THE SOMERSET GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
<TABLE>
<S> <C> <C>
1998 1997
Actual Actual
Revenue and Income: (Restated)
Fees and commissions $2,498,000 $2,541,000
Equity in earnings of First Indiana Corp 950,000 871,000
Investment income 89,000 93,000
--------- ---------
3,537,000 3,505,000
Operating Expenses:
Salaries, wages, commissions and benefit 1,511,000 1,831,000
General and administrative expenses 193,000 198,000
Occupancy expenses 79,000 81,000
Advertising and marketing 29,000 41,000
Depreciation and amortization 66,000 56,000
Merger expenses 163,000 ---
--------- ---------
2,041,000 2,207,000
--------- ---------
Income from Operations 1,496,000 1,298,000
Interest expense 4,000 20,000
--------- ---------
Income before income taxes 1,492,000 1,278,000
Income tax expense 480,000 414,000
--------- --------
Net Income $1,012,000 $864,000
========= =======
Income Per Share
Basic $.35 $.30
Diluted $.34 $.29
Average Shares Outstanding:
Basic 2,899,097 2,880,045
Diluted 2,973,386 2,939,486
</TABLE>
See accompaning Notes to Consolidated Financial Statements.
-2-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 719,000
<SECURITIES> 4,651,000
<RECEIVABLES> 2,038,000
<ALLOWANCES> 153,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,542,000
<PP&E> 1,183,000
<DEPRECIATION> 741,000
<TOTAL-ASSETS> 43,103,000
<CURRENT-LIABILITIES> 1,008,000
<BONDS> 0
0
0
<COMMON> 1,856,000
<OTHER-SE> 32,294,000
<TOTAL-LIABILITY-AND-EQUITY> 43,103,000
<SALES> 2,498,000
<TOTAL-REVENUES> 3,537,000
<CGS> 1,511,000
<TOTAL-COSTS> 2,041,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> 4,000
<INCOME-PRETAX> 1,492,000
<INCOME-TAX> 480,000
<INCOME-CONTINUING> 1,012,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,012,000
<EPS-PRIMARY> .35
<EPS-DILUTED> .34
</TABLE>
PART II
OTHER INFORMATION
Items 1 through 6
The information required by these items has been omitted as it is not
applicable.
Reports Filed on Form 8-K
On January 26, 1998, an 8-K was filed under Item 2 of the regulations;
Acquisition or Disposition of Assets. The Form 8-K reported the execution of
the final merger agreement and the merger with Whipple & Company, P.C. The Form
8-K is incorporated into this Form 10-Q by reference to file number 0-14227 for
such Form 8-K filings with the Commission.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SOMERSET GROUP, INC.
(Registrant)
By s/Marni McKinney
Marni McKinney
President &
Chief Executive Officer
By s/Joseph M. Richter
Joseph M. Richter
Executive Vice President &
Chief Financial Officer
Date: April 30, 1998
-12-
THE SOMERSET GROUP, INC. CONSOLIDATED BALANCE SHEETS
(unaudited) March 31, December 31, March 31,
<TABLE>
<C> <C> <C> <C>
ASSETS 1998 1997 1997
Current assets (Restated) (Restated)
Cash and cash equivalents $719,000 $600,000 $1,181,000
Short term investments 4,651,000 5,248,000 4,730,000
Trade accounts, and other receiva 2,038,000 1,222,000 2,097,000
Prepaid expenses 134,000 80,000 95,000
Refundable income taxes --- 203,000 ---
-------- --------- ---------
Total current assets 7,542,000 7,353,000 8,103,000
Investments
First Indiana Corporation (market
values of $74,400,000, $68,515,000,
and $41,619,000) 32,927,000 32,406,000 30,345,000
Office furniture and equipment 1,183,000 1,143,000 997,000
Less accumulated depreciation 741,000 696,000 613,000
-------- -------- -------
442,000 447,000 384,000
Other assets
Notes receivable, net 572,000 580,000 732,000
Goodwill, net of accum. amortizat 1,112,000 1,133,000 1,122,000
Other 508,000 541,000 486,000
--------- --------- ---------
2,192,000 2,254,000 2,340,000
---------- ---------- ----------
Total Assets 43,13,000 42,460,000 41,172,000
========= ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable - bank $459,000 $481,000
Current portion of long-term debt 13,000 11,000
Trade accounts payable 82,000 $60,000 $77,000
Accrued compensation 294,000 86,000 669,000
Taxes, other than income taxes 42,000 53,000 25,000
Income taxes 234,000 20,000
Deferred income taxes 327,000 327,000 419,000
Other accrued expenses 29,000 104,000 78,000
-------- --------- ---------
Total current liabilities 1,008,000 1,102,000 1,780,000
Deferred income 23,000
Deferred income taxes 7,945,000 7,845,000 7,061,000
Long-term debt, less current portion 30,000 41,000
Shareholders' equity
Common stock without par value, authorized
authorized 4,000,000 shares, issued
and outstanding 2,900,150
2,897,724, and 2,871,287 share 1,856,000 1,855,000 1,849,000
Capital in excess of stated value 3,557,000 3,549,000 3,798,000
Accumulated other comprehensive
income 62,000 (22,000) (35,000)
Retained earnings 28,675,000 28,078,000 26,678,000
---------- ---------- ----------
Total shareholders' equity 34,150,000 33,460,000 32,290,000
---------- ---------- ----------
Total Liabilities and
Shareholders' equity 43,103,000 42,460,000 41,172,000
========== ========== ==========
</TABLE>
-3-
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Three Months EnYear Ended
March 31, December 31
<TABLE>
<S> <C> <C> <C>
(restated) (restated)
Cash flows from operating activities: 1998 1997 1997
Net income 1,012,000 864,000 2,536,000
Add (deduct) items not affecting cash
Depreciation and amortization 66,000 56,000 246,000
Deferred income taxes 100,000 389,000 1,199,000
Equity in earnings of First Indiana Co (950,000) (871,000) (3,883,000)
Dividends received from First Indiana 326,000 272,000 1,087,000
Changes in operating assets and liabilities:
Trade accounts, notes, and receivab (816,000) (702,000) 171,000
Deferred income 23,000 --- ---
Prepaid expenses (54,000) (34,000) (18,000)
Accounts payable and accrued expens 30,000 572,000 (42,000)
Accrued and refundable income taxes 437,000 4,000 (173,000)
------- ------- --------
Net cash provided by operating activities 174,000 550,000 1,123,000
Cash flows from investing activities:
Proceeds from sale of assets --- 8,000 8,000
Purchase of property and equipment 40,000 (8,000) (229,000)
Decrease (increase) in other assets 62,000 (18,000) (3,000)
Decrease (increase) in short-term invest 597,000 (36,000) (524,000)
------- ------ -------
Net cash used by investing activities 699,000 (54,000) (748,000)
Cash flows from financing activities:
Principal payments on note payable, bank (459,000) (203,000) (225,000)
Principal payments on long-term borrowin (43,000) (3,000) (12,000)
Proceeds from sale of common stock 9,000 98,000 330,000
Purchase of common stock --- (42,000) (475,000)
Cash dividends paid (261,000) (234,000) (462,000)
------- ------- -------
Net cash used by financing activities (754,000) (384,000) (844,000)
Increase (decrease) in cash and cash equiv 119,000 112,000 (469,000)
Cash and cash equivalents at beginning of 600,000 1,069,000 1,069,000
------- -------- --------
Cash and cash equivalents at end of period 719,000 1,181,000 600,000
======= ======== ========
</TABLE>
-4-
See accompanying Notes to Consolidated Financial Statements
THE SOMERSET GROUP, INC.
Consolidated Statements of Shareholders' Equity
January 1, 1997 to March 31, 1998
(unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Capital Accumulated
in Excess Other
Common of Stated Comprehens Retained
Stock Value Income Earnings Total
Balance January 1, 1997, restated 1,836,000 3,713,000 $ 26,048,000 31,597,000
Net income, 3 months ended March 31, 1997 --- --- --- 864,000 864,000
Shares of common stock issued 15,000 125,000 --- --- 140,000
Shares of common stock retired (2,000) (40,000) --- --- (42,000)
Cash dividends paid --- --- --- (234,000) (234,000)
Unrealized losses on short-term investments,
net of deferred income taxes --- --- (35,000) --- (35,000)
Balance March 31, 1997, restated 1,849,000 3,798,000 (35,000)26,678,000 32,290,000
--------- --------- ------ ---------- ----------
Net income April 1 to December 31, 1997 --- --- --- 1,672,000 1,672,000
Shares of common stock issued 24,000 140,000 --- 39,000 203,000
Shares of common stock retired (18,000) (389,000) --- --- (407,000)
Cash dividends paid --- --- --- (228,000) (228,000)
Unrealized gains on short-term investments,
net of deferred income taxes --- 13,000 13,000
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- --- (83,000) (83,000)
--------- --------- ------------------ ----------
Balance December 31, 1997, restated 1,855,000 3,549,000 (22,000)28,078,000 33,460,000
Net income, 3 months ended March 31, 1998 --- --- --- 1,012,000 1,012,000
Shares of common stock issued 1,000 8,000 --- --- 9,000
Cash dividends paid --- --- --- (261,000) (261,000)
Unrealized loss on short-term investments,
net of deferred income taxes --- --- (3,000) --- (3,000)
Equity in other capital changes of
First Indiana Corporation, net of
deferred income taxes --- --- 87,000 (154,000) (67,000)
--------- --------- ------ ---------- ----------
Balance March 31, 1998 $1,856,000 $3,557,000 $62,000 28,675,000 $34,150,000
========= ========= ====== ========== ==========
</TABLE>
-5-
See accompanying Notes to Consolidated Financial Statements
THE SOMERSET GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Operations and Summary of Significant Accounting Policies
The Somerset Group, Inc. (The "Company") is a nondiversified, unitary savings
and loan holding company. Its major asset is a 21.4% ownership interest in
First Indiana Corporation ("First Indiana"), which owns 100% of First Indiana
Bank. As Somerset Financial Services, the Company provides investment and
wealth management services, health care consulting, tax planning and preparation
information technology, business valuation and litigation services. The
Company's First Indiana Investor Services Division markets insurance and
investment products.
(a) Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its 100%-owned subsidiaries.
(b) Commissions and Fees: Commissions and fees represent revenue from services
provided by Somerset Financial Services and by investment products sold by
First Indiana Investor Services.
(c) Cash and Cash Equivalents: For Purposes of reporting cash flows, cash and
cash equivalents include cash on hand, cash in banks, and money market
funds immediately available.
(d) Short-Term Investments: The investments are valued at market price on the
statement date. They are available-for-sale and proceeds are available on
three days notice. Unrealized holding gains and losses are excluded from
earnings and are reported net of deferred income taxes as a separate
component of shareholders' equity until realized.
(e) Investment in First Indiana Corporation: First Indiana Corporation is a
bank holding company whose primary subsidiary is a thrift institution,
First Indiana Bank. The Company's investment in First Indiana Corporation
is stated at cost, adjusted for the Company's share of undistributed
earnings, and includes adjustments under the purchase method of accounting.
Capital changes of First Indiana Corporation are reflected as a separate
component on consolidated retained earnings.
(f) Office Furniture and Equipment: Office furniture and equipment are stated
at historical costs for financial reporting purposes. Depreciation is
determined using the straight-line method based upon the estimated useful
live of individual assets. Both straight-line and accelerated methods are
used for income tax purposes.
(g) Income Taxes: The Company uses the asset and liability method to account
for income taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their tax basis. The principal temporary difference between the financial
statement carrying amounts and the tax basis that result in deferred taxes
is the investment in First Indiana, accounted for under the equity method
of accounting. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
effective date.
(h) Income Per Share: Basic and diluted earnings per share were computed in
accordance with the Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards No. 128 "Earnings Per Share." Basic
earnings per share were computed by dividing net income by the weighted
average of common stock outstanding. Dilution of the per share calculation
relates to stock options outstanding during the periods.
-6-
Note 2. Business Combination and Restatement of Historical Financial Statements
On January 20, 1998, Somerset issued 333,359 shares of its common stock for all
the outstanding stock of Whipple & Company Professional Corporation
("Whipple"). The business combination was accounted for as a pooling-of-
interests combination and, accordingly, Somerset's 1997 consolidated financial
statements presented are restated to include the accounts and results of
Whipple.
The results of operations previously reported by the separate enterprises and
the combined amounts presented in the accompanying Consolidated Financial
Statements are summorized below.
Three Monthes Ended Year Ended December 31,
March 31
1998 1997 1997 1996
Revenue and Income:
Somerset $1,220,000 $1,307,000 $5,385,000 $4,449,000
Whipple 2,317,000 2,198,000 5,740,000 5,085,000
--------- --------- --------- ---------
Combined 3,537,000 3,505,000 11,125,000 9,534,000
========= ========= ========== =========
Net Income:
Somerset $508,000 $635,000 $2,450,000 $2,039,000
Whipple 432,000 229,000 86,000 106,000
------- ------- --------- ---------
Combined 1,012,000 864,000 2,536,000 2,145,000
========= ======= ========= =========
Note 3. Cyclical Business Operations
Revenue and income from financial services is cyclical in nature as a result of
the timing of income tax planning and preparation services performed by the
Company. Because of government imposed filing deadlines, a larger percentage of
these services occur during the first four months of each calendar year.
Revenue and income during the first quarter of each year will be favorably
affected, as compared to the remaining three quarters of the year.
Revenue, net income and earnings per share, as restated to include Whipple, for
the four quarterly periods ending December 31, 1997 were as follows:
Year Ended December 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. Total
March 31 June 30 Sept. 30 Dec. 31 1997
Revenue & income $3,505,000 $2,452,000 $2,433,000 $2,735,000 $11,125,000
Net income 864,000 $239,000 $620,000 $813,000 $2,536,000
Basic earnings
per share $.30 $.08 $.22 $.28 $.88
Diluted earnings
per share $.29 $.08 $.21 $.28 $.86
</TABLE>
Note 4. Investment in First Indiana Corporation
The Company's percentage of ownership of First Indiana Corporation was 21.4% at
March 31, 1998, 21.5% at December 31, 1997, and 21.6% at March 31, 1997. The
Company's equity in earnings of First Indiana Corporation shown in the
Consolidated Statements of Income is before income taxes. Federal and state
income taxes applicable to the equity earnings are contained as a component of
total federal and state income tax expense.
Note 5. Average Shares Outstanding
Average shares outstanding, computed on the diluted basis as required by
Financial Accounting Standards Board Statement No. 128, included the common
share equivalents of outstanding stock options. These were 74,289, and 59,441
equivalent shares included in the average diluted shares outstanding for the
three months ended March 31, 1998 and March 31, 1997. The Company had the
following shares of its stock reserved for exercise of stock options.
Date Shares
March 31, 1998 137,621
December 31, 1997 74,558
March 31, 1997 81,438
-7-
Note 6. Financial Instruments
The estimated fair value of the Company's financial instruments at March 31,
1998, December 31, 1997, and March 31, 1997 approximate their carrying value as
reflected in the Consolidated Balance Sheets. The Company's financial
instruments include cash and cash equivalents, short-term investments and notes
receivable. Financial instruments also include the investment in First Indiana
that had a fair value as follows.
Fair
Date Value
March 31, 1998 $74,400,000
December 31, 1997 $68,515,000
March 31, 1997 $41,619,000
Note 7. Financial Statement Preparation
The accompanying consolidated financial statements have been prepared with
generally accepted account principles for interim financial information and with
the instruction to From 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes 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.
-8-
PART 1
Item 1 - Financial Statements
The information required b Rule 10.01 of Regulation S-X is presented on the
previous pages.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Earnings for the three months ended March 31, 1998 were 17% above comparable
earnings for the first quarter of 1997. Net income amounted to $1,012,000, or
$.34 per diluted share, compared with $864,000, or $.29 per diluted share earned
during the three months of 1997.
Net income included the results of Whipple & Company, P.C. ("Whipple"), which
was merged with The Somerset Group, Inc. in the first quarter of 1998. The
merger was accounted for as a pooling-of-interests business combination, and
historical results for 1997 were restated to include the financial results of
Whipple as if the merger had occurred January 1, 1997.
Net income for the 1998 quarter included expenses of the merger transaction that
amounted to $163,000, and lowered net income after income taxes $100,000. If
these one-time expenses were excluded from the quarterly results, net income
increases to $1,112,000, or $.37 per diluted share, an increase of 29% over the
$864,000 that the two companies earned during the first quarter of 1997.
Revenue and income increased 1% to $3,537,000 from $3,505,000. The increase was
primarily a result of an increase in equity income from First Indiana
Corporation ("First Indiana") that was offset by lower fees and commissions from
financial products and services.
Revenue and income from financial services are cyclical in nature as a result of
the timing of income tax planning and preparation services performed by the
Company. Because of government imposed filing deadlines, a larger percentage of
these services occur during the first four months of each calendar year.
Revenue and income during the first quarter of each year will for favorably
affected, as compared to the remaining three quarters of the year.
Equity income from First Indiana was 9% above last year and amounted to $950,000
compared with $871,000 earned during the first quarter last year. A favorable
interest rate environment and continued geographic expansion of First Indiana
increased loan originations and resulted in higher earnings. Loans grew 14%
over the same period in 1997, with the majority of the growth in residential
loans, which expanded 28% over March 31, 1997. Net interest margin decreased
for the first quarter to 3.95%, compared with 4.39% one year ago, because of a
lower yield on the increased residential loans.
Fees and commissions from financial services and the sale of insurance and
investment products were slightly lower than last year. Tax consulting and tax
return preparation fees were higher, as were fees for financial planning and
asset management services. These increases were partially offset by a decrease
in fees from financial statement audits, compilations and reviews, because this
portion of the business was sold by Whipple, immediately prior to the merger, in
order to comply with state regulations regarding ownership of Certified Public
Accounting firms. During the 1998 quarter, there were no fees for these
services, but they were included in 1997. Commission income from the sale of
insurance and investment products were lower than last year and caused total
fees and commission income to be lower. The Company experienced lower volume of
fixed rate annuity sales that caused the decline in commission income.
-9-
The improved earnings of the Company resulted primarily from lower operating
expenses that were a direct result of the merger. Total personnel costs were
reduced 17%, or $320,000, with other operating expense categories posting modest
reductions. The lower salaries and cost of benefits resulted primarily from
terms of the merger agreement with Whipple that called for compensation
following the date of the combination, paid to officers of Whipple who are also
shareholders, to be lower than historical amounts. In addition, personnel
associated with the performance of the services sold were employed by the buyer
of these service lines and are not included in 1998 results but were included
in the 1997 results.
Combined merger expenses incurred by the Company and Whipple amounted to
$163,000 in the 1998 quarter, with no such expenses incurred in 1997. The
amount included legal, auditing and consulting services in connection with
negotiation and consummation of the merger agreement. Such expenses are one-
time in nature and will not recur.
Interest expense amounted to $4,000, compared with $20,000 in first quarter of
1997. The reduction was a result of the retirement of outstanding debt of
Whipple that existed at the date of the merger.
Financial Condition and Liquidity
Management considers the financial condition and liquidity of the Company to be
very good at March 31, 1998. The Company was also in a very sound position, on
a restated basis, at December 31, 1997 and March 31, 1997. Because of the 1995
sale of all construction industry operating assets and the conversion of the
related net current assets to cash, the Company's balance sheet contains a large
percentage of liquid assets. These liquid assets are being invested temporarily
and are intended for use in additional acquisitions and the expansion of
existing financial service operations.
At March 31, 1998, the Company had a high ratio of current assets to current
liabilities of 7.5 to one, compared to 6.7 to one at December 31, 1997, and 4.6
to one at March 31, 1997. In addition, 71% of the current assets consisted of
cash, cash equivalents, and short-term investments. Net working capital
remained stable during the periods and amounted to $6,534,000 at March 31, 1998,
$6,251,000 at December 31, 1997, and $6,323,000 at March 31, 1997.
All short-term and long-term debt was retired during the first quarter of 1998.
The debt was that of Whipple at the time of the merger and amounted to a
combined total of $502,000 at December 31, 1997 and $533,000 at March 31,
1997. Short-term investments were sold to provide the cash for the debt
retirement.
Shareholders' equity increased to $34,150,000 at March 31, 1998, from the
restated $33,460,000 at December 31, 1997 and $32,290,000 at March 31, 1997. On
a per share basis, the amounts were $11.78, $11.55 and $11.25 as restated for
the Whipple merger.
Generally Accepted Accounting Principles (GAAP) require Somerset to record
income tax expense at full corporate rates on a portion of its equity income
from First Indiana. GAAP also requires us to record our investment in First
Indiana at a net carrying value which represents our acquisition cost of First
Indiana shares, plus our equity share of First Indiana's net income, rather than
at market value. Under certain circumstances, the tax liability recorded in this
manner (approximately $7.9 million) may never be incurred. The market value of
our investment in First Indiana at March 31, 1998 was approximately $74.4
million, or $41.5 million greater than the investment amount reflected in our
balance sheet at March 31, 1998.
Operating activities during the three months ended March 31, 1998 provided cash
of $174,000, compared to $550,000 during the same quarter in 1997. The primary
causes of this decrease was a usage of cash to support a larger increase in
trade accounts receivable during the 1998 quarter compared to the 1997 quarter,
and the usage of cash to reduce the comparative amount of accounts payable and
accrued expenses.
-10-
The Company sold $597,000 of short-term investments during the period, and
$502,000 was used to retire the outstanding debt that was assumed as part of the
merger with Whipple. Cash dividends of $261,000 were paid to our shareholders,
an increase of 11.5% over the cash dividends paid during the 1997 first quarter.
The semi-annual dividend rate remained constant at $.09 per share in both years,
or $.18 per share annually. The increase in the amount paid resulted from
additional shares outstanding that was a primarily a result of the shares issued
in the Whipple merger transaction.
Impact of Accounting Standards
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard No. 130, "Reporting Comprehensive Income," that establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. The statement was effective for fiscal years
beginning after December 15, 1997. The Company adopted this statement effective
January 1, 1998. It did not have a material impact on the financial condition
or results of operations of the Company.
The FASB also issued Statement of Financial Accounting Standard No. 131,
"Disclosures About Segments of an Enterprise and Related Information," which
introduces new guidance on segment reporting. The statement was effective for
fiscal years beginning after December 15, 1997. The Company adopted this
statement effective January 1, 1998. It did not have a material impact on the
financial condition or results of operations of the Company, since the
disclosures are similar to those previously presented.
Other recent pronouncements by the FASB are not applicable to the Company's
consolidated financial statements.
Year 2000 Readiness
The Company commenced review of all computer hardware and software, used in its
operations, for shortcomings that would preclude correct calculations of date-
sensitive information as it relates to the twentieth and twenty-first centuries.
The review to date has not identified any major systems requiring extensive
updates or replacement.
Management is confident of the Company's ability to operate in the 21st Century,
but it is not possible at this time to assess the financial impact of non-
compliance or of future expenditures.
Information on Forward-Looking Statements
The statements in the Annual Report that are not historical are forward-looking
statements. Although the Company believes that its expectations are based upon
reasonable assumptions within the bounds of its knowledge of its business, there
can be no assurance that the Company's financial goals will be realized.
Numerous factors may affect the Company's actual results and may cause results
to differ materially from those expressed in forward-looking statements made by
or on behalf of the Company.
-11-
