Lumber Liquidators 2014 Annual Report Download - page 47

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general operations. The Revolver is secured by our inventory, has no mandated payment provisions and we
pay a fee of 0.1% per annum, subject to 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 plus 1.125%, 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, 2014.
Related Party Transactions
See the discussion of related party transactions in Note 4 and Note 9 to the consolidated financial
statements included in Item 8 of this report and within Certain Relationships and 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, 2014 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)
..... $125,027 $27,391 $44,763 $28,535 $24,338
Purchase obligations
(2)
......... 4,041 4,041 — — —
Total contractual obligations ..... $129,068 $31,432 $44,763 $28,535 $24,338
(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.
(2) Purchase obligations represent capital expenditure commitments for the completion of the East Coast
distribution center and new finishing line.
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 SG&A 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 installation revenue and freight
charges for in-home delivery, when the service has been rendered. We report sales exclusive of sales taxes
39