Lumber Liquidators 2014 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)
all credits and program fees for the related transactions. The Company has agreed to indemnify the financial
institution against any losses related to these credits or fees. There are no maximum potential future payments
under the guarantee. The Company is able to seek recovery from the installation provider of any amounts paid
on its behalf. The Company believes that the risk of significant loss from the guarantee of these obligations is
remote.
Fair Value of Financial Instruments
The carrying amounts of financial instruments such as cash and cash equivalents, 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 Accounting Standards Codification (‘‘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 $3,242 and $1,275 at December 31, 2014 and 2013, 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 2014, 2013 or 2012.
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. 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 and for certain workers’
compensation 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 incurred but not
reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of
assumptions and factors including historical and industry trends and economic conditions. This liability could
be affected if future occurrences and claims differ from these assumptions and historical trends. As of
December 31, 2014 and 2013, an accrual of $1,585 and $1,305 related to estimated claims was included in
other current liabilities, respectively.
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