10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number:  001‑33767

Lumber Liquidators Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	27‑1310817
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4901 Bakers Mill Lane, Richmond, Virginia	23230
(Address of principal executive offices)	(Zip Code)

(804) 463‑2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.001 per share	New York Stock Exchange

Trading Symbol:  LL

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐   No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐   No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  ☐ ☒  Accelerated filer ☐  Non-accelerated filer ☐  Smaller reporting company ☐  Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Act).  Yes ☐   No ☒

As of June 28, 2019, the last business day of the registrant’s most recent second quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $325.1 million based on the closing sale price as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of February 20, 2020:

Title of Class	Number of Shares
Common Stock, $0.001 par value	28,724,931

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the registrant’s proxy statement for the 2020 annual meeting of stockholders, which will be filed no later than 120 days after the close of the registrant’s fiscal year ended December 31, 2019.

LUMBER LIQUIDATORS HOLDINGS, INC.

ANNUAL REPORT ON FORM 10‑K

TABLE OF CONTENTS

		Page
Cautionary note regarding forward-looking statements
	PART I	4
Item 1.	Business	4
Item 1A.	Risk Factors	9
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	19
Item 3.	Legal Proceedings	19
Item 4.	Mine Safety Disclosures	25
	PART II	25
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	Selected Financial Data	27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 8.	Consolidated Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A.	Controls and Procedures	75
Item 9B.	Other Information	76
	PART III	76
Item 10.	Directors, Executive Officers and Corporate Governance	76
Item 11.	Executive Compensation	77
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	77
Item 13.	Certain Relationships and Related Transactions, and Director Independence	77
Item 14.	Principal Accountant Fees and Services	77
	PART IV	77
Item 15.	Exhibits, Financial Statement Schedules	77
Item 16.	Form 10‑K Summary	77
	Signatures	83

2

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENT

This report includes statements of the Company’s expectations, intentions, plans and beliefs that constitute “forward-looking statements” within the meanings of the Private Securities Litigation Reform Act of 1995.  These statements, which may be identified by words such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “thinks,” “estimates,” “seeks,” “predicts,” “could,” “projects,” “potential” and other similar terms and phrases, are based on the beliefs of the Company’s management, as well as assumptions made by, and information currently available to, the Company’s management as of the date of such statements.  These statements are subject to risks and uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. These risks include, without limitation, the impact of any of the following:

· obligations related to and impacts of new laws and regulations, including pertaining to tariffs and exemptions;

· the outcomes of legal proceedings, and the related impact on liquidity;

· reputational harm;

· obtaining products from abroad, including the effects of a pandemic, including Coronavirus and tariffs, as well as the effects of antidumping and countervailing duties;

· obligations under various settlement agreements and other compliance matters;

· disruptions due to cybersecurity threats, including any impacts from a network security incident;

· inability to open new stores, find suitable locations for our new store concept, and fund other capital expenditures;

· inability to execute on our key initiatives or such key initiatives do not yield desired results;

· managing growth;

· transportation costs;

· damage to our assets;

· disruption in our ability to distribute our products, including due to disruptions from the impacts of severe weather;

· operating stores in Canada and an office in China;

· managing third-party installers and product delivery companies;

· renewing store, warehouse, or other corporate leases;

· having sufficient suppliers;

· our, and our suppliers’, compliance with complex and evolving rules, regulations, and laws at the federal, state, and local level;

· disruption in our ability to obtain products from our suppliers;

· product liability claims;

· availability of suitable hardwood, including due to disruptions from the impacts of severe weather;

· changes in economic conditions, both domestic and abroad;

· sufficient insurance coverage, including cybersecurity insurance;

· access to and costs of capital;

· the handling of confidential customer information, including the impacts from the California Consumer Privacy Act;

· management information systems disruptions;

· alternative e-commerce offerings;

· our advertising and overall marketing strategy;

· anticipating consumer trends;

· competition;

· impact of changes in accounting guidance, including implementation guidelines and interpretations;

· maintenance of valuation allowances on deferred tax assets and the impacts thereof;

· internal controls;

· stock price volatility; and

· anti-takeover provisions.

3

The Company specifically disclaims any obligation to update these statements, which speak only as of the dates on which such statements are made, except as may be required under the federal securities laws. These risks and other factors include those listed in this Item 1A. “Risk Factors” and elsewhere in this report.

References to “we,” “our,” “us,” “the Company” and “Lumber Liquidators” generally refers to Lumber Liquidators Holdings, Inc. and its consolidated subsidiaries collectively and, where applicable, individually.

PART I

Item 1. Business.

Overview

Lumber Liquidators is one of the leading specialty retailers of hard-surface flooring in North America.  We feature more than 400 varieties of floors including waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, porcelain tile and cork flooring.  Additionally, we provide a wide selection of flooring enhancements and accessories to complement, install and maintain new floors.  Every location is staffed with flooring experts who can provide advice, pro services and installation options for all of Lumber Liquidators' products, much of which is in stock and ready for delivery. We offer delivery and in-home installation services through third-party independent contractors for customers who purchase our floors. We sell primarily to homeowners or to contractors on behalf of homeowners, as well as to commercial (“Pro”) customers through a network of store locations and online. We operate as a single business segment, with our customer relationship center, website and customer service network supporting our retail store and online operations.

We believe we have achieved a reputation for offering great value, superior service and a broad selection of high-quality, hard-surface flooring products.  With a balance of selection, quality, availability, service and price, we believe our value is the most complete within a highly fragmented hard-surface flooring market.  The foundation for our value is strengthened by the industry expertise of our people, our singular focus on hard-surface flooring, and our advertising reach and frequency.

Lumber Liquidators is a Delaware corporation with its headquarters in Richmond, Virginia. We were founded in 1994 and our initial public offering was in November 2007. Our common stock trades on the New York Stock Exchange under the symbol “LL.” We operate in a holding company structure with Lumber Liquidators Holdings, Inc. serving as our parent company and certain direct and indirect subsidiaries, including Lumber Liquidators, Inc., Lumber Liquidators Services, LLC, Lumber Liquidators Production, LLC, and Lumber Liquidators Canada, ULC, conducting our operations.

Our Business

Market

According to the July 2019 Issue of Floor Covering Weekly, United States installed floor covering product sales in 2018 were $42 billion, not including labor. Within this market, United States hardwood, laminate and vinyl flooring sales accounted for 39% of the total. Flooring sales are driven by a number of factors including discretionary income and the housing market. Including installation, the overall flooring industry has grown at a compound annual growth rate of 3.7% from 2014 through 2018. Over the same period, hardwood, laminate and vinyl flooring sales, including the cost of installation grew at a compound annual growth rate of 6%. We believe improvements in the quality and construction of certain products, increasing resiliency and water-tolerance of products, ease of installation, availability in a broad range of retail price points, and movement away from soft surfaces will drive continued hard-surface flooring share gain versus soft surface flooring in the future.

4

Competition

We compete for customers in a highly fragmented marketplace, where we believe no one retailer has captured more than a 21% share of the consumer market for flooring (including carpet). Although the market includes the national home improvement warehouse chains, national specialty retailers, warehouse clubs and online retailers, we believe nearly half of the industry consists of local one-store flooring retailers, small chains of stores that may specialize in one or two flooring categories, and a limited number of regional chains.

Customers

We target several distinct customer groups who each have varied needs with respect to their flooring purchases, including do-it-yourself (“DIY”) customers, do-it-for-me (“DIFM”) customers, and Pro customers.  We believe that each of the customer groups we serve is passionate about their flooring purchase and value our wide assortment of flooring products, availability, and the quality of those products.  While our offering to each of these groups begins with the same broad assortment and knowledgeable store associates, each of these customer groups requires unique service components based on the ability of our associates to share detailed product knowledge and preferred installation methods.  We offer DIFM customers installation services, while our DIY and Pro customers receive more personal attention when completing their purchase, including dedicated call center resources.  All customer groups are offered delivery services.

Products and Services

Product Selection

We offer an extensive assortment of hard-surface flooring under more than 15 proprietary brand names, led by our flagship, Bellawood®. We have invested significant resources developing these national brand names. Our hard-surface flooring products are available in various widths and lengths and are generally differentiated in terms of quality and price based on wood versus manufactured materials, the species, wood grade and durability of finish. Prefinished floors are the dominant choice for residential customers over unfinished wood planks that have a finish applied after installation. We also offer an assortment of flooring enhancements, installation services and accessories, including moldings, underlayments, adhesives and tools.

Direct Sourcing

We source directly from mills and other vendors which enables us to offer a broad assortment of high-quality proprietary products to our customers at a consistently competitive cost. We seek to establish strong, long-term relationships with our vendors around the world. In doing so, we look for vendors that have demonstrated an ability to meet our demanding specifications, our rigorous compliance standards and the capability to provide sustainable and growing supplies of high-quality, innovative, trend-right products. We source from both domestic and international vendors, and in 2019, approximately 47% of our product was sourced from Asia, 6% was sourced from Europe and Australia, and 5% was sourced from South America.

Supply Chain

Our supply chain is wholly focused on delivering a complete assortment of products to our customers in an efficient manner. We own a one million square foot distribution center on approximately 100 acres of land in Henrico County, Virginia, which serves the stores located in the easternmost two-thirds of the United States and Ontario, Canada. We operate a 500,000 square foot leased distribution center in Pomona, California as the primary distribution center for the stores located in the westernmost one-third of the United States. A number of our vendors maintain certain inventory levels for shipment directly to our stores or our customers. Our product is generally transported boxed and palletized, and the weight of our product is a key driver of our supply chain costs.

5

Compliance and Quality Control

Our compliance programs are designed to ensure the products we sell are safe and responsibly sourced, and meet all regulatory and statutory requirements, including, without limitation, requirements associated with the Lacey Act, United States Environment Protection Agency ("EPA") and the California Air Resources Board (“CARB”).  We utilize a variety of due diligence processes and controls, including supplier audits, periodic on-site visits, and product testing to ensure such compliance. We utilize a risk-based approach to implement and operate the various aspects of our compliance program.  Our compliance program considers, among other things, product risk, the level of vertical integration at our suppliers’ mills, legality concerns noted by both private and government parties, and the results of on-site audits that we perform. Our evaluation of sourcing risk is a key component in our allocation of resources to ensure we meet our standards for product compliance and safety. Compliance and Quality Control teams located in the United States and in China are supplemented with external resources that provide independent analyses, which are incorporated into our review processes and monitor our sourcing efforts across all areas from which we source product. Compliance programs and functions are continually under review, updated and enhanced as appropriate to stay current with statutory and regulatory requirements.  Our compliance and regulatory affairs committee of the board of directors provides oversight of our compliance programs.

Additionally, we maintain and operate a 1,500 square foot lab within our distribution center on the east coast. The lab features two temperature and humidity controlled conditioning rooms and two emission chambers correlated to a CARB-approved Third-Party Certifier standard. We believe this equipment mirrors the requirements of CARB and capabilities of other state-of-the-art emission testing facilities. This lab, along with our third-party providers, supports our process to ensure compliance with CARB and EPA requirements.

Installation

Approximately one in 10 of our customers purchase professional installation services through us to measure and install our flooring at competitive prices. We offer these services at all of our stores. As of December 31, 2019, we utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of our flooring products by third-party independent contractors. Service revenue for installation transactions we control along with freight is included in net services sales, with the corresponding costs in cost of services sold. We believe our greater interaction with the customer and strong relationships with the third-party independent contractors ultimately results in a better customer experience and higher utilization by the customer.

Store Model

As of December 31, 2019, we operated 419 retail stores, with 411 located in 47 states in the United States and eight in Ontario, Canada. We opened 11 new stores and closed 5 stores in 2019.  We are able to adapt a range of existing buildings to our format, from freestanding buildings to strip centers to small shopping centers.  Our stores are typically 6,500 to 7,500 square feet. We enter into short leases, generally for a base term of five to seven years with renewal options, to maximize our real estate flexibility.

We routinely evaluate our store site selection criteria and are currently targeting retail corridors within a market over the more industrial locations we historically sought. We consistently monitor performance of current stores as well as the market opportunity for new locations, adjusting as needed to optimize the profitability and growth potential of our network. We continue to explore alternative store prototypes to determine how to best serve customers.

Sales Approach

We strive to have an integrated multi-channel sales model that enables our stores, call center, website and catalogs to work together in a coordinated manner. We believe that due to the average size of the sale and the general infrequency of a flooring purchase, many of our customers conduct extensive research using multiple channels before making a purchase decision. Though our customers utilize a range of these channels in the decision-making process, the final sale is most often completed in the store, working with our flooring experts. Our customers typically plan well in advance for the inconvenience of removing old flooring and installing new flooring. In larger, more complex projects,

6

greater lead time and preparation is often required. Our research indicates that the length of a hard-surface flooring purchase can vary significantly from initial interest to final sale.

Our objective is to help the customer through the entire purchase cycle from inspiration to installation, whether in our store or in their home. Our goal is to provide our customers with everything needed to complete their flooring project – to remove the existing floor, install the new floor with complementary moldings and accessories, and finally, maintain the floor for its lifetime.

Our sales strategy emphasizes customer service by providing superior, convenient, educational tools for our customers to learn about our products and the installation process. We invest heavily in training our store associates on all of our products and install techniques. Flooring samples for most of the products we offer are available in our stores, or can be ordered through our call center and website. Once an order is placed, customers may choose to either have their purchases delivered or pick them up at a nearby store location.

We are committed to responding to our customers in a timely manner. Our call center is staffed by flooring experts cross-trained in sales, customer service and product support. In addition to receiving telephone calls, our call center associates chat online with visitors to our website, respond to emails from our customers and engage in telemarketing activities. Customers can contact our call center to place an order, to make an inquiry, or to order a catalog.

Knowledgeable Salespeople

We believe a large segment of residential homeowners are in need of a trusted expert, whether as a guide through a range of flooring alternatives and services or as a resource to both DIY and DIFM customers. We train and position our store management and associates to establish these individual customer relationships, which often last beyond the current purchase to subsequent purchases of additional flooring.

We place an emphasis on identifying, hiring and empowering employees who share a passion for our business philosophy where possible. Many of our store managers have previous experience with the home improvement, retail flooring or flooring installation industries. We provide ongoing training focused on selling techniques and in-depth product knowledge for our store associates, who, we believe, are a key driver in a customer’s purchasing decision.

Digital / Omni-Channel

Our website contains a broad range of information on our products and services, including a comprehensive knowledge base on all things related to flooring. We have recently launched several tools, including Picture It! and Floor Finder, to assist customers in their flooring purchase. We also offer extensive product reviews, before and after photos from previous customers, product information and how-to installation videos. A customer also has the ability to chat live with a flooring expert, either online or over the phone, regarding questions about a flooring purchase or installation. We continue to develop new features and functionality to assist customers, and to ensure they have robust tools at their disposal that are effective at helping them make the ideal flooring choice as they move between online and offline channels. We also have an active presence on Facebook, Instagram, Pinterest, YouTube and Twitter.

Advertising and Financing

Advertising:  We utilize a mix of traditional and online media, ecommerce, direct mail, email, and social media to balance product, service and value messaging.   We also utilize advertising to build brand consideration and to educate customers on the flooring category.  Overall, we proactively manage the mix of our media to ensure we efficiently drive sales while effectively building awareness of our brand value proposition. We continue to invest in enhanced digital capabilities.

Financing: We offer our residential customers a financing alternative through a proprietary credit card, the Lumber Liquidators credit card, underwritten by a third-party financial institution, generally with no recourse to us. This program serves the dual function of providing financial flexibility to our customers and offering us promotional

7

opportunities featuring deferred interest, which we often combine with product promotions. Our customers may also use their Lumber Liquidators credit card for installation services. We also offer our Pro customers a financing alternative, which is also underwritten by a third-party financial institution, generally with no recourse to us. The commercial credit program provides our Pro customers a range of additional services that we believe add flexibility to their businesses.

Employees

As of December 31, 2019, we had approximately 2,200 employees, 95% of whom were full-time and none of whom were represented by a union. Of these employees, 73% work in our stores, 18% work in corporate store support infrastructure or similar functions (including our call center employees) and 9% work in one of our distribution centers. We believe that we have good relations with our employees.

Seasonality and Quarterly Results

Our quarterly results of operations can fluctuate depending on the timing of our advertising and the timing of, and income contributed by, our new stores.  Our net sales fluctuate slightly as a result of seasonal factors, and we adjust merchandise inventories in anticipation of those factors, causing variations in our build of merchandise inventories.  Generally, we experience higher-than-average net sales in the spring and fall, when more home remodeling activities typically are taking place, and lower-than-average net sales in the colder winter months and during the hottest summer months.

Intellectual Property and Trademarks

We have a number of marks registered in the United States, including Lumber Liquidators®, Hardwood Floors For Less!®, Floor Finder®,  Bellawood®, 1‑800‑HARDWOOD®, Quickclic®, Virginia Mill Works Co. Hand Scraped and Distressed Floors®, Morning Star Bamboo Flooring®, Dream Home Laminate Floors®, Builder’s Pride®,  Avella®, Coreluxe®, Tranquility Resilient Flooring®, Lisbon Cork Co. Ltd. ®, Colston Hardwood Flooring ®, Clover Lea Plantation ®, ReNature™, AquaSeal ™ and other product line names. We have also registered certain marks in jurisdictions outside the United States, including the European Union, Canada, China, Australia and Japan.  We regard our intellectual property as having significant value and these names are an important factor in the marketing of our brands.  Accordingly, we take steps intended to protect our intellectual property including, where necessary, the filing of lawsuits and administrative actions to enforce our rights.

Government Regulation

We are subject to extensive and varied federal, provincial, state and local government regulations in the jurisdictions in which we operate, including laws and regulations relating to our relationships with our employees and customers, independent third-party installers, public health and safety, zoning, accommodations for persons with disabilities, and fire codes. We are also subject to a number of compliance obligations pursuant to various settlement agreements we have entered into over the past few years. We operate each of our stores, offices and distribution centers in accordance with standards and procedures designed to comply with all applicable laws, codes, licensing requirements and regulations. Certain of our operations and properties are also subject to federal, provincial, state and local laws and regulations relating to the use, storage, handling, generation, transportation, treatment, emission, release, discharge and disposal of hazardous materials, substances and wastes and relating to the investigation and cleanup of contaminated properties, including off-site disposal locations. We do not currently incur significant costs complying with the laws and regulations related to hazardous materials.  However, we could be subject to material costs, liabilities or claims relating to compliance in the future, especially in the event of changes in existing laws and regulations or in their interpretation, as well as the passage of new laws and regulations.

Our suppliers are subject to the laws and regulations of their home countries, as well as those relative to the import of their products into the United States, including, in particular, laws regulating labor, forestry and the environment.  Our suppliers are subject to periodic compliance audits, onsite visits and other reviews, as appropriate, in efforts to ensure that they are in compliance with all laws and regulations. We also support social and environmental responsibility among our supplier community and our suppliers agree to comply with our expectations concerning

8

environmental, labor and health and safety matters.  Those expectations include representations and warranties that our suppliers comply with the laws, rules and regulations of the countries in which they operate.

Products that we import into the United States and Canada are subject to laws and regulations imposed in conjunction with such importation, including those issued and/or enforced by United States Customs and Border Protection and the Canadian Border Services Agency.  In addition, certain of our products are subject to laws and regulations relating to the importation, acquisition or sale of illegally harvested plants and plant products and the emissions of hazardous materials.  We work closely with our suppliers to address the applicable laws and regulations in these areas.

Available Information

We maintain a website at www.lumberliquidators.com. The information on or available through our website is not, and should not be considered, a part of this annual report on Form 10‑K. You may access our annual reports on Form 10‑K, quarterly reports on Form 10‑Q, current reports on Form 8‑K and amendments to those reports, as well as other reports relating to us that are filed with, or furnished to, the United States Securities and Exchange Commission (“SEC”) free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC. The SEC also maintains an Internet site, www.sec.gov, which contains reports, proxy and information statements, and other information that we file electronically with the SEC.

Item 1A. Risk Factors.

The risks described below could materially and adversely affect our business, results of operations, financial condition and cash flows. These risks are not the only risks that we face. Our business operations could also be affected by additional factors that apply generally to companies operating in the United States and globally, as well as other risks that are not presently known to us or that we currently consider to be immaterial.

Risks Related to Our Operations

Unfavorable allegations, government investigations and legal actions surrounding our products or us could harm our reputation and impair our ability to grow or sustain our business.

We have been involved in a number of government investigations and legal actions, many of which have resulted from unfavorable allegations regarding our products and us.  Negative publicity surrounding these government investigations and legal actions could continue to harm our reputation and the demand for our products. Additional unfavorable allegations, government investigations and legal actions involving our products and us could also affect our perception in the market and our brands and negatively impact our business and financial condition. For instance, unfavorable allegations with certain regulators surrounding the compliance of our laminates that had previously been sourced from China has negatively affected and could continue to negatively affect our operations. If this negative impact is significant, our ability to maintain our liquidity and grow or sustain our business could be jeopardized. The cost to defend ourselves and our former employees has been and could continue to be significant.

We are involved in a number of legal proceedings and, while we cannot predict the outcomes of these proceedings and other contingencies with certainty, some of the outcomes of these proceedings could adversely affect our business and financial condition.

We are, or may become, involved in legal proceedings, government and agency investigations, and consumer, employment, tort and other litigation (see discussion of Legal Proceedings in Item 3 of this Annual Report). While we have accrued for material liabilities in connection with certain of these proceedings, we cannot predict with certainty the ultimate outcomes. The outcome of some of these legal proceedings could require us to take actions which could be costly to implement or otherwise negatively affect our operations or could require us to pay substantial amounts of money that could have a material adverse effect on our liquidity, financial condition and results of operations and could affect our ability to obtain capital or access our revolving loan and continue as a going concern. Additionally, defending

9

against lawsuits and legal proceedings involves significant expense and diversion of management’s attention and resources.

Our overall compliance program, including the Lacey Compliance Plan, is complex and costly to maintain.  A failure to manage these programs could adversely affect our ability to conduct business, result in significant fines and other penalties, damage our brand and reputation, and, consequently, negatively impact our financial position and results of operations.

As disclosed in October, 2015, we reached a settlement with the United States Department of Justice (“DOJ”) regarding our compliance with the Lacey Act. In connection with that settlement, we agreed to implement the Lacey Compliance Plan, and we are subject to a probation period of five years. Our implementation of the Lacey Compliance Plan, together with requirements resulting from other settlement agreements we have entered into over the past few years (including the Deferred Prosecution Agreement (the “DPA”) with the United States Attorney’s Office for the Eastern District of Virginia (the “U.S. Attorney”) and the DOJ entered into on March 12, 2019), is costly and, if the implementation costs are more than we anticipate, could adversely affect our operating results. In the event we breach the DPA, there is a risk the U.S. Attorney and the DOJ would seek to impose remedies provided for in the DPA, including criminal prosecution. Further, the failure to properly manage our overall compliance program and fully comply with the obligations imposed upon us by these various settlement agreements or implement any of the compliance requirements arising from these obligations could adversely affect our ability to conduct business, result in significant fines and other penalties, damage our brand and reputation and negatively impact our financial position and results of operations.

Our insurance coverage and self-insurance reserves may not cover existing or future claims.

With the large number of recent cases and government investigations, we may be required to defend ourselves and our officers, directors and former employees and we may be subject to financial harm in the event such cases or investigations are adversely determined and insurance coverage will not, or is not sufficient to, cover any related losses.  We maintain various insurance policies, including directors and officers insurance, as well as the following:

· We are self-insured on certain health insurance plans and workers’ compensation coverage and are responsible for losses up to a certain limit for these respective plans.

· We continue to be responsible for losses up to a certain limit for general liability and property damage insurance.

· Our professional liability and cyber security insurance policies contain limitations on the amount and scope of coverage.

For policies under which we are responsible for losses, we record a liability that represents our estimated cost of claims incurred and unpaid as of the balance sheet date.  Unanticipated changes may produce materially different amounts of expense than those recorded, which could adversely impact our operating results. Additionally, our experience could limit our ability to obtain satisfactory insurance coverage, subjecting us to further loss, or could require significantly increased premiums.

Federal, provincial, state or local laws and regulations,  including tariffs, or our failure to comply with such laws and regulations, and our obligations under certain settlement agreements related to our products could increase our expenses, restrict our ability to conduct our business and expose us to legal risks.

We are subject to a wide range of general and industry-specific laws and regulations imposed by federal, provincial, state and local authorities in the countries in which we operate, including those related to tariffs, customs, foreign operations (such as the Foreign Corrupt Practices Act), truth-in-advertising, consumer protection, privacy, zoning and occupancy matters as well as the operation of retail stores and warehouse, production and distribution facilities and provision of installation services. In addition, various federal, provincial and state laws govern our relationship with and other matters pertaining to our employees, including wage and hour-related laws. If we fail to

10

comply with these laws and regulations, we could be subject to legal risk, our operations could be impacted negatively and our reputation could be damaged. Likewise, if such laws and regulations should change, our costs of compliance may increase, thereby impacting our results and hurting our profitability.

Certain portions of our operations are subject to laws and regulations governing hazardous materials and wastes, the remediation of contaminated soil and groundwater, and the health and safety of employees. If we are unable to comply with, extend or renew a material approval, license or permit required by such laws, or if there is a delay in renewing any material approval, license or permit, our net sales and operating results could deteriorate or otherwise cause harm to our business.

With regard to our products, we spend significant resources in order to comply with applicable advertising, importation, exportation, environmental and health and safety laws and regulations. If we should violate these laws and regulations, we could experience delays in shipments of our goods, be subject to fines, penalties, criminal charges, or other legal risks, be liable for costs and damages, or suffer reputational harm, which could reduce demand for our merchandise and hurt our business and results of operations. Further, if such laws and regulations should change we may experience increased costs in order to adhere to the new standards. We are also subject to a number of settlement agreements that impose certain obligations on us with respect to the operation of our business. If we fail to comply with these obligations, we may experience additional costs and expenses and could be subject to additional legal risks.

Our growth strategy depends in part on our ability to open new stores and is subject to many unpredictable factors.

As of December 31, 2019, we had 419 stores throughout the United States and Canada.  Assuming the continued success of our store model and satisfaction of our internal criteria, we plan to continue our selective approach to future openings over the next several years. This growth strategy and the investment associated with the development of each new store may cause our operating results to fluctuate and be unpredictable or decrease our profits.  Our future results and ability to implement our growth strategy will depend on various factors, including the following:

· as we open more stores, our rate of expansion relative to the size of our store base will decline;

· consumers in new markets may be less familiar with our brands, and we may need to increase brand awareness in those markets through additional investments in advertising;

· new stores may have higher construction, occupancy or operating costs, inventory requirements, or may have lower average store net sales, than stores opened in the past;

· competitive pressures could cause changes to our store model and making necessary changes could prove costly;

· newly opened stores may reach profitability more slowly than we expect in the future, as we enter more mid-sized and smaller markets and add stores to larger markets where we already have a presence; and

· our Canadian stores may require additional investment in advertising due to our limited penetration in the Canadian market.

Failure to manage our growth effectively could harm our business and operating results.

Our plans call for our selective approach in the addition of new stores over the next several years, and increased orders from our website, call center and catalogs. Our existing management information systems, including our store management systems, compliance procedures and financial and reporting controls, may be unable to support our expansion. Managing our growth effectively will require us to continue to enhance these systems, procedures and controls and to hire, train and retain regional and store managers and personnel for our compliance and financial and

11

reporting departments. We may not respond quickly enough to the changing demands that our expansion will impose on us. Any failure to manage our growth effectively could harm our business and operating results.

Increased transportation costs could harm our results of operations.

The efficient transportation of our products through our supply chain is a critical component of our operations. If the cost of fuel or other costs, such as import tariffs, duties and international container rates rise it could result in increases in our cost of sales due to additional transportation charges and fees. Additionally, there are a limited number of delivery companies capable of efficiently transporting our products from our suppliers. Consolidation within this industry could result in increased transportation costs. A reduction in the availability of qualified drivers and an increase in driver regulations could continue to increase our costs. We may be unable to increase the price of our products to offset increased transportation charges, which could cause our operating results to deteriorate.

Damage, destruction or disruption of our distribution centers could significantly impact our operations and impede our ability to distribute certain of our products.

We have two distribution centers which house products for the direct shipment of flooring to our stores or to our customers. If either of our distribution centers or our inventory held in those locations were damaged or destroyed by fire, wood infestation or other causes, our distribution processes would be disrupted, which could cause significant delays in delivery. This could impede our ability to stock our stores and deliver products to our customers, and cause our net sales and operating results to deteriorate.

The operation of stores in Canada and our representative office in China may present increased legal and operational risks.

We currently operate eight store locations in Canada.  As a result of our limited penetration in the Canadian market, these stores may continue to be less successful than we expect.  Additionally, investments in advertising and promotional activity may be required to continue to build brand awareness in that market.

We also have a representative office in Shanghai, China to facilitate our product sourcing in Asia. We have limited experience with the legal and regulatory environments and market practices outside of the United States and cannot guarantee that we will be able to operate profitably in these markets or in a manner and with results similar to those in the United States.  We may also incur increased costs in complying with applicable Canadian and Chinese laws and regulations as they pertain to our products, operations and related activities.  Further, if we fail to comply with applicable laws and regulations, we could be subject to, among other things, litigation and government and agency investigations.

Failure to effectively manage our third-party installers may present increased legal and operational risks.

We manage third-party installers who provide installation services to some of our customers. In some jurisdictions, we are subject to regulatory requirements and risks applicable to general contractors, which include management of licensing, permitting and quality of our third-party installers. We have established procedures designed to manage these requirements and ensure customer satisfaction with the services provided by our third-party installers. If we fail to manage these procedures effectively or provide proper oversight of these services, we may be subject to regulatory enforcement and litigation and our net sales and our profitability and reputation could be harmed.

Our founder is the lessor on a significant number of our leases and the satisfactory renewal of these as each comes due is a risk to our occupancy costs and store count.

As of December 31, 2019, we leased 28 of our store locations from entities owned, in whole or in part, by Tom Sullivan, our founder. Although our percentage of total stores leased from such entities has decreased, this concentration of leases subjects us to the risk of increased costs or reduction of store count in the event of an adverse action or inaction by Mr. Sullivan or such entities. Mr. Sullivan is not an employee or a director of the Company.

12

Our success dependsupon the retention of our personnel.

We believe that our success has depended and continues to depend on the efforts and capabilities of our employees. The loss of the services of employees due to any negative market or industry perception, our stock price, and/or litigation may prevent us from achieving operational goals and harm our reputation.

Risks Related to Our Suppliers, Products and Product Sourcing

Our ability and cost to obtain cost-effective products, especially from China and other international suppliers, and the operations of many of our international suppliers are subject to risks that may be beyond our control and that could harm our operations and profitability.

We rely on a select group of international suppliers to provide us with imported flooring products that meet our specifications. In 2019,  our imported product was sourced from Asia, Europe, Australia and South America.  As a result, we are subject to risks associated with obtaining products from abroad, including:

· the imposition of duties (including antidumping and countervailing duties), tariffs, taxes and/or other charges on exports or imports;

· political unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries where our products originate;

· currency exchange fluctuations;

· the impact of a pandemic, including the Coronavirus;

· the imposition of new laws and regulations, including those relating to environmental matters and climate change issues, labor conditions, quality and safety standards, trade restrictions, and restrictions on funds transfers;

· disruptions or delays in production, shipments, delivery or processing through ports of entry; and

· differences in product standards, acceptable business practices and legal environments of the country of origin.

In 2019, approximately 46% of our product was sourced from China.  Beginning in September 2018, tariffs on goods coming from China received an additional 10% tariff. Beginning in June 2019, the tariffs increased to 25%. On November 7, 2019, the United States Trade Representative (“USTR”) ruled on a request made by certain interested parties, including the Company, and retroactively excluded certain flooring products imported from China from these Section 301 tariffs.  The granted exclusion applies retroactively from the date the tariffs were originally implemented on September 24, 2018 through August 7, 2020.  It is uncertain if the flooring products that are currently excluded will continue to be excluded after August 7, 2020. Potential costs and any attendant impact on pricing arising from these tariffs could have a material adverse effect on our results of operations, financial condition and liquidity.

In early 2020, the Chinese New Year holiday was extended and governments across Asia imposed significant restrictions on the movement of people and of goods both among provinces as well as into and out of countries due to the Coronavirus.  These added measures could have a material adverse effect on suppliers both within China and other countries in the form of labor shortages, delays in our suppliers’ own supply chain for raw materials, and difficulty in shipping products to ports.

These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to us cost-effectively or at all, which could harm our operations. If our product costs and consumer demand are adversely

13

affected by foreign trade issues (including pandemic-related delays, import tariffs and other trade restrictions with China), our sales and profitability may suffer.

Failure to identify and develop relationships with a sufficient number of qualified suppliers could affect our ability to obtain products that meet our high quality standards.

We purchase flooring directly from mills located around the world.  We believe that these direct supplier relationships are important to our business.  In order to retain the competitive advantage that we believe results from these relationships, we need to continue to identify, develop and maintain relationships with qualified suppliers that can satisfy our high standards for quality and our requirements for the delivery of hard-surface materials in a timely and efficient manner.  We expect the need to develop new relationships to be particularly important as we seek to expand our operations, enhance our product offerings, and expand our product assortment and geographic source of origin in the future.  Any inability to do so could reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to deteriorate.

We rely on a concentrated number of suppliers for a significant portion of our supply needs.  We generally do not have long-term contracts with our suppliers.  In the future, our suppliers may be unable to supply us, or supply us on acceptable terms, due to various factors, which could include political instability in the supplier’s country, insufficient production capacity, product line failures, collusion, a supplier’s financial instability, inability or refusal to comply with applicable laws, trade restrictions, tariffs or our standards, duties, insufficient transport capacity and other factors beyond our control. In these circumstances, we could experience deterioration in our net sales and operating results.

The failure of our suppliers to comply with applicable laws, use ethical practices, and meet our quality standards could result in our suspending purchasing from them, negatively impacting net sales, and could expose us to reputational and legal risks.

While our suppliers agree to operate in compliance with applicable laws and regulations, we do not control our suppliers. Accordingly, despite our continued investment in compliance and quality control, we cannot guarantee that they comply with such laws and regulations or operate in a legal, ethical and responsible manner. While we monitor our suppliers’ adherence to our compliance and quality standards, there is no guarantee that we will be able to identify non-compliance. Moreover, the failure of our suppliers to adhere to applicable legal requirements and the quality standards that we set for our products could lead to government investigations, litigation, write-offs and recalls, any of which could damage our reputation and our brands, increase our costs, and otherwise hurt our business.  Additionally, our ability to travel and monitor suppliers due to the Coronavirus could cause delays in bringing product to market.

Product liability claims could adversely affect our reputation, which could adversely affect our net sales and profitability.

We have faced and continue to face the risk of exposure to product liability claims in the event that the use of our products is alleged to have resulted in economic loss, personal injury, property damage,  violated environmental or other laws. In the event that any of our products proves to be defective or otherwise in violation of applicable laws, we may be required to recall or redesign such products. Further, in such instances, we may be subject to legal action. We maintain insurance against some forms of product liability claims, but such coverage may not be available or adequate for the liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant adverse publicity against us, may have a material adverse effect on our net sales and operating results.

Our ability to offer hardwood flooring, particularly products made of more exotic species of hardwood, depends on the continued availability of sufficient suitable hardwood at reasonable cost.

Our business strategy depends on offering a wide assortment of hardwood flooring to our customers. We sell flooring made from species ranging from domestic maple, oak and pine to imported cherry, koa, mahogany and teak.  Some of these species are scarce, and we cannot be assured of their continued availability.  Our ability to obtain an adequate volume and quality of hard-to-find species depends on our suppliers’ ability to furnish those species, which, in

14

turn, could be affected by many things including events such as forest fires, insect infestation, tree diseases, prolonged drought and other adverse weather and climate conditions.  Government regulations relating to forest management practices also affect our suppliers’ ability to harvest or export timber, and changes to regulations and forest management policies, or the implementation of new laws or regulations, could impede their ability to do so.  If our suppliers cannot deliver sufficient hardwood and we cannot find replacement suppliers, our net sales and operating results may be negatively impacted.

The cost of the various species of hardwood that are used in our products is important to our profitability. Hardwood lumber costs fluctuate as a result of a number of factors including changes in domestic and international supply and demand, labor costs, competition, market speculation, product availability, environmental restrictions, government regulation and trade policies, duties, weather conditions, processing and freight costs, and delivery delays and disruptions. We generally do not have long-term supply contracts or guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing hardwood costs by adjusting our purchasing practices, and we may not always be able to increase the selling prices of our products in response to increases in supply costs. If we cannot address changing hardwood costs appropriately, it could cause our operating results to deteriorate.

Risks Related to Economic Factors and Our Access to Capital

Cyclicality in the home flooring industry, coupled with our lack of diversity in our lines of business, could cause volatility and risk to our business.

The hard-surface flooring industry is highly dependent on the remodeling of existing homes and new home construction. Remodeling and new home construction are cyclical and depend on a number of factors which are beyond our control, including interest rates, tax policy, real estate prices, employment levels, consumer confidence, credit availability, demographic trends, weather conditions, natural disasters and general economic conditions.

In the event of a decrease in discretionary spending, home remodeling activity or new home construction, demand for our products, including hard-surface flooring, could be impacted negatively and our business and operating results could be harmed.

The inability to access our Revolving Credit Facility or other sources of capital, could cause our financial position, liquidity, and results of operations to suffer.

We have relied on and expect to continue to rely on a bank credit agreement to fund our seasonal needs for working capital. During 2019, we entered into an amended and restated credit agreement to increase the amounts available under this Revolving Credit Facility, and we may need to access additional sources of capital to satisfy our liquidity needs. Our access to the Revolving Credit Facility depends on our ability to meet the conditions for borrowing, including that all representations are true and correct at the time of the borrowing. Our failure to meet these requirements or obtain additional or alternative sources of capital could impact:

· our ability to fund working capital, capital expenditures, store expansion and other general corporate purposes;

· our ability to meet our liquidity needs, arising from, among other things, legal matters; and

· our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.

15

Risks Related to Our Information Technology

If our management information systems, including our website or our call center, experience disruptions, it could disrupt our business and reduce our net sales.

We depend on our management information systems to integrate the activities of our stores, website and call center, to process orders, to respond to customer inquiries, to manage inventory, to purchase merchandise and to sell and ship goods on a timely basis. We may experience operational problems with our information systems as a result of system failures, viruses, computer “hackers” or other causes. We may incur significant expenses in order to repair any such operational problems. Any significant disruption or slowdown of our systems could cause information, including data related to customer orders, to be lost or delayed, which could result in delays in the delivery of products to our stores and customers or lost sales. For example, as we previously disclosed in August 2019, we experienced a malicious network security incident that prevented access to several of our information technology systems and data within our networks. Based on the nature of the network security incident, the impact on our information technology systems and the results of the forensic IT analysis, we do not believe confidential customer, employee or company data was lost or disclosed. Moreover, our entire corporate network, including our telephone lines, is on an Internet-based network, which is vulnerable to certain risks and uncertainties, including changes in the required technology interfaces, website downtime and other technical failures, security breaches and customer privacy concerns. Accordingly, if our network is disrupted or if we cannot successfully maintain our website and call center in good working order, we may experience delayed communications within our operations and between our customers and ourselves, and may not be able to communicate at all via our network, including via telephones connected to our network.

We may incur costs and losses resulting from security risks we face in connection with our electronic processing, transmission and storage of confidential customer information.

We accept electronic payment cards for payment in our stores and through our call center.  In addition, our online operations depend upon the secure transmission of confidential information over public networks, including information permitting cashless payments.  As a result, we may become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit or debit card information, and we may also be subject to lawsuits or other proceedings relating to these types of incidents.  Further, a compromise of our security systems that results in our customers’ personal information being obtained by unauthorized persons could adversely affect our reputation with our customers and others, as well as our operations, results of operations and financial condition, and could result in litigation against us or the imposition of penalties.  A security breach could also require that we expend significant additional resources related to the security of information systems and could result in a disruption of our operations, particularly our online sales operations.

Additionally, privacy and information security laws and regulations change, and compliance with them may result in cost increases due to necessary systems changes and the development of new administrative processes.  If we fail to comply with these laws and regulations or experience a data security breach, our reputation could be damaged, possibly resulting in lost future business, and we could be subjected to additional legal risk as a result of non-compliance.

Alternative e-commerce and online shopping offerings may erode our customer base and adversely affect our business.

Our long-term future depends heavily upon the general public’s willingness to use our stores as a means to purchase goods. In recent years, e-commerce has become more widely accepted as a means of purchasing consumer goods and services, which could adversely impact customer traffic in our stores. Additionally, certain of our competitors offer alternative e-commerce and online shopping. If consumers use alternative e-commerce and online shopping offerings to conduct business as opposed to our store locations, it could materially adversely impact our net sales and operating results.

16

Risks Relating to Our Competitive Positioning

A tarnished brand or ineffectiveness of our advertising strategy could result in reduced customer traffic, thereby impacting net sales and profitability.

We believe that our growth thus far was achieved in part through our successful investment in local and national advertising. Historically, we have used extensive advertising to encourage customers to drive to our stores, which were generally located some distance from population centers in areas that have lower rents than traditional retail locations. Further, a significant portion of our advertising was directed at the DIY and DIFM customers. While our brand and marketing strategies continue to evolve, we have broadened the content of our advertising to increase the awareness of our great value, superior service and broad selection of high-quality, hard-surface flooring products. If there is are negative perceptions about the evolution of our brand strategies, our advertisements fail to draw customers in the future, or if the cost of advertising or other marketing materials increases significantly, we could experience declines in our net sales and operating results.

Competition could cause price declines, decrease demand for our products and decrease our market share.

We operate in the hard-surface flooring industry, which is highly fragmented and competitive.  We face significant competition from national and regional home improvement chains, national and regional specialty flooring chains, Internet-based companies and privately owned single-site enterprises.  We compete on the basis of price, customer service, store location and the range, quality and availability of the hard-surface flooring that we offer our customers.  If our positioning with regard to one or more of these factors should erode, deteriorate, fail to resonate with consumers or misalign with demand or expectations, our business and results may be negatively impacted.

Our competitive position is also influenced by the availability, quality and cost of merchandise, labor costs, distribution and sales efficiencies and our productivity compared to that of our competitors. Further, as we expand into new and unfamiliar markets, we may face different competitive environments than in the past. Likewise, as we continue to enhance and develop our product offerings, we may experience new competitive conditions.

Some of our competitors are larger organizations, have existed longer, are more diversified in the products they offer and have a more established market presence with substantially greater financial, marketing, personnel and other resources than we have. In addition, our competitors may forecast market developments more accurately than we do, develop products that are superior to ours, produce similar products at a lower cost or adapt more quickly to new technologies or evolving customer requirements than we do. Intense competitive pressures from one or more of our competitors could cause price declines, decrease demand for our products and decrease our market share.

Hard-surface flooring may become less popular as compared to other types of floor coverings in the future.  For example, our products are made using various hardwood species, including rare exotic hardwood species, and concern over the environmental impact of tree harvesting could shift consumer preferences towards synthetic or inorganic flooring.  In addition, hardwood flooring competes against carpet, vinyl sheet, vinyl tile, ceramic tile, natural stone and other types of floor coverings.  If consumer preferences shift toward types of floor coverings that we do not sell, we may experience decreased demand for our products.

All of these competitive factors may harm us and reduce our net sales and operating results.

Risks Related to Accounting Standards and Internal Controls 

Changes in accounting standards, subjective assumptions, estimates and judgments by management related to complex accounting matters, and failures in internal control could significantly affect our financial results.

Generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business, including but not limited to, consolidation, revenue recognition, stock-based compensation, lease accounting, sales returns reserves, inventories, self-insurance, income taxes, deferred taxes, valuation allowances, unclaimed property laws and litigation, are highly

17

complex and involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance, which may have a material effect on our results of operation.

Failure to maintain effective systems of internal and disclosure control could have a material adverse effect on our results of operation and financial condition.

Effective internal and disclosure controls are necessary for us to provide reliable financial reports and effectively prevent fraud, and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. As part of our ongoing monitoring of internal control, we may discover material weaknesses or significant deficiencies in internal control that require remediation.

We have in the past discovered, and may in the future discover, areas of internal controls that need improvement, and we continue to work to remediate and improve our internal controls. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. Any failure to maintain effective controls or to timely implement any necessary improvement of our internal and disclosure controls could, among other things, result in losses from fraud or error, harm our reputation, or cause investors to lose confidence in the reported financial information, all of which could have a material adverse effect on our results of operation and financial condition.

Risks Relating to Our Common Stock

Our common stock price may be volatile and all or part of any investment in our common stock may be lost.

The market price of our common stock could fluctuate significantly based on various factors, including, but not limited to:

· unfavorable market reactions to allegations regarding the safety of our products and the related litigation and/or government investigations resulting therefrom, as well as any payments, judgments or other losses in connection with such allegations and any resultant lawsuits and/or investigations;

· trading activity of our current or future stockholders, including common stock transactions by our directors and executive officers;

· industry-related trends and growth prospects; and

· our concentration in the cyclical home furnishings industry.

In addition, the stock market may experience significant price and volume fluctuations.  These fluctuations may be unrelated to the operating performance of particular companies but may cause declines in the market price of our common stock.  The price of our common stock could fluctuate based upon factors that have little or nothing to do with us or our performance.

Our quarterly operating results may fluctuate significantly and could fall below the expectations of research analysts and investors due to various factors.

Research analysts and investors develop expectations on how we may perform using a variety of metrics, including, but not limited to, sales, comparable store sales and gross profit. However, in any given quarter, actual performance may vary from these expectations, causing significant fluctuations in our stock price.

18

Our anti-takeover defense provisions may cause our common stock to trade at market prices lower than it might absent such provisions.

Our certificate of incorporation and bylaws contain provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions include a staggered board, the availability of “blank check” preferred stock, provisions restricting stockholders from calling a special meeting of stockholders or from taking action by written consent and provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals of topics for consideration at meetings of stockholders. Our certificate of incorporation also provides that Section 203 of the Delaware General Corporation Law, which relates to business combinations with interested stockholders, applies to us. These provisions may delay, prevent or deter a merger, or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.

Item 1B.  Unresolved Staff Comments.

None.

Item 2. Properties.

As of February 20, 2020, we operated 419 stores located in 47 states and Canada, with no new store openings or closings since December 31, 2019. In addition to our eight stores in Ontario, Canada, the table below sets forth the locations (alphabetically by state) of our 411  United States stores in operation as of February 20, 2020.

State	Stores	State	Stores	State	Stores	State	Stores
Alabama	6	Iowa	3	Nebraska	2	Rhode Island	1
Arizona	6	Kansas	3	Nevada	4	South Carolina	10
Arkansas	2	Kentucky	5	New Hampshire	5	South Dakota	1
California	44	Louisiana	6	New Jersey	14	Tennessee	6
Colorado	10	Maine	3	New Mexico	1	Texas	29
Connecticut	8	Maryland	10	New York	22	Utah	3
Delaware	4	Massachusetts	10	North Carolina	15	Vermont	1
Florida	31	Michigan	11	North Dakota	1	Virginia	16
Georgia	11	Minnesota	7	Ohio	14	Washington	9
Idaho	2	Mississippi	3	Oklahoma	3	West Virginia	4
Illinois	14	Missouri	7	Oregon	8	Wisconsin	6
Indiana	9	Montana	1	Pennsylvania	20

We lease all of our stores as well as our corporate headquarters, at our new location in Richmond, Virginia.  We relocated to the new headquarters location during the fourth quarter of 2019.  The new headquarters location is an existing building of approximately 53,000 square feet. We currently lease space near the new headquarters location as a satellite office for various administrative functions and expect to continue that lease or lease similar property in Richmond, Virginia for our call center operations.

In addition, we own a one million square foot distribution center on approximately 100 acres of land in Henrico County, Virginia. We lease a 504,016 square foot facility in Pomona, California, which, along with our facility in Virginia, serve as our primary distribution facilities.

Item 3. Legal Proceedings.

Litigation Relating to Bamboo Flooring

On or about December 8, 2014, Dana Gold filed a purported class action lawsuit in the United States District Court for the Northern District of California alleging that the Morning Star bamboo flooring that the Company sells is

19

defective (the “Gold Litigation”). Plaintiffs narrowed the complaint to the Company’s Morning Star Strand Bamboo flooring (the “Strand Bamboo Product”) sold to residents of California, Florida, Illinois, Minnesota, Pennsylvania and West Virginia for personal, family or household use. The Gold Litigation alleges that the Company engaged in deceptive trade practices in conjunction with the sale of the Strand Bamboo Products. The plaintiffs did not quantify any alleged damages in their complaint but, in addition to attorneys’ fees and costs, the plaintiffs sought a declaration that the Company’s actions violate the law and that it is financially responsible for notifying all purported class members, injunctive relief requiring the Company to replace and/or repair all of the Strand Bamboo Product installed in structures owned by the purported class members and a declaration that the Company must disgorge, for the benefit of the purported classes, all or part of the profits received from the sale of the allegedly defective Strand Bamboo Product and/or to make full restitution to the plaintiffs and the purported class members.  

On September 30, 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, which would resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company will contribute $14 million in cash (the “Gold Cash Payment”) and provide $14 million in store-credit vouchers, with a potential additional $2 million in store-credit vouchers based on having a claim’s percentage of more than 7%, for an aggregate settlement of up to $30 million. The settlement agreement makes clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. On December 18, 2019, the court issued an order that, among other things, granted preliminary approval of the settlement agreement. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account. A Final Approval and Settlement Hearing is currently scheduled for September 24, 2020. The settlement agreement is subject to certain contingencies, including court approval. There can be no assurance that a settlement will be finalized and approved by the court at the Final Approval and Settlement Hearing or as to the ultimate outcome of the litigation. If a final, court approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for, among other things, success on the merits. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation.

The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable with the offset in the caption “Accrual for Legal Matters and Settlements Current” on its Consolidated Balance Sheet related to this settlement as of December 31, 2018.  If the settlement agreement is not approved by the court or the Company incurs additional losses with respect to the Bamboo Flooring Litigation (as defined below), the actual losses that may result from these actions may exceed this amount. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously.

Litigation Relating to Chinese Laminates

Formaldehyde-Abrasion MDLs

Beginning on or about March 3, 2015, numerous purported class action cases were filed in various United States federal district courts and state courts involving claims of excessive formaldehyde emissions from the Company’s Chinese-manufactured laminate flooring products. The purported classes consisted of all United States consumers that purchased the relevant products during certain time periods. Plaintiffs in these cases challenged the Company’s labeling of its products as compliant with the California Air Resources Board Regulation and alleged claims for fraudulent concealment, breach of warranty, negligent misrepresentation and violation of various state consumer protection statutes.

20

The plaintiffs sought various forms of declaratory and injunctive relief and unquantified damages, including restitution and actual, compensatory, consequential and, in certain cases, punitive damages, as well as interest, costs and attorneys’ fees incurred by the plaintiffs and other purported class members in connection with the alleged claims. The United States Judicial Panel on Multidistrict Litigation (the “MDL Panel”) transferred and consolidated the federal cases to the United States District Court for the Eastern District of Virginia (the “Virginia Court”). The consolidated case in the Virginia Court is captioned In re: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products Liability Litigation (the “Formaldehyde MDL”).

Beginning on or about May 20, 2015, multiple class actions were filed in the United States District Court for the Central District of California and other district courts located in the place of residence of each non-California plaintiffs consisting of United States consumers who purchased the Company’s Chinese-manufactured laminate flooring products challenging certain representations about the durability and abrasion class ratings of such products. These plaintiffs asserted claims for fraudulent concealment, breach of warranty and violation of various state consumer protection statutes. The plaintiffs did not quantify any alleged damages in these cases; however, in addition to attorneys’ fees and costs, they did seek an order (i) certifying the action as a class action, (ii) adopting the plaintiffs’ class definitions and finding that the plaintiffs are their proper representatives, (iii) appointing their counsel as class counsel, (iv) granting injunctive relief to prohibit the Company from continuing to advertise and/or sell laminate flooring products with false abrasion class ratings, (v) providing restitution of all monies the Company received from the plaintiffs and class members and (vi) providing damages (actual, compensatory and consequential), as well as punitive damages. On October 3, 2016, the MDL Panel transferred and consolidated the abrasion class actions to the Virginia Court. The consolidated case is captioned In re: Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation (the “Abrasion MDL”).

On March 15, 2018, the Company entered into a settlement agreement to jointly settle the Formaldehyde MDL and the Abrasion MDL. Under the terms of the settlement agreement, the Company agreed to fund $22 million (the “MDL Cash Payment”) and provide $14 million in store-credit vouchers for an aggregate settlement amount of $36 million to settle claims brought on behalf of purchasers of Chinese-manufactured laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The $36 million aggregate settlement amount was accrued in 2017. On June 16, 2018, the Virginia Court issued an order that, among other things, granted preliminary approval of the settlement agreement. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in June 2018, the Company paid $0.5 million for settlement administration costs, which is part of the MDL Cash Payment, to the plaintiffs’ settlement escrow account. Subsequent to the Final Approval and Fairness Hearing held on October 3, 2018, the Court approved the settlement on October 9, 2018 and, as a result, the Company paid $21.5 million in cash into the plaintiffs’ settlement escrow account. 

On November 8, 2018, an individual filed a Notice of Appeal in the United States Court of Appeals for the Fourth Circuit (the “Appeals Court”) challenging the settlement. On December 14, 2018, another individual filed a Notice of Appeal in the Appeals Court. Subsequently, the Appeals Court consolidated both appeals and briefing is now complete. Vouchers, which generally have a three-year life, will be distributed by the administrator upon order of the Virginia Court. At December 31, 2019, the Company’s obligations related to Formaldehyde MDL and Abrasion MDL consisted of a short-term payable of $36 million with $14 million expected to be satisfied by the issuance of vouchers. If the appeals were to result in the settlement being set aside, the Company would receive $21.5 million back from the escrow agent. Accordingly, the Company has accounted for the payment of $21.5 million as a deposit in the caption “Deposit for Legal Settlements” on it Consolidated Balance Sheets. The Company has no liability accrued related to the appeals.

In addition to those purchasers who elected to opt out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019 and 2018. The Company recognized charges to earnings of $0.4 million and $2.9 million for the years ended December 31, 2019 and 2018, respectively, within selling, general and administrative expenses for these Related Laminate Matters.  As of December 31, 2019, the remaining accrual related to these matters was $0.1 million, which has been included in the caption “Accrual for Legal Matters and Settlements Current” on the condensed consolidated balance sheet.  While the Company believes that a further loss associated with

21

the Opt Outs and Related Laminate Matters is possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Canadian Litigation

On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is possible, the Company is unable to reasonably estimate the amount or range of possible loss.

Employment Cases

Mason Lawsuit

In August  2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, installation sales managers and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period.  In May 2019, the magistrate judge granted plaintiffs’ motion for conditional certification.  The litigation is in the discovery stage, which currently closes in May 2020.

The Company disputes the Mason Putative Class Employees’ claims and intends to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Kramer Lawsuit

In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California (collectively, the “CSM Employees”) alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”).

22

The Kramer Plaintiffs seek certification of the CSM Employees for a class action covering the prior four-year period prior to the filing of the complaint through the disposition of this action for the CSM Employees who currently are or were employed in California (the “California SM Class”). On or about February 19, 2019, the Kramer Plaintiffs filed a first amended complaint adding a claim for penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the Complaint. The Kramer Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the Kramer Plaintiffs seek unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

On September 9, 2019, the Company entered into an agreement to settle the Kramer matter, consistent with the terms of the Memorandum of Understanding previously disclosed by the Company.  Under the terms of the settlement agreement, the Company will pay $4.75 million to settle the claims asserted in the Kramermatter (or which could have been asserted in the Kramermatter) on behalf of all current and/or former store managers and store managers in training employed by the Company at any time between November 17, 2013 and September 19, 2019.  The settlement agreement was preliminarily approved by the court on September 19, 2019, and granted final approval on January 17, 2020. The Company recognized a net charge to earnings of approximately $4.75 million within selling general and administrative expense in its second quarter 2019 financial statements.

Antidumping and Countervailing Duties Investigation

In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) 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 companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 6% and 7% of its flooring purchases in 2019 and 2018, respectively. The Company’s consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized.  

As part of its processes in these proceedings, following the original investigation, the DOC conducts annual administrative reviews of the CVD and AD rates. In such cases, the DOC will issue preliminary rates that are not binding and are 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. The Company will begin to pay the finalized rates on each applicable future purchase when recognized by United States Customs and Border Protection.

The DOC made its initial determinations in the original investigation regarding CVD and AD rates on April 6, 2011 and May 26, 2011, respectively. On December 8, 2011, orders were issued setting final AD and CVD rates at a maximum of 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 initial determinations.

Following the issuance of these orders, a number of appeals were filed by several parties, including the Company, with the Court of International Trade (“CIT”) challenging, among other things, certain facts and methodologies that may impact the validity of the AD and CVD orders and the applicable rates. The Company participated in appeals of both the AD order and CVD order. On February 15, 2017, the Court of Appeals for the Federal Circuit (“CAFC”) vacated the CIT’s prior decision and remanded with instructions to the DOC to recalculate its AD rate. On remand, the DOC granted a 0% AD rate to eight Chinese suppliers, but did not exclude them permanently from the AD order. Nor did the CIT terminate the AD order. In July 2018, the CIT issued a judgment sustaining the DOC’s calculation of 0% for the eight suppliers, but also excluded three of them from the AD order. Certain Chinese suppliers and the Petitioners have appealed this judgment to the CAFC. The Company is evaluating the impact of the CIT’s judgment on its previously recorded expense related to the AD rates in the original investigation and subsequent annual reviews discussed below. Because of the length of time for finalization of rates as well as appeals, any subsequent

23

adjustment of CVD and AD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.

In the first DOC annual review in this matter, AD rates for the period from May 26, 2011 through November 30, 2012, and CVD rates from April 6, 2011 through December 31, 2011, were modified to a maximum of 5.92% and a maximum of 0.83%, respectively, which resulted in an additional payment obligation for the Company, based on best estimates and shipments during the applicable window, of $0.8 million. The Company recorded this as a long-term liability on its accompanying condensed consolidated balance sheet and in cost of sales in its second quarter 2015 financial statements. These AD rates were appealed to the CIT by several parties, including the Company. On remand from the CIT, the DOC has reduced the AD rate to a maximum of 0.73%. In June 2018, the CIT sustained the reduced AD rate of a maximum of 0.73% but did remand back to the DOC the issue regarding the calculation of the electricity rate, which, depending on that outcome, may cause a revision to the final AD rate. That remand from the DOC is expected to proceed in the spring of 2020 with the CIT’s lifting of a stay pending the final disposition of the appeal of the original investigation by the CAFC which issued its decision on January 10, 2020. This ruling from the CIT resulted in the Company reversing the $0.8 million accrual and recording a receivable of approximately $1.3 million during the second quarter of 2018.  

The second annual review of the AD and CVD rates was initiated in February 2014. Pursuant to the second annual review, in early July 2015, the DOC finalized the AD rate for the period from December 1, 2012 through November 30, 2013 at a maximum of 13.74% and the CVD rate for the period from January 1, 2012 through December 31, 2012 at a maximum of 0.99%. The Company believes the best estimate of the probable additional amounts owed was $4.1 million for shipments during the applicable time periods, which was recorded as a long-term liability on its accompanying condensed consolidated balance sheet and included in cost of sales in its second quarter 2015 financial statements. Beginning in July 2015, the Company began depositing these rates on each applicable purchase. The Company and other parties appealed the AD rates relating to this second annual review to the CIT. In June 2018, the court remanded the case back to the DOC to recalculate several of its adjustments. In its June 2019 remand, the DOC reduced the AD rate to 6.55%. The CIT is expected to rule on the DOC’s remand by early 2020.  If the final ruling remains at 6.55%, the Company’s liability of $4.1 million would decrease by $2.8 million to $1.3 million in the period in which the ruling is finalized.

The third annual review of the AD and CVD rates was initiated in February 2015. The third AD review covered shipments from December 1, 2013 through November 30, 2014. The third CVD review covered shipments from January 1, 2013 through December 31, 2013. In May 2016, the DOC issued the final CVD rate in the third review, which was a maximum of 1.38%. On July 13, 2016, the DOC set the final AD rate at a maximum of 17.37%. The Company appealed the AD rates to the CIT. In November 2018, the CIT issued an opinion sustaining the DOC’s results, and that decision was appealed to the CAFC by certain plaintiff interveners in January 2019. That CAFC decision is expected to be issued by the fall of 2020.  The Company’s best estimate of the probable additional amounts owed associated with AD and CVD is approximately $5.5 million for shipments during the applicable time periods. During the quarter ended June 30, 2016, the Company recorded this amount in other long-term liabilities in its balance sheet and as a charge to earnings in cost of sales on its statement of operations. After payments during 2019, the remaining liability was $4.7 million as of December 31, 2019, included in the caption “Other Long-Term Liabilities” on the Consolidated Balance Sheets.

The fourth annual period has been resolved including appeals.

The DOC initiated the fifth annual review of AD and CVD rates in February 2017. The AD review covers shipments from December 1, 2015 through November 30, 2016. The CVD review covers shipments from January 1, 2015 through December 31, 2015. In June 2018, the DOC issued the final CVD rate in the fifth review, which was a maximum of 0.85% (with one company having a maximum rate of 0.11%). In July 2018, the DOC issued the final AD rate in the fifth review, which was a maximum of 0.00% and, the Company recorded a receivable in the amount of $2.6 million in other current assets in its balance sheet. Due to payments during the fourth quarter of 2019, there was no remaining receivable as of December 31, 2019. In connection with the issuance of the final CVD rate, with one company having a maximum rate of 0.11%, the Company recorded a receivable of less than $100 thousand.

24

The DOC initiated the sixth annual review of AD and CVD rates in February 2018. The AD review covers shipments from December 1, 2016 through November 30, 2017. The CVD review covers shipments from January 1, 2016 through December 31, 2016. In July 2019, the DOC issued the final AD rate in the sixth annual review, which was a maximum of 42.57% (with one company having a maximum rate of 0.00%), and the final CVD rate in the sixth annual review, which was a maximum of 3.2%. With the finalization of the AD rate for the sixth annual review, the Company recorded a net liability of $0.8 million during the third quarter of 2019 with a corresponding reduction in cost of sales.  The Company received payments during 2019 for the vendor with a final rate of 0.00% and the remaining balance of $0.5 million as of December 31, 2019 was included in other current assets on the consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2019 was included in other long-term liabilities on the consolidated balance sheet. With the finalization of the CVD rate for the sixth annual review, the Company recorded a liability of $0.4 million during 2019 with a corresponding reduction in sales.  After payments during 2019, the remaining balance was approximately $40 thousand as of December 31, 2019.  The Company and other parties have appealed the final AD rate ruling to the CIT, which is expected to issue its decision in the fall of 2020.However there was not a stay placed on this period.

The DOC initiated the seventh annual review of the AD and CVD rates in March 2019.  The AD review covers shipments from December 1, 2017 through November 30, 2018. The CVD review covers shipments from January 1, 2017 through December 31, 2017.  In January 2020, the DOC issued non-binding preliminary results in the sixth annual review for CVD rates and AD rates. The preliminary AD rate was a maximum of 0.00%. The preliminary CVD rate was a maximum of 24.61%. The final CVD and AD rates in the seventh annual review are currently expected to be issued in June 2020. If the preliminary ruling regarding the CVD rate were to be finalized, the Company anticipates it would record a net liability of approximately $2 million. If the preliminary CVD rate were to be finalized, the Company currently expects that it would appeal such ruling.

The DOC is expected to initiate the eighth annual review of AD and CVD rates in February or March of 2020. The AD review will cover shipments from December 1, 2018 through November 30, 2019. The CVD review covers shipments from January 1, 2018 through December 31, 2018.

Outstanding AD and CVD duties are subject to interest based on the IRS quarterly published rate. The Company has recorded a net $0.6 million of interest expense through the line item Other Expense on the Statement of Operations during the year ended December 31, 2019.

Other Matters

The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.

Item 4. Mine Safety Disclosures.

None.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades on the New York Stock Exchange (“NYSE”) under the trading symbol “LL.” We are authorized to issue up to 35,000,000 shares of common stock, par value $0.001. Total shares of common stock outstanding at February 20, 2020 were 28,724,931 and we had six stockholders of record.

25

Issuer Purchases of Equity Securities

The following table presents our share repurchase activity for the quarter ended December 31, 2019 (dollars in thousands, except per share amounts):

			Total Number	Maximum Dollar Value
			of Shares	of Shares That May Yet
			Purchased as	Be Purchased as
	Total Number	Average	Part of Publicly	Part of Publicly
	of Shares	Price Paid	Announced	Announced
Period	Purchased1	Per Share1	Programs2	Programs2
October 1, 2019 to October 31, 2019	—	—	—	—
November 1, 2019 to November 30, 2019	—	—	—	—
December 1, 2019 to December 31, 2019	—	—	—	—
Total	—	—	—	—

1      We repurchased 1,610 shares of our common stock, at an average price of $9.08, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended December 31, 2019.

2      Our initial stock repurchase program, which authorized the repurchase of up to $50 million in common stock, was authorized by our board of directors and publicly announced on February 22, 2012. Our board of directors subsequently authorized two additional stock repurchase programs, each of which authorized the repurchase of up to an additional $50 million in common stock. These programs were publicly announced on November 15, 2012 and February 19, 2014, respectively, and are currently indefinitely suspended until we are better able to evaluate the long-term customer demand and assess our estimates of operations and cash flow. At December 31, 2019, we had approximately $14.7 million remaining under this authorization.

Dividend Policy

We have never paid any dividends on our common stock and do not expect to pay them in the near future.

Securities Authorized for Issuance Under Equity Compensation Plans

See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under our equity compensation plans.

Performance Graph

The following graph compares the performance of our common stock during the period beginning December 31, 2014 through December 31, 2019, to that of the total return index for the NYSE Composite and a Custom Peer Group whose members are listed below assuming an investment of $100 on December 31, 2014. In calculating total annual stockholder return, reinvestment of dividends, if any, is assumed.  The indices are included for comparative

26

purpose only.  They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock.

	12/31/2014	12/31/2015	12/30/2016	12/30/2017	12/31/2018	12/31/2019
Lumber Liquidators Holdings, Inc.	100.00	26.18	23.74	47.34	14.36	14.73
NYSE Composite	100.00	96.03	107.62	127.96	116.72	146.76
Peer Group1	100.00	119.54	121.43	171.80	162.11	216.75

1The Peer Group consists of industry competitors and other retailers of a similar size to the Company.  They include: The Home Depot, Inc., Lowe’s Companies, Inc., Floor & Décor Holdings, Inc., Tile Shop Holdings, Inc., The Sherwin-Williams Company, Pier 1 Imports, Inc., Vitamin Shoppe, Inc., Hibbett Sports, Inc. and Haverty Furniture Companies, Inc.

Item 6. Selected Financial Data.

The selected statements of income data for the years ended December 31, 2019, 2018 and 2017 and the balance sheet data as of December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included in Item 8. “Consolidated Financial Statements and Supplementary Data” of this report.  This information should be read in conjunction with those audited financial statements, the notes thereto, and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

The selected balance sheet data set forth below as of December 31, 2017, 2016 and 2015, and income data for the years ended December 31, 2016 and 2015  are derived from our audited consolidated financial statements contained

27

in reports previously filed with the SEC, which are not included herein.  Our historical results are not necessarily indicative of our results for any future period.

	Year Ended December 31,
	2019 1			2018 2			2017 3			2016 4			2015 5
	(dollars in thousands, except per share amounts)
Statement of Income Data
Net Sales	$	1,092,602		$	1,084,636		$	1,028,933		$	960,588		$	978,776
Comparable Store Net Sales (Decrease) Increase  6		(1.0)	%		2.6	%		5.4	%		(4.6)	%		(11.1)	%
Cost of Sales		688,916			691,696			659,872			656,719			699,918
Gross Profit		403,686			392,940			369,061			303,869			278,858
Selling, General and Administrative Expenses		386,970			443,513			406,027			397,504			362,051
Operating Income (Loss)		16,716			(50,573)			(36,966)			(93,635)			(83,193)
Other Expense		3,764			2,827			1,591			638			234
Income (Loss) Before Income Taxes		12,952			(53,400)			(38,557)			(94,273)			(83,427)
Income Tax Expense (Benefit)		3,289			979			(734)			(25,710)			(26,994)
Net Income (Loss)	$	9,663		$	(54,379)		$	(37,823)		$	(68,563)		$	(56,433)
Net Income (Loss) per Common Share:
Basic	$	0.34		$	(1.90)		$	(1.33)		$	(2.51)		$	(2.08)
Diluted	$	0.34		$	(1.90)		$	(1.33)		$	(2.51)		$	(2.08)
Weighted Average Common Shares Outstanding:
Basic		28,689			28,571			28,407			27,284			27,082
Diluted		28,793			28,571			28,407			27,284			27,082

1      Results for the year ended December 31, 2019 include: (i) an unfavorable adjustment of antidumping costs and countervailing duties of $1.1 million associated with applicable shipments of engineered hardwood from China in a prior period, (ii) a favorable adjustment of duties related to prior periods of $0.8 million, and (iii) incremental legal and professional fees and settlement expenses, related to our defense of various legal matters of approximately $7.6 million.

2      Results for the year ended December 31, 2018 include: (i) a favorable adjustment of antidumping costs and countervailing duties of $4.9 million associated with applicable shipments of engineered hardwood from China in a prior period, (ii) a favorable adjustment of duties related to prior periods of $1.7 million, (iii) incremental legal and professional fees and settlement expenses, related to our defense of various legal matters of approximately $75.7 million and (iv) other expenses primarily related to an impairment of certain assets related to our decision to exit the finishing business totaling approximately $1.8 million.

3      Results for the year ended December 31, 2017 include: (i) a favorable adjustment of antidumping costs and countervailing duties of $2.8 million associated with applicable shipments of engineered hardwood from China in a prior period, (ii) reduced reserves for estimated costs to be incurred related to our indoor air quality testing program by approximately $1 million, (iii) incremental legal and professional fees and settlement expenses, related to our defense of various legal matters of approximately $48.3 million and (iv) other expenses primarily related to costs to dispose of certain Chinese laminate products whose sales were discontinued in 2015 and an impairment of certain assets related to a vertical integration initiative totaling approximately $3.1 million.

4      Results for the year ended December 31, 2016 include: (i) an unfavorable adjustment of antidumping costs and countervailing duties of $5.5 million associated with applicable shipments of engineered hardwood from China in a prior period, (ii) pre-tax expenses of $6.2 million related to the purchase of testing kits and professional fees in connection with our indoor air quality testing program, (iii) incremental legal and professional fees and settlement expenses, related to our defense of various legal matters of approximately $47.7 million and (iv) other expenses primarily related to employee retention initiatives totaling approximately $2.8 million.

28

5      Results for the year ended December 31, 2015 include: (i) the write down of our laminates and associated moldings sourced from China totaling approximately $22.5 million and other inventory adjustments of $6.6 million, (ii) an adjustment of antidumping costs and countervailing duties of $4.9 million associated with applicable shipments of engineered hardwood from China in a prior period, (iii) pre-tax expenses of $9.4 million related to the purchase of testing kits and professional fees in connection with our indoor air quality testing program, (iv) incremental legal and professional fees and settlement expenses, related to our defense of various legal matters of approximately $34.2 million and (v) other expenses related to the simplification of our business and employee retention totaling approximately $11.1 million.

6      A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.

	Year Ended December 31,
	2019		2018		2017		2016		2015
	(dollars in thousands)
Balance Sheet Data
Cash and Cash Equivalents	$	8,993	$	11,565	$	19,938	$	10,271	$	26,703
Merchandise Inventories		286,369		318,272		262,280		301,892		244,402
Total Assets1		596,009		475,517		410,795		482,544		445,564
Customer Deposits and Store Credits		41,571		40,332		38,546		32,639		33,771
Total Debt and Capital Lease Obligations		82,000		65,000		15,000		40,351		20,000
Total Stockholders’ Equity		161,250		147,398		197,847		230,892		277,568
Working Capital2		121,007		124,179		119,835		173,683		195,044
Other Data
Total Stores in Operation (end of period)		419		413		393		383		374
Average Sale3	$	1,379	$	1,355	$	1,310	$	1,255	$	1,230

1      Total Assets were impacted in 2019 by the adoption of ASC 842, as further described in Item 8 Notes 1 and 5, Leases.

2Working Capital is defined as current assets minus current liabilities.

3      Average Sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Overview

Lumber Liquidators is one of the leading specialty retailers of hard-surface flooring in North America, offering a complete purchasing solution across an extensive assortment of domestic and exotic hardwood species, engineered hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile. We also feature the renewable flooring products, bamboo and cork, and provide a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. We offer delivery and in-home installation services through third-party independent contractors for customers who purchase our floors. At December 31, 2019, we sold our products through 419 Lumber Liquidators stores in 47 states in the United States and in Canada, a customer relationship center and website.

We believe we have achieved a reputation for offering great value, superior service and a broad selection of high-quality hard-surface flooring products.  With a balance of selection, quality, availability, service and price, we believe our value proposition is the most complete within a highly fragmented hard-surface flooring market.  The

29

foundation for our value proposition is strengthened by our unique store model, the industry expertise of our people, our singular focus on hard-surface flooring, and our advertising reach and frequency.

To supplement the financial measures prepared in accordance with GAAP, we use the following non-GAAP financial measures: (i) Adjusted Gross Profit; (ii) Adjusted Gross Margin; (iii) Adjusted SG&A; (iv) Adjusted SG&A as a percentage of sales; (v) Adjusted Operating Income (Loss); (vi) Adjusted Operating Margin and (vii) Adjusted Earnings per Diluted Share. The non-GAAP financial measures should be viewed in addition to, and not in lieu of, financial measures calculated in accordance with GAAP. These supplemental measures may vary from, and may not be comparable to, similarly titled measures by other companies.

The non-GAAP financial measures are presented because management and analysts use these non-GAAP financial measures to evaluate our operating performance and management, in certain cases, uses them to determine incentive compensation and/or to address questions it receives. Therefore, we believe that the presentation of non-GAAP financial measures provides useful supplementary information to, and facilitates additional analysis by, investors. The presented non-GAAP financial measures exclude items that management does not believe reflect our core operating performance, which include regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties from prior periods, as such items are outside of our control or due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

Executive Summary

In 2019, we focused on several key initiatives related to our core business that we believed strengthened our sales and operating margin and provided an improved shopping experience to our customers. These initiatives were driving DIY, DIFM and Pro traffic, enhancing the customer experience and continuing to improve operational effectiveness. 

Our results for the year ended December 31, 2019 were as follows:

· Net sales increased $8 million, or 0.7%, to $1,093 million in 2019 from $1,085 million in 2018, which includes a $19 million increase in non-comparable store net sales partially offset by a decrease of $11 million in comparable store net sales.  Net services sales (install and freight) increased 6.1% over the prior year while merchandise sales remained flat. We opened 11 new stores in 2019, closed 5, and as of December 31, 2019, operated 419 stores in the United States and Canada.

· Gross margin in 2019 increased to 36.9% from 36.2% in 2018, and when excluding items in the table that follows in Results of Operations, Adjusted Gross Margin (a non-GAAP measure) increased to 37% in 2019 from 35.6% in 2018.  This 140 basis point improvement was due to a larger mix of higher-margin manufactured products, reduced discounting in the stores, merchandising cost-out efforts and selective retail price increases. The improvement in Adjusted Gross Margin was achieved despite higher tariff-related costs and an increased mix of lower-margin installation sales.

· Selling, general and administrative (“SG&A”) expenses decreased as a percentage of net sales to 35.4% in 2019, compared to 40.9% in 2018.  Excluding the items shown in the table that follows in Results of Operations, Adjusted SG&A as a percentage of net sales (a non-GAAP measure) was 34.7% in 2019, an increase of 100 basis points from 33.7% in 2018.  The increase in Adjusted SG&A was driven by a combination of higher payroll and occupancy costs, which are primarily related to the 11 new stores opened this year, increases in IT expense, costs related to the headquarters move, and higher advertising.

· Included in SG&A were legal-related costs and settlements of $7.6 million and $76 million in 2019 and 2018, respectively.

30

· Operating income for the year ended December 31, 2019 was $17 million compared to an operating loss of $51 million for the year ended December 31, 2018, which was heavily influenced by certain legal settlements. Both periods were impacted by the unusual items summarized in the tables that follow in Results of Operations. Excluding these items, Adjusted Operating Income (a non-GAAP measure) was $25 million and Adjusted Operating Margin (a non-GAAP measure) was 2.3% in 2019, compared to $20 million, or 1.9%, in 2018. The primary driver of the increase was the growth in gross margin due to tariff mitigation efforts.

· Net income for the year ended December 31, 2019 was $9.7 million, or $0.34 per diluted share, compared to a net loss of $54 million, or $1.90 per diluted share for the year ended December 31, 2018.  2019 benefited from actions taken to improve gross margin while 2018 was adversely affected by legal settlements and other legal costs.  Adjusted Earnings per Diluted Share (a non-GAAP measure) was $0.58 in 2019 and $0.57 in 2018.

· In August 2019, we experienced a network security incident caused by malware that prevented access to several of our information technology systems and data.  Following the discovery of the incident, we promptly took actions to isolate and shut down affected systems based on our existing protocols.  We implemented our business continuity plan and undertook actions to recover the affected systems. We believe we were successfully able to restore the operation of the systems without loss of business data.  Based on the nature of the network security incident, the impact on our information technology systems and the results of the forensic IT analysis, we do not believe confidential customer, employee, or company data was lost or disclosed.  Our stores remained open and operating throughout the incident, but were utilizing manual back-up processes for approximately six days which we believe had an adverse impact on sales.  We maintain cyber-security and other insurance and have been working collaboratively with our carriers.  As of December 31, 2019, we estimate the equipment replaced and costs associated with the incident to date to be approximately $3.7 million.    During 2019, we received an initial recovery from insurance in excess of $2 million, capitalized new equipment, and recorded approximately $0.8 million as a receivable related to further anticipated recovery.  The receivable is recorded in “Other Current Assets” on the Consolidated Balance Sheets and does not include any potential business interruption recovery or involuntary gains related to the incident.

· Tariffs played a significant role in year-over-year comparisons. Beginning in September 2018, goods coming from China received an additional 10% tariff. Beginning in June 2019, the tariffs increased to 25%. In order to mitigate the impact of tariffs, we reduced discounting in the stores, implemented merchandising cost-out efforts and enacted retail price increases in order to mitigate the impact of tariffs.  On November 7, 2019, the United States Trade Representative (“USTR”) ruled on a request made by certain interested parties, including the Company, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs.  The granted exclusion applies retroactively from the date the tariffs were originally implemented on September 24, 2018 through August 7, 2020.  We recognized approximately $11 million of operating income in the fourth quarter of 2019 related to recoveries associated with relevant products already sold in 2018 and 2019, net of certain other associated costs.  We also reduced the carrying cost of inventory by approximately $12 million related to relevant products held for sale and recorded a receivable of $25 million from United States Customs (included in the caption “Tariff Recovery Receivable” on the Consolidated Balance Sheets) related to anticipated recoveries and expect to receive payments throughout the first half of 2020. The recent tariff exclusions had a positive impact on the fourth quarter of 2019 and we expect it will also positively impact 2020.

The Company obtains nearly half of its merchandise from Asia and most of that is sourced from China.  As we enter 2020, we are closely monitoring the Coronavirus situation including the actions taken by authorities to combat the spread of the virus, which includes extended quarantines and restrictions on travel of both people and goods.  The near-term risk to the Company is the potential disruption of our supply chain.  We are currently unable to predict the full impact of these potential disruptions, how and in what manner our competitors will be affected, or the reaction of our customers.  Merchandise on hand and already in route should allow us to avoid a material impact in the first quarter of

31

2020.  However, depending on the length and severity of the situation, we could see a material impact beginning in the second quarter, and it could continue for weeks or months.  We are monitoring on a daily basis and evaluating what actions to take to respond to potential disruptions.

As we head into 2020, our focus will be on delivering enhanced profitability, driving traffic to our stores and online, and improving the customer experience. Our research indicates that the initial interest in purchasing a floor begins with digital browsing. We believe that by providing an improved digital experience and better website performance, we will not only grow our e-commerce sales, but also drive traffic into our stores. Once customers are in our stores, we believe that our store model provides a competitive advantage by allowing our knowledgeable sales associates to assist customers throughout the project design and purchase process in a more intimate environment, from product selection to installation. 

Working capital and liquidity

At December 31, 2019, we had $111 million in liquidity, comprised of $9 million of cash and $102 million in availability under our asset-based revolving loan (the “Revolving Loan”). We also had $286 million in inventory and $60 million in accounts payable, while borrowings against our Credit Agreement were $82 million. At December 31, 2018, we had $80 million in liquidity, comprised of $12 million of cash and $68 million in availability under our Revolving Loan. We also had $318 million in inventory and $73 million in accounts payable, while borrowings against our Revolving Loan were $65 million. The increase in liquidity at December 31, 2019 from the year earlier was driven by the increased borrowing capacity under the Credit Agreement, partially offset by the $33 million of cash paid for the DOJ and SEC settlements discussed in Item 3 along with other, smaller settlements, and $20 million of capital expenditures.

32

Results of Operations

We believe the selected sales data, the percentage relationship between Net Sales and major categories in the Consolidated Statements of Operations and the percentage change in the dollar amounts of each of the items presented below are important in evaluating the performance of our business operations.

							% Increase (Decrease)
	% of Net Sales						in Dollar Amounts
	Year Ended December 31,						2019
	2019			2018			vs. 2018
Net Sales
Net Merchandise Sales		87.5	%		88.1	%	0.0	%
Net Services Sales		12.5	%		11.9	%	6.1	%
Total Net Sales		100.0	%		100.0	%	0.7	%
Gross Profit		36.9	%		36.2	%	2.7	%
Selling, General, and Administrative Expenses		35.4	%		40.9	%	(12.7)	%
Operating Loss		1.5	%		(4.7)	%	NM
Other Expense		0.3	%		0.2	%	33.1	%
Income (Loss)/ Before Income Taxes		1.2	%		(4.9)	%	NM
Income Tax Expense		0.3	%		0.1	%	NM
Net Income (Loss)		0.9	%		(5.0)	%	NM
SELECTED SALES DATA
Average Sale1	$	1,379		$	1,355		1.8	%
Average Retail Price per Unit Sold2		0.2	%		(0.8)	%
Comparable Store Sales (Decrease) Increase (%)		(1.0)	%		2.6	%
Number of Stores Open, end of period		419			413
Number of Stores Opened in Period, net		11			20
Number of Stores Relocated in Period3		3			1
Comparable Stores4 (% change to prior year):
Customers Invoiced5		(2.8)	%		(0.8)	%
Net Sales of Stores Operating for 13 to 36 months		8.3	%		13.1	%
Net Sales of Stores Operating for more than 36 months		(1.3)	%		2.3	%
Net Sales in Markets with all Stores Comparable (no cannibalization)		(0.3)	%		3.4	%

1 Average Sale is defined as the average invoiced sales order, measured quarterly, excluding returns as well as transactions under $100 (which are generally sample orders or add-on/accessories to existing orders).   

2      Average retail price per unit (square feet for flooring and other units of measures for moldings and accessories) sold is calculated on a total company basis and excludes non-merchandise revenue.

3      A relocated store remains a comparable store as long as it is relocated within the primary trade area.

4      A store is generally considered comparable on the first day of the thirteenth full calendar month after opening.

5      Change in number of customers invoiced is calculated by applying the average sale to total net sales at comparable stores. 

A detailed discussion of the 2019 year-over-year changes can be found below and should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements presented in this report. 

33

A detailed discussion of the 2018 year-over-year changes can be found in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Form 10-K filed on March 18, 2019. 

Net Sales

Net sales in 2019 increased $8 million, or 0.7%, from 2018 as net sales in comparable stores decreased $11 million, or 1%, and the net sales in non-comparable stores increased $19 million. Comparable store sales declined due to a decrease in store traffic of 2.8% and the 1.8% increase in average ticket was not enough to offset.  Net services sales (install and freight) increased 6.1% over the prior year while merchandise sales remained flat.  Pro sales growth significantly outpaced total company growth.  By major category, manufactured products grew from 36% of sales in 2018 to 41% of sales in 2019, mostly offset by a decline in solid and engineered hardwood products.  The vinyl sub-category within manufactured products continues to drive growth due to its outstanding aesthetics, high resilience and waterproof characteristics.

Gross Profit

Gross profit in 2019 increased 2.7% to $404 million from $393 million in 2018. Both years’ gross margins were impacted by the unusual items highlighted in the table that follows. When excluding these items, Adjusted Gross Margin (a non-GAAP measure) improved by 140 basis points driven by a larger mix of higher-margin manufactured products, reduced discounting in the stores, merchandising cost-out efforts and retail price increases.  The gross margin improvement was achieved despite tariffs on certain flooring products imported from China as previously discussed.

We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.

	Year Ended December 31,
	2019				2018
	$		% of Sales		$		% of Sales
	(dollars in thousands)
Gross Profit/Margin, as reported (GAAP)	$	403,686	36.9	%	$	392,940	36.2	%
Antidumping Adjustments 1		1,143	0.1	%		(4,948)	(0.5)	%
HTS Classification Adjustments 2		(779)	—	%		(1,711)	(0.1)	%
Sub-Total Items above		364	0.1	%		(6,659)	(0.6)	%
Adjusted Gross Profit/Margin (non-GAAP measures)	$	404,050	37.0	%	$	386,281	35.6	%

1 We recognized unfavorable adjustments to countervailing and antidumping duties of $1.1 million in the year ended December 31, 2019 and a favorable $4.9 million in the year ended December 31, 2018 associated with applicable shipments of engineered hardwood from China related to prior periods.

2We recognized favorable classification adjustments related to Harmonized Tariff Schedule (“HTS”) duty categorization in prior periods of $0.8 million and $1.7 million during the years ended December 31, 2019 and 2018, respectively.

Selling, General and Administrative Expenses

SG&A expenses in 2019 decreased 13% to $387 million from $444 million in 2018. The decrease in SG&A was primarily attributable to the absence of $61 million in accruals for settlements with the Unites States Attorney’s Office for the Eastern District of Virginia, the Department of Justice, Securities and Exchange Commission and the settlement of the Gold litigation related to the Company’s Morning Star Strand bamboo flooring that were recorded in the fourth quarter of 2018.  Excluding the items shown in the table that follows, Adjusted SG&A (a non-GAAP measure) increased $13 million, or 3.6%, primarily driven by increases in payroll of $5.9 million and occupancy of $1.3 million, both of which are primarily related to the 11 new stores opened this year and full-year effects of the 21 stores opened in

34

2018.       IT expenses increased $1.4 million from 2018 to 2019. The increase in SG&A expense was also impacted by costs related to the move to our new corporate headquarters and a $0.9 million increase in advertising. Payroll-related costs as a percentage of sales were 14.6% in 2019 and 14.2% in 2018.  Other items affecting the increase in payroll included merit increases, executive bonus, retention and severance. 

We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.

	Year Ended December 31,
	2019				2018
	$		% of Sales		$		% of Sales
	(dollars in thousands)
SG&A, as reported (GAAP)	$	386,970	35.4	%	$	443,513	40.9	%
Accrual for Legal Matters and Settlements 3		3,475	0.3	%		63,951	5.9	%
Legal and Professional Fees  4		4,169	0.4	%		11,707	1.1	%
All Other 5		—	—	%		1,769	0.2	%
Sub-Total Items above		7,644	0.7	%		77,427	7.2	%
Adjusted SG&A (a non-GAAP measure)	$	379,326	34.7	%	$	366,086	33.7	%

³ 2019 Accrual for Legal Matters and Settlements included $5.1 million of expense for the Kramer employment case and certain Related Laminate Matters partially offset by $1.6 million of insurance recoveries in 2019 related to certain significant legal actions.  Accrual for Legal Matters and Settlements in 2018 represents the charge to earnings related to the Bamboo Flooring Litigation, the governmental investigations, and Related Laminate Matters in 2018.  These matters are described more fully in Item 8. Note 10 to the consolidated financial statements.

⁴ Represents charges to earnings related to our defense of significant legal actions, described in note 3 above, during the period. This does not include all legal costs incurred by the Company.

⁵ All Other in 2018 represents an impairment of certain assets related to our decision to exit the finishing business.

Operating Loss and Operating Margin

Operating income was $17 million in 2019, compared to an operating loss of $51 million in 2018.   2018 was heavily influenced by certain legal settlements. Adjusted Operating Income (a non-GAAP measure) was $25 million, with Adjusted Operating Margin of 2.3%, in 2019, compared to $20 million, or 1.9%, in 2018.  The growth in gross margin due to tariff mitigation efforts was the primary driver of the increase which was partially offset by the 3.6% growth in Adjusted SG&A (a non-GAAP measure).

35

We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.

	Year Ended December 31,
	2019				2018
	$		% of Sales		$		% of Sales
	(in thousands)
Operating Income (Loss), as reported (GAAP)	$	16,716	1.5	%	$	(50,573)	(4.7)	%
Gross Margin Items:
Antidumping Adjustments 1		1,143	0.1	%		(4,948)	(0.5)	%
HTS Classification Adjustments 2		(779)	—	%		(1,711)	(0.1)	%
Gross Margin Subtotal		364	0.1	%		(6,659)	(0.6)	%
SG&A Items:
Accrual for Legal Matters and Settlements 3		3,475	0.3	%		63,951	5.9	%
Legal and Professional Fees  4		4,169	0.4	%		11,707	1.1	%
All Other 5		—	—	%		1,769	0.2	%
SG&A Subtotal		7,644	0.7	%		77,427	7.2	%
Adjusted Operating Income/Margin (a non-GAAP measure)	$	24,724	2.3	%	$	20,195	1.9	%

1,2      See the Gross Margin section above for more detailed explanations of these individual items.

3,4,5    See the SG&A section above for more detailed explanations of these individual items.

Provision for Income Taxes

We record tax expense each period for income taxes incurred for US federal tax, in certain states, and in foreign jurisdictions resulting in an effective tax rate of 25.4% and (1.8)% for the years ended December 31, 2019 and 2018, respectively.  The increase in effective tax rate was driven by the complete depletion of federal net operating loss carryforwards.

We have a full valuation allowance recorded against our net deferred tax assets.  We intend to maintain this valuation allowance on our deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. A reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded. However, the exact timing and amount of any reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve in future periods.

We file income tax returns with the United States federal government and various state and foreign jurisdictions. In the normal course of business, we are subject to examination by taxing authorities. During 2017, the Internal Revenue Service completed audits of our income tax returns through 2016.

Diluted Earnings per Share

Net income for the year ended December 31, 2019 was $9.7 million, or $0.34 per diluted share. Net loss for the year ended December 31, 2018 was $54 million, resulting in a loss of $1.90 per diluted share. Adjusted Earnings and Adjusted Earnings per Diluted Share (a non-GAAP measure) for the year ended December 31, 2019 were $17 million and $0.58 per diluted share, compared to $16 million and $0.57 per diluted share for the year ended December 31, 2018.

We believe that each of the items below can distort the visibility of our ongoing performance and that the evaluation of our financial performance can be enhanced by use of supplemental presentation of our results that exclude the impact of these items.

36

	Year Ended December 31,
	2019		2018
	(in thousands)
Net Income (Loss), as reported (GAAP)	$	9,663	$	(54,379)
Net  Income (Loss) per Diluted Share (GAAP)	$	0.34	$	(1.90)
Gross Margin Items:
Antidumping Adjustments 1		1,143		(4,948)
HTS Classification Adjustments 2		(779)		(1,711)
Gross Margin Subtotal		364		(6,659)
SG&A Items:
Accrual for Legal Matters and Settlements 3		3,475		63,951
Legal and Professional Fees (2019 is net of taxes)  4		3,085		11,707
All Other 5		—		1,769
SG&A Subtotal		6,560		77,427
Adjusted Earnings	$	16,587	$	16,389
Adjusted Earnings per Diluted Share (a non-GAAP measure)	$	0.58	$	0.57

1,2,3  See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

⁴ Represents charges to earnings related to our defense of certain significant legal actions during the period. This does not include all legal costs incurred by the Company. 2019 items have been tax effected at the Company’s federal statutory rate of 26%.  Due to the full valuation allowance of the deferred tax assets as of December 31, 2018, the 2018 adjustments did not have a tax impact during that year.

⁵ All Other in 2018 represents an impairment of certain assets related to the Company’s decision to exit the finishing business.

Liquidity and Capital Resources

Our principal liquidity and capital requirements are for capital expenditures to maintain and grow our business, for legal settlements, for working capital, and for general corporate purposes. Our principal sources of liquidity at December 31, 2019 were cash from our ongoing operations, $9 million of cash and cash equivalents and $102 million of availability under our Revolving Loan. As December 31, 2019, the outstanding balance of the revolving loan was $57 million and it carried an average interest rate of 3.90%.   As of December 31, 2019, the outstanding balance of the first-in-last-out term loan was $25 million and it carried an interest rate of 4.75%.   

The DOJ and SEC settlements, discussed in Item 3 of this Form 10-K, totaled $33 million and were paid in the second quarter of 2019 along with other, smaller settlements. Additionally, we funded $1 million of the cash portion of the settlement of the Gold Litigation in the fourth quarter of 2019; the remaining $13 million of the cash portion is expected to be paid subsequent to the court’s final approval, expected to be in 2020. We anticipate funding the $4.75 million Kramer settlement in the first half of 2020 after the court acts.  In addition, we anticipate receiving at total of approximately $27 million from United States Customs related to tariff exclusion refunds.

On March 29, 2019, we amended our prior Credit Agreement to add incremental borrowing capacity of up to $50 million and to extend the maturity to 2024, which is described more fully in Item 8 Note 4 to the consolidated financial statements.

We currently expect capital expenditures for 2020 to total between $19 million and $21 million, but we will continue to assess and adjust our level of capital expenditures based on changing circumstances. Included in our capital requirement for 2020, is the funding to open approximately 15 stores and remodel and/or relocate some existing stores.

37

Although certain matters remain outstanding, we have taken significant steps to eliminate uncertainty associated with legal and regulatory matters previously discussed. We believe that cash flow from operations, together with liquidity sources mentioned above, will be sufficient to fund our settlements and operations and anticipated capital expenditures for the next 12 months. We prepare our forecasted cash flow and liquidity estimates based on assumptions that we believe to be reasonable, but are also inherently uncertain. Actual future cash flows could differ from these estimates.

Merchandise Inventories

Merchandise inventory is our most significant asset and is considered either “available for sale” or “inbound in-transit,” based on whether we have physically received and inspected the products at an individual store location, in our distribution centers or in another facility where we control and monitor inspection. During the fourth quarter of 2018, we purposefully purchased inventory in advance of an announced, but subsequently postponed, incremental 15% tariff on purchases of Chinese goods.

Merchandise inventories and available inventory per store in operation on December 31 were as follows:

	As of		As of
	December 31, 2019		December 31, 2018
	(in thousands)
Inventory – Available for Sale	$	254,812	$	275,036
Inventory – Inbound In-Transit		31,557		43,236
Total Merchandise Inventories	$	286,369	$	318,272
Available Inventory Per Store	$	608	$	666

Available inventory per store at December 31, 2019 was lower than available inventory per store at December 31, 2018. The decrease in merchandise inventories from 2018 was driven by a change in product mix to lower-cost vinyl in 2019 combined with the tariff-related increase in inventory during the fourth quarter of 2018 discussed above and extra inventory carried in 2018 as we transitioned the finishing lines out of our Toano, Virginia facility. 

Inbound in-transit inventory generally varies due to the timing of certain international shipments and certain seasonal factors, including international holidays, rainy seasons and specific merchandise category planning.

Cash Flows

The following table summarizes our cash flow activities for the years ended December 31, 2019, 2018 and 2017:

		Year Ended December 31,
		2019		2018		2017
Net Cash provided by (used in):
Operating Activities	$	329	$	(42,986)	$	39,392
Investing Activities		(19,484)		(13,461)		(4,338)
Financing Activities		15,881		49,205		(26,193)
Effect of Exchange Rates		702		(1,131)		806
Total	$	(2,572)	$	(8,373)	$	9,667

Operating Activities. Net cash provided by operating activities was $0.3 million in 2019 and was primarily due to a $15 million decrease in inventory, net of payables.  Net income in 2019 of $9.7 million was also a factor for the net cash provided by operating activities.  These were mostly offset by payments for legal matters and settlements of $35 million.

38

Net cash used in operating activities was $43 million in 2018 and was primarily due to a $54 million increase in inventory, net of payables, which was the result of the build in inventory previously discussed, as well payments of $22 million on the remaining cash portion of the Formaldehyde MDL and Abrasion MDL obligation. Absent the build in inventory and the settlement payment, cash from operating activities would have been a positive $33 million.

Investing Activities. Net cash used in investing activities was $19 million in 2019 and $13 million in 2018.  2019 included our corporate headquarters move to Richmond, Virginia, and 11 new store openings.  For the year ended December 31, 2018, there were 21 new stores openings.

Financing Activities. Net cash provided by financing activities was $16 million in 2019 and was primarily attributable to $17 million in net borrowings on the Credit Agreement. Net cash provided by financing activities was $49 million in 2018 and was primarily attributable to $50 million in net borrowings on the Revolving Loan.

Credit Agreement

On March 29, 2019, we entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, National Association (the “Lenders”). The Credit Agreement amended and restated the Third Amended and Restated Revolving Credit Agreement (the “Prior Agreement”). Under the Credit Agreement, the Lenders increased the maximum amount of borrowings under the revolving credit facility (the “Revolving Credit Facility”) from $150 million under the Prior Agreement to $175 million and added a new first in-last out $25 million term loan (the “FILO Term Loan”) for a total of $200 million, subject to the borrowing bases described below. We also have the option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.

As of December 31, 2019, a total of $57 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan.  We also had $3.9 million in letters of credit which factor into its remaining availability.

The Revolving Credit Facility and the FILO Term Loan mature on March 29, 2024 and are secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all of our assets including, among other things, our inventory and accounts receivables, and our East Coast distribution center located in Sandston, Virginia.  Under the terms of the Credit Agreement, we have the ability to release the East Coast distribution center from the Collateral under certain conditions.

The Revolving Credit Facility is available to us up to the lesser of (1) $175 million or (2) a revolving borrowing base equal to the sum of specified percentages of our eligible credit card receivables, eligible inventory (including eligible in-transit inventory), and eligible owned real estate, less certain reserves, all of which are defined by the terms of the Credit Agreement (the “Revolving Borrowing Base”).  If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), the amount of such excess reduces availability under the Revolving Borrowing Base.

Loans outstanding under the Credit Agreement can bear interest based on the Base Rate (as defined in the Credit Agreement) or the LIBOR Rate (as defined in the Credit Agreement).  Interest on Base Rate loans is charged at varying per annum rates computed by applying a margin ranging from (i) 0.25% to 0.75% over the Base Rate with respect to the FILO Term Loan, in each case depending on the Borrower’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.  Interest on LIBOR Rate loans and fees for standby letters of credit are charged at varying per annum rates computed by applying a margin ranging from (i) 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans and (ii) 2.25% to 3.00% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on our average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.

The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the

39

Combined Loan Cap (as defined in the Credit Agreement).  This covenant – though not currently in effect – would have been met at December 31, 2019.

Contractual Commitments and Contingencies

Our significant contractual obligations and commitments as of December 31, 2019 are summarized in the following table:

	Payments Due by Period
	Total		Less Than 1 Year		1 to 3 Years		3 to 5 Years		5+ Years
	(in thousands)
Contractual Obligations
Operating Lease Obligations  1	$	152,558	$	37,855	$	58,287	$	33,733	$	22,683
Purchase Obligations 2		180		180		—		—		—
Total Debt Obligations, including current maturities		82,000		—		—		82,000		—
Total Contractual Obligations	$	234,738	$	38,035	$	58,287	$	115,733	$	22,683

¹ Included in this table is the base period or current renewal period for our operating leases. The operating leases generally contain varying renewal provisions.

² Purchase obligations represent contractual purchase commitments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements or other financing activities with special-purpose entities.

New Accounting Pronouncements

See Summary of Significant Accounting Policies in Note 1 that is included in Item 8 of this Form 10‑K for further information about new accounting pronouncements adopted during 2019 and accounting pronouncements issued but not yet effective.

Critical Accounting Policies and Estimates

Critical accounting policies are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters.  We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances.  Actual results may differ from these estimates, and we might obtain different estimates if we used different assumptions or conditions.  We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.

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

40

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.

Valuation of Deferred Tax Assets

We account for income taxes and the related accounts in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted rates expected to be in effect during the year in which the differences reverse. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in estimates in the valuation allowance. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. At December 31, 2019, we had a valuation allowance of $27 million primarily attributable to the uncertainty related to the realizability of our deferred tax assets. Based upon a consideration of our cumulative loss history in the three-year period ended December 31, 2019, we did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets and determined that it is not more likely than not that our deferred tax assets will be realized.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets, if any. Management considers estimates of the amount and character of future taxable income in assessing the likelihood of realization of deferred tax assets. Our actual effective tax rate and income tax expense could vary from estimated amounts due to the future impacts of various items, including changes in income tax laws, tax planning and the Company’s forecasted financial condition and results of operations in future periods. Although management believes current estimates are reasonable, actual results could differ from these estimates.

Stock-Based Compensation

We currently utilize a single equity incentive plan under which we may grant non-qualified stock options, restricted shares, stock appreciation rights and other equity awards to employees, non-employee directors and other service providers.  We recognize expense for our stock-based compensation based on the fair value of the awards that are granted.  Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on our historical experience and future expectations.  Measured compensation cost is recognized ratably over the service period of the entire related stock-based compensation award.

The fair value of stock options was estimated at the date of grant using the Black-Scholes-Merton valuation model. In order to determine the related stock-based compensation expense, we used the following assumptions for stock options granted during 2019:

· Expected life of 5.5 years;

· Expected stock price volatility of 55%;

· Risk-free interest rate of 2.1%; and

· Dividends are not expected to be paid in any year.

The expected stock price volatility is based on the historical volatility of our stock price. The volatility is estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of United States Treasury zero-coupon issues with an equivalent remaining term. The 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. We have never paid a dividend. 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.

41

Recognition of Net Sales

We recognize net sales for products purchased at the time the customer takes possession of the merchandise. We recognize service revenue, which consists primarily of installation revenue and freight charges for in-home delivery, when the service has been rendered. We report sales exclusive of sales taxes collected from customers and remitted to governmental taxing authorities. Net sales are reduced by an allowance for anticipated sales returns that we estimate based on historical and current sales trends and experience. We believe that our estimate for sales returns is an accurate reflection of future returns. Any reasonably likely changes that may occur in the assumptions underlying our allowance estimates would not be expected to have a material impact on our financial condition or operating performance. Actual sales returns did not vary materially from estimated amounts for 2019, 2018 or 2017.

In addition, customers who do not take immediate delivery of their purchases are generally required to pay a deposit, equal to approximately half of the retail sales value, with the balance payable when the customer takes possession of the merchandise. These customer deposits benefit our cash flow and return on investment capital, because we receive partial payment for our customers’ purchases immediately. We record these deposits as a liability on our balance sheet in Customer Deposits and Store Credits until the customer takes possession of the merchandise.

Merchandise Inventories

We value our merchandise inventories at the lower of cost or net realizable value.  We determine merchandise cost using the weighted average method. All of the hardwood flooring we purchase from suppliers is either prefinished or unfinished, and in immediate saleable form. Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. In determining market value, we make judgments and estimates as to the market value of our products, based on factors such as historical results and current sales trends.  Any reasonably likely changes that may occur in those assumptions in the future may require us to record charges for losses or obsolescence against these assets, but would not be expected to have a material impact on our financial condition or operating performance. Actual losses and obsolescence charges did not vary materially from estimated amounts for 2019, 2018 or 2017.

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 and our Credit Agreement. We may 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. Borrowings under our Credit Agreement are exposed to interest rate risk due to the variable rate of the borrowings.  As of December 31, 2019, we had $82 million outstanding under our Credit Agreement. If the interest rate had varied by 1% in either direction throughout 2019, interest expense would have fluctuated by $820,000.

We currently do not engage in any interest rate hedging activity and have no current intention to do so.  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 United States dollar, including the Euro, Canadian dollar, Chinese yuan and Brazilian real.

We currently do not engage in any exchange rate hedging activity as the vast majority of our foreign purchases are denominated in United States dollars.  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. If the exchange rate on December 31, 2019 had varied by 10% in either direction, net income from Canadian operations would have fluctuated nominally.

42

Item 8. Consolidated Financial Statements and Supplementary Data.

	Page
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm	44
Consolidated Balance Sheets as of December 31, 2019 and 2018	47
Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	48
Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017	49
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	50
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	51
Notes to Consolidated Financial Statements	52

43

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Lumber Liquidators Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Lumber Liquidators Holdings, Inc. (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and Financial Statement Schedule II – Analysis of Valuation and Qualifying Accounts (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 24, 2020 expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-02

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of ASU No. 2016-02, Leases (Topic 842), and the related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2003.

Richmond, Virginia
February 24, 2020

44

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Lumber Liquidators Holdings, Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Lumber Liquidators Holdings, Inc.’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lumber Liquidators Holdings, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2019 consolidated financial statements of the Company and our report dated February 24, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

45

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Richmond, Virginia
February 24, 2020

46

Lumber Liquidators Holdings, Inc.

Consolidated Balance Sheets

(in thousands)

	December 31,		December 31,
	2019		2018
Assets
Current Assets:
Cash and Cash Equivalents	$	8,993	$	11,565
Merchandise Inventories		286,369		318,272
Prepaid Expenses		8,288		6,299
Deposit for Legal Settlement		21,500		21,500
Tariff Recovery Receivable		27,025		—
Other Current Assets		6,938		8,667
Total Current Assets		359,113		366,303
Property and Equipment, net		98,733		93,689
Operating Lease Right-of-Use Assets		121,796		—
Goodwill		9,693		9,693
Other Assets		6,674		5,832
Total Assets	$	596,009	$	475,517
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable	$	59,827	$	73,412
Customer Deposits and Store Credits		41,571		40,332
Accrued Compensation		11,742		9,265
Sales and Income Tax Liabilities		7,225		4,200
Accrual for Legal Matters and Settlements - Current		67,471		97,625
Operating Lease Liabilities - Current		31,333		—
Other Current Liabilities		18,937		17,290
Total Current Liabilities		238,106		242,124
Other Long-Term Liabilities		13,757		20,203
Operating Lease Liabilities - Long-Term		100,470		—
Deferred Tax Liability		426		792
Credit Agreement		82,000		65,000
Total Liabilities		434,759		328,119
Stockholders’ Equity:
Common Stock ($0.001 par value; 35,000 shares authorized; 29,958 and 31,578 shares issued and 28,714 and 28,627 shares outstanding at December 31, 2019 and 2018, respectively)		30		32
Treasury Stock, at cost (1,245 and 2,951 shares, respectively)		(142,314)		(141,828)
Additional Capital		218,616		213,744
Retained Earnings		86,498		76,835
Accumulated Other Comprehensive Loss		(1,580)		(1,385)
Total Stockholders’ Equity		161,250		147,398
Total Liabilities and Stockholders’ Equity	$	596,009	$	475,517

See accompanying notes to consolidated financial statements.

47

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Operations

(in thousands except per share amounts)

	Year Ended December 31,
	2019		2018		2017
Net Sales
Net Merchandise Sales	$	956,041	$	955,949	$	938,269
Net Services Sales		136,561		128,687		90,664
Total Net Sales		1,092,602		1,084,636		1,028,933
Cost of Sales
Cost of Merchandise Sold		586,918		596,411		591,087
Cost of Services Sold		101,998		95,285		68,785
Total Cost of Sales		688,916		691,696		659,872
Gross Profit		403,686		392,940		369,061
Selling, General and Administrative Expenses		386,970		443,513		406,027
Operating Income (Loss)		16,716		(50,573)		(36,966)
Other Expense		3,764		2,827		1,591
Income (Loss) Before Income Taxes		12,952		(53,400)		(38,557)
Income Tax Expense (Benefit)		3,289		979		(734)
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Net Income (Loss) per Common Share—Basic	$	0.34	$	(1.90)	$	(1.33)
Net Income (Loss) per Common Share—Diluted	$	0.34	$	(1.90)	$	(1.33)
Weighted Average Common Shares Outstanding:
Basic		28,689		28,571		28,407
Diluted		28,793		28,571		28,407

See accompanying notes to consolidated financial statements.

48

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

	Year Ended December 31,
	2019		2018		2017
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments		(195)		(233)		304
Total Other Comprehensive (Loss) Income		(195)		(233)		304
Comprehensive Income (Loss)	$	9,468	$	(54,612)	$	(37,519)

See accompanying notes to consolidated financial statements.

49

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

											Accumulated
											Other		Total
	Common Stock			Treasury Stock			Additional		Retained		Comprehensive		Stockholders’
	Shares	Par Value		Shares	Value		Capital		Earnings		Income (Loss)		Equity
December 31, 2016	28,248	$	31	2,854	$	(139,420)	$	202,700	$	169,037	$	(1,456)	$	230,892
Stock-Based Compensation Expense	—		—	—		—		4,582		—		—		4,582
Exercise of Stock Options	88		—	—		—		1,347		—		—		1,347
Release of Restricted Shares	154		—	—		—		—		—		—		—
Common Stock Repurchased	—		—	53		(1,455)		—		—		—		(1,455)
Translation Adjustment	—		—	—		—		—		—		304		304
Net Loss	—		—	—		—		—		(37,823)		—		(37,823)
December 31, 2017	28,490	$	31	2,907	$	(140,875)	$	208,629	$	131,214	$	(1,152)	$	197,847
Stock-Based Compensation Expense	—		—	—		—		4,346		—		—		4,346
Exercise of Stock Options	44		—	—		—		770		—		—		770
Release of Restricted Shares	93		1	—		—		(1)		—		—		—
Common Stock Repurchased	—		—	44		(953)		—		—		—		(953)
Translation Adjustment	—		—	—		—		—		—		(233)		(233)
Net Loss	—		—	—		—		—		(54,379)		—		(54,379)
December 31, 2018	28,627	$	32	2,951	$	(141,828)	$	213,744	$	76,835	$	(1,385)	$	147,398
Stock-Based Compensation Expense	—		—	—		—		4,872		—		—		4,872
Release of Restricted Shares	87		—	—		—		—		—		—		—
Common Stock Repurchased	—		(2)	(1,706)		(486)		—		—		—		(488)
Translation Adjustment	—		—	—		—		—		—		(195)		(195)
Net Income	—		—	—		—		—		9,663		—		9,663
December 31, 2019	28,714	$	30	1,245	$	(142,314)	$	218,616	$	86,498	$	(1,580)	$	161,250

See accompanying notes to consolidated financial statements.

50

Lumber Liquidators Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2019		2018		2017
Cash Flows from Operating Activities:
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Adjustments to Reconcile Net Income (Loss):
Depreciation and Amortization		17,465		18,425		17,739
Deferred Income Taxes (Benefit) Provision		(366)		240		(3,246)
Stock-Based Compensation Expense		4,848		4,091		4,735
Provision for Inventory Obsolescence Reserves		1,888		3,108		6,349
(Gain) Loss on Disposal of Fixed Assets		(221)		1,818		1,498
Changes in Operating Assets and Liabilities:
Merchandise Inventories		28,941		(59,179)		32,614
Accounts Payable		(13,640)		4,852		(52,475)
Customer Deposits and Store Credits		1,353		1,685		6,001
Prepaid Expenses and Other Current Assets		(27,113)		2,902		28,962
Accrual for Legal Matters and Settlements		4,575		63,951		36,960
Deposit for Legal Settlement		—		(21,500)		—
Payments for Legal Matters and Settlements		(34,729)		(2,904)		(2,522)
Other Assets and Liabilities		7,665		(6,096)		600
Net Cash Provided by (Used in) Operating Activities		329		(42,986)		39,392
Cash Flows from Investing Activities:
Purchases of Property and Equipment		(19,906)		(14,332)		(7,411)
Other Investing Activities		422		871		3,073
Net Cash Used in Investing Activities		(19,484)		(13,461)		(4,338)
Cash Flows from Financing Activities:
Borrowings on Credit Agreement		104,500		74,000		40,000
Payments on Credit Agreement		(87,500)		(24,000)		(65,000)
Proceeds from the Exercise of Stock Options		—		770		1,347
Payments on Financed Insurance Obligations		—		(612)		(734)
Other Financing Activities		(1,119)		(953)		(1,806)
Net Cash Provided by (Used in) Financing Activities		15,881		49,205		(26,193)
Effect of Exchange Rates on Cash and Cash Equivalents		702		(1,131)		806
Net (Decrease) Increase in Cash and Cash Equivalents		(2,572)		(8,373)		9,667
Cash and Cash Equivalents, Beginning of Year		11,565		19,938		10,271
Cash and Cash Equivalents, End of Year	$	8,993	$	11,565	$	19,938
Supplemental disclosure of non-cash operating and financing activities:
Tenant Improvement Allowance for Leases	$	(2,962)	$	—	$	—
Financed Insurance Premiums		—		—		1,346

See accompanying notes to consolidated financial statements.

51

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

Nature of Business

Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile flooring direct to the consumer. The Company features the renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to its customers.  The Company sells primarily to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. The Company’s stores spanned 47 states in the United States (“U.S.”) and included eight stores in Canada at December 31, 2019. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer relationship center in Richmond, Virginia, and its website, www.lumberliquidators.com.  Until January 2019, the Company finished the majority of its Bellawood products on its finishing lines in Toano, Virginia, which along with the call center, corporate offices and a distribution center, represented the corporate headquarters until November 2019.  In July of 2018, the Company announced its plan to sell its finishing line equipment to an unaffiliated third-party purchaser and to relocate its corporate headquarters to Richmond, Virginia, in 2019.  The move of the corporate headquarters to Richmond, Virginia was completed as of November 2019.

Organization and Basis of Financial Statement Presentation

The consolidated financial statements of Lumber Liquidators Holdings, Inc., a Delaware corporation, include the accounts of its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During 2018, the Company recognized significant liabilities related to various legal and regulatory matters. While the payment of these liabilities in 2019, 2018, and 2017 has had, and is expected to have, a material adverse impact on the Company’s liquidity and cash flow from operations, the Company estimates that it has sufficient liquidity through amounts available under its Revolving Credit Facility and forecasted cash flows from operations to fund its working capital, including these legal and regulatory liabilities. The Company prepares its forecasted cash flow and liquidity estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

Cash and Cash Equivalents

The Company had cash and cash equivalents of $9 million and $12 million at December 31, 2019 and 2018, respectively. The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents, of which there were zero at December 31, 2019 and 2018, respectively. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that

52

settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash equivalents totaled $6.5 millionand $7.3 million at December 31, 2019 and 2018, respectively.

Credit Programs

Credit is offered to the Company’s customers through a credit card, underwritten by a third-party financial institution and at no recourse to the Company. A credit line is offered to the Company’s professional customers through the Lumber Liquidators Commercial Credit Program. This commercial credit program is underwritten by a third-party financial institution, generally with no recourse to the Company.

As part of the credit program, the Company’s customers may tender their Lumber Liquidators credit card to receive installation services. As of December 31, 2019, the Company utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of its flooring products by third-party independent contractors in all of its stores.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The carrying amount of obligations under its Credit Agreement approximates fair value due to the variable rate of interest.

Merchandise Inventories

The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form.  The Company relies on a select group of international suppliers to provide imported flooring products that meet the Company’s specifications.  In 2019, approximately 46% of the Company’s product was sourced from China.  The Company is subject to near-term risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing as a result of a pandemic, including the Coronavirus.  The Company is developing contingency plans to minimize potential disruptions.

Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. Prior to the sale of the finishing line equipment in 2018, the Company would add the finish to, and box, various species of unfinished product, to produce certain proprietary products, primarily Bellawood. Any finishing and boxing costs were included in the average unit cost of related merchandise inventory. In addition, the Company maintains an inventory reserve for loss or obsolescence based on historical results and current sales trends. This reserve was $6.9 million and $6.8 million at December 31, 2019 and 2018, respectively.

Included in merchandise inventories are tariff related costs, including Section 301 tariffs.  In late 2019, the United States Trade Representative (“USTR”) ruled on a request made by certain interested parties, including the Company, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs.  The Company has recorded a $27 million receivable related to these tariffs in the caption “Tariff Recovery Receivable” on the Consolidated Balance Sheets and expects to receive payments by the end of 2020.

Impairment of Long-Lived Assets

The Company evaluates potential impairment losses on long-lived assets and right-of-use 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.

During 2018, the Company decided to exit the finishing business and entered into an agreement to sell this equipment to a third party, which altered the Company’s expectations of future cash flows from these long-lived assets.

53

As a result, the Company tested certain long-lived assets for impairment and recorded a $1.8 million impairment charge within selling, general and administrative (“SG&A”) expenses in its accompanying consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC 820) of the assets and the carrying value of the related net assets based on the contract to sell to a third party. The Company received $0.8 million in connection with this transaction during 2018 and had $1.0 million in assets held-for-sale, included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2018.  During 2019, the Company received $0.9 million in connection with this transaction and had $0.1 million in assets held-for-sale included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2019.

During 2017, the Company determined that the carrying value of certain assets that had once been part of a discontinued vertical integration strategy was above their fair value and recorded an impairment charge of $1.5 million within SG&A expenses in the consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC-820) of the assets and the carrying value of the related net assets based on a contract to sell to a third party. 

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.  As of December 31, 2019 and 2018, other assets include $0.8 million 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 based on estimates of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical and industry trends and economic conditions. This liability could be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31, 2019 and 2018, the Company had accruals of $2.5 million and $2.4 million, respectively, related to estimated claims included in other current liabilities.

Recognition of Net Sales

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“Topic 606”), Revenue from Contracts with Customers, which superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and when control of those goods and services has passed to the customer. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. However, because adoption of the standard did not change the timing or amount of the Company’s recognition of revenue and because the Company does not recognize revenues for partial contracts, there was no adjustment to retained earnings needed as part of the adoption of the new standard. 

The Company generates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services.  Sales occur through a network of 419 stores, which spanned 47 states, including eight stores in Canada at December 31, 2019. In addition, both the merchandise and services can be ordered through a call center and from the Company’s website, www.lumberliquidators.com. The Company’s agreements with its customers are of short duration (less than a year), and as such the Company has elected

54

not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.

Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing service for a customer.  Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying consolidated balance sheet caption Customer Deposits and Store Credits. 

The following table shows the activity in this account for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Customer Deposits and Store Credits, Beginning Balance	$	(40,332)	$	(38,546)	$	(32,639)
New Deposits		(1,163,691)		(1,155,019)		(1,101,841)
Recognition of Revenue		1,092,602		1,084,636		1,028,933
Sales Tax included in Customer Deposits		67,029		67,125		66,028
Other		2,821		1,472		973
Customer Deposits and Store Credits, Ending Balance	$	(41,571)	$	(40,332)	$	(38,546)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days.  The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics.  The Company previously recognized revenue in full, recorded an allowance for expected returns (contra-revenue) and recorded a separate refund liability for expected returns. The Company reduces revenue by the amount of expected returns and records it within Accrued Expenses and Other on the consolidated balance sheet. The Company continues to estimate the amount of returns based on the historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the Other Current Assets caption of the accompanying consolidated balance sheet. This amount was $1.2 million at December 31, 2019 and 2018. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

We offer hundreds of different flooring products; however, no single flooring product represented a significant portion of our sales mix. By major product category, our sales mix was as follows:

	Year Ended December 31,
	2019				2018				2017
Manufactured Products 1	$	452,914	41	%	$	392,512	36	%	$	315,369	31	%
Solid and Engineered Hardwood		319,582	29	%		367,026	34	%		423,301	41	%
Moldings and Accessories and Other		183,545	17	%		196,411	18	%		199,599	19	%
Installation and Delivery Services		136,561	13	%		128,687	12	%		90,664	9	%
Total	$	1,092,602	100	%	$	1,084,636	100	%	$	1,028,933	100	%

1Includes laminate, vinyl, engineered vinyl plank and porcelain tile.

55

Cost of Sales

Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, which are net of vendor allowances.

The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This reserve was $0.9 million and $1.4 million at December 31, 2019 and 2018, respectively. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.

 Advertising Costs

Advertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances, were $75 million, $74 million and $77 million in 2019, 2018 and 2017, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance are included in prepaid expenses and totaled $0.4 million and $0.6 million at December 31, 2019 and 2018, respectively.

Store Opening Costs

Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.

Other Vendor Consideration

Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as an offset to SG&A expenses when earned.

Depreciation and Amortization

Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods for which renewal is not reasonably certain, the Company uses the original lease term, excluding optional renewal periods, to determine the appropriate estimated useful

56

lives. Capitalized software costs are capitalized from the time that technological feasibility is established until the software is ready for use. The estimated useful lives are generally as follows:

	Years
Buildings and Building Improvements	7 to 40
Property and Equipment	3 to 10
Computer Software and Hardware	3 to 10
Leasehold Improvements	1 to 10

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), which created ASC Topic 842, Leases, and superseded the lease accounting requirements in Topic 840, Leases. In summary, Topic 842 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition, which the Company elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $113 million and lease liabilities of $121 million. The adoption of ASC 842 had an immaterial impact on the Company’s consolidated statements of operations and consolidated statements of cash flows for the year ended December 31, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carryforward the historical lease classification.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and operating lease liabilities on the consolidated balance sheet. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Many of the Company’s leases include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement.

The Company made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement.

Additional information and disclosures required by this new standard are contained in “Note 5, Leases.”

Stock-Based Compensation

The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with ASC 718. The Company may issue incentive awards, including performance-based awards, in the form of stock options, restricted shares and other equity awards to employees, non-employee directors and other service providers. The Company recognizes expense for the majority of its stock-based compensation based on the fair value of the awards that are granted. For awards granted to non-employee directors, expense is recognized based on the fair value of the award at the end of a reporting period. For performance-based awards granted to certain members of senior management, the Company recognizes expense after assessing the probability of the achievement of certain financial metrics on a periodic basis. Compensation expense is recognized only for those awards expected to vest, with

57

forfeitures estimated at the date of grant based on historical experience and future expectations. Measured compensation cost is recognized ratably over the requisite service period of the entire related stock-based compensation award.

Foreign Currency Translation

The Company’s Canadian operations use the Canadian dollar as the functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.

Income Taxes

Income taxes are accounted for in accordance with ASC 740 (“ASC 740”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are reflected on the consolidated balance sheets as deferred income taxes and measured using the effective tax rate expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company takes into account various factors, including the nature, frequency and severity of current and cumulative losses, expected level of future taxable income, the duration of statutory carryforward periods and tax planning alternatives. In future periods, any valuation allowance will be re-evaluated in accordance with ASC 740, and a change, if required, will be recorded through income tax expense in the period such determination is made.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense.

Net Income per Common Share

Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update No. 2018‑15 (“ASU 2018‑15”), which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract, as initially published in Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other— Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In summary, the new standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The new standard also allows customers of cloud computing services to capitalize certain implementation costs. The amendments in ASU 2018‑15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard as of the beginning of the fourth quarter of 2019.  The adoption of this standard did not have a material impact on the Company’s results of operations or cash flows.

58

Note 2.         Property and Equipment

Property and equipment consisted of:

	December 31,
	2019		2018
Land	$	4,937	$	4,937
Building		44,395		44,319
Property and Equipment		57,047		53,411
Computer Software and Hardware		51,437		54,375
Leasehold Improvement		54,139		46,297
Assets under Construction		1,549		767
		213,504		204,106
Less: Accumulated Depreciation and Amortization		114,771		110,417
Property and Equipment, net	$	98,733	$	93,689

As of December 31, 2019 and 2018, the Company had cumulatively capitalized $42 millionand $40 million of computer software costs, respectively.  Amortization expense related to these assets was $4.6 million, $4.3 million and $3.9 million for 2019, 2018 and 2017, respectively.

Note 3.         Other Liabilities

Other long-term liabilities consisted of:

	December 31,
	2019		2018
Antidumping and Countervailing Duties Accrual, Including Accrued Interest	$	12,795	$	11,456
Deferred Rent		—		4,850
Lease Incentive Obligation		—		2,864
Other		962		1,033
Other Long Term Liabilities	$	13,757	$	20,203

Note 4.         Credit Agreement

On March 29, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, National Association (the “Lenders”).  The Credit Agreement amended and restated the Third Amended and Restated Revolving Credit Agreement (the “Prior Agreement”).  Under the Credit Agreement, the Lenders increased the maximum amount of borrowings under the revolving credit facility (the “Revolving Credit Facility”) from $150 million under the Prior Agreement to $175 million and added a new first in-last out $25 million term loan (the “FILO Term Loan”) for a total of $200 million, subject to the borrowing bases described below.  The Company also has the option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.

As of December 31, 2019, a total of $57 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan.  As of December 31, 2019, there was $102 million of availability under the Revolving Credit Facility.  The Company also had $3.9 million in letters of credit which factor into its remaining availability.

The Revolving Credit Facility and the FILO Term Loan mature on March 29, 2024, and are secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and accounts receivables, and the Company’s East Coast distribution center located in Sandston, Virginia.  Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.

59

The Revolving Credit Facility is available to the Company up to the lesser of (1) $175 million or (2) a revolving borrowing base equal to the sum of specified percentages of the Borrowers’ eligible credit card receivables, eligible inventory (including eligible in-transit inventory) and eligible owned real estate, less certain reserves, all of which are defined by the terms of the Credit Agreement (the “Revolving Borrowing Base”).  If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), then the amount of such excess reduces availability under the Revolving Borrowing Base.

Loans outstanding under the Credit Agreement can bear interest based on the Base Rate (as defined in the Credit Agreement) or the LIBOR Rate (as defined in the Credit Agreement).  Interest on Base Rate loans is charged at varying per annum rates computed by applying a margin ranging from (i) 0.25% to 0.75% over the Base Rate with respect to revolving loans and (ii) 1.25% to 2.00% over the Base Rate with respect to the FILO Term Loan, in each case depending on the Borrowers’ average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.  Interest on LIBOR Rate loans and fees for standby letters of credit are charged at varying per annum rates computed by applying a margin ranging from (i) 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans and (ii) 2.25% to 3.00% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.  At December 31, 2019, the Company’s Revolving Credit Facility carried an average interest rate of 3.90% and the FILO Term Loan carried an interest rate of 4.75%.

The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the Combined Loan Cap (as defined in the Credit Agreement).

Note 5.         Leases

The Company has operating leases for its stores, corporate headquarters in Richmond, Virginia, its distribution center on the west coast, supplemental office facilities and certain equipment.  The store location leases generally have five-year base periods with one or more five-year renewal periods. The corporate headquarters in Richmond, Virginia has base terms running through December 31, 2029. The supplemental office facility in Richmond, Virginia has base terms running through November 30, 2020. The distribution center on the west coast has base terms running through October 31, 2024. Total rent expense was $37 million, $34 million and $33 million in 2019, 2018 and 2017, respectively.

The cost components of the Company’s operating leases recorded in SG&A on the consolidated statement of operations were as follows for the periods shown:

	Year Ended December 31, 2019
	Store Leases		Other Leases		Total
Operating lease costs	$	32,759	$	4,078	$	36,837
Variable lease costs		8,381		1,007		9,388
Total	$	41,140	$	5,085	$	46,225

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities, which are paid as incurred.

60

Other information related to leases were as follows:

	Year Ended December 31, 2019
	Store Leases			Other Leases			Total
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33,590		$	4,252		$	37,842
Right-of-use assets obtained or modified in exchange for operating lease obligations	$	25,745		$	9,828		$	35,573
Weighted Average Remaining Lease Term (years)		4.81			7.60			5.28
Weighted Average Discount Rate		5.8	%		5.5	%		5.7	%

At December 31, 2019, the future minimum rental payments under non-cancellable operating leases were as follows:

	Operating Leases
					Total
			Other		Operating
	Store Leases		Leases		Leases
2020	$	33,752		4,103	$	37,855
2021		28,460		3,663		32,123
2022		22,508		3,656		26,164
2023		16,554		3,733		20,287
2024		9,853		3,593		13,446
Thereafter		14,443		8,240		22,683
Total minimum lease payments		125,570		26,988		152,558
Less imputed interest		(15,900)		(4,855)		(20,755)
Total	$	109,670	$	22,133	$	131,803

Note 6.         Stockholders’ Equity

Net Income per Common Share

The following table sets forth the computation of basic and diluted net income per common share:

	Year Ended December 31,
	2019		2018		2017
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Weighted Average Common Shares Outstanding—Basic		28,689		28,571		28,407
Effect of Dilutive Securities:
Common Stock Equivalents		104		—		—
Weighted Average Common Shares Outstanding—Diluted		28,793		28,571		28,407
Net Income (Loss) per Common Share—Basic	$	0.34	$	(1.90)	$	(1.33)
Net Income (Loss) per Common Share—Diluted	$	0.34	$	(1.90)	$	(1.33)

61

The following have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be antidilutive:

	As of December 31,
	2019	2018	2017
Stock Options	604	643	653
Restricted Shares	187	407	433

Stock Repurchase Program

The Company’s board of directors has authorized the repurchase of up to $150 million of the Company’s common stock.  At December 31, 2019, the Company had approximately $14.7 million remaining under this authorization. The Company did not purchase any shares under this program during the three-years ended December 31, 2019.

Note 7.         Stock-Based Compensation

Overview

The Company has an equity incentive plan (the “Plan”) for employees, non-employee directors and other service providers from which the Company may grant stock options, restricted shares, stock appreciation rights (“SARs”) and other equity awards.  The total number of shares of common stock authorized for issuance under the Plan is 7.8 million. As of December 31, 2019, 2.5 million shares of common stock were available for future grants. Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted shares on a grant-by-grant basis at the discretion of the Board.  The Company issues new shares of common stock upon exercise of stock options and vesting of restricted shares.

The Company also maintains the Lumber Liquidators Holdings, Inc. Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees until departure from the Board.  A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units.  Deferred stock units must be settled in common stock upon the director’s departure from the Board.  There were 158,283 and 132,348 deferred stock units outstanding at December 31, 2019 and 2018, respectively.

62

Stock Options

The following table summarizes activity related to stock options:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	835,614	$	24.86	7.5	$	1,167
Granted	127,984		22.09
Exercised	(87,955)		15.31
Forfeited	(185,975)		25.62
Balance, December 31, 2017	689,668	$	25.31	7.7	$	8,530
Granted	215,297		20.54
Exercised	(43,510)		17.70
Forfeited	(128,870)		33.25
Balance, December 31, 2018	732,585	$	22.97	7.3	$	—
Granted	110,535		8.47
Forfeited	(149,657)		25.16
Balance, December 31, 2019	693,463	$	20.18	7.1	$	144
Exercisable at December 31, 2019	361,974	$	24.43		$	—
Vested and expected to vest December 31, 2019	693,463	$	20.18		$	144

The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on December 31.  There were no stock options exercised during 2019.  The intrinsic value of stock options exercised during 2018 and 2017 was $0.3 million and $0.8 million, respectively.

As of December 31, 2019, total unrecognized compensation cost related to unvested options was approximately $1.5 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.2 years.

The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes-Merton option pricing model. The weighted average fair value of options granted during 2019, 2018 and 2017 was $4.32, $10.69 and $11.20, respectively.

The following are the average assumptions for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Expected dividend rate	—	%	—	%	—	%
Expected stock price  volatility	55	%	55	%	55	%
Risk-free interest rate	2.1	%	2.8	%	1.7	%
Expected term of options	5.5	years	5.5	years	5.5	years

The expected stock price volatility is based on the historical volatility of the Company’s stock price. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The 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.

63

Restricted Shares

The following table summarizes activity related to restricted shares:

		Weighted Average
		Grant Date Fair
	Shares	Value
Nonvested, December 31, 2016	586,187	$	17.71
Granted	207,196		19.56
Released	(205,349)		18.31
Forfeited	(108,288)		15.68
Nonvested, December 31, 2017	479,746	$	18.71
Granted	224,835		22.39
Released	(137,064)		18.67
Forfeited	(80,305)		17.98
Nonvested, December 31, 2018	487,212	$	20.54
Granted	661,784		10.35
Released	(130,721)		11.09
Forfeited	(107,309)		14.71
Nonvested, December 31, 2019	910,966	$	15.18

The fair value of restricted shares released during 2019, 2018 and 2017 was $1.5 million,  $2.9 million and $5.2 million, respectively.  As of December 31, 2019, total unrecognized compensation cost related to unvested restricted shares was approximately $5.1 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.4 years.

During 2019, the Company granted 100,281 shares of performance-based restricted stock awards, vesting over a three-year period, with a grant date fair value of approximately $1.1 million.  These shares were awarded to certain members of senior management in connection with the achievement of specific key financial metrics measured over a two-year period and vest over a three-year period. The number of awards that will ultimately vest is contingent upon the achievement of these key financial metrics by the end of year two. The Company assesses the probability of achieving these metrics on a quarterly basis. For these awards, the Company recognizes the fair value expense ratably over the performance and vesting period. Once these amounts have been determined, half of the shares will vest at the end of year two and the remaining half will vest at the end of year three. These awards are included above in RSAs Granted.

64

Stock Appreciation Rights

The following table summarizes activity related to SARs:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	28,668	$	32.63	7.5	$	6
Granted	2,899		17.39
Exercised	(165)		24.35
Forfeited	(14,852)		45.93
Balance, December 31, 2017	16,550	$	18.10	8.6	$	251
Granted	1,738		23.31
Exercised	—		—
Forfeited	(335)		86.16
Balance, December 31, 2018	17,953	$	17.33	7.8	$	—
Granted	—		—
Exercised	—		—
Forfeited	(17,708)		16.44
Balance, December 31, 2019	245	$	82.08	3.4	$	—
Exercisable at December 31, 2019	245	$	82.08	3.4	$	—

The fair value method, estimated by management using the Black-Scholes-Merton option pricing model, is used to recognize compensation cost associated with SARs.

Note 8.         Income Taxes

The components of income (loss) before income taxes were as follows:

	Year Ended December 31,
	2019		2018		2017
United States	$	13,830	$	(52,473)	$	(38,258)
Foreign		(878)		(927)		(299)
Total Income (Loss) before Income Taxes	$	12,952	$	(53,400)	$	(38,557)

The expense (benefit) for income taxes consisted of the following:

	Year Ended December 31,
	2019		2018		2017
Current
Federal	$	2,550	$	—	$	2,254
State		1,015		607		146
Foreign		90		132		112
Total Current		3,655		739		2,512
Deferred
Federal		(203)		140		(2,087)
State		(163)		100		(1,159)
Total Deferred		(366)		240		(3,246)
Income Tax Expense (Benefit)	$	3,289	$	979	$	(734)

65

Tax expense in the amount of $0.5 million and $0.2 million was recognized as a component of income tax expense during 2019 and 2018, respectively, resulting from the exercise of stock options and the release of restricted shares. Prior to the adoption of Accounting Standards Update No. 2016-09, which amends ASC Topic 718, Compensation – Stock Compensation, in 2017, excess tax benefits and shortfalls were recognized as adjustments to additional paid-in capital.

	Year Ended December 31,
	2019				2018				2017
Income Tax Expense (Benefit) at Federal Statutory Rate	$	2,720	21.0	%	$	(11,214)	21.0	%	$	(13,495)	35.0	%
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax Benefit		425	3.3	%		723	(1.3)	%		(740)	1.9	%
Valuation Allowance		668	5.2	%		3,897	(7.3)	%		3,826	(10.0)	%
Foreign Operations		90	0.7	%		132	(0.3)	%		221	(0.5)	%
Uncertain Tax Positions		174	1.3	%		2,919	(5.5)	%		—	—	%
Non-Deductible Fines and Penalties		6	—	%		4,011	(7.5)	%		1,156	(3.0)	%
Federal Rate Change		—	—	%		—	—	%		8,088	(21.0)	%
Other		(794)	(6.1)	%		511	(0.9)	%		210	(0.5)	%
Income Tax Expense (Benefit)	$	3,289	25.4	%	$	979	(1.8)	%	$	(734)	1.9	%

The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a 21% federal rate in both 2019 and 2018, are as follows:

	December 31,
	2019		2018
Deferred Tax Liabilities:
Operating Lease Right-of-Use Assets	$	(31,804)	$	—
Depreciation and Amortization and Other		(9,676)		(10,672)
Total Gross Deferred Tax Liabilities		(41,480)		(10,672)
Deferred Tax Assets:
Operating Lease Liabilities		34,419		—
Stock-Based Compensation Expense		2,611		2,348
Legal Settlement Reserves		11,774		14,251
Other Accruals and Reserves		5,054		4,811
Employee Benefits		1,169		1,018
Inventory Reserves		1,311		1,896
Inventory Capitalization		3,194		3,492
Foreign Net Operating Loss Carryforwards		3,341		3,153
Net Operating Loss Carryforwards		2,444		2,445
Capital Loss Carryforwards and Other		2,724		2,784
Total Gross Deferred Tax Assets		68,041		36,198
Less: Valuation Allowance		(26,986)		(26,318)
Total Net Deferred Tax Assets		41,055		9,880
Net Deferred Tax Liability	$	(425)	$	(792)

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the fourth quarter of 2017.  Generally, the Tax Act became effective in 2018, and it altered the deductibility of certain items (e.g., certain compensation, interest, entertainment expenses), and allowed qualifying capital expenditures to be deducted fully in the year of purchase. As of December 31, 2018, the Company completed the analysis of the tax effects of the Tax Act based on guidance issued to-date and has reflected all applicable changes in its financial statements.

66

The Company continues to monitor developments by federal and state rulemaking authorities regarding tax law changes and recognizes the impact of these law changes in the period in which they are enacted.

For 2019 and 2018, the Company’s U.S. operations were in a cumulative loss position. As such, the Company has recorded a valuation allowance on its net deferred tax assets. The valuation allowance increased by $1.1 million and $4.7 million for the years ended December 31, 2019 and 2018, respectively. In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

For 2019 and 2018, the Company’s Canadian operations were in a cumulative loss position. As such, the Company has recorded a full valuation allowance on the net deferred tax assets in Canada. The valuation allowance decreased by $0.4 million and increased by $0.2 million for the years ended December 31, 2019 and 2018, respectively. In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

As of December 31, 2019, a full valuation allowance has been provided against certain deferred tax assets as it is presently deemed more likely than not that the benefit of such net tax assets will not be utilized. Due to recent cumulative losses, the Company did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets. In future periods, a reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded.  However, the exact timing and amount of any reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve in future periods.

As of December 31, 2019, the Company had no remaining U.S. federal net operating loss carryforward. As of December 31, 2018, the Company had a U.S. federal net operating loss carryforward of $12 million. As of December 31, 2019 and 2018, respectively, the Company had state net loss carryforwards of $39 million and $52 million, which begin to expire in 2022. The Company had foreign net operating loss carryforwards of $12 million at December 31, 2019 and 2018, which begin to expire in 2030.

The Company paid income taxes (net of refunds) of $0.2 million in 2019.  The Company received income tax refunds (net of payments) of $0.1 million and $29 million in 2018 and 2017, respectively.  

As of December 31, 2019 and 2018, the Company had $0.2 million and $3.6 million, respectively of gross unrecognized tax benefits related to Uncertain Tax Positions ($0.2 million and $3.5 million, respectively, net of federal tax benefit). It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the uncertain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change in uncertain tax positions to have a significant effect on its results of operations, financial position or cash flows.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended December 31,
	2019		2018
Balance at beginning of year	$	3,610	$	27
Increases for tax positions related to current year		174		3,583
(Decreases) Increases for tax positions related to prior years		(3,443)		—
Settlements		(116)		—
Balance at end of year	$	225	$	3,610

Included in the additions of unrecognized tax benefits in the fiscal year ended December 31, 2019, is approximately $0.2 million for an uncertain tax position related to state income taxes.  

The Company files income tax returns with the U.S. federal government and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities.   As of

67

December 31, 2019, the Internal Revenue Service has completed audits of the Company’s income tax returns through 2016.

Note 9.         401(k) Plan

The Company maintains a plan, qualified under Section 401(k) of the Internal Revenue Code, for all eligible employees.  Employees are eligible to participate following the completion of three months of service and attainment of age 21. The plan is a safe harbor plan, with company matching contributions of 100% of the first 3% of employee contributions and 50% of the next  2% of employee contributions. Both deferrals and Roth contributions are allowed up to 50% of an employee’s eligible compensation, subject to annual IRS limits. Additionally, employees are immediately 100% vested in the Company’s matching contributions.  The Company’s matching contributions, included in SG&A expenses, totaled $2.8 million,  $2.6 million and $2.3 million in 2019, 2018 and 2017, respectively.

Note 10.       Commitments and Contingencies

The Company has been actively resolving various legal and other matters that have arisen in recent years. Certain other matters remain outstanding.  More detailed discussion of many of the matters noted below are included in this Form 10‑K under the caption “Item 3 Legal Proceedings.”

2019, 2018 and 2017 Settlements and Resolutions

During 2019, 2018 and 2017, the Company recorded accruals in accordance with GAAP related to several legal matters. These include:

2019	2018	2017
Employee Classification Litigation	Governmental Investigations	Formaldehyde-Abrasion MDLs
	Litigation Related to Bamboo

Governmental Investigations: DOJ Deferred Prosecution Agreement and SEC Resolution 

Beginning in 2015, the Company received subpoenas in connection with a criminal investigation conducted by the DOJ and the SEC.  The focus of the investigations related to compliance with disclosure and financial reporting and requirements under the federal securities laws. The Company cooperated with the investigations and produced documents and other information responsive to subpoenas and other requests.  In March of 2019, prior to filing its December 31, 2018 Form 10-K, the Company reached an agreement with the U.S. Attorney, the DOJ and SEC regarding the investigation (the “Settlement Agreements”). The Company entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Attorney and the DOJ and a Cease-and-Desist Order (the “Order”) with the SEC, under which, among other things, the Company (1) paid a fine in the amount of $19.1 million to the United States Treasury, (2) forfeited to the U.S. Attorney and the DOJ the sum of $13.9 million, of which up to $6.1 million was submitted by the Company to the SEC in disgorgement and prejudgment interest under the Order and (3) is required to adopt a new compliance program, or modify its existing one, including internal controls, compliance policies, and procedures in order to ensure that the Company maintains an effective system of internal account controls designed to ensure the making and keeping of fair and accurate books, records and accounts, as well as a compliance program designed to prevent and detect violations of certain federal securities laws throughout its operations. 

The Settlement Agreements also provide that the Company will continue to cooperate with the U.S. Attorney, the DOJ and the SEC in all matters relating to the conduct described in the Settlement Agreements and, at the request of the U.S. Attorney, the DOJ or the SEC, the Company will cooperate fully with other domestic or foreign law enforcement authorities and agencies in any investigation of the Company in any and all matters relating to the Settlement Agreements. In the event the Company breaches the DPA, there is a risk the government would seek to impose remedies provided for in the DPA, including instituting criminal prosecution against the Company.

68

The Company accrued a charge of $33 million within selling, general and administrative (SG&A) expenses in its December 31, 2018 financial statements, reflecting the amounts owed under the Settlement Agreements.  During the second quarter of 2019, the Company remitted $33 million due to the applicable governmental parties and relieved the applicable portion of the liability in the caption “Accrual for Legal Matters and Settlements Current” on its balance sheet. 

Litigation Relating to Bamboo Flooring 

In 2014, Dana Gold (“Gold”) filed a purported class action lawsuit alleging that certain bamboo flooring that the Company sells (the “Strand Bamboo Product”) is defective (the “Gold Litigation”). The plaintiffs sought financial damages and, in addition to attorneys’ fees and costs, the plaintiffs wanted a declaration that the Company’s actions violated the law. 

On September 30, 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, which would resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company will contribute $14 million in cash (the “Gold Cash Payment”) and provide $14 million in store-credit vouchers, with a potential additional $2 million in store-credit vouchers based on obtaining a claim’s percentage of more than 7%, for an aggregate settlement of up to $30 million. The settlement agreement makes clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. On December 18, 2019, the court issued an order that, among other things, granted preliminary approval of the settlement agreement. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement of administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account. A Final Approval and Settlement Hearing is currently scheduled for September 24, 2020. The settlement agreement is subject to certain contingencies, including court approval. There can be no assurance that a settlement will be finalized and approved by the court at the Final Approval and Settlement Hearing or as to the ultimate outcome of the litigation. If a final, court approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for, among other things, success on the merits. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation.

The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable with the offset in the caption “Accrual for Legal Matters and Settlements Current” on its consolidated balance sheet related to this settlement as of December 31, 2018. If the settlement agreement is not approved by the court or the Company incurs additional losses with respect to the Bamboo Flooring Litigation (as defined below), the actual losses that may result from these actions may exceed this amount. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously.

69

Litigation Relating to Chinese Laminates 

Formaldehyde-Abrasion MDLs

On March 15, 2018, the Company entered into a settlement agreement with the lead plaintiffs in the Formaldehyde MDL (as defined in Item 3 of this Form 10-K) and Abrasion MDL (as defined in Item 3 of this Form 10-K), cases more fully described in Item 3 of this Annual Report on Form 10-K. Under the terms of the settlement agreement, the Company agreed to fund $22 million in cash and provide $14 million in store-credit vouchers for an aggregate settlement of $36 million to settle claims brought on behalf of purchasers of Chinese-made laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Company deposited $22 million into an escrow account administered by the court and plaintiffs’ counsel in accordance with the final settlement. The final approval order by the United States District Court for the Eastern District of Virginia has been appealed and is pending. The Company does not anticipate any change to its obligations, but must wait until the appeals are adjudicated or withdrawn.  If the appeals were to result in the settlement being set aside, the Company would receive $21.5 million back from the escrow agent. Accordingly, the Company has accounted for the payment of $21.5 million as a deposit in the accompanying consolidated financial statements. While insurance carriers initially denied coverage with respect to the Formaldehyde MDL and Abrasion MDL, the Company continues to pursue recoveries that the Company believes are appropriate. The $36 million aggregate settlement amount was accrued within SG&A expenses in 2017.

For approximately three years after a final ruling has been reached in this matter, plaintiffs will be able to redeem vouchers for product. Some of the states have alternative expiration dates while others have an indefinite amount of time to redeem vouchers. The Company will account for the sales of these products by relieving the relevant liability, reducing inventory used in the transaction and offsetting SG&A expenses for any profit. The Company does not know the timing or pace of voucher redemption. 

In addition to those purchasers who opted out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims, or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019 and 2018, while some remain in settlement negotiations.  The Company recognized charges to earnings of $1.8 million and $3 million for the years ended December 31, 2019 and 2018, respectively, within SG&A expenses for these Remaining Laminate Matters. As of December 31, 2019, the remaining accrual related to these matters is $0.1 million, which has been included in the Accrual for Legal Settlements on the Consolidated Balance Sheet. While the Company believes that a further loss associated with the Opt Outs and Related Laminate Matters is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. If the Company incurs losses with the respect to the Opt Outs or further losses with respect to Related Laminate Matters, the ultimate resolution of these actions could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity.    

Canadian Litigation

On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is possible, the Company is unable to reasonably estimate the amount or range of possible loss.

Lacey Act Related Matters

On October 7, 2015, the Company reached a settlement with the Department of Justice (DOJ) with respect to its allegations of violations of the Lacey Act in its importation of certain wood flooring products and the court entered final judgment on February 3, 2016. In connection with this settlement the Company agreed to pay a total of $10 million in

70

fines, community service payments and forfeited proceeds and is subject to a five-year probation period and implemented the Lacey Compliance Plan. The Company has paid the settlement amount including the remaining $1.8 million in the first quarter of 2018. In addition, the Company reached a settlement with the DOJ and paid $3.2 million with respect to certain engineered hardwood flooring determined by the Company to have Lacey Act compliance concerns.

Employment Cases

Mason Lawsuit

In August  2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, installation sales managers and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period.  In May 2019, the magistrate judge granted the plaintiffs’ motion for conditional certification.  The litigation is in the discovery stage, which currently closes in May 2020.

The Company disputes the Mason Putative Class Employees’ claims and intends to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Kramer Lawsuit

In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California (collectively, the “CSM Employees”) alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”). The Kramer Plaintiffs seek certification of the CSM Employees for a class action covering the prior four-year period prior to the filing of the complaint through the disposition of this action for the CSM Employees who currently are or were employed in California (the “California SM Class”). On or about February 19, 2019, the Kramer Plaintiffs filed a first amended complaint adding a claim for penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the complaint. The Kramer Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the Kramer Plaintiffs seek unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

71

On September 9, 2019, the Company entered into an agreement to settle the Kramer matter, consistent with the terms of the Memorandum of Understanding previously disclosed by the Company.  Under the terms of the settlement agreement, the Company will pay $4.75 million to settle the claims asserted in the Kramermatter (or which could have been asserted in the Kramermatter) on behalf of all current and/or former store managers and store managers in training employed by the Company at any time between November 17, 2013 and September 19, 2019.  The settlement agreement was preliminarily approved by the court on September 19, 2019, and granted final approval on January 17, 2020. The Company recognized a net charge to earnings of approximately $4.75 million within SG&A expense in its second quarter 2019 financial statements.  As of December 31, 2019, the remaining accrual related to this matter is $4.75 million, which is included on the balance sheet within the caption “Accrual for Legal Matters and Settlements- Current.”

Antidumping and Countervailing Duties Investigation

In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) 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 companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 6% and 7% of its flooring purchases in 2019 and 2018, respectively. The Company’s consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized.  As such, it has appealed the original imposition of AD and CVD fees.

As part of its processes in these proceedings, the DOC conducts annual reviews of the AD and CVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are 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. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period and can place a hold on final settlement by U.S. Customs and Border Protection while the appeals are pending.

In addition to its overall appeal of the imposition of AD and CVD, which is still pending, the Company as well as other involved parties have appealed many of the final rate determinations. Those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table below. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.

Results by period for the Company are shown below. The column labeled ‘December 31, 2019 Receivable/Liability Balance’ represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.

The Company recorded net interest expense related to antidumping of $0.6 million for the year ended December 31, 2019, with the amount included in other expense on the Statements of Operations. The estimated associated interest payable and receivable for each period is not included in the table below and is included in the same financial statement line item on the Company’s consolidated balance sheet as the associated liability and receivable balance for each period.

72

Review		Rates at which		December 31, 2019
Period	Period Covered	Company	Final Rate	Receivable/Liability
		Deposited		Balance
Antidumping
1	May 2011 through	6.78% and 3.3%	0.73%1	$1.3 million
	November 2012			receivable1
2	December 2012 through	3.30%	13.74% 2	$4.1 million
	November 2013			liability
3	December 2013 through	3.3% and 5.92%	17.37%	$4.7 million
	November 2014			liability
4	December 2014 through	5.92% and 13.74%	0.00%	Settled
	November 2015
5	December 2015 through	5.92%. 13.74%. and 17.37%	0.00%	Settled
	November 2016
6	December 2016 through	17.37% and 0.00%	42.57% and 0.00%3	$0.5 million receivable
	November 2017			$1.5 million liability3
7	December 2017 through	0.00%	Pending4	NA
	November 2018
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.5 million
			Included on the Consolidated Balance Sheet in Other Assets	$1.3 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$10.3 million
Countervailing
1&2	April 2011 through	1.50%	0.83% / 0.99%	$0.2 million
	December 2012			receivable
3	January 2013 through December 2013	1.50%	1.38%	$0.05 million receivable
4	January 2014 through December 2014	1.50% and 0.83%	1.06%	$0.02 million receivable
5	January 2015 through December 2015	0.83% and 0.99%	Final at 0.11% and 0.85%5	$0.07 million receivable  5
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%	$0.04 million liability6
7	January 2017 through December 2017	1.38% and 1.06%	Pending7	NA
8	January 2018 through December 2018	1.06%	Pending	NA
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.1 million
			Included on the Consolidated Balance Sheet in Other Assets	$0.3 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.04 million

1 In the second quarter of 2018, the Court of International Trade sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%).  As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018.

2 As a result of the remand from CIT, in June 2019 the DOC proposed to reduce the AD rate to 6.55% for the second annual review period.  The CIT is expected to rule on the DOC’s remand during 2020.  If the final ruling remains at 6.55% (from 13.74%), the Company’s liability of $4.1 million would decrease by $2.8 million to $1.3 million in the period in which the ruling is finalized.

73

3 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor.  As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019.  The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of December 31, 2019 was included in other current assets on the consolidated balance sheet.  The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2019 was included in other long-term liabilities on the consolidated balance sheet.

4 In January 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period.  

5 In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor.  As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales.

6 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor.  As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. 

7 In January 2020, the DOC issued a preliminary rate of 24.61% for the seventh annual review period.  If the preliminary rates remains at 24.61%, the Company will record a liability of $2 million in the period in which the ruling is finalized.

Other Matters

The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.

Note 11.       Selected Quarterly Financial Information (unaudited)

The following tables present the Company’s unaudited quarterly results for 2019 and 2018.

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2019			2019			2019			2019
Net Sales	$	266,220		$	288,567		$	263,961		$	273,854
Gross Profit		93,611			102,487			95,674			111,914
Selling, General and Administrative Expenses		97,032			103,864			93,496			92,578
Operating (Loss) Income		(3,421)			(1,377)			2,178			19,336
Net (Loss) Income	$	(4,924)		$	(2,856)		$	1,045		$	16,398
Net (Loss) Income per Common Share - Basic	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Net (Loss) Income per Common Share - Diluted	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Number of Stores Opened in Quarter, net		—			2			4			—
Comparable Store Net Sales (Decrease) Increase		(0.8)	%		(0.1)	%		(3.6)	%		0.4	%

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2018			2018			2018			2018
Net Sales	$	261,772		$	283,474		$	270,469		$	268,921
Gross Profit		94,972			101,310			100,682			95,976
Selling, General and Administrative Expenses		96,418			102,223			93,987			150,885
Operating (Loss) Income		(1,446)			(913)			6,695			(54,909)
Net (Loss) Income	$	(1,972)		$	(1,454)		$	5,923		$	(56,876)
Net (Loss) Income per Common Share - Basic	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Net (Loss) Income per Common Share - Diluted	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Number of Stores Opened in Quarter		5			8			3			4
Comparable Store Net Sales Increase		2.9	%		4.7	%		2.1	%		0.4	%

74

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information that would be required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Principal Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision, and with the participation of our management, including our Principal Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2019. Based on this evaluation, our Principal Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019, and designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) promulgated under the Exchange Act as a process, designed by, or under the supervision of the Company’s principal executive and principal financial officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions and disposition of assets; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles; providing reasonable assurance that receipts and expenditures are made only in accordance with management and Board authorizations; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures may deteriorate.

Management under the supervision of, and with the participation of the Company’s principal executive and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2019 based on the framework and criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Based on the foregoing, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2019 based on the specified criteria.

75

Our internal control over financial reporting as of December 31, 2019 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, as shown in Item 8. “Consolidated Financial Statements and Supplementary Data.”

Changes in Internal Control over Financial Reporting

During the fourth quarter of 2018, the Company reported a material weakness in that we did not maintain effective controls over the classification of imported products under the Harmonized Tariff Schedule of the United States.  This classification is the basis on which tariff obligations on imported products are calculated.  We believe that this weakness was the result of inconsistent documentation of product specifications, an overreliance upon the knowledge and expertise of certain individuals, and review controls that did not operate at a level of precision to detect and correct these errors. 

 Throughout fiscal year 2019, the Company developed and implemented controls that remediated the material weakness noted above. These controls included 1) documenting complete product specifications in a consistent manner, 2) reviewing classification codes for newly created products, and 3) reviewing previously assigned codes to ensure continued applicability.  In addition, the Company hired employees with the requisite experience and expertise with customs and duties to execute these controls.  

Except as noted in the preceding paragraphs, there has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

The information required by this Item is incorporated by reference from the definitive proxy statement for our 2020 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2019.

Code of Ethics

We have a Code of Business Conduct and Ethics, which applies to all employees, officers and directors of Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries.  Our Code of Business Conduct and Ethics meets the requirements of a “code of ethics” as defined by Item 406 of Regulation S-K, and applies to our Principal Executive Officer, Chief Financial Officer (who is our principal financial officer), as well as all other employees. Our Code of Business Conduct and Ethics also meets the requirements of a code of conduct under Rule 303A.10 of the NYSE Listed Company Manual.  Our Code of Business Conduct and Ethics is posted on our website at www.lumberliquidators.com in the “Corporate Governance” section of our Investor Relations home page.

We intend to provide any required disclosure of an amendment to or waiver from our Code of Business Conduct and Ethics on our website at www.lumberliquidators.com in the “Corporate Governance” section of our Investor Relations home page promptly following the amendment or waiver.  We may elect to disclose any such amendment or waiver in a report on Form 8‑K filed with the SEC either in addition to or in lieu of the website disclosure.  The information contained on or connected to our website is not incorporated by reference in this report and should not be considered part of this or any other report that we file with or furnish to the SEC.

76

Item 11. Executive Compensation.

The information required by this Item is incorporated by reference from the definitive proxy statement for our 2020 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2019.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this Item is incorporated by reference from the definitive proxy statement for our 2020 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2019.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information required by this Item is incorporated by reference from the definitive proxy statement for our 2020 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2019.

Item 14. Principal Accountant Fees and Services.

The information required by this Item is incorporated by reference from the definitive proxy statement for our 2020 annual meeting of shareholders, which will be filed no later than 120 days after December 31, 2019.

PART IV

Item 15. Exhibits, Financial Statement Schedules.

The following documents are filed as part of this annual report:

Consolidated Financial Statements

Refer to the financial statements filed as part of this annual report in Part II, Item 8.

           Financial Statement Schedules.

The following financial statement schedule is filed as part of this annual report under Schedule II – Analysis of Valuation and Qualifying Accounts for the years ended December 31, 2019, 2018 and 2017. All other financial statement schedules have been omitted because the required information is either included in the financial statements or the notes thereto or is not applicable.

           Exhibits

The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.

Item 16. Form 10‑K Summary.

None.

77

Lumber Liquidators Holdings, Inc.

Schedule II – Analysis of Valuation and Qualifying Accounts

For the Years Ended December 31, 2019, 2018 and 2017

(in thousands)

			Additions
	Balance		Charged to
	Beginning		Cost and							Balance End
	of Year		Expenses			Deductions (1)		Other		of Year
For the Year Ended December 31, 2017
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	7,070	$	6,349		$	(7,788)	$	—	$	5,631
Income tax valuation allowance	$	17,640	$	3,936	(2)	$	—	$	—	$	21,576
For the Year Ended December 31, 2018
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	5,631	$	3,108		$	(1,932)	$	—	$	6,807
Income tax valuation allowance	$	21,576	$	4,742		$	—	$	—	$	26,318
For the Year Ended December 31, 2019
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	6,807	$	1,888		$	(1,795)	$	—	$	6,900
Income tax valuation allowance	$	26,318	$	668		$	—	$	—	$	26,986

¹ Deductions are for the purposes for which the reserve was created.

² Includes the impact of the Tax Act, which was enacted on December 22, 2017.

78

EXHIBIT INDEX

3.01	Certificate of Incorporation of Lumber Liquidators Holdings, Inc. (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference)
3.02	By-Laws of Lumber Liquidators Holdings, Inc. (as revised effective February 5, 2020) (filed as Exhibit 3.1 to the Company’s current report on Form 8-K, filed on February 6, 2020 (File No. 001-33767), and incorporated by reference)
4.01	Form of Certificate of Common Stock of Lumber Liquidators Holdings, Inc. (filed as Exhibit 4.1 to the Company’s current report on Form 8-K, filed on January 4, 2010 (File No. 001-33767), and incorporated by reference)
4.02	Description of Capital Stock
10.1*	Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Form 8-K, filed May 23, 2019 (File No. 001-33767), and incorporated by reference)
10.2*	Lumber Liquidators Holdings, Inc. Amended and Restated 2011 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 25, 2016 (File No. 001-33767), and incorporated by reference)
10.3*	Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan (filed as Exhibit A to the Company’s definitive Proxy Statement, filed April 6, 2011 (File No. 001-33767), and incorporated by reference)
10.4*	Lumber Liquidators 2007 Equity Compensation Plan (filed as Exhibit 10.1 to the Company’s Post –effective Amendment No. 1 to its Registration Statement on Form S-8, filed January 4, 2010 (File No. 333-147247), and incorporated by reference)
10.5	Lease by and between ANO LLC and Lumber Liquidators (relating to Toano facility) (filed as Exhibit 10.08 to the Company’s Amendment No. 1 to its Registration Statement on Form S-1, filed May 30, 2007 (File No. 333-142309), and incorporated by reference)
10.6*	Form of Option Award Agreement, effective November 16, 2007 (filed as Exhibit 10.10 to the Company’s annual report on Form 10-K, filed on March 12, 2008 (File No. 001-33767), and incorporated by reference)
10.7*	Form of Option Award Agreement, effective December 31, 2010 (filed as Exhibit 10.13 to the Company’s annual report on Form 10-K, filed on February 23, 2011 (File No. 001-33767), and incorporated by reference)
10.8*	Form of Option Award Agreement, effective May 6, 2011 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed May 6, 2011 (File No. 001-33767), and incorporated by reference)
10.9	Fourth Amended and Restated Credit Agreement, dated as of March 29, 2019, among Lumber Liquidators Holdings, Inc. and its domestic subsidiaries, including Lumber Liquidators, Inc. and Lumber Liquidators Services, LLC (collectively, the “Borrowers”), Bank of America, N.A. as administrative agent and collateral agent, and Bank of America, N.A. and Wells Fargo Bank, National Association, as lenders (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed March 29, 2019 (File No. 001-33767), and incorporated by reference)
10.10*	Amended and Restated Annual Bonus Plan (filed as Exhibit 10.17 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference)
10.11*	Form of Option Award Agreement, effective January 24, 2013 (filed as Exhibit 10.18 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference)
10.12*	Form of Restricted Stock Agreement, effective January 24, 2013 (filed as Exhibit 10.19 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference)
10.13*	Form of Stock Appreciation Right Agreement, effective January 24, 2013 (filed as Exhibit 10.20 to the Company’s annual report on Form 10-K, filed on February 20, 2013 (File No. 001-33767), and incorporated by reference)
10.14*	Form of Option Award Agreement (Employee), effective November 23, 2015 (filed as Exhibit 10.22 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference)

79

10.15*	Form of Restricted Stock Agreement (Employee), effective November 23, 2015 (filed as Exhibit 10.24 to the Company’s annual report on Form 10-K, filed on February 29, 2016 (File No. 001-33767), and incorporated by reference)
10.16*	Form of Option Award Agreement (Employee), effective August 1, 2016 (filed as Exhibit 10.24 to the Company’s annual report on Form 10-K, filed on February 21, 2017 (File No. 001-33767), and incorporated by reference)
10.17*	Form of Restricted Stock Agreement (Employee), effective August 1, 2016 (filed as Exhibit 10.26 to the Company’s annual report on Form 10-K, filed on February 21, 2017 (File No. 001-33767), and incorporated by reference)
10.18*	Form of Restricted Stock Agreement (Director), effective May 24, 2017 (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on August 1, 2017 (File No. 001-33767), and incorporated by reference)
10.19*	Form of NEO Performance Award, effective March 1, 2018 (filed as Exhibit 10.3 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference)
10.20*	Form of Restricted Award Agreement (Director), effective February 7, 2018 (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference)
10.21*	Form of Restricted Award Agreement (Director), effective May 22, 2019 (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed on August 7, 2019, 2018 (File No. 001-33767), and incorporated by reference)
10.22	Plea Agreement between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference)
10.23	Stipulation for Settlement and Joint Motion for Entry of Consent Order of Forfeiture between Lumber Liquidators, Inc. and the Department of Justice (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed October 7, 2015 (File No. 001-33767) and incorporated by reference)
10.24	Class Action Settlement Agreement in Formaldehyde MDL and Durability MDL dated March 15, 2018 by and between Plaintiffs in the Formaldehyde MDL and the Durability MDL and Lumber Liquidators, Inc. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed on May 1, 2018 (File No. 001-33767), and incorporated by reference)
10.25	Deferred Prosecution Agreement, dated March 12, 2019, by and between Lumber Liquidators Holdings, Inc., the United States Attorney’s Office for the Eastern District of Virginia and the United States Department of Justice, Criminal Division, Fraud Section. (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated by reference)
10.26	Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, dated March 12, 2019, between the United States Securities and Exchange Commission and Lumber Liquidators, Holdings, Inc. (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed March 12, 2019 (File No. 001-33767) and incorporated by reference)
10.27	Class Action Settlement in the Kramer Litigation dated September 9, 2019 by and between the Plaintiffs in the Kramer Litigation and Lumber Liquidators, Inc. (filed as Exhibit 10.1 to the Company’s quarterly report on Form 10-Q, filed November 6, 2019 (File No. 001-33767) and incorporated by reference)
10.28	Agreement of Compromise and Settlement in the Gold Litigation dated September 30, 2019 by and between the Plaintiffs in the Gold Litigation and Lumber Liquidators, Inc. (filed as Exhibit 10.2 to the Company’s quarterly report on Form 10-Q, filed November 6, 2019 (File No. 001-33767) and incorporated by reference)
10.29*	Offer Letter Agreement with Dennis R. Knowles, dated February 23, 2016 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed February 29, 2016 (File No. 001-33767) and incorporated by reference)
10.30*	Amendment, dated November 7, 2016, to Offer Letter, dated as of February 23, 2016, between Lumber Liquidators Holdings, Inc. and Dennis R. Knowles (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed November 7, 2016 (File No. 001-33767) and incorporated by reference)

80

10.31*	Offer Letter Agreement with Martin D. Agard, dated August 31, 2016 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed September 9, 2016 (File No. 001-33767) and incorporated by reference)
10.32*	Offer Letter Agreement with Timothy J. Mulvaney, dated March 22, 2017 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed May 26, 2017 (File No. 001-33767) and incorporated by reference)
10.33*	Offer Letter Agreement with M. Lee Reeves, dated June 16, 2017 (filed as Exhibit 10.36 to the Company’s annual report on Form 10-K, filed February 27, 2018 (File No. 001-33767) and incorporated by reference)
10.34*	Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Dennis R. Knowles (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No. 001-33767) and incorporated by reference)
10.35*	Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Martin D. Agard (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No. 001-33767) and incorporated by reference)
10.36*	Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and M. Lee Reeves (filed as Exhibit 10.3 to the Company’s current report on Form 8-K, filed July 31, 2018 (File No. 001-33767) and incorporated by reference)
10.37	Office Deed of Lease Agreement dated October 19, 2018, by and between LM Retail, LLC and Lumber Liquidators Services, LLC (filed as Exhibit 10.35 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference)
10.38*	Offer Letter Agreement with Jennifer Bohaty, dated March 30, 2018 (filed as Exhibit 10.36 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference)
10.39*	Offer Letter Agreement with Charles E. Tyson, dated May 17, 2018 (filed as Exhibit 10.37 to Company’s annual report on Form 10-K, filed on March 18, 2019 (file No. 001-33767) and incorporated by reference)
10.40*	Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Jennifer Bohaty (filed as Exhibit 10.38 to Company’s annual report on Form 10-K, filed on March 18,2019 (file No. 001-33767) and incorporated by reference)
10.41*	Severance Agreement, dated as of July 26, 2018, between Lumber Liquidators Holdings, Inc. and Charles E. Tyson (filed as Exhibit 10.39 to Company’s annual report on Form 10-K, filed on March 18,2019 (file No. 001-33767) and incorporated by reference)
10.42*	Severance Agreement, dated as of March 15, 2019, between the Company and Timothy J. Mulvaney (filed as Exhibit 10.1 to Company’s current report on Form 8-K, filed on March 18,2019 (file No. 001-33767) and incorporated by reference)
10.43*	Offer Letter Agreement with Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.1 to Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001-33767) and incorporated by reference)
10.44*	Severance Agreement, effective as of September 9, 2019 between the Company and Nancy A. Walsh, dated August 9, 2019 (filed as Exhibit 10.2 to Company’s current report on Form 8-K, filed on August 19, 2019 (file No. 001-33767) and incorporated by reference)
10.45*	Offer Letter Agreement with Christopher Thomsen, dated August 8, 2016
10.46*	Severance Agreement, effective as of July 26, 2018 between the Company and Christopher Thomsen
10.47*	Waiver and Release Agreement for Dennis R. Knowles, dated as of February 5, 2020 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference)
10.48*	Amendment to Severance Agreement for Charles E. Tyson, dated as of February 5, 2020 (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference)
10.49*	Amendment to Severance Agreement for Nancy A. Walsh, dated as of February 5, 2020 (filed as Exhibit 10.3 to the Company’s current report on Form 8-K, filed on February 6, 2020 (file No. 001-33767) and incorporated by reference)
21.1	Subsidiaries of Lumber Liquidators Holdings, Inc.

81

23.1	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
31.1	Certification of Principal Executive Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial Officer of Lumber Liquidators Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley act of 2002
101	The following financial statements from the Company’s Form 10-K for the year ended December 31, 2019, formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) Notes to Consolidated Financial Statements
*	Indicates a management contract or compensation plan, contract or agreement.

82

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 24, 2020.

	LUMBER LIQUIDATORS HOLDINGS, INC.
	(Registrant)
By:	/s/ Charles E. Tyson
	Charles E. Tyson
	Principal Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 24, 2020.

Signature	Title
/s/ Charles E. Tyson	Principal Executive Officer
Charles E. Tyson	(Principal Executive Officer)
/s/ Nancy A. Walsh	Chief Financial Officer
Nancy A. Walsh	(Principal Financial Officer)
/s/ Timothy J. Mulvaney	Chief Accounting Officer
Timothy J. Mulvaney	(Principal Accounting Officer)
/s/ Nancy M. Taylor	Chairperson of the Board
Nancy M. Taylor
/s/ Terri F. Graham	Director
Terri F. Graham
/s/ David A. Levin	Director
David A. Levin
/s/ Douglas T. Moore	Director
Douglas T. Moore
/s/ Famous P. Rhodes	Director
Famous P. Rhodes
/s/ Martin F. Roper	Director
Martin F. Roper
/s/  Jimmie L. Wade	Director
Jimmie L. Wade

83

EX-4.2

Exhibit 4.02

Description of the Registrant’s Securities Registered

Under Section 12 of the Exchange Act of 1934

DESCRIPTION OF CAPITAL STOCK

The following summary of the material terms of the capital stock of Lumber Liquidators Holdings, Inc. (“Lumber Liquidators,” “we,” or “our”) does not purport to be complete and is subject to and qualified in its entirety by reference to our certificate of incorporation and bylaws, each of which is incorporated herein by reference and attached as an exhibit to our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission. For a more complete understanding of our capital stock, we encourage you to read carefully our certificate of incorporation and bylaws, each as may be amended, and the applicable provisions of the laws of the state of Delaware.

Common Stock

Our authorized capital stock consists of 35,000,000 shares of common stock, with a par value of $0.001 per share and 8,000,000 shares of preferred stock,  with a par value of $0.01 per share.

Holders of common stock will be entitled to one vote for each share held on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. In addition, holders of common stock are entitled to receive proportionately any dividends that may be declared by our board of directors, subject to any preferential dividend rights of outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights.

Upon our liquidation, dissolution or winding-up, the holders of common stock are entitled to receive proportionately our net assets available after the payment of all debts and other liabilities and subject to the prior rights of any outstanding preferred stock.

Our outstanding shares of common stock are validly issued, fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are subject to, and may be impacted by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

Preferred Stock

Our certificate of incorporation authorizes the issuance of an aggregate of 8,000,000 shares of preferred stock. No shares of preferred stock are currently issued and outstanding.

Our board of directors may, from time to time, direct the issue of shares of preferred stock in series and may, at the time of issue, determine the designation, powers, rights, preferences and limitations of each series. Satisfaction of any dividend preferences of outstanding preferred stock would reduce the amount of funds available for the payment of dividends on shares of common stock. Holders of preferred stock may be entitled to receive a preference payment in the event of any liquidation, dissolution or winding-up of Lumber Liquidators before any payment is made to the holders of common stock. Under certain circumstances, the issuance of preferred stock may render more difficult or tend to discourage a merger, tender offer or proxy contest, the assumption of control by a holder of a large block of securities of Lumber Liquidators or the removal of incumbent management. Upon the affirmative vote of a majority of the total number of directors then in office, the board of directors may issue shares of preferred stock with voting and conversion rights that could adversely affect the holders of shares of common stock.

Preemptive Rights

Our stockholders are not entitled to preemptive rights to subscribe for additional issuances of common stock or any other class or series of common stock or any security convertible into such stock.

Certain Anti-Takeover Effects of our Certificate of Incorporation,  Bylaws and Delaware Law

Our certificate of incorporation, bylaws and the Delaware General Corporation Law (“DGCL”) contain provisions that may make it more difficult or expensive for a third party to acquire control of us without the approval of our board of directors. These provisions include a staggered board, the availability of “blank check” preferred stock, provisions restricting stockholders from calling a special meeting of stockholders or from taking action by written consent and provisions that set forth advance notice procedures for stockholders’ nominations of directors and proposals of topics for consideration at meetings of stockholders. Our certificate of incorporation also provides that Section 203 of the DGCL, which relates to business combinations with interested stockholders, applies to us. These provisions may delay, prevent or deter a merger, or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. In addition, these provisions may cause our common stock to trade at a market price lower than it might absent such provisions.

Structure of Board of Directors

Our certificate of incorporation provides for the board to be divided into three classes, as nearly equal in number as possible, serving staggered terms. About one-third of the board will be elected annually, and each member will serve a three-year term. The provision for a classified board could prevent a party who acquires control of a majority of the outstanding voting shares from obtaining control of the board until the second annual stockholders meeting following the date the acquirer obtains the controlling share interest. The classified board provision is designed to have the effect of discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of Lumber Liquidators and to increase the likelihood that incumbent directors will retain their positions. Under the DGCL, directors of a corporation with a classified board may only be removed for cause unless the certificate of incorporation provides otherwise.

Our certificate of incorporation does not provide that our stockholders can remove the directors without cause. Directors are elected by plurality vote, provided that any director so elected who does not receive an affirmative vote of the majority of the votes cast by shares entitled to vote in the election shall submit his or her resignation and the board of directors will decide whether to accept or reject the resignation.

Stockholder Action and Special Meetings of Stockholders

Our certificate of incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. Our bylaws provide that, except as otherwise required by law, annual or special meetings of the stockholders can only be called pursuant to a resolution adopted by a majority of the total number of directors then in office or by the chairperson of the board or directors.  Stockholders are not permitted to call a general meeting or to require the board of directors to call a general meeting.

Stockholder Proposals and Director Nominations

The bylaws establish an advance notice procedure for stockholder proposals to be brought before a general meeting of stockholders, including proposed nominations of persons for election to the board of directors. Stockholders at a general meeting may only consider proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of the board of directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given timely written notice, in proper form, of the stockholder’s intention to bring that business before the meeting. Although neither the certificate of incorporation nor the bylaws gives the board of directors the power to approve or disapprove stockholder nominations of candidates or proposals about other business to be conducted at a general meeting, the certificate of incorporation and the bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of Lumber Liquidators.

Business Combinations

Our certificate of incorporation provides that the provisions of Section 203 of the DGCL, which relate to business combinations with interested stockholders, will apply to Lumber Liquidators. Section 203 of the DGCL generally prohibits “business combinations”, including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested stockholder who beneficially owns 15% or more of a corporation’s voting stock, within three years after the person or entity becomes an interested stockholder, unless: (i) the board of directors of the target corporation has approved, before the acquisition time, either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owns at least 85% of the corporation’s voting stock (excluding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer) or (iii) after the person or entity becomes an interested stockholder, the business combination is approved by the board of directors and authorized at a meeting of stockholders by the affirmative vote of at least 66-2/3% of the outstanding voting stock now owned by the interested stockholder. 

Amendments to Bylaws

Our board of directors will be permitted to alter certain provisions of our bylaws without obtaining stockholder approval.

Limitation of Liability and Indemnification of Officers and Directors

Under Section 145 of the DGCL, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal,  administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that the person is or was an officer, director, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful.  In actions brought by or in the right of the corporation, a corporation may indemnify such person against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.  To the extent that such person has been successful on the merits or otherwise in defense of any such action, suit or proceeding referred to above, or in defense of any claim, issue or matter therein, he or she is entitled to indemnification for expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. The indemnification and advancement of expenses provided for or granted pursuant to Section 145 of the DGCL is not exclusive of any other rights of indemnification or advancement of expenses to which those seeking indemnification or advancement may be entitled. Further, a corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under Section 145 of the DGCL.

Section 102(b)(7) of the DGCL enables a corporation in its certificate of incorporation to eliminate or limit monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director: (i) for any breach of the director's duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) pursuant to Section 174 of the DGCL (providing for liability for directors for unlawful payment of dividends or unlawful stock purchases or redemptions); or (iv) for any transaction from which the director derived an improper personal benefit. Advancement or reimbursement of expenses prior to a final disposition requires a written affirmation that the foregoing criteria were met and an undertaking to repay any advances if it is ultimately determined that the criteria were not met.

Our certificate of incorporation provides that a director will not be personally liable for monetary damages for breach of fiduciary duty as a director, except liability for (i) any breach of the director’s duty of loyalty to us or our stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions; or (iv) any transaction from which the director derived an improper personal benefit.

Further, our certificate of incorporation and bylaws provide, among other things, that each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of us or is or was serving at our request as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by us to the fullest extent authorized by the DGCL, against all expense, liability and loss (including attorneys’ fees, judgments, liens, amounts paid or to be paid in settlement and excise taxes or penalties arising under the Employee Retirement Income Security Act of 1974) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that we will indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors.

Our certificate of incorporation and bylaws provide that the right to indemnification includes the right to be paid by us the expenses (including attorneys’ fees) incurred in defending such proceeding in advance of its final disposition; provided, however, that if the DGCL requires, the payment of such expenses incurred by a director or officer in his or her capacity as such in advance of the final disposition of a proceeding will be made only upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial  decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under the certificate of incorporation, bylaws or otherwise; and provided, further, that such advancement of expenses incurred by any person other than a director or officer shall be made only upon the delivery of an undertaking to the foregoing effect and may be subject to such other conditions as the board of directors may deem advisable.

Our certificate of incorporation and bylaws also permit us to purchase and maintain insurance to protect the company and any of our directors, officers, employees or agents or another corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise against any such expense, liability or loss, whether or not we would have the power to indemnify such person against such expense, liability or loss under the DGCL.

We have in the past and may in the future enter into agreements to indemnify our directors, executive officers and other employees as determined by the board of directors. These agreements will provide for the indemnification of directors and officers to the fullest extent permitted by Delaware law, whether or not expressly provided for in our bylaws, and govern the process by which claims for indemnification are considered.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.

Listing

Our common stock is listed on the New York Stock Exchange under the symbol “LL.”

EX-10.45

Exhibit 10.45

3000 John Deere Road, Toano, VA  23168 Phone: (757) 259-4280.• Fax (757) 259-7293 www.lumberliquidators.com

August 8, 2016

VIA EMAIL (______________)

Mr. Christopher Thomsen

_________________

_________________

Re:      Offer Letter

Dear Christopher:

On behalf of John Presley, this letter confirms  our offer of employment  to you with Lumber Liquidators Holdings, Inc. or one of its subsidiaries (individually and collectively, as applicable, "Lumber Liquidators" or the "Company").  The details of our offer are as follows:

· Title:  SVP, Chief Information Officer

· Location:   Toano, Virginia

· Reports to:  Chief Executive Officer

· Start Date:  August 22, 2016 (unless mutually changed and finalized between you and the Company)

· Annual Base Salary:   $300,000.  Lumber Liquidators currently processes payroll on a weekly basis.   This schedule is subject to change.   Lumber Liquidators strongly encourages employees to receive their pay via direct deposit.   You will receive more information about direct deposit during your orientation.

· Sign-Bonus:    You will be paid a one-time sign on bonus in the amount of $98,000 (gross before taxes and applicable withholdings), provided you start your employment at Lumber Liquidators prior to September 1, 2016.  This amount will be payable to you within thirty (30) days of your actual start date.    In the event you resign or are terminated for cause from Lumber Liquidators prior to completing your first year of employment, full re-payment of this sign-on bonus will be due to Lumber Liquidators.

· Incentive   Plan:    You will be eligible to participate in the Annual Bonus Plan for Executive Management (the "Bonus Plan").  Your 100% target payout under the Bonus Plan will be equal to 40% of your annual base salary, with the opportunity to earn a

maximum of 175%  of your target payout based on Lumber Liquidators'  performance against certain financial objectives.  In 2016, any earned bonus payout will be pro-rated based on your date of hire in 2016.   Notwithstanding the foregoing, the awarding (or decision not to award) a payment under the Bonus Plan and the amount thereof, is a decision left to the sole discretion of Lumber Liquidators.   Further, the Bonus Plan is subject to amendment, modification and/or termination by Lumber Liquidators in its sole and absolute discretion.    To the extent there is any conflict between this Offer Letter and the language of the Bonus Plan, the Bonus Plan shall control.

· Equity:    Lumber Liquidators will recommend to the Compensation Committee of its

Board of Directors that you receive an award of equity with a total cumulative value of

$250,000.  The Company will recommend that 50% of such award be options and 50% be restricted stock.   The valuation of the options will be made using the Black-Scholes Merton method as of the date of award and the valuation of the restricted stock will be made using the fair market value of the shares on the grant date.   If approved by the Compensation Committee, any award will be granted under, subject to and governed by the   Lumber Liquidators   Holdings,   LLC.   Amended   and   Restated   2011   Equity Compensation Plan, and shall be evidenced by a grant agreement.  The agreement will specify,  among  other  things,  the  vesting  schedule,  consequences  of termination  of employment  and other applicable  terms and conditions.  The vesting schedule of the options will be as follows:   beginning on the first anniversary of the grant date, 25% of the grant will vest on anniversary of the grant date for a period of four (4) years. While it  is  expected  that  the  Compensation  Committee  will  next  award  equity  three  (3) business days after the Company publicly announces its financial results for Q4-2016, the timing and amount of any such award to you is subject to your actual start date of employment  and to the absolute discretion  of the Compensation Committee  and the Board of Directors.  You will not be eligible to receive an annual equity award in 2018 or 2019.   The issuance of any annual equity grants in 2020 or thereafter will be made at the sole discretion of the Compensation  Committee  and the Board of Directors  only after consideration  of a recommendation  by the Company  and other relevant  factors including, but not limited to, a review of your performance to date and the Company's financial  results.     As  an  employee,  you  will  be  subject  to  the expectations  and restrictions of Lumber Liquidators' Insider Trading Policy, a copy of which is provided at the time of hire and is available upon request to Human Resources.

· Relocation Expense Reimbursement:  This position is based in the corporate office in Toano, VA.  Financial support will be provided to cover reasonable relocation expenses from Hoover, AL to the Toano/Richmond/Hampton Roads, VA area.   You will be provided with up to $70,000 (relocation  expenses that are not tax deductible will be grossed up at 35%) in relocation expense reimbursement provided you sign and return to us the attached Relocation  Expense Agreement.   Please also refer to the attached Corporate Relocation Policy.

· Severance Benefit:  If your employment with Lumber Liquidators is terminated by the Company without  "Cause" (as defined  in the applicable  agreement)  within  eighteen (18) months of your actual hire date and provided you have executed (i) a severance benefit  agreement propounded  by and acceptable to the Company within  30 days of

2

your  actual  hire  date,  and  (ii) a  General  Release  and  Waiver  as provided  in  such agreement,  the Company will pay you severance in the form of salary continuation in the amount  equivalent  to your base  salary in effect as of your termination  date  for twenty-six (26) weeks, subject to standard payroll deductions and withholdings.

· Performance Review and Merit Increase:    Your performance will be reviewed periodically with you by your supervisor, but no less than annually.  Merit increases are discretionary based on performance and business considerations.

· Benefits Eligibility:  You will be eligible to participate in benefit plans offered through Lumber Liquidators per the terms and conditions of those plans.

· Paid Time Off (PTO):  Per the terms and conditions of the Lumber Liquidators Paid Time Off (PTO) Policy, located on Lumber Liquidators intranet, you will accrue hours of PTO based on weeks worked, up to a maximum of 160 hours in your first year of employment.   You will continue to accrue hours of PTO based on weeks worked, at this level until you reach the next milestone.

· Holidays:    Lumber Liquidators observes six scheduled holidays each year.    Those holidays currently are New Year's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The holiday schedule is established in advance of each year and is subject to change.

This offer of employment is contingent on ( 1)  satisfactory results of a drug screening test, (2) executive background verification, (3) your executing the Confidentiality, Non-Solicitation  and Non-Competition  Agreement, and (4) your ability to show that you are eligible to work in the United States.

On your first day of employment, you will be required to provide your social security card for payroll  purposes,  and proof of identity  and  employment  eligibility  in  order  to  complete  an Employment  Eligibility  Verification  (l-9)  form.   A list of acceptable documents is enclosed. Please note that, if you do not have one document from List A, you must bring one document from List B and one document from List C.

Please  ensure  that  you  bring  the  proper  documentation   with  you  on  your  first  day  of employment.   Your subsequent failure to provide the necessary documentation as required by federal law may result in the termination of your employment. Please note that your name for payroll purposes must match exactly with your social security records.  To expedite the orientation process, please complete the attached forms and bring these with you on your first day.

Please acknowledge your acceptance of this offer by signing and returning a copy of this letter and the Incorporated Documents, all in their entirety, to me no later than August 10, 2016 via email at __________ or confidential fax to _________.  By signing this offer, you are, among other things, representing to Lumber Liquidators that there are no legal or equitable agreements or restrictions that would prevent, limit, impair or otherwise compromise your ability to comply with the terms of this offer and perform on behalf of Lumber Liquidators. The Lumber Liquidators' mailing address is 3000 John Deere Road, Toano, Virginia  23168.

3

Please note that your employment with Lumber Liquidators is at-will and neither this document nor any other oral or written representations may be considered a contract of employment for any specific length of time. You retain the option, as does Lumber Liquidators, of ending your employment with Lumber Liquidators at any time, with or without notice and with or without cause.

If you have questions regarding any of the above, please feel free to contact me by telephone at

____________ (office) or _________________ (mobile), or by email.

We look forward to you joining the Lumber Liquidators team and working with you to further our success.

Sincerely,

/s/ Sandra C. Whitehouse

Sandra C. Whitehouse

SVP, Chief Human Resources Officer

ACKNOWLEDGEMENT and AGREEMENT:  As indicated by my signature below on this letter, I acknowledge its receipt and my understanding and acceptance of its contents.   I agree that should I terminate employment with Lumber Liquidators or if my employment is terminated for cause, any monies owed for reimbursement of expenses or other sums under this offer letter will be deducted from my final paychecks.

Signature:	/s/ Christopher Thomsen		Date:	8/8/16
	Christopher Thomsen
cc: John Presley, CEO
Attachments:		Confidentiality, Non-Solicitation and Non-Competition Agreement
		Annual Bonus Plan for Executive Management
		Severance Benefit Agreement
		Relocation Policy
		Relocation Expense Agreement

4

EX-10.46

Exhibit 10.46

SEVERANCE AGREEMENT

THIS SEVERANCE AGREEMENT (the “Agreement”) is made and entered into as of the 26th day of July, 2018, by and between Lumber Liquidators Holdings, Inc., a Delaware corporation (the “Company”), and Christopher Thomsen (the “Employee”).

WITNESSETH:

WHEREAS, the Employee is a senior executive of the Company and has made and is expected to continue to make major contributions to the short-term and long-term profitability, growth and financial strength of the Company and its subsidiaries; and

WHEREAS, in consideration of the Employee’s continued employment with the Company and its subsidiaries, the Company desires to provide the Employee with certain compensation and benefits set forth in this Agreement in order to ameliorate the financial and career impact on the Employee if the Employee’s employment with the Company and its subsidiaries is terminated under certain circumstances; and

WHEREAS, the Board of Directors of the Company (the “Board”) also recognizes that, as is the case with any company, the possibility of a Change in Control (as hereinafter defined) exists and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of key management personnel to the detriment of the Company and its subsidiaries; and

WHEREAS, the Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of, and the continued rendering of services by, members of the Company’s key management personnel, including the Employee, in connection with their assigned duties without distraction, and without the Company’s loss of needed key management personnel, arising from the possibility of a Change in Control; and

WHEREAS, in consideration of the Employee’s continued employment with the Company and its subsidiaries, the Company also desires to provide the Employee with certain additional compensation and benefits set forth in this Agreement if the Employee’s employment with the Company and its subsidiaries is terminated for a reason related to a Change in Control.

NOW, THEREFORE, in consideration of the terms contained herein, including the compensation and benefits the Company agrees to pay to the Employee upon certain events, the Employee’s continued employment with the Company and its subsidiaries, the Employee’s covenants contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Employee hereby agree as follows:

1. TERMINATION OF EMPLOYMENT

1.1 For purposes of this Agreement, the following terms shall have the meanings indicated:

(a) Annual Base Salary.  Annual Base Salary shall mean the annualized base cash compensation payable by the Company and its subsidiaries to the Employee, excluding bonuses, commissions, severance payments, company contributions, qualified plan contributions or benefits, expense reimbursements, fringe benefits and all other payments; prior to reduction for any deferrals under any employee benefit plan of the Company or any of its subsidiaries; and disregarding any reduction that would give the Employee “Good Reason” to terminate the Employee’s employment under Section 1.1(f)(iii); as of (i) the

termination of the Employee’s employment if the Employee’s employment is not terminated during a Change in Control Period or (ii)(A) the termination of the Employee’s employment or (B) immediately before the Change in Control Period, whichever is higher, if the Employee’s employment is terminated during a Change in Control Period.

(b) Change in Control.  Change in Control shall mean any of the following events:

(i) any person, including a “group” as defined below, acquires ownership of the Common Stock that, together with the Common Stock already held by such person or group, represents more than fifty percent (50%) of the total fair market value or total voting power of the then outstanding Common Stock;

(ii) a majority of the members of the Board is replaced during a twelve (12)-month period by directors who do not qualify as Incumbent Board Members; or

(iii) any person, including a “group” as defined below, acquires (or has acquired during the twelve (12)-month period ending on the date of the most recent acquisition by such person or persons) all or substantially all of the assets of the Company.

The term “group” shall have the same meaning as in Section 13(d)(3) of the Securities Act of 1933, modified as may be necessary to comply with the requirements of Treasury Regulations Section 1.409A-3(i)(5)(v).  This definition of “Change of Control” is intended to satisfy the requirements of Treasury Regulations Section 1.409A-3(i)(5), the terms of which are incorporated herein by reference.

(c) Change in Control Period.  Change in Control Period shall mean (i) any period in which the Company or any of its subsidiaries has initiated a transaction process or is engaged in discussions with a third party about a specific transaction that, if consummated, would result in a Change in Control and before the complete abandonment of such process or discussions without the transaction being consummated, (ii) any period during which the Company or any of its subsidiaries has become a party to a definitive agreement to consummate a transaction that would result in a Change in Control and before the termination of such agreement without the transaction being consummated, and (iii) any period commencing upon the effective date of the Change in Control and ending on the twelve (12)-month anniversary of the effective date of such Change in Control; provided, however, notwithstanding the foregoing, in no event will the Change in Control Period be deemed to have commenced earlier than six (6) months prior to the Change in Control. 

(d) Cause.  “Cause” shall mean any one of the following:  (A) the Employee’s gross neglect of duty to the Company or any of its subsidiaries or gross negligence or intentional misconduct in the course of Employee’s employment; (B) the Employee’s having been indicted for, or entered a plea of guilty or nolocontendere to, a crime that constitutes a felony or the Employee’s commission of any other act or omission involving fraud with respect to the Company or any of its subsidiaries or any of their customers or suppliers; (C) the Employee’s breach of any fiduciary duty owed to the Company or any of its subsidiaries; (D) the Employee being prohibited from serving as an officer of a reporting company subject to Sections 13 or 15(d) of the Securities Exchange Act of 1934, as amended, by applicable law, as the result of any order of a court or governmental agency or other judicial or administrative proceeding or as the result of any contractual arrangements to which the Employee is bound; (E) the Employee’s willful and intentional non-performance of Employee’s duties and responsibilities with the Company or any

subsidiary or willful disregard of any legal directives of the Board or the Employee’s direct report and failure, in either case, to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company; and/or (F) the breach by the Employee of any confidentiality, non-competition, non-solicitation or other restrictive covenants to which the Employee is bound as related to the Company or any of its subsidiaries that results in a material adverse effect on the business or reputation of the Company or any of its subsidiaries and the failure to cure such breach, if capable of being cured, within ten (10) days of receipt of written notice from the Company. 

(e) Common Stock.  Common Stock means the common stock, par value $0.001 per share, of the Company.

(f) Good Reason.  “Good Reason” shall mean the termination by the Employee of the Employee’s employment on account of the following events occurring without the Employee’s written consent: (i) the failure by the Company or any subsidiary to pay the Employee any material amounts of base salary, bonus or other amounts due the Employee or the failure to provide the Employee with any material amounts of any vested accrued benefits to which the Employee is entitled under the terms of any employee benefit plan of the Company or any subsidiary; (ii) a material reduction in the Employee’s authority, duties or responsibilities as previously in effect, provided, however, that any change in the title of the Employee or the person or group to whom the Employee reports shall not constitute a material reduction in the Employee’s authority, duties or responsibilities as previously in effect unless the Employee reports directly to the Board, in which case any requirement that the Employee report to any person or group other than the Board will constitute a material reduction in the Employee’s authority, duties and responsibilities; (iii) a material reduction in the rate of the Employee’s annualized base salary previously in effect, or a material decrease in the Employee’s annual bonus opportunity previously in effect; or (iv) the Company requiring the Employee’s primary services to be rendered at a place other than (i) Toano, Virginia, (ii) Richmond, Virginia or (iii) within a seventy-five (75)-mile radius of either, except for reasonable travel.  The Employee must give the Company written notice of any event or condition that would constitute Good Reason within thirty (30) days of the event or condition which would constitute Good Reason, and upon receipt of such notice the Company shall have thirty (30) days to remedy such event or condition.  If such event or condition is not remedied within such thirty (30)-day period, any termination of the Employee’s employment by the Employee for Good Reason must occur within thirty (30) days after the period for the Company to remedy the event or condition has expired.  Notwithstanding any other provision of this Agreement, the Company’s failure to renew the Term of this Agreement as set forth in Section 1.2 shall not constitute “Good Reason” for purposes of this Agreement.

(g) Incumbent Board Member.  Incumbent Board Member means any individual who either is (i) a member of the Board as of the effective date of this Agreement or (ii) a member who becomes a member of the Board after the effective date of this Agreement whose election, or nomination for election by the Company’s shareholders, was approved by a vote of at least sixty percent (60%) of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as nominee for director, without objection to such nomination), but excluding, for this purpose, any individual whose initial assumption of office occurs as the result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act of 1934, as amended) with respect to the election or removal of directors or

other actual or threatened solicitation of proxies or consents by or on behalf of any person other than the Board.

(h) Pre-Existing Agreement.  Pre-Existing Agreement means any employment, termination, change in control or other agreement, plan, policy or arrangement or offer letter or similar writing, other than this Agreement, in effect as of the date hereof, under which the Employee is entitled to receive (i) severance, salary continuation or other compensation, (ii) continued coverage under any benefit plan, policy or arrangement, and/or (iii) accelerated vesting of equity or equity-based awards, if the employment of the Employee is terminated (x) by the Company other than for Cause or (y) by the Employee for Good Reason.

1.2 This Agreement is effective as of the date set forth above and will continue through December 31, 2021, unless terminated or extended as hereinafter provided.  This Agreement will be extended for successive one-year periods following the original term (and through each subsequent anniversary thereof) unless either party notifies the other in writing at least nine (9) months prior to the end of the original term, or the end of any additional one-year renewal term, that the Agreement shall not be extended beyond its then current term.  The term of this Agreement, including any renewal term, is referred to herein as the “Term.”  Notwithstanding the foregoing, the Term shall be extended automatically so that the Term will continue in full force and effect, and will not expire, during any Change in Control Period.  In the event the Term otherwise would have expired during any Change in Control Period absent the foregoing sentence, the Term shall continue in full force and effect until the expiration of the Change in Control Period.

1.3 If the Employee’s employment is terminated during the Term (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, (i) an amount equal to the Employee’s Annual Base Salary, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the twelve (12) months beginning on the date of termination of the Employee’s employment; (ii) any accrued and unpaid bonus under the Company’s bonus plan in which Employee participated for any prior completed fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company; (iii) the greater of the target bonus or the actual bonus for the year the Employee terminates employment (in either case pro-rated based on the number of days the Employee remained employed with the Company during the year of termination) under the Company’s bonus plan in which the Employee participated for such fiscal year will be paid by the Company to the Employee in a single lump sum, less applicable withholdings, on the date such annual bonus would have been paid to the Employee had the Employee continued employment with the Company, and (iv) any and all other amounts that the Employee is entitled to receive upon termination of the Employee’s employment under any Company policy, plan or other arrangement (including, without limitation, the Company’s vacation policy) shall be paid by the Company to the Employee pursuant to the terms of such Company policy, plan or other arrangement.

Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in this Section 1.3 above, the Company also shall maintain in full force and effect for twelve (12) months after the Employee terminates employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such

termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.

Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made.  Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment.  Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.3 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.

1.4 If the Employee’s employment is terminated during the Term and during any Change in Control Period (a) by the Company other than for Cause or (b) by the Employee for Good Reason, then, subject to Section 3.8 below and the Company’s receipt from the Employee of the Confidential Waiver and Release Agreement described in Section 1.8 below, and provided the relevant Change in Control occurs, in addition to the amounts set forth in Section 1.3 above, an amount equal to the product of one and one-half(1.5) times the Employee’s Annual Base Salary, less the aggregate amount of salary continuation payable to the Employee under Section 1.3 above at the time of termination of the Employee’s employment, less applicable withholdings, shall be paid by the Company to the Employee in the form of salary continuation in accordance with the Company’s normal payroll practices (no less frequently than monthly) for the six(6) months beginning twelve (12) months after the date of termination of the Employee’s employment.

Subject to Section 3.8 below and the receipt of the Confidential Waiver and Release Agreement as described in Section 1.8 below, upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Company also shall maintain in full force and effect for no less than the six(6) months beginning twelve (12) months after the date of termination of the Employee’s employment, for the continued benefit of the Employee, medical insurance (including coverage for the Employee’s dependents to the extent dependent coverage is provided by the Company for its employees generally) under such medical insurance plans and programs in which the Employee (and his dependents) participated immediately prior to the date of such termination of employment, and, during such period, the Company will pay each month the portion, if any, of such medical insurance premiums that the Company pays for its active Employees, and the Employee shall pay any remaining amounts.

Notwithstanding the foregoing, however, (a) in the event the Employee’s participation in any such medical insurance is not permitted for any reason at the time the Company is required to maintain such coverage, then the Company shall have the option to (i) arrange to provide the Employee with such benefits on the same relative basis for such period substantially similar to those which the Employee would otherwise have been entitled to receive under such plans and programs from which his continued participation is not permitted or (ii) pay to the Employee cash, in lieu of such continued coverage, in an

amount equal to the same relative percentage of the medical insurance premiums for such continuing comparable coverage, with any such cash payments to be made in accordance with the ordinary payroll practice of the Company (not less frequently than monthly) as of the last day of each month for which such cash payments are to be made.  Notwithstanding the foregoing, the Employee’s termination of employment shall constitute a “qualifying event” under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), so that the Employee shall be entitled to full rights to continued medical insurance coverage as provided under COBRA, if so eligible, immediately upon the termination of the Employee’s employment.  Notwithstanding the foregoing, the coverage or reimbursements for coverage provided under this Section 1.4 shall cease if the Employee and/or the Employee’s dependents become covered under an employee welfare benefit plan of another employer of the Employee that provides the same or similar type of benefits for comparable cost or the Company terminates the medical insurance entirely for all similar participants.

Upon termination of the Employee’s employment entitling the Employee to the payments set forth in Section 1.4 above, the Employee will become vested in any and all unvested stock options, stock appreciation rights, restricted stock, restricted stock units and other equity awards previously granted to the Employee by the Company or any of its subsidiaries (at target to the extent vesting but for this provision would be based on the achievement of performance conditions other than continued employment or service), as of the later of (a) the date of the Change in Control or (b) the date the Confidential Waiver and Release Agreement as described in Section 1.8 below becomes effective and irrevocable. The Employee may exercise such equity awards only at the times and in the methods described in such equity awards, except that the Employee’s stock options and stock appreciation rights, if any, shall remain outstanding and may be exercised, to the extent vested, until the earlier of (i) the original expiration date of such options or stock appreciation rights (disregarding any earlier termination provided in the award agreement or otherwise based on the termination of the Employee’s employment) or (ii) the one-year anniversary of the later of (A) the date the Employee terminates employment or (B) the date the option or stock appreciation right becomes vested and exercisable.  Notwithstanding the foregoing, this portion of Section 1.4 shall not apply to any of the Employee’s stock options, stock appreciation rights, restricted stock, restricted stock units or other equity awards if the terms of the particular plan or agreement under which such award is granted specifically provides that this provision shall not apply to such award. 

1.5 Notwithstanding the foregoing, the Employee shall not be entitled to receive, and the Company will not be obligated to pay or provide, the compensation set forth in Sections 1.3 and 1.4 hereof, the continued coverage at active employee rates set forth in Sections 1.3 and 1.4 hereof or the accelerated vesting or other benefits set forth in Section 1.4 hereof, if the Employee’s employment (i) terminates upon the Employee’s death or Disability, (ii) is terminated by the Company for Cause or by the Employee without Good Reason, (iii) in case of Section 1.4, terminates outside of the Change in Control Period or (iv) terminates but the Employee continues, or has agreed to continue, employment with the successor (whether direct or indirect, by purchase, merger, consolidation, share exchange or otherwise) to the business and/or assets of the Company after the Change in Control.  “Disability” shall mean a physical or mental infirmity that prevents the performance on a full-time basis of all or substantially all of the Employee’s employment-related duties, with or without accommodation, lasting either for a period of ninety (90) consecutive days or for a period of more than ninety (90) days in any rolling one hundred eighty (180)-day period.  Additionally, notwithstanding any other provision hereof, nothing herein shall require the Company to maintain any particular benefit or benefit plan, and to the extent the Company amends or terminates any such benefit plan with respect to participants generally, Employee shall be subject to the same extent and the Company shall not be required to provide to Employee any such benefit or any substitute consideration therefore.

1.6 If any payment or benefit by the Company or any subsidiary to or for the benefit of the Employee, whether paid or payable or provided or to be provided pursuant to the terms of this Agreement

or otherwise pursuant to or by reason of any other agreement, policy, plan, program or arrangement, including without limitation any stock option, stock appreciation right or similar right or equity award, or the lapse or termination of any restriction on or the vesting or exercisability of any of the foregoing (a “Payment”), would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) or to any similar tax imposed by state or local law, or any interest or penalties with respect to such tax (such tax or taxes, together with any such interest and penalties, being hereafter collectively referred to as the “Excise Tax”), then the payments and benefits to be provided under this Agreement (or the other Payments as described above) shall be reduced (but not in excess of the amount of the payments or benefits to be provided under this Agreement or the other Payments as described above) if, and only to the extent that, such reduction will allow the Employee to receive a greater Net After Tax Amount than such Employee would receive absent such reduction. 

If the Company and the Employee cannot agree on the calculations necessary to execute the terms set forth in this Section 1.6, then such calculations will be made by an Accounting Firm (as defined below).  In such event, the Accounting Firm will first determine the amount of any Parachute Payments (as defined below) that are payable to the Employee.  The Accounting Firm also will determine the Net After Tax Amount attributable to the Employee’s total Parachute Payments.  The Accounting Firm will next determine the largest amount of payments that may be made to the Employee without subjecting the Employee to the Excise Tax (the “Capped Payments”).  Thereafter, the Accounting Firm will determine the Net After Tax Amount attributable to the Capped Payments.  The Employee then will receive the total Parachute Payments or the total Capped Payments, whichever provides the Employee with the higher Net After Tax Amount; however, if the reductions imposed under this Section 1.6 are in excess of the amount of payments or benefits to be provided, then the total Parachute Payments will be adjusted by first reducing, on a pro rata basis, the amount of any noncash benefits under this Agreement, then any noncash benefits under any other plan, agreement or arrangement, then any cash payments under this Agreement and finally any cash payments under any other plan, agreement or arrangement.  The Accounting Firm will notify the Employee and the Company if it determines that the Parachute Payments must be reduced and will send the Employee and the Company a copy of its detailed calculations supporting that determination.

As a result of the uncertainty in the application of Code Sections 280G and 4999 at the time that determinations under this Section 1.6 are made, it is possible that the Employee will have received Parachute Payments or Capped Payments in excess of the amount that should have been paid or provided (“Overpayments”), or that additional Parachute Payments or Capped Payments should be paid or provided to the Employee (“Underpayments”).  If the parties agree on an Overpayment or, in the absence of such agreement, the Accounting Firm determines, based on either the assertion of a deficiency by the Internal Revenue Service against the Company or the Employee, which assertion the parties or the Accounting Firm, as the case may be, believes has a high probability of success, or controlling precedent or substantial authority, that an Overpayment has been made, that Overpayment will be treated for all purposes as a loan ab initio that the Employee must repay to the Company immediately together with interest at the applicable Federal rate under Code Section 7872; provided, however, that no loan will be deemed to have been made and no amount will be payable by the Employee to the Company unless, and then only to the extent that, the deemed loan and payment would either reduce the amount on which the Employee is subject to tax under Code Section 4999 or generate a refund of tax imposed under Code Section 4999 and the Employee will receive a greater Net After Tax Amount than such Employee would otherwise receive.  If the parties agree on an Underpayment or, in the absence of such agreement, the Accounting Firm determines, based upon controlling precedent or substantial authority, that an Underpayment has occurred, upon which event the Accounting Firm will notify the Employee and the Company of that determination, the amount of that Underpayment will be paid to the Employee by the Company promptly after such determination.

For purposes of this Section 1.6, the following terms shall have their respective meanings:

(a) “Accounting Firm” means the independent accounting firm currently engaged by the Company, or a mutually agreed upon independent accounting firm if requested by the Employee; and

(b) “Net After Tax Amount” means the amount of any Parachute Payments or Capped Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and any State or local income taxes applicable to the Employee on the date of payment.  The determination of the Net After Tax Amount shall be made using the highest combined effective rate imposed by the foregoing taxes on income of the same character as the Parachute Payments or Capped Payments, as applicable, in effect on the date of payment.

(c) “Parachute Payment” means a payment that is described in Code Section 280G(b)(2), determined in accordance with Code Section 280G and the regulations promulgated or proposed thereunder.

The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by the preceding subsections shall be borne by the Company.  The Company and the Employee shall each provide the Accounting Firm access to and copies of any books, records and documents in the possession of the Company or the Employee, as the case may be, reasonably requested by the Accounting Firm, and otherwise cooperate with the Accounting Firm in connection with the preparation and issuance of the determinations and calculations contemplated by the preceding subsections.  Any determination by the Accounting Firm shall be binding upon the Company and the Employee.

1.7 The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided,however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under this Section 1.7 to enforce the provisions of this Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 1.7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees) of any arbitration pursuant to this Section 1.7; provided, that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.

1.8 As a condition to the receipt of any compensation and other benefits pursuant to this Agreement, the Employee must submit a signed Confidential Waiver and Release Agreement, in a form reasonably satisfactory to the Company and at a minimum substantially in the form attached as Appendix A, within forty-five (45) days of the termination of the Employee’s employment and not revoke same within

the seven (7) days immediately following the Employee’s execution of same.  Notwithstanding any other provision of this Agreement to the contrary, (i) any payments to be made, or benefits to be provided, under Sections 1.3 and 1.4 of this Agreement (other than the payments required to be made by the Company pursuant to Section 1.3(iv) above), within the sixty (60) days after the date the Employee’s employment terminates, shall be accumulated and paid in a lump sum, or as to benefits continued at Employee’s expense subject to reimbursement to be made, on the first pay period occurring more than sixty (60) days after the date the Employee terminates employment (and no later than ninety (90) days after the date the Employee terminates employment), and (ii) the accelerated vesting of equity awards as set forth in Section 1.4 above shall not be effective any earlier than the date the Confidential Waiver and Release Agreement is effective and irrevocable, provided in each case Executive delivers the signed Confidential Waiver and Release Agreement to Company and the revocation period thereunder expires without Executive having elected to revoke the Confidential Waiver and Release Agreement.

2. COVENANTS

2.1 The Employee agrees and acknowledges that Lumber Liquidators, Inc., a wholly-owned subsidiary of the Company (“Lumber Liquidators”), and the Employee, contemporaneously with the execution of this Agreement, have entered into the Confidentiality, Non-Solicitation and Non-Competition Agreement, dated July 26, 2018 (the “Non-Compete Agreement”), a copy of which is attached hereto as Appendix B, pursuant to which the Employee has agreed to comply with certain confidentiality, non-solicitation, non-competition and other restrictive covenants as set forth therein.  The Employee agrees that the Employee would not be entitled to receive the payments and benefits of this Agreement had the Employee not become a party to the Non-Compete Agreement. Additionally, the Employee agrees, acknowledges and affirms that the Non-Compete Agreement remains in full force and effect and is not merged, superseded or otherwise affected by this Agreement in any way that would be adverse to the rights of the Company and/or Lumber Liquidators.  The Employee also agrees that the covenants, prohibitions and restrictions contained in the Non-Compete Agreement are in addition to, and not in lieu of, any rights or remedies that the Company may have under this Agreement or the laws of any applicable jurisdiction, or at common law or equity, and the enforcement or non-enforcement by the Company of its rights and remedies pursuant to this Agreement shall not be construed as a waiver of any rights or other remedies that Lumber Liquidators may possess under the Non-Compete Agreement.  The Employee also agrees that, if the Employee is entitled to receive salary continuation payments under Sections 1.3 and/or 1.4 above, the Non-Compete Agreement will be amended and supplemented prior to the termination of the Employee’s employment, as is reasonably satisfactory to the Company and at a minimum substantially as described in the Confidential Waiver and Release Agreement.

2.2 The Employee acknowledges and agrees that the Company, Lumber Liquidators and their subsidiaries and affiliates have a legitimate business interest in preventing Employee from engaging in the activities described in the Non-Compete Agreement and that any breach of the Non-Compete Agreement would constitute a material breach of this Agreement.

2.3 The Employee further agrees and promises that the Employee will not engage in, or induce other persons or entities to engage in, any harassing or disparaging conduct or negative or derogatory statements directed at or about the Company or its subsidiaries, the activities of the Company and/or its subsidiaries or any of the persons or entities covered under the Confidential Waiver and Release Agreement described above, at any time (whether during the Term or thereafter).  Notwithstanding the foregoing, this Section 2.3 may not be used to penalize the Employee for providing truthful testimony under oath in a judicial or administrative proceeding or complying with an order of a court or government agency of competent jurisdiction.

2.4 Notwithstanding any other provision of this Agreement, the Company and  the Employee acknowledge and agree that nothing in this Agreement or the Non-Compete Agreement shall prohibit the Employee from reporting possible violations of Federal, State or other law or regulations to, or filing a charge or other complaint with, any governmental agency or entity, including but not limited to the Department of Justice, the Equal Employment Opportunity Commission, the National Labor Relations Board, the Occupational Safety and Health Administration, the Securities and Exchange Commission, Congress, and any Inspector General, or making any other disclosures that are protected under any whistleblower provisions of Federal, State or other law or regulation or assisting in any such investigation or proceeding.  The Employee further acknowledges that nothing herein or in the Non-Compete Agreement limits the Employee’s ability to communicate with any such governmental agency or entity or otherwise participate in any such investigation or proceeding that may be conducted by any such governmental agency or entity, including providing documents or other information, without notice to the Company.  The Employee does not need the prior authorization of the Company or Lumber Liquidators to make any such reports or disclosures, and the Employee is not required to notify the Company or Lumber Liquidators that the Employee made any such reports or disclosures or is assisting in any such investigation.  Additionally, the Employee (i) does not waive any rights to any individual monetary recovery or other awards in connection with reporting any such information to any such governmental agency or entity, (ii) does not breach any confidentiality or other provision hereunder in connection with any such reporting or disclosures, and (ii) will not be prohibited from receiving any amounts hereunder as the result of making any such reports or disclosures or assisting with any such investigation or proceeding.

2.5 In the event the Employee breaches any of the covenants set forth in this Section 2 or in the Non-Compete Agreement (as amended by the Confidential Waiver and Release Agreement), the Employee waives and forfeits any and all rights to any further payments or benefits under Sections 1.3 and/or 1.4 above and under any outstanding awards with respect to which the accelerated vesting or other benefits under Section 1.4 applied, and the Employee agrees to repay to the Company (a) an amount that equals the gross amount (before taxes) of any payments previously paid to, or on behalf of, the Employee under Sections 1.3 and/or 1.4 above and (b) any shares of Common Stock the Employee then owns as the result of the accelerated vesting under Section 1.4 and all gross amounts realized as the result of the sale of any shares of Common Stock the Employee previously owned as the result of the accelerated vesting under Section 1.4. 

2.6 Notwithstanding any other provision of this Agreement, all payments and benefits that may be provided to the Employee under this Agreement shall be subject to (i) applicable laws regarding recoupment of compensation and (ii) the terms of any recoupment policy of the Company currently in effect or as subsequently established or amended by the Board of Directors of the Company and/or the Compensation Committee of the Board of Directors of the Company, including without limitation any such policy intended to implement Section 304 of the Sarbanes-Oxley Act of 2002, as amended, or Section 10D of the Securities Exchange Act of 1934, as amended.

3. MISCELLANEOUS

3.1 The Employee shall have no right to receive any payment hereunder except as determined pursuant to Sections 1.3 or 1.4 hereof. Nothing contained in this Agreement shall confer upon the Employee any right to continued employment by the Company or shall interfere in any way with the right of the Company to terminate his employment at any time for any/or no reason. The provisions of this Agreement shall not affect in any way the right or power of the Company to change its business structure or to effect a

merger, consolidation, share exchange or similar transaction, or to dissolve or liquidate, or sell or transfer all or part of its business or assets.

3.2 The Employee understands that his obligations under this Agreement and the Non-Compete Agreement will continue whether or not his employment with the Company is terminated voluntarily or involuntarily, or with or without cause.  To the extent necessary to give effect to such provisions, the provisions of this Agreement, and the provisions of the Non-Compete Agreement, which are incorporated herein by this reference, shall survive the termination hereof, whether such termination shall be by termination of the Employee’s employment by the Company or by the Employee, voluntary or involuntary, with or without Cause and whether or not on account of Disability. 

3.3 This Agreement may not be amended other than by a written agreement signed by the Employee and a Company officer.

3.4 The Employee agrees that the Company’s waiver of any default by the Employer shall not constitute a waiver of its rights under this Agreement with respect to any subsequent default by the Employee. No waiver of any provision of this Agreement shall be valid unless in writing and signed by all parties.

3.5 This Agreement shall be binding upon, and inure to the benefit of, the Employee and the Company and their respective permitted successors and assigns. Neither this Agreement nor any right or interest hereunder shall be assignable by the Employee, his beneficiaries, or legal representatives without the Company’s prior written consent.

3.6 Where appropriate as used in this Plan, the masculine shall include the feminine.

3.7 This Agreement has been executed and delivered in the Commonwealth of Virginia, and the laws of the Commonwealth of Virginia shall govern its validity, interpretation, performance and enforcement.

3.8 It is intended that any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) shall be paid and provided in a manner, and at such time, as complies with the applicable requirements of Section 409A of the Code to avoid the unfavorable tax consequences provided therein for noncompliance.  Neither the Company nor the Employee shall take any action to accelerate or delay the payment of any monies and/or provision of any benefits under this Agreement in any manner that would not be in compliance with Section 409A of the Code.  For purposes of this Agreement, all rights to payments and benefits hereunder shall be treated as rights to receive a series of separate payments and benefits to the fullest extent allowed by Section 409A of the Code.  For purposes of determining the time of (but not entitlement to) payment or provision of deferred compensation under this Agreement under Section 409A of the Code in connection with a termination of employment, termination of employment will be read to mean a “separation from service” within the meaning of Section 409A of the Code.  If the Employee is a key employee (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, then payment of any amount or provision of any benefit under this Agreement which is considered deferred compensation subject to Section 409A of the Code shall be deferred for six (6) months after termination of the Employee’s employment or, if earlier, the Employee’s death, as required by Section 409A(a)(2)(B)(i) of the Code (the “409A Deferral Period”).  In the event such payments are otherwise due to be made in installments or periodically during the 409A Deferral Period, the payments which would otherwise have been made in the 409A Deferral Period shall be accumulated and paid in a lump sum as soon as the 409A Deferral Period ends, and the balance of the payments shall be made as otherwise

scheduled.  In the event benefits are required to be deferred, any such benefit may be provided during the 409A Deferral Period at the Employee’s expense, with the Employee having a right to reimbursement from the Company once the 409A Deferral Period ends, and the balance of the benefits shall be provided as otherwise scheduled.  Notwithstanding any other provision of this Agreement, the Company shall not be liable to the Employee if any payment or benefit which is provided pursuant to this Agreement and which is considered to be deferred compensation and subject to Section 409A of the Code otherwise fails to comply with, or be exempt from, the requirements of Section 409A of the Code. 

3.9 This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. 

3.10 Any payments provided for herein shall be reduced by any amounts required to be withheld by the Company under applicable federal, state or local income or employment tax laws or similar statutes to other provisions of law then effect.  The Employee agrees and acknowledges that the determination of the Employee’s tax liability with respect to compensation and benefits under this Agreement is between the Employee and the relevant taxing authority, and the Company shall not have any liability or responsibility for the payment of any such taxes owed by the Employee, including without limitation any related interest and/or penalties.

3.11 Any notice required or desired to be delivered under this Agreement shall be in writing and shall be delivered personally, by courier service, or by registered mail, return receipt requested and shall be effective upon actual receipt by the party to which such notice shall be directed, and shall be addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof):

If to the Company:

Lumber Liquidators Holdings, Inc.

300 John Deere Road

Toano, Virginia 23168

Attn:  Chief Legal Officer

Telephone: 757-259-4280

If to Employee:

Christopher Thomsen

__________________

__________________

Telephone: ___________________

3.12 This Agreement contains the entire agreement between the Company and the Employee with respect to the subject matter hereof and, from and after the date hereof, this Agreement shall supersede any other agreement, written or oral, between the parties relating to the subject matter of this Agreement, including but not limited to any Pre-Existing Agreement, any plan, policy or other arrangement of the Company or any subsidiary that provides for the payment of severance, salary continuation or similar benefits, and any prior discussions, understanding or agreements between the Company and the Employee, written or oral, at any time.  The Company and the Employee agree that the Pre-Existing Agreement and all such other plans, policies and arrangements providing for severance, salary continuation or similar benefits are null and void and superseded by this Agreement, and neither party has any further rights or

obligations under any Pre-Existing Agreement or any such other plans, policies and arrangements providing for severance, salary continuation or similar benefits.

[SIGNATURES CONTINUED NEXT PAGE]

IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto effective as of the day and year first above stated.

LUMBER LIQUIDATORS HOLDINGS, INC.

By:/s/ Martin F. Roper

Name:  Martin F. Roper

Title:    Chairman of the Compensation Committee

EMPLOYEE:

/s/ Christopher Thomsen

Christopher Thomsen

Appendix A

Severance Agreement

Confidential Waiver and Release Agreement

CONFIDENTIAL WAIVER AND RELEASE AGREEMENT

RELEASE AGREEMENT (this “Release Agreement”),  dated as of [DATE], between Lumber Liquidators Holdings, Inc. (the “Company”),and _________ (the “Employee”).

1. Termination of Employment. The Employee acknowledges that his employment with the Company and its subsidiaries and affiliated entities terminated effective as of _____________ __, 20__ (the “Termination Date”) and his role and responsibilities as ____________ terminated as of the Termination Date.  Subject to the terms of this Release Agreement, the Employee shall be paid, offered, and provided compensation and benefits at the Employee’s current rates and amounts through the Termination Date.

2. Release.

a. In consideration of the payments and benefits set forth in Section 1 of the Severance Agreement between the Company and the Employee dated as of _________ __, 2018 (the “Severance Agreement”),the Employee, on behalf of himself and his heirs, executors, successors and assigns, knowingly and voluntarily releases, remises, and forever discharges the Company and its parents, subsidiaries and affiliates, together with each of their current and former principals, officers, directors, shareholders, agents, representatives and employees, and each of their heirs, executors, successors and assigns (collectively, the “Releasees”),from any and all debts, demands, actions, causes of actions, accounts, covenants, contracts, agreements, claims, damages, omissions, promises, and any and all claims and liabilities whatsoever, of every name and nature, known or unknown, suspected or unsuspected, both in law and equity (“Claims”),which the Employee ever had, now has, or may hereafter claim to have against the Releasees by reason of any matter, cause or thing whatsoever arising from the beginning of time to the time he signs this Release Agreement (the “General Release”).This General Release of Claims shall apply to any Claim of any type, including, without limitation, any and all Claims of any type that the Employee may have arising under the common law, under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Americans With Disabilities Act of 1967, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), the Sarbanes-Oxley Act of 2002, each as amended, and any other federal, state or local statutes, regulations, ordinances or common law, or under any policy, agreement, contract, understanding or promise, written or oral, formal or informal, between any of the Releasees and the Employee, including but not limited to the Severance Agreement, and shall further apply, without limitation, to any and all Claims in connection with, related to or arising out of the Employee’s employment relationship, or the termination of his employment, with the Company.

b. Except as provided in Sections 1.3 and 1.4 of the Severance Agreement, the Employee acknowledges and agrees that the Company has fully satisfied any and all obligations owed to him arising out of his employment with the Company, and no further sums are owed to him by the Company or by any of the other Releasees at any time.

c. The Employee represents and warrants to the Company that he has fully disclosed any and all matters of interest to the Company’s ___________, including, but not limited to, those which (A) could reasonably likely have an adverse effect on the Company’s reputation, financial condition, operations, or liquidity and (B) should be disclosed under the Company’s Code of Business Conduct and Ethics.  The Employee also hereby confirms that all prior acknowledgements, certifications or other representations made by the Employee prior to the Termination Date remain true, complete and accurate as of the Termination Date and covenants and

A-1

agrees to immediately notify the Company’s ___________ of any circumstance or situation which may give rise to a change in those statements.

d. Nothing in this Paragraph 1 shall be deemed to release (i) the Employee’s right to enforce the terms of this Release Agreement, (ii) the Employee’s rights, if any, to any vested accrued benefits as of the Employee’s last day of employment with the Company under any plans of the Company which are subject to ERISA and in which the Employee participated, (iii) any claim that cannot be waived under applicable law, including any rights to workers’ compensation or unemployment insurance or (iv) the Employee’s rights, if any, for indemnification under any agreement or governing document of the Company with respect to the Employee’s service as an officer or director of any of the Releasees.

e. To the fullest extent allowed by law, the Employee promises never to file a lawsuit asserting any claims that are released in this Section 2. In the event Employee breaches this Section 2(e), the Employee shall pay to the Company all of its expenses incurred as a result of such breach, including but not limited to, reasonable attorneys’ fees and expenses. Notwithstanding the foregoing, the parties acknowledge and agree that this Section 2(e) shall not be construed to prohibit the exercise of any rights by the Employee that the Employee may not waive or forego as a matter of law.

3. Consultation with Attorney; Voluntary Agreement. The Company advises the Employee to consult with an attorney of his choosing prior to signing this Release Agreement. The Employee understands and agrees that he has the right and has been given the opportunity to review this Release Agreement and, specifically, the General Release in Paragraph 2 above, with an attorney. The Employee also understands and agrees that he is under no obligation to consent to the General Release set forth in Paragraph 2 above. The Employee acknowledges and agrees that the payments and benefits set forth in Section 1.3 and 1.4 of the Severance Agreement are sufficient consideration to require him to abide with his obligations under this Release Agreement, including but not limited to the General Release set forth in Paragraph 2. The Employee represents that he has read this Release Agreement, including the General Release set forth in Paragraph 2 and understands its terms and that he enters into this Release Agreement freely, voluntarily, and without coercion.

4. Effective Date; Revocation. The Employee acknowledges and represents that he has been given at least forty-five (45) days during which to review and consider the provisions of this Release Agreement and, specifically, the General Release set forth in Paragraph 2 above, although he may sign and return it sooner if he so desires. The Employee further acknowledges and represents that he has been advised by the Company that he has the right to revoke this Release Agreement for a period of seven (7) days after signing it. The Employee acknowledges and agrees that, if he wishes to revoke this Release Agreement, he must do so in a writing, signed by him and received by the Company no later than 5:00 p.m. Eastern Time on the seventh (7th) day of the revocation period. If no such revocation occurs, the General Release and this Release Agreement shall become effective on the eighth (8th) day following his execution of this Release Agreement (the “Release Effective Date”). The Employee further acknowledges and agrees that, in the event that he revokes this Release Agreement, it shall have no force or effect, and he shall have no right to receive any of the payments or benefits pursuant to Sections 1.2 or 1.3 of the Severance Agreement.

5. Severability. In the event that any one or more of the provisions of this Release Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of the Release Agreement shall not in any way be affected or impaired thereby.

6. Waiver. No waiver by either party of any breach by the other party of any condition or provision of this Release Agreement to be performed by such other party shall be deemed a waiver of any other provision or condition at the time or at any prior or subsequent time. This Release Agreement and the provisions contained in it shall not be construed or interpreted for or against either party because that party drafted or caused that party’s legal representative to draft any of its provisions.

A-2

7. Governing Law. This Release Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, without reference to its choice of law rules.

8. Disputes. The parties hereby consent and agree that (i) all disputes between the parties, including those relating to the existence and validity of this Release Agreement and any dispute as to the arbitrability of a matter under this provision, shall be submitted to full and binding arbitration in the Commonwealth of Virginia, before a panel of three arbitrators and administered by the American Arbitration Association (“AAA”) under its Employment Arbitration Rules and Mediation Procedures, provided,however, that this provision shall not require arbitration of any claim which, by law, cannot be the subject of a compulsory arbitration agreement, (ii) notwithstanding the foregoing, each party irrevocably submits to the jurisdiction of any Commonwealth of Virginia State or Federal court in any action or proceeding provided for under Section 1.7 of the Severance Agreement or with respect to enforcement of any judgment upon the award rendered by the arbitrators, and hereby waives the defense of inconvenient forum to the maintenance of any such action or proceeding, (iii) either party may elect to invoke the Optional Rules for Emergency Measures of Protection provided under the AAA’s Employment Arbitration Rules and Mediation Procedures, (iv) judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction thereof, (v) except as otherwise required by applicable law to render this Section 7 fully enforceable, each party shall be responsible for its own costs and expenses (including attorneys’ fees)of any arbitration pursuant to this Section 7; provided,however,that if the Employee prevails on any dispute covered by this provision, then the Company shall reimburse the Employee for the Employee’s reasonable attorneys’ fees and legal expenses, no later than thirty (30) days following any final resolution of such dispute, and (vi) each party has knowingly and voluntarily agreed to enter into this arbitration clause and, except as provided in Section 1.7 of the Severance Agreement, hereby waives any rights that might otherwise exist with respect to resolution of disputes between them, including with respect to the right to request a jury trial or other court proceeding.

9. Non-Disparagement.

a. The Employee agrees not to do or say anything, directly or indirectly, that reasonably may be expected to have the effect of criticizing or disparaging the Company, any director of Company, any of Company’s employees, officers or agents, or diminishing or impairing the goodwill and reputation of the Company or the products and services it provides. The Employee further agrees not to assert that any current or former employee, agent, director or officer of the Company has acted improperly or unlawfully with respect to the Employee or any other person regarding employment. The Company agrees not to do or say anything, directly or indirectly, that reasonably would have the effect of criticizing or disparaging the Employee.

b. Notwithstanding the foregoing provisions of this Section 9, the parties agree that nothing in this Agreement shall be construed to prohibit the exercise of any rights by either party that such party may not waive as a matter of law nor does this Agreement prohibit the Employee, the Company or the Company's officers, employees and/or directors from testifying truthfully in response to a subpoena, inquiry or order by a court or governmental body with appropriate jurisdiction or as otherwise required by law.

10. Return of Company Property. On or before the Termination Date, as determined by the Company, the Employee will promptly deliver to the Company all Company property, including but not limited to, all computers, phones, correspondence, manuals, letters, notes, notebooks, reports, flow charts, programs, proposals, passwords, third party equipment that the Company is authorized to represent, and any documents concerning the Company’s customers, operations, products or processes (actual or prospective) or concerning any other aspect of the Company’s business (actual or prospective) and, without limiting the foregoing, will promptly deliver to the Company any and all other documents or materials containing or constituting Confidential Information as defined in the Non-Compete Agreement, except that the Employee may retain personal papers

A-3

relating to Employee’s employment, compensation and benefits.

11. Cooperation. The Employee agrees that for a period of ten (10) years following the Termination Date, the Employee shall have a continuing duty to fully and promptly reasonably cooperate with the Company and its legal counsel by providing any and all requested information and assistance concerning any legal or business matters that in any way relate to the Employee’s actions or responsibilities as an employee of the Company, or to the period during the Employee’s employment with the Company. Such reasonable cooperation shall include but not be limited to truthfully and in a timely manner participating and consulting concerning facts, responding to questions, providing pertinent information, providing affidavits and statements, preparing for and attending depositions, and preparing for and attending trials, hearings and other proceedings. Such reasonable cooperation shall include meeting with representatives of the Company upon reasonable notice at reasonable times and locations. The Company shall use its reasonable efforts to coordinate with the Employee the time and place at which the Employee's reasonable cooperation shall be provided with the goal of minimizing the impact of such reasonable cooperation on any other material pre-scheduled business or professional commitments that the Employee may have. The coordination and communication from the Company to the Employee regarding the Employee’s cooperation shall come through the Company’s Chief Legal Officer. The Company shall reimburse the Employee for reasonable out-of-pocket expenses incurred by Employee in compliance with this Section, including any reasonable travel expenses incurred by Employee in providing such assistance, within thirty (30) days after Employee incurs the expense. As part of the consideration provided to the Employee under this Agreement, the Employee shall provide cooperation to the Company at no additional cost to the Company. At no time subsequent to the Termination Date shall the Employee be deemed to be a contractor or employee of the Company.

12. Disclaimer of Liability. This Agreement and the payments and performances hereunder are made solely to assist the Employee in making the transition from employment with Company, and are not and shall not be construed to be an admission of liability, an admission of the truth of any fact, or a declaration against interest on the part of the Company.

13. Entire Agreement. This Release Agreement constitutes the entire agreement and understanding of the parties with respect to the subject matter herein and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties; provided,however, that Section 2 of the Severance Agreement, and the terms of the Non-Compete Agreement incorporated therein, shall remain in full force and effect. The Employee agrees and acknowledges that the covenants and restrictions set forth in Section 2 of the Severance Agreement and the Non-Compete Agreement are reasonable and necessary for the protection of the Company and to protect its business and Confidential Information, and the Employee further expressly agrees that: (i) Section 2 of the Severance Agreement and the terms of the Non-Compete Agreement are material terms of this Release Agreement and (ii) notwithstanding the express provisions of the Non-Compete Agreement, the Employee agrees, and the parties hereby amend the Non-Compete Agreement to so provide, that the period during which the Employee is bound by the covenants set forth in Sections 2, 3, 4 and 5 of the Non-Compete Agreement shall remain in effect after the twelve (12)-month periods described therein for so long as the Employee is eligible to receive, and continues to receive, salary continuation payments pursuant to Section 1.3 and/or 1.4 of the Severance Agreement.  The Employee acknowledges and agrees that he is not relying on any representations or promises by any representative of the Company concerning the meaning of any aspect of this Release Agreement. This Release Agreement may not be altered or modified other than in a writing signed by the Employee and an authorized representative of the Company.

A-4

14. Headings. All descriptive headings in this Release Agreement are inserted for convenience only and shall be disregarded in construing or applying any provision of this Release Agreement.

15. Claim for Reinstatement. Employee agrees to waive and abandon any claim to reinstatement with Company. Employee further agrees not to apply for any position of employment with Company and agrees that this Agreement shall be sufficient justification for rejecting any such application.

16. Counterparts. This Release Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the Company and the Employee have executed this Release Agreement, on the date and year set forth below.

LUMBER LIQUIDATORS HOLDINGS, INC.

By:____________________________

Its:____________________________

EMPLOYEE:

__________________________________

Date: _____________________________

A-5

Appendix B

CONFIDENTIALITY, NON-SOLICITATION AND

NON-COMPETITION AGREEMENT

This Confidentiality, Non-Solicitation and Non-Competition Agreement (the “Agreement”) is made and entered into this 26th day of July, 2018, by and between Lumber Liquidators, Inc., its subsidiaries and affiliated entities (collectively, and where applicable, individually, the “Company”) and Chris Thomsen (the “Employee”).

WHEREAS, the parties hereto acknowledge that the Company is engaged in a highly competitive business; that the Company has expended substantial time and effort to develop, maintain, expand and protect the Company’s business, its workforce, its relationships and goodwill with its suppliers and customers, and its Confidential Information; that the Company has a legitimate business interest in protecting the same; and that the Company would be materially harmed if during Employee’s employment or after the Employee’s employment relationship with the Company terminates, the Employee enters into competition with the Company or attempts to solicit the Company’s suppliers, customers or employees prior to the lapse of a reasonable period of time.

NOW, THEREFORE, in consideration of the Employee's employment or continued employment with the Company beyond the date of this Agreement, the mutual promises and obligations of the parties contained herein, and for other good and valuable consideration, the adequacy and receipt of which is hereby acknowledged, the parties do hereby agree as follows:

1.Confidentiality.   Throughout any period during which Employee is an employee of the Company, and for a period of ten (10) years after the date Employee shall cease for any reason whatsoever to be an employee of the Company (the “Employment Cessation Date”), or as otherwise protected by applicable law including the Virginia Uniform Trade Secrets Act, whichever is longer, Employee agrees not to disclose, communicate, publish or divulge to any third party or use, or permit others to use, any Confidential Information of the Company except that Employee understands that Employee’s continuing duty of confidentiality does not restrict Employee’s ability to communicate directly with the United States Securities and Exchange Commission (“SEC”) about a potential securities law violation or to communicate with the Congress, any agency Inspector General and/or any other administrative or governmental agency about a potential violation of federal or state law or regulation.  For the purposes of this Agreement, “Confidential Information” shall mean all information disclosed to Employee, or known to Employee as a consequence of or through this employment, where such information is not generally known by the public or was regarded or treated as proprietary by the Company (including, without limitation, personal, financial, private or sensitive information concerning the Company’s executives, directors, employees customers and suppliers, the Company’s methods, systems, designs and know-how, names of referral sources, customer records, customer lists, business plans and practices, marketing methods, financials, strategies, pricing, budgets, forecasts, contracts and plans (including, without limitation, long-term and strategic plans) or any other non-public information which, if used, divulged, published or disclosed by Employee, would be reasonably likely to provide a competitive advantage to a competitor).  Upon termination of Employee’s employment with the Company for any reason, Employee shall immediately return to the Company all of the Company’s property including, without limitation, all Confidential Information, in Employee’s possession or control.

2.Non-Solicitation of Suppliers.  Throughout any period during which Employee is an employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the

B-1

expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or for the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit, contract with or engage any (i) supplier or vendor that provided hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring or related flooring products (or the raw materials required for such flooring or products) to the Company, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date or (ii) entity, independent contractor or any other individual that provided installation services to the Company’s customers in connection with such customer’s hardwood, engineered, bamboo, cork, resilient, laminate or tile flooring, and with whom Employee had contact, in each case during the twelve (12) months prior to the Employment Cessation Date, for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date.

3.Non-Solicitation of Customers.  Throughout any period during which Employee is an employee of Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee covenants and agrees that Employee will not, for herself/himself or for the benefit of a Competing Business as defined in Section 5(c) of this Agreement, solicit any person or entity who, during the twelve (12) month period immediately preceding the Employment Cessation Date, paid or engaged the Company for any of the products or services provided by the Company as of the Employment Cessation Date,  including, without limitation, installation services, or who contacted the Company for the purpose of the Company providing any of the products or services provided by the Company as of the Employment Cessation Date including, without limitation, installation services, (“Customer”), for purposes of providing products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, provided Employee communicated directly with such Customer on behalf of the Company during that twelve (12) month period or Employee obtained confidential information about such Customer in the ordinary course of business as a result of Employee’s association with the Company.

4.Non-Solicitation of Workers.  Throughout any period during which Employee is an employee of Company, and for a period  lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof,  Employee will not recruit or assist any other person or entity in the recruiting or hiring of any Worker or induce any Worker to cease employment with the Company.  For purposes of this Agreement, “Worker” shall mean any individual who was employed by the Company during any portion of the twelve-month period prior to the Employment Cessation Date with whom Employee, during such twelve-month time period, had contact or communications.

5.Non-Competition.

(a)Employee covenants and agrees that throughout any period during which Employee is an employee of the Company, and for a period lasting until the later of (a) twelve (12) months from and after the Employment Cessation Date, (b) twelve (12) months from the date of entry by a court of competent jurisdiction of a final judgment enforcing this covenant in the event of a breach by Employee, or (c) the expiration of such other period as the Company and Employee may agree in writing after the date hereof, Employee will not, for himself/herself or for the benefit of a third party, work in a Competing Position with

B-2

a Competing Business in the Restricted Territory.  However, nothing in this Agreement shall prevent Employee from working in a position in a subdivision of a Competing Business that does not provide any of the products or services provided by the Company as of the Employment Cessation Date. 

(b)For purposes of this Agreement, “Competing Position” shall mean a position that involves duties that are the same as or substantially similar to, and competitive with, the duties that Employee performed for the Company within the twelve (12) month period immediately preceding the Employment Cessation Date. 

(c)For purposes of this Agreement, “Competing Business” shall mean any entity that provides products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date, and shall specifically include (but not be limited to) The Home Depot, Lowe’s, Menards, Amazon, and Floor & Decor to the extent that they provide products or services that are similar to and competitive with any of the products or services provided by the Company as of the Employment Cessation Date. 

(d)For purposes of this Agreement, “Restricted Territory” shall mean the continental United States, the Province of Ontario, Canada, and any other Canadian province or territory where the Company has a store as of the Employment Cessation Date.

6.Proprietary Rights.  All rights, including without limitation any writing, discoveries, inventions, innovations, and computer programs and related documentation and all intellectual property rights therein, including without limitation copyright (collectively “Intellectual Property”) created, designed or constructed by Employee during the Employee's term of employment with the Company, that are related in any way to Employee's work with the Company or to any of the services provided by the Company, shall be the sole and exclusive property of the Company.  Employee agrees to deliver and assign to the Company all such Intellectual Property and all rights which Employee may have therein and Employee agrees to execute all documents, including without limitation patent applications, and make all arrangements necessary to further document such ownership and/or assignment and to take whatever other steps may be needed to give the Company the full benefit thereof.  Employee further agrees that if the Company is unable after reasonable effort to secure the signature of Employee on any such documents, the President of the Company shall be entitled to execute any such papers as the agent and attorney-in-fact of Employee and Employee hereby irrevocably designates and appoints each such officer of the Company as Employee’s agent and attorney-in-fact to execute any such papers on Employee’s behalf and to take any and all actions required or authorized by the Company pursuant to this subsection.  Without limitation to the foregoing, Employee specifically agrees that all copyrightable materials generated during the term of Employee's employment with the Company, including but not limited to, computer programs and related documentation, that are related in any way to Employee's work with the Company or to any of the services provided by the Company, shall be considered works made for hire under the copyright laws of the United States and shall upon creation be owned exclusively by the Company.  To the extent that any such materials, under applicable law, may not be considered works made for hire, Employee hereby assigns to the Company the ownership of all copyrights in such materials, without the necessity of any further consideration, and the Company shall be entitled to register and hold in its own name all copyrights in respect of such materials.  The provisions of this section shall apply regardless of whether any activities related to the creation of any Intellectual Property took place inside or outside of the Company's working hours.

7.Remedies.  The parties hereto agree that given the nature of the position held by Employee with the Company, the covenants set forth above are reasonable and necessary for the protection of the significant investment of the Company in developing, maintaining and expanding its business.  Accordingly, the parties to this Agreement further agree that in the event of any breach by the Employee of any of the provisions above, that monetary damages alone will not adequately compensate the Company

B-3

for its losses and, therefore, that it may seek any and all legal or equitable relief available to it, specifically including, but not limited to, injunctive relief, and may hold the Employee liable for all damages, including actual and consequential damages, costs and expenses, including legal costs and reasonable attorneys' fees incurred by the Company as a result of such breach.  The parties further acknowledge their intention that this Agreement shall be enforceable to the fullest extent permitted by law.

8.Notifications to and about Future Employers.  During the twelve (12) month period following the Employment Cessation Date and within two (2) business days after accepting an offer of employment with any subsequent employer or entering into a contract to provide services to any other entity, the Employee agrees to (a) provide the Company with the name of the subsequent employer of the Employee or any other person or entity to which the Employee may provide services; and (b) provide notice of the Employee’s obligations under this Agreement and a copy of this Agreement to the subsequent employer or the entity to which the Employee may provide services.

9.Exclusions.  Nothing contained in this Agreement shall be construed to:

(a)Alter the Employee's or the Company's right to terminate the Employee's employment with the Company at any time, with or without notice or cause; or

(b)Create any employment relationship between the Employee and the Company other than employment at will.

10.Binding Effect/Assignment. This Agreement shall be binding upon and inure to the benefit of the Company and Employee and their respective heirs, legal representatives, executors, administrators, successors and assigns.  Neither party shall be permitted to assign any portion of this Agreement, with the sole exception that the Company shall be permitted to assign this Agreement to any person or entity acquiring substantially all of the assets of the Company.

11.Entire Agreement.  This Agreement shall constitute the entire agreement between the parties with respect to the subject matter contained herein, and any prior understandings or agreements between the parties shall not be binding upon either party.

12.Modification of Agreement.  Any modification of this Agreement shall be binding only if evidenced in writing and signed by both parties.

13.Effect of Partial Invalidity.  The invalidity of any portion of this Agreement shall not be deemed to affect the validity of any other provisions.  In the event that any provision of this Agreement is held to be invalid, the parties agree that the remaining provisions shall be deemed in full force and effect as if they had been executed by both parties subsequent to the expungement of the invalid provision. 

14.Governing Law.  This Agreement shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia without regard to its conflict of laws principles. The parties to this Agreement hereby expressly consent to be subject to the jurisdiction of the Commonwealth of Virginia to determine any disputes regarding this Agreement. 

15.Construction of Agreement.  The parties to this Agreement represent and agree that the Agreement is reasonable and mutually binding.  Moreover, the parties represent that this Agreement has been reviewed by their respective counsel and agree that it shall not be construed in favor of one party over the other party.

[SIGNATURE PAGE FOLLOWS]

B-4

IN WITNESS WHEREOF, Employee and the Company have caused this Agreement to be executed and sealed in the Commonwealth of Virginia as of the date first appearing above.

EMPLOYEE:LUMBER LIQUIDATORS, INC.

By: /s/ Chris Thomsen________________By: /s/ Martin F. Roper

Name: Chris Thomsen  Name:  Martin F. Roper

Title:  Chairman of the Compensation Committee

B-5

EX-21.1

Exhibit 21.1

Subsidiaries of Lumber Liquidators Holdings, Inc.

Name of Subsidiary	Jurisdiction of Incorporation
Lumber Liquidators, Inc.	Delaware
Lumber Liquidators Services, LLC	Delaware
Lumber Liquidators Leasing, LLC	Delaware
Lumber Liquidators Production, LLC	Delaware
Lumber Liquidators Foreign Holdings, LLC	Delaware
Lumber Liquidators Foreign Operations, LLC	Delaware
Lumber Liquidators Luxembourg S.à.r.l.	Luxembourg
Lumber Liquidators Canada ULC	Nova Scotia, Canada
Lumber Liquidators Hong Kong Limited	Hong Kong
Lumber Liquidators Trading (Shanghai) Co. Ltd	China

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

- Registration Statement (Form S-8 No. 333-231706) pertaining to the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan,

- Registration Statement (Form S-8 No. 333-212690) pertaining to the Amended and Restated Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan,

- Registration Statement (Form S-8 No. 333-173981) pertaining to the Lumber Liquidators Holdings, Inc. 2011 Equity Compensation Plan;

- Registration Statement (Form S-8 No. 333-147247) pertaining to the 2007 Equity Compensation Plan, the 2006 Equity Plan for Non-Employee Directors and the 2004 Stock Option and Grant Plan

of our reports dated February 24, 2020, with respect to the consolidated financial statements and schedule of Lumber Liquidators Holdings, Inc. and the effectiveness of internal control over financial reporting of Lumber Liquidators Holdings, Inc. included in this Annual Report (Form 10-K) of Lumber Liquidators Holdings, Inc. for the year ended December 31, 2019.

/s/ Ernst & Young LLP

Richmond, Virginia
February 24, 2020

EX-31.1

EXHIBIT 31.1

SECTION 302 CERTIFICATION

I, Charles E. Tyson, certify that:

1.            I have reviewed this annual report on Form 10-K of Lumber Liquidators Holdings, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 24, 2020
	/s/ Charles E. Tyson
	Charles E. Tyson
	Principal Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

SECTION 302 CERTIFICATION

I, Nancy A. Walsh, certify that:

1.            I have reviewed this annual report on Form 10-K of Lumber Liquidators Holdings, Inc.;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.           The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 24, 2020

/s/ Nancy A. Walsh

Nancy A. Walsh

Chief Financial Officer
(Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In accordance with 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Charles E. Tyson, Principal Executive Officer of Lumber Liquidators Holdings, Inc. (the "Registrant"), and Nancy A. Walsh, Chief Financial Officer of the Registrant, each hereby certifies that, to the best of his knowledge:

1.           The Registrant's annual report on Form 10-K for the year ended December 31, 2019, to which this Certification is attached as Exhibit 32.1 (the "Periodic Report"), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.           The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

/s/ Charles E. Tyson	/s/ Nancy A. Walsh
Charles E. Tyson	Nancy A. Walsh
Principal Executive Officer (Principal Executive Officer)	Chief Financial Officer (Principal Financial Officer)
Date: February 24, 2020	Date: February 24, 2020

XML

Stockholders' Equity

12 Months Ended

Dec. 31, 2019

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 6.         Stockholders’ Equity

Net Income per Common Share

The following table sets forth the computation of basic and diluted net income per common share:

	Year Ended December 31,
	2019		2018		2017
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Weighted Average Common Shares Outstanding—Basic		28,689		28,571		28,407
Effect of Dilutive Securities:
Common Stock Equivalents		104		—		—
Weighted Average Common Shares Outstanding—Diluted		28,793		28,571		28,407
Net Income (Loss) per Common Share—Basic	$	0.34	$	(1.90)	$	(1.33)
Net Income (Loss) per Common Share—Diluted	$	0.34	$	(1.90)	$	(1.33)

The following have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be antidilutive:

	As of December 31,
	2019	2018	2017
Stock Options	604	643	653
Restricted Shares	187	407	433

Stock Repurchase Program

The Company’s board of directors has authorized the repurchase of up to $150 million of the Company’s common stock.  At December 31, 2019, the Company had approximately $14.7 million remaining under this authorization. The Company did not purchase any shares under this program during the three-years ended December 31, 2019.

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies [Abstract]

Commitments and Contingencies

Note 10.       Commitments and Contingencies

The Company has been actively resolving various legal and other matters that have arisen in recent years. Certain other matters remain outstanding.  More detailed discussion of many of the matters noted below are included in this Form 10‑K under the caption “Item 3 Legal Proceedings.”

2019, 2018 and 2017 Settlements and Resolutions

During 2019, 2018 and 2017, the Company recorded accruals in accordance with GAAP related to several legal matters. These include:

2019	2018	2017
Employee Classification Litigation	Governmental Investigations	Formaldehyde-Abrasion MDLs
	Litigation Related to Bamboo

Governmental Investigations: DOJ Deferred Prosecution Agreement and SEC Resolution 

Beginning in 2015, the Company received subpoenas in connection with a criminal investigation conducted by the DOJ and the SEC.  The focus of the investigations related to compliance with disclosure and financial reporting and requirements under the federal securities laws. The Company cooperated with the investigations and produced documents and other information responsive to subpoenas and other requests.  In March of 2019, prior to filing its December 31, 2018 Form 10-K, the Company reached an agreement with the U.S. Attorney, the DOJ and SEC regarding the investigation (the “Settlement Agreements”). The Company entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Attorney and the DOJ and a Cease-and-Desist Order (the “Order”) with the SEC, under which, among other things, the Company (1) paid a fine in the amount of $19.1 million to the United States Treasury, (2) forfeited to the U.S. Attorney and the DOJ the sum of $13.9 million, of which up to $6.1 million was submitted by the Company to the SEC in disgorgement and prejudgment interest under the Order and (3) is required to adopt a new compliance program, or modify its existing one, including internal controls, compliance policies, and procedures in order to ensure that the Company maintains an effective system of internal account controls designed to ensure the making and keeping of fair and accurate books, records and accounts, as well as a compliance program designed to prevent and detect violations of certain federal securities laws throughout its operations. 

The Settlement Agreements also provide that the Company will continue to cooperate with the U.S. Attorney, the DOJ and the SEC in all matters relating to the conduct described in the Settlement Agreements and, at the request of the U.S. Attorney, the DOJ or the SEC, the Company will cooperate fully with other domestic or foreign law enforcement authorities and agencies in any investigation of the Company in any and all matters relating to the Settlement Agreements. In the event the Company breaches the DPA, there is a risk the government would seek to impose remedies provided for in the DPA, including instituting criminal prosecution against the Company.

The Company accrued a charge of $33 million within selling, general and administrative (SG&A) expenses in its December 31, 2018 financial statements, reflecting the amounts owed under the Settlement Agreements.  During the second quarter of 2019, the Company remitted $33 million due to the applicable governmental parties and relieved the applicable portion of the liability in the caption “Accrual for Legal Matters and Settlements Current” on its balance sheet. 

Litigation Relating to Bamboo Flooring 

In 2014, Dana Gold (“Gold”) filed a purported class action lawsuit alleging that certain bamboo flooring that the Company sells (the “Strand Bamboo Product”) is defective (the “Gold Litigation”). The plaintiffs sought financial damages and, in addition to attorneys’ fees and costs, the plaintiffs wanted a declaration that the Company’s actions violated the law. 

On September 30, 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, which would resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company will contribute $14 million in cash (the “Gold Cash Payment”) and provide $14 million in store-credit vouchers, with a potential additional $2 million in store-credit vouchers based on obtaining a claim’s percentage of more than 7%, for an aggregate settlement of up to $30 million. The settlement agreement makes clear that the settlement does not constitute or include an admission by the Company of any fault or liability and the Company does not admit any fault, wrongdoing or liability. On December 18, 2019, the court issued an order that, among other things, granted preliminary approval of the settlement agreement. Following the preliminary approval, and pursuant to the terms of the settlement agreement, in December 2019, the Company paid $1 million for settlement of administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account. A Final Approval and Settlement Hearing is currently scheduled for September 24, 2020. The settlement agreement is subject to certain contingencies, including court approval. There can be no assurance that a settlement will be finalized and approved by the court at the Final Approval and Settlement Hearing or as to the ultimate outcome of the litigation. If a final, court approved settlement is not reached, the Company will defend the matter vigorously and believes there are meritorious defenses and legal standards that must be met for, among other things, success on the merits. The Company has notified its insurance carriers and continues to pursue coverage, but the insurers to date have denied coverage. As the insurance claim is still pending, the Company has not recognized any insurance recovery related to the Gold Litigation.

The Company recognized a charge to earnings of $28 million within selling, general and administrative expense during the fourth quarter of 2018 as its loss became probable and estimable with the offset in the caption “Accrual for Legal Matters and Settlements Current” on its consolidated balance sheet related to this settlement as of December 31, 2018. If the settlement agreement is not approved by the court or the Company incurs additional losses with respect to the Bamboo Flooring Litigation (as defined below), the actual losses that may result from these actions may exceed this amount. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

In addition, there are a number of individual claims and lawsuits alleging damages involving Strand Bamboo Product (the “Bamboo Flooring Litigation”). While the Company believes that a loss associated with the Bamboo Flooring Litigation is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity. The Company disputes the claims in the Bamboo Flooring Litigation and intends to defend such matters vigorously.

Litigation Relating to Chinese Laminates 

Formaldehyde-Abrasion MDLs

On March 15, 2018, the Company entered into a settlement agreement with the lead plaintiffs in the Formaldehyde MDL (as defined in Item 3 of this Form 10-K) and Abrasion MDL (as defined in Item 3 of this Form 10-K), cases more fully described in Item 3 of this Annual Report on Form 10-K. Under the terms of the settlement agreement, the Company agreed to fund $22 million in cash and provide $14 million in store-credit vouchers for an aggregate settlement of $36 million to settle claims brought on behalf of purchasers of Chinese-made laminate flooring sold by the Company between January 1, 2009 and May 31, 2015. The Company deposited $22 million into an escrow account administered by the court and plaintiffs’ counsel in accordance with the final settlement. The final approval order by the United States District Court for the Eastern District of Virginia has been appealed and is pending. The Company does not anticipate any change to its obligations, but must wait until the appeals are adjudicated or withdrawn.  If the appeals were to result in the settlement being set aside, the Company would receive $21.5 million back from the escrow agent. Accordingly, the Company has accounted for the payment of $21.5 million as a deposit in the accompanying consolidated financial statements. While insurance carriers initially denied coverage with respect to the Formaldehyde MDL and Abrasion MDL, the Company continues to pursue recoveries that the Company believes are appropriate. The $36 million aggregate settlement amount was accrued within SG&A expenses in 2017.

For approximately three years after a final ruling has been reached in this matter, plaintiffs will be able to redeem vouchers for product. Some of the states have alternative expiration dates while others have an indefinite amount of time to redeem vouchers. The Company will account for the sales of these products by relieving the relevant liability, reducing inventory used in the transaction and offsetting SG&A expenses for any profit. The Company does not know the timing or pace of voucher redemption. 

In addition to those purchasers who opted out of the above settlement (the “Opt Outs”), there are a number of individual claims and lawsuits alleging personal injuries, breach of warranty claims, or violation of state consumer protection statutes that remain pending (collectively, the “Related Laminate Matters”). Certain of these Related Laminate Matters were settled in 2019 and 2018, while some remain in settlement negotiations.  The Company recognized charges to earnings of $1.8 million and $3 million for the years ended December 31, 2019 and 2018, respectively, within SG&A expenses for these Remaining Laminate Matters. As of December 31, 2019, the remaining accrual related to these matters is $0.1 million, which has been included in the Accrual for Legal Settlements on the Consolidated Balance Sheet. While the Company believes that a further loss associated with the Opt Outs and Related Laminate Matters is reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss beyond what has been provided. If the Company incurs losses with the respect to the Opt Outs or further losses with respect to Related Laminate Matters, the ultimate resolution of these actions could have a material adverse effect on the Company’s results of operations, financial condition, and liquidity.    

Canadian Litigation

On or about April 1, 2015, Sarah Steele (“Steele”) filed a purported class action lawsuit in the Ontario, Canada Superior Court of Justice against the Company. In the complaint, Steele’s allegations include strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, fraud by concealment, civil negligence, negligent misrepresentation and breach of implied covenant of good faith and fair dealing relating to the Company’s Chinese-manufactured laminate flooring products. Steele did not quantify any alleged damages in her complaint, but seeks compensatory damages, punitive, exemplary and aggravated damages, statutory remedies, attorneys’ fees and costs. While the Company believes that a further loss associated with the Steele litigation is possible, the Company is unable to reasonably estimate the amount or range of possible loss.

Lacey Act Related Matters

On October 7, 2015, the Company reached a settlement with the Department of Justice (DOJ) with respect to its allegations of violations of the Lacey Act in its importation of certain wood flooring products and the court entered final judgment on February 3, 2016. In connection with this settlement the Company agreed to pay a total of $10 million in fines, community service payments and forfeited proceeds and is subject to a five-year probation period and implemented the Lacey Compliance Plan. The Company has paid the settlement amount including the remaining $1.8 million in the first quarter of 2018. In addition, the Company reached a settlement with the DOJ and paid $3.2 million with respect to certain engineered hardwood flooring determined by the Company to have Lacey Act compliance concerns.

Employment Cases

Mason Lawsuit

In August  2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported class action lawsuit in the United States District Court for the Eastern District of New York on behalf of all current and former store managers, store managers in training, installation sales managers and similarly situated current and former employees (collectively, the “Mason Putative Class Employees”) alleging that the Company violated the Fair Labor Standards Act (“FLSA”) and New York Labor Law (“NYLL”) by classifying the Mason Putative Class Employees as exempt. The alleged violations include failure to pay for overtime work. The plaintiffs sought certification of the Mason Putative Class Employees for (i) a collective action covering the period beginning three years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for the Mason Putative Class Employees nationwide in connection with FLSA and (ii) a class action covering the period beginning six years prior to the filing of the complaint (plus a tolling period) through the disposition of this action for members of the Mason Putative Class Employees who currently are or were employed in New York in connection with NYLL. The plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the plaintiffs seek class certification, unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

In November 2018, the plaintiffs filed a motion requesting conditional certification for all store managers and store managers in training who worked within the federal statute of limitations period.  In May 2019, the magistrate judge granted the plaintiffs’ motion for conditional certification.  The litigation is in the discovery stage, which currently closes in May 2020.

The Company disputes the Mason Putative Class Employees’ claims and intends to defend the matter vigorously. Given the uncertainty of litigation, the preliminary stage of the case and the legal standards that must be met for, among other things, class certification and success on the merits, the Company cannot estimate the reasonably possible loss or range of loss, if any, that may result from this action and therefore no accrual has been made related to this. Any such losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Kramer Lawsuit

In November 2017, Robert J. Kramer, on behalf of himself and all others similarly situated (collectively, the “Kramer Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of Sacramento on behalf of all current and former store managers, all others with similar job functions and/or titles and all current and former employees classified as non-exempt or incorrectly classified as exempt and who worked for the Company in the State of California (collectively, the “CSM Employees”) alleging violation of the California Labor Code including, among other items, failure to pay wages and overtime and engaging in unfair business practices (the “Kramer matter”). The Kramer Plaintiffs seek certification of the CSM Employees for a class action covering the prior four-year period prior to the filing of the complaint through the disposition of this action for the CSM Employees who currently are or were employed in California (the “California SM Class”). On or about February 19, 2019, the Kramer Plaintiffs filed a first amended complaint adding a claim for penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the complaint. The Kramer Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, the Kramer Plaintiffs seek unspecified amounts for unpaid wages and overtime wages, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

On September 9, 2019, the Company entered into an agreement to settle the Kramer matter, consistent with the terms of the Memorandum of Understanding previously disclosed by the Company.  Under the terms of the settlement agreement, the Company will pay $4.75 million to settle the claims asserted in the Kramermatter (or which could have been asserted in the Kramermatter) on behalf of all current and/or former store managers and store managers in training employed by the Company at any time between November 17, 2013 and September 19, 2019.  The settlement agreement was preliminarily approved by the court on September 19, 2019, and granted final approval on January 17, 2020. The Company recognized a net charge to earnings of approximately $4.75 million within SG&A expense in its second quarter 2019 financial statements.  As of December 31, 2019, the remaining accrual related to this matter is $4.75 million, which is included on the balance sheet within the caption “Accrual for Legal Matters and Settlements- Current.”

Antidumping and Countervailing Duties Investigation

In October 2010, a conglomeration of domestic manufacturers of multilayered wood flooring (“Petitioners”) 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 companies importing multilayered wood flooring from Chinese suppliers subject to the AD and CVD orders. The Company’s multilayered wood flooring imports from China accounted for approximately 6% and 7% of its flooring purchases in 2019 and 2018, respectively. The Company’s consistent view through the course of this matter has been, and remains, that its imports are neither dumped nor subsidized.  As such, it has appealed the original imposition of AD and CVD fees.

As part of its processes in these proceedings, the DOC conducts annual reviews of the AD and CVD rates. In such cases, the DOC will issue preliminary rates that are not binding and are 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. At the time of import, the Company makes deposits at the then prevailing rate, even while the annual review is in process. When rates are declared final by the DOC, the Company accrues a receivable or payable depending on where that final rate compares to the deposits it has made. The Company and/or the domestic manufacturers can appeal the final rate for any period and can place a hold on final settlement by U.S. Customs and Border Protection while the appeals are pending.

In addition to its overall appeal of the imposition of AD and CVD, which is still pending, the Company as well as other involved parties have appealed many of the final rate determinations. Those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table below. Because of the length of time for finalization of rates as well as appeals, any subsequent adjustment of AD and CVD rates typically flows through a period different from those in which the inventory was originally purchased and/or sold.

Results by period for the Company are shown below. The column labeled ‘December 31, 2019 Receivable/Liability Balance’ represents the amount the Company would receive or pay (net of any collections or payments) as the result of subsequent adjustment to rates whether due to finalization by the DOC or because of action of a court based on appeals by various parties. It does not include any initial amounts paid for AD or CVD in the current period at the in-effect rate at that time.

The Company recorded net interest expense related to antidumping of $0.6 million for the year ended December 31, 2019, with the amount included in other expense on the Statements of Operations. The estimated associated interest payable and receivable for each period is not included in the table below and is included in the same financial statement line item on the Company’s consolidated balance sheet as the associated liability and receivable balance for each period.

Review		Rates at which		December 31, 2019
Period	Period Covered	Company	Final Rate	Receivable/Liability
		Deposited		Balance
Antidumping
1	May 2011 through	6.78% and 3.3%	0.73%1	$1.3 million
	November 2012			receivable1
2	December 2012 through	3.30%	13.74% 2	$4.1 million
	November 2013			liability
3	December 2013 through	3.3% and 5.92%	17.37%	$4.7 million
	November 2014			liability
4	December 2014 through	5.92% and 13.74%	0.00%	Settled
	November 2015
5	December 2015 through	5.92%.  13.74%. and 17.37%	0.00%	Settled
	November 2016
6	December 2016 through	17.37% and 0.00%	42.57% and 0.00%3	$0.5 million receivable
	November 2017			$1.5 million liability3
7	December 2017 through	0.00%	Pending4	NA
	November 2018
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.5 million
			Included on the Consolidated Balance Sheet in Other Assets	$1.3 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$10.3 million
Countervailing
1&2	April 2011 through	1.50%	0.83% / 0.99%	$0.2 million
	December 2012			receivable
3	January 2013 through December 2013	1.50%	1.38%	$0.05 million receivable
4	January 2014 through December 2014	1.50% and 0.83%	1.06%	$0.02 million receivable
5	January 2015 through December 2015	0.83% and 0.99%	Final at 0.11% and 0.85%5	$0.07 million receivable  5
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%	$0.04 million liability6
7	January 2017 through December 2017	1.38% and 1.06%	Pending7	NA
8	January 2018 through December 2018	1.06%	Pending	NA
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.1 million
			Included on the Consolidated Balance Sheet in Other Assets	$0.3 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.04 million

1 In the second quarter of 2018, the Court of International Trade sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%).  As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018.

2 As a result of the remand from CIT, in June 2019 the DOC proposed to reduce the AD rate to 6.55% for the second annual review period.  The CIT is expected to rule on the DOC’s remand during 2020.  If the final ruling remains at 6.55% (from 13.74%), the Company’s liability of $4.1 million would decrease by $2.8 million to $1.3 million in the period in which the ruling is finalized.

3 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor.  As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019.  The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of December 31, 2019 was included in other current assets on the consolidated balance sheet.  The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2019 was included in other long-term liabilities on the consolidated balance sheet.

4 In January 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period.  

5 In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor.  As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales.

6 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor.  As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. 

7 In January 2020, the DOC issued a preliminary rate of 24.61% for the seventh annual review period.  If the preliminary rates remains at 24.61%, the Company will record a liability of $2 million in the period in which the ruling is finalized.

Other Matters

The Company is also, from time to time, subject to claims and disputes arising in the normal course of business. In the opinion of management, while the outcome of any such claims and disputes cannot be predicted with certainty, its ultimate liability in connection with these matters is not expected to have a material adverse effect on the Company’s results of operations, financial position or liquidity.

XML

Summary of Significant Accounting Policies - Recent Accounting Pronouncements Not Yet Adopted (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jan. 01, 2019
Right to use lease assets	$ 121,796
Lease liabilities	$ 131,803
ASU 2016-02
Right to use lease assets		$ 113,000
Lease liabilities		$ 121,000

XML

Summary of Significant Accounting Policies (Narrative) (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) state store	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Organization And Business Operations [Line Items]
Number of states in which stores operates | state	47
Cash and cash equivalents	$ 8,993	$ 11,565
Due from Banks	6,500	7,300
Inventory valuation reserves	6,900	6,800
Tariff Recovery Receivable	27,025
Received from sale of equipment	900	800
Proceeds from assets held for sale	100	1,000
Long-lived asset impairment charge	1,800	1,500	$ 0
Indefinite-lived intangible assets (excluding goodwill)	800
Current self insurance reserve	$ 2,500	2,400
Minimum years of product warranty	1 year
Maximum years of product warranty	100 years
Right to recover merchandise asset	$ 1,200	1,200
Product warranty reserve	900	1,400
Advertising expense	75,000	74,000	$ 77,000
Prepaid advertising	$ 400	600
Leases, practical expedients, package	true
U.S.
Organization And Business Operations [Line Items]
Number of stores | store	419
CANADA
Organization And Business Operations [Line Items]
Number of stores | store	8
Short-term Investments [Member]
Organization And Business Operations [Line Items]
Cash equivalents	$ 0	$ 0
Product Concentration Risk [Member]
Organization And Business Operations [Line Items]
Concentration risk, percentage	46.00%

XML

Credit Agreement (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Mar. 29, 2019	Dec. 31, 2018
Line of Credit Facility [Line Items]
Outstanding balance	$ 82,000		$ 65,000
Credit agreement
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		$ 200,000
Revolving Credit Facility [Member]
Line of Credit Facility [Line Items]
Credit facility remaining borrowing capacity	$ 102,000
Interest rate	3.90%
Revolving Credit Facility [Member] | Credit agreement
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		175,000
Option to increase aggregate amount		225,000
Long-term Debt	$ 57,000
Line of Credit Covenant Trigger	$ 17,500
Line of credit covenant trigger percentage	10.00%
Revolving Credit Facility [Member] | Prior agreement
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity		150,000
Letter of Credit [Member] | Credit agreement
Line of Credit Facility [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 3,900
FILO Term Loan
Line of Credit Facility [Line Items]
Long-term Debt	$ 25,000
Interest rate	4.75%
FILO Term Loan | Credit agreement
Line of Credit Facility [Line Items]
Face amount		$ 25,000
Minimum [Member] | Revolving Credit Facility [Member] | Base Rate | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	0.25%
Minimum [Member] | Revolving Credit Facility [Member] | LIBOR
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.25%
Minimum [Member] | FILO Term Loan | Base Rate | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.25%
Minimum [Member] | FILO Term Loan | LIBOR | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	2.25%
Maximum [Member] | Revolving Credit Facility [Member] | Base Rate | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	0.75%
Maximum [Member] | Revolving Credit Facility [Member] | LIBOR
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	1.75%
Maximum [Member] | FILO Term Loan | Base Rate | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	2.00%
Maximum [Member] | FILO Term Loan | LIBOR | Credit agreement
Line of Credit Facility [Line Items]
Debt Instrument, Basis Spread on Variable Rate	3.00%

XML

Consolidated Statements of Operations - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Net Sales	$ 1,092,602	$ 1,084,636	$ 1,028,933
Cost of Sales	688,916	691,696	659,872
Gross Profit	403,686	392,940	369,061
Selling, General and Administrative Expenses	386,970	443,513	406,027
Operating Income (Loss)	16,716	(50,573)	(36,966)
Other Expense	3,764	2,827	1,591
Income (Loss) Before Income Taxes	12,952	(53,400)	(38,557)
Income Tax Expense (Benefit)	3,289	979	(734)
Net Income (Loss)	$ 9,663	$ (54,379)	$ (37,823)
Net Income (Loss) per Common Share—Basic	$ 0.34	$ (1.90)	$ (1.33)
Net Income (Loss) per Common Share—Diluted	$ 0.34	$ (1.90)	$ (1.33)
Weighted Average Common Shares Outstanding:
Basic	28,689	28,571	28,407
Diluted	28,793	28,571	28,407
Net Merchandise Sales
Net Sales	$ 956,041	$ 955,949	$ 938,269
Cost of Sales	586,918	596,411	591,087
Net Services Sales
Net Sales	136,561	128,687	90,664
Cost of Sales	$ 101,998	$ 95,285	$ 68,785

XML

Commitments and Contingencies (Schedule of Other Commitments) (Details) $ in Thousands	1 Months Ended	3 Months Ended				6 Months Ended	12 Months Ended													19 Months Ended	21 Months Ended
	Jan. 31, 2020 USD ($)	Dec. 31, 2019 USD ($)	Sep. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Jun. 30, 2019	Dec. 31, 2019 USD ($)	Dec. 31, 2018	Nov. 30, 2018	Dec. 31, 2017	Nov. 30, 2017	Dec. 31, 2016	Nov. 30, 2016	Dec. 31, 2015	Nov. 30, 2015	Dec. 31, 2014	Nov. 30, 2014	Dec. 31, 2013	Nov. 30, 2013	Nov. 30, 2012	Dec. 31, 2012
Antidumping Duties [Member] | Other Current Assets [Member]
Loss Contingencies [Line Items]
Contingent Receivable		$ 500					$ 500
Antidumping Duties [Member] | Other Assets [Member]
Loss Contingencies [Line Items]
Contingent Receivable		1,300					1,300
Antidumping Duties [Member] | Other Noncurrent Liabilities [Member]
Loss Contingencies [Line Items]
Contingent Liability		10,300					10,300
Antidumping Duties [Member] | First Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate				0.73%	5.92%															0.73%
Contingent Liability					$ 800
Contingent Receivable		1,300					1,300
Antidumping Duties [Member] | Second Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate																			3.30%
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate																			13.74%
Contingent Liability		4,100					4,100
Antidumping Duties [Member] | Second Annual Review [Member] | Scenario, Plan [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate						6.55%
Contingent Liability		1,300					1,300
Decrease in contingent liability		(2,800)
Antidumping Duties [Member] | Third Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate																	17.37%
Contingent Liability		4,700					4,700
Antidumping Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate															0.00%
Antidumping Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate													0.00%
Antidumping Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Contingent Liability		1,500	$ 800				1,500
Contingent Receivable		500		$ 70			500
Antidumping Duties [Member] | Sixth Annual Review [Member] | Other Current Assets [Member]
Loss Contingencies [Line Items]
Contingent Receivable		500					500
Antidumping Duties [Member] | Sixth Annual Review [Member] | Other Noncurrent Liabilities [Member]
Loss Contingencies [Line Items]
Contingent Liability		1,500					$ 1,500
Antidumping Duties [Member] | Seventh Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate									0.00%
Loss Contingency Preliminary Purchase Price Of Anti dumping Duty Rate	0.0
Antidumping Duties [Member] | Minimum [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate							0.00%				0.00%		0.11%
Antidumping Duties [Member] | Maximum [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Antidumping Duty Rate											42.57%		0.85%
Countervailing Duties [Member] | Other Current Assets [Member]
Loss Contingencies [Line Items]
Contingent Receivable		100					$ 100
Countervailing Duties [Member] | Other Assets [Member]
Loss Contingencies [Line Items]
Contingent Receivable		300					300
Countervailing Duties [Member] | Other Noncurrent Liabilities [Member]
Loss Contingencies [Line Items]
Contingent Liability		40					40
Countervailing Duties [Member] | First and Second Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate																					1.50%
Contingent Receivable		200					200
Countervailing Duties [Member] | Third Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate																		1.50%
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate																		1.38%
Contingent Receivable		50					50
Countervailing Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate																1.06%
Contingent Receivable		20					20
Countervailing Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Contingent Liability		40					40
Contingent Receivable		70					70
Countervailing Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Contingent Liability		$ 400					$ 400
Countervailing Duties [Member] | Seventh Annual Review [Member]
Loss Contingencies [Line Items]
Contingent Liability	$ 2,000
Loss Contingency Preliminary Purchase Price Of Countervailing Duty Rate	24.61
Countervailing Duties [Member] | Eighth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate								1.06%
Countervailing Duties [Member] | Minimum [Member] | First and Second Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate																					0.83%
Countervailing Duties [Member] | Minimum [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate														0.11%
Countervailing Duties [Member] | Minimum [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate			2.96%									2.96%
Countervailing Duties [Member] | Maximum [Member] | First and Second Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate																					0.99%
Countervailing Duties [Member] | Maximum [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Modified Purchase Price Of Countervailing Duties Rate			3.10%									3.10%
Deposit One [Member] | Antidumping Duties [Member] | First Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate																				6.78%
Deposit One [Member] | Antidumping Duties [Member] | Third Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate																	3.30%
Deposit One [Member] | Antidumping Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate															5.92%
Deposit One [Member] | Antidumping Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate													5.92%
Deposit One [Member] | Antidumping Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate											17.37%
Deposit One [Member] | Countervailing Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate																1.50%
Deposit One [Member] | Countervailing Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate														0.83%
Deposit One [Member] | Countervailing Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate												0.99%
Deposit One [Member] | Countervailing Duties [Member] | Seventh Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate										1.38%
Deposit Two [Member] | Antidumping Duties [Member] | First Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate																				3.30%
Deposit Two [Member] | Antidumping Duties [Member] | Third Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate																	5.92%
Deposit Two [Member] | Antidumping Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate															13.74%
Deposit Two [Member] | Antidumping Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate													13.74%
Deposit Two [Member] | Antidumping Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate											0.00%
Deposit Two [Member] | Countervailing Duties [Member] | Fourth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate																0.83%
Deposit Two [Member] | Countervailing Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate														0.99%
Deposit Two [Member] | Countervailing Duties [Member] | Sixth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate												1.38%
Deposit Two [Member] | Countervailing Duties [Member] | Seventh Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Countervailing Duties Rate										1.06%
Deposit Three [Member] | Antidumping Duties [Member] | Fifth Annual Review [Member]
Loss Contingencies [Line Items]
Loss Contingency Purchase Price Of Antidumping Duty Rate													17.37%

XML

Income Taxes (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Line Items]
U.S. Federal corporate tax rate	21.00%	21.00%	35.00%
Effective tax rate	25.40%	(1.80%)	1.90%
Income tax refunds		$ 100	$ 29,000
Income tax paid	$ 200
Excess tax benefit recognized as a component of income tax expense	500	200
Operating loss carryforwards, valuation allowance increased	668	3,897	3,826
Unrecognized tax benefits	225	3,610	$ 27
Uncertain tax position	200	3,500
Securities Litigation Matter [Member]
Income Taxes [Line Items]
Unrecognized tax benefits	200
Domestic Tax Authority [Member]
Income Taxes [Line Items]
Net operating losses carryforwards	0	12,000
State and Local Jurisdiction [Member]
Income Taxes [Line Items]
Net operating losses carryforwards	$ 39,000	52,000
Operating loss carryforwards, expiration year	2022
Foreign Tax Authority [Member]
Income Taxes [Line Items]
Net operating losses carryforwards	$ 12,000	12,000
Operating loss carryforwards, expiration year	2030
CANADA
Income Taxes [Line Items]
Operating loss carryforwards, valuation allowance increased	$ 400	200
U.S.
Income Taxes [Line Items]
Operating loss carryforwards, valuation allowance increased	$ 1,100	$ 4,700

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Note 1.         Summary of Significant Accounting Policies

Nature of Business

Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile flooring direct to the consumer. The Company features the renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to its customers.  The Company sells primarily to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. The Company’s stores spanned 47 states in the United States (“U.S.”) and included eight stores in Canada at December 31, 2019. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer relationship center in Richmond, Virginia, and its website, www.lumberliquidators.com.  Until January 2019, the Company finished the majority of its Bellawood products on its finishing lines in Toano, Virginia, which along with the call center, corporate offices and a distribution center, represented the corporate headquarters until November 2019.  In July of 2018, the Company announced its plan to sell its finishing line equipment to an unaffiliated third-party purchaser and to relocate its corporate headquarters to Richmond, Virginia, in 2019.  The move of the corporate headquarters to Richmond, Virginia was completed as of November 2019.

Organization and Basis of Financial Statement Presentation

The consolidated financial statements of Lumber Liquidators Holdings, Inc., a Delaware corporation, include the accounts of its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During 2018, the Company recognized significant liabilities related to various legal and regulatory matters. While the payment of these liabilities in 2019, 2018, and 2017 has had, and is expected to have, a material adverse impact on the Company’s liquidity and cash flow from operations, the Company estimates that it has sufficient liquidity through amounts available under its Revolving Credit Facility and forecasted cash flows from operations to fund its working capital, including these legal and regulatory liabilities. The Company prepares its forecasted cash flow and liquidity estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

Cash and Cash Equivalents

The Company had cash and cash equivalents of $9 million and $12 million at December 31, 2019 and 2018, respectively. The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents, of which there were zero at December 31, 2019 and 2018, respectively. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash equivalents totaled $6.5 millionand $7.3 million at December 31, 2019 and 2018, respectively.

Credit Programs

Credit is offered to the Company’s customers through a credit card, underwritten by a third-party financial institution and at no recourse to the Company. A credit line is offered to the Company’s professional customers through the Lumber Liquidators Commercial Credit Program. This commercial credit program is underwritten by a third-party financial institution, generally with no recourse to the Company.

As part of the credit program, the Company’s customers may tender their Lumber Liquidators credit card to receive installation services. As of December 31, 2019, the Company utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of its flooring products by third-party independent contractors in all of its stores.

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The carrying amount of obligations under its Credit Agreement approximates fair value due to the variable rate of interest.

Merchandise Inventories

The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form.  The Company relies on a select group of international suppliers to provide imported flooring products that meet the Company’s specifications.  In 2019, approximately 46% of the Company’s product was sourced from China.  The Company is subject to near-term risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing as a result of a pandemic, including the Coronavirus.  The Company is developing contingency plans to minimize potential disruptions.

Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. Prior to the sale of the finishing line equipment in 2018, the Company would add the finish to, and box, various species of unfinished product, to produce certain proprietary products, primarily Bellawood. Any finishing and boxing costs were included in the average unit cost of related merchandise inventory. In addition, the Company maintains an inventory reserve for loss or obsolescence based on historical results and current sales trends. This reserve was $6.9 million and $6.8 million at December 31, 2019 and 2018, respectively.

Included in merchandise inventories are tariff related costs, including Section 301 tariffs.  In late 2019, the United States Trade Representative (“USTR”) ruled on a request made by certain interested parties, including the Company, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs.  The Company has recorded a $27 million receivable related to these tariffs in the caption “Tariff Recovery Receivable” on the Consolidated Balance Sheets and expects to receive payments by the end of 2020.

Impairment of Long-Lived Assets

The Company evaluates potential impairment losses on long-lived assets and right-of-use 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.

During 2018, the Company decided to exit the finishing business and entered into an agreement to sell this equipment to a third party, which altered the Company’s expectations of future cash flows from these long-lived assets. As a result, the Company tested certain long-lived assets for impairment and recorded a $1.8 million impairment charge within selling, general and administrative (“SG&A”) expenses in its accompanying consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC 820) of the assets and the carrying value of the related net assets based on the contract to sell to a third party. The Company received $0.8 million in connection with this transaction during 2018 and had $1.0 million in assets held-for-sale, included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2018.  During 2019, the Company received $0.9 million in connection with this transaction and had $0.1 million in assets held-for-sale included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2019.

During 2017, the Company determined that the carrying value of certain assets that had once been part of a discontinued vertical integration strategy was above their fair value and recorded an impairment charge of $1.5 million within SG&A expenses in the consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC-820) of the assets and the carrying value of the related net assets based on a contract to sell to a third party. 

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.  As of December 31, 2019 and 2018, other assets include $0.8 million 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 based on estimates of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical and industry trends and economic conditions. This liability could be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31, 2019 and 2018, the Company had accruals of $2.5 million and $2.4 million, respectively, related to estimated claims included in other current liabilities.

Recognition of Net Sales

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“Topic 606”), Revenue from Contracts with Customers, which superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and when control of those goods and services has passed to the customer. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. However, because adoption of the standard did not change the timing or amount of the Company’s recognition of revenue and because the Company does not recognize revenues for partial contracts, there was no adjustment to retained earnings needed as part of the adoption of the new standard. 

The Company generates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services.  Sales occur through a network of 419 stores, which spanned 47 states, including eight stores in Canada at December 31, 2019. In addition, both the merchandise and services can be ordered through a call center and from the Company’s website, www.lumberliquidators.com. The Company’s agreements with its customers are of short duration (less than a year), and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.

Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing service for a customer.  Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying consolidated balance sheet caption Customer Deposits and Store Credits. 

The following table shows the activity in this account for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Customer Deposits and Store Credits, Beginning Balance	$	(40,332)	$	(38,546)	$	(32,639)
New Deposits		(1,163,691)		(1,155,019)		(1,101,841)
Recognition of Revenue		1,092,602		1,084,636		1,028,933
Sales Tax included in Customer Deposits		67,029		67,125		66,028
Other		2,821		1,472		973
Customer Deposits and Store Credits, Ending Balance	$	(41,571)	$	(40,332)	$	(38,546)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days.  The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics.  The Company previously recognized revenue in full, recorded an allowance for expected returns (contra-revenue) and recorded a separate refund liability for expected returns. The Company reduces revenue by the amount of expected returns and records it within Accrued Expenses and Other on the consolidated balance sheet. The Company continues to estimate the amount of returns based on the historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the Other Current Assets caption of the accompanying consolidated balance sheet. This amount was $1.2 million at December 31, 2019 and 2018. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

We offer hundreds of different flooring products; however, no single flooring product represented a significant portion of our sales mix. By major product category, our sales mix was as follows:

	Year Ended December 31,
	2019				2018				2017
Manufactured Products 1	$	452,914	41	%	$	392,512	36	%	$	315,369	31	%
Solid and Engineered Hardwood		319,582	29	%		367,026	34	%		423,301	41	%
Moldings and Accessories and Other		183,545	17	%		196,411	18	%		199,599	19	%
Installation and Delivery Services		136,561	13	%		128,687	12	%		90,664	9	%
Total	$	1,092,602	100	%	$	1,084,636	100	%	$	1,028,933	100	%

1Includes laminate, vinyl, engineered vinyl plank and porcelain tile.

Cost of Sales

Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, which are net of vendor allowances.

The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This reserve was $0.9 million and $1.4 million at December 31, 2019 and 2018, respectively. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.

 Advertising Costs

Advertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances, were $75 million,  $74 million and $77 million in 2019, 2018 and 2017, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance are included in prepaid expenses and totaled $0.4 million and $0.6 million at December 31, 2019 and 2018, respectively.

Store Opening Costs

Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.

Other Vendor Consideration

Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as an offset to SG&A expenses when earned.

Depreciation and Amortization

Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods for which renewal is not reasonably certain, the Company uses the original lease term, excluding optional renewal periods, to determine the appropriate estimated useful lives. Capitalized software costs are capitalized from the time that technological feasibility is established until the software is ready for use. The estimated useful lives are generally as follows:

	Years
Buildings and Building Improvements	7 to 40
Property and Equipment	3 to 10
Computer Software and Hardware	3 to 10
Leasehold Improvements	1 to 10

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), which created ASC Topic 842, Leases, and superseded the lease accounting requirements in Topic 840, Leases. In summary, Topic 842 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition, which the Company elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $113 million and lease liabilities of $121 million. The adoption of ASC 842 had an immaterial impact on the Company’s consolidated statements of operations and consolidated statements of cash flows for the year ended December 31, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carryforward the historical lease classification.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and operating lease liabilities on the consolidated balance sheet. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Many of the Company’s leases include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement.

The Company made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement.

Additional information and disclosures required by this new standard are contained in “Note 5, Leases.”

Stock-Based Compensation

The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with ASC 718. The Company may issue incentive awards, including performance-based awards, in the form of stock options, restricted shares and other equity awards to employees, non-employee directors and other service providers. The Company recognizes expense for the majority of its stock-based compensation based on the fair value of the awards that are granted. For awards granted to non-employee directors, expense is recognized based on the fair value of the award at the end of a reporting period. For performance-based awards granted to certain members of senior management, the Company recognizes expense after assessing the probability of the achievement of certain financial metrics on a periodic basis. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Measured compensation cost is recognized ratably over the requisite service period of the entire related stock-based compensation award.

Foreign Currency Translation

The Company’s Canadian operations use the Canadian dollar as the functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.

Income Taxes

Income taxes are accounted for in accordance with ASC 740 (“ASC 740”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are reflected on the consolidated balance sheets as deferred income taxes and measured using the effective tax rate expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company takes into account various factors, including the nature, frequency and severity of current and cumulative losses, expected level of future taxable income, the duration of statutory carryforward periods and tax planning alternatives. In future periods, any valuation allowance will be re-evaluated in accordance with ASC 740, and a change, if required, will be recorded through income tax expense in the period such determination is made.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense.

Net Income per Common Share

Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update No. 2018‑15 (“ASU 2018‑15”), which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract, as initially published in Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other— Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In summary, the new standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The new standard also allows customers of cloud computing services to capitalize certain implementation costs. The amendments in ASU 2018‑15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard as of the beginning of the fourth quarter of 2019.  The adoption of this standard did not have a material impact on the Company’s results of operations or cash flows.

XML

Income Taxes (Tax Effects of Temporary Differences Result in Significant Portions of Deferred Tax Accounts) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Deferred Tax Liabilities:
Operating Lease Right-of-Use Assets	$ (31,804)
Depreciation and Amortization and Other	(9,676)	$ (10,672)
Total Gross Deferred Tax Liabilities	(41,480)	(10,672)
Deferred Tax Assets:
Operating Lease Liabilities	34,419
Stock-Based Compensation Expense	2,611	2,348
Legal Settlement Reserves	11,774	14,251
Other Accruals and Reserves	5,054	4,811
Employee Benefits	1,169	1,018
Inventory Reserves	1,311	1,896
Inventory Capitalization	3,194	3,492
Foreign Net Operating Loss Carryforwards	3,341	3,153
Net Operating Loss Carryforwards	2,444	2,445
Capital Loss Carryforwards and Other	2,724	2,784
Total Gross Deferred Tax Assets	68,041	36,198
Less Valuation Allowance	(26,986)	(26,318)
Total Net Deferred Tax Assets	41,055	9,880
Net Deferred Tax Liability	$ (425)	$ (792)

XML

Stockholders' Equity (Anti-Dilutive Securities Excluded from Computation of Weighted Average Common Shares Outstanding-Diluted) (Details) - shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	604	643	653
Restricted Shares [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earning per share	187	407	433

XML

Leases - cost components (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Cost components:
Operating lease costs	$ 36,837
Variable lease costs	9,388
Total	46,225
Store Leases
Cost components:
Operating lease costs	32,759
Variable lease costs	8,381
Total	41,140
Other Leases
Cost components:
Operating lease costs	4,078
Variable lease costs	1,007
Total	$ 5,085

XML

Stock-Based Compensation (Ranges of Assumptions) (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stock-Based Compensation [Abstract]
Expected dividend rate	0.00%	0.00%	0.00%
Expected stock price volatility	55.00%	55.00%	55.00%
Risk-free interest rate	2.10%	2.80%	1.70%
Expected term of options	5 years 6 months	5 years 6 months	5 years 6 months

XML

Selected Quarterly Financial Information (Certain Items Impacting Gross Profit and SG&A) (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Selected Quarterly Financial Information (unaudited) [Abstract]
Gross profit	$ 111,914	$ 95,674	$ 102,487	$ 93,611	$ 95,976	$ 100,682	$ 101,310	$ 94,972	$ 403,686	$ 392,940	$ 369,061
SG&A	$ 92,578	$ 93,496	$ 103,864	$ 97,032	$ 150,885	$ 93,987	$ 102,223	$ 96,418	$ 386,970	$ 443,513	$ 406,027

XML

Selected Quarterly Financial Information (unaudited) (Tables)

12 Months Ended

Dec. 31, 2019

Selected Quarterly Financial Information (unaudited) [Abstract]

Unaudited Quarterly Results

The following tables present the Company’s unaudited quarterly results for 2019 and 2018.

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2019			2019			2019			2019
Net Sales	$	266,220		$	288,567		$	263,961		$	273,854
Gross Profit		93,611			102,487			95,674			111,914
Selling, General and Administrative Expenses		97,032			103,864			93,496			92,578
Operating (Loss) Income		(3,421)			(1,377)			2,178			19,336
Net (Loss) Income	$	(4,924)		$	(2,856)		$	1,045		$	16,398
Net (Loss) Income per Common Share - Basic	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Net (Loss) Income per Common Share - Diluted	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Number of Stores Opened in Quarter, net		—			2			4			—
Comparable Store Net Sales (Decrease) Increase		(0.8)	%		(0.1)	%		(3.6)	%		0.4	%

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2018			2018			2018			2018
Net Sales	$	261,772		$	283,474		$	270,469		$	268,921
Gross Profit		94,972			101,310			100,682			95,976
Selling, General and Administrative Expenses		96,418			102,223			93,987			150,885
Operating (Loss) Income		(1,446)			(913)			6,695			(54,909)
Net (Loss) Income	$	(1,972)		$	(1,454)		$	5,923		$	(56,876)
Net (Loss) Income per Common Share - Basic	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Net (Loss) Income per Common Share - Diluted	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Number of Stores Opened in Quarter		5			8			3			4
Comparable Store Net Sales Increase		2.9	%		4.7	%		2.1	%		0.4	%

XML

Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Schedule of Customer Deposits and Store Credits

The following table shows the activity in this account for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Customer Deposits and Store Credits, Beginning Balance	$	(40,332)	$	(38,546)	$	(32,639)
New Deposits		(1,163,691)		(1,155,019)		(1,101,841)
Recognition of Revenue		1,092,602		1,084,636		1,028,933
Sales Tax included in Customer Deposits		67,029		67,125		66,028
Other		2,821		1,472		973
Customer Deposits and Store Credits, Ending Balance	$	(41,571)	$	(40,332)	$	(38,546)

Sales Mix by Major Product

We offer hundreds of different flooring products; however, no single flooring product represented a significant portion of our sales mix. By major product category, our sales mix was as follows:

	Year Ended December 31,
	2019				2018				2017
Manufactured Products 1	$	452,914	41	%	$	392,512	36	%	$	315,369	31	%
Solid and Engineered Hardwood		319,582	29	%		367,026	34	%		423,301	41	%
Moldings and Accessories and Other		183,545	17	%		196,411	18	%		199,599	19	%
Installation and Delivery Services		136,561	13	%		128,687	12	%		90,664	9	%
Total	$	1,092,602	100	%	$	1,084,636	100	%	$	1,028,933	100	%

1Includes laminate, vinyl, engineered vinyl plank and porcelain tile.

Estimated Useful Lives of Property Plant and Equipment

The estimated useful lives are generally as follows:

	Years
Buildings and Building Improvements	7 to 40
Property and Equipment	3 to 10
Computer Software and Hardware	3 to 10
Leasehold Improvements	1 to 10

XML

Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2019

Stockholders' Equity [Abstract]

Computation of Basic and Diluted Net Income Loss Per Common Share

The following table sets forth the computation of basic and diluted net income per common share:

	Year Ended December 31,
	2019		2018		2017
Net Income (Loss)	$	9,663	$	(54,379)	$	(37,823)
Weighted Average Common Shares Outstanding—Basic		28,689		28,571		28,407
Effect of Dilutive Securities:
Common Stock Equivalents		104		—		—
Weighted Average Common Shares Outstanding—Diluted		28,793		28,571		28,407
Net Income (Loss) per Common Share—Basic	$	0.34	$	(1.90)	$	(1.33)
Net Income (Loss) per Common Share—Diluted	$	0.34	$	(1.90)	$	(1.33)

Anti-Dilutive Securities Excluded from Computation of Weighted Average Common Shares Outstanding Diluted

The following have been excluded from the computation of Weighted Average Common Shares Outstanding—Diluted because the effect would be antidilutive:

	As of December 31,
	2019	2018	2017
Stock Options	604	643	653
Restricted Shares	187	407	433

XML

Stock-Based Compensation (Summary of Activity Related to Restricted Stock Awards) (Details) - Restricted Shares [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Shares
Beginning Balance	487,212	479,746	586,187
Granted	661,784	224,835	207,196
Released	(130,721)	(137,064)	(205,349)
Forfeited	(107,309)	(80,305)	(108,288)
Ending Balance	910,966	487,212	479,746
Weighted Average Grant Date Fair Value
Beginning Balance	$ 20.54	$ 18.71	$ 17.71
Granted	10.35	22.39	19.56
Released	11.09	18.67	18.31
Forfeited	14.71	17.98	15.68
Ending Balance	$ 15.18	$ 20.54	$ 18.71

XML

Stockholders' Equity (Narrative) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity [Abstract]
Stock repurchase program, authorized amount	$ 150.0
Common stock repurchased, remaining authorized amount	$ 14.7
Shares repurchased	0	0	0

XML

Leases cost - Other information related to leases (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Lessee, Lease, Description [Line Items]
Operating cash flows from operating leases	$ 37,842
Right-of-use assets obtained or modified in exchange for operating lease obligations	$ 35,573
Weighted Average Remaining Lease Term (years)	5 years 3 months 11 days
Weighted Average Discount Rate	5.70%
Store Leases
Lessee, Lease, Description [Line Items]
Operating cash flows from operating leases	$ 33,590
Right-of-use assets obtained or modified in exchange for operating lease obligations	$ 25,745
Weighted Average Remaining Lease Term (years)	4 years 9 months 22 days
Weighted Average Discount Rate	5.80%
Other Leases
Lessee, Lease, Description [Line Items]
Operating cash flows from operating leases	$ 4,252
Right-of-use assets obtained or modified in exchange for operating lease obligations	$ 9,828
Weighted Average Remaining Lease Term (years)	7 years 7 months 6 days
Weighted Average Discount Rate	5.50%

XML

Basis of Presentation (Narrative) (Detail)	Dec. 31, 2019 state store
Organization and Business Operations [Line Items]
Number of States in which Entity Operates | state	47
CANADA
Organization and Business Operations [Line Items]
Number of Stores | store	8

XML

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2019

Summary of Significant Accounting Policies [Abstract]

Nature of Business

Nature of Business

Lumber Liquidators Holdings, Inc. and its direct and indirect subsidiaries (collectively and, where applicable, individually, the “Company”) engage in business as a multi-channel specialty retailer of hard-surface flooring, and hard-surface flooring enhancements and accessories, operating as a single operating segment. The Company offers an extensive assortment of exotic and domestic hardwood species, engineered hardwood, laminate, resilient vinyl, waterproof vinyl plank and porcelain tile flooring direct to the consumer. The Company features the renewable flooring products, bamboo and cork, and provides a wide selection of flooring enhancements and accessories, including moldings, noise-reducing underlayment, adhesives and flooring tools. The Company also provides in-home delivery and installation services to its customers.  The Company sells primarily to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. The Company’s stores spanned 47 states in the United States (“U.S.”) and included eight stores in Canada at December 31, 2019. In addition to the store locations, the Company’s products may be ordered, and customer questions/concerns addressed, through both its customer relationship center in Richmond, Virginia, and its website, www.lumberliquidators.com.  Until January 2019, the Company finished the majority of its Bellawood products on its finishing lines in Toano, Virginia, which along with the call center, corporate offices and a distribution center, represented the corporate headquarters until November 2019.  In July of 2018, the Company announced its plan to sell its finishing line equipment to an unaffiliated third-party purchaser and to relocate its corporate headquarters to Richmond, Virginia, in 2019.  The move of the corporate headquarters to Richmond, Virginia was completed as of November 2019.

Organization and Basis of Financial Statement Presentation

Organization and Basis of Financial Statement Presentation

The consolidated financial statements of Lumber Liquidators Holdings, Inc., a Delaware corporation, include the accounts of its wholly owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. During 2018, the Company recognized significant liabilities related to various legal and regulatory matters. While the payment of these liabilities in 2019, 2018, and 2017 has had, and is expected to have, a material adverse impact on the Company’s liquidity and cash flow from operations, the Company estimates that it has sufficient liquidity through amounts available under its Revolving Credit Facility and forecasted cash flows from operations to fund its working capital, including these legal and regulatory liabilities. The Company prepares its forecasted cash flow and liquidity estimates based on assumptions that it believes to be reasonable but are also inherently uncertain. Actual future cash flows could differ from these estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company had cash and cash equivalents of $9 million and $12 million at December 31, 2019 and 2018, respectively. The Company considers all highly liquid investments with a maturity date of three months or less when purchased to be cash equivalents, of which there were zero at December 31, 2019 and 2018, respectively. The Company accepts a range of debit and credit cards, and these transactions are generally transmitted to a bank for reimbursement within 24 hours. The payments due from the banks for these debit and credit card transactions are generally received, or settled, within 24 to 48 hours of the transmission date. The Company considers all debit and credit card transactions that settle in less than seven days to be cash and cash equivalents. Amounts due from the banks for these transactions classified as cash equivalents totaled $6.5 millionand $7.3 million at December 31, 2019 and 2018, respectively.

Credit Programs

Credit Programs

Credit is offered to the Company’s customers through a credit card, underwritten by a third-party financial institution and at no recourse to the Company. A credit line is offered to the Company’s professional customers through the Lumber Liquidators Commercial Credit Program. This commercial credit program is underwritten by a third-party financial institution, generally with no recourse to the Company.

As part of the credit program, the Company’s customers may tender their Lumber Liquidators credit card to receive installation services. As of December 31, 2019, the Company utilized a network of associates to perform certain customer-facing, consultative services and coordinate the installation of its flooring products by third-party independent contractors in all of its stores.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximates fair value because of the short-term nature of these items. The carrying amount of obligations under its Credit Agreement approximates fair value due to the variable rate of interest.

Merchandise Inventories

Merchandise Inventories

The Company values merchandise inventories at the lower of cost or net realizable value. The method by which amounts are removed from inventory is weighted average cost. All of the hardwood flooring purchased from vendors is either prefinished or unfinished, and in immediate saleable form.  The Company relies on a select group of international suppliers to provide imported flooring products that meet the Company’s specifications.  In 2019, approximately 46% of the Company’s product was sourced from China.  The Company is subject to near-term risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing as a result of a pandemic, including the Coronavirus.  The Company is developing contingency plans to minimize potential disruptions.

Inventory cost includes the costs of bringing an article to its existing condition and location such as shipping and handling and import tariffs. Prior to the sale of the finishing line equipment in 2018, the Company would add the finish to, and box, various species of unfinished product, to produce certain proprietary products, primarily Bellawood. Any finishing and boxing costs were included in the average unit cost of related merchandise inventory. In addition, the Company maintains an inventory reserve for loss or obsolescence based on historical results and current sales trends. This reserve was $6.9 million and $6.8 million at December 31, 2019 and 2018, respectively.

Included in merchandise inventories are tariff related costs, including Section 301 tariffs.  In late 2019, the United States Trade Representative (“USTR”) ruled on a request made by certain interested parties, including the Company, and retroactively excluded certain flooring products imported from China from the Section 301 tariffs.  The Company has recorded a $27 million receivable related to these tariffs in the caption “Tariff Recovery Receivable” on the Consolidated Balance Sheets and expects to receive payments by the end of 2020.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company evaluates potential impairment losses on long-lived assets and right-of-use 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.

During 2018, the Company decided to exit the finishing business and entered into an agreement to sell this equipment to a third party, which altered the Company’s expectations of future cash flows from these long-lived assets. As a result, the Company tested certain long-lived assets for impairment and recorded a $1.8 million impairment charge within selling, general and administrative (“SG&A”) expenses in its accompanying consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC 820) of the assets and the carrying value of the related net assets based on the contract to sell to a third party. The Company received $0.8 million in connection with this transaction during 2018 and had $1.0 million in assets held-for-sale, included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2018.  During 2019, the Company received $0.9 million in connection with this transaction and had $0.1 million in assets held-for-sale included in Other Current Assets on the Consolidated Balance Sheet as of December 31, 2019.

During 2017, the Company determined that the carrying value of certain assets that had once been part of a discontinued vertical integration strategy was above their fair value and recorded an impairment charge of $1.5 million within SG&A expenses in the consolidated statements of operations. The charge was measured as the difference between the fair value (Level 2 inputs under ASC-820) of the assets and the carrying value of the related net assets based on a contract to sell to a third party. 

Goodwill and Other Indefinite-Lived Intangibles

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.  As of December 31, 2019 and 2018, other assets include $0.8 million 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

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 based on estimates of the ultimate costs to be incurred to settle known claims and claims incurred but not reported as of the balance sheet date. The estimated liability is not discounted and is based on a number of assumptions and factors including historical and industry trends and economic conditions. This liability could be affected if future occurrences and claims differ from these assumptions and historical trends. As of December 31, 2019 and 2018, the Company had accruals of $2.5 million and $2.4 million, respectively, related to estimated claims included in other current liabilities.

Recognition of Net Sales

Recognition of Net Sales

In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“Topic 606”), Revenue from Contracts with Customers, which superseded the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and when control of those goods and services has passed to the customer. The Company adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. However, because adoption of the standard did not change the timing or amount of the Company’s recognition of revenue and because the Company does not recognize revenues for partial contracts, there was no adjustment to retained earnings needed as part of the adoption of the new standard. 

The Company generates revenues primarily by retailing merchandise in the form of hard-surface and porcelain flooring and accessories. Additionally, the Company expands its revenues by offering services to deliver and/or install this merchandise for its customers; it considers these services to be separate performance obligations. The separate performance obligations are detailed on the customer’s invoice(s) and the customer often purchases flooring merchandise without purchasing installation or delivery services.  Sales occur through a network of 419 stores, which spanned 47 states, including eight stores in Canada at December 31, 2019. In addition, both the merchandise and services can be ordered through a call center and from the Company’s website, www.lumberliquidators.com. The Company’s agreements with its customers are of short duration (less than a year), and as such the Company has elected not to disclose revenue for partially satisfied contracts that will be completed in the days following the end of a period as permitted by GAAP. The Company reports its revenues exclusive of sales taxes collected from customers and remitted to governmental taxing authorities, consistent with past practice.

Revenue is based on consideration specified in a contract with a customer and excludes any sales incentives from vendors and amounts collected on behalf of third parties. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer or performing service for a customer.  Revenues from installation and freight services are recognized when the delivery is made or the installation is complete, which approximates the recognition of revenue over time due to the short duration of service provided. The price of the Company’s merchandise and services is specified in the respective contract and detailed on the invoice agreed to with the customer including any discounts. The Company generally requires customers to pay a deposit, equal to approximately half of the retail sales value, when ordering merchandise not regularly carried in a given location or not currently in stock. In addition, the Company generally does not extend credit to its customers with payment due in full at the time the customer takes possession of merchandise or when the service is provided. Customer payments and deposits received in advance of the customer taking possession of the merchandise or receiving the services are recorded as deferred revenues in the accompanying consolidated balance sheet caption Customer Deposits and Store Credits. 

The following table shows the activity in this account for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Customer Deposits and Store Credits, Beginning Balance	$	(40,332)	$	(38,546)	$	(32,639)
New Deposits		(1,163,691)		(1,155,019)		(1,101,841)
Recognition of Revenue		1,092,602		1,084,636		1,028,933
Sales Tax included in Customer Deposits		67,029		67,125		66,028
Other		2,821		1,472		973
Customer Deposits and Store Credits, Ending Balance	$	(41,571)	$	(40,332)	$	(38,546)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days.  The amount of revenue recognized for flooring merchandise is adjusted for expected returns, which are estimated based on the Company’s historical data, current sales levels and forecasted economic trends. The Company uses the expected value method to estimate returns because it has a large number of contracts with similar characteristics.  The Company previously recognized revenue in full, recorded an allowance for expected returns (contra-revenue) and recorded a separate refund liability for expected returns. The Company reduces revenue by the amount of expected returns and records it within Accrued Expenses and Other on the consolidated balance sheet. The Company continues to estimate the amount of returns based on the historical data. In addition, the Company recognizes a related asset for the right to recover returned merchandise and records it in the Other Current Assets caption of the accompanying consolidated balance sheet. This amount was $1.2 million at December 31, 2019 and 2018. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

We offer hundreds of different flooring products; however, no single flooring product represented a significant portion of our sales mix. By major product category, our sales mix was as follows:

	Year Ended December 31,
	2019				2018				2017
Manufactured Products 1	$	452,914	41	%	$	392,512	36	%	$	315,369	31	%
Solid and Engineered Hardwood		319,582	29	%		367,026	34	%		423,301	41	%
Moldings and Accessories and Other		183,545	17	%		196,411	18	%		199,599	19	%
Installation and Delivery Services		136,561	13	%		128,687	12	%		90,664	9	%
Total	$	1,092,602	100	%	$	1,084,636	100	%	$	1,028,933	100	%

1Includes laminate, vinyl, engineered vinyl plank and porcelain tile.

Cost of Sales

Cost of Sales

Cost of sales includes the cost of products sold, including tariffs, the cost of installation services, and transportation costs from vendors to the Company’s distribution centers or store locations. It also includes any applicable finishing costs related to production of the Company’s proprietary brands, transportation costs from distribution centers to store locations, transportation costs for the delivery of products from store locations to customers, certain costs of quality control procedures, warranty and customer satisfaction costs, inventory adjustments including obsolescence and shrinkage, and costs to produce samples, which are net of vendor allowances.

The Company offers a range of limited warranties for the durability of the finish on its prefinished products to its services provided. These limited warranties range from one to 100 years, with lifetime warranties for certain of the Company’s products. Warranty reserves are based primarily on claims experience, sales history and other considerations, including payments made to satisfy customers for claims not directly related to the warranty on the Company’s products. Warranty costs are recorded in cost of sales. This reserve was $0.9 million and $1.4 million at December 31, 2019 and 2018, respectively. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

Vendor allowances primarily consist of volume rebates that are earned as a result of attaining certain purchase levels and reimbursement for the cost of producing samples. Vendor allowances are accrued as earned, with those allowances received as a result of attaining certain purchase levels accrued over the incentive period based on estimates of purchases. Volume rebates earned are initially recorded as a reduction in merchandise inventories and a subsequent reduction in cost of sales when the related product is sold. Reimbursement received for the cost of producing samples is recorded as an offset against cost of sales.

Advertising Costs

Advertising Costs

Advertising costs charged to selling, general and administrative (“SG&A”) expenses, net of vendor allowances, were $75 million,  $74 million and $77 million in 2019, 2018 and 2017, respectively. The Company uses various types of media to brand its name and advertise its products. Media production costs are generally expensed as incurred, except for direct mail, which is expensed when the finished piece enters the postal system. Media placement costs are generally expensed in the month the advertising occurs, except for contracted endorsements and sports agreements, which are generally expensed ratably over the contract period. Amounts paid in advance are included in prepaid expenses and totaled $0.4 million and $0.6 million at December 31, 2019 and 2018, respectively.

Store Opening Costs

Store Opening Costs

Costs to open new store locations are charged to SG&A expenses as incurred, net of any vendor support.

Other Vendor Consideration

Other Vendor Consideration

Consideration from non-merchandise vendors, including royalties and rebates, are generally recorded as an offset to SG&A expenses when earned.

Depreciation and Amortization

Depreciation and Amortization

Property and equipment is carried at cost and depreciated on the straight-line method over the estimated useful lives. The estimated useful lives for leasehold improvements are the shorter of the estimated useful lives or the remainder of the lease terms. For leases with optional renewal periods for which renewal is not reasonably certain, the Company uses the original lease term, excluding optional renewal periods, to determine the appropriate estimated useful lives. Capitalized software costs are capitalized from the time that technological feasibility is established until the software is ready for use. The estimated useful lives are generally as follows:

	Years
Buildings and Building Improvements	7 to 40
Property and Equipment	3 to 10
Computer Software and Hardware	3 to 10
Leasehold Improvements	1 to 10

Leases

Leases

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (“ASU 2016-02”), which created ASC Topic 842, Leases, and superseded the lease accounting requirements in Topic 840, Leases. In summary, Topic 842 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which included an option to not restate comparative periods in transition and elect to use the effective date of ASC 842 as the date of initial application of transition, which the Company elected. As a result of the adoption of ASC 842 on January 1, 2019, the Company recorded both operating lease right-of-use (“ROU”) assets of $113 million and lease liabilities of $121 million. The adoption of ASC 842 had an immaterial impact on the Company’s consolidated statements of operations and consolidated statements of cash flows for the year ended December 31, 2019. The Company elected the package of practical expedients permitted under the transition guidance within the new standard which, among other things, allowed the Company to carryforward the historical lease classification.

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and operating lease liabilities on the consolidated balance sheet. The operating lease ROU assets and operating lease liabilities are recognized as the present value of the future minimum lease payments over the lease term at commencement date. As most of the leases do not provide an implicit rate, the Company used its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also is adjusted for any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease at certain dates, typically at the Company’s own discretion. The Company regularly evaluates the renewal options and when they are reasonably certain of exercise, the Company includes the renewal period in its lease term. Many of the Company’s leases include both lease (e.g., payments including rent, taxes, and insurance costs) and non-lease components (e.g., common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and non-lease components for all leases. Lease expense for minimum lease payments is recognized on a straight-line basis over the term of the agreement.

The Company made an accounting policy election that payments under agreements with an initial term of 12 months or less will not be included on the consolidated balance sheet but will be recognized in the consolidated statements of operations on a straight-line basis over the term of the agreement.

Additional information and disclosures required by this new standard are contained in “Note 5, Leases.”

Stock-Based Compensation

Stock-Based Compensation

The Company records compensation expense associated with stock options and other forms of equity compensation in accordance with ASC 718. The Company may issue incentive awards, including performance-based awards, in the form of stock options, restricted shares and other equity awards to employees, non-employee directors and other service providers. The Company recognizes expense for the majority of its stock-based compensation based on the fair value of the awards that are granted. For awards granted to non-employee directors, expense is recognized based on the fair value of the award at the end of a reporting period. For performance-based awards granted to certain members of senior management, the Company recognizes expense after assessing the probability of the achievement of certain financial metrics on a periodic basis. Compensation expense is recognized only for those awards expected to vest, with forfeitures estimated at the date of grant based on historical experience and future expectations. Measured compensation cost is recognized ratably over the requisite service period of the entire related stock-based compensation award.

Foreign Currency Translation

Foreign Currency Translation

The Company’s Canadian operations use the Canadian dollar as the functional currency. Assets and liabilities are translated at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average monthly exchange rates during the year. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income on the consolidated balance sheets.

Income Taxes

Income Taxes

Income taxes are accounted for in accordance with ASC 740 (“ASC 740”). Income taxes are provided for under the asset and liability method and consider differences between the tax and financial accounting bases. The tax effects of these differences are reflected on the consolidated balance sheets as deferred income taxes and measured using the effective tax rate expected to be in effect when the differences reverse. ASC 740 also requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of the deferred tax asset will not be realized. In evaluating the need for a valuation allowance, the Company takes into account various factors, including the nature, frequency and severity of current and cumulative losses, expected level of future taxable income, the duration of statutory carryforward periods and tax planning alternatives. In future periods, any valuation allowance will be re-evaluated in accordance with ASC 740, and a change, if required, will be recorded through income tax expense in the period such determination is made.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authorities, based on the technical merits of its position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company classifies interest and penalties related to income tax matters as a component of income tax expense.

Net Income per Common Share

Net Income per Common Share

Basic net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year. Diluted net income per common share is determined by dividing net income by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

Recent Accounting Pronouncements Not Yet Adopted

Recently Adopted Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update No. 2018‑15 (“ASU 2018‑15”), which provides guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract, as initially published in Accounting Standards Update No. 2015‑05, Intangibles—Goodwill and Other— Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. In summary, the new standard requires customers of cloud computing services to recognize an intangible asset for the software license and, to the extent that payments attributable to the software license are made over time, a liability is also recognized. The new standard also allows customers of cloud computing services to capitalize certain implementation costs. The amendments in ASU 2018‑15 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new standard as of the beginning of the fourth quarter of 2019.  The adoption of this standard did not have a material impact on the Company’s results of operations or cash flows.

XML

Leases (Tables)

12 Months Ended

Dec. 31, 2019

Leases

Schedule of cost components of operating leases

The cost components of the Company’s operating leases recorded in SG&A on the consolidated statement of operations were as follows for the periods shown:

	Year Ended December 31, 2019
	Store Leases		Other Leases		Total
Operating lease costs	$	32,759	$	4,078	$	36,837
Variable lease costs		8,381		1,007		9,388
Total	$	41,140	$	5,085	$	46,225

Schedule of other information related to leases

Other information related to leases were as follows:

	Year Ended December 31, 2019
	Store Leases			Other Leases			Total
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33,590		$	4,252		$	37,842
Right-of-use assets obtained or modified in exchange for operating lease obligations	$	25,745		$	9,828		$	35,573
Weighted Average Remaining Lease Term (years)		4.81			7.60			5.28
Weighted Average Discount Rate		5.8	%		5.5	%		5.7	%

Schedule of future minimum rental payments under noncancelable operating leases

At December 31, 2019, the future minimum rental payments under non-cancellable operating leases were as follows:

	Operating Leases
					Total
			Other		Operating
	Store Leases		Leases		Leases
2020	$	33,752		4,103	$	37,855
2021		28,460		3,663		32,123
2022		22,508		3,656		26,164
2023		16,554		3,733		20,287
2024		9,853		3,593		13,446
Thereafter		14,443		8,240		22,683
Total minimum lease payments		125,570		26,988		152,558
Less imputed interest		(15,900)		(4,855)		(20,755)
Total	$	109,670	$	22,133	$	131,803

XML

Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies [Abstract]

Schedule of Other Commitments

Review		Rates at which		December 31, 2019
Period	Period Covered	Company	Final Rate	Receivable/Liability
		Deposited		Balance
Antidumping
1	May 2011 through	6.78% and 3.3%	0.73%1	$1.3 million
	November 2012			receivable1
2	December 2012 through	3.30%	13.74% 2	$4.1 million
	November 2013			liability
3	December 2013 through	3.3% and 5.92%	17.37%	$4.7 million
	November 2014			liability
4	December 2014 through	5.92% and 13.74%	0.00%	Settled
	November 2015
5	December 2015 through	5.92%.  13.74%. and 17.37%	0.00%	Settled
	November 2016
6	December 2016 through	17.37% and 0.00%	42.57% and 0.00%3	$0.5 million receivable
	November 2017			$1.5 million liability3
7	December 2017 through	0.00%	Pending4	NA
	November 2018
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.5 million
			Included on the Consolidated Balance Sheet in Other Assets	$1.3 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$10.3 million
Countervailing
1&2	April 2011 through	1.50%	0.83% / 0.99%	$0.2 million
	December 2012			receivable
3	January 2013 through December 2013	1.50%	1.38%	$0.05 million receivable
4	January 2014 through December 2014	1.50% and 0.83%	1.06%	$0.02 million receivable
5	January 2015 through December 2015	0.83% and 0.99%	Final at 0.11% and 0.85%5	$0.07 million receivable  5
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%	$0.04 million liability6
7	January 2017 through December 2017	1.38% and 1.06%	Pending7	NA
8	January 2018 through December 2018	1.06%	Pending	NA
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.1 million
			Included on the Consolidated Balance Sheet in Other Assets	$0.3 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.04 million

1 In the second quarter of 2018, the Court of International Trade sustained the DOC’s recommendation to reduce the rate for the first annual review period to 0.73% (from 5.92%).  As a result, the Company reversed its $0.8 million liability and recorded a $1.3 million receivable with a corresponding reduction of cost of sales during the year ended December 31, 2018.

2 As a result of the remand from CIT, in June 2019 the DOC proposed to reduce the AD rate to 6.55% for the second annual review period.  The CIT is expected to rule on the DOC’s remand during 2020.  If the final ruling remains at 6.55% (from 13.74%), the Company’s liability of $4.1 million would decrease by $2.8 million to $1.3 million in the period in which the ruling is finalized.

3 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 42.57% and 0% depending on the vendor.  As a result, the Company recorded a liability of $0.8 million with a corresponding reduction of cost of sales during the year ended December 31, 2019.  The Company received payments during 2019 for its vendor with a final rate of 0% and the remaining balance of $0.5 million as of December 31, 2019 was included in other current assets on the consolidated balance sheet.  The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of December 31, 2019 was included in other long-term liabilities on the consolidated balance sheet.

4 In January 2020, the DOC issued a preliminary rate of 0.0% for the seventh annual review period.  

5 In the second quarter of 2018, the DOC issued the final rates for the fifth annual review period at 0.11% and 0.85% depending on the vendor.  As a result, in the second quarter of 2018, the Company recorded a receivable of $0.07 million for deposits made at previous preliminary rates, with a corresponding reduction of cost of sales.

6 In the third quarter of 2019, the DOC issued the final rates for the sixth annual review period at 3.1% and 2.96% depending on the vendor.  As a result, the Company recorded a liability of $0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. 

7 In January 2020, the DOC issued a preliminary rate of 24.61% for the seventh annual review period.  If the preliminary rates remains at 24.61%, the Company will record a liability of $2 million in the period in which the ruling is finalized.

XML

Leases

12 Months Ended

Dec. 31, 2019

Leases

Leases

Note 5.         Leases

The Company has operating leases for its stores, corporate headquarters in Richmond, Virginia, its distribution center on the west coast, supplemental office facilities and certain equipment.  The store location leases generally have five-year base periods with one or more five-year renewal periods. The corporate headquarters in Richmond, Virginia has base terms running through December 31, 2029. The supplemental office facility in Richmond, Virginia has base terms running through November 30, 2020. The distribution center on the west coast has base terms running through October 31, 2024. Total rent expense was $37 million, $34 million and $33 million in 2019, 2018 and 2017, respectively.

The cost components of the Company’s operating leases recorded in SG&A on the consolidated statement of operations were as follows for the periods shown:

	Year Ended December 31, 2019
	Store Leases		Other Leases		Total
Operating lease costs	$	32,759	$	4,078	$	36,837
Variable lease costs		8,381		1,007		9,388
Total	$	41,140	$	5,085	$	46,225

Variable lease costs consist primarily of taxes, insurance, and common area or other maintenance costs for our leased facilities, which are paid as incurred.

Other information related to leases were as follows:

	Year Ended December 31, 2019
	Store Leases			Other Leases			Total
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	33,590		$	4,252		$	37,842
Right-of-use assets obtained or modified in exchange for operating lease obligations	$	25,745		$	9,828		$	35,573
Weighted Average Remaining Lease Term (years)		4.81			7.60			5.28
Weighted Average Discount Rate		5.8	%		5.5	%		5.7	%

At December 31, 2019, the future minimum rental payments under non-cancellable operating leases were as follows:

	Operating Leases
					Total
			Other		Operating
	Store Leases		Leases		Leases
2020	$	33,752		4,103	$	37,855
2021		28,460		3,663		32,123
2022		22,508		3,656		26,164
2023		16,554		3,733		20,287
2024		9,853		3,593		13,446
Thereafter		14,443		8,240		22,683
Total minimum lease payments		125,570		26,988		152,558
Less imputed interest		(15,900)		(4,855)		(20,755)
Total	$	109,670	$	22,133	$	131,803

XML

401(K) Plan

12 Months Ended

Dec. 31, 2019

401(K) Plan [Abstract]

401(K) Plan

Note 9.         401(k) Plan

The Company maintains a plan, qualified under Section 401(k) of the Internal Revenue Code, for all eligible employees.  Employees are eligible to participate following the completion of three months of service and attainment of age 21. The plan is a safe harbor plan, with company matching contributions of 100% of the first 3% of employee contributions and 50% of the next  2% of employee contributions. Both deferrals and Roth contributions are allowed up to 50% of an employee’s eligible compensation, subject to annual IRS limits. Additionally, employees are immediately 100% vested in the Company’s matching contributions.  The Company’s matching contributions, included in SG&A expenses, totaled $2.8 million,  $2.6 million and $2.3 million in 2019, 2018 and 2017, respectively.

XML

Leases (Narrative) (Details) $ in Millions	12 Months Ended
	Dec. 31, 2019 USD ($) item	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Property, Plant and Equipment [Line Items]
Rent Expense | $	$ 37	$ 34	$ 33
Store Leases
Property, Plant and Equipment [Line Items]
Term	5 years
Renewal period	5 years
Option to renew	true
Store Leases | Minimum [Member]
Property, Plant and Equipment [Line Items]
Number of renewal periods, minimum | item	1
Richmond Virginia
Property, Plant and Equipment [Line Items]
Term	10 years

XML

Property and Equipment (Narrative) (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Property and Equipment [Abstract]
Capitalized Computer Software, Gross	$ 42.0	$ 40.0
Capitalized Computer Software, Amortization	$ 4.6	$ 4.3	$ 3.9

XML

Summary of Significant Accounting Policies (Schedule of Deferred Revenues) (Details) - Customer Deposits and Store Credits [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Customer Deposits and Store Credits, Beginning Balance	$ (40,332)	$ (38,546)	$ (32,639)
New Deposits	(1,163,691)	(1,155,019)	(1,101,841)
Recognition of Revenue	1,092,602	1,084,636	1,028,933
Sales Tax included in Customer Deposits	67,029	67,125	66,028
Other	2,821	1,472	973
Customer Deposits and Store Credits, Ending Balance	$ (41,571)	$ (40,332)	$ (38,546)

XML

Stock-Based Compensation (Summary of Activities Related to Stock Appreciation Rights) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Weighted Average Exercise Price
Exercised		$ 17.70	$ 15.31
Stock Appreciation Rights (SARs) [Member]
Shares
Beginning Balance	17,953	16,550	28,668
Granted		1,738	2,899
Exercised			(165)
Forfeited	(17,708)	(335)	(14,852)
Ending Balance	245	17,953	16,550	28,668
Ending Balance, Exercisable	245
Weighted Average Exercise Price
Beginning Balance	$ 17.33	$ 18.10	$ 32.63
Granted		23.31	17.39
Exercised			24.35
Forfeited	16.44	86.16	45.93
Ending Balance	82.08	$ 17.33	$ 18.10	$ 32.63
Ending Balance, Exercisable	$ 82.08
Remaining average contractual term
Remaining average contractual term	3 years 4 months 24 days	7 years 9 months 18 days	8 years 7 months 6 days	7 years 6 months
Remaining average contractual term, Exercisable	3 years 4 months 24 days
Aggregate Intrinsic Value
Aggregate intrinsic value	$ 0		$ 251	$ 6

XML

Income Taxes (Effective Income Tax Reconciliation) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
Income Tax Expense (Benefit) at Federal Statutory Rate	$ 2,720	$ (11,214)	$ (13,495)
State Income Taxes, Net of Federal Income Tax Benefit	425	723	(740)
Valuation Allowance	668	3,897	3,826
Foreign Operations	90	132	221
Uncertain Tax Positions	174	2,919
Non-Deductible Fines and Penalties	6	4,011	1,156
Federal Rate Change			8,088
Other	(794)	511	210
Income Tax Expense (Benefit)	$ 3,289	$ 979	$ (734)
Effective Income Tax Rate Reconciliation, Percent [Abstract]
Income Tax Expense at Federal Statutory Rate	21.00%	21.00%	35.00%
State Income Taxes, Net of Federal Income Tax Benefit	3.30%	(1.30%)	1.90%
Valuation Allowance	5.20%	(7.30%)	(10.00%)
Foreign Operations	0.70%	(0.30%)	(0.50%)
Uncertain Tax Positions	1.30%	(5.50%)
Non-Deductible Fines and Penalties		(7.50%)	(3.00%)
Federal Rate Change			(21.00%)
Other	(6.10%)	(0.90%)	(0.50%)
Total	25.40%	(1.80%)	1.90%

XML

Property and Equipment

12 Months Ended

Dec. 31, 2019

Property and Equipment [Abstract]

Property and Equipment

Note 2.         Property and Equipment

Property and equipment consisted of:

	December 31,
	2019		2018
Land	$	4,937	$	4,937
Building		44,395		44,319
Property and Equipment		57,047		53,411
Computer Software and Hardware		51,437		54,375
Leasehold Improvement		54,139		46,297
Assets under Construction		1,549		767
		213,504		204,106
Less: Accumulated Depreciation and Amortization		114,771		110,417
Property and Equipment, net	$	98,733	$	93,689

As of December 31, 2019 and 2018, the Company had cumulatively capitalized $42 millionand $40 million of computer software costs, respectively.  Amortization expense related to these assets was $4.6 million, $4.3 million and $3.9 million for 2019, 2018 and 2017, respectively.

XML

Document and Entity Information - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Feb. 20, 2020	Jun. 28, 2019
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2019
Entity Registrant Name	Lumber Liquidators Holdings, Inc.
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Entity Central Index Key	0001396033
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		28,724,931
Entity Current Reporting Status	Yes
Entity Public Float			$ 325.1
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No

XML

Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands						3 Months Ended		12 Months Ended
	Sep. 09, 2019	Mar. 16, 2019	Mar. 15, 2019	Mar. 15, 2018	Oct. 07, 2015	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Loss Contingencies [Line Items]
Payment of litigation settlement								$ 34,729	$ 2,904	$ 2,522
Accrual for Legal Matters and Settlements - Current								$ 67,471	$ 97,625
Antidumping Duties [Member]
Loss Contingencies [Line Items]
Loss Contingency Multilayered Hardwood Products Purchase Percentage								6.00%	7.00%
Antidumping Duties [Member] | Other Expense [Member]
Loss Contingencies [Line Items]
Net interest expense								$ 600
Litigation Relating to Formaldehyde Abrasion MDL's [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount				$ 36,000
Accrual for Legal Matters and Settlements Long-term								$ 100
Estimated period for final ruling (in years)								3 years
Escrow Deposit				22,000
Amount receive back from escrow agent				21,500
Book value of escrow deposit				21,500
Litigation Settlement, Expense								$ 1,800	$ 3,000
Litigation Relating to Formaldehyde Abrasion MDL's [Member] | Selling, General, and Administrative Expense [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Expense									36,000
Lacey Act Related Matters [Member]
Loss Contingencies [Line Items]
Probation period					5 years
Settlement Payment							$ 1,800
Litigation Relating to Bamboo Flooring
Loss Contingencies [Line Items]
Litigation Settlement, Amount		$ 30,000
Payment of litigation settlement								1,000
Percent of floor damage submit as proof			7.00%
Litigation Relating to Bamboo Flooring | Other Current Liabilities [Member]
Loss Contingencies [Line Items]
Accrual for Legal Matters and Settlements - Current									28,000
Securities Litigation Matter [Member]
Loss Contingencies [Line Items]
Payment of litigation settlement						$ 33,000
Accrual for Legal Matters and Settlements - Current									$ 33,000
Kramer Litigation Matters [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount	$ 4,750
Kramer Litigation Matters [Member] | Other Current Liabilities [Member]
Loss Contingencies [Line Items]
Accrual for Legal Matters and Settlements - Current								4,750
Kramer Litigation Matters [Member] | Selling, General, and Administrative Expense [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Expense						$ 4,750
United States Attorney [Member] | Securities Litigation Matter [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount								19,100
Department of Justice [Member] | Securities Litigation Matter [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount								13,900
Securities and Exchange Commission [Member] | Securities Litigation Matter [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount								6,100
Fine [Member] | Lacey Act Related Matters [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount					$ 10,000
Cash and or Common Stock [Member] | Litigation Relating to Formaldehyde Abrasion MDL's [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount				22,000
In Store Credit [Member] | Litigation Relating to Formaldehyde Abrasion MDL's [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Amount			$ 14,000	$ 14,000
In Store Credit [Member] | Litigation Relating to Bamboo Flooring
Loss Contingencies [Line Items]
Litigation Settlement, Amount			$ 14,000
Loss Contingency, Damages Awarded, Value		$ 2,000
Solid and Engineered Hardwood | Lacey Act Related Matters [Member]
Loss Contingencies [Line Items]
Settlement Payment								$ 3,200

XML

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net Income (Loss)	$ 9,663	$ (54,379)	$ (37,823)
Other Comprehensive (Loss) Income:
Foreign Currency Translation Adjustments	(195)	(233)	304
Total Other Comprehensive (Loss) Income	(195)	(233)	304
Comprehensive Income (Loss)	$ 9,468	$ (54,612)	$ (37,519)

XML

Selected Quarterly Financial Information (Unaudited Quarterly Results) (Details) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019 USD ($) store $ / shares	Sep. 30, 2019 USD ($) store $ / shares	Jun. 30, 2019 USD ($) store $ / shares	Mar. 31, 2019 USD ($) store $ / shares	Dec. 31, 2018 USD ($) store $ / shares	Sep. 30, 2018 USD ($) store $ / shares	Jun. 30, 2018 USD ($) store $ / shares	Mar. 31, 2018 USD ($) store $ / shares	Dec. 31, 2019 USD ($) $ / shares	Dec. 31, 2018 USD ($) $ / shares	Dec. 31, 2017 USD ($) $ / shares
Selected Quarterly Financial Information (unaudited) [Abstract]
Net Sales	$ 273,854	$ 263,961	$ 288,567	$ 266,220	$ 268,921	$ 270,469	$ 283,474	$ 261,772	$ 1,092,602	$ 1,084,636	$ 1,028,933
Gross Profit	111,914	95,674	102,487	93,611	95,976	100,682	101,310	94,972	403,686	392,940	369,061
Selling, General and Administrative Expenses	92,578	93,496	103,864	97,032	150,885	93,987	102,223	96,418	386,970	443,513	406,027
Operating (Loss) Income	19,336	2,178	(1,377)	(3,421)	(54,909)	6,695	(913)	(1,446)	16,716	(50,573)	(36,966)
Net Income (Loss)	$ 16,398	$ 1,045	$ (2,856)	$ (4,924)	$ (56,876)	$ 5,923	$ (1,454)	$ (1,972)	$ 9,663	$ (54,379)	$ (37,823)
Net (Loss) Income per Common Share - Basic | $ / shares	$ 0.57	$ 0.04	$ (0.10)	$ (0.17)	$ (1.99)	$ 0.21	$ (0.05)	$ (0.07)	$ 0.34	$ (1.90)	$ (1.33)
Net (Loss) Income per Common Share - Diluted | $ / shares	$ 0.57	$ 0.04	$ (0.10)	$ (0.17)	$ (1.99)	$ 0.21	$ (0.05)	$ (0.07)	$ 0.34	$ (1.90)	$ (1.33)
Number of Stores Opened in Quarter, net | store	0	4	2	0	4	3	8	5
Comparable Store Net Sales (Decrease) Increase	0.40%	(3.60%)	(0.10%)	(0.80%)	0.40%	2.10%	4.70%	2.90%

XML

Stock-Based Compensation (Summary of Activity Related to Stock Options) (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Shares
Beginning Balance	732,585	689,668	835,614
Granted	110,535	215,297	127,984
Exercised		(43,510)	(87,955)
Forfeited	(149,657)	(128,870)	(185,975)
Ending Balance	693,463	732,585	689,668	835,614
Ending Balance, Exercisable	361,974
Ending Balance, Vested and expected to vest	693,463
Weighted Average Exercise Price
Beginning Balance	$ 22.97	$ 25.31	$ 24.86
Granted	8.47	20.54	22.09
Exercised		17.70	15.31
Forfeited	25.16	33.25	25.62
Ending Balance	20.18	$ 22.97	$ 25.31	$ 24.86
Ending Balance, Exercisable	24.43
Ending Balance, Vested and expected to vest	$ 20.18
Remaining Average Contractual Term (Years) for outstanding shares
Remaining Average Contractual Term (Years) for outstanding shares	7 years 1 month 6 days	7 years 3 months 18 days	7 years 8 months 12 days	7 years 6 months
Aggregate Intrinsic Value
Aggregate Intrinsic Value	$ 144		$ 8,530	$ 1,167
Aggregate Intrinsic Value, Vested and expected to vest	$ 144

XML

Stockholders' Equity (Computation of Basic and Diluted Net Income Loss Per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Stockholders' Equity [Abstract]
Net Income (Loss)	$ 16,398	$ 1,045	$ (2,856)	$ (4,924)	$ (56,876)	$ 5,923	$ (1,454)	$ (1,972)	$ 9,663	$ (54,379)	$ (37,823)
Weighted Average Common Shares Outstanding Basic									28,689	28,571	28,407
Effect of Dilutive Securities:
Common Stock Equivalents									104
Weighted Average Common Shares Outstanding Diluted									28,793	28,571	28,407
Net Income (Loss) per Common Share—Basic	$ 0.57	$ 0.04	$ (0.10)	$ (0.17)	$ (1.99)	$ 0.21	$ (0.05)	$ (0.07)	$ 0.34	$ (1.90)	$ (1.33)
Net Income (Loss) per Common Share—Diluted	$ 0.57	$ 0.04	$ (0.10)	$ (0.17)	$ (1.99)	$ 0.21	$ (0.05)	$ (0.07)	$ 0.34	$ (1.90)	$ (1.33)

XML

Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2019

Property and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment consisted of:

	December 31,
	2019		2018
Land	$	4,937	$	4,937
Building		44,395		44,319
Property and Equipment		57,047		53,411
Computer Software and Hardware		51,437		54,375
Leasehold Improvement		54,139		46,297
Assets under Construction		1,549		767
		213,504		204,106
Less: Accumulated Depreciation and Amortization		114,771		110,417
Property and Equipment, net	$	98,733	$	93,689

XML

Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2019

Stock-Based Compensation [Abstract]

Summary of Activity Related to Stock Options

The following table summarizes activity related to stock options:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	835,614	$	24.86	7.5	$	1,167
Granted	127,984		22.09
Exercised	(87,955)		15.31
Forfeited	(185,975)		25.62
Balance, December 31, 2017	689,668	$	25.31	7.7	$	8,530
Granted	215,297		20.54
Exercised	(43,510)		17.70
Forfeited	(128,870)		33.25
Balance, December 31, 2018	732,585	$	22.97	7.3	$	—
Granted	110,535		8.47
Forfeited	(149,657)		25.16
Balance, December 31, 2019	693,463	$	20.18	7.1	$	144
Exercisable at December 31, 2019	361,974	$	24.43		$	—
Vested and expected to vest December 31, 2019	693,463	$	20.18		$	144

Ranges of Assumptions

The following are the average assumptions for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Expected dividend rate	—	%	—	%	—	%
Expected stock price  volatility	55	%	55	%	55	%
Risk-free interest rate	2.1	%	2.8	%	1.7	%
Expected term of options	5.5	years	5.5	years	5.5	years

Summary of Activity Related to Restricted Stock Awards

The following table summarizes activity related to restricted shares:

		Weighted Average
		Grant Date Fair
	Shares	Value
Nonvested, December 31, 2016	586,187	$	17.71
Granted	207,196		19.56
Released	(205,349)		18.31
Forfeited	(108,288)		15.68
Nonvested, December 31, 2017	479,746	$	18.71
Granted	224,835		22.39
Released	(137,064)		18.67
Forfeited	(80,305)		17.98
Nonvested, December 31, 2018	487,212	$	20.54
Granted	661,784		10.35
Released	(130,721)		11.09
Forfeited	(107,309)		14.71
Nonvested, December 31, 2019	910,966	$	15.18

Summary of Activities Related to Stock Appreciation Rights

The following table summarizes activity related to SARs:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	28,668	$	32.63	7.5	$	6
Granted	2,899		17.39
Exercised	(165)		24.35
Forfeited	(14,852)		45.93
Balance, December 31, 2017	16,550	$	18.10	8.6	$	251
Granted	1,738		23.31
Exercised	—		—
Forfeited	(335)		86.16
Balance, December 31, 2018	17,953	$	17.33	7.8	$	—
Granted	—		—
Exercised	—		—
Forfeited	(17,708)		16.44
Balance, December 31, 2019	245	$	82.08	3.4	$	—
Exercisable at December 31, 2019	245	$	82.08	3.4	$	—

XML

Other Liabilities (Other Long-Term Liabilities) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Other Liabilities [Abstract]
Antidumping and Countervailing Accrual	$ 12,795	$ 11,456
Deferred Rent		4,850
Lease Incentive Obligation		2,864
Other	962	1,033
Other Long Term Liabilities	$ 13,757	$ 20,203

XML

Summary of Significant Accounting Policies (Estimated Useful Lives) (Details)	12 Months Ended
	Dec. 31, 2019
Property and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Property and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	7 years
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	40 years
Computer Software and Hardware [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	3 years
Computer Software and Hardware [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years
Leasehold Improvement [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	1 year
Leasehold Improvement [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Property, plant and equipment, useful life	10 years

XML

Selected Quarterly Financial Information (unaudited)

12 Months Ended

Dec. 31, 2019

Selected Quarterly Financial Information (unaudited) [Abstract]

Selected Quarterly Financial Information (unaudited)

Note 11.       Selected Quarterly Financial Information (unaudited)

The following tables present the Company’s unaudited quarterly results for 2019 and 2018.

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2019			2019			2019			2019
Net Sales	$	266,220		$	288,567		$	263,961		$	273,854
Gross Profit		93,611			102,487			95,674			111,914
Selling, General and Administrative Expenses		97,032			103,864			93,496			92,578
Operating (Loss) Income		(3,421)			(1,377)			2,178			19,336
Net (Loss) Income	$	(4,924)		$	(2,856)		$	1,045		$	16,398
Net (Loss) Income per Common Share - Basic	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Net (Loss) Income per Common Share - Diluted	$	(0.17)		$	(0.10)		$	0.04		$	0.57
Number of Stores Opened in Quarter, net		—			2			4			—
Comparable Store Net Sales (Decrease) Increase		(0.8)	%		(0.1)	%		(3.6)	%		0.4	%

	Quarter Ended
	March 31,			June 30,			September 30,			December 31,
	2018			2018			2018			2018
Net Sales	$	261,772		$	283,474		$	270,469		$	268,921
Gross Profit		94,972			101,310			100,682			95,976
Selling, General and Administrative Expenses		96,418			102,223			93,987			150,885
Operating (Loss) Income		(1,446)			(913)			6,695			(54,909)
Net (Loss) Income	$	(1,972)		$	(1,454)		$	5,923		$	(56,876)
Net (Loss) Income per Common Share - Basic	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Net (Loss) Income per Common Share - Diluted	$	(0.07)		$	(0.05)		$	0.21		$	(1.99)
Number of Stores Opened in Quarter		5			8			3			4
Comparable Store Net Sales Increase		2.9	%		4.7	%		2.1	%		0.4	%

XML

Other Liabilities

12 Months Ended

Dec. 31, 2019

Other Liabilities [Abstract]

Other Liabilities

Note 3.         Other Liabilities

Other long-term liabilities consisted of:

	December 31,
	2019		2018
Antidumping and Countervailing Duties Accrual, Including Accrued Interest	$	12,795	$	11,456
Deferred Rent		—		4,850
Lease Incentive Obligation		—		2,864
Other		962		1,033
Other Long Term Liabilities	$	13,757	$	20,203

XML

Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 7.         Stock-Based Compensation

Overview

The Company has an equity incentive plan (the “Plan”) for employees, non-employee directors and other service providers from which the Company may grant stock options, restricted shares, stock appreciation rights (“SARs”) and other equity awards.  The total number of shares of common stock authorized for issuance under the Plan is 7.8 million. As of December 31, 2019, 2.5 million shares of common stock were available for future grants. Stock options granted under the Plan expire no later than ten years from the date of grant and the exercise price shall not be less than the fair market value of the shares on the date of grant. Vesting periods are assigned to stock options and restricted shares on a grant-by-grant basis at the discretion of the Board.  The Company issues new shares of common stock upon exercise of stock options and vesting of restricted shares.

The Company also maintains the Lumber Liquidators Holdings, Inc. Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees until departure from the Board.  A non-employee director may elect to defer up to 100% of his or her fees and have such fees invested in deferred stock units.  Deferred stock units must be settled in common stock upon the director’s departure from the Board.  There were 158,283 and 132,348 deferred stock units outstanding at December 31, 2019 and 2018, respectively.

Stock Options

The following table summarizes activity related to stock options:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	835,614	$	24.86	7.5	$	1,167
Granted	127,984		22.09
Exercised	(87,955)		15.31
Forfeited	(185,975)		25.62
Balance, December 31, 2017	689,668	$	25.31	7.7	$	8,530
Granted	215,297		20.54
Exercised	(43,510)		17.70
Forfeited	(128,870)		33.25
Balance, December 31, 2018	732,585	$	22.97	7.3	$	—
Granted	110,535		8.47
Forfeited	(149,657)		25.16
Balance, December 31, 2019	693,463	$	20.18	7.1	$	144
Exercisable at December 31, 2019	361,974	$	24.43		$	—
Vested and expected to vest December 31, 2019	693,463	$	20.18		$	144

The aggregate intrinsic value is the difference between the exercise price and the closing price of the Company’s common stock on December 31.  There were no stock options exercised during 2019.  The intrinsic value of stock options exercised during 2018 and 2017 was $0.3 million and $0.8 million, respectively.

As of December 31, 2019, total unrecognized compensation cost related to unvested options was approximately $1.5 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.2 years.

The fair value of each stock option award is estimated by management on the date of the grant using the Black-Scholes-Merton option pricing model. The weighted average fair value of options granted during 2019, 2018 and 2017 was $4.32, $10.69 and $11.20, respectively.

The following are the average assumptions for the periods noted:

	Year Ended December 31,
	2019		2018		2017
Expected dividend rate	—	%	—	%	—	%
Expected stock price  volatility	55	%	55	%	55	%
Risk-free interest rate	2.1	%	2.8	%	1.7	%
Expected term of options	5.5	years	5.5	years	5.5	years

The expected stock price volatility is based on the historical volatility of the Company’s stock price. The volatilities are estimated for a period of time equal to the expected term of the related option. The risk-free interest rate is based on the implied yield of U.S. Treasury zero-coupon issues with an equivalent remaining term. The 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.

Restricted Shares

The following table summarizes activity related to restricted shares:

		Weighted Average
		Grant Date Fair
	Shares	Value
Nonvested, December 31, 2016	586,187	$	17.71
Granted	207,196		19.56
Released	(205,349)		18.31
Forfeited	(108,288)		15.68
Nonvested, December 31, 2017	479,746	$	18.71
Granted	224,835		22.39
Released	(137,064)		18.67
Forfeited	(80,305)		17.98
Nonvested, December 31, 2018	487,212	$	20.54
Granted	661,784		10.35
Released	(130,721)		11.09
Forfeited	(107,309)		14.71
Nonvested, December 31, 2019	910,966	$	15.18

The fair value of restricted shares released during 2019, 2018 and 2017 was $1.5 million,  $2.9 million and $5.2 million, respectively.  As of December 31, 2019, total unrecognized compensation cost related to unvested restricted shares was approximately $5.1 million, net of estimated forfeitures, which is expected to be recognized over a weighted average period of approximately 2.4 years.

During 2019, the Company granted 100,281 shares of performance-based restricted stock awards, vesting over a three-year period, with a grant date fair value of approximately $1.1 million.  These shares were awarded to certain members of senior management in connection with the achievement of specific key financial metrics measured over a two-year period and vest over a three-year period. The number of awards that will ultimately vest is contingent upon the achievement of these key financial metrics by the end of year two. The Company assesses the probability of achieving these metrics on a quarterly basis. For these awards, the Company recognizes the fair value expense ratably over the performance and vesting period. Once these amounts have been determined, half of the shares will vest at the end of year two and the remaining half will vest at the end of year three. These awards are included above in RSAs Granted.

Stock Appreciation Rights

The following table summarizes activity related to SARs:

				Remaining
		Weighted		Average	Aggregate
		Average		Contractual	Intrinsic
	Shares	Exercise Price		Term (Years)	Value
Balance, December 31, 2016	28,668	$	32.63	7.5	$	6
Granted	2,899		17.39
Exercised	(165)		24.35
Forfeited	(14,852)		45.93
Balance, December 31, 2017	16,550	$	18.10	8.6	$	251
Granted	1,738		23.31
Exercised	—		—
Forfeited	(335)		86.16
Balance, December 31, 2018	17,953	$	17.33	7.8	$	—
Granted	—		—
Exercised	—		—
Forfeited	(17,708)		16.44
Balance, December 31, 2019	245	$	82.08	3.4	$	—
Exercisable at December 31, 2019	245	$	82.08	3.4	$	—

The fair value method, estimated by management using the Black-Scholes-Merton option pricing model, is used to recognize compensation cost associated with SARs.

XML

Income Taxes (Components of Income (Loss) Before Income Taxes) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Income Taxes [Abstract]
United States	$ 13,830	$ (52,473)	$ (38,258)
Foreign	(878)	(927)	(299)
Income (Loss) Before Income Taxes	$ 12,952	$ (53,400)	$ (38,557)

XML

Income Taxes (Reconciliation of Unrecognized Tax Benefits) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Income Taxes [Abstract]
Balance at beginning of year	$ 3,610	$ 27
Increases for tax positions related to current year	174	3,583
(Decreases) Increases for tax positions related to prior years	(3,443)
Settlements	(116)
Balance at end of year	$ 225	$ 3,610

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares shares in Thousands	Dec. 31, 2019	Dec. 31, 2018
Statement Of Financial Position [Abstract]
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	35,000	35,000
Common Stock, shares, issued	29,958	31,578
Common Stock, shares outstanding	28,714	28,627
Treasury Stock, shares	1,245	2,951

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Cash Flows from Operating Activities:
Net Income (Loss)	$ 9,663	$ (54,379)	$ (37,823)
Adjustments to Reconcile Net Income (Loss):
Depreciation and Amortization	17,465	18,425	17,739
Deferred Income Taxes (Benefit) Provision	(366)	240	(3,246)
Stock-Based Compensation Expense	4,848	4,091	4,735
Provision for Inventory Obsolescence Reserves	1,888	3,108	6,349
(Gain) Loss on Disposal of Fixed Assets	(221)	1,818	1,498
Changes in Operating Assets and Liabilities:
Merchandise Inventories	28,941	(59,179)	32,614
Accounts Payable	(13,640)	4,852	(52,475)
Customer Deposits and Store Credits	1,353	1,685	6,001
Prepaid Expenses and Other Current Assets	(27,113)	2,902	28,962
Accrual for Legal Matters and Settlements	4,575	63,951	36,960
Deposit for Legal Settlement		(21,500)
Payments for Legal Matters and Settlements	(34,729)	(2,904)	(2,522)
Other Assets and Liabilities	7,665	(6,096)	600
Net Cash Provided by (Used in) Operating Activities	329	(42,986)	39,392
Cash Flows from Investing Activities:
Purchases of Property and Equipment	(19,906)	(14,332)	(7,411)
Other Investing Activities	422	871	3,073
Net Cash Used in Investing Activities	(19,484)	(13,461)	(4,338)
Cash Flows from Financing Activities:
Borrowings on Credit Agreement	104,500	74,000	40,000
Payments on Credit Agreement	(87,500)	(24,000)	(65,000)
Proceeds from the Exercise of Stock Options		770	1,347
Payments on Financed Insurance Obligations		(612)	(734)
Other Financing Activities	(1,119)	(953)	(1,806)
Net Cash Provided by (Used in) Financing Activities	15,881	49,205	(26,193)
Effect of Exchange Rates on Cash and Cash Equivalents	702	(1,131)	806
Net (Decrease) Increase in Cash and Cash Equivalents	(2,572)	(8,373)	9,667
Cash and Cash Equivalents, Beginning of Year	11,565	19,938	10,271
Cash and Cash Equivalents, End of Year	8,993	$ 11,565	19,938
Supplemental disclosure of non-cash operating and financing activities [Abstract]
Tenant Improvement Allowance for Leases	$ (2,962)
Financed Insurance Premiums			$ 1,346

XML

Property and Equipment (Schedule of Property and Equipment) (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 213,504	$ 204,106
Less: Accumulated Depreciation and Amortization	114,771	110,417
Property and Equipment, net	98,733	93,689
Land [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	4,937	4,937
Building [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	44,395	44,319
Property and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	57,047	53,411
Computer Software and Hardware [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	51,437	54,375
Leasehold Improvement [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	54,139	46,297
Asset under Construction [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 1,549	$ 767

XML

Summary of Significant Accounting Policies (Sales Mix by Major Product) (Details) - USD ($) $ in Thousands	3 Months Ended								12 Months Ended
	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Product Information [Line Items]
Net Sales	$ 273,854	$ 263,961	$ 288,567	$ 266,220	$ 268,921	$ 270,469	$ 283,474	$ 261,772	$ 1,092,602	$ 1,084,636	$ 1,028,933
Sales Revenue, Product Line [Member]
Product Information [Line Items]
Net Sales									$ 1,092,602	$ 1,084,636	$ 1,028,933
Percent									100.00%	100.00%	100.00%
Net Merchandise Sales
Product Information [Line Items]
Net Sales									$ 956,041	$ 955,949	$ 938,269
Manufactured Products | Sales Revenue, Product Line [Member]
Product Information [Line Items]
Net Sales									$ 452,914	$ 392,512	$ 315,369
Percent									41.00%	36.00%	31.00%
Solid and Engineered Hardwood | Sales Revenue, Product Line [Member]
Product Information [Line Items]
Net Sales									$ 319,582	$ 367,026	$ 423,301
Percent									29.00%	34.00%	41.00%
Moldings and Accessories and Other | Sales Revenue, Product Line [Member]
Product Information [Line Items]
Net Sales									$ 183,545	$ 196,411	$ 199,599
Percent									17.00%	18.00%	19.00%
Installation and Delivery Services | Sales Revenue, Product Line [Member]
Product Information [Line Items]
Net Sales									$ 136,561	$ 128,687	$ 90,664
Percent									13.00%	12.00%	9.00%

XML

Credit Agreement

12 Months Ended

Dec. 31, 2019

Credit Agreement

Credit Agreement

Note 4.         Credit Agreement

On March 29, 2019, the Company entered into a Fourth Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, National Association (the “Lenders”).  The Credit Agreement amended and restated the Third Amended and Restated Revolving Credit Agreement (the “Prior Agreement”).  Under the Credit Agreement, the Lenders increased the maximum amount of borrowings under the revolving credit facility (the “Revolving Credit Facility”) from $150 million under the Prior Agreement to $175 million and added a new first in-last out $25 million term loan (the “FILO Term Loan”) for a total of $200 million, subject to the borrowing bases described below.  The Company also has the option to increase the Revolving Credit Facility to a maximum total amount of $225 million, subject to the satisfaction of the conditions to such increase as specified in the Credit Agreement.

As of December 31, 2019, a total of $57 million was outstanding under the Revolving Credit Facility and $25 million was outstanding under the FILO Term Loan.  As of December 31, 2019, there was $102 million of availability under the Revolving Credit Facility.  The Company also had $3.9 million in letters of credit which factor into its remaining availability.

The Revolving Credit Facility and the FILO Term Loan mature on March 29, 2024, and are secured by security interests in the Collateral (as defined in the Credit Agreement), which includes substantially all assets of the Company including, among other things, the Company’s inventory and accounts receivables, and the Company’s East Coast distribution center located in Sandston, Virginia.  Under the terms of the Credit Agreement, the Company has the ability to release the East Coast distribution center from the Collateral under certain conditions.

The Revolving Credit Facility is available to the Company up to the lesser of (1) $175 million or (2) a revolving borrowing base equal to the sum of specified percentages of the Borrowers’ eligible credit card receivables, eligible inventory (including eligible in-transit inventory) and eligible owned real estate, less certain reserves, all of which are defined by the terms of the Credit Agreement (the “Revolving Borrowing Base”).  If the outstanding FILO Term Loan exceeds the FILO Borrowing Base (as defined in the Credit Agreement), then the amount of such excess reduces availability under the Revolving Borrowing Base.

Loans outstanding under the Credit Agreement can bear interest based on the Base Rate (as defined in the Credit Agreement) or the LIBOR Rate (as defined in the Credit Agreement).  Interest on Base Rate loans is charged at varying per annum rates computed by applying a margin ranging from (i) 0.25% to 0.75% over the Base Rate with respect to revolving loans and (ii) 1.25% to 2.00% over the Base Rate with respect to the FILO Term Loan, in each case depending on the Borrowers’ average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.  Interest on LIBOR Rate loans and fees for standby letters of credit are charged at varying per annum rates computed by applying a margin ranging from (i) 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans and (ii) 2.25% to 3.00% over the applicable LIBOR Rate with respect to the FILO Term Loan, in each case depending on the Company’s average daily excess borrowing availability under the Revolving Credit Facility during the most recently completed fiscal quarter.  At December 31, 2019, the Company’s Revolving Credit Facility carried an average interest rate of 3.90% and the FILO Term Loan carried an interest rate of 4.75%.

The Credit Agreement contains a fixed charge coverage ratio covenant that becomes effective only when specified availability under the Revolving Credit Facility falls below the greater of $17.5 million or 10% of the Combined Loan Cap (as defined in the Credit Agreement).

XML

Income Taxes

12 Months Ended

Dec. 31, 2019

Income Taxes [Abstract]

Income Taxes

Note 8.         Income Taxes

The components of income (loss) before income taxes were as follows:

	Year Ended December 31,
	2019		2018		2017
United States	$	13,830	$	(52,473)	$	(38,258)
Foreign		(878)		(927)		(299)
Total Income (Loss) before Income Taxes	$	12,952	$	(53,400)	$	(38,557)

The expense (benefit) for income taxes consisted of the following:

	Year Ended December 31,
	2019		2018		2017
Current
Federal	$	2,550	$	—	$	2,254
State		1,015		607		146
Foreign		90		132		112
Total Current		3,655		739		2,512
Deferred
Federal		(203)		140		(2,087)
State		(163)		100		(1,159)
Total Deferred		(366)		240		(3,246)
Income Tax Expense (Benefit)	$	3,289	$	979	$	(734)

Tax expense in the amount of $0.5 million and $0.2 million was recognized as a component of income tax expense during 2019 and 2018, respectively, resulting from the exercise of stock options and the release of restricted shares. Prior to the adoption of Accounting Standards Update No. 2016-09, which amends ASC Topic 718, Compensation – Stock Compensation, in 2017, excess tax benefits and shortfalls were recognized as adjustments to additional paid-in capital.

	Year Ended December 31,
	2019				2018				2017
Income Tax Expense (Benefit) at Federal Statutory Rate	$	2,720	21.0	%	$	(11,214)	21.0	%	$	(13,495)	35.0	%
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax Benefit		425	3.3	%		723	(1.3)	%		(740)	1.9	%
Valuation Allowance		668	5.2	%		3,897	(7.3)	%		3,826	(10.0)	%
Foreign Operations		90	0.7	%		132	(0.3)	%		221	(0.5)	%
Uncertain Tax Positions		174	1.3	%		2,919	(5.5)	%		—	—	%
Non-Deductible Fines and Penalties		6	—	%		4,011	(7.5)	%		1,156	(3.0)	%
Federal Rate Change		—	—	%		—	—	%		8,088	(21.0)	%
Other		(794)	(6.1)	%		511	(0.9)	%		210	(0.5)	%
Income Tax Expense (Benefit)	$	3,289	25.4	%	$	979	(1.8)	%	$	(734)	1.9	%

The tax effects of temporary differences that result in significant portions of the deferred tax accounts based on a 21% federal rate in both 2019 and 2018, are as follows:

	December 31,
	2019		2018
Deferred Tax Liabilities:
Operating Lease Right-of-Use Assets	$	(31,804)	$	—
Depreciation and Amortization and Other		(9,676)		(10,672)
Total Gross Deferred Tax Liabilities		(41,480)		(10,672)
Deferred Tax Assets:
Operating Lease Liabilities		34,419		—
Stock-Based Compensation Expense		2,611		2,348
Legal Settlement Reserves		11,774		14,251
Other Accruals and Reserves		5,054		4,811
Employee Benefits		1,169		1,018
Inventory Reserves		1,311		1,896
Inventory Capitalization		3,194		3,492
Foreign Net Operating Loss Carryforwards		3,341		3,153
Net Operating Loss Carryforwards		2,444		2,445
Capital Loss Carryforwards and Other		2,724		2,784
Total Gross Deferred Tax Assets		68,041		36,198
Less: Valuation Allowance		(26,986)		(26,318)
Total Net Deferred Tax Assets		41,055		9,880
Net Deferred Tax Liability	$	(425)	$	(792)

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in the fourth quarter of 2017.  Generally, the Tax Act became effective in 2018, and it altered the deductibility of certain items (e.g., certain compensation, interest, entertainment expenses), and allowed qualifying capital expenditures to be deducted fully in the year of purchase. As of December 31, 2018, the Company completed the analysis of the tax effects of the Tax Act based on guidance issued to-date and has reflected all applicable changes in its financial statements.

The Company continues to monitor developments by federal and state rulemaking authorities regarding tax law changes and recognizes the impact of these law changes in the period in which they are enacted.

For 2019 and 2018, the Company’s U.S. operations were in a cumulative loss position. As such, the Company has recorded a valuation allowance on its net deferred tax assets. The valuation allowance increased by $1.1 million and $4.7 million for the years ended December 31, 2019 and 2018, respectively. In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

For 2019 and 2018, the Company’s Canadian operations were in a cumulative loss position. As such, the Company has recorded a full valuation allowance on the net deferred tax assets in Canada. The valuation allowance decreased by $0.4 million and increased by $0.2 million for the years ended December 31, 2019 and 2018, respectively. In future periods, the allowance could be reduced if sufficient evidence exists indicating that it is more likely than not that a portion or all of these deferred tax assets will be realized.

As of December 31, 2019, a full valuation allowance has been provided against certain deferred tax assets as it is presently deemed more likely than not that the benefit of such net tax assets will not be utilized. Due to recent cumulative losses, the Company did not rely upon projections of future taxable income in assessing the recoverability of deferred tax assets. In future periods, a reduction in the valuation allowance could result in a significant decrease in income tax expense in the period that the release is recorded.  However, the exact timing and amount of any reduction in our valuation allowance are unknown at this time and will be subject to the earnings level we achieve in future periods.

As of December 31, 2019, the Company had no remaining U.S. federal net operating loss carryforward. As of December 31, 2018, the Company had a U.S. federal net operating loss carryforward of $12 million. As of December 31, 2019 and 2018, respectively, the Company had state net loss carryforwards of $39 million and $52 million, which begin to expire in 2022. The Company had foreign net operating loss carryforwards of $12 million at December 31, 2019 and 2018, which begin to expire in 2030.

The Company paid income taxes (net of refunds) of $0.2 million in 2019.  The Company received income tax refunds (net of payments) of $0.1 million and $29 million in 2018 and 2017, respectively.  

As of December 31, 2019 and 2018, the Company had $0.2 million and $3.6 million, respectively of gross unrecognized tax benefits related to Uncertain Tax Positions ($0.2 million and $3.5 million, respectively, net of federal tax benefit). It is reasonably possible that the amount of the unrecognized tax benefit with respect to certain of the uncertain tax positions will increase or decrease during the next 12 months; however, the Company does not expect the change in uncertain tax positions to have a significant effect on its results of operations, financial position or cash flows.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended December 31,
	2019		2018
Balance at beginning of year	$	3,610	$	27
Increases for tax positions related to current year		174		3,583
(Decreases) Increases for tax positions related to prior years		(3,443)		—
Settlements		(116)		—
Balance at end of year	$	225	$	3,610

Included in the additions of unrecognized tax benefits in the fiscal year ended December 31, 2019, is approximately $0.2 million for an uncertain tax position related to state income taxes.  

The Company files income tax returns with the U.S. federal government and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities.   As of December 31, 2019, the Internal Revenue Service has completed audits of the Company’s income tax returns through 2016.

XML

Schedule II - Analysis of Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2019

Schedule II - Analysis of Valuation and Qualifying Accounts [Abstract]

Schedule II - Analysis of Valuation and Qualifying Accounts

Lumber Liquidators Holdings, Inc.

Schedule II – Analysis of Valuation and Qualifying Accounts

For the Years Ended December 31, 2019, 2018 and 2017

(in thousands)

			Additions
	Balance		Charged to
	Beginning		Cost and							Balance End
	of Year		Expenses			Deductions (1)		Other		of Year
For the Year Ended December 31, 2017
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	7,070	$	6,349		$	(7,788)	$	—	$	5,631
Income tax valuation allowance	$	17,640	$	3,936	(2)	$	—	$	—	$	21,576
For the Year Ended December 31, 2018
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	5,631	$	3,108		$	(1,932)	$	—	$	6,807
Income tax valuation allowance	$	21,576	$	4,742		$	—	$	—	$	26,318
For the Year Ended December 31, 2019
Reserve deducted from assets to which it applies
Inventory reserve for loss or obsolescence	$	6,807	$	1,888		$	(1,795)	$	—	$	6,900
Income tax valuation allowance	$	26,318	$	668		$	—	$	—	$	26,986

¹ Deductions are for the purposes for which the reserve was created.

² Includes the impact of the Tax Act, which was enacted on December 22, 2017.

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Current Assets:
Cash and Cash Equivalents	$ 8,993	$ 11,565
Merchandise Inventories	286,369	318,272
Prepaid Expenses	8,288	6,299
Deposit for Legal Settlement	21,500	21,500
Tariff Recovery Receivable	27,025
Other Current Assets	6,938	8,667
Total Current Assets	359,113	366,303
Property and Equipment, net	98,733	93,689
Operating Lease Right-of-Use Assets, net	121,796
Goodwill	9,693	9,693
Other Assets	6,674	5,832
Total Assets	596,009	475,517
Current Liabilities:
Accounts Payable	59,827	73,412
Customer Deposits and Store Credits	41,571	40,332
Accrued Compensation	11,742	9,265
Sales and Income Tax Liabilities	7,225	4,200
Accrual for Legal Matters and Settlements - Current	67,471	97,625
Operating Lease Liabilities - Current	31,333
Other Current Liabilities	18,937	17,290
Total Current Liabilities	238,106	242,124
Other Long-Term Liabilities	13,757	20,203
Operating Lease Liabilities - Long-Term	100,470
Deferred Tax Liability	426	792
Credit Agreement	82,000	65,000
Total Liabilities	434,759	328,119
Stockholders' Equity:
Common Stock ($0.001 par value; 35,000 shares authorized; 29,958 and 31,578 shares issued and 28,714 and 28,627 shares outstanding at December 31, 2019 and 2018, respectively)	30	32
Treasury Stock, at cost (1,245 and 2,951 shares, respectively)	(142,314)	(141,828)
Additional Capital	218,616	213,744
Retained Earnings	86,498	76,835
Accumulated Other Comprehensive Loss	(1,580)	(1,385)
Total Stockholders' Equity	161,250	147,398
Total Liabilities and Stockholders' Equity	$ 596,009	$ 475,517

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Treasury Stock [Member]	Additional Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Beginning Balance at Dec. 31, 2016	$ 31	$ (139,420)	$ 202,700	$ 169,037	$ (1,456)	$ 230,892
Beginning Balance (in shares) at Dec. 31, 2016	28,248	2,854
Stock-Based Compensation Expense			4,582			$ 4,582
Exercise of Stock Options (in shares)	88					87,955
Exercise of Stock Options			1,347			$ 1,347
Release of Restricted Shares (in shares)	154
Common Stock Repurchase (in shares)		53				0
Common Stock Repurchased		$ (1,455)				$ (1,455)
Translation Adjustment					304	304
Net Income (Loss)				(37,823)		(37,823)
Ending Balance at Dec. 31, 2017	$ 31	$ (140,875)	208,629	131,214	(1,152)	197,847
Ending Balance (in shares) at Dec. 31, 2017	28,490	2,907
Stock-Based Compensation Expense			4,346			$ 4,346
Exercise of Stock Options (in shares)	44					43,510
Exercise of Stock Options			770			$ 770
Release of Restricted Shares	$ 1		(1)
Release of Restricted Shares (in shares)	93
Common Stock Repurchase (in shares)		44				0
Common Stock Repurchased		$ (953)				$ (953)
Translation Adjustment					(233)	(233)
Net Income (Loss)				(54,379)		(54,379)
Ending Balance at Dec. 31, 2018	$ 32	$ (141,828)	213,744	76,835	(1,385)	147,398
Ending Balance (in shares) at Dec. 31, 2018	28,627	2,951
Stock-Based Compensation Expense			4,872			$ 4,872
Release of Restricted Shares (in shares)	87
Common Stock Repurchase (in shares)						0
Common Stock Repurchase (in shares)		(1,706)
Common Stock Repurchased	$ (2)	$ (486)				$ (488)
Translation Adjustment					(195)	(195)
Net Income (Loss)				9,663		9,663
Ending Balance at Dec. 31, 2019	$ 30	$ (142,314)	$ 218,616	$ 86,498	$ (1,580)	$ 161,250
Ending Balance (in shares) at Dec. 31, 2019	28,714	1,245

XML

Income Taxes ((Benefit) Provision for Income Taxes) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Current
Federal	$ 2,550		$ 2,254
State	1,015	$ 607	146
Foreign	90	132	112
Total Current	3,655	739	2,512
Deferred
Federal	(203)	140	(2,087)
State	(163)	100	(1,159)
Total Deferred	(366)	240	(3,246)
Income Tax Expense (Benefit)	$ 3,289	$ 979	$ (734)

XML

401(K) Plan (Narrative) (Details) - USD ($) $ in Millions	12 Months Ended			60 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2019
401(K) Plan [Abstract]
Employer matching contribution percentage				100.00%
Employer matching contribution Additional percentage				50.00%
Eligible service age for profit-sharing plan	21 years
Eligible service period for profit-sharing plan	3 months
Employer contribution percentage				3.00%
Employer contribution Additional percentage				2.00%
Company matching contribution to benefit plans	$ 2.8	$ 2.6	$ 2.3
Company matching contribution percentage vested	100.00%

XML

Schedule II - Analysis of Valuation and Qualifying Accounts (Valuation of Qualifying Accounts) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Inventory Reserve for Loss or Obsolescence [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance Beginning of Year	$ 6,807	$ 5,631	$ 7,070
Additions Charged to Cost and Expenses	1,888	3,108	6,349
Deductions	(1,795)	(1,932)	(7,788)
Other
Balance End of Year	6,900	6,807	5,631
Income Tax Valuation Allowance [Member]
Valuation and Qualifying Accounts Disclosure [Line Items]
Balance Beginning of Year	26,318	21,576	17,640
Additions Charged to Cost and Expenses	668	4,742	3,936
Deductions
Other
Balance End of Year	$ 26,986	$ 26,318	$ 21,576

XML

Stock Based Compensation (Narrative) (Details) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Stock options exercised intrinsic value		$ 0.3	$ 0.8
Unrecognized compensation cost related to unvested option	$ 1.5
Weighted average period of recognition	2 years 2 months 12 days
Weighted average fair value of option granted	$ 4.32	$ 10.69	$ 11.20
Two Thousand And Eleven Plan [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Common stock shares authorized for issuance	7,800,000
Common stock available for future grant	2,500,000
Two Thousand And Eleven Plan [Member] | Maximum [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Share based compensation stock options expiration period	10 years
Non Employee Director [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Deferred stock units outstanding	158,283	132,348
Non Employee Director [Member] | Maximum [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Deferred percentage of director fees invested in deferred stock units	100.00%
Restricted Shares [Member]
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Weighted average period of recognition	2 years 4 months 24 days
Fair value of restricted stock awards released	$ 1.5	$ 2.9	$ 5.2
Unrecognized compensation cost related to unvested restricted stock awards	$ 5.1
Awards granted	661,784	224,835	207,196
Performance-Base Restricted Stock Awards
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Awards granted	100,281
Grant date fair value of awards	$ 1.1
Performance-Base Restricted Stock Awards | Senior Management
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Share-based compensation terms	These shares were awarded to certain members of senior management in connection with the achievement of specific key financial metrics measured over a two-year period and vest over a three-year period. The number of awards that will ultimately vest is contingent upon the achievement of these key financial metrics by the end of year two. The Company assesses the probability of achieving these metrics on a quarterly basis.
Vesting period of grants	3 years
Performance-Base Restricted Stock Awards | Senior Management | Tranche One
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Vesting period of grants	2 years
Percentage of awards vested	50.00%
Performance-Base Restricted Stock Awards | Senior Management | Tranche Two
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Vesting period of grants	3 years
Percentage of awards vested	50.00%

XML

Leases - future minimum rental payments under non-cancellable operating leases (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Future minimum rental payments under non-cancellable operating leases:
2020	$ 37,855
2021	32,123
2022	26,164
2023	20,287
2024	13,446
Thereafter	22,683
Total future minimum lease payments	152,558
Less imputed interest	(20,755)
Total	$ 131,803
Operating Lease, Liability, Statement of Financial Position [Extensible List]	us-gaap:OperatingLeaseLiabilityCurrent us-gaap:OperatingLeaseLiabilityNoncurrent
Store Leases
Future minimum rental payments under non-cancellable operating leases:
2020	$ 33,752
2021	28,460
2022	22,508
2023	16,554
2024	9,853
Thereafter	14,443
Total future minimum lease payments	125,570
Less imputed interest	(15,900)
Total	109,670
Other Leases
Future minimum rental payments under non-cancellable operating leases:
2020	4,103
2021	3,663
2022	3,656
2023	3,733
2024	3,593
Thereafter	8,240
Total future minimum lease payments	26,988
Less imputed interest	(4,855)
Total	$ 22,133

XML

Other Liabilities (Tables)

12 Months Ended

Dec. 31, 2019

Other Liabilities [Abstract]

Other Long-Term Liabilities

Other long-term liabilities consisted of:

	December 31,
	2019		2018
Antidumping and Countervailing Duties Accrual, Including Accrued Interest	$	12,795	$	11,456
Deferred Rent		—		4,850
Lease Incentive Obligation		—		2,864
Other		962		1,033
Other Long Term Liabilities	$	13,757	$	20,203

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2019

Income Taxes [Abstract]

Components of (Loss) Income Before Income Taxes

	Year Ended December 31,
	2019		2018		2017
United States	$	13,830	$	(52,473)	$	(38,258)
Foreign		(878)		(927)		(299)
Total Income (Loss) before Income Taxes	$	12,952	$	(53,400)	$	(38,557)

(Benefit) Provision for Income Taxes

	Year Ended December 31,
	2019		2018		2017
Current
Federal	$	2,550	$	—	$	2,254
State		1,015		607		146
Foreign		90		132		112
Total Current		3,655		739		2,512
Deferred
Federal		(203)		140		(2,087)
State		(163)		100		(1,159)
Total Deferred		(366)		240		(3,246)
Income Tax Expense (Benefit)	$	3,289	$	979	$	(734)

Reconciliation of Significant Differences Between Income Tax Expenses Applying Federal Statutory Rate to Actual Income Tax Expense at Effective Rate

	Year Ended December 31,
	2019				2018				2017
Income Tax Expense (Benefit) at Federal Statutory Rate	$	2,720	21.0	%	$	(11,214)	21.0	%	$	(13,495)	35.0	%
Increases (Decreases):
State Income Taxes, Net of Federal Income Tax Benefit		425	3.3	%		723	(1.3)	%		(740)	1.9	%
Valuation Allowance		668	5.2	%		3,897	(7.3)	%		3,826	(10.0)	%
Foreign Operations		90	0.7	%		132	(0.3)	%		221	(0.5)	%
Uncertain Tax Positions		174	1.3	%		2,919	(5.5)	%		—	—	%
Non-Deductible Fines and Penalties		6	—	%		4,011	(7.5)	%		1,156	(3.0)	%
Federal Rate Change		—	—	%		—	—	%		8,088	(21.0)	%
Other		(794)	(6.1)	%		511	(0.9)	%		210	(0.5)	%
Income Tax Expense (Benefit)	$	3,289	25.4	%	$	979	(1.8)	%	$	(734)	1.9	%

Tax Effects of Temporary Differences that Result in Significant Portions of Deferred Tax Accounts

	December 31,
	2019		2018
Deferred Tax Liabilities:
Operating Lease Right-of-Use Assets	$	(31,804)	$	—
Depreciation and Amortization and Other		(9,676)		(10,672)
Total Gross Deferred Tax Liabilities		(41,480)		(10,672)
Deferred Tax Assets:
Operating Lease Liabilities		34,419		—
Stock-Based Compensation Expense		2,611		2,348
Legal Settlement Reserves		11,774		14,251
Other Accruals and Reserves		5,054		4,811
Employee Benefits		1,169		1,018
Inventory Reserves		1,311		1,896
Inventory Capitalization		3,194		3,492
Foreign Net Operating Loss Carryforwards		3,341		3,153
Net Operating Loss Carryforwards		2,444		2,445
Capital Loss Carryforwards and Other		2,724		2,784
Total Gross Deferred Tax Assets		68,041		36,198
Less: Valuation Allowance		(26,986)		(26,318)
Total Net Deferred Tax Assets		41,055		9,880
Net Deferred Tax Liability	$	(425)	$	(792)

Reconciliation of the Beginning and Ending Amount of Gross Unrecognized Tax Benefits, Excluding Interest and Penalties

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding interest and penalties, is as follows:

	Year Ended December 31,
	2019		2018
Balance at beginning of year	$	3,610	$	27
Increases for tax positions related to current year		174		3,583
(Decreases) Increases for tax positions related to prior years		(3,443)		—
Settlements		(116)		—
Balance at end of year	$	225	$	3,610