Lumber Liquidators 2009 Annual Report Download - page 54

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
number of assumptions and factors including historical trends, actuarial assumptions and economic conditions. This liability
could be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31,
2009 and 2008, an accrual of $520 and $281 related to estimated claims was included in other current liabilities, respectively.
Recognition of Net Sales
The Company recognizes net sales for products purchased at the time the customer takes possession of the merchandise.
Service revenue, primarily freight charges for in-home delivery, is recognized when the service has been rendered. The
Company reports revenue net of sales and use taxes collected from customers and remitted to governmental taxing
authorities. Net sales are reduced by an allowance for anticipated sales returns based on historical and current sales trends
and experience. The sales returns allowance and related changes were not significant for 2009, 2008 or 2007.
The Company generally requires customers to pay a deposit, equal to approximately 50% of the retail sales value, when
purchasing merchandise inventories not regularly carried in a given store location, or not currently in stock. These deposits
are included in customer deposits and store credits until the customer takes possession of the merchandise.
Cost of Sales
Cost of sales includes the actual cost of the merchandise sold, the transportation costs from vendor to the Company’s
distribution center or store location, any applicable finishing costs related to production of the Company’s proprietary brands,
the transportation costs from the distribution center to the store locations and any inventory adjustments, including shrinkage.
The Company includes transportation costs for the delivery of products directly from stores to customers in cost of sales
if delivered by third parties or in selling, general and administrative expenses (“SG&A”) if delivered by the Company’s
delivery fleet. Costs related to the Company’s delivery fleet, which include delivery salaries, maintenance and depreciation,
totaled approximately $577 in 2009, $1,077 in 2008 and $1,600 in 2007.
The Company offers a range of prefinished products with warranties on the durability of the finish ranging from 10 to
50 years. Warranty reserves are based primarily on claims experience, sales history and other considerations, and warranty
costs are recorded in cost of sales. Warranty costs and changes to the warranty reserve were not significant for 2009, 2008 or
2007.
Advertising Costs
Advertising costs charged to SG&A were $47,305, $45,762 and $41,693 in 2009, 2008 and 2007, 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 $2,401 and $3,282 at December 31, 2009 and 2008, respectively.
Store Opening Costs
Costs to open new store locations are charged to SG&A as incurred.
Depreciation and Amortization
Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives or
lease terms of the related assets. 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, the Company uses the original lease term,
excluding optional renewal periods, to determine the appropriate estimated useful lives. Capitalized software costs, including
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