| COMPX INTERNATIONAL INC Item 1A RISK FACTORS Listed below are certain risk factors associated with the Company and its businesses |
| In addition to the potential effect of these risk factors discussed below, any risk factor which could result in reduced earnings or operating losses, or reduced liquidity, could in turn adversely affect our ability to service our liabilities or pay dividends on our common stock or adversely affect the quoted market prices for our securities |
| We sell many of our products in mature and highly competitive industries and face price pressures in the markets in which we operate, which may result in reduced earnings or operating losses |
| Each of the markets we serve is highly competitive, with a number of competitors offering similar products |
| We focus our efforts on the middle- and high-end segment of the market, where product design, quality and durability are the primary competitive factors |
| Some of our competitors may be able to drive down prices for our products because their costs are lower than our costs, especially those located in Asia |
| In addition, some of our competitors &apos financial, technological and other resources may be greater than our resources, and such competitors may be better able to withstand changes in market conditions |
| Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements |
| Further, consolidation of our competitors or customers in any of the industries in which we compete may result in reduced demand for our products |
| In addition, in some of our businesses new competitors could emerge by modifying their existing production facilities so they could manufacture products that compete with our products |
| The occurrence of any of these events could result in reduced earnings or operating losses |
| Sales for certain of our products, principally precision slides and ergonomic products, are concentrated in the office furniture industry which has in the past experience significant changes in demand that could result in reduced earnings or operating losses for the Company |
| Sales of our products to the office furniture manufacturing industry accounted for approximately 57prca, 51prca and 43prca for 2003, 2004 and 2005, respectively |
| The future growth, if any, of the office furniture industry will be affected by a variety of macroeconomic factors, such as service industry employment levels, corporate cash flows and non-residential commercial construction, as well as industry factors such as corporate reengineering and restructuring, technology demands, ergonomic, health and safety concerns and corporate relocations |
| There can be no assurance that current or future economic or industry trends will not materially adversely affect our business |
| CompXapstas failure to enter into new markets would result in the continued significant impact of fluctuations in demand within the office furniture manufacturing industry on our operating results |
| In an effort to reduce our dependence on the office furniture market for certain products and to increase our participation in other markets, we have been devoting resources to identifying new customers and developing new applications for those products in markets outside of the office furniture industry, such as home appliances and tool boxes |
| Developing these new applications for its products involves substantial risk and uncertainties due to our limited experience with customers and applications in these markets as well as facing competitors who are already established in these markets |
| We may not be successful in developing new customers or applications for our products outside of the office furniture industry |
| Significant time may be required for such development and uncertainty exists as to the extent to which we will face competition in this regard |
| Our development of new products as well as innovative features for current products is critical to sustaining and growing our sales |
| Historically, our ability to provide value-added custom engineered products that address requirements of technology and space utilization has been a key element of our success |
| The introduction of new products and features requires the coordination of the design, manufacturing and marketing of such products with potential customers |
| The ability to implement such coordination may be affected by factors beyond our control |
| While we will continue to emphasize the introduction of innovative new products that target customer-specific opportunities, there can be no assurance that any new products we introduce will achieve the same degree of success that we have achieved with our existing products |
| Introduction of new products typically requires us to increase production volume on a timely basis while maintaining product quality |
| Manufacturers often encounter difficulties in increasing production volumes, including delays, quality control problems and shortages of qualified personnel |
| As we attempt to introduce new products in the future, there can be no assurance that we will be able to increase production volume without encountering these or other problems, which might, on our financial condition or results of operations |
| We have in the past and intend to in the future pursue a growth strategy through acquisitions which could negatively affect operating results if the acquired businesses are not successful |
| Our ability to successfully grow through acquisitions will depend on many factors, including, among others, our ability to identify suitable growth opportunities and to successfully integrate acquired businesses |
| There can be no assurance that we will anticipate all of the changing demands that expanding operations will impose on our management and management information systems |
| Any failure by us to adapt our systems and procedures to those changing demands could have a material adverse effect on our results of operations and financial condition |
| Higher costs of our raw materials may decrease our liquidity |
| Certain of the raw materials used in our products are commodities that are subject to significant fluctuations in price in response to world wide supply and demand |
| Coiled steel is the major raw material used in the manufacture of precision ball bearing slides and ergonomic computer support systems |
| Plastic resins for injection molded plastics are also an integral material for ergonomic computer support systems |
| Zinc is a principal raw material used in the manufacture of security products |
| These raw materials are purchased from several suppliers and are generally readily available from numerous sources |
| We occasionally enter into raw material arrangements to mitigate the short-term impact of future increases in raw material costs |
| Materials purchased outside of these arrangements are sometimes subject to unanticipated and sudden price increases |
| Should our vendors not be able to meet their contractual obligations or should we be otherwise unable to obtain necessary raw materials, we may incur higher costs for raw materials or may be required to reduce production levels, either of which may decrease our liquidity as we may be unable to offset such higher costs with increased selling prices for our products |
| As a global business, we are exposed to local business risks in different countries, which could result in operating losses |
| We conduct some of our businesses in several jurisdictions outside of the United States and are subject to risks normally associated with international operations, which include trade barriers, tariffs, exchange controls, national and regional labor strikes, social and political risks, general economic risks, seizures, nationalizations, compliance with a variety of foreign laws, including tax laws, and the difficulty in enforcing agreements and collecting receivables through foreign legal systems |
| We could also be adversely affected by any restriction that limits our ability to repatriate our foreign profits back to the United States |
| We may incur losses from fluctuations in currency exchange rates |
| We operate businesses in Taiwan and Canada |
| A significant portion of the products produced at these locations are shipped to the US and have product prices denominated in US dollars |
| Therefore, we are exposed to risks related to the need to convert US dollars that we receive for these products into the currencies required to pay for the raw material and operating expenses of the manufacturing facility, all of which could result in future losses depending on fluctuations in foreign currency exchange rates |
| If our patents are declared invalid or our trade secrets become known to competitors, our ability to compete may be adversely affected |
| Protection of our proprietary processes and other technology is important to our competitive position |
| Consequently, we rely on judicial enforcement for protection of our patents, and our patents may be challenged, invalidated, circumvented or rendered unenforceable |
| Furthermore, if any pending patent application filed by us does not result in an issued patent, or if patents are issued to us but such patents do not provide meaningful protection of our intellectual property, then the use of any such intellectual property by our competitors could result in decreasing our cash flows |
| Additionally, our competitors or other third parties may obtain patents that restrict or preclude our ability to lawfully produce or sell our products in a competitive manner, which could have the same effects |
| We also rely on certain unpatented proprietary know-how and continuing technological innovation and other trade secrets to develop and maintain our competitive position |
| Although it is our practice to enter into confidentiality agreements to protect our intellectual property, because these confidentiality agreements may be breached, such agreements may not provide sufficient protection for our trade secrets or proprietary know-how, or adequate remedies may not be available in the event of an unauthorized use or disclosure of such trade secrets and know-how |
| In addition, others could obtain knowledge of such trade secrets through independent development or other access by legal means |
| Loss of key personnel or our ability to attract and retain new qualified personnel could hurt our businesses and inhibit our ability to operate and grow successfully |
| Our success in the highly competitive markets in which we operate will continue to depend to a significant extent on the leadership teams of our businesses and other key management personnel |
| We generally do not have binding employment agreements with any of these managers |
| This increases the risks that we may not be able to retain our current management personnel and we may not be able to recruit qualified individuals to join our management team, including recruiting qualified individuals to replace any of our current personnel that may leave in the future |
| Our relationships with our union employees could deteriorate |
| At December 31, 2005, we employed approximately 1cmam230 persons worldwide in our various businesses, 230 of which are subject to a collective bargaining arrangement which expires in January 2009 |
| We may not be able to negotiate labor agreements with respect to these employees on satisfactory terms or at all |
| If our employees were to engage in a strike, work stoppage or other slowdown, we could experience a significant disruption of our operations or higher ongoing labor costs |
| We are subject to many environmental and safety regulations with respect to our operating facilities that may result in unanticipated costs or liabilities |
| Most of our facilities are subject to extensive laws, regulations, rules and ordinances relating to the protection of the environment, including those governing the discharge of pollutants in the air and water and the generation, management and disposal of hazardous substances and wastes or other materials |
| We may incur substantial costs, including fines, damages and criminal penalties or civil sanctions, or experience interruptions in our operations for actual or alleged violations or compliance requirements arising under environmental laws |
| Our operations could result in violations under environmental laws, including spills or other releases of hazardous substances to the environment |
| Some of our operating facilities are in densely populated urban areas or in industrial areas adjacent to other operating facilities |
| In the event of an accidental release, we could incur material costs as a result of addressing such an event and in implementing measures to prevent such incidents |
| Given the nature of our business, violations of environmental laws may result in restrictions imposed on our operating activities or substantial fines, penalties, damages or other costs, including as a result of private litigation |