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~~June 30, ~~202~~20221

☐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~~LL Flooring 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)

(800) 366-4204

(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,~~July 29, 2022, there are ~~29,088,188~~29,337,314 shares of the registrant’s common stock, par value of $0.001 per share, outstanding.

Table of Contents

~~LUMBER LIQUIDATORS~~LL FLOORING HOLDINGS, INC.

Quarterly Report on Form 10-Q

For the quarter ended ~~September~~June 30, ~~2021~~2022

TABLE OF CONTENTS

Table of Contents

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements.

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


	September 30,		December 31,		June 30,		December 31,
	2021		2020		2022		2021
Assets
Current Assets:
Cash and Cash Equivalents	$	104,211	$	169,941	$	5,032	$	85,189
Merchandise Inventories		224,998		244,409		358,804		254,385
Prepaid Expenses		10,173		9,370		10,959		9,160
Tariff Recovery Receivable		—		4,078
Other Current Assets		11,396		10,354		14,995		11,094
Total Current Assets		350,778		438,152		389,790		359,828
Property and Equipment, net		95,586		97,557		100,148		96,926
Operating Lease Right-of-Use		123,526		109,475
Operating Lease Right-of-Use Assets						123,756		119,510
Goodwill		9,693		9,693		9,693		9,693
Deferred Tax Asset		11,583		11,611
Net Deferred Tax Assets						11,469		11,336
Other Assets		8,669		7,860		6,404		8,599
Total Assets	$	599,835	$	674,348	$	641,260	$	605,892

Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts Payable	$	53,093	$	70,543	$	88,954	$	63,464
Customer Deposits and Store Credits		70,221		61,389		58,427		67,063
Accrued Compensation		9,203		15,347		8,042		10,128
Sales and Income Tax Liabilities		4,707		5,793		5,560		4,297
Accrual for Legal Matters and Settlements		34,903		30,398		23,799		33,611
Operating Lease Liabilities - Current		32,660		33,024		34,064		33,060
Other Current Liabilities		25,467		25,761		27,093		20,717
Total Current Liabilities		230,254		242,255		245,939		232,340
Other Long-Term Liabilities		6,714		13,293		6,979		4,268
Operating Lease Liabilities - Long-Term		101,964		90,194		100,073		97,163
Credit Agreement		—		101,000		15,000		—
Total Liabilities		338,932		446,742		367,991		333,771

Commitments and Contingencies

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)
Common Stock ($0.001 par value; 35,000 shares authorized; 30,733 and 30,536 shares issued and 28,680 and 29,113 shares outstanding, respectively)						31		31
Treasury Stock, at cost (2,053 and 1,423 shares, respectively)						(153,244)		(145,337)
Additional Capital		226,636		222,628		230,086		227,804
Retained Earnings		179,315		147,925		196,396		189,623
Total Stockholders’ Equity		260,903		227,606		273,269		272,121
Total Liabilities and Stockholders’ Equity	$	599,835	$	674,348	$	641,260	$	605,892

See accompanying notes to condensed consolidated financial statements

Table of Contents

~~Lumber Liquidators~~LL Flooring Holdings, Inc.
Condensed Consolidated Statements of ~~Operations~~Income and Comprehensive Income
(Unaudited, in thousands, except per share amounts)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

Net Sales
Net Merchandise Sales	$	240,802	$	261,009	$	750,388	$	709,845	$	257,569	$	259,542	$	501,840	$	509,585
Net Services Sales		41,427		34,824		116,675		83,646		41,388		41,842		76,149		75,249
Total Net Sales		282,229		295,833		867,063		793,491		298,957		301,384		577,989		584,834
Cost of Sales
Cost of Merchandise Sold		144,307		152,530		442,914		419,230		160,527		156,597		307,946		298,607
Cost of Services Sold		32,721		26,777		90,626		64,472		31,680		32,057		59,214		57,905
Total Cost of Sales		177,028		179,307		533,540		483,702		192,207		188,654		367,160		356,512
Gross Profit		105,201		116,526		333,523		309,789		106,750		112,730		210,829		228,322
Selling, General and Administrative Expenses		93,165		93,374		291,767		271,869		102,087		96,116		201,112		198,602
Operating Income		12,036		23,152		41,756		37,920		4,663		16,614		9,717		29,720
Other Expense (Income)		18		685		(252)		2,709		199		498		184		(270)
Income Before Income Taxes		12,018		22,467		42,008		35,211		4,464		16,116		9,533		29,990
Income Tax Expense		3,239		6,964		10,618		4,834		1,728		4,127		2,760		7,379
Net Income	$	8,779	$	15,503	$	31,390	$	30,377
Net Income and Comprehensive Income									$	2,736	$	11,989	$	6,773	$	22,611

Net Income per Common Share—Basic	$	0.30	$	0.54	$	1.08	$	1.05	$	0.09	$	0.41	$	0.23	$	0.78
Net Income per Common Share—Diluted	$	0.30	$	0.53	$	1.06	$	1.04	$	0.09	$	0.41	$	0.23	$	0.77

Weighted Average Common Shares Outstanding:
Basic		29,082		28,859		28,984		28,801		28,927		29,042		28,856		28,993
Diluted		29,455		29,334		29,494		29,075		29,065		29,488		29,079		29,543

See accompanying notes to condensed consolidated financial statements

Table of Contents

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~~

~~Table of Contents~~

~~Lumber Liquidators~~LL Flooring 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		Equity

March 31, 2021	29,025	$	30	1,373	$	(144,352)	$	223,899	$	158,547	$	238,124
Stock-Based Compensation Expense	—		—	—		—		1,365		—		1,365
Exercise of Stock Options	3		—	—		—		23		—		23
Release of Restricted Shares	35		—	—		—		—		—		—
Common Stock Repurchased	—		—	19		(436)		—		—		(436)
Net Income	—		—	—		—		—		11,989		11,989
June 30, 2021	29,063	$	30	1,392	$	(144,788)	$	225,287	$	170,536	$	251,065

March 31, 2022	29,228	$	31	1,474	$	(146,147)	$	228,959	$	193,660	$	276,503
Stock-Based Compensation Expense	—		—	—		—		1,113		—		1,113
Exercise of Stock Options	1		—	—		—		14		—		14
Release of Restricted Shares	22		—	—		—		—		—		—
Common Stock Repurchased	(571)		—	579		(7,097)		—		—		(7,097)
Net Income	—		—	—		—		—		2,736		2,736
June 30, 2022	28,680	$	31	2,053	$	(153,244)	$	230,086	$	196,396	$	273,269

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


											Total
	Common Stock			Treasury Stock			Additional		Retained		Stockholders'
	Shares	Value		Shares	Value		Capital		Earnings		Equity

December 31, 2020	28,911	$	30	1,318	$	(142,977)	$	222,628	$	147,925	$	227,606
Stock-Based Compensation Expense	—		—	—		—		2,596		—		2,596
Exercise of Stock Options	6		—	—		—		63		—		63
Release of Restricted Shares	146		—	—		—		—		—		—
Common Stock Repurchased	—		—	74		(1,811)		—		—		(1,811)
Net Income	—		—	—		—		—		22,611		22,611
June 30, 2021	29,063	$	30	1,392	$	(144,788)	$	225,287	$	170,536	$	251,065

December 31, 2021	29,113	$	31	1,423	$	(145,337)	$	227,804	$	189,623	$	272,121
Stock-Based Compensation Expense	—		—	—		—		1,986		—		1,986
Exercise of Stock Options	21		—	—		—		296		—		296
Release of Restricted Shares	117		—	—		—		—		—		—
Common Stock Repurchased	(571)		—	630		(7,907)		—		—		(7,907)
Net Income	—		—	—		—		—		6,773		6,773
June 30, 2022	28,680	$	31	2,053	$	(153,244)	$	230,086	$	196,396	$	273,269

See accompanying notes to condensed consolidated financial statements

Table of Contents

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


	Nine Months Ended September 30,				Six Months Ended June 30,
	2021		2020		2022		2021

Cash Flows from Operating Activities:
Net Income	$	31,390	$	30,377	$	6,773	$	22,611
Adjustments to Reconcile Net Income:
Depreciation and Amortization		13,985		13,327		9,047		9,282
Deferred Income Taxes Provision		28		547		(133)		28
Income on Vouchers Redeemed for Legal Settlements		(1,183)		—		(750)		(821)
Stock-Based Compensation Expense		3,945		2,112		1,986		2,596
Provision for Inventory Obsolescence Reserves		1,784		2,564		292		1,420
Impairment of Operating Lease Right-of-Use		—		935
Loss (Gain) on Disposal of Fixed Assets		31		(401)
Gain (Loss) on Disposal of Fixed Assets						(1)		18
Changes in Operating Assets and Liabilities:
Merchandise Inventories		15,683		46,057		(106,004)		17,583
Accounts Payable		(17,277)		31,308		25,036		(596)
Customer Deposits and Store Credits		8,832		22,165		(8,636)		6,342
Accrued Compensation		(6,144)		2,530		(2,086)		(4,633)
Tariff Recovery Receivable		4,078		19,509
Prepaid Expenses and Other Current Assets		(792)		821		(3,327)		293
Advertising Accrual						6,141		1,086
Accrual for Legal Matters and Settlements		7,733		2,183		293		7,733
Payments for Legal Matters and Settlements		(101)		(4,903)		(8,062)		(62)
Deferred Rent Payments		(2,154)		4,709
Other Assets and Liabilities		(9,558)		6,922		3,449		(9,546)
Net Cash Provided by Operating Activities		50,280		180,762
Net Cash (Used in) Provided by Operating Activities						(75,982)		53,334

Cash Flows from Investing Activities:
Purchases of Property and Equipment		(12,276)		(9,822)		(11,628)		(7,435)
Other Investing Activities		58		949
Proceeds from Disposal of Fixed Assets						64		57
Net Cash Used in Investing Activities		(12,218)		(8,873)		(11,564)		(7,378)

Cash Flows from Financing Activities:
Borrowings on Credit Agreement		—		45,000		51,500		—
Payments on Credit Agreement		(101,000)		(26,000)		(36,500)		(101,000)
Proceeds from the Exercise of Stock Options						296		64
Common Stock Repurchased		(2,101)		(513)		(7,907)		(1,811)
Other Financing Activities		(691)		7		—		(755)
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	$	—
Net Cash Provided by (Used in) Financing Activities						7,389		(103,502)
Net Decrease in Cash and Cash Equivalents						(80,157)		(57,546)
Cash and Cash Equivalents, Beginning of Year						85,189		169,941
Cash and Cash Equivalents, End of Year					$	5,032	$	112,395

Supplemental disclosure of non-cash operating and financing activities:
Relief of Inventory for Vouchers Redeemed for Legal Settlements					$	1,293	$	1,498
Tenant Improvement Allowance for Leases	$	(1,053)	$	(676)		(742)		(765)

See accompanying notes to condensed consolidated financial statements

Table of Contents

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

Note 1. Basis of Presentation

LL Flooring Holdings, Inc., formerly 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~~direct to the consumer including waterproof hybrid resilient, waterproof vinyl plank, solid and ~~domestic hardwood species,~~ engineered hardwood, laminate, ~~resilient vinyl, water-resistant vinyl plank and porcelain~~bamboo, tile, ~~flooring direct to the consumer. The Company features renewable flooring products, bamboo~~ and cork, ~~and provides~~with a wide ~~selection~~range of flooring enhancements and accessories ~~including moldings, noise-reducing underlayment, adhesives and flooring tools.~~to complement. The Company also provides in-home delivery and installation services to its customers. The Company primarily sells to homeowners or to ~~contractors~~Pros on behalf of homeowners through a network of store locations in metropolitan areas. ~~As of September~~At June 30, ~~2021,~~2022, the Company’s ~~network of 422~~437 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~~contact 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.~~2021.

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.

The carrying value of the revolving credit facility 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. Both international and domestic inventory is subject to increased cost as a result of inflation. 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.

Included in merchandise inventories are tariff-related costs, including Section 301 tariffs on certain products imported from China in recent years. The Company has deployed pricing, promotion, and alternative country sourcing strategies to mitigate tariff-related costs and improve gross margin. The Company continues to ~~execute contingency plans~~monitor the market to ~~minimize ongoing disruptions to supply chain, domestic distribution centers~~inform its pricing and ~~store operations.~~promotional strategies.

Table of Contents

~~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%

1	~~On 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~~Merchandise and services sales occur through athe Company’s network of ~~422~~437 stores ~~which spanned 47 states in~~across the U.S. ~~at September 30, 2021. In addition, both the merchandise and services can be ordered through~~, a ~~call~~customer contact center, and ~~from the Company’s~~its 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.”

~~Table of Contents~~

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Customer Deposits and Store Credits, Beginning Balance	$	(67,731)	$	(55,492)	$	(61,389)	$	(41,571)	$	(69,314)	$	(68,211)	$	(67,063)	$	(61,389)
New Deposits		(304,604)		(324,726)		(935,576)		(870,052)		(307,346)		(320,513)		(608,316)		(630,972)
Recognition of Revenue		282,229		295,833		867,063		793,491		298,957		301,384		577,989		584,834
Sales Tax included in Customer Deposits		16,936		18,389		52,708		49,932		18,017		18,231		35,172		35,772
Other		2,949		2,260		6,973		4,464		1,259		1,378		3,791		4,024
Customer Deposits and Store Credits, Ending Balance	$	(70,221)	$	(63,736)	$	(70,221)	$	(63,736)	$	(58,427)	$	(67,731)	$	(58,427)	$	(67,731)

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~~$1.5 million at ~~September~~June 30, ~~2021.~~2022. The Company recognizes sales commissions as incurred since the amortization period is less than one year.

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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,								Three Months Ended June 30,								Six Months Ended June 30,
	2021				2020				2021				2020				2022				2021				2022				2021
Manufactured Products ¹	$	129,543	46	%	$	135,119	46	%	$	401,373	46	%	$	366,632	46	%	$	142,803	48	%	$	139,736	46	%	$	277,441	48	%	$	271,829	46	%
Solid and Engineered Hardwood		69,090	24	%		80,643	27	%		220,887	26	%		219,444	28	%		71,912	24	%		75,602	25	%		140,947	24	%		151,797	26	%
Moldings and Accessories and Other		42,169	15	%		45,247	15	%		128,128	15	%		123,769	16	%		42,854	14	%		44,204	15	%		83,452	15	%		85,959	15	%
Installation and Delivery Services		41,427	15	%		34,824	12	%		116,675	13	%		83,646	10	%		41,388	14	%		41,842	14	%		76,149	13	%		75,249	13	%
Total	$	282,229	100	%	$	295,833	100	%	$	867,063	100	%	$	793,491	100	%	$	298,957	100	%	$	301,384	100	%	$	577,989	100	%	$	584,834	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 related reserve of $0.9 million at June 30, 2022, was recorded in “Other Current Liabilities” on the accompanying condensed consolidated balance sheet. The Company seeks recovery from its vendors and third-party independent contractors of installation services for certain amounts paid.

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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				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Net Income	$	8,779	$	15,503	$	31,390	$	30,377	$	2,736	$	11,989	$	6,773	$	22,611
Weighted Average Common Shares Outstanding—Basic		29,082		28,859		28,984		28,801		28,927		29,042		28,856		28,993
Effect of Dilutive Securities:
Common Stock Equivalents		373		475		510		274		138		446		223		550
Weighted Average Common Shares Outstanding—Diluted		29,455		29,334		29,494		29,075		29,065		29,488		29,079		29,543
Net Income per Common Share—Basic	$	0.30	$	0.54	$	1.08	$	1.05	$	0.09	$	0.41	$	0.23	$	0.78
Net Income per Common Share—Diluted	$	0.30	$	0.53	$	1.06	$	1.04	$	0.09	$	0.41	$	0.23	$	0.77

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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		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2021	2020	2021	2020	2022	2021	2022	2021
Stock Options	222	112	167	390	506	193	438	148
Restricted Shares	280	110	100	113	504	127	367	125

Stock Repurchase Program

In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50.0 million of the Company’s common stock. In April 2022, the Company resumed its share repurchase program. The Company made cash payments of $7.0 million to repurchase 571,332 shares under the share repurchase authorization during the three months ended June 30, 2022. There remains $43.0 million outstanding under the share repurchase authorization.

Outside of the share repurchase program, the Company repurchased $0.9 million, or 59,288 shares, of its common stock through the net settlement of shares issued as a result of the vesting of restricted shares during the six months ended June 30, 2022.

Note 4. Stock-based Compensation

The following table summarizes share activity related to employee stock options and restricted stock awards (“RSAs”):


		Restricted Stock		Restricted Stock
	Stock Options	Awards	Stock Options	Awards
Options Outstanding/Nonvested RSAs, January 1, 2021	554	872
Options Outstanding/Nonvested RSAs, December 31, 2021			625	631
Granted	109	265	175	400
Options Exercised/RSAs Released	(6)	(261)	(21)	(158)
Forfeited	(20)	(43)	(39)	(48)
Options Outstanding/Nonvested RSAs, September 30, 2021	637	833
Options Outstanding/Nonvested RSAs, June 30, 2022			740	825

The Company granted a target of 94,621 performance-based RSAs with a grant date fair value of $1.5 million during the six months ended June 30, 2022 and a target of 47,768 performance-based RSAs with a grant date fair value of $1.1 million during the ~~nine~~six months ended ~~September~~June 30, ~~2021 and a target of 94,591 performance-based RSAs with a grant date fair value of $0.9 million during the nine months ended September 30, 2020.~~ 2021. The performance-based RSAs in both years were awarded to certain members of senior management in connection with the achievement of specific key financial metrics that will be measured over separate respective three-year periods and which will vest at the end of each respective three-year period if the respective performance conditions are met. In addition, the number of 2020 performance-based awards that will ultimately vest is also contingent upon the results of a relative total shareholder return multiple by the end of year three. 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. These awards are included above in RSAs Granted.

Under the Company’s equity incentive plan, the Company’s non-employee directors are compensated with an annual RSA grant. The amount of outstanding nonvested RSAs granted to non-employee directors was 43,139 and 18,306 shares at June 30, 2022 and December 31, 2021, respectively. The Company also maintains the Outside Directors Deferral Plan under which each of the Company’s non-employee directors has the opportunity to elect annually to defer certain fees (which are payable in cash or in shares of Common Stock with a vesting period of at least one year) 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

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the board. There were 225,456 and 177,448 deferred stock units outstanding at June 30, 2022 and December 31, 2021, respectively.

Note 5. Credit Agreement

The Company has a credit agreement (the “Credit Agreement”) with Bank of America, N.A. and Wells Fargo Bank, N.A. (the “Lenders”). On April 30, 2021, the Company entered into a Second Amendment to the Credit Agreement (the “Second Amendment”) with the Lenders. The execution of the Second Amendment, among other things, terminated the FILO Term Loans and converted those commitments to the Revolving Credit Facility. The total size of the Credit Agreement remained at $200 million, and the Company has an option to ~~the~~ increase the Revolving Credit Facility to a maximum total amount of $250 million. The maturity date of the Credit Agreement was extended to April 30, 2026.

The Revolving Credit Facility is 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 credit card 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 Second Amendment decreased the margin for LIBOR Rate Loans (as defined in the Second Amendment) to a range of 1.25% to 1.75% over the applicable LIBOR Rate with respect to revolving loans (as defined in the Second Amendment) depending on the ~~Company’s’~~Company’s average daily excess borrowing availability, a decrease of 1.25% from rates prior to the Second Amendment. As previously stated, the FILO Term Loans were terminated by this Second Amendment. The amendment decreased the LIBOR Rate Floor from 1.00% to 0.25%. The Second Amendment also decreased the unused commitment fee of 0.50% per annum to 0.25% per annum on the average daily unused amount of the Revolving Credit Facility during the most recently completed calendar quarter. ~~As of September 30, 2021, had~~The weighted average interest rate applicable to the ~~Company re-borrowed, the~~Company’s Revolving Credit Facility ~~would have carried an interest rate subject to~~for the ~~terms stated directly above.~~

six months ended June 30, 2022 was 4.7%.

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~~Revolving Loan Cap (as defined in the Credit Agreement).

Except as set forth in the Second Amendment, all other terms and conditions of the Credit Agreement remain in place.

~~The Company repaid all $101.0 million of borrowings during the second quarter of 2021.~~ As of ~~September~~June 30, ~~2021,~~2022, there was ~~0 amount~~$15 million outstanding under the Revolving Credit Facility. The Company had ~~$3.0~~$3.2 million in letters of credit which reduces its availability. As of ~~September~~June 30, ~~2021,~~2022, there was ~~$128.0~~$181.9 million of availability under the Revolving Credit Facility.

Note 6. ~~Income~~ Taxes

The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision and is adjusted for discrete items that occur within the period. ~~This~~ ~~process has been employed in 2021. Due to disruption related to the COVID-19 pandemic in 2020, the Company applied~~ ~~the actual year-to-date effective tax rate for the tax provision in the three and nine-month periods ended September 30, 2020.~~

For the three months ended ~~September~~June 30, 2022, the Company recognized income tax expense of $1.7 million, which represented an effective tax rate of 38.7%. For the three months ended June 30, 2021, the Company recognized income tax expense of ~~$3.2~~$4.1 million, which represented an effective tax rate of ~~27.0%~~25.6%. ~~For the three months ended September 30, 2020, the Company recognized income tax expense of $7.0 million, which represented an~~The higher effective tax rate in the current period primarily reflects the greater impact of ~~31.0%.~~permanent items on the lower pretax ordinary income.

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For the ~~nine~~six months ended ~~September~~June 30, 2022, the Company recognized income tax expense of $2.8 million, which represented an effective tax rate of 29.0%. For the six months ended June 30, 2021, the Company recognized income tax expense of ~~$10.6~~$7.4 million, which represented an effective tax rate of ~~25.3%~~24.6%. ~~For the nine months ended September 30, 2020, the Company recognized an income tax expense of $4.8 million, which represented an~~The higher effective tax rate ~~of 13.7%. The variability~~is caused by the same drivers of the ~~tax rate between the two periods is due to the use of the~~increase in effective tax rate ~~method in 2021 compared to discrete provision in 2020, including~~for the ~~favorable impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).~~quarter.

The Company has a valuation allowance recorded against certain of its net deferred tax assets of ~~$5.6~~$2.4 million as of ~~September~~June 30, ~~2021~~2022 because the jurisdiction and nature of the assets makes realization of these deferred tax assets uncertain. The Company intends to maintain this valuation allowance on its deferred tax assets until there is sufficient evidence to support the realizability of those deferred tax ~~assets~~assets.

In February 2022 the Company received sales tax and use tax assessments from the Commonwealth of Virginia covering part of 2014 through 2017. The Company believes there are some factual errors, is disputing this assessment, and will defend itself vigorously in this matter. Given the uncertainty of the final resolution, the Company cannot reasonably estimate the loss or ~~time lapses without opportunity~~range of loss, if any, that may result from this action and therefore no specific accrual has been made related to ~~realize those assets.~~this. Any losses could, potentially, have a material adverse effect, individually or collectively, on the Company’s results of operations, financial condition and liquidity.

Note 7. Commitments and Contingencies

The following chart shows the activity related to the Balance Sheet “Accrual for Legal Matters and ~~Settlements”.~~Settlements.” The matters themselves are described in greater detail in the paragraphs that follow the chart.


		January 1, 2021								September 30, 2021
Litigation Matter		Accrual for Legal Matters								Accrual for Legal Matters
Description		and Settlements		Accruals		Settlement Payments		Vouchers Redeemed		and Settlements
Litigation Matter Description													December 31, 2021 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		June 30, 2022 Accrual for Legal Matters and Settlements - Current
MDL	$	14,000	$	—	$	—	$	(2,781)	$	11,219	¹	$	10,656	$	—	$	—	$	(877)	$	9,779	¹
Gold		16,000		—		—		(346)		15,654	¹		14,885		—		—		(1,166)		13,719	¹
Mason		—		7,000		—		—		7,000			7,000		129		(7,129)		—		—
Other Matters		398		733		(101)		—		1,030			1,070		164		(933)		—		301
	$	30,398	$	7,733	$	(101)	$	(3,127)	$	34,903		$	33,611	$	293	$	(8,062)	$	(2,043)	$	23,799

		January 1, 2020								September 30, 2020
Litigation Matter		Accrual for Legal Matters								Accrual for Legal Matters
Description		and Settlements		Accruals		Settlement Payments		Vouchers Redeemed		and Settlements
Litigation Matter Description													December 31, 2020 Accrual for Legal Matters and Settlements - Current		Accruals		Settlement Payments		Vouchers Redeemed		June 30, 2021 Accrual for Legal Matters and Settlements - Current
MDL	$	35,500	$	—	$	—	$	—	$	35,500		$	14,000	$	—	$	—	$	(2,319)	$	11,681
Gold		27,000		2,000		—		—		29,000			16,000		—		—		—		16,000
Kramer		4,750		—		(4,750)		—		—
Mason													—		7,000		—		—		7,000
Other Matters		221		183		(153)		—		251			398		733		(62)		—		1,069
	$	67,471	$	2,183	$	(4,903)	$	—	$	64,751		$	30,398	$	7,733	$	(62)	$	(2,319)	$	35,750

1	The remaining accrual will be fulfilled by redeeming vouchers as discussed below.

Employment Cases

Mason Lawsuit

In August 2017, Ashleigh Mason, Dan Morse, Ryan Carroll and Osagie Ehigie filed a purported collective and 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, and similarly situated current and former employees (collectively, the ~~“Mason~~

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“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.~~exempt (the “Mason matter”). 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~~

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(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. On January 6, 2021, the magistrate judge ruled in favor of a motion by the Company to exclude from the Mason Putative Class the claims of ~~55 opt-in plaintiffs who participated in a prior California state class-action settlement that released all claims arising from the same facts on which the Mason matter is based.~~

In April 2021, the Company entered into a Memorandum of Understanding (“Mason MOU”) with counsel for the lead plaintiffs in the Mason matter. Under the terms of the Mason MOU, the Company ~~will~~agreed to pay up to ~~$7.0~~$7.0 million to settle the claims asserted in the Mason ~~matter on behalf~~matter.

In the first quarter of ~~all Mason Putative Class Employees who (i) opted-in~~2022, the court gave final approval to the ~~collective action (“Collective Members”) and (ii) are currently or were employed~~settlement. As a result of the final approval, the Company paid $7.0 million, plus an additional $0.1 million in ~~New York and did not previously file an opt-in notice to participate~~taxes, in the ~~collective action (the “New York Non Opt-Ins”). The New York Non Opt-Ins will have an opportunity~~current quarter to ~~file an opt-in notice to participate in the settlement. To the extent that~~ a ~~New York Non Opt-In does not subsequently file such a notice, then the amount apportioned to that claim shall revert~~court appointed administrator who handles distribution to the ~~Company. In addition, any~~plaintiffs. Any checks issued to the Collective Members and the New York Non Opt-Ins which are not cashed ~~within one hundred eighty days~~by March 1, 2023, will revert to the Company. The Mason MOU is subject to certain contingencies, including court approval of the definitive settlement agreement. There can be no assurance that a settlement will be approved 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 success on the merits. If the parties are unable to finalize the settlement, the Mason matter could have a material adverse effect on the Company’s financial condition and results of operations. As a result of these developments, the Company determined that a probable loss has been incurred and has accrued within SG&A a ~~$7.0~~ ~~million liability during the first quarter of 2021. As of September 30, 2021, the remaining accrual related to this matter is~~ ~~$7.0 million, which has been included in the caption “Accrual for Legal Matters and Settlements” on its condensed consolidated balance sheet.~~

Savidis Lawsuit

OnIn April 9, 2020, ~~Lumber Liquidators~~LL Flooring was served with a lawsuit filed by Tanya Savidis, on behalf of herself and all others similarly situated (collectively, the “Savidis Plaintiffs”). Ms. Savidis filed a purported class action lawsuit in the Superior Court of California, County of Alameda on March 6, 2020, on behalf of all current and former ~~Lumber Liquidators~~LL Flooring employees employed as non-exempt employees. The complaint alleges violation of the California Labor Code including, among other items, failure to pay minimum wages and overtime wages, failure to provide meal periods, failure to permit rest breaks, failure to reimburse business expenses, failure to provide accurate wage statements, failure to pay all wages due upon separation within the required time, and engaging in unfair business practices (the “Savidis matter”). On or about May 22, 2020, the Savidis Plaintiffs provided notice to the California Department of Industrial Relations requesting they be permitted to seek penalties under the California Private Attorney General Act for the same substantive alleged violations asserted in the Complaint. The Savidis Plaintiffs seek certification of a class action covering the prior four-year period prior to the filing of the complaint to the date of class certification (the “California Employee Class”), as well as a subclass of class members who separated their employment within three years of the filing of the suit to the date of class certification (the “Waiting Time Subclass”). The Savidis Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, seek statutory penalties, unspecified amounts for unpaid wages, benefits, and penalties, interest, and other damages.

In December 2020, the Company began contacting individuals who constitute the Savidis Plaintiffs and offered individual settlements in satisfaction of their claims. In April 2021, the Company entered into a Memorandum of Understanding (“Savidis MOU”) with counsel for the lead plaintiffs in the Savidis matter. Under the terms of the Savidis MOU, the Company ~~will~~agreed to pay ~~$0.9~~$0.9 million reduced by a credit of $0.1 million for amounts already paid to the

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individuals who accepted the Company’s prior settlement offer. ~~The Company accrued an additional~~ ~~$675~~ ~~thousand related to this matter in~~In January 2022, the ~~first quarter 2021. The Savidis MOU is subject to certain contingencies, including court~~Court provided final approval of the ~~definitive settlement agreement. There can be no assurance that~~settlement. In April 2022, the Company paid $0.8 million to a ~~settlement will be approved or as~~court appointed administrator who handles the distribution to the ~~ultimate outcome~~class members who did not opt out of participating in 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 success on the merits. If the parties are unable to finalize the settlement, the Savidis matter could have a material adverse effect on the Company’s financial condition and results of operations.settlement.

Visnack Lawsuit

On June 29, 2020, Michael Visnack, on behalf of himself and all others similarly situated (collectively, the “Visnack Plaintiffs”) filed a purported class action lawsuit in the Superior Court of California, County of San Diego, on behalf of all current and former store managers, and others similarly situated. The ~~Complaint~~complaint alleges violation of the California Labor Code including, among other items, failure to pay wages and overtime, wage statement violations, meal and rest break violations, unpaid reimbursements and waiting time, and engaging in unfair business practices (the “Visnack matter”). The Visnack Plaintiffs ~~seek~~sought certification of a class period beginning September 20, 2019, through the date of Notice of Class Certification, if granted. The Visnack Plaintiffs did not quantify any alleged damages but, in addition to attorneys’ fees and costs, they seek unspecified amounts for each of the causes of action such as unpaid wages and overtime wages, failure to provide meal periods and rest breaks, payroll record and wage statement violations, failure to reimburse expenses and waiting time, liquidated and/or punitive damages, declaratory relief, restitution, statutory penalties, injunctive relief and other damages.

On December 14, 2020, the court ruled in favor of a motion by the Company to compel arbitration for Michael Visnack under the existing agreement between the Company and Mr. Visnack. The court declined to outright dismiss the putative class claims but stayed the putative class claims and Private Attorneys General Act claims pending arbitration. The court denied plaintiff’s request to conduct discovery. In the first quarter of 2021, the Company received notice that Mr. Visnack has filed an arbitration claim, which the Company intends to defend. Mr. Visnack is a Collective Member of the Mason Putative Class and will have the opportunity to decide whether to participate in the Mason settlement and release his claims against the Company, in which case he would be removed as the lead Plaintiff in the Visnack matter. In December 2020, the Company began contacting individuals who constitute the purported class in the Visnack matter and ~~has~~ offered individual settlements in satisfaction of their claims. To the extent individuals accepted these settlement offers, they have released the Company from the claims and been removed from the purported class. As of ~~March 31,~~June 30, 2021, the Company had reached agreement with a portion of the purported class incurring less than $50 thousand in fees, taxes, and other costs. The Company included those amounts in “Other Matters” in the chart above.

~~The Company is evaluating~~ On July 6, 2022, the Visnack ~~Putative Class Employees' claims and intends to defend itself vigorously in this matter. Given the uncertainty~~Plaintiffs filed a notice of ~~litigation, the preliminary stage~~dismissal of the ~~case and~~Visnack matter with 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.court.

~~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 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 Company reached settlement for this matter for ~~$4.75 million in the third quarter of 2019 and paid that amount to the settlement administrator in the second quarter of 2020 for distribution to class members.~~

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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~~The Company is subject to antidumping (“AD”) and countervailing duties (“CVD”) ~~with the United States Department of Commerce (“DOC”) and the United States International Trade Commission (“ITC”) against~~for certain 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 ~~4% and 6%~~3% of its flooring purchases in ~~2020 and 2019, respectively.~~2021.

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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. This rate ~~even while~~is subsequently reviewed to establish the ~~annual review is in process.~~final rate. When rates are declared final by the ~~DOC,~~United States Department of Commerce (“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.~~

The Company as well as other involved parties have appealed many of the final rate determinations. Certain of those appeals are pending and, at times, have resulted in delays in settling the shortfalls and refunds shown in the table below.period. 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 ~~‘September~~“June 30, ~~2021~~2022 Receivable/Liability ~~Balance’~~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 ~~income~~expense related to antidumping of ~~$1.8~~$0.02 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021, with~~2022 compared to net interest income of $1.8 million for the ~~amount~~six months ended June 30, 2021. The amounts for both years are included in ~~other expense~~“Other Expense” on the condensed consolidated statements of ~~operations.~~income. The estimated associated interest payable and receivable for each period is not included in the table below but is included in the same financial statement line item on the Company’s condensed consolidated balance sheet as the associated liability and receivable balance for each period.

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Review

Rates at which

September 30, 2021
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%
3.92% ²
$0.2 million

November 2013

liability ²
3
December 2013 through
3.3% and 5.92%
0.0%³
$1.8 million

November 2014

receivable³
4
December 2014 through
5.92% and 13.74%
0.0%
Settled

November 2015

5
December 2015 through
5.92%. 13.74%. and 17.37%
0.0%
Settled

November 2016

6
December 2016 through
17.37% and 0.0%
42.57% and 0.0%⁴
$0.5 million receivable

November 2017

$1.5 million liability⁴
7
December 2017 through
0.0%
0.0%⁵
NA

November 2018

8
December 2018 through
0.0%
0.0%⁶
NA

November 2019

Included on the Condensed Consolidated Balance Sheet in
Other Current Assets
$2.3 million

Included on the Condensed Consolidated Balance Sheet in
Other Assets
$1.3 million

Included on the Condensed Consolidated Balance Sheet in Other Current Liabilities
$0.2 million

Included on the Condensed Consolidated Balance Sheet in
Other Long-Term Liabilities
$1.5 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%⁷
$0.07 million
receivable⁷
6
January 2016 through
December 2016
0.99% and 1.38%
Final at 3.10% and 2.96%
$0.04 million
liability⁸
7
January 2017 through
December 2017
1.38% and 1.06%
20.75%⁹
$1.7 million
liability⁹
8
January 2018 through
December 2018
1.06%
5.81% ¹⁰
NA

Included on the Condensed Consolidated Balance Sheet in
Other Current Assets
$0.07 million

Included on the Condensed Consolidated Balance Sheet in
Other Assets
$0.3 million

Included on the Condensed Consolidated Balance Sheet in Other Current Liabilities
$0.04 million

Included on the Condensed Consolidated Balance Sheet in Other Long-Term Liabilities
$1.7 million

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Review Period¹	Period Covered	Rates at which Company Deposited	Final Rate	June 30, 2022 Receivable/Liability Balance
Antidumping
1	May 2011 through November 2012	6.78% and 3.3%	0.0%²	$1.53 million receivable²
2	December 2012 through November 2013	3.30%	3.92% ³	$0.21 million liability³
3	December 2013 through November 2014	3.3% and 5.92%	0.0%⁴	$1.82 million receivable⁴
6	December 2016 through November 2017	17.37% and 0.00%	42.57% and 0.0%⁵	$0.50 million receivable $1.46 million liability⁵
7	December 2017 through November 2018	0.00%	0.0%⁶	NA
8	December 2018 through November 2019	0.00%	0.0%⁷	NA
9	December 2019 through November 2020	0.00%	39.27%⁸	$1.14 million liability⁸
			Included on the Consolidated Balance Sheet in Other Current Assets	$3.85 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.21 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$2.60 million
Countervailing
1&2	April 2011 through December 2012	1.50%	0.83% / 0.99%	$0.24 million receivable
3	January 2013 through December 2013	1.50%	1.38%	$0.04 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%⁹	$0.07 million receivable⁹
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%¹⁰	$0.04 million liability¹⁰
7	January 2017 through December 2017	1.38% and 1.06%	20.75%¹¹	$1.65 million liability¹¹
8	January 2018 through December 2018	1.06%	6.13%¹²	$0.29 million liability¹²
9	January 2019 through December 2019	0.00%, 0.85%, 2.96%	3.36% / 9.85%¹³	$0.08 million liability¹³
			Included on the Consolidated Balance Sheet in Other Current Assets	$0.07 million
			Included on the Consolidated Balance Sheet in Other Assets	$0.30 million
			Included on the Consolidated Balance Sheet in Other Current Liabilities	$0.04 million
			Included on the Consolidated Balance Sheet in Other Long-Term Liabilities	$2.02 million

1	The fourth and fifth annual anti-dumping review periods have been settled and are no longer included on the chart above.

In the ~~second~~first quarter of ~~2018,~~2022, pursuant to CIT order on appeal the ~~Court of International Trade (“CIT”) sustained~~DOC recalculated the ~~DOC’s recommendation to reduce the rate~~final rates for the first annual review period ~~to 0.73% (from 5.92%~~)at 0.0%. As a result, the Company ~~reversed its~~ ~~$0.8 million liability and~~ recorded ~~a $1.3~~an additional $0.2 million receivable with a corresponding reduction of cost of sales during the ~~year ended December 31, 2018~~.first quarter of 2022.

In the second quarter of 2020, ~~the CIT received a recommendation from~~on appeal the DOC offered to reduce the rate for the second annual review period to 3.92% ~~(from~~from 13.74%). The ~~recommendation~~reduced rate was accepted by the CIT in the fourth quarter of 2020, and the Company reversed ~~$3.9~~$3.9 million of its $4.1 million liability, with a corresponding reduction of cost of sales.

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In the third quarter of 2020, ~~the CIT received a recommendation from~~on appeal the DOC offered to reduce the rate for the third annual review period to 0.0% from 17.37%. The ~~recommendation~~reduced rate was accepted by the CIT in the first quarter of 2021, and the Company reversed the entire ~~$4.7~~$4.7 million liability, with a corresponding reduction of cost of sales, and recorded a $1.8 million receivable and favorable adjustment to cost of sales for deposits made at previous preliminary rates.

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~~$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 0.0% and the remaining balance of $0.5 million as of June 30, 2021 was included in other current assets on the condensed consolidated balance sheet. The vendors with a final rate of 42.57% are under appeal and the balance of $1.5 million as of ~~September~~June 30, ~~2021~~2022 was included in other long-term liabilities on the condensed consolidated balance sheet.

56	In the ~~first~~fourth quarter of ~~2020,~~2021, the DOC issued a ~~preliminary~~final rate of 0.0% for the seventh annual review period.

6	~~In April 2021, the DOC issued a preliminary~~ The final rate ~~of 0.0%~~ ~~for the eighth annual review period. This rate was finalized at~~ ~~0.0% in October 2021.~~is currently under appeal.

7	In the fourth quarter of 2021, the DOC issued a final rate of 0.0% for the eighth annual review period. The final rate is currently under appeal.

8	In the second quarter of 2022, the DOC issued the final rate for the ninth annual review period at 39.27%.As a result, the Company recorded a $1.1 million liability with a corresponding increase in cost of sales during the second quarter of 2022. The final rate is currently under appeal.

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.

810

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~~$0.4 million with a corresponding reduction of cost of sales during the year ended December 31, 2019. ~~The~~As of June 30, 2022, the remaining liability balance ~~after payments,~~ was approximately ~~$40 thousand as of September 30, 2021.~~$40 thousand.

911

In the fourth quarter of 2020, the DOC issued the final rate 20.75% for the seventh annual review period. As a result, the Company recorded a liability of ~~$1.7~~$1.7 million with a corresponding increase to cost of sales during the year ended December 31, 2020. The Company ~~has~~ appealed this final rate during the first quarter of 2021.

1012

In October 2021, the DOC issued the final rate of ~~5.81%~~6.13% for the eighth annual review ~~period~~.period. As a result, in October 2021 the Company recorded a ~~$0.3~~$0.3 million liability with a corresponding increase in cost of sales. The Company appealed this final rate during the first quarter of 2022.

13	In the second quarter of 2022, the DOC issued the final rates for the ninth annual review period at 3.36% and 9.85% depending on the vendor. As a result, the Company recorded a liability of $0.08 million with a corresponding increase in cost of sales in the second quarter of 2022.

Litigation Relating to Bamboo Flooring

~~Dana Gold filed~~In 2019, the Company finalized a ~~purported class action lawsuit in the United States District Court for the Northern District of California alleging that the~~settlement agreement to resolve claims related to Morning Star bamboo flooring ~~that the Company sells was defective~~ (the “Gold Litigation”). In the third quarter of 2019, the parties finalized a settlement agreement that is consistent with the terms of the Memorandum of Understanding previously disclosed by the Company, to resolve the Gold Litigation on a nationwide basis. Under the terms of the settlement agreement, the Company contributed ~~$14~~$14 million in cash (the “Gold Cash Payment”) and provided $16 million in store-credit vouchers, for an aggregate settlement of up to $30 million. ~~The settlement agreement made clear that the settlement does not constitute or include an admission~~Cash and vouchers, which generally have a three-year life, were distributed by the administrator in 2021. The Company will monitor and evaluate the redemption of ~~any fault or liability and the Company does not admit any fault, wrongdoing or liability. Following the preliminary approval, and pursuant to the terms~~vouchers on a quarterly basis. The Company’s current expectation is that recipients bargained for this compensation as part of the settlement ~~agreement, in December 2019, the Company paid $1 million~~and therefore will redeem their voucher for ~~settlement administrative costs, which is part of the Gold Cash Payment, to the plaintiff’s settlement escrow account.~~Notice has been disseminated to class members by the settlement administrator, and final approval was granted by the court on October 22, 2020. 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.product as intended.

~~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. During the third quarter of 2020, the Company recognized an additional charge to earnings for in-store vouchers of $2 ~~million within selling, general and administrative expense as the Company became aware that a threshold in the settlement agreement was met. The Company paid the remaining~~ ~~$13~~ ~~million of the Gold Cash Payment in the fourth quarter of 2020. The vouchers were issued in the middle of the third quarter of 2021.~~ As of ~~September~~June 30, ~~2021,~~2022, the remaining accrual related to these matters was ~~$15.7~~$13.7 million for ~~vouchers, which has been included in the caption “Accrual for Legal Matters and~~

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~~Settlements” on its condensed consolidated balance sheet.~~vouchers. As ~~$0.3~~$1.2 million of vouchers were redeemed during the first ~~nine~~six months of ~~2021,~~2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$0.1~~$0.4 million was recorded as a reduction in “Selling, General and ~~administrative~~Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations.

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~~included those amounts in “Gold” in the ~~Bamboo Flooring Litigation and intends to defend such matters vigorously.~~

On September 9, 2021, Larry and Kathy Fluharty filed a purported class action lawsuit in the United States District Court for the Eastern District of Arkansas alleging substantially the same allegations as the Gold Litigation, for a class period beginning March 16, 2019 to present (the “Fluharty Litigation”). The Company is evaluating the Fluharty Litigation and is unable to determine if a loss is reasonably possible or to estimate the amount or range of possible loss, if any. The Company disputes the claims in the Fluharty Litigation and intends to defend the matter vigorously.

chart above.

Litigation Related to Formaldehyde-Abrasion MDLs

Beginning in 2015, numerous purported class action cases were filed in various United States federal district courts and state courts involving claims of excessive formaldehyde emissions and product claims about durability and abrasion from the Company’s Chinese-manufactured laminate flooring products. The United States Judicial Panel on Multidistrict Litigation transferred and consolidated the federal cases to the United States District Court for the Eastern District of Virginia (the “Virginia Court”) as two cases: Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales, Practices and Products Liability Litigation (the “Formaldehyde MDL”) and Lumber Liquidators Chinese-Manufactured Laminate Flooring Durability Marketing and Sales Practices Litigation (the “Abrasion MDL”).

In 2018, the Company entered into a settlement agreement to ~~jointly settle the Formaldehyde MDL and the Abrasion MDL.~~resolve claims related to Chinese-manufactured laminate products (the “Formaldehyde-Abrasion MDL”). Under the terms of the settlement agreement, the Company ~~agreed to fund~~funded $22 million ~~(the “MDL Cash Payment”)~~in cash and ~~provide~~provided $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 Court approved the settlement in the fourth quarter of, 2018 and the Company paid $21.5 million in cash into the plaintiffs’ settlement escrow account.

claims. Cash and vouchers, which generally have a three-year life, were distributed by the administrator in the fourth quarter of ~~2020 upon order of the Virginia Court.~~2020. The Company will monitor and evaluate the redemption of vouchers on a quarterly basis.

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The Company’s current expectation is that recipients bargained for this compensation as part of the settlement and therefore will redeem their voucher for product as intended.

~~The $36~~ ~~million aggregate settlement amount was accrued in 2017. The Company had held~~ ~~$21.5~~ ~~million of the Settlement as a deposit pending the appeals and the distribution of cash by the administrator, which occurred in the fourth quarter of 2020.~~ As of ~~September~~June 30, ~~2021,~~2022, the remaining accrual related to these matters was ~~$11.2~~$9.8 million for ~~vouchers, which has been included in the caption “Accrual for Legal Matters and Settlements – Current” on its condensed consolidated balance sheet.~~vouchers. As ~~$2.8~~$0.9 million of vouchers were redeemed during the first ~~nine~~six months of ~~2021,~~2022, the Company relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$1.1~~$0.3 million was recorded as a reduction in “Selling, General and ~~administrative~~Administrative Expenses” (“SG&A”) on the condensed consolidated statement of operations.

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. The Company ~~did 0t have any expense for these matters for the nine~~

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~~months ended September 30, 2021, or for the nine months ended September 30, 2020. As of September 30, 2021 and 2020, the remaining accrual related to these matters was~~ ~~$0.1 million, which has been~~ included those amounts in “MDL” in the caption “Accrual for Legal Matters and Settlements” on the condensed consolidated balance sheet. While the Company believes that a further loss associated with 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.

~~During the third quarter of 2021, the Company reached a settlement with its insurance carrier related to legal fees for the MDL matter for $0.4 million and received payment in October 2021.~~

~~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 reasonably possible, the Company is unable to reasonably estimate the amount or range of possible loss.

chart above.

Section 301 Tariffs

Since September 2018, pursuant to Section 301 of the Trade Act of 1974, the United States Trade Representative (“USTR”) has imposed tariffs on certain goods imported from China over four tranches ~~or Lists.~~(“Lists”). Products imported by the Company fall within Lists 3 and 4 for which tariffs range from 10% to 25%. On September 10, 2020 several importers of vinyl flooring filed a lawsuit with the CIT challenging the Section 301 tariffs under Lists 3 and 4. The Company has also filed a companion case at the CIT challenging Section 301 tariffs it has paid. On April 1, 2022 the CIT remanded the matter back to the USTR to reconsider its decisions in light of the ruling and to reply to the CIT by June 30, 2022. On June 22, 2022, the CIT granted the USTR its motion for extension to file the remand on or before August 1, 2022. The Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.

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

Cautionary Note Regarding Forward-Looking Statements

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 on us of any of the following:

●

a sustained period of inflation impacting product cost and consumer spending;

●

reduced consumer spending due to inflation and consumer sentiment;

●

transportation availability and costs;

●

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

●

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

●

potential disruptions to supply chain related to forced labor and other trade regulations;

●

inability to hire and/or retain employees;

●

obtaining products from abroad, including the effects of the COVID-19 pandemic and tariffs, delays in shipping, as well as the effects of antidumping and countervailing duties;

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●

~~having sufficient inventory for consumer demand;~~

●

~~a sustained period of inflation impacting consumer spending;~~

●

inability to ~~hire and/or retain employees;~~

●

anstaff stores due to the COVID-19 pandemic and the overall ~~decline~~pressures in the ~~health of the economy, the hard-surface flooring industry, the housing market and overall consumer spending, including the effects of the COVID-19 pandemic;~~

●

~~impact on sales, ability to obtain and distribute products, and employee safety and retention, including the effects of the COVID-19 pandemic;~~labor market;

●

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

●

~~reputational harm;~~the impact of the war in Ukraine on transportation costs and the Company’s European suppliers;

●

~~obligations under various settlement agreements and other compliance matters;~~reputational harm;

●

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,~~stores, and fund other capital expenditures;

●

~~inability~~managing growth;

●

damage to ~~execute on~~ our ~~key initiatives or such key initiatives do not yield desired results;~~assets;

●

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

●

operating an office in China;

●

managing third-party installers and product delivery companies;

●

~~our ability to develop, grow and maintain business relationships with professional contractors;~~

●

renewing store, warehouse, or other corporate leases;

●

~~international and domestic transportation costs and availability;~~

●

having sufficient suppliers;

●

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

●

product liability claims, marketing substantiation claims, wage and hour claims, employment classification claims and other labor and employment claims;

●

having sufficient inventory for consumer demand;

●

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

●

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 and other applicable data privacy laws and regulations;

●

~~our ability to develop digital technology needed to grow our business and meet customer expectations;~~

●

management information systems disruptions;

●

alternative e-commerce offerings;

●

our advertising and overall marketing strategy, including anticipating consumer trends;

●

competition;

●

impact of changes in accounting and regulatory guidance, including implementation guidelines and ~~interpretations;~~interpretations related to Environmental, Social, and Governance (“ESG”) matters;

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internal controls;

●

stock price volatility; and

●

anti-takeover provisions.

Information regarding risks and uncertainties is contained in the Company’s reports filed with the SEC, including the Item 1A, “Risk Factors,” section of this quarterly report and the Form 10-K for the year ended December 31, ~~2020.~~2021.

This management discussion should be read in conjunction with the financial statements and notes included in Part I, Item 1. “Financial Statements” of this quarterly report and the audited financial statements and notes and management discussion included in the Company’s annual report filed on Form 10-K for the year ended December 31, ~~2020.~~2021.

Overview

LL Flooring is one of the leading specialty retailers of hard-surface flooring in the U.S. with ~~422~~437 stores as of

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~~September~~ June 30, ~~2021.~~2022. Our Company seeks to offer the best customer experience online and in stores, with more than 500 varieties of hard-surface floors featuring a range of quality styles and on-trend designs. Our online tools also help empower customers to find the right solution for the space they’ve envisioned. Our extensive selection includes waterproof hybrid resilient, waterproof vinyl plank, solid and engineered hardwood, laminate, bamboo, ~~porcelain~~ tile, and cork, with a wide range of flooring enhancements and accessories to complement. Our stores are staffed with flooring experts who provide advice, Pro partnership services and installation options for all of our products, the majority of which is in stock and ready for delivery.

Our vision is to be ~~the customer’s~~customers’ first choice in hard-surface flooring by providing the best experience, from start to finish. We offer a wide selection of high-quality, locally stocked products and the accessible flooring expertise and service of a local store, with the scale, omni-channel convenience and value of a national chain. We plan to leverage this advantage to differentiate ourselves in the highly fragmented flooring market. ~~We launched our new digital platform,~~ ~~LLFlooring.com~~

~~, in December 2020. In February 2021, we launched our new mobile app featuring our popular Picture It and Floor Finder tools and making it easy to order installations.~~Table of Contents

To supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses 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~~Percentage of ~~net sales;~~Net Sales; (v) Adjusted Operating Income; (vi) Adjusted Operating Margin; (vii) Adjusted Other Expense; (viii) Adjusted Other Expense as a ~~percentage~~Percentage of ~~net sales;~~Net Sales; (ix) Adjusted Earnings; and (x) Adjusted Earnings per Diluted Share. These 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 uses these non-GAAP financial measures to evaluate our operating performance and, in certain cases, to determine incentive compensation. 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 store closures, regulatory and legal settlements and associated legal and operating costs, and changes in antidumping and countervailing duties, as such items are outside of our control due to their inherent unusual, non-operating, unpredictable, non-recurring, or non-cash nature.

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 sales for the remainder of fiscal 2021.

~~Third~~Second Quarter Financial Highlights

●

Net sales of ~~$282.2~~$299.0 million decreased ~~4.6%~~0.8% compared to the same period last year, as ~~double-digit~~record growth in sales to Pro ~~and services sales~~customers partially offset a decrease in ~~DIY~~consumer sales and a 1.1% decrease in net service sales.

●

Total comparable store sales decreased ~~4.5%~~3.1% versus the same period last ~~year.~~year. The decrease in comparable store sales primarily reflected the same drivers as the change in net sales.

●

Gross margin of ~~37.3%~~35.7% decreased ~~210~~170 basis points as a percentage of sales compared to the same period last year, ~~Adjusted Gross Margin~~adjusted gross margin (a non-GAAP measure) of ~~37.3%~~36.1% decreased ~~240~~130 basis points ~~as a percentage of sales~~ compared to the same period last year, primarily reflecting significantly higher material and transportation ~~and material~~ costs ~~and higher tariffs~~ (collectively up more than ~~700~~1,000 basis points) that the Company was able to partially mitigate bythrough pricing, promotion and alternative country/vendor sourcing strategies.

●

SG&A expense as a percentage of sales of ~~33.0%~~34.1% increased ~~140~~220 basis points compared to the ~~third~~second quarter of last year. Adjusted SG&A expense (a non-GAAP measure) as a percentage of sales of ~~33.1%~~34.1% increased ~~320~~230 basis points compared to the ~~third~~second quarter of last year, primarily driven by investments to support the Company’s long-term growth, higher advertising expense due to ~~increased~~the timing of promotions, and continued investment in ~~the field~~customer facing and ~~to support growth initiatives, as well as last year’s $2.5 million favorable business interruption insurance settlement.~~distribution center personnel.

●

Operating margin of ~~4.3%~~1.6% decreased ~~350~~390 basis points compared to the ~~third~~second quarter of last year. Adjusted operating margin (a non-GAAP measure) of~~4.1%~~2.0% decreased ~~560~~360 basis points compared to the ~~third~~second quarter of last year.

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●

Diluted EPS of ~~$0.30~~$0.09 per diluted share decreased ~~$0.23~~$0.32 per diluted share compared to the ~~third~~second quarter of last year. Adjusted ~~Earnings~~earnings per ~~Diluted Share~~diluted share (a non-GAAP measure) of ~~$0.29~~$0.13 decreased ~~$0.38~~$0.28 compared to the ~~third~~second quarter of last year.

●

During the ~~third~~second quarter, the Company opened six new stores, bringing total stores to ~~422~~437 as of ~~September~~June 30, ~~2021.~~2022.

Other Items

Liquidity and Credit Agreement

As of ~~September~~June 30, ~~2021,~~2022, we had liquidity of ~~$232.2~~$187 million, consisting of excess availability under our Credit Agreement of ~~$128.0~~$182 million, and cash and cash equivalents of ~~$104.2~~$5 million. This represents ~~an increase~~a decrease in liquidity of ~~$18.2~~$40 million from December 31, ~~2020. We repaid all $101.0~~2021. During the first half of the year, the Company rebuilt its inventory by more than $104 million.

In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50 million of ~~our outstanding debt~~the Company’s common stock from the previous $14 million authorized. In April 2022, the Company

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resumed its share repurchase program. The Company has repurchased $7 million under that program, underscoring its confidence in ~~the second quarter of 2021~~its long-term net sales and ~~did not access borrowings under the Credit Agreement during the third quarter.~~

profitability growth.

We believe that cash flows from operations, together with cash on hand, and the availability under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, ~~and~~ anticipated capital expenditures, and potential share repurchases for the next 12 months. ~~In the coming quarters we also plan to increase our inventories as supply chain disruptions abate.~~ 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.

Impact of Macroeconomic Environment

We continue to navigate uncertainty in the macroeconomic environment related to inflation, consumer spending, global supply chain disruptions, ~~consumer spending, inflation~~COVID-19, and a challenging labor market. During the second quarter of 2020 we limited our inventory purchases as a direct result COVID-19. Supply chain disruption on replenishment kept inventory below our targeted level during the second half of 2020We anticipate material and first nine months of 2021. As a result, we believe we could have captured more sales in the fourth quarter of 2020 and first nine months of 2021 if our inventories had been higher. While our supply chain teams continue to work diligently to bring in new inventory and allocate it effectively across our stores, we anticipate the supply chaintransportation costs to remain ~~constrained into 2022, limiting inventory availability~~inflated, exacerbated by the war in Ukraine, throughout 2022. We are also monitoring the impact of inflation on consumer purchasing trends as it could affect our prices, demand for our products, our sales and increasing transportation and material costs. Supply chain constraints include international container access, congestion in major ports, and a shortage of domestic truckers, as well as renewed COVID-19 related shutdowns for some of our ~~sourcing partners across southeast Asia.~~profit margins.

Section 301 Tariffs

The Company’s financial statements have been impacted by 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 but were reinstated in August 2020. The tariffs flow through the income statement as the product is sold. 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 following chart provides a timeline~~sourcing. During the second quarter of ~~tariff levels for~~2022, the ~~key events related~~Company reduced the percent of merchandise receipts subject to Section 301 ~~Tariffs.~~tariffs to 12% from 22% during the second quarter of 2021.

As discussed in Item 1, Note 7 to the condensed consolidated financial statements, the Company is unable to predict the timing or outcome of the ruling by the USTR and/or CIT. If these appeals are successful, the Company should qualify for refunds on these Section 301 tariffs.

2219

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1	~~On 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%.~~

Results of Operations

We believe the selected sales data, the percentage relationship between net sales and major categories in the condensed 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									% Improvement
	% of Net Sales						(Decrease) in			% of Net Sales						(Decline) in
	Three Months Ended September 30,						Dollar Amounts			Three Months Ended June 30,						Dollar Amounts
	2021			2020			2021 VS 2020			2022			2021			2022 VS 2021
Net Sales
Net Merchandise Sales		85.3	%		88.2	%		(7.7)	%		86.2	%		86.1	%		(0.8)	%
Net Services Sales		14.7	%		11.8	%		19.0	%		13.8	%		13.9	%		(1.1)	%
Total Net Sales		100.0	%		100.0	%		(4.6)	%		100.0	%		100.0	%		(0.8)	%
Gross Profit		37.3	%		39.4	%		(9.7)	%		35.7	%		37.4	%		(5.3)	%
Selling, General, and Administrative Expenses		33.0	%		31.6	%		(0.2)	%		34.1	%		31.9	%		6.2	%
Operating Income		4.3	%		7.8	%		(48.0)	%		1.6	%		5.5	%		(71.9)	%
Other Expense		0.0	%		0.2	%		(97.4)	%		0.1	%		0.2	%		(60.2)	%
Income Before Income Taxes		4.3	%		7.6	%		(46.5)	%		1.5	%		5.3	%		(72.3)	%
Income Tax Expense		1.2	%		2.4	%		(53.5)	%		0.6	%		1.3	%		(58.1)	%
Net Income		3.1	%		5.2	%		(43.4)	%		0.9	%		4.0	%		(77.2)	%

							% Increase									% Improvement
	% of Net Sales						(Decrease) in			% of Net Sales						(Decline) in
	Nine Months Ended September 30,						Dollar Amounts			Six Months Ended June 30,						Dollar Amounts
	2021			2020			2021 VS 2020			2022			2021			2022 VS 2021
Net Sales
Net Merchandise Sales		86.5	%		89.5	%		5.7	%		86.8	%		87.1	%		(1.5)	%
Net Services Sales		13.5	%		10.5	%		39.5	%		13.2	%		12.9	%		1.2	%
Total Net Sales		100.0	%		100.0	%		9.3	%		100.0	%		100.0	%		(1.2)	%
Gross Profit		38.5	%		39.0	%		7.7	%		36.5	%		39.0	%		(7.7)	%
Selling, General, and Administrative Expenses		33.7	%		34.3	%		7.3	%		34.8	%		34.0	%		1.3	%
Operating Income		4.8	%		4.8	%		10.1	%		1.7	%		5.1	%		(67.3)	%
Other Expense		0.0	%		0.3	%		NM	%		0.0	%		(0.0)	%		(167.9)	%
Income Before Income Taxes		4.8	%		4.4	%		19.3	%		1.6	%		5.1	%		(68.2)	%
Income Tax Expense		1.2	%		0.6	%		119.7	%		0.5	%		1.2	%		(62.6)	%
Net Income		3.6	%		3.8	%		3.3	%		1.2	%		3.9	%		(70.0)	%


													Three Months Ended						Six Months Ended
		Three Months Ended						Nine Months Ended					June 30,						June 30,
		September 30,						September 30,					2022			2021			2022			2021
SELECTED SALES DATA		2021			2020			2021			2020
Average Sale¹	$	1,625		$	1,366		$	1,530		$	1,313		$	1,860		$	1,564		$	1,777		$	1,488
Average Retail Price per Unit Sold Increase (Decrease)²		6.8	%		0.7	%		7.9	%		(0.3)	%
Comparable Store Sales (Decrease) Increase³		(4.5)	%		10.9	%		9.8	%		(4.3)	%
Customers Invoiced (Decrease) Increase ⁴		(23.5)	%		13.8	%		(9.4)	%		(1.0)	%
Comparable Stores (Decrease) Increase²														(3.1)	%		31.3	%		(3.3)	%		18.2	%
Transaction Count (Decrease) Increase³														(22.0)	%		2.0	%		(16.7)	%		2.3	%
Average Retail Price per Unit Sold Increase⁴														14.7	%		9.9	%		12.5	%		6.8	%

Number of Stores Open, end of period		422			423			422			423			437			416			437			416
Number of Stores Opened in Period, net		6			1			12			4			6			4			13			6
Number of Stores Relocated in Period⁵		—			—			—			1			1			—			1			—

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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).

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

3	Transaction count is calculated by applying the average sale to total net sales at comparable stores.

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

4	~~Change in number of customers invoiced is calculated by applying the average sale, described above, to total net sales at comparable stores.~~

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

~~NM Not meaningful.~~

Net Sales

~~Third~~Second quarter ~~2021~~2022 net sales of ~~$282.2~~$299.0 million decreased ~~$13.6~~$2.4 million, or ~~4.6%~~0.8%, versus the ~~third~~second quarter of ~~2020.~~2021. Net merchandise sales ~~decreased 7.7%, partially offset by a 19.0% increase in~~and net service sales ~~(install~~decreased 0.8% and ~~freight). The increase in net service sales primarily reflects consumers’ increased comfort with having professionals enter their homes compared to the third quarter 2020.~~ 1.1%, respectively.

Average ticket increased ~~19.0%~~18.9%, primarily reflecting ~~a greater penetration of installation sales as well as~~ higher merchandise average ticket. ~~This~~The higher merchandise average ticket was ~~a result~~driven primarily by pricing and promotion strategies as well as favorable product mix, reflecting the launch of ~~us refreshing~~ our ~~assortment with~~ new ~~higher-quality products and sharing a portion of increased costs with consumers.~~ Duravana performance flooring brand.

Comparable store sales for the ~~third~~second quarter of ~~2021~~2022 decreased ~~4.5%~~3.1% from the ~~third~~second quarter of ~~2020, due~~2021. The Company reported record sales to consumer demand shifts given increased consumer mobility this year, continued supply chain constraints, as well as the substantial nesting spending that we saw in the third quarter of 2020. We also hadPro customers, which partially offset a ~~23.5% decrease in transaction count compared to the same period in 2020, primarily reflecting the~~ decrease in sales to ~~DIY customers, as well as~~consumers and a 1.1% decrease in net service sales. The year-over-year decrease in comparable store sales reflected continued lower ~~than optimal inventory levels.~~ spending by consumers versus last year, which we believe reflected pressure from inflation and higher interest rates, and their preference to spend more on travel and entertainment.

During the ~~third~~second quarter of ~~2021,~~2022, the Company opened six new stores bringing the total store count to ~~422~~437 as of ~~September~~June 30, ~~2021.~~

2022.

Net sales for the ~~nine~~six months ended ~~September~~June 30, ~~2021 increased 9.3%~~2022 decreased 1.2% from the ~~comparable period in 2020.~~six months ended June 30, 2021. Net merchandise sales ~~increased 5.7% and~~decreased 1.5%, partially offset by an increase in net service sales ~~increased 39.5%~~of 1.2% over the ~~comparable~~same period in ~~2020.~~2021. Comparable store sales for the ~~nine~~six months ended ~~September~~June 30, ~~2021 increased 9.8%~~2022 decreased 3.3% from the ~~comparable~~same period in ~~2020.~~

2021.

Gross Profit

Gross profit decreased ~~9.7%~~5.3% in the ~~third~~second quarter of ~~2021~~2022 to ~~$105.2~~$106.8 million from ~~$116.5~~$112.7 million in the comparable period in ~~2020~~2021, and gross margin decreased ~~210~~170 basis points to ~~37.3%~~35.7% in the ~~third~~second quarter of ~~2021~~2022 from ~~39.4%~~37.4% in the ~~third~~second quarter of ~~2020. The third~~2021. For the second quarter of ~~2020 was impacted by store closure costs of Canadian and certain U.S. stores.~~2022, the Company reported an unfavorable $1.2 million impact from anti-dumping duty rate changes compared to the prior-year period. Excluding ~~this item~~these items as shown on the table that follows, ~~Adjusted Gross Margin~~adjusted gross margin (a non-GAAP measure) of ~~37.3%~~36.1% decreased ~~240~~130 basis points ~~as a percentage of sales~~ compared to the same period last year, primarily reflecting significantly higher material and transportation ~~and material~~ costs ~~and higher tariffs~~ (collectively up more than ~~700~~1,000 basis points) that the Company was able to partially mitigate through pricing, promotion and alternative country/vendor sourcing strategies.

Gross profit decreased 7.7% in the first six months of 2022 to $210.8 million from $228.3 million in the comparable period in 2021 and gross margin decreased 250 basis points to 36.5% in the first six months of 2022 from 39.0% in the first six months of 2021. For the first six months of 2022, the Company reported an unfavorable $1.0 million impact from anti-dumping duty rate changes, compared to income of $6.6 million in the prior-year period. Excluding these items as shown on the table that follows, adjusted gross margin (a non-GAAP measure) of 36.7% decreased 120 basis points compared to the same period last year, primarily reflecting significantly higher material and transportation costs (collectively up more than 1,000 basis points) that the Company was able to partially mitigate by pricing, promotion and alternative country/vendor sourcing strategies.

Gross profit increased 7.7% for the nine months ended September 30, 2021 to $333.5 million from $309.8 million in the comparable period in 2020 and gross margin decreased 50 basis points to 38.5% in the nine month period 2021 from 39.0% in 2020. For the first nine monthsTable of 2021, the Company reported a positive $6.6 million impact from anti-dumping duty rate changes. Excluding this item as shown on the table that follows, Adjusted Gross Profit (a non-GAAP measure) increased by $16.4 million and Adjusted Gross Margin (a non-GAAP measure) of 37.7% decreased by 140 basis points compared to 2020. The decrease in adjusted gross margin was due primarily to the August 2020 reinstatement of tariffs on certain flooring products imported from China (discussed in the “Section 301 Tariffs” section that follows) and higher transportation and material costs (collectively up more than 400 basis points) that the Company was able to partially mitigate by pricing, promotion and alternative country/vendor sourcing strategies.Contents

We believe that the following items set forth in the table 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.

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																	Three Months Ended								Six Months Ended
	Three Months Ended September 30,								Nine Months Ended September 30,								June 30,								June 30,
	2021				2020				2021				2020				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)								(dollars in thousands)								(dollars in thousands)								(dollars in thousands)
Gross Profit, as reported (GAAP)	$	105,201	37.3	%	$	116,526	39.4	%	$	333,523	38.5	%	$	309,789	39.0	%
Gross Profit/Margin, as reported (GAAP)																	$	106,750	35.7	%	$	112,730	37.4	%	$	210,829	36.5	%	$	228,322	39.0	%

Antidumping Adjustments ¹		—	—	%		—	—	%		(6,566)	(0.8)	%		—	—	%		1,218	0.4	%		—	—	%		977	0.2	%		(6,566)	(1.1)	%
Store Closure Costs ²		—	—	%		761	0.3	%		—	—	%		761	0.1	%
Sub-Total Items above		—	—	%		761	0.3	%		(6,566)	(0.8)	%		761	0.1	%

Adjusted Gross Profit (non-GAAP measures)	$	105,201	37.3	%	$	117,287	39.7	%	$	326,957	37.7	%	$	310,550	39.1	%
Adjusted Gross Profit/Margin (non-GAAP measures)																	$	107,968	36.1	%	$	112,730	37.4	%	$	211,806	36.7	%	$	221,756	37.9	%

1	Represents antidumping expense associated with applicable prior-year shipments of engineered hardwood from China.

2	Represents the inventory write-offs related to the Canadian and U.S. store closures described more fully in Note 8 to the condensed consolidated financial statements filed in the September 30, 2020 10-Q,

Selling, General and Administrative Expenses

SG&A expense for the ~~third~~second quarter of ~~2021 decreased $0.2~~2022 increased $6.0 million to ~~$93.2~~$102.1 million, or ~~33.0%~~34.1% of sales, compared to ~~$93.4~~$96.1 million, or ~~31.6%~~31.9% of sales, in the ~~third~~second quarter of ~~2020.~~2021. Adjusted SG&A (a non-GAAP measure) for the second quarter of 2022 was $102.1 million, compared to $95.8 million in the second quarter of 2021. As a percentage of sales, adjusted SG&A increased 230 basis points, to 34.1% of sales, compared to 31.8% for the second quarter in 2021, which is primarily driven by investments to support the Company’s long-term growth, higher advertising expense due to the timing of promotions, and continued investment in customer facing and distribution center personnel.

SG&A expense for the first six months of 2022 increased $2.5 million to $201.1 million, or 34.8% of sales, compared to $198.6 million, or 34.0% of sales, in the first six months of 2021. SG&A in ~~both quarters~~the first six months of 2021 included certain ~~recoveries and~~ costs related to legal matters and settlements. ~~Additionally, the third quarter of 2020 included costs related to Canadian and U.S. store closures.~~ Excluding these items as shown in the table that follows, ~~Adjusted~~adjusted SG&A (a non-GAAP measure) for the ~~third quarter~~first six months of ~~2021~~2022 was ~~$93.5~~$201.1 million, compared to ~~$88.6~~$190.5 million in the ~~third quarter~~first six months of ~~2020.~~2021. As a percentage of sales, adjusted SG&A increased ~~320~~220 basis points, to ~~33.1%~~34.8% of sales, compared to 29.9% for the third quarter in 2020, which reflected increased investment in the field and our growth initiatives, as well as last year’s $2.5 million favorable final settlement of the business insurance claim related to the August 2019 network security incident.

~~SG&A expense~~32.6% for the first ~~nine~~six months ofin 2021, was $291.8 million, or 33.7% of sales, improving by 60 basis points from the comparable period in 2020. SG&A in both periods included certain costs related to legal matters and settlements. Additionally, the 2020 period included costs related to Canadian and U.S. store closures. Excluding these items as shown in the table that follows, Adjusted SG&A (a non-GAAP measure) was $284.0 million for the 2021 nine-month period, compared to $265.8 million in 2020. As a percentage of sales, adjusted SG&A improved 70 basis points, to 32.8% of sales, compared to 33.5% forreflecting the same ~~period in~~drivers as the prior year, which was a result of the higher sales volume in 2021. The higher overall SG&A was primarily driven by the substantial actions taken last year to address the COVID-19 pandemic, including lower payroll and benefits expense as we proactively aligned staffing with demand levels, temporary salary reductions for corporate office personnel and the Board of Directors, and lower advertising expense.quarter. The Company redeemed ~~$3.1~~$2.0 million and $2.3 million of MDL and Gold vouchers during the first ~~nine~~six months of 2022 and 2021, respectively, and relieved the accrual for legal matters and settlements for the full amount, relieved inventory at its cost, and the remaining amount -- the gross margin for the items sold of ~~$1.2~~$0.7 million in 2022 and $0.8 million in 2021 -- was recorded as a reduction in SG&A expense.

2522

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																	Three Months Ended								Six Months Ended
	Three Months Ended September 30,								Nine Months Ended September 30,								June 30,								June 30,
	2021				2020				2021				2020				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)								(dollars in thousands)								(dollars in thousands)								(dollars in thousands)
SG&A, as reported (GAAP)	$	93,165	33.0	%	$	93,374	31.6	%	$	291,767	33.7	%	$	271,869	34.3	%	$	102,087	34.1	%	$	96,116	31.9	%	$	201,112	34.8	%	$	198,602	34.0	%

(Recovery) Accrual for Legal Matters and Settlements ³		(400)	(0.1)	%		2,000	0.7	%		7,275	0.8	%		1,500	0.2	%
Legal and Professional Fees⁴		43	0.0	%		999	0.3	%		470	0.1	%		2,787	0.4	%
Store Closure Costs⁵		—	—	%		1,803	0.6	%		—	—	%		1,803	0.2	%
Accrual for Legal Matters and Settlements²																		—	—	%		—	—	%		—	—	%		7,675	1.3	%
Legal and Professional Fees³																		—	—	%		279	0.1	%		—	—	%		427	0.1	%
Sub-Total Items above		(357)	(0.1)	%		4,802	1.6	%		7,745	0.9	%		6,090	0.8	%		—	—	%		279	0.1	%		—	—	%		8,102	1.4	%

Adjusted SG&A (a non-GAAP measure)	$	93,522	33.1	%	$	88,572	29.9	%	$	284,022	32.8	%	$	265,779	33.5	%	$	102,087	34.1	%	$	95,837	31.8	%	$	201,112	34.8	%	$	190,500	32.6	%

~~The 2021 amounts represent~~This amount represents the charge to earnings for the Mason and ~~Savidis~~Savidas matters recorded in the first ~~quarter~~half of 2021, and a $0.4 million insurance recovery in the third quarter of 2021 of legal fees related to certain significant legal action. The 2020 amounts reflect expense of $2 million related to the Gold matter in the third quarter of 2020 and $0.5 million insurance recovery in the second quarter of 2020 of legal fees related to certain significant legal action. These itemswhich are described more fully in Item 1, Note 7 to the condensed consolidated financial ~~statements filed in the September 30, 2021 10-Q.~~statements.

43	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.

5	Represents store lease impairments, write down on fixed assets and employee termination benefits related to the Canadian and U.S. store closures described more fully in Note 8 to the condensed consolidated financial statements filed in the September 30, 2020 10-Q.

Operating Income and Operating Margin

Operating income was ~~$12.0~~$4.7 million for the ~~third~~second quarter of ~~2021~~2022 compared to ~~$23.2~~$16.6 million for the ~~third~~second quarter of ~~2020.~~2021. Adjusted ~~Operating Income~~operating income (a non-GAAP measure) in the ~~third~~second quarter of ~~2021~~2022 was ~~$11.7~~$5.9 million, down ~~$17.0~~$11.0 million from the ~~$28.7~~$16.9 million for the prior-year period. As a percentage of net sales, adjusted operating margin (a non-GAAP measure) for the ~~third~~second quarter of 2022 was 2.0%, down 360 basis points from 5.6% in the second quarter of 2021, ~~was 4.1%, down 560 basis points from 9.7% in the third quarter of 2020,~~ which reflected the increased selling, general and administrative expenses and decreased gross margin ~~and increased SG&A expenses~~ as described in the above sections.

Operating income was ~~$41.8~~$9.7 million for the first ~~nine~~six months of 2022 compared to $29.7 million for the first six months of 2021. Adjusted operating income (a non-GAAP measure) in the first six months of 2022 was $10.7 million, down $20.6 million from the $31.3 million for the prior-year period. As a percentage of net sales, adjusted operating margin (a non-GAAP measure) for the first six months of 2022 was 1.9%, down 340 basis points from 5.3% in the first six months of 2021, ~~compared to $37.9 million for~~which reflected the ~~comparable period~~increased selling, general and administrative expenses and decreased gross margin as described in ~~2020. Adjusted Operating Income was $42.9 million for~~ the ~~nine months ended September 30, 2021, a year-over-year decrease of $1.8 million compared to Adjusted Operating Income of $44.8 million in 2020.~~above sections.

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																	Three Months Ended									Six Months Ended
	Three Months Ended September 30,								Nine Months Ended September 30,								June 30,									June 30,
	2021				2020				2021				2020				2022					2021				2022					2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales			$		% of Sales		$		% of Sales			$		% of Sales

	(dollars in thousands)								(dollars in thousands)								(dollars in thousands)									(dollars in thousands)
Operating Income, as reported (GAAP)	$	12,036	4.3	%	$	23,152	7.8	%	$	41,756	4.8	%	$	37,920	4.8	%	$	4,663		1.6	%	$	16,614	5.5	%	$	9,717		1.7	%	$	29,720	5.1	%

Gross Margin Items:
Antidumping Adjustments ¹		—	—	%		—	—	%		(6,566)	(0.8)	%		—	—	%		1,218		0.4	%		—	—	%		977		0.2	%		(6,566)	(1.1)	%
Store Closure Costs ²		—	—	%		761	0.3	%		—	—	%		761	0.1	%
Gross Margin Subtotal		—	—	%		761	0.3	%		(6,566)	(0.8)	%		761	0.1	%		1,218		0.4	%		—	—	%		977		0.2	%		(6,566)	(1.1)	%

SG&A Items:
(Recovery) Accrual for Legal Matters and Settlements ³		(400)	(0.1)	%		2,000	0.7	%		7,275	0.8	%		1,500	0.2	%
Legal and Professional Fees⁴		43	0.0	%		999	0.3	%		470	0.1	%		2,787	0.4	%
Store Closure Costs⁵		—	—	%		1,803	0.6	%		—	—	%		1,803	0.2	%
Accrual for Legal Matters and Settlements²																		—		—	%		—	—	%		—		—	%		7,675	1.3	%
Legal and Professional Fees³																		—		—	%		279	0.1	%		—		—	%		427	0.1	%
SG&A Subtotal		(357)	(0.1)	%		4,802	1.6	%		7,745	0.9	%		6,090	0.8	%		—		—	%		279	0.1	%		—		—	%		8,102	1.4	%

Adjusted Operating Income (a non-GAAP measure)	$	11,679	4.1	%	$	28,715	9.7	%	$	42,935	5.0	%	$	44,771	5.6	%
Adjusted Operating Income/Margin (a non-GAAP measure)																	$	5,881		2.0	%	$	16,893	5.6	%	$	10,694		1.9	%	$	31,256	5.3	%

^{1,2,3,4,51,2,3} See the Gross Profit and SG&A sections above for more detailed explanations of these individual items.

Other Expense (Income)

In the ~~third~~second quarter of ~~2021~~2022, we had other expense of ~~$18 thousand~~$0.2 million compared to other expense of ~~$685 thousand~~$0.5 million for the ~~third~~second quarter of ~~2020. The~~2021. Adjusted other expense (a non-GAAP measure) was $0.1 million for the second quarter of 2022, which is a decrease of ~~$667 thousand was due~~$0.4 million compared to the ~~absence~~second quarter of ~~interest because of~~2021 driven by the ~~repayment of all~~decrease in outstanding debt during the ~~second~~ quarter compared to prior year.

The Company had other expense of ~~2021.~~

~~We had~~$0.2 million for the first six months of 2022 compared to other income of ~~$252 thousand for the first nine months of 2021 compared to other expense of $2.7~~$0.3 million for the comparable period ~~2020.~~in 2021. Both ~~periods~~years included interest on borrowings on our Credit Agreement. ~~The interest~~Adjusted other expense ~~on borrowings in~~(a non-GAAP measure) was $0.2 million for the first six months of 2022, which is a decrease of $1.4 million compared to the first six months of 2021 ~~was offset~~driven by a favorable adjustment in 2021 of $1.8 million for the reversal of interest expense associated with ~~the $6.6 million~~an anti-dumping duty rate refund recognized during the first quarter. Adjusted Other Expense (a non-GAAP measure) was $1.6 million for the first nine months of 2021, which is a decrease of $1.1 million compared to the first nine months of 2020 driven by the repayment of all outstanding debt during the second quarter of 2021 and lower interest rates on our Credit Agreement due to the amendment in April 2021.refund.

~~Table of Contents~~

We believe that the following item set forth in the table 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.


																	Three Months Ended								Six Months Ended
	Three Months Ended September 30,								Nine Months Ended September 30,								June 30,								June 30,
	2021				2020				2021				2020				2022				2021				2022				2021
	$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales		$		% of Sales

	(dollars in thousands)								(dollars in thousands)								(dollars in thousands)								(dollars in thousands)
Other Expense (Income), as reported (GAAP)	$	18	0.0	%	$	685	0.2	%	$	(252)	(0.0)	%	$	2,709	0.3	%	$	199	0.1	%	$	498	0.2	%	$	184	0.0	%	$	(270)	(0.0)	%

Interest impact related to antidumping adjustment⁶		—	—	%		—	—	%		(1,841)	(0.2)	%		—	—	%
Interest impact related to antidumping adjustment⁴																		83	0.0	%		—	—	%		(2)	(0.0)	%		(1,841)	(0.3)	%
Sub-Total Items above		—	—	%		—	—	%		(1,841)	(0.2)	%		—	—	%		83	0.0	%		—	—	%		(2)	(0.0)	%		(1,841)	(0.3)	%

Adjusted Other Expense/Adjusted Other Expense as a % of Sales (a non-GAAP measure)	$	18	0.0	%	$	685	0.2	%	$	1,589	0.2	%	$	2,709	0.3	%	$	116	0.0	%	$	498	0.2	%	$	186	0.0	%	$	1,571	0.3	%

64	Represents the interest income impact of certain antidumping adjustments related to applicable prior-year shipments of engineered hardwood from China.

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Provision for Income Taxes

The Company calculates its quarterly tax provision pursuant to the guidelines in Accounting Standards Codification ("ASC") 740-270 "Income Taxes." Generally, ASC 740-270 requires companies to estimate the annual effective tax rate for current year ordinary income. The estimated annual effective tax rate represents the best estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision and is adjusted for discrete items that occur within the period. This process was employed in 2021. Due to disruptions related to the COVID-19 pandemic in 2020, the Company applied the actual year-to-date effective tax rate for the tax provision in the three and nine-month periods ended September 30, 2020.

For the three months ended ~~September~~June 30, 2022, the Company recognized income tax expense of $1.7 million, which represented an effective tax rate of 38.7%. For the three months ended June 30, 2021, the Company recognized income tax expense of ~~$3.2~~$4.1 million, which represented an effective tax rate of ~~27.0%~~25.6%. The higher effective tax rate in the current period primarily reflects the greater impact of permanent items on the lower pretax ordinary income.

For the ~~three~~six months ended ~~September~~June 30, ~~2020,~~2022, the Company recognized income tax expense of ~~$7.0~~$2.8 million, which represented an effective tax rate of ~~31.0%~~29.0%.

For the ~~nine~~six months ended ~~September~~June 30, 2021, the Company recognized income tax expense of ~~$10.6~~$7.4 million, which represented an effective tax rate of ~~25.3%~~24.6%. ~~For the nine months ended September 30, 2020, the Company recognized an income tax expense of $4.8 million, which represented an~~The higher effective tax rate ~~of 13.7%. The variability~~is caused by the same drivers of the ~~tax rate between the two periods is due to the use of the~~increase in effective tax rate ~~method in 2021 compared to discrete provision in 2020, including~~for the ~~favorable impact of the CARES Act.~~quarter.

Net Income per Diluted Share

Net income per diluted share was ~~$0.30~~$0.09 for the ~~third quarter of 2021~~three months ended June 30, 2022, compared to ~~$0.53 in the year ago quarter. Adjusted Earnings Per Diluted Share (a non-GAAP measure) was $0.29~~$0.41 for the ~~third quarter of 2021~~three months ended June 30, 2021. Adjusted earnings per diluted share was $0.13 for the three months ended June 30, 2022, compared to ~~$0.67~~$0.41 for the ~~third quarter of 2020.~~three months ended June 30, 2021.

Net income per diluted share was $0.23 for the six months ended June 30, 2022, compared to $0.77 for the six months ended June 30, 2021. Adjusted earnings per diluted share was $0.26 for the six months ended June 30, 2022, compared to $0.76 for the six months ended June 30, 2021.

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Net income per diluted share was $1.06 for the nine months ended September 30, 2021, compared to $1.04 for the nine months ended September 30, 2020. Adjusted Earnings Per Diluted Share was $1.05 for the nine months ended September 30, 2021, compared to $1.21 for the nine months ended September 30, 2020.

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.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended				Six Months Ended
	2021		2020		2021		2020		June 30,				June 30,
									2022		2021		2022		2021

	(dollars in thousands, except per share amounts)				(dollars in thousands, except per share amounts)				(in thousands)				(in thousands)
Net Income, as reported (GAAP)	$	8,779	$	15,503	$	31,390	$	30,377	$	2,736	$	11,989	$	6,773	$	22,611
Net Income per Diluted Share (GAAP)	$	0.30	$	0.53	$	1.06	$	1.04	$	0.09	$	0.41	$	0.23	$	0.77

Gross Margin Items:
Antidumping Adjustments ¹		—		—		(4,846)		—		896		—		719		(4,852)
Store Closure Costs ²		—		561		—		561
Gross Margin Subtotal		—		561		(4,846)		561		896		—		719		(4,852)

SG&A Items:
(Recovery) Accrual for Legal Matters and Settlements ³		(295)		1,476		5,369		1,107
Legal and Professional Fees⁴		32		737		347		2,057
Store Closure Costs⁵		—		1,331		—		1,331
Accrual for Legal Matters and Settlements²										—		—		—		5,672
Legal and Professional Fees³										—		206		—		316
SG&A Subtotal		(263)		3,544		5,716		4,495		—		206		—		5,988

Other Expense Items:
Antidumping Adjustments Interest⁶	��	—		—		(1,359)		—
Other (Income) Expense Subtotal		—		—		(1,359)		—
Other Expense (Income) Items:
Antidumping Adjustments Interest⁴										61		—		(1)		(1,360)
Other (Expense) Income Subtotal										61		—		(1)		(1,360)

Adjusted Earnings	$	8,516	$	19,608	$	30,901	$	35,433	$	3,693	$	12,195	$	7,491	$	22,387
Adjusted Earnings per Diluted Share (a non-GAAP measure)	$	0.29	$	0.67	$	1.05	$	1.21	$	0.13	$	0.41	$	0.26	$	0.76

^1,2,3,4,5,6 See the Gross Profit, SG&A and Other Expense (Income) sections above for more detailed explanations of these individual items. These items have been tax affected at the Company’s federal incremental rate, which was ~~26.2%~~26.4% for the ~~2021 periods~~2022 period and 26.1% for the ~~2020 periods.~~

2021 period.

Seasonality

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 are taking place, and lower-than-average net sales in the winter months and during the hottest summer months. These seasonal fluctuations, however, are minimized to some extent by our national presence, as markets experience different seasonal characteristics. Those historical trends have been and continue to be affected by supply chain constraints and the COVID-19 pandemic.

~~Table of Contents~~

Liquidity, Capital Resources and Cash Flows

Our strong balance sheet and liquidity provide us with the financial flexibility to fund our growth initiatives and position LL Flooring for long-term success. ~~We had cash and cash equivalents of $104.2 million as of September 30, 2021 and repaid all $101.0 of our outstanding debt during the second quarter of 2021.~~

Our principal sources of liquidity at ~~September~~ June 30, ~~2021~~2022 were ~~cash from our ongoing operations, $104.2~~$5.0 million of cash and cash equivalents on our balance sheet and ~~$128.0~~$181.9 million of availability under our Revolving Loan. As of ~~September~~June 30, ~~2021,~~2022, there was noa $15.0 million outstanding balance on our Revolving Loan.

Our net cash flows ~~from~~used in operating activities were ~~$50.3~~$76.0 million during the ~~first nine~~six months ~~of 2021~~ended June 30, 2022, which was primarily the result of ~~our net income during the period ($31.4 million), sell through~~purchases of inventory ($~~15.7~~106.0 million), ~~growth in~~redemption of customer deposits and store credits ($~~8.8~~8.6 million), and ~~accruals~~payments for legal matters and settlements ($~~7.7~~8.0 million), partially offset by ~~decreased~~increased accounts payable ~~of $17.3 million.~~($25.0 million) and net income ($6.8 million).

Through the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net cash flows used in investing activities included ~~$12.3~~$11.6 million in capital expenditures for store rebranding, opening ~~12 net~~six new stores and investments in digital. For ~~2021 we~~2022 we currently expect capital expenditure investments of ~~$19~~$23 million to ~~$23~~$25 million, ~~as our business results support~~including the opening of 1520 to 22 new stores and the continuation of the investing activities described above.

Through the nine months ended September 30, 2021, net cash used in financing activities was $103.8 million, compared to $18.5 million provided by financing activities in the nine months ended September 30, 2020. This activity in the current nine-month period was primarily due to the paydownTable of all our outstanding debt under the Credit Agreement of $101.0 million in the second quarter of 2021. The comparable 2020 nine-month period was primarily due to net borrowings of $19.0 million under our Credit Agreement.Contents

On April 30, 2021 we entered into a Second Amendment to the Credit Agreement to extend the maturity date to April 30, 2026, convert the FILO Term Loan into the Revolving Credit Facility, decrease the margin for LIBOR Rate Loans, and reduce the LIBOR floor, which is described more fully in Item 1, Note 5 to the condensed consolidated financial statements.

~~Our focus on liquidity since the onset of the COVID-19 pandemic in March 2020 has allowed us to build a strong position~~The Company continues to navigate uncertainty in the ~~continuing COVID-19~~macroeconomic environment ~~and our business continues~~related to ~~generate solid cash flow. We are monitoring the current macroeconomic conditions, including the increasing cost of transportation and~~inflation, consumer spending, global supply chain disruptions, COVID-19, and ~~the impact~~a challenging labor market. As of ~~COVID-19, including the potential impact~~June 30, 2022, we have rebuilt inventory by more than $104 million after an extended period of ~~emerging variants.~~supply chain constraints. We believe that cash flows from operations, together with cash on hand, and the liquidity under our Credit Agreement will be sufficient to meet our obligations, fund our settlements, operations, ~~and~~ anticipated capital expenditures, and potential share repurchases for the next 12 months. ~~In the coming quarters~~ ~~we also plan to increase our inventories as supply chain disruptions abate.~~ 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 inventories at ~~September~~June 30, ~~2021 decreased $19.4~~2022 increased $104.4 million from December 31, ~~2020~~ 2021 primarily due to ~~supply chain constraints on replenishment.~~increased purchases to replenish inventory as well as, to a lesser extent, inflation. We consider merchandise inventories 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.

~~Table of Contents~~

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

									��
							As of June 30,		As of December 31,		As of June 30,
	As of September 30, 2021		As of December 31, 2020		As of September 30, 2020		2022		2021		2021

	(in thousands)						(in thousands)
Inventory – Available for Sale	$	190,985	$	205,664	$	199,609	$	314,124	$	197,927	$	190,916
Inventory – Inbound In-Transit		34,013		38,745		37,831		44,680		56,458		32,991
Total Merchandise Inventories	$	224,998	$	244,409	$	237,440	$	358,804	$	254,385	$	223,907

Available Inventory Per Store	$	453	$	502	$	472	$	719	$	467	$	459

Available inventory per store at ~~September~~June 30, ~~2021~~2022 was ~~lower~~higher than at December 31, ~~2020~~2021 and ~~September~~June 30, ~~2020. The decrease in available~~2021 as a result of rebuilding our inventory ~~was primarily driven by supply chain constraints on replenishment.~~levels.

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. Due to supply chain difficulties, international shipment times have lengthened.

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 have had no significant changes in our Critical Accounting Policies and Estimates since our annual report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk.

~~We are~~The Company can be exposed to interest rate risk ~~through the investment~~because of our cash and cash equivalents. Our policy is to 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 borrowings under the credit facility. To the extent the Company borrows at LIBOR, financial results are subject to changes in the market rate of ~~the facility, and~~interest as well as the expected transition from the LIBOR reference rate in ~~2021.~~2022. As of ~~September~~June 30, ~~2021,~~2022, we had ~~no amount~~$15 million outstanding under our Credit ~~Agreement. If the~~Agreement, which carried a weighted average interest rate ~~had varied by~~of 4.7% repayable at any time. A hypothetical 1% increase in ~~either direction during~~interest rates would cause an increase of $150 thousand of annual interest if outstanding for the ~~2020 annual period, interest expense would have fluctuated by $1 million.~~full year.

We currently do not engage in any interest rate hedging activity. However, in the future, in an effort to mitigate losses associated with interest rate 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.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined under Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the quarter ended ~~September~~June 30, ~~2021.~~2022. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of ~~September~~June 30, ~~2021.~~2022.

~~Table of Contents~~

Changes in Internal Control over Financial Reporting. There has been no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings.

Information with respect to this item may be found in Note 7, “Commitments and Contingencies”, to the condensed consolidated financial statements in Item 1 of Part I, which is incorporated herein by reference.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our annual report on Form 10-K for the year ended December 31, ~~2020,~~2021, which could materially affect our business, financial condition or future results.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following table presents our share repurchase activity for the quarter ended ~~September~~June 30, ~~2021~~2022 (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~~	~~Purchased~~¹	~~per Share~~¹	~~Programs~~	~~Programs~~
~~July 1, 2021 to July 31, 2021~~	—	—	—	—
~~August 1, 2021 to August 31, 2021~~	—	—	—	—
~~September 1, 2021 to September 30, 2021~~	—	—	—	—
~~Total~~	—	—	—	—


				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	Purchased^1,2		per Share^1,2	Programs¹		Programs¹
April 1, 2022 to April 30, 2022	106	$	14.13	106	$	48,506
May 1, 2022 to May 31, 2022	465		11.83	571		43,000
June 1, 2022 to June 30, 2022	—		—	571		43,000
Total	571	$	12.25	571	$	43,000

In February 2022, the Company’s board of directors raised its authorization for the repurchase of up to $50 million of the Company’s common stock. In April 2022, the Company resumed its share repurchase program. The Company made cash payments of $7 million to repurchase 571,332 shares under the share repurchase authorization during the three months ended June 30, 2022. There remains $43.0 million outstanding under the share repurchase authorization.

2	We also repurchased ~~15,404~~8,314 shares of our common stock, at an average price of ~~$18.80,~~$11.63, in connection with the net settlement of shares issued as a result of the vesting of restricted shares during the quarter ended ~~September~~June 30, ~~2021.~~2022.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits listed in the following exhibit index are furnished as part of this report.

3229

Table of Contents

EXHIBIT INDEX


Exhibit
Number		Exhibit Description
10.1		Form of Restricted Stock Unit Agreement (Non-Employee Director), effective May 18, 2022 (filed herewith).
10.2		Form of Restricted Stock Award Agreement (Non-Employee Director), effective May 18, 2022 (filed herewith).
31.1		Certification of Principal Executive Officer of ~~Lumber Liquidators~~LL Flooring Holdings, Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer of ~~Lumber Liquidators~~LL Flooring 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~~LL Flooring Holdings, Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following financial statements from the Company’s Form 10-Q for the quarter ended ~~September~~June 30, ~~2021,~~2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to Condensed Consolidated Financial Statements

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

3330

Table of Contents

SIGNATURES

Pursuant to the requirements 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.


		~~LIQUIDATORS~~LL FLOORING HOLDINGS, INC.
		(Registrant)

Date: ~~November~~August 2, ~~2021~~2022	By:	/s/ Nancy A. Walsh
		Nancy A. Walsh
		Chief Financial Officer (Principal Financial Officer)

3431


		Page

	PART I – FINANCIAL INFORMATION	2

Item 1.	Condensed Consolidated Financial Statements and Supplementary Data	2

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1916

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3128

Item 4.	Controls and Procedures	3128

	PART II – OTHER INFORMATION	3228

Item 1.	Legal Proceedings	3228

Item 1A.	Risk Factors	3228

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3229

Item 3.	Defaults Upon Senior Securities	3229

Item 4.	Mine Safety Disclosures	3229

Item 5.	Other Information	3229

Item 6.	Exhibits	3229

	Signatures	3431


		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%


Review		Rates at which		September 30, 2021
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%	3.92% ²	$0.2 million
	November 2013			liability ²
3	December 2013 through	3.3% and 5.92%	0.0%³	$1.8 million
	November 2014			receivable³
4	December 2014 through	5.92% and 13.74%	0.0%	Settled
	November 2015
5	December 2015 through	5.92%. 13.74%. and 17.37%	0.0%	Settled
	November 2016
6	December 2016 through	17.37% and 0.0%	42.57% and 0.0%⁴	$0.5 million receivable
	November 2017			$1.5 million liability⁴
7	December 2017 through	0.0%	0.0%⁵	NA
	November 2018
8	December 2018 through	0.0%	0.0%⁶	NA
	November 2019
			Included on the Condensed Consolidated Balance Sheet in Other Current Assets	$2.3 million
			Included on the Condensed Consolidated Balance Sheet in Other Assets	$1.3 million
			Included on the Condensed Consolidated Balance Sheet in Other Current Liabilities	$0.2 million
			Included on the Condensed Consolidated Balance Sheet in Other Long-Term Liabilities	$1.5 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%⁷	$0.07 million receivable⁷
6	January 2016 through December 2016	0.99% and 1.38%	Final at 3.10% and 2.96%	$0.04 million liability⁸
7	January 2017 through December 2017	1.38% and 1.06%	20.75%⁹	$1.7 million liability⁹
8	January 2018 through December 2018	1.06%	5.81% ¹⁰	NA
			Included on the Condensed Consolidated Balance Sheet in Other Current Assets	$0.07 million
			Included on the Condensed Consolidated Balance Sheet in Other Assets	$0.3 million
			Included on the Condensed Consolidated Balance Sheet in Other Current Liabilities	$0.04 million
			Included on the Condensed Consolidated Balance Sheet in Other Long-Term Liabilities	$1.7 million