Lumber Liquidators 2013 Annual Report Download - page 59

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES − (continued)
included in net sales and recognized when the service has been rendered. The Company reports sales
exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, and net of
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 2013, 2012 or 2011.
The Company generally requires customers to pay a deposit, equal to approximately half 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 cost of the product sold, cost of installation services, transportation costs from
vendor to the Company’s distribution centers or store locations, any applicable finishing costs related to
production of the Company’s proprietary brands, transportation costs from distribution centers to store
locations, transportation costs for the delivery of products from store locations to customers, certain costs of
quality control procedures, inventory adjustments including shrinkage, and costs to produce samples, reduced
by vendor allowances.
The Company offers a range of warranties from the durability of the finish on its prefinished products to
its services provided. These warranties range from one to 100 years. Warranty reserves are based primarily on
claims experience, sales history and other considerations, and warranty costs are recorded in cost of sales.
This reserve was $876 and $440 at December 31, 2013 and 2012, respectively.
Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain
purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as
earned, with those allowances received as a result of attaining certain purchase levels accrued over the
incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction
in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold.
Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.
Advertising Costs
Advertising costs charged to selling, general and administrative (‘‘SG&A’’) expenses, net of vendor
allowances, were $75,506, $58,548 and $52,345 in 2013, 2012 and 2011, 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 $2,893 and $1,649 at December 31,
2013 and 2012, respectively.
Store Opening Costs
Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.
Other Vendor Consideration
Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as
an offset to SG&A expenses when earned.
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