Lumber Liquidators 2007 Annual Report Download - page 70

On December 7, 2007, Kevin Sullivan filed a demand for arbitration naming the Founder and the Company
as respondents. In his demand, Kevin “seeks to recover the full number of shares due him under” the Variable
Plan agreement. In accordance with the terms of the Variable Plan, the Company determined and certified that
853,853 shares of Common Stock (the Vested Shares) were exercisable under the Variable Plan. Pursuant to the
terms of the Variable Plan, the Founder had previously placed 1,500,000 shares of Common Stock in escrow for
purposes of satisfying his obligations thereunder. In 2007, the Company recorded $3,220 in stock-based
compensation expense related to the Variable Plan. That amount included a $2,960 provision representing the
Company’s best estimate of the ultimate value of the incremental shares (above the Vested Shares) that may be
delivered to Kevin via settlement or arbitration. As the ultimate value that may be delivered to Kevin is not
certain, the Company may be required to adjust stock-based compensation expense in 2008.
In addition, on March 11, 2008, the Company received a copy of a complaint that Kevin purportedly sent to
the Fair Labor Division of the Office of the Attorney General of Massachusetts, which alleges that the Founder
and the Company have unlawfully withheld wages from Kevin by not releasing to him a specified portion of the
escrowed shares of common stock. The Company is not a party to the escrow arrangement between the Founder
and Kevin. Kevin is seeking a prompt release of those shares, together with certain additional damages that could
potentially be subject to trebling under relevant law. At this time, it is not possible to determine the ultimate
resolution of, or reasonably estimate any potential liability from, this matter, and no provision for losses has been
provided in connection with this complaint. We intend to defend this matter vigorously.
The Company is 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, the ultimate liability of the Company in connection with these matters is not expected to have a
material adverse effect on the Company’s results of operations, financial position or cash flows.
NOTE 12. CONDENSED QUARTERLY FINANCIAL INFORMATION (unaudited)
The following tables present our unaudited quarterly results for 2007 and 2006. We believe that the
following information reflects all normal recurring adjustments for a fair presentation of the information for the
periods presented. The operating results for any quarter are not necessarily indicative of results for any future
period.
Quarter Ended
March 31,
2007
June 30,
2007
September 30,
2007
December 31,
2007
(in thousands, except for per share amounts)
Net Sales ......................................... $92,022 $105,725 $102,050 $105,510
Gross Profit ....................................... 30,571 34,375 34,447 35,721
Selling, General and Administrative Expenses(1) .......... 26,816 30,415 28,260 30,817
Operating Income ................................... 3,755 3,960 6,187 4,904
Net Income ........................................ $ 2,231 $ 2,345 $ 3,701 $ 3,049
Net Income per Common Share—Basic ................. $ 0.15 $ 0.16 $ 0.25 $ 0.14
Net Income per Common Share—Diluted ................ $ 0.10 $ 0.10 $ 0.16 $ 0.12
(1) Selling, General and Administrative Expenses includes $403, $2,649, ($150) and $318 of variable plan
stock compensation expense for the quarters ended March 31, June 30, September 30, and December 31,
respectively, and the quarter ended December 31, 2007 includes $1,224 for the acceleration of stock options
and the recognition of the expense associated with the 2006 Regional Plan due to the IPO.
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