Lumber Liquidators 2010 Annual Report Download - page 42

adjustment based on certain financial performance criteria, on any unused portion of the Revolver. Amounts outstanding
under the Revolver would be subject to an interest rate of LIBOR (reset on the 10th of the month) plus 0.50%, subject to
adjustment based on certain financial performance criteria. The Revolver has certain defined covenants and restrictions,
including the maintenance of certain defined financial ratios. We were in compliance with these financial covenants at
December 31, 2010.
Related Party Transactions
See the discussion of related party transactions in Note 5 and Note 10 to the consolidated financial statements included
in Item 8 of this report and within Certain Relationships, Related Transactions and Director Independence in Item 13 of this
report.
Contractual Commitments and Contingencies
Our significant contractual obligations and commitments as of December 31, 2010 are summarized in the following
table:
Payments Due by Period
Total
Less Than
1 Year
1to3
Years
3to5
Years 5+ Years
(in thousands)
Contractual obligations
Operating lease obligations(1) .................................. $71,402 $15,078 $24,982 $16,511 $14,831
Total contractual obligations .................................. $71,402 $15,078 $24,982 $16,511 $14,831
(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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating
results. Although we do not believe that inflation has had a material impact on our financial position or results of operations
to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross
profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our products do not
increase with these increased costs.
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:
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 freight charges for in-home delivery, when the service has been
rendered. We report 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 that we estimate based on historical sales
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