Lumber Liquidators 2011 Annual Report Download - page 53

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements—(Continued)
(amounts in thousands, except share data and per share amounts)
Prior to October 2009, the primary underwriter of the Lumber Liquidators credit card was HSBC Bank (“HSBC”). The
Company terminated this agreement effective December 31, 2009. As a result of the termination, the Company transferred
$1,500 of cash to HSBC as prepayment for certain fees, returns or other net credits, of which $350 was refunded to the
Company in December 2010. The Company has included $617 and $700 of the remaining amount in other assets at
December 31, 2011 and 2010, respectively, and $48 and $70 of the remaining amount in prepaid expenses at December 31,
2011 and 2010, respectively.
Fair Value of Financial Instruments
The carrying amounts of financial instruments such as cash and cash equivalents, notes receivable, accounts payable and
other liabilities approximate fair value because of the short-term nature of these items. Of these financial instruments, the
cash equivalents are classified as Level 1 as defined in the Financial Accounting Standards Board (“FASB”) ASC 820 fair
value hierarchy.
Merchandise Inventories
The Company values merchandise inventories at the lower of cost or market value. Merchandise cost is determined
using the average cost method. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and
in immediate saleable form. The Company adds the finish to, and boxes, various species of unfinished product, to produce
certain proprietary products, primarily Bellawood, at its finishing facility. These finishing and boxing costs are included in
the average unit cost of related merchandise inventory. The Company maintains an inventory reserve for loss or
obsolescence, based on historical results and current sales trends. This reserve was $500 and $450 at December 31, 2011 and
2010, 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. No impairment charges were recognized in 2011, 2010 or
2009.
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. A rollforward of goodwill is as follows:
Goodwill at December 31, 2010 .......................................... $1,050
Increase in goodwill due to acquisition ..................................... 8,643
Goodwill at December 31, 2011 .......................................... $9,693
Other assets include $800 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. 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 not reported as of the balance sheet date. The estimated liability is not discounted and is based on a
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