Lumber Liquidators 2013 Annual Report Download - page 46

Certain External Factors and Events Impacting Our Business
Antidumping and Countervailing Duties Investigation. In October 2010, a conglomeration of domestic
manufacturers of multilayered wood flooring (the ‘‘Petitioner’’) 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. The DOC then made preliminary determinations regarding CVD and AD rates in
March 2011 and May 2011, respectively. In fall 2011, after certain determinations were made by the ITC and
DOC, orders were issued setting final AD and CVD rates.
A number of appeals have been filed by several parties challenging various aspects of the determinations
made by both the ITC and DOC, including certain pending appeals that may impact the validity of the AD
and CVD orders and the applicable rates. Additionally, the DOC is in the process of finalizing the first annual
review of the AD and CVD rates. As part of that review process, such rates may be changed and applied
retroactively to the DOC’s preliminary determinations in the original investigation. The final results of the
first annual review of the AD and CVD rates are expected in March 2014 and May 2014, respectively.
A request for a second annual review of the AD and CVD rates has been submitted by the Petitioner.
Any change in the applicable rates as a result of the second annual review would apply to imports occurring
after the end of the first annual rate review period.
In 2013, approximately 15% of our flooring purchases were subject to AD and CVD. At this time, we are
unable to determine the positive or negative impact, if any, that the various appeals and rate reviews may have
on our business. See ‘‘Item 1A. Risk Factors — Risks Related to Our Suppliers, Products and Product
Sourcing.’’
Execution of Search Warrants. On September 26, 2013, sealed search warrants were executed at our
corporate offices in Toano and Richmond, Virginia by the Department of Homeland Security’s Immigration
and Customs Enforcement and the U.S. Fish and Wildlife Service. The search warrants requested information,
primarily documentation, related to the importation of certain of our wood flooring products. We continue to
cooperate with federal authorities to provide them with certain requested information.
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 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 2013, 2012 or 2011.
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.
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