0001558370-20-012176.txt : 20201102 0001558370-20-012176.hdr.sgml : 20201102 20201030185725 ACCESSION NUMBER: 0001558370-20-012176 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 55 CONFORMED PERIOD OF REPORT: 20200930 FILED AS OF DATE: 20201102 DATE AS OF CHANGE: 20201030 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Lumber Liquidators Holdings, Inc. CENTRAL INDEX KEY: 0001396033 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-LUMBER & OTHER BUILDING MATERIALS DEALERS [5211] IRS NUMBER: 271310817 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-33767 FILM NUMBER: 201278636 BUSINESS ADDRESS: STREET 1: 4901 BAKERS MILL LANE CITY: RICHMOND STATE: VA ZIP: 23230 BUSINESS PHONE: 757-259-4280 MAIL ADDRESS: STREET 1: 4901 BAKERS MILL LANE CITY: RICHMOND STATE: VA ZIP: 23230 FORMER COMPANY: FORMER CONFORMED NAME: Lumber Liquidators, Inc. DATE OF NAME CHANGE: 20070410 10-Q 1 ll-20200930x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2020

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

Graphic

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)

(804463-2000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class:

Trading Symbol:

Name of exchange on which registered:

Common Stock, par value $0.001 per share

LL

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 of 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:

  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 Exchange Act).    Yes     No

As of October 26, 2020, there are 28,874,709 shares of the registrant’s common stock, par value of $0.001 per share, outstanding.

LUMBER LIQUIDATORS HOLDINGS, INC.

Quarterly Report on Form 10-Q

For the quarter ended September 30, 2020

TABLE OF CONTENTS

Page

PART I – FINANCIAL INFORMATION

2

Item 1.

Condensed Consolidated Financial Statements

2

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

PART II – OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

41

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 3.

Defaults Upon Senior Securities

42

Item 4.

Mine Safety Disclosures

42

Item 5.

Other Information

42

Item 6.

Exhibits

42

Signatures

44

1

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

Lumber Liquidators Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited, in thousands)

September 30,

December 31, 

    

2020

    

2019

Assets

Current Assets:

Cash and Cash Equivalents

$

199,347

$

8,993

Merchandise Inventories

237,440

286,369

Prepaid Expenses

7,940

8,288

Deposit for Legal Settlement

21,500

21,500

Tariff Recovery Receivable

7,516

27,025

Other Current Assets

6,950

6,938

Total Current Assets

480,693

359,113

Property and Equipment, net

94,202

98,733

Operating Lease Right-of-Use

114,552

121,796

Goodwill

9,693

9,693

Other Assets

7,887

6,674

Total Assets

$

707,027

$

596,009

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts Payable

$

90,194

$

59,827

Customer Deposits and Store Credits

63,736

41,571

Accrued Compensation

14,272

11,742

Sales and Income Tax Liabilities

5,997

7,225

Accrual for Legal Matters and Settlements Current

64,751

67,471

Operating Lease Liabilities - Current

35,341

31,333

Other Current Liabilities

24,305

18,937

Total Current Liabilities

298,596

238,106

Other Long-Term Liabilities

17,426

13,757

Operating Lease Liabilities - Long-Term

95,046

100,470

Deferred Tax Liability

973

426

Credit Agreement

101,000

82,000

Total Liabilities

513,041

434,759

Stockholders’ Equity:

Common Stock ($0.001 par value; 35,000 shares authorized; 30,184 and 29,959 shares issued and 28,871 and 28,714 shares outstanding, respectively)

30

30

Treasury Stock, at cost (1,313 and 1,245 shares, respectively)

(142,827)

(142,314)

Additional Capital

220,969

218,616

Retained Earnings

116,875

86,498

Accumulated Other Comprehensive Loss

(1,061)

(1,580)

Total Stockholders’ Equity

193,986

161,250

Total Liabilities and Stockholders’ Equity

$

707,027

$

596,009

See accompanying notes to condensed consolidated financial statements

2

Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

 

Net Sales

Net Merchandise Sales

$

261,009

$

229,241

$

709,845

$

717,799

Net Services Sales

34,824

34,719

83,646

100,949

Total Net Sales

295,833

263,960

793,491

818,748

Cost of Sales

Cost of Merchandise Sold

152,530

142,404

419,230

451,631

Cost of Services Sold

26,777

25,882

64,472

75,345

Total Cost of Sales

 

179,307

 

168,286

 

483,702

 

526,976

Gross Profit

 

116,526

 

95,674

 

309,789

 

291,772

Selling, General and Administrative Expenses

 

93,374

 

93,495

 

271,869

 

294,392

Operating Income (Loss)

 

23,152

 

2,179

 

37,920

 

(2,620)

Other Expense

 

685

 

909

 

2,709

 

3,265

Income (Loss) Before Income Taxes

 

22,467

 

1,270

 

35,211

 

(5,885)

Income Tax Expense

 

6,964

 

225

 

4,834

 

850

Net Income (Loss)

$

15,503

$

1,045

$

30,377

$

(6,735)

Net Income (Loss) per Common Share—Basic

$

0.54

$

0.04

$

1.05

$

(0.23)

Net Income (Loss) per Common Share—Diluted

$

0.53

$

0.04

$

1.04

$

(0.23)

Weighted Average Common Shares Outstanding:

 

  

 

  

 

  

 

  

Basic

 

28,859

 

28,706

 

28,801

 

28,681

Diluted

 

29,334

 

28,786

 

29,075

 

28,681

See accompanying notes to condensed consolidated financial statements

3

Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

 

Net Income (Loss)

$

15,503

$

1,045

$

30,377

$

(6,735)

Other Comprehensive Income (Loss):

 

  

 

  

 

  

 

  

Foreign Currency Translation Adjustments

 

247

 

(87)

 

519

 

(279)

Total Other Comprehensive Income (Loss)

 

247

 

(87)

 

519

 

(279)

Comprehensive Income (Loss)

$

15,750

$

958

$

30,896

$

(7,014)

See accompanying notes to condensed consolidated financial statements

4

Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands)

Total

Common Stock

Treasury Stock

Additional

Retained

Stockholders'

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Earnings

    

AOCL

    

Equity

 

July 1, 2019

28,701

$

30

 

1,239

$

(142,269)

$

216,159

$

69,055

$

(1,577)

$

141,398

Stock-Based Compensation Expense

 

 

 

 

 

1,206

 

 

 

1,206

Release of Restricted Shares

 

9

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

 

4

 

(30)

 

 

 

 

(30)

Translation Adjustment

 

 

 

 

 

 

 

(87)

 

(87)

Net Income

 

 

 

 

 

 

1,045

 

 

1,045

September 30, 2019

 

28,710

$

30

 

1,243

$

(142,299)

$

217,365

$

70,100

$

(1,664)

$

143,532

July 1, 2020

 

28,852

$

30

 

1,309

$

(142,752)

$

219,618

$

101,372

$

(1,308)

$

176,960

Stock-Based Compensation Expense

 

 

 

 

 

1,146

 

 

 

1,146

Exercise of Stock Options

 

11

 

 

 

 

205

 

 

 

205

Release of Restricted Shares

 

8

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

 

4

 

(75)

 

 

 

 

(75)

Translation Adjustment

 

 

 

 

 

 

 

247

 

247

Net Income

 

 

 

 

 

 

15,503

 

 

15,503

September 30, 2020

 

28,871

$

30

 

1,313

$

(142,827)

$

220,969

$

116,875

$

(1,061)

$

193,986

Total

Common Stock

Treasury Stock

Additional

Retained

Stockholders'

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Earnings

    

AOCL

     

Equity

January 1, 2019

 

28,627

$

32

 

2,951

$

(141,828)

$

213,744

$

76,835

$

(1,385)

$

147,398

Stock-Based Compensation Expense

 

 

 

 

 

3,621

 

 

 

3,621

Release of Restricted Shares

 

83

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

(2)

 

(1,708)

 

(471)

 

 

 

 

(473)

Translation Adjustment

 

 

 

 

 

 

 

(279)

 

(279)

Net Loss

 

 

 

 

 

 

(6,735)

 

 

(6,735)

September 30, 2019

 

28,710

$

30

 

1,243

$

(142,299)

$

217,365

$

70,100

$

(1,664)

$

143,532

January 1, 2020

28,714

$

30

1,245

$

(142,314)

$

218,616

$

86,498

$

(1,580)

$

161,250

Stock-Based Compensation Expense

 

 

 

 

 

2,112

 

 

 

2,112

Exercise of Stock Options

 

14

 

 

 

 

241

 

 

 

241

Release of Restricted Shares

 

143

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

 

68

 

(513)

 

 

 

 

(513)

Translation Adjustment

 

 

 

 

 

 

 

519

 

519

Net Income

 

 

 

 

 

 

30,377

 

 

30,377

September 30, 2020

 

28,871

$

30

 

1,313

$

(142,827)

$

220,969

$

116,875

$

(1,061)

$

193,986

See accompanying notes to condensed consolidated financial statements

5

Lumber Liquidators Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)

Nine Months Ended September 30,

    

2020

    

2019

Cash Flows from Operating Activities:

 

  

 

  

Net Income (Loss)

$

30,377

$

(6,735)

Adjustments to Reconcile Net Income (Loss):

 

  

 

Depreciation and Amortization

 

13,327

 

12,903

Deferred Income Taxes Provision

 

547

 

106

Stock-Based Compensation Expense

 

2,112

 

3,621

Provision for Inventory Obsolescence Reserves

 

2,564

 

724

Impairment of Operating Lease Right-Of-Use

935

Gain on Disposal of Fixed Assets

 

(401)

 

(284)

Changes in Operating Assets and Liabilities:

 

 

Merchandise Inventories

 

46,057

 

9,546

Accounts Payable

 

31,308

 

(14,186)

Customer Deposits and Store Credits

 

22,165

 

4,810

Tariff Recovery Receivable

19,509

Prepaid Expenses and Other Current Assets

 

821

 

(3,665)

Accrual for Legal Matters and Settlements

 

2,183

 

4,575

Payments for Legal Matters and Settlements

 

(4,903)

 

(33,725)

Deferred Rent Payments

4,709

Other Assets and Liabilities

 

9,452

 

5,235

Net Cash Provided by (Used in) Operating Activities

 

180,762

 

(17,075)

Cash Flows from Investing Activities:

 

  

 

  

Purchases of Property and Equipment

 

(9,822)

 

(13,523)

Other Investing Activities

 

949

 

419

Net Cash Used in Investing Activities

 

(8,873)

 

(13,104)

Cash Flows from Financing Activities:

 

  

 

  

Borrowings on Credit Agreement

 

45,000

 

85,500

Payments on Credit Agreement

 

(26,000)

 

(61,000)

Other Financing Activities

 

(506)

 

(1,104)

Net Cash Provided by Financing Activities

 

18,494

 

23,396

Effect of Exchange Rates on Cash and Cash Equivalents

 

(29)

 

823

Net Increase in Cash and Cash Equivalents

 

190,354

 

(5,960)

Cash and Cash Equivalents, Beginning of Period

 

8,993

 

11,565

Cash and Cash Equivalents, End of Period

$

199,347

$

5,605

Supplemental disclosure of non-cash operating and financing activities:

 

  

 

  

Tenant Improvement Allowance for Leases

$

(676)

$

(310)

See accompanying notes to condensed consolidated financial statements

6

Lumber Liquidators Holdings, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited, amounts in thousands, except per share amounts)

Note 1.       Basis of Presentation

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 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 primarily sells to homeowners or to contractors on behalf of homeowners through a network of store locations in metropolitan areas. As of September 30, 2020, the Company’s stores spanned 47 states in the United States (“U.S.”) and included eight stores in Canada. 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, LLFlooring.com.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q for interim financial reporting pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting of normal and recurring adjustments except those otherwise described herein) considered necessary for a fair presentation have been included in the accompanying condensed consolidated financial statements. However, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for complete financial statements. Therefore, the interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report filed on Form 10-K for the year ended December 31, 2019.

The condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.

Results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of future results to be expected for the full year due to a number of factors, including seasonality and general economic conditions that may impact sales for the remainder of fiscal 2020.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization announced that infections of COVID-19 had become a pandemic and the U.S. President announced a National Emergency relating to the COVID-19 pandemic. Starting as of the week of March 22, 2020 the Company closed as many as 56 stores for a period of time while all other stores operated under reduced hours and/or warehouse only conditions, offering curbside pickup and job site delivery for our PRO and DIY customers. By early July, 98% of stores were fully open, with less than 10 operating by appointment only. During the third quarter of 2020 the Company’s stores remained open except for temporary closures necessitated by local market conditions.

Since the onset of COVID-19, the Company leveraged strategic investments in digital capabilities made over the past 24 months, including the Floor Finder and Picture It! tools, to serve customers at LLFlooring.com. Web traffic has increased meaningfully throughout the year. The Company has also expanded availability of online flooring samples and extended hours for voice and click-to-chat customer support, while also continuing to offer curbside store pickup and enhanced home-delivery options.

7

Note 2.       Summary of Significant Accounting Policies

Fair Value of Financial Instruments

The carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and other liabilities approximate fair value because of the short-term nature of these items. The carrying amount of obligations under the 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 and domestic suppliers to provide imported flooring products that meet the Company’s specifications. The Company is subject to risks associated with obtaining products from abroad, including disruptions or delays in production, shipments, delivery or processing, including due to the COVID-19 pandemic. While the Company continues to be uncertain as to the full impact of COVID-19 to the supply chain, the Company is executing contingency plans to minimize anticipated and potential disruptions to supply chain, domestic distribution centers and store operations.

Included in merchandise inventories are tariff related costs, including Section 301 tariffs. Beginning in September 2018, goods coming from China were subject to a 10% tariff under Section 301, which was increased to 25% in June 2019. On November 7, 2019, the U.S. Trade Representative (“USTR”) granted a retroactive exclusion on certain Click Vinyl and engineered products imported from China. Subsequently, on August 6, 2020, the USTR announced its intention not to extend the exclusion pertaining to those certain flooring products imported from China, and the exclusion expired as of August 7, 2020, which again subjects those products to the Section 301 tariffs. At that time, approximately 43% of the Company’s merchandise receipts originated from China. Approximately 10% of the Company’s merchandise receipts were already subject to the Section 301 tariffs even during the exclusion period; the remaining 33% are now again subject to the Section 301 tariffs. In addition to alternative country sourcing, the Company has other approaches to mitigate the impact of the tariffs, including partnering with current vendors to lower costs and adjusting its pricing. The Company continues to monitor market pricing and promotional strategies to inform and guide its decisions. As of September 30, 2020, the Company has a $7.5 million receivable related to the retroactive exclusion tariffs in the caption “Tariff Recovery Receivable” on the condensed consolidated balance sheets and expects to receive payment in the coming months.

Recognition of Net Sales

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 423 stores, which spanned 47 states including eight stores in Canada, at September 30, 2020. In addition, both the merchandise and services can be ordered through a call center and from the Company’s website, LLFlooring.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 services 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

8

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 condensed consolidated balance sheet caption “Customer Deposits and Store Credits.”

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

Customer Deposits and Store Credits, Beginning Balance

$

(55,492)

$

(42,888)

$

(41,571)

$

(40,332)

New Deposits

 

(324,726)

 

(281,747)

 

(870,052)

 

(876,010)

Recognition of Revenue

 

295,833

 

263,960

 

793,491

 

818,748

Sales Tax included in Customer Deposits

 

18,389

 

15,982

 

49,932

 

50,246

Other

 

2,260

 

(343)

 

4,464

 

2,312

Customer Deposits and Store Credits, Ending Balance

$

(63,736)

$

(45,036)

$

(63,736)

$

(45,036)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days. Due to the impact of COVID-19, the Company temporarily extended its return policy an additional 60 days starting in March 2020. 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 reduces revenue by the amount of expected returns and records it within “Other Current Liabilities” on the condensed consolidated balance sheet. The Company continues to estimate the amount of returns based on 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 condensed consolidated balance sheet. This amount was $1.3 million at September 30, 2020. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

In total, the Company offers hundreds of different flooring products; however, no single flooring product represented a significant portion of its sales mix. By major product category, the Company’s sales mix was as follows:

    

Three Months Ended September 30,

Nine Months Ended September 30,

 

2020

    

2019

    

2020

2019

Manufactured Products 1

$

135,119

46

%  

$

108,825

41

%  

$

366,632

46

%    

$

337,479

41

%

Solid and Engineered Hardwood

80,643

    

27

%  

76,358

    

29

%  

219,444

    

28

%

241,713

    

30

%

Moldings and Accessories and Other

 

45,247

 

15

%  

 

44,058

 

17

%  

 

123,769

 

16

%

 

138,607

 

17

%

Installation and Delivery Services

 

34,824

 

12

%  

 

34,719

 

13

%  

 

83,646

 

10

%

 

100,949

 

12

%

Total

$

295,833

 

100

%  

$

263,960

 

100

%  

$

793,491

 

100

%

$

818,748

 

100

%

1     Includes engineered vinyl plank, laminate, vinyl 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 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.

9

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. 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.

Recent Accounting Pronouncements Adopted

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions obtained as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession obtained was a result of a new arrangement reached with the lessor (treated within the lease modification accounting framework) or if a lease concession obtained was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows lessees, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Company has elected to apply this practical expedient for the period beginning as of April 1, 2020 for those agreements where total payments under the modified lease are substantially the same or less than the original agreement. Included in “Operating Lease Liabilities - Current” on the condensed consolidated balance sheet is the remaining $4.5 million liability as of September 30, 2020 related to deferred payments as a result of the COVID-19 rent concessions, as well as an additional remaining $0.2 million included in “Operating Lease Liabilities - Long-Term.” The deferred payments will be made over the remainder of the lease term in accordance with each concession agreement.

Note 3.       Stockholders’ Equity

Net Income (Loss) per Common Share

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

 

Net Income (Loss)

$

15,503

$

1,045

$

30,377

$

(6,735)

Weighted Average Common Shares Outstanding—Basic

 

28,859

 

28,706

 

28,801

 

28,681

Effect of Dilutive Securities:

 

  

 

  

 

  

 

  

Common Stock Equivalents

 

475

 

80

 

274

 

Weighted Average Common Shares Outstanding—Diluted

 

29,334

 

28,786

 

29,075

 

28,681

Net Income (Loss) per Common Share—Basic

$

0.54

$

0.04

$

1.05

$

(0.23)

Net Income (Loss) per Common Share—Diluted

$

0.53

$

0.04

$

1.04

$

(0.23)

10

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2020

    

2019

    

2020

    

2019

 

Stock Options

112

608

390

612

 

Restricted Shares

110

243

113

639

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 September 30, 2020, the Company had approximately $14.7 million remaining under this authorization. The Company has