Lumber Liquidators 2007 Annual Report Download - page 16

Our Suppliers
We work directly with a select group of vendors and mills with whom we have cultivated long-standing
relationships to ensure a consistent supply of high-quality product at the lowest prices. As part of ensuring the
high-quality nature of our brands, we have developed demanding product standards. As we have grown, we
believe our supplier relationships have strengthened, which we believe helps to ensure our access to a broad
selection of products. Many suppliers have grown to support our business. We select suppliers based on a variety
of factors, including their ability to supply products that meet industry grading standards and our specifications.
As part of ensuring that they are meeting relevant standards, we inspect samples, make periodic site visits to our
suppliers’ mills and selectively inspect inbound shipments at our distribution center. Based on our historical
experience, we believe that some of the mills that we use are among the best in their respective markets. We also
support social and environmental responsibility among our supplier community, and the majority of our suppliers
have entered into an environmental and social responsibility agreement with us. This agreement contains a code
of conduct regarding our expectations concerning environmental, labor and health and safety matters. We
encourage the use of renewable resources, and generally prefer to use suppliers that operate in areas where the
harvest rate is slower than tree planting and growth rates.
We currently purchase products from approximately 90 domestic and international vendors, which are
primarily mills or trading companies. Trading companies contract with mills, primarily Chinese, to make
products for us, and handle certain shipping and customs matters. In 2007, one of the trading companies, Sequoia
Floorings, accounted for approximately 22% of our purchases, and acted as an agent for another of our suppliers
that accounted for another 3% of our purchases. Including these companies, our top 10 suppliers account for
approximately 66% of our supply purchases in 2007. We believe that we are the largest customer for most of our
suppliers, which we believe enables us to obtain better prices in some circumstances. We maintain strong
relationships with our current suppliers, but we also seek out new mills that can meet our standards, and we work
with them to evaluate new hardwood species and new technologies that may allow us to expand or improve our
operations. We continually seek out new suppliers to ensure that we have sufficient product flow to support our
current operations and expected growth. In evaluating suppliers, one of the factors we consider is their access to
new or hard-to-find species of wood, so that we can continue to expand our range of exotic hardwood products.
We believe that alternative and competitive suppliers are available for most of our products.
We do not have long-term contracts with most of our suppliers, as we believe is standard in our industry, but
we believe we have stable long-term historical relationships with the majority of mills with whom we do
business. We generally purchase product on an order-by-order basis, and write orders for delivery in 90 to 180
days. We have one long-term purchase agreement with a trading and import company that we entered into in July
2006. Pursuant to the terms of that agreement, we are required to order a specified minimum amount of product
each year, totaling approximately 27 million square feet of product. Certain disputes have arisen between the
parties primarily with regard to product quality, unit price changes and delivery and payment obligations. We are
not currently receiving any product under the agreement and we intend to seek payment for our cover costs
relating to purchase orders that were not delivered. The products we ordered from the vendor that are not being
delivered have been purchased from other suppliers and we expect the cover costs to be immaterial.
Overseas suppliers deliver our product to us by sea, usually requiring between 21 and 35 days from port to
port. These products are delivered to a U.S. port of entry, most frequently Norfolk, Virginia, after which the
majority is shipped to our Toano facility for finishing (when required) and distribution to our stores. The balance
is shipped directly from the port of entry to our stores. Products supplied by our North American suppliers are
generally delivered to our Toano facility or our stores by truck. Our Toano facility is strategically located near
the international shipping port in Norfolk and major east-west and north-south interstate highways. In 2007,
approximately 38% of our product was sourced from Asia, approximately 35% was sourced from North America,
approximately 18% was sourced from South America and 9% was sourced from other locations. All of our
foreign purchases are negotiated and paid for in U.S. dollars.
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