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Risk Factors
STANLEY FURNITURE CO INC/ Item 1A Risk Factors Our results of operations and financial condition can be adversely affected by numerous risks
You should carefully consider the risk factors detailed below in conjunction with the other information contained in this document
Should any of these risks actually materialize, our business, financial condition, and future prospects could be negatively impacted
We may not be able to sustain current sales and earnings due to the actions and strength of our competitors
The furniture industry is very competitive and fragmented
We compete with many domestic and foreign manufacturers
Competition from foreign producers has increased dramatically in the past few years, with more than half of all residential wood furniture sold in the United States coming from imports
These foreign producers typically have lower selling prices due to their lower operating costs
Some competitors have greater financial resources than we have and often offer extensively advertised, well-recognized, branded products
As a result, we are continually subject to the risk of losing market share, which may lower our sales and earnings
As a result of our increased reliance on foreign sourcing: · Our ability to service customers could be adversely affected and result in lower sales and earnings
Our sourcing partners may not supply goods that meet our manufacturing, quality or safety specifications, in a timely manner and at an acceptable price
We may reject goods that do not meet our specifications and either manufacture internally or find alternative sourcing arrangements at a higher cost, or may be forced to discontinue the product
Also, delivery of goods from our foreign sourcing partners may be delayed for reasons not typically encountered with domestic manufacturing or sourcing, such as shipment delays caused by customs or labor issues
· Changes in political, economic, and socail conditiopns, as well as laws and regulations, in China or other coountries from which we source products could adversely affcet us
Foreign sourcing is subject to polictical and social instability in China and other countries where our sourcing partners are located
This could make it more difficult for us to service our customers
Also, significant fluctuations of foreign exchange rates against the value of the US dollar could increase costs and decrease earnings
In addition, an outbreak of avian flu or similar epidemic in Asia or elsewhere may lower our sales and earnings by disrupting our supply chain in the countries impacted
· International trade policies of the United States and countries from which we source products could adversely affect us
Imposition of trade sanctions relating to imports, taxes, import duties and other charges on imports could increase our costs and decrease our earnings
_________________________________________________________________ Manufacturing realignment could result in a decrease in our earnings
We review our domestic manufacturing operations and foreign sourcing program on an ongoing basis
Certain individual products or product lines may be shifted from being domestically produced to being sourced and as a result we may reduce our domestic capacity
Manufacturing realignments could result in a decrease in our earnings
We may not be able to maintain or to raise prices in response to inflation and increasing costs
Future market and competitive pressures may prohibit us from raising prices to offset increased raw material costs, freight costs and other inflationary items
This could lower our earnings
We may not be able to sustain current sales and earnings due to economic downturns
The furniture industry historically has been cyclical in nature and has fluctuated with economic cycles
During economic downturns, the furniture industry tends to experience longer periods of recession and greater declines than the general economy
We believe that the industry is significantly influenced by economic conditions generally and particularly by consumer behavior and confidence, the level of personal discretionary spending, housing activity, demographics, and credit availability
These factors not only affect the ultimate consumer, but also impact furniture retailers, which are our primary customers
We may not be able to obtain sufficient quantities of quality raw materials in a timely manner, which could result in a decrease in our sales and earnings
Because we are dependent on outside suppliers for all of raw material needs, we must obtain sufficient quantities of quality raw materials from our suppliers at acceptable prices and in a timely manner
We have no long-term supply contracts with our key suppliers
Unfavorable fluctuations in the price, quality and availability of these raw materials could negatively affect our ability to meet demands of our customers and could result in a decrease in our sales and earnings
Failure to anticipate or respond to changes in consumer tastes and fashions in a timely manner could result in a decrease in our sales and earnings
Residential furniture is a highly styled product and is subject to rapidly changing consumer trends and tastes
If we are unable to predict or respond to changes in these trends and tastes in a timely manner, we may lose sales and have to sell excess inventory at reduced prices
This could lower our sales and earnings Business failures, or the loss, of large customers could result in a decrease in our future sales and earnings
Although we have no customers that individually represent 10prca or more of our total annual sales, the possibility of business failures, or the loss, of large customers could result in a decrease of our future sales and earnings
Lost sales may be difficult to replace and any amounts owed to us may become uncollectible
Future environmental costs could reduce our earnings
We are subject to federal and state environmental regulations that govern the release of pollutants into the water and air, the disposal and management of toxic wastes and substances and the cleanup of hazardous sites
The timing and ultimate magnitude of costs for environmental compliance are difficult to predict and could reduce our earnings
Extended business interruption at our manufacturing facilities could result in reduced sales
Furniture manufacturing creates large amounts of highly flammable wood dust
Additionally, we utilize other highly flammable materials such as varnishes and solvents in our manufacturing processes and are therefore subject to the risk of losses arising from explosions and fires
Our inability to fill customer orders during an extended business interruption could negatively impact existing customer relationships resulting in market share decreases