Lexington started out as Dixie Furniture Company, organized in 1901 by a group of Lexington, North Carolina, business leaders to capitalize on the region's abundant natural resources and skilled labor force. The company produced its first oak bedroom group on the site where our largest plant is still located today in downtown Lexington, NC.

As sales increased, the new company expanded throughout downtown Lexington, buying adjacent factory buildings, renovating them, and erecting new ones, until it eventually occupied nine city blocks and 31 acres of land. Additional expansion stretches west along Interstate 40 from the town of Lexington to Hildebran, North Carolina, some 75 miles. Such a grouping of facilities, typical of furniture manufacturing, magnifies the potential adverse impact of county-by-county nonattainment designation.

As a full-line furniture manufacturer, we produce bedroom, dining, casual dining, occasional, home entertainment, home office, youth, upholstered, leather, and wicker furniture for domestic and international customers. Local production is augmented with imported product and components manufactured to Lexington specifications in the Far East, Central America, and Europe. Over 2000 associates manufacture, service, distribute, and sell Lexington products. Lexington pioneered lifestyle furniture brands with the introduction of the Bob Timberlake collection in 1990, the world's all-time, best-selling furniture brand.

While the furniture industry is a small contributor to air emissions compared to most manufacturers, two types of emissions are characteristic. These include evaporative volatile organic compounds (VOCs) released during the staining and finishing process, as well as NOx emissions from the combustion of fuels used to provide steam for plant heat and finishing operations.

The industry is dramatically reducing emissions pursuant to a cooperative rulemaking under the Clean Air Act. Changes in our manufacturing process, combined with redesigned paints, coatings, glues and application equipment has so far yielded a 73 percent reduction in emissions, substantially more than regulators and environmental interests originally sought. Then-EPA Administrator Carol Browner called this achievement "a credit to industry-environmental-government cooperation."

Lexington Home Brands takes a proactive approach concerning environmental issues. One initiative geared to exceeding regulatory compliance obligations is our partnership with the North Carolina Department of Environment and Natural Resources in their Environmental Stewardship Initiative. This voluntary program uses pollution prevention and other approaches to exceed regulatory compliance.

Lexington was also the first company to implement the American Furniture Manufacturers Association's environmental management system (EMS) on a company wide basis. The system, know as Enhancing Furniture's Environmental Culture (EFEC), has allowed Lexington Home Brands to review and improve operations for better environmental performance. Environmental targets have been established to facilitate the integration of environmental management with business management processes. These goals include reducing air emissions, reducing the amount of waste generated and increasing recycling efforts.

Our success and the success of many other North Carolina employers could be threatened by an upcoming decision by U.S. EPA regarding ozone non-attainment. As you may be aware, the counties of the Triad region have entered into an agreement with EPA to develop strategies to reduce emissions of the ozone precursors NOX and VOC. Data, including modeling done by the State of North Carolina, clearly indicates that NOx emissions from mobile sources are the major precursor to ozone formation in the region. Consequently, the Early Action Compact (EAC) has focused on transportation NOX as the central mechanism to achieve ozone attainment by 2007. Subject to EPA approval, the compact would move the timetable for non-attainment designation to 2007 in order to provide an opportunity for these strategies to be implemented effectively. EPA will release their non-attainment boundaries April 15, 2004 and the EAC stakeholders are hopeful that the non-attainment designation will be scheduled to coincide with the 2007 timetable.

If EPA instead decides to set the non-attainment boundaries this April, manufacturing facilities located in those areas will be required to reduce NOX and VOC emissions on a very short timeline. Local business leaders are convinced that severity of permit restrictions prescribed in both the NSR and PSD requirements would effectively put an end to plans for facility expansion, and could force companies to evaluate the possibilities of relocation or outsourcing. This is clearly not the sort of outcome for the manufacturing sector that the American people and their elected representatives are demanding.

If the Triad area of North Carolina is designated as non-attainment, furniture plants would have to evaluate their total VOG emissions and determine the "amount of reduction required" based on the non-attainment designation and determine the type of controls necessary to achieve this reduction. Add-on control options would include catalytic oxidation, thermal oxidation, carbon absorption, the conversion of the current finishing system to water base coatings or a combination of water based coatings coupled with one or the previously mentioned controls. These options would prove very costly and disruptive to our business plan.

One AFMA member company is using catalytic oxidation to control VOC/HAP emissions and employees this technology to capture the entire finishing exhaust air stream with an installed cost of $450,000. A typical carbon absorption system capable of handling large make-up air streams could cost in excess of $500,000 with an annual operations and maintenance cost in excess of $50,000.

The capital costs associated with transition to water based coating are also significant, since most of the existing lines, pumps, bulk storage, day mixing tanks, regulators and spray guns must be replaced. Further, water based coatings, while suitable for some applications, are not commercially viable for much of our product line. They tend to exhibit less sheen and mar resistance than conventional coatings. Water-based coatings can also react with the wood, causing grain raising, splitting and other quality control problems.

Mr. Chairman, it is no secret that the last few years have been the most challenging in the history of the U.S. furniture industry. According to the Bureau of Labor Statistics, since September 2000, more than 98,000 furniture manufacturing'employees have lost their jobs. Domestic plants are competing with a tidal wave of imports from lowwage nations of the Pacific Rim. The driving force is China, where the combination of two-dollar-a-day labor, and lower environmental and workplace health and safety standards has made that country the dominant producer of wood furniture in the world. None of us would trade our standard of living, including environmental safeguards, for those of developing nations like China. The realities of global competition do, however, compel us to design our regulatory systems in the most cost-effective ways, always sensitive to the preservation of jobs.

On behalf of the employees of Lexington Home Brands and other members of the American Furniture Manufacturers Association, I recommend that the Committee urge EPA to respect the terms and timetable of the compacts. Adhering to the compacts will maintain the proper focus on transportation NOx as the primary mechanism for ozone control. It will help preserve the role for cost-effective state implementation of criteria pollutant standards envisioned by the Clean Air Act. And, significantly, it will help protect the competitiveness of furniture manufacturing facilities in North Carolina and across the nation.