Lumber Liquidators 2015 Annual Report Download - page 66

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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)
operations. The Company is considering its options for disposal of this product. Costs related to shipping and
disposal will be recognized as incurred.
During the quarter ended June 30, 2015, the Company appointed its founder as acting chief executive
officer. In connection with this and other management changes, the Company determined that it would refocus
on its core business and it would not pursue an expansion into the tile flooring business in the near term. In
2014, the Company had begun to sell tile flooring and related accessories in three stores as a potential growth
opportunity. As a result, in the second quarter of 2015, the Company recorded a lower of cost or market
adjustment of $3,663 for certain tile flooring and related accessories, which is recorded in cost of sales for the
year ended December 31, 2015 in the accompanying consolidated statements of operations.
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.
In the third quarter of 2015, the Company finalized the termination of its agreement relating to certain
vertical integration initiatives which changed the Company’s expectations of future cash flows from related
long-lived assets. As a result, the Company tested certain long-lived assets for impairment. The Company
recorded a $3,043 impairment charge within selling, general and administrative (‘‘SG&A’’) expenses for the
three months ended September 30, 3015 in its accompanying consolidated statements of income. The
impairment charge was measured under an income approach utilizing forecasted discounted cash flows. Fair
value was based on expected future cash flows using Level 3 inputs under ASC 820. The most significant
unobservable input used in the fair value analysis relates to the estimated sales price of the long-lived assets.
In the second quarter of 2015, the Company concluded that its decision not to pursue an expansion into
the tile flooring business in the near term was a triggering event requiring assessment of recoverability for
certain of its long-lived assets. As a result, the Company tested the long-lived assets for impairment related to
its store locations selling a significant assortment of tile flooring. In the second quarter of 2015, the Company
recorded a $1,350 impairment charge, which is recorded within SG&A expenses for the year ended
December 31, 3015 in the accompanying consolidated statements of income. The impairment charge was
measured under an income approach utilizing forecasted discounted cash flows. Fair value was based on
expected future cash flows using Level 3 inputs under ASC 820. The most significant unobservable input used
in the fair value analysis relates to the estimated sales price of the long-lived assets.
No impairment charges were recognized in 2014 or 2013.
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
56