Lumber Liquidators 2015 Annual Report Download - page 80

Download and view the complete annual report

Please find page 80 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

Lumber Liquidators Holdings, Inc.
Notes to Consolidated Financial Statements
(amounts in thousands, except share data and per share amounts)
Note 10. Commitments and Contingencies − (continued)
hardwood flooring from China until the DOJ determines that the Compliance Plan has been satisfactorily
implemented. During the first four years, LLI has agreed to engage an outside consulting firm to conduct
audits of compliance with the Compliance Plan and certain requirements of the Lacey Act.
The Company has agreed to guarantee all payments and performance due from LLI, including but not
limited to payments for fines, community service, forfeited proceeds and special assessments and the
performance of LLI’s obligations under and compliance with the Compliance Plan and related audits.
In addition, as part of its internal compliance review procedures in the second quarter of 2015, the
Company determined that there were Lacey Act compliance concerns related to a limited amount of its
engineered hardwood flooring. As a result, the Company suspended sales of approximately $4,069 of this
product pending further investigation, and brought this matter to the attention of the DOJ. During the
investigation, the Company determined that there were no compliance concerns with respect to approximately
$914 of the suspended engineered hardwood flooring. In connection with the Plea Agreement with the DOJ,
the Company also reached a settlement with the DOJ related to the remaining $3,155 of suspended engineered
hardwood flooring. Pursuant to a Complaint for Forfeiture In Rem and a Stipulation for Settlement and Joint
Motion for Entry of Consent Order of Forfeiture (the ‘‘Consent’’), the DOJ agreed to accept a $3,155 payment
in lieu of a civil forfeiture of this product. The Company previously recorded this amount in SG&A expenses
in the second quarter of 2015. The Company paid this amount in October 2015 pending entry of the Consent
and, pursuant to a motion granted, is now permitted to sell the suspended engineered hardwood flooring and
retain any proceeds of the sale. The Consent was entered by the court on January 7, 2016, and final judgment
was entered on January 8, 2016.
The Plea Agreement was approved by the United States District Court for the Eastern District of Virginia
on October 22, 2015. A sentencing hearing was held on February 1, 2016 and the court entered a final
judgment on February 3, 2016. The terms of the final judgment are consistent with the Plea Agreement.
Securities Laws
In March 2015, the Company received a grand jury subpoena issued in connection with a criminal
investigation being conducted by the U.S. Attorney’s Office for the Eastern District of Virginia (the
‘‘U.S. Attorney’’). In addition, on May 19, 2015 and July 13, 2015, the Company received subpoenas from the
New York Regional Office of the SEC in connection with an inquiry by the SEC staff. Based on the
subpoenas, the Company believes the focus of both the U.S. Attorney investigation and SEC investigation
primarily relate to compliance with disclosure, financial reporting and trading requirements under the
securities laws since 2011. The Company is fully cooperating with the U.S. Attorney’s subpoena, the SEC’s
subpoenas and the related investigations by the U.S. Attorney and SEC staff. Given that the investigation by
the U.S. Attorney and SEC staff are still ongoing, the Company cannot estimate the reasonably possible loss
or range of loss that may result from this matter.
California Air Resources Board
The Company believes that the California Air Resources Board (‘‘CARB’’) is regularly looking at the
entire industry to ensure compliance with its emissions standards. While conducting routine inspections of the
Company’s products, CARB has performed ‘‘deconstructive’’ testing on its products as well as, the Company
believes, products from others in the industry. In CARB’s preliminary findings, some of the samples of the
Company’s finished product that CARB deconstructed and tested exceeded the CARB limits for raw
composite wood cores. This could occur for numerous reasons, including one or more of the variability factors
associated with this type of testing. In May 2015, CARB notified the Company that additional samples of
finished products were obtained in 2014, some of which, based on deconstructive testing, exceeded the CARB
limits for raw composite wood cores. CARB has further informed the Company that it has performed
70