-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OSBwBoND/4YvVsJ+4PcNsO94dgkvrptDtNoHSAeV00ZVLc95X6+2K6cuqDNYkrbC RYal84istAPDqJzSpvMGfg== 0000216275-98-000003.txt : 19980305 0000216275-98-000003.hdr.sgml : 19980305 ACCESSION NUMBER: 0000216275-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980304 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: JLG INDUSTRIES INC CENTRAL INDEX KEY: 0000216275 STANDARD INDUSTRIAL CLASSIFICATION: CONSTRUCTION MACHINERY & EQUIP [3531] IRS NUMBER: 251199382 STATE OF INCORPORATION: PA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12123 FILM NUMBER: 98557230 BUSINESS ADDRESS: STREET 1: JLG DR CITY: MCCONNELLSBURG STATE: PA ZIP: 17233 BUSINESS PHONE: 7174855161 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended January 31, 1998 or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the transition period from to Commission file number: 0-8454 JLG INDUSTRIES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-1199382 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 1 JLG Drive, McConnellsburg, PA 17233-9533 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (7l7) 485-5161 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ At February 17, 1998, there were 44,049,536 shares of capital stock of the Registrant outstanding. PART I FINANCIAL INFORMATION JLG INDUSTRIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS January 31, July 31, 1998 1997 (in thousands) (Unaudited) ASSETS Current Assets Cash $ 18,613 $ 25,436 Accounts receivable 80,431 70,164 Inventories: Finished goods 33,343 30,441 Work in process 6,944 12,132 Raw materials 12,334 11,154 52,621 53,727 Future income tax benefits 4,207 4,133 Other current assets 4,131 2,248 Total current assets 160,003 155,708 Property, Plant and Equipment - net 57,206 56,064 Equipment Held for Rental - net 21,681 24,951 Other Assets 14,736 12,669 $253,626 $249,392 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable $ 35,339 $ 43,027 Other current liabilities 25,552 28,043 Total current liabilities 60,891 71,070 Long-Term Debt 3,574 3,685 Accrued Contingent Liabilities 7,607 7,646 Other Liabilities 5,393 5,046 Shareholders' Equity Capital stock: Authorized shares: 100,000 at $.20 par Outstanding shares: 44,029; fiscal 1997 - 43,726 8,806 8,745 Additional paid-in capital 14,711 11,391 Equity adjustment from translation (3,177) (2,180) Retained earnings 155,821 143,989 Total shareholders' equity 176,161 161,945 $253,626 $249,392 The accompanying notes are an integral part of these financial statements. JLG INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Six Months Ended January 31, January 31, (in thousands, except per share data) 1998 1997 1998 1997 Net Sales $111,706 $121,246 $207,351 $241,452 Cost of sales 86,821 90,250 161,298 177,753 Gross Profit 24,885 30,996 46,053 63,699 Selling, administrative and product development expenses 12,341 13,282 24,475 26,767 Restructuring charges 1,689 Income from Operations 12,544 17,714 19,889 36,932 Other income (deductions): Interest expense (73) (52) (136) (93) Miscellaneous, net (886) 159 (1,159) 573 Income before Income Taxes 11,585 17,821 18,594 37,412 Income tax provision 3,939 6,594 6,322 13,842 Net Income $ 7,646 $ 11,227 $ 12,272 $ 23,570 Earnings per Share $ .17 $ .26 $ .28 $ .54 Earnings per Share -- Assuming Dilution $ .17 $ .25 $ .27 $ .53 Dividends per Share $ .005 $ .005 $ .01 $ .01 The accompanying notes are an integral part of these financial statements. JLG INDUSTRIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Unaudited) Six Months Ended January 31, (in thousands) 1998 1997 Operations Net income $12,272 $23,570 Adjustments to reconcile net income to cash provided by (used for) operating activities: Depreciation and amortization 7,963 4,473 Provision for self-insured losses 2,290 1,800 Deferred income taxes 139 (260) Changes in operating assets and liabilities (21,929) (40,253) Changes in other assets and liabilities (608) (2,025) Cash provided by (used for) operations 127 (12,695) Investments Purchases of property, plant and equipment (6,245) (8,418) Net sales (additions) to equipment held for rental 290 (4,707) Cash used for investments (5,955) (13,125) Financing Repayment of long-term debt (128) (106) Payment of dividends (440) (436) Exercise of stock options 571 1,854 Cash provided by financing 3 1,312 Currency Adjustments Effect of exchange rate changes on cash flows (998) (280) Cash Net decrease in cash (6,823) (24,788) Beginning balance 25,436 30,438 Ending balance $18,613 $ 5,650 The accompanying notes are an integral part of these financial statements. JLG INDUSTRIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1998 (unaudited) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Interim results for the three and six months ended January 31, 1998 are not necessarily indicative of the results that may be expected for the fiscal year as a whole. For further information, refer to consolidated financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended July 31, 1997. INVENTORIES AND COST OF SALES A precise inventory valuation under the LIFO (last-in, first-out) method can only be made at the end of each fiscal year; therefore, interim LIFO inventory valuation determinations, including the determination at January 31, 1998, must necessarily be based on management's estimate of expected fiscal year-end inventory levels and costs. COMMITMENTS AND CONTINGENCIES The Company is a party to personal injury and property damage litigation arising out of incidents involving the use of its products. The Company's insurance program for fiscal year 1998 is comprised of a self-insured retention of $5 million and catastrophic coverage of $50 million in excess of the retention. The Company contracts with an independent firm to provide claims handling and adjustment services. The Company's estimates with respect to claims are based on internal evaluations of the merits of individual claims and the reserves assigned by the Company's independent firm. The methods of making such estimates and establishing the resulting accrued liability are reviewed frequently, and any adjustments resulting therefrom are reflected in current earnings. Claims are paid over varying periods, which generally do not exceed five years. Accrued liabilities for future claims are not discounted. With respect to all product liability claims of which the Company is aware, accrued liabilities of $11.2 million and $9.6 million were established at January 31, 1998 and July 31, 1997, respectively. While the Company's ultimate liability may exceed or be less than the amounts accrued, the Company believes that it is unlikely that it would experience losses that are materially in excess of such reserve amounts. As of January 31, 1998 and July 31, 1997, there were no insurance recoverables or offset implications and there were no claims by the Company being contested by insurers. BASIC AND DILUTED EARNINGS PER SHARE In 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share". Statement 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, the calculation of basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended Six Months Ended January 31, January 31, 1998 1997 1998 1997 Net Income $7,646 $11,227 $12,272 $23,570 Denominator for basic earnings per share -- weighted average shares 44,016 43,584 43,964 43,528 Effect of dilutive securities -- employee stock options 805 730 797 757 Denominator for diluted earnings per share -- weighted average shares adjusted for dilutive securities 44,821 44,314 44,761 44,285 Earnings per share $ .17 $ .26 $ .28 $ .54 Earnings per share -- assuming dilution $ .17 $ .25 $ .27 $ .53 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results for the Second Quarters of Fiscal 1998 and 1997 Sales for the quarter were $111.7 million, $9.5 million or 8% below last year's second quarter, primarily due to decreased domestic sales and higher discounts resulting from competitive pricing pressures in the marketplace. In terms of dollars, the reduction principally related to lower domestic equipment sales. Sales to customers outside the United States were 34% and 31% of total sales for the second quarters of 1998 and 1997, respectively. Sales from new and redesigned products introduced during the past two years represented 46% of sales for the second quarters of 1998 and 1997. Gross profit, as a percent of sales, decreased to 22% in the second quarter of 1998 compared to 26% for the same period of 1997. The major contributors to this decrease were: unfavorable currency effects due to the strength of the U.S. dollar; pricing pressure in an increasingly competitive marketplace; unfavorable product mix weighted towards smaller, less profitable machines; and the effects of fixed costs spread over lower production levels. Selling, administrative and product development expenses were down $942,000, or 7%, representing 11% of sales for both periods. The decrease in dollars is primarily the result of cost reduction programs instituted to reduce personnel and related costs, advertising expenses and consulting costs. Partially offsetting these reductions were: higher product development costs in support of new and improved products; increased bad debt expenses and higher selling expenses associated with increased international business. For the quarter, miscellaneous expense was $886,000 compared to last year's income of $159,000. The change from last year's comparable quarter was largely the result of currency losses of $1.1 million, due to the strength of the U.S. dollar in the Company's foreign markets. The effective tax rate for the quarter was 34%, lower than last year's 37% for the comparable period primarily due to tax benefits resulting from international sales. Results for the First Six Months of Fiscal 1998 and 1997 Sales for the six months were $207.4 million, $34.1 million or 14% below last year's comparable period. In terms of dollars, the variations in sales for the six months of 1998 compared to 1997 were due generally to the same factors discussed in the second quarter comparison. Sales to customers outside the United States were 37% and 30% of total sales for the six months of 1998 and 1997, respectively. Sales from new and redesigned products introduced during the past two years represented 45% of sales for the first-half of 1998 compared to 43% for the 1997 six months. Gross profit, as a percent of sales, decreased to 22% in the first six months of 1998 compared to 26% for the same period of 1997. The decrease was due generally to the same factors as discussed in the second quarter comparison. Selling, administrative and product development expenses were down $2.3 million or 9% compared to the first six months of fiscal 1997. As a percent of sales, selling, administrative and product development expenses were 12% and 11% for the current period and last year comparable period, respectively. The dollar decrease over the prior year period is due generally to the same factors discussed in the second quarter comparison. The current year period includes $1.7 million in restructuring charges principally related to workforce reductions. Miscellaneous expense was $1.2 million compared to last year's income of $573,000, primarily due to currency losses of $1.7 million resulting from the strength of the U.S. dollar in the Company's foreign markets. The effective tax rate for the quarter was 34% compared to last year's 37% for the comparable period, primarily due to tax benefits resulting from international sales. Financial Condition The Company continues to maintain a strong financial position, funding capital projects and working capital needs principally out of operating cash flow and cash reserves, while remaining virtually debt-free. Working capital increased by $14.5 million at January 31, 1998 compared to July 31, 1997 principally due to higher receivable balances associated with extended payment terms dictated by competitive pressures in the marketplace. At January 31, 1998, the Company had unused credit lines totaling $30 million and cash balances of $18.6 million. The Company considers these resources, coupled with cash expected to be generated by operations, adequate to meet its anticipated funding needs for the remaining six months of fiscal 1998, including $14 million for capital projects and $14 million for additions to equipment held for rental. The Company's exposure to product liability claims is discussed in the note entitled Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements of this report. Future results of operations, financial condition and liquidity may be affected to the extent that the Company's ultimate exposure with respect to product liability varies from current estimates. Outlook This Outlook section and other parts of this Management's Discussion and Analysis contain forward-looking information and involve risks and uncertainties that could significantly impact expected results. Certain important factors that, in some cases have affected and in the future could affect, the Company's results of operations and that could cause such future results of operations to differ are described in "Cautionary Statements Pursuant to the Securities Litigation Reform Act", which is an exhibit to this report. Management believes that the Company's performance will continue to improve as fiscal 1998 progresses. Its surveyed customers remain confident that calendar 1998 will be another year of continuing economic growth, healthy capital spending, ongoing low inflation and stability in interest rates. Management believes this portends continuing strength in customer rental fleet utilization rates and added business to the Company through expansion of those rental fleets. The Company's orders and backlog continue to trend upward from the levels at the end of the first quarter of fiscal 1998 and the second half of the fiscal year is normally a stronger buying season for the Company's products. The Company recently completed a significant worker recall at its McConnellsburg and Bedford facilities to support production increases to meet this anticipated stronger second-half demand. The Company will begin shipping many new products toward the end of this fiscal year and early next year. In addition to offering the Company's customers enhanced performance and value-added features, these machines are designed to cost less to produce than the machines they are replacing to help address, in part, the highly competitive pricing environment the Company is facing in its marketplace. Management believes this cost efficiency will allow the Company to reduce selling prices on select models and hold prices on others without an erosion in its profit margin percentages. A new scissor lift line will permit the Company to enter the market at a lower price level, thus giving it a two price-point product range. Although at lower prices, this scissor lift line is also expected to produce profit margin percentages comparable to the Company's premium line of products. Year 2000 Issue The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. These programs treat all years as occurring between 1900 and 1999 and do not self-correct to reflect the upcoming change in the century. If not corrected, computer applications could fail or create erroneous results by or at the Year 2000. The Company has taken actions to understand the nature and extent of the work required to make its systems Year 2000 compliant. Management believes that only minor modifications will be required to its software so that its computer systems will function properly with respect to dates in the Year 2000 and thereafter. The total cost of the Year 2000 project is not expected to have a material effect on the Company's results of operations and is being funded through operating cash flows. The Company has determined that it has no exposure to contingencies related to the Year 2000 issue for products it has sold. The Company has also initiated formal communications with its significant suppliers and large customers to determine the extent to which the Company is vulnerable to those third-parties' failures to remediate their own Year 2000 issues. The Company anticipates completing its Year 2000 project prior to December 31, 1998, which is prior to any anticipated impact on its operating systems. The costs of the Company's efforts and the date on which the Company believes it will complete the Year 2000 compliance efforts reflect management's current estimates based on available information. Management will continue to monitor this issue, particularly the possible impact of third-party Year 2000 compliance on the Company's operations, and will modify its estimates if warranted. Ernst & Young LLP Independent Accountants' Review Report To The Board of Directors JLG Industries, Inc. McConnellsburg, Pennsylvania We have reviewed the accompanying condensed consolidated balance sheet of JLG Industries, Inc. and subsidiaries as of January 31, 1998, and the related condensed consolidated statements of income and cash flows for the three-month and six-month periods ended January 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of JLG Industries, Inc. as of July 31, 1997, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended, not presented herein, and in our report dated September 4, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of July 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. /s/Ernst & Young LLP Baltimore, Maryland February 17, 1998 PART II OTHER INFORMATION ITEMS 1 - 5 None/not applicable. ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are included herein: 15 Letter re: Unaudited Interim Financial Information 27 Financial Data Schedule 99 Cautionary Statements Pursuant to the Securities Litigation Reform Act (b) The Company was not required to file Form 8-K pursuant to requirements of such form for any of the three months ended January 31, 1998. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized who is also signing in his capacity as principal financial officer. JLG INDUSTRIES, INC. (Registrant) /s/ Charles H. Diller, Jr. Charles H. Diller, Jr. Executive Vice President and Chief Financial Officer EX-15 2 LETTER RE UNAUDITED INTERIM FINANCIAL INFORMATION EXHIBIT 15 We are aware of the incorporation by reference in the Registration Statements on Form S-8, No. 33-60366, No. 33-61333 and No. 33-75746 of JLG Industries, Inc. of our report dated February 17, 1998, relating to the unaudited condensed consolidated interim financial statements of JLG Industries, Inc. which are included in its Form 10-Q for the quarter ended January 31, 1998. Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ Ernst & Young LLP Baltimore, Maryland February 27, 1998 EX-27 3 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 1000 3-MOS 6-MOS JUL-31-1998 JUL-31-1998 JAN-31-1998 JAN-31-1998 18613 18613 0 0 81795 81795 1364 1364 52621 52621 160003 160003 90093 90093 32887 32887 253626 253626 60891 60891 0 0 8806 8806 0 0 0 0 167355 167355 253626 253626 111706 207351 111706 207351 86821 161298 9162 187462 886 1159 0 0 73 136 11585 18594 3939 6322 7646 12272 0 0 0 0 0 0 7646 12272 .17 .28 .17 .27
EX-99 4 CAUTIONARY STATEMENTS PURSUANT TO SECURITIES LITIGATION REFORM ACT OF 1995 EXHIBIT 99 Cautionary Statements Pursuant to the Securities Litigation Reform Act of 1995 The Company wishes to inform its investors of the following important factors that in some cases have affected, and in the future could affect, the Company's results of operations and that could cause such future results of operations to differ materially from those expressed in any forward looking statements made by or on behalf of the Company. Disclosure of these factors is intended to permit the Company to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Many of these factors have been discussed in prior SEC filings by the Company. Though the Company has attempted to list comprehensively these important cautionary factors, the Company wishes to caution investors that other factors may in the future prove to be important in affecting the Company's results of operations. Cyclical Demand -- Demand for new equipment manufactured by the Company tends to be cyclical, responding historically to varying levels of construction and industrial activity, principally in the United States and, to a lesser extent, in other industrialized nations. Other factors affecting demand include the availability and cost of financing for equipment purchases and the market availability of used equipment. Company management regularly monitors these and other factors that affect demand for the Company's equipment. However, predicting levels of demand beyond a short term is necessarily imprecise and demand may at times change dramatically. Consolidating Customers Base; Rental Companies -- The principal customers for the Company's new equipment are independent equipment rental companies that rent the Company's products and provide service support to equipment users. In recent years, growth in sales to equipment rental companies has outpaced growth in direct sales to end-users, resulting in equipment rental companies comprising a larger share of total sales. At the same time, there has been substantial consolidation in ownership among rental companies, resulting in a more limited number of major customers comprising a substantial portion of total sales. A change in purchasing decisions by any of these major customers could materially affect overall demand for the Company's products and the Company's financial performance. More generally, during recessionary conditions, demand for equipment by equipment rental companies typically declines more sharply than demand for equipment purchased by end-users. Manufacturing Capacity -- Given the cyclical nature of demand, the Company must periodically expand and contract its manufacturing facilities. Capital investment to acquire additional manufacturing facilities involves significant risks. Excess manufacturing capacity adversely affects profitability because higher fixed costs are spread over a lower sales volume. Insufficient capacity adversely affects profitability as long lead-times required to fill customer orders may impair the Company's ability to compete for new business and subcontracting costs incurred to increase capacity affect profitability. Product Liability -- Use of the Company's products involves risks of personal injury and property damage and liability exposure for the Company. The Company insures against this liability through a combination of a self-insurance retention and catastrophic insurance coverage in excess of the retention. The Company monitors all incidents of which it becomes aware involving the use of its products that result in personal injury or property damage and establishes accrued liability reserves on its financial statements based on liability estimates with respect to claims arising from such incidents. Future or unreported incidents involving personal injury or property damage or unanticipated variances between actual liabilities for known incidents and Company estimates may adversely affect the Company's financial performance. Availability of Product Components -- The Company obtains raw materials and certain manufactured components from third-party suppliers. To reduce material costs and inventories, the Company relies on supplier partnership arrangements with preferred vendors as a sole source for "just-in-time" delivery of many raw materials and manufactured components. Because the Company maintains limited raw material inventories, even brief unanticipated delays in delivery by suppliers, including due to labor disputes, impaired financial condition of suppliers, weather emergencies or other natural disasters, may adversely affect the Company's ability to satisfy its customers on a timely basis and thereby affect the Company's financial performance. Foreign Sales; Currency Risks -- A growing component of the Company's business has been export sales to Europe, Latin America and Asia. Maintenance and continued growth of this segment of the Company's business may be affected by changes in trade, monetary and fiscal policies, laws and regulations of the United States and other trading nations and by foreign currency exchange rate fluctuations and the ability or inability of the Company to hedge against exchange rate risks. Competition; Continued Innovation -- The Company faces substantial competition in the market for its products and some of the Company's competitors are, or in the future may be, owned by larger enterprises that may have greater financial resources and offer wider product lines than the Company. Product line expansion by existing competitors and potential entry by new competitors also may affect the Company's market position. Throughout its history, the Company has devoted substantial resources to product development and has generally succeeded in being a market leader in introducing new high-reach products or incorporating new features and functions into existing products. The Company also holds certain patents which it believes are valuable. Successful product innovation by competitors that reach the market prior to comparable innovation by the Company or that are amenable to patent protection may adversely affect the Company's financial performance. Mergers and Acquisitions -- The Company intends to pursue strategic acquisitions as a means of increasing sales and earnings and promoting shareholder value. Acquisitions generally may involve a number of risks that may affect the Company's financial performance including increased leverage, diversion of management resources, possible shareholder dilution, assumption of liabilities of acquired businesses and corporate culture conflicts. In addition, specific acquisitions may involve other risks unique to the acquired business. Finally there is no assurance that the Company will be able to conclude satisfactory agreements to acquire any businesses as a means to increase sales and earnings. Unanticipated Litigation -- The Company occasionally has faced unanticipated intellectual property and shareholder litigation which has involved significant unbudgeted expenditures. The costs and other effects of any future, unanticipated legal or administrative proceedings may be significant. Dependence Upon Key Personnel -- The Company believes that it has developed a strong management team, which intends to continue the Company's growth and profitability. However, the loss or unavailability of certain key management personnel, principally L. David Black, the Company's Chairman of the Board, President and Chief Executive Officer, could adversely affect the Company's business and prospects. -----END PRIVACY-ENHANCED MESSAGE-----