Salem - 3920 Rickey St SE • 503.967.7447
Tigard - 7301 SW Dartmouth • 503.964.6827
PENNSYLVANIA
Chambersburg - 1660 Lincoln Way E, Suite A • 717.977.3958
Colmar - 285 Bethlehem Pike, Suite 101 • 215.525.6203
Cranberry Township - 1000 Cranberry Square Dr • 724.705.0280
Erie - 5630 Peach St • 814.806.2308
Fairless Hills - 150 Lincoln Highway • 267.281.6360
Greensburg - 1075 S Main St • 412.927.0354
Lancaster - 834 Plaza Boulevard • 717.454.3001
Monroeville - 4721 William Penn Highway • 412.204.0013
Muncy - 170 S Lycoming Mall Rd, Suite 220 • 570.415.0043
New Cumberland - 2 Laurel Rd • 717.798.8605
Oaks - N 1420 E Dr; 422 Business Center • 484.991.4075
Philadelphia - 10500 Roosevelt Boulevard • 267.234.7570
Philadelphia - 1530 South Christopher Columbus • 267.314.7030
Pittsburgh - 4700 Campbells Run Rd • 412.788.4666
Reading - 4782 Pottsville Pike • 484.334.4320
State College - 1524 North Atherton St, Suite 120 • 814.409.7994
Stroudsburg - 1600 North 9th St • 570.534.4644
Whitehall - 1218 MacArthur Rd • 610.628.1186
Wilkes-Barre - 211 Mundy St • 570.301.6908
York - 2920 Whiteford Rd • 717.327.4107
RHODE ISLAND
Warwick - 1301 Bald Hill Rd • 401.626.4245
SOUTH CAROLINA
Charleston - 2049 Savannah Highway, Suite 10 • 843.720.7888
Columbia - 4068-A Fernandina Rd • 803.753.1767
Columbia - 10120 Top Notch Rd #5 • 803.766.1451
Florence - 2011 North Cashua Dr • 843.536.4524
Greer - 1367 West Wade Hampton Blvd • 864.416.4670
Murells Inlet - 3338 US 17 Bus • 843.310.3502
N Charleston - 2093 Eagle Landing Blvd • 843.212.4800
N Myrtle Beach - 2006 Highway 17 S • 843.353.0390
Rock Hill - 1801 Cherry Road • 803.610.1680
Simpsonville - 3005 Kemet Way • 864.881.6620
NORTH DAKOTA
Fargo - 3453 7th Ave North, Suite A • 701.540.4026
SOUTH DAKOTA
Sioux Falls - 2519 S Shirley Ave • 605.610.3230
TENNESSEE
Chattanooga - 4295 Cromwell Rd, Suite 401 • 423.933.3201
Kingsport - 2637 East Stone Dr • 423.343.4168
Knoxville - 504 Carden Jennings Lane, Suite 104 • 865.622.3740
La Vergne - 131 Charter Place • 615.793.6993
Madison - 1553 Gallatin Pike North • 615.997.0021
Memphis - 6949 Appling Farm Pkwy, Suite 106 • 901.743.3339
TEXAS
Amarillo - 2008 South Soncy Rd • 806.553.4655
Arlington - 808 Interstate 20 • 817.789.6160
Austin - 8627 North I-35 • 512.444.0244
Austin - 801 East William Cannon Dr #125 • 512.537.8078
Beaumont - 4395 West Cardinal Dr, Suite 200 & 300 • 409.299.3645
Carrollton - 1620 North I-35, Suite 300 • 972.323.5077
Corpus Christi - 1910 S Padre Island Dr • 361.356.4910
Dallas - 2984 West Wheatland Rd, Suite A-1 • 214.390.3678
Denton - 2311 Colorado Boulevard • 940.312.1292
El Paso - 1111 Barranca Dr, Suite 100 • 915.590.3300
Fort Worth - 425 Sherry Lane • 682.207.6770
Houston - 5829 West Sam Houston Pkwy • 832.467.9993
Houston - 6148 South Loop East • 713.649.3900
Hurst - 842 Airport Freeway • 682.730.6778
Irving - 3578 West Airport Freeway • 469.607.0441
Katy - 455 Katy Ft Bend Road • 281.819.2900
Killeen - 1101 South Fort Hood St. • 254.242.3384
League City - 2227 Gulf Freeway • 281.724.4546
Lubbock - 5004 Frankford Ave, Suite 700 • 806.577.4109
McAllen - 3401 West Expressway 83 • 956.467.5679
Mesquite - 3301 Interstate 30, Suite 101 • 214.453.0442
Plano - 1717 North Central Expressway • 972.422.0727
San Antonio - 2200-2 NW Loop 410 • 210.524.9996
San Antonio - 3142 SE Military Dr • 210.504.3000
Selma - 15403 Interstate 35 North • 210.570.1425
Sherman - 1215 S Sam Rayburn Freeway • 903.487.0368
Spring - 21755 I-45 • 281.825.5255
Stafford - 13911 Murphy Rd • 713.481.5930
Tyler - 3216 West Gentry Pkwy • 903.705.4242
Woodway - 6802 Woodway Dr • 254.230.1755
UTAH
Lindon - 1451 West 40 South • 801.429.9465
Riverdale - 4040 Riverdale Road, Suite A1 • 385.205.8034
Salt Lake City - 389 West 1830 South, #800 • 801.886.8878
VERMONT
Williston - 329 Harvest Lane, Suite 200 • 802.316.4113
WISCONSIN
Appleton - 1820 North Casaloma Dr • 920.666.2870
De Pere - 1452 Mid Valley Dr • 920.351.4570
Kenosha - 7650 75th St, Suite 3 • 262.835.1100
Madison - 4615 Verona Rd • 608.620.7306
Sun Prairie - 2255 McCoy Rd • 608.318.4140
West Allis - 6740 Greenfield Ave • 414.386.0425
CANADA
ONTARIO
Barrie - 106 Saunders Rd, Unit 10 & 11 • 705.242.1050
Cambridge - 611 Hespeler Rd • 226.887.4278
Mississauga - 3145 Dundas St West, Unit 11 • 289.326.0360
Pickering - 1095 Kingston Rd, Unit 5 • 647.930.0352
Stoney Creek - 442 Millen Rd, Unit 111 & 112 • 289.205.0402
Toronto - 1400 O’Connor Dr, Suite 6 • 647.933.2490
Toronto - 470 Norfinch Dr • 647.955.4850
Windsor - 1925 Provincial Rd • 519.916.1103
VIRGINIA
Chantilly - 14310 Sullyfield Circle, Suite 500A • 703.563.4321
Danville - 119 Piney Forest Road • 434.548.0700
Fredericksburg - 4507 Jefferson Davis Highway • 540.446.5035
Hampton - 2326 West Mercury Blvd • 757.952.0620
Leesburg - 1065 Edwards Ferry Rd NE • 571.762.0541
Lorton - 8245 Backlick Rd, Suite I • 703.339.1180
Lynchburg - 3700 Candlers Mountain Rd • 434.845.1207
Manassas - 10356 Festival Lane • 571.535.4352
Norfolk - 416 Campostella Rd • 757.494.7900
North Chesterfield - 9990 Robious Rd • 804.404.7292
Richmond - 8818-B West Broad St • 804.404.7856
Salem - 356 Apperson Dr • 540.765.4200
Toano - 3000 John Deere Rd • 757.566.7546
Virginia Beach - 317 Village Rd • 757.215.0856
Woodbridge - 14516 Potomac Mills Rd • 571.343.4000
WASHINGTON
Bellevue - 2021 130th Ave NE, Suite E - 425.458.3671
Kennewick - 6300 West Deschutes Ave, Bld B101 • 509.396.6912
Mukilteo - 11338 Mukilteo Speedway • 425.320.3980
Olympia - 1520 Cooper Point Rd SW • 360.529.4481
Seattle - 3300 1st Ave South, Suite 200 • 206.625.5200
Shoreline - 15505 Westminster Way North • 206.962.4165
Spokane Valley - 12918 E Indiana Ave • 509.891.0111
Tacoma - 3001 South Huson St, Suite A1 • 253.617.0071
Tukwila - 120 Andover Park East • 253.333.9830
WEST VIRGINIA
Martinsburg - 85 Lynn Haven Dr Unit E • 304.596.0920
Nitro - 4200 1st Ave #209 • 304.759.8639
Parkersburg - 2838 Pike St Suite 1A • 681.315.4007 -Coming Soon!
Wheeling - 2738 Chapline St • 304.907.0137
159073 T0PPAN -- INSIDE -- 1/4" HT -- CYAN MAGENTA YELLOW BLACK --
Our customers
say it best!
”Great product, great price,
”From old to new.
“I love the look of the
easy installation. Will continue
The WOW factor! I love
products. The fl oors were
to buy fl ooring from Lumber
my new bedroom
simple to install and give a
Liquidators from now on.”
fl ooring so much. Thank
rich, warm fi nished touch
-Craig, MO
you Lumber Liquidators
to my home.”
for great prices
and knowledgeable
service.” -Kathleen, OR
-Fernie, CO
Our customers say it best!
” I replaced our carpet with bamboo
“ We replaced carpet with Pebble Stone
flooring; what a difference! Easier to clean,
Oak laminate in our condo in North
and I feel better about my kids and pets
Myrtle Beach. Looks awesome! The guys
being on the floor now. I think it makes an
at Lumber Liquidators were fantastic to
ordinary room look extraordinary!”
work with! Highly recommend.”
-Dan, VA
-Cory, PA
” We decided to replace our carpet with
” This is a beautiful floor, we’re very happy
engineered hardwood. We love it and
with it. My installers said it was easy to
would recommend Lumber Liquidators
install I would definitely recommend it!”
to anyone. The installers were
professional and very hardworking.”
-Cheryl, TX
-Kelly, CA
2018 ANNUAL
REPORT
From inspiration to installation,
our passion is to make beautiful fl ooring
possible and easy for all.
“We love our new floor!” -Kim, FL
Year Ended December 31, 2018
159073 T0PPAN -- OUTSIDE -- 1/4" HT -- CYAN MAGENTA YELLOW BLACK --