Lumber Liquidators 2015 Annual Report Download - page 38

Download and view the complete annual report

Please find page 38 of the 2015 Lumber Liquidators annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 108

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108

fiduciary duties and (ii) a directive to us to (a) take all necessary actions to reform and improve our corporate
governance and internal procedures, (b) comply with our existing governance obligations and all applicable
laws and (c) protect us and our investors from a recurrence of the events that led to the filing of this action.
On July 6, 2015, McBride filed an amended complaint. The amended complaint added claims for statutory
conspiracy and common law conspiracy and, in connection with the statutory conspiracy claim, seeks damages
in the amount of three times the actual damages incurred by us as the result of the alleged wrongful acts.
Pursuant to a voluntary agreement between the parties, the defendants have not yet responded to the amended
complaint. Based on the uncertainty of litigation and the preliminary stage of the case, we cannot estimate the
reasonably possible loss or range of loss that may result from this action.
Antidumping and Countervailing Duties Investigation
In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring 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. This ruling applies to our engineered
hardwood imported from China, which accounted for approximately 10% of our flooring purchases in 2014
and approximately 6% of our flooring purchases in 2015.
The DOC made preliminary determinations regarding CVD and AD rates in April 2011 and May 2011,
respectively. In December 2011, after certain determinations were made by the ITC and DOC, orders were
issued setting final AD and CVD rates at 3.3% and 1.5%, respectively. These rates became effective in the
form of additional duty deposits, which we have paid, and applied retroactively to the DOC preliminary
determinations of April 2011 and May 2011.
Following the issuance of the orders, a number of appeals were filed by several parties, including us,
with the Court of International Trade (‘‘CIT’’) challenging various aspects of the determinations made by both
the ITC and DOC, including certain aspects that may impact the validity of the AD and CVD orders and the
applicable rates. The appeal of the CVD order was dismissed in June 2015. On January 23, 2015, the
CIT issued a decision rejecting the challenge of the AD rate for all but one Chinese exporter. This decision
was finalized on July 6, 2015, appealed to the Court of Appeals for the Federal Circuit on July 31, 2015 and
may take a year to conclude.
As part of its processes in these proceedings, the DOC conducts annual reviews of the CVD and
AD rates. In such cases, the DOC will issue preliminary rates that are not binding and were subject to
comment by interested parties. After consideration of the comments received, the DOC will issue final rates
for the applicable period, which may lag by a year or more. As rates are adjusted through the administrative
reviews, we adjust our payments prospectively based on the final rate.
In the first DOC annual review in this matter, rates were modified for AD rates through November 2012
and for CVD rates through 2011. Specifically, the AD rate was set at 5.92% and the CVD rate was set at
0.83%. These rates are being appealed to the CIT by several parties, including us. Based on what has been
paid by us to date for the periods covered by the first annual review, we believed our best estimate of the
probable loss was approximately $0.8 million for shipments during the applicable time periods covered by the
first annual review, which we recorded as a long-term liability in our accompanying consolidated balance
sheet and in cost of sales in our second quarter 2015 consolidated financial statements.
In January 2015, pursuant to the second annual review, the DOC issued a non-binding preliminary
AD rate of 18.27% for purchases from December 2012 through November 2013 and a preliminary CVD rate
of 0.97% for purchases in fiscal year 2012. The rates were finalized in early July 2015 with the AD rate set at
13.74% and the CVD rate set at 0.99%. We have appealed these rates. Notwithstanding our appeal, as these
rates are now confirmed, we believe our best estimate of the probable loss was approximately $4.1 million for
shipments during the applicable time periods, which we recorded as a long-term liability in our accompanying
consolidated balance sheet and in cost of sales in our second quarter 2015 consolidated financial statements.
Beginning in July 2015, we began paying these rates on each applicable purchase.
28