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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, 2021

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)

(800366-4204

(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 28, 2021, there are 29,088,188 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, 2021

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

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II – OTHER INFORMATION

32

Item 1.

Legal Proceedings

32

Item 1A.

Risk Factors

32

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

32

Item 3.

Defaults Upon Senior Securities

32

Item 4.

Mine Safety Disclosures

32

Item 5.

Other Information

32

Item 6.

Exhibits

32

Signatures

34

1

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

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

September 30,

December 31, 

    

2021

    

2020

Assets

Current Assets:

Cash and Cash Equivalents

$

104,211

$

169,941

Merchandise Inventories

224,998

244,409

Prepaid Expenses

10,173

9,370

Tariff Recovery Receivable

4,078

Other Current Assets

11,396

10,354

Total Current Assets

350,778

438,152

Property and Equipment, net

95,586

97,557

Operating Lease Right-of-Use

123,526

109,475

Goodwill

9,693

9,693

Deferred Tax Asset

11,583

11,611

Other Assets

8,669

7,860

Total Assets

$

599,835

$

674,348

Liabilities and Stockholders’ Equity

Current Liabilities:

Accounts Payable

$

53,093

$

70,543

Customer Deposits and Store Credits

70,221

61,389

Accrued Compensation

9,203

15,347

Sales and Income Tax Liabilities

4,707

5,793

Accrual for Legal Matters and Settlements

34,903

30,398

Operating Lease Liabilities - Current

32,660

33,024

Other Current Liabilities

25,467

25,761

Total Current Liabilities

230,254

242,255

Other Long-Term Liabilities

6,714

13,293

Operating Lease Liabilities - Long-Term

101,964

90,194

Credit Agreement

101,000

Total Liabilities

338,932

446,742

Stockholders’ Equity:

Common Stock ($0.001 par value; 35,000 shares authorized; 30,496 and 30,229 shares issued and 29,089 and 28,911 shares outstanding, respectively)

30

30

Treasury Stock, at cost (1,407 and 1,318 shares, respectively)

(145,078)

(142,977)

Additional Capital

226,636

222,628

Retained Earnings

179,315

147,925

Total Stockholders’ Equity

260,903

227,606

Total Liabilities and Stockholders’ Equity

$

599,835

$

674,348

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,

    

2021

    

2020

    

2021

    

2020

 

Net Sales

Net Merchandise Sales

$

240,802

$

261,009

$

750,388

$

709,845

Net Services Sales

41,427

34,824

116,675

83,646

Total Net Sales

282,229

295,833

867,063

793,491

Cost of Sales

Cost of Merchandise Sold

144,307

152,530

442,914

419,230

Cost of Services Sold

32,721

26,777

90,626

64,472

Total Cost of Sales

 

177,028

 

179,307

 

533,540

 

483,702

Gross Profit

 

105,201

 

116,526

 

333,523

 

309,789

Selling, General and Administrative Expenses

 

93,165

 

93,374

 

291,767

 

271,869

Operating Income

 

12,036

 

23,152

 

41,756

 

37,920

Other Expense (Income)

 

18

 

685

 

(252)

 

2,709

Income Before Income Taxes

 

12,018

 

22,467

 

42,008

 

35,211

Income Tax Expense

 

3,239

 

6,964

 

10,618

 

4,834

Net Income

$

8,779

$

15,503

$

31,390

$

30,377

Net Income per Common Share—Basic

$

0.30

$

0.54

$

1.08

$

1.05

Net Income per Common Share—Diluted

$

0.30

$

0.53

$

1.06

$

1.04

Weighted Average Common Shares Outstanding:

 

  

 

  

 

 

  

Basic

 

29,082

 

28,859

 

28,984

 

28,801

Diluted

 

29,455

 

29,334

 

29,494

 

29,075

See accompanying notes to condensed consolidated financial statements

3

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

 

Net Income

$

8,779

$

15,503

$

31,390

$

30,377

Other Comprehensive Income:

 

  

 

  

 

  

 

  

Foreign Currency Translation Adjustments

 

 

247

 

 

519

Total Other Comprehensive Income

 

 

247

 

 

519

Comprehensive Income

$

8,779

$

15,750

$

31,390

$

30,896

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, 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

July 1, 2021

 

29,063

$

30

 

1,392

$

(144,788)

$

225,287

$

170,536

$

$

251,065

Stock-Based Compensation Expense

 

 

 

 

 

1,349

 

 

 

1,349

Release of Restricted Shares

 

26

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

15

 

(290)

 

 

 

 

(290)

Net Income

 

 

 

 

 

 

8,779

 

 

8,779

September 30, 2021

 

29,089

$

30

 

1,407

$

(145,078)

$

226,636

$

179,315

$

$

260,903

Total

Common Stock

Treasury Stock

Additional

Retained

Stockholders'

    

Shares

    

Value

    

Shares

    

Value

    

Capital

    

Earnings

    

AOCL

     

Equity

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

January 1, 2021

28,911

$

30

1,318

$

(142,977)

$

222,628

$

147,925

$

$

227,606

Stock-Based Compensation Expense

 

 

 

 

 

3,945

 

 

 

3,945

Exercise of Stock Options

 

6

 

 

 

 

63

 

 

 

63

Release of Restricted Shares

 

172

 

 

 

 

 

 

 

Common Stock Repurchased

 

 

 

89

 

(2,101)

 

 

 

 

(2,101)

Net Income

 

 

 

 

 

 

31,390

 

 

31,390

September 30, 2021

 

29,089

$

30

 

1,407

$

(145,078)

$

226,636

$

179,315

$

$

260,903

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,

    

2021

    

2020

Cash Flows from Operating Activities:

 

  

 

  

Net Income

$

31,390

$

30,377

Adjustments to Reconcile Net Income:

 

  

 

  

Depreciation and Amortization

 

13,985

 

13,327

Deferred Income Taxes Provision

 

28

 

547

Income on Vouchers Redeemed for Legal Settlements

(1,183)

Stock-Based Compensation Expense

 

3,945

 

2,112

Provision for Inventory Obsolescence Reserves

 

1,784

 

2,564

Impairment of Operating Lease Right-of-Use

935

Loss (Gain) on Disposal of Fixed Assets

 

31

 

(401)

Changes in Operating Assets and Liabilities:

 

 

Merchandise Inventories

 

15,683

 

46,057

Accounts Payable

 

(17,277)

 

31,308

Customer Deposits and Store Credits

 

8,832

 

22,165

Accrued Compensation

(6,144)

2,530

Tariff Recovery Receivable

4,078

19,509

Prepaid Expenses and Other Current Assets

 

(792)

 

821

Accrual for Legal Matters and Settlements

 

7,733

 

2,183

Payments for Legal Matters and Settlements

 

(101)

 

(4,903)

Deferred Rent Payments

(2,154)

4,709

Other Assets and Liabilities

 

(9,558)

 

6,922

Net Cash Provided by Operating Activities

 

50,280

 

180,762

Cash Flows from Investing Activities:

 

  

 

  

Purchases of Property and Equipment

 

(12,276)

 

(9,822)

Other Investing Activities

 

58

 

949

Net Cash Used in Investing Activities

 

(12,218)

 

(8,873)

Cash Flows from Financing Activities:

 

  

 

  

Borrowings on Credit Agreement

 

 

45,000

Payments on Credit Agreement

 

(101,000)

 

(26,000)

Common Stock Repurchased

 

(2,101)

 

(513)

Other Financing Activities

 

(691)

 

7

Net Cash (Used in) Provided by Financing Activities

 

(103,792)

 

18,494

Effect of Exchange Rates on Cash and Cash Equivalents

 

 

(29)

Net (Decrease) Increase in Cash and Cash Equivalents

 

(65,730)

 

190,354

Cash and Cash Equivalents, Beginning of Period

 

169,941

 

8,993

Cash and Cash Equivalents, End of Period

$

104,211

$

199,347

Supplemental disclosure of non-cash operating activities:

Relief of Inventory for Vouchers Redeemed for Legal Settlements

$

1,944

$

Supplemental disclosure of non-cash operating and financing activities:

 

  

 

  

Tenant Improvement Allowance for Leases

$

(1,053)

$

(676)

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, “LL Flooring” or 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, water-resistant 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, 2021, the Company’s network of 422 stores spanned 47 states in the United States (“U.S.”). 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 digital platform, 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, 2020.

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, 2021 are not necessarily indicative of future results to be expected for the full year due to a number of factors, including supply chain, seasonality, tariffs, and general economic conditions, as well as the uncertainty and ongoing impact of the COVID-19 pandemic that may impact supply chain and/or sales for the remainder of fiscal 2021.

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 approximates fair value because of the short-term nature of these items.

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, supply chain, delivery or processing, including due to the COVID-19 pandemic. The Company continues to execute contingency plans to minimize ongoing disruptions to supply chain, domestic distribution centers and store operations.

7

Included in merchandise inventories are tariff-related costs, including Section 301 tariffs on certain products imported from China in recent years. A subset of these imports for certain click vinyl and other engineered products (the “Subset Products”) received an exemption that was made retroactive to the beginning of the Section 301 Tariffs for a period of time. The Company has deployed strategies to mitigate tariffs and improve gross margin, primarily through adjusting its pricing and promotion strategies and alternative country sourcing. The Company continues to monitor market pricing and promotional strategies to inform and guide its decisions. The following chart provides a timeline and tariff levels for the key events related to Section 301 Tariffs.

Section 301 tariff

Corresponding approximate

Event

Timing

level on imports

Tariff level on

percentage of Company's

from China

Subset Products

merchandise subject to tariff

Imposition of Tariffs

September 2018

10%

10% then 0%1

48%

Increase in Tariffs

June 2019

25%

25% then 0%1

44%

Retroactive Exemption on Subset Products1

November 2019

25%

0%

10%

Exemption Not Renewed and Tariffs Re-imposed on Subset Products

August 2020

25%

25%

32%

September 30, 2021

25%

25%

22%

1On November 7, 2019, the U.S. Trade Representative granted a retroactive exclusion to September 2018 on Subset Products as defined in the Section 301 Tariffs section above bringing the rate to 0%.

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 422 stores, which spanned 47 states in the U.S. at September 30, 2021. In addition, both the merchandise and services can be ordered through a call center and from the Company’s digital platform, 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 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.”

8

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

Customer Deposits and Store Credits, Beginning Balance

$

(67,731)

$

(55,492)

$

(61,389)

$

(41,571)

New Deposits

 

(304,604)

 

(324,726)

 

(935,576)

 

(870,052)

Recognition of Revenue

 

282,229

 

295,833

 

867,063

 

793,491

Sales Tax included in Customer Deposits

 

16,936

 

18,389

 

52,708

 

49,932

Other

 

2,949

 

2,260

 

6,973

 

4,464

Customer Deposits and Store Credits, Ending Balance

$

(70,221)

$

(63,736)

$

(70,221)

$

(63,736)

Subject to limitations under the Company’s policy, return of unopened merchandise is accepted for 90 days, subject to the discretion of the store manager. 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, 2021. 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,

 

2021

    

2020

    

2021

2020

Manufactured Products 1

$

129,543

46

%  

$

135,119

46

%  

$

401,373

46

%

$

366,632

46

%

Solid and Engineered Hardwood

69,090

    

24

%  

80,643

    

27

%  

220,887

    

26

%

219,444

    

28

%

Moldings and Accessories and Other

 

42,169

 

15

%  

 

45,247

 

15

%  

 

128,128

 

15

%

 

123,769

 

16

%

Installation and Delivery Services

 

41,427

 

15

%  

 

34,824

 

12

%  

 

116,675

 

13

%

 

83,646

 

10

%

Total

$

282,229

 

100

%  

$

295,833

 

100

%  

$

867,063

 

100

%

$

793,491

 

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 and ship 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. This warranty reserve was $1.0 million at September 30, 2021. 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.

9

Vendor allowances mostly consist of volume rebates and 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.

Note 3.       Stockholders’ Equity

Net Income per Common Share

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2021

    

2020

    

2021

    

2020

 

Net Income

$

8,779

$

15,503

$

31,390

$

30,377

Weighted Average Common Shares Outstanding—Basic

 

29,082

 

28,859

 

28,984

 

28,801

Effect of Dilutive Securities:

 

  

 

  

 

  

 

  

Common Stock Equivalents

 

373

 

475

 

510

 

274

Weighted Average Common Shares Outstanding—Diluted

 

29,455

 

29,334

 

29,494

 

29,075

Net Income per Common Share—Basic

$

0.30

$

0.54

$

1.08

$

1.05

Net Income per Common Share—Diluted

$

0.30

$

0.53

$

1.06

$

1.04

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