Lumber Liquidators 2015 Annual Report Download - page 89

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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)
Based on the uncertainty of litigation and the preliminary stage of the case, the Company 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 the Company’s
engineered hardwood imported from China, which accounted for approximately 10% of its flooring purchases
in 2014 and approximately 6% of its 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 the Company has 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 the
Company, 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,
the Company adjusts its 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 the Company. Based on what
has been paid by the Company to date for the periods covered by the first annual review, the Company
believes its best estimate of the probable loss was approximately $833 for shipments during the applicable
time periods covered by the first annual review, which the Company recorded as a long-term liability in its
accompanying consolidated balance sheet and in cost of sales in its 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%. The Company has appealed these rates. Notwithstanding our appeal,
as these rates are now confirmed, the Company believes its best estimate of the probable loss was $4,089 for
shipments during the applicable time periods, which the Company recorded as a long-term liability on its
accompanying consolidated balance sheet and in cost of sales in its second quarter 2015 consolidated financial
statements. Beginning in July 2015, the Company began paying these rates on each applicable purchase.
The third annual review of the AD and CVD rates was initiated in February 2015. In January 2016, the
DOC issued non-binding preliminary results in the third annual review. The preliminary AD rate was 13.34%
and the CVD preliminary rate was 1.43%. These rates are expected to be finalized in the DOC’s final results
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