Lumber Liquidators 2015 Annual Report Download - page 55

expected term of the options represents the estimated period of time until exercise and is determined by
considering the contractual terms, vesting schedule and expectations of future employee behavior. Had we
arrived at different assumptions of stock price volatility or expected terms of our options, our stock-based
compensation expense and results of operations could have been different.
Loss Contingencies
We are involved in various lawsuits, claims, investigations, and proceedings. Certain of these matters include
speculative claims for substantial or indeterminate amounts of damages. We record a liability when we believe
that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine
that a loss is reasonably possible and a loss or range of the loss can be estimated, we disclose such amounts.
Significant judgment is required to determine both probability and the estimated amount of any loss or range of
loss. We assess each legal matter and any related provisions at least quarterly and adjust them accordingly to
reflect the impact of negotiations, settlements, rulings, advice of legal counsel, and updated information.
Until a final resolution related to loss contingencies for legal and other contingencies is reached, there
may be an exposure to loss in excess of the amount we have recorded, and such amounts could be material,
either individually or in the aggregate, to our business, consolidated financial position, results of operations, or
cash flows. Therefore, if one or more of these matters were resolved against us for amounts in excess of
management’s expectations, our results of operations and financial condition, including in a particular
reporting period, could be materially adversely affected.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk.
We are exposed to interest rate risk through the investment of our cash and cash equivalents. We invest our
cash in short-term investments with maturities of three months or less. Changes in interest rates affect the interest
income we earn, and therefore impact our cash flows and results of operations. In addition, borrowings under our
revolving credit agreement are exposed to interest rate risk due to the variable rate of the facility. As of
December 31, 2015, we had $20.0 million outstanding under our revolving credit agreement.
We currently do not engage in any interest rate hedging activity and currently have no intention to do so
in the foreseeable future. However, in the future, in an effort to mitigate losses associated with these risks, we
may at times enter into derivative financial instruments, although we have not historically done so. We do not,
and do not intend to, engage in the practice of trading derivative securities for profit.
Exchange Rate Risk.
Less than two percent of our revenue, expense and capital purchasing activities are transacted in
currencies other than the U.S. dollar, including the Euro, Canadian dollar, Chinese yuan and Brazilian real.
We currently do not engage in any exchange rate hedging activity and currently have no intention to do
so in the foreseeable future. However, in the future, in an effort to mitigate losses associated with these risks,
we may at times engage in transactions involving various derivative instruments to hedge revenues, inventory
purchases, assets and liabilities denominated in foreign currencies.
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