Lumber Liquidators 2010 Annual Report Download - page 20

If we fail to identify and develop relationships with a sufficient number of qualified mills, our ability to obtain hardwood
products that meet our high quality standards could be harmed.
We purchase flooring directly from mills located around the world. We believe that these direct supplier relationships
are relatively unique in our industry. In order to retain the competitive advantage that we believe results from these
relationships, we need to continue to identify, develop and maintain relationships with qualified mills that can satisfy our
high standards for quality and our requirements for hardwood in a timely and efficient manner. The need to develop new
relationships will be particularly important as we seek to expand our operations in the future. Any inability to do so could
reduce our competitiveness, slow our plans for further expansion and cause our net sales and operating results to deteriorate.
If our suppliers do not use ethical business practices or comply with applicable laws and regulations, our reputation could
be harmed due to negative publicity.
While our suppliers agree to operate in compliance with applicable laws and regulations, including those relating to
environmental and labor practices, we do not control our suppliers. Accordingly, we cannot guarantee that they comply with
such laws and regulations or operate in a legal, ethical, and responsible manner. Violation of environmental, labor or other
laws by our suppliers or their failure to operate in a legal, ethical and responsible manner, could reduce demand for our
products if, as a result of such violation or failure, we were to attract negative publicity.
Our ability to obtain products from abroad and the operations of many of our international suppliers are subject to risks
that are beyond our control and that could harm our operations.
We rely on a select group of international suppliers to provide us with flooring products that meet our specifications. In
2010, approximately 46% of our product was sourced from Asia, approximately 10% was sourced from South America and
approximately 3% was sourced from other locations outside of North America. As a result, we are subject to risks associated
with obtaining products from abroad, including:
• political unrest, terrorism and economic instability resulting in the disruption of trade from foreign countries where
our products originate;
• currency exchange fluctuations;
• the imposition of new laws and regulations, including those relating to environmental matters and climate change
issues; labor conditions; quality and safety standards; trade restrictions; and restrictions on funds transfers;
• the imposition of new or different duties (including antidumping and countervailing duties), taxes and/or other
charges on exports or imports;
• disruptions or delays in production or shipments; and
• changes in local economic conditions in countries where our suppliers are located.
These and other factors beyond our control could disrupt the ability of our suppliers to ship certain products to us cost-
effectively or at all, which could harm our operations.
Increased hardwood costs could harm our results of operations.
The cost of the various species of hardwood that are used in our products is important to our profitability. Hardwood
lumber costs fluctuate because of changes in domestic and international supply and demand, labor costs, competition, market
speculation, product availability, environmental restrictions, government regulation and trade policies, duties, weather
conditions, processing and freight costs and delivery delays. We generally do not have long-term supply contracts or
guaranteed purchase amounts. As a result, we may not be able to anticipate or react to changing hardwood costs by adjusting
our purchasing practices, and we may not always be able to increase the selling prices of our products in response to
increases in supply costs. If we cannot address changing hardwood costs appropriately, it could cause our operating results to
deteriorate.
Increased delivery costs, particularly those relating to the cost of fuel, could harm our results of operations.
The efficient transportation of our products through our supply chain is a critical component of our operations. If the
cost of fuel or other costs, such as import tariffs, rise, it could result in increases in our cost of sales and selling, general and
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