[LOGO] The Brink's Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100 USA
PRESS RELEASE Tel. 804.289.9600
Fax 804.289.9758
Contact: FOR IMMEDIATE RELEASE
Investor Relations
804.289.9709
The Brink's Company
Reports Second Quarter Results
Brink's Home Security Continues Record Performance;
BAX Global Posts Improved Results;
Brink's, Incorporated Profitability Impacted by
Restructuring and Severance Costs
RICHMOND, Va., (August 3, 2005) - The Brink's Company (NYSE: BCO) today
reported after-tax income from continuing operations for the second quarter of
2005 of $12.0 million or $0.21 per diluted share compared to $12.6 million or
$0.23 per diluted share in the prior-year period.
Revenue in the second quarter of 2005 was up 16% over last year's second
quarter to $1.3 billion, reflecting substantial increases from each of the
Company's business units. In addition to the favorable impact of underlying
business growth, revenues at Brink's, Incorporated and BAX Global also benefited
from stronger European currencies relative to the U.S. dollar. The effects of
the weaker U.S. dollar contributed about 2 percentage points of the increase in
revenues.
The Company reported operating profit of $34.4 million for the quarter
ended June 30, 2005, down from $37.8 million in the year earlier period. Record
performance from Brink's Home Security and improvement by BAX Global were more
than offset by lower results from Brink's, Incorporated where approximately $10
million more of costs were recorded to cover restructuring and severance
compared to the prior year's quarter.
1
Income tax expense was higher than normal in the second quarter of 2005 largely
due to $6.5 million of newly established tax valuation allowances primarily
related to Brink's operations in Latin America. Income tax expense for the
second quarter of 2004 included the establishment of $6.7 million of tax
valuation allowances primarily related to European operations of BAX Global.
Net income for the second quarter of 2005 was $15.3 million, or $0.27 per
diluted share, including income from discontinued operations of $3.3 million, or
$0.06 per diluted share, which primarily reflects a reduction in the estimated
withdrawal liability for coal-related multi-employer pension plans. In the
second quarter a year ago, the Company reported net income of $18.6 million, or
$0.34 per diluted share. Net income in 2004 included income from discontinued
operations of $6.0 million, or $0.11 per diluted share, primarily relating to a
reduction in the estimated withdrawal liability for the multi-employer pension
plans, as well as a gain on the sale of the Company's former timber business.
First - Half Results
For the six months ended June 30, 2005, revenues were $2.5 billion compared
with $2.2 billion for the first six months of 2004. Net income for the first
half of 2005 was $28.9 million, or $0.51 per diluted share, compared with $44.4
million, or $0.81 per diluted share for the first six months of 2004.
Second Quarter Business Unit Performance
Brink's, Incorporated ("Brink's")
- ---------------------------------
Brink's revenue increased 15% to $536.7 million in the second quarter of
2005 from $465.3 million in the prior-year period. International revenue in the
quarter increased 21% over the year-ago quarter, 16% excluding the net benefit
of currency translation. The revenue growth was driven by an increase in
activity in Europe reflecting acquisitions in Greece, Luxembourg, Scotland,
Ireland and Eastern Europe, an increase in cash processing levels, especially in
2
France, and higher volumes in Brink's Global Services. Revenues were also up in
South America due largely to business growth and stable market conditions in
Venezuela, and growth in Colombia, Argentina and Chile. North American revenue
increased 6% over the second quarter of 2004, reflecting higher U.S. and
Canadian revenues in all lines of service and the positive impact of foreign
currency exchange rates on Canadian operations.
Brink's operating profit in the quarter ended June 30, 2005, was $15.1
million, down from $25.3 million recorded in the second quarter of 2004.
Operating profit was lower in both International and North American operations.
Internationally, better performance in South America was more than offset by a
decline in Europe primarily due to restructuring costs in Belgium and the
Netherlands. Operating profit in North America declined year-over-year to $9.4
million from $13.0 million due to higher pension costs and higher safety and
security expense.
Brink's Home Security
- ---------------------
Revenue at Brink's Home Security increased 13% to $96.8 million in the
second quarter of 2005, as compared to the same period last year, due primarily
to continued growth in the subscriber base. Operating profit in the second
quarter was a record $23.3 million, 18% higher than in the prior year's second
quarter. The increase in operating profit from recurring services resulted from
the growth of the subscriber base along with a reduction in the estimate for
allowance for doubtful accounts.
The annualized disconnect rate for the second quarter of 2005 improved to
6.8% from 7.2% in the year-ago quarter. Brink's Home Security installed 42,300
new subscribers during the quarter, a 19% increase over the number of new
subscribers added in the second quarter of 2004, and ended the quarter with
approximately 973,000 subscribers generating monthly recurring revenue of $27.7
million (see Non-GAAP Reconciliations for a reconciliation of monthly recurring
revenue to reported revenue).
3
BAX Global
- ----------
Revenue at BAX Global increased 17% to $681.4 million in the second quarter
of 2005 compared to the prior-year period. In the Americas region, revenue
increased 12% over last year's second quarter. The increase reflected higher
fuel surcharges and a 4% improvement in U.S. shipping volumes including
continued strong growth in BAX Global's freight forwarder service and higher
export activity. Volumes for higher-priced expedited freight were down
significantly as the effects of higher fuel prices contributed to a shift by
customers to lower-priced deferred services. International revenue increased 23%
(20% excluding the benefit of foreign currency translation) versus the prior
year period, reflecting robust Asia-Pacific activity and improvement in Europe.
Operating profit at BAX Global improved to $16.8 million for the second
quarter of 2005 compared to $12.4 million for the same period in 2004. The
current quarter's performance reflects higher volumes and stronger margins in
Asia-Pacific from logistics and freight forwarding activities combined with
improvement in operating profit in Europe, partially offset by lower operating
profit in the Americas due to the shift in product mix.
Summary
"Although operationally we posted a good quarter, this was overshadowed
somewhat by the restructuring and severance costs largely related to Brink's
operations in Belgium and the Netherlands," said Michael T. Dan, Chairman,
President and Chief Executive Officer of The Brink's Company. "BAX Global
continued to improve with sustained growth in Asia-Pacific and strengthening
performance in Europe. Brink's achieved good growth in most of its major markets
while staying focused on excellent security and service levels, and appropriate
pricing. Brink's has made more than $50 million in acquisitions in Europe this
year that will enhance growth. Brink's Home Security maintained its excellent
record of growth and profitability. Overall, our businesses are well positioned
as we head into the seasonally stronger second half of the year," added Mr. Dan.
4
This release contains both historical and forward-looking information. Words
such as "anticipates," "estimates," "expects," "projects," "intends," "plans,"
"believes," "may," "should" and similar expressions may identify forward-looking
information. Forward-looking information in this document includes, but is not
limited to, statements regarding enhanced growth at Brink's and the positioning
and seasonality of the businesses. The forward-looking information in this
document is subject to known and unknown risks, uncertainties and contingencies
that could cause actual results to differ materially from those that are
anticipated.
These risks, uncertainties and contingencies, many of which are beyond the
control of The Brink's Company and its subsidiaries, include, but are not
limited to, the ability of the businesses to meet demand appropriately, the
ability of Brink's to integrate its recent acquisitions and the performance of
the acquired companies, the ability of Brink's Home Security to continue to
maintain its subscriber growth and low disconnect rate, the demand for overnight
shipping, the ability to identify and execute cost and operational improvements
in the core businesses, IT costs and costs associated with ongoing contractual
obligations, the number of home moves during the summer, seasonal increases in
various shipping volumes, pension plan and other employee obligations, labor
relations, safety and security performance, overall domestic and international
economic, political, social and business conditions, capital markets
performance, the strength of the U.S. dollar relative to foreign currencies,
interest rates, inflation, new government regulations and legislative
initiatives (including local initiatives relating to police response to alarms),
domestic and international demand for services of the subsidiaries of The
Brink's Company, pricing and other competitive factors, fuel prices, variations
in costs or expenses and performance delays of any public or private sector
supplier, service provider or customer. The information included in this release
is representative only as of the date of this release, and The Brink's Company
undertakes no obligation to update any information contained in this release.
About The Brink's Company
The Brink's Company (NYSE: BCO) is a global leader in business and security
services. The Company's three businesses are Brink's, Incorporated, the world's
premier provider of secure transportation and cash management services; Brink's
Home Security, one of the largest and most successful residential alarm
companies in North America; and BAX Global, an industry leader in freight
transportation and global supply chain management solutions. For more
information, please visit The Brink's Company website at www.brinkscompany.com,
or call toll free 877-275-7488.
Conference Call
The Company will host a conference call today, August 3, at 11:00 a.m. eastern
time to discuss this press release. Interested parties can listen to the
conference call by dialing 800-392-9565 within North America or 706-634-5450
from outside North America, or via live webcast at www.brinkscompany.com. Please
dial in at least five minutes prior to the start of the call. Dial-in replay
will be available through August 19, 2005, by calling 800-642-1687 within North
America or 706-645-9291 outside North America. The conference ID for the replay
is 7887757. A webcast replay will also be available at www.brinkscompany.com.
5
The Brink's Company
and Subsidiaries
Condensed Consolidated Statements of Operations
(In millions, except per share amounts)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- --------------------------------------------------------------------------------------------------------------------------
Revenues $ 1,314.9 1,131.5 2,539.5 2,226.0
Expenses:
Operating expenses 1,133.6 958.5 2,185.7 1,888.4
Selling, general and administrative expenses 149.3 137.5 288.1 271.9
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 1,282.9 1,096.0 2,473.8 2,160.3
Other operating income, net 2.4 2.3 5.5 5.8
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 34.4 37.8 71.2 71.5
Interest expense (6.1) (5.8) (10.7) (11.6)
Interest and other income (expense), net 2.9 (0.1) 3.6 4.3
Minority interest (3.0) (1.4) (6.8) (4.7)
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes 28.2 30.5 57.3 59.5
Income tax expense 16.2 17.9 29.5 29.7
- --------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 12.0 12.6 27.8 29.8
Income from discontinued operations, net of tax 3.3 6.0 1.1 14.6
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 15.3 18.6 28.9 44.4
==========================================================================================================================
Basic net income per common share:
Continuing operations $ 0.21 0.23 0.50 0.55
Discontinued operations 0.06 0.11 0.02 0.27
- --------------------------------------------------------------------------------------------------------------------------
$ 0.27 0.34 0.52 0.82
==========================================================================================================================
Diluted net income per common share:
Continuing operations $ 0.21 0.23 0.49 0.54
Discontinued operations 0.06 0.11 0.02 0.27
- --------------------------------------------------------------------------------------------------------------------------
$ 0.27 0.34 0.51 0.81
==========================================================================================================================
Weighted-average common shares outstanding:
Basic 56.0 54.4 55.9 54.1
Diluted 56.6 55.1 56.5 54.8
- --------------------------------------------------------------------------------------------------------------------------
6
THE BRINK'S COMPANY
and Subsidiaries
Segment Information
(In millions)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------
Revenues:
Brink's $ 536.7 465.3 1,045.9 923.3
Brink's Home Security 96.8 85.9 188.7 167.9
BAX Global 681.4 580.3 1,304.9 1,134.8
- ------------------------------------------------------------------------------------------------------
Revenues $ 1,314.9 1,131.5 2,539.5 2,226.0
======================================================================================================
Operating profit:
Brink's $ 15.1 25.3 45.4 58.1
Brink's Home Security 23.3 19.8 45.8 39.2
BAX Global 16.8 12.4 25.0 15.5
- ------------------------------------------------------------------------------------------------------
Business segments 55.2 57.5 116.2 112.8
Former coal operations (10.9) (10.1) (24.1) (22.6)
Corporate (9.9) (9.6) (20.9) (18.7)
- ------------------------------------------------------------------------------------------------------
Operating profit $ 34.4 37.8 71.2 71.5
======================================================================================================
7
The Brink's Company
and Subsidiaries
Supplemental Financial Information
(In millions)
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------
Brink's:
Revenues:
North America $ 192.2 180.9 378.2 361.0
International 344.5 284.4 667.7 562.3
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 536.7 465.3 1,045.9 923.3
===============================================================================================================
Operating profit:
North America $ 9.4 13.0 22.1 25.9
International 5.7 12.3 23.3 32.2
- ---------------------------------------------------------------------------------------------------------------
Operating profit $ 15.1 25.3 45.4 58.1
===============================================================================================================
Brink's Home Security:
Revenues $ 96.8 85.9 188.7 167.9
===============================================================================================================
Operating profit:
Recurring services $ 43.7 35.7 85.2 70.8
Investment in new subscribers (20.4) (15.9) (39.4) (31.6)
- ---------------------------------------------------------------------------------------------------------------
Operating profit $ 23.3 19.8 45.8 39.2
===============================================================================================================
Monthly recurring revenues (a) $ 27.7 24.5
Annualized disconnect rate 6.8% 7.2% 6.3% 6.8%
Number of subscribers (in thousands):
Beginning of period 947.1 854.1 921.4 833.5
Installations 42.3 35.6 81.6 69.7
Disconnects (16.4) (15.6) (30.0) (29.1)
- ---------------------------------------------------------------------------------------------------------------
End of period 973.0 874.1 973.0 874.1
Average number of subscribers 960.3 864.5 947.0 854.0
===============================================================================================================
(a) See "Non-GAAP Reconciliations" below.
BAX Global:
Revenues:
Americas $ 312.2 279.3 605.6 544.0
International 396.3 321.3 751.0 630.4
Eliminations (27.1) (20.3) (51.7) (39.6)
- ---------------------------------------------------------------------------------------------------------------
Revenues $ 681.4 580.3 1,304.9 1,134.8
===============================================================================================================
Operating profit (loss):
Americas $ 3.7 6.1 0.3 4.2
International 18.7 11.2 32.9 19.9
Corporate and other (5.6) (4.9) (8.2) (8.6)
- ---------------------------------------------------------------------------------------------------------------
Operating profit $ 16.8 12.4 25.0 15.5
===============================================================================================================
Intra-America revenue $ 139.8 133.7 275.6 258.8
Worldwide expedited freight services:
Revenues $ 517.7 437.2 983.0 852.8
Weight in pounds 469.1 443.9 900.4 861.9
===============================================================================================================
8
The Brink's Company
and Subsidiaries
Supplemental Financial Information (continued)
(In millions)
(Unaudited)
COSTS OF FORMER COAL OPERATIONS INCLUDED IN CONTINUING OPERATIONS
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
Company-sponsored postretirement benefits other
than pensions $ 8.6 9.2 18.0 18.6
Black lung 1.0 1.2 2.2 2.7
Pension 1.2 0.5 2.2 1.1
Administrative, legal and other expenses, net 1.3 1.8 3.4 4.3
Idle and closed mine expense 0.1 0.2 0.3 0.4
Gains on sale of property and equipment and
other income (1.3) (2.8) (2.0) (4.5)
- ---------------------------------------------------------------------------------------------------------------------------
$ 10.9 10.1 24.1 22.6
===========================================================================================================================
INCOME FROM DISCONTINUED OPERATIONS
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------
Gain (loss) on sales of:
Timber $ - 1.9 - 20.7
Gold - - - (0.9)
Loss from operations:
Timber - - - (0.5)
Gold - - - (1.2)
Adjustments to contingent liabilities of former operations:
Withdrawal liability 6.1 8.1 6.1 8.1
Other (1.0) (0.7) (4.4) (3.6)
- ---------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations before
income taxes 5.1 9.3 1.7 22.6
Income tax expense 1.8 3.3 0.6 8.0
- ---------------------------------------------------------------------------------------------------------------------------
Income from discontinued operations $ 3.3 6.0 1.1 14.6
===========================================================================================================================
9
The Brink's Company
and Subsidiaries
Supplemental Financial Information (continued)
(In millions)
(Unaudited)
SELECTED CASH FLOW INFORMATION
Three Months Six Months
Ended June 30, Ended June 30,
2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Brink's $ 22.9 19.4 44.1 38.5
Brink's Home Security 14.3 12.6 28.2 25.1
BAX Global 9.6 10.6 19.7 21.3
Corporate - - 0.2 0.4
- ------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 46.8 42.6 92.2 85.3
========================================================================================================================
Capital expenditures:
Brink's $ 18.0 16.2 49.4 32.3
Brink's Home Security (a) 37.8 29.4 81.0 56.1
BAX Global (b) 15.7 3.8 32.8 10.7
Corporate 0.1 0.1 0.2 0.4
- ------------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 71.6 49.5 163.4 99.5
========================================================================================================================
(a) Capital expenditures in the first quarter of 2005 includes $10.2 million for
the purchase of BHS's headquarters. The facility was previously leased.
(b) Includes the purchase of three aircraft.
Other Brink's Home Security cash flow information:
Impairment charges from subscriber disconnects $ 10.8 10.2 19.6 18.9
Amortization of deferred revenue (7.2) (6.6) (13.7) (12.7)
Deferral of subscriber acquisition costs
(current year payments) (6.0) (4.7) (11.0) (9.4)
Deferral of revenue from new subscribers
(current year receipts) 10.2 8.7 19.8 16.8
========================================================================================================================
10
The Brink's Company
and Subsidiaries
Supplemental Financial Information (continued)
(In millions)
(Unaudited)
NON-GAAP RECONCILIATIONS
Monthly Recurring Revenues
A reconciliation of monthly recurring revenues to reported Brink's Home Security
revenues follows:
Six Months
Ended June 30,
2005 2004
- ----------------------------------------------------------------------------
June:
Monthly recurring revenues ("MRR") (a) $ 27.7 24.5
Amounts excluded from MRR:
Amortization of deferred revenue 2.6 2.4
Other revenues (b) 2.7 2.5
- ----------------------------------------------------------------------------
Revenues on a GAAP basis 33.0 29.4
============================================================================
Revenues (GAAP basis):
June 33.0 29.4
January - May 155.7 138.5
- ----------------------------------------------------------------------------
January - June $ 188.7 167.9
============================================================================
(a) MRR is calculated based on the number of subscribers at period end
multiplied by the average fee per subscriber received in the last month
of the period for contracted monitoring and maintenance services.
(b) Revenues that are not pursuant to monthly contractual billings.
The Company believes the presentation of MRR is useful to investors because the
measure is widely used in the industry to assess the amount of recurring
revenues from subscriber fees that a monitored security service business
produces.
Net Debt and Net Financings
June 30, December 31,
2005 2004
- ----------------------------------------------------------------------------------------------
Short-term debt and current maturities of long-term debt $ 81.2 62.6
Long-term debt 214.0 181.6
- ----------------------------------------------------------------------------------------------
Debt 295.2 244.2
Less cash and cash equivalents (161.4) (169.0)
- ----------------------------------------------------------------------------------------------
Net Debt 133.8 75.2
Securitization facility 61.0 25.0
- ----------------------------------------------------------------------------------------------
Net Financings $ 194.8 100.2
==============================================================================================
The Company believes that Net Debt and Net Financings are useful measures of the
Company's financial leverage.
11
The Brink's Company
and Subsidiaries
Organic Revenue Growth
The following table provides supplemental information related to 2005 Organic
Revenue Growth extracted from the consolidated financial information which is
not required to be presented in the consolidated financial statements by GAAP.
The Company defines its 2005 Organic Revenue Growth as the change in its 2005
revenue from 2004 because of factors such as change in prices for its products
and services (including the effect of fuel surcharges), changes in volumes of
business and changes in the product mix. Excluded from 2005 Organic Revenue
Growth are changes in translation rates and the effects of new acquisitions.
Three Months % change Six Months % change
(In millions) Ended June 30, from 2004 Ended June 30, from 2004
- ----------------------------------------------------------------------------------------------------------------------------
2004 revenues as reported:
Brink's $ 465.3 N/A 923.3 N/A
BHS 85.9 N/A 167.9 N/A
BAX Global 580.3 N/A 1,134.8 N/A
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,131.5 N/A 2,226.0 N/A
============================================================================================================================
Effects on 2005 revenue of acquisitions
and dispositions:
Brink's $ 23.4 5 42.7 5
BHS - - - -
BAX Global - - - -
- ----------------------------------------------------------------------------------------------------------------------------
$ 23.4 2 42.7 2
============================================================================================================================
Currency translation effects on 2005 revenue:
Brink's $ 16.5 4 29.4 3
BHS 0.1 - 0.2 -
BAX Global 13.3 2 25.0 2
- ----------------------------------------------------------------------------------------------------------------------------
$ 29.9 3 54.6 2
============================================================================================================================
2005 Organic Revenue Growth:
Brink's $ 31.5 7 50.5 5
BHS 10.8 13 20.6 12
BAX Global 87.8 15 145.1 13
- ----------------------------------------------------------------------------------------------------------------------------
$ 130.1 11 216.2 10
============================================================================================================================
2005 revenues as reported:
Brink's $ 536.7 15 1,045.9 13
BHS 96.8 13 188.7 12
BAX Global 681.4 17 1,304.9 15
- ----------------------------------------------------------------------------------------------------------------------------
$ 1,314.9 16 2,539.5 14
============================================================================================================================
The supplemental information presented above related to the 2005 Organic Revenue
Growth is non-GAAP information that management believes is an important measure
to evaluate results of existing operations without the effects of acquisitions,
dispositions and currency exchange rates. This supplemental non-GAAP information
does not affect net income or any other reported figures. It should be viewed in
addition to, not in lieu of, the Company's consolidated statement of operations.
12
The Brink's Company
and Subsidiaries
OTHER
Value-added taxes and customs duties
During 2004, the Company determined that one of its non-U.S. Brink's,
Incorporated business units had not paid foreign customs duties and value-added
taxes with respect to the importation of certain goods and services. The Company
has been advised that there could be civil and criminal penalties asserted for
the non-payment of these customs duties and value-added taxes. To date no
penalties have been asserted. The business unit has commenced discussions with
the appropriate governmental authorities in the affected jurisdiction regarding
this matter and the Company has made payments covering its calculated unpaid
value-added taxes.
As a result of its investigation, the Company recorded charges in 2004 of $1.3
million to operating profit and $0.8 million to interest expense in the second
quarter of 2004. In the third quarter of 2004 the Company recorded $0.2 million
reduction in the amount charged to operating expense and $0.1 million reduction
in the amount charged to interest expense as a result of updated information.
The summary impact on earnings is provided below.
Three Months Six Months
Ended June 30, Ended June 30,
(In millions) 2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------------
Penalties on unpaid value-added taxes $ - 0.4 - 0.4
Duties - 0.9 - 0.9
- -----------------------------------------------------------------------------------------------------------
Amount charged to operating expenses - 1.3 - 1.3
Interest expense on unpaid value-added taxes
and customs duties - 0.8 - 0.8
- -----------------------------------------------------------------------------------------------------------
$ - 2.1 - 2.1
===========================================================================================================
The Company evaluates many factors to determine whether it should recognize or
disclose a loss contingency, including the probability of an unfavorable outcome
and the ability to make a reasonable estimate of the amount of loss. The Company
believes that the range of probable penalties related to unpaid value-added
taxes is between $0.4 million and $3 million and that no amount within that
range is a better estimate than any other amount within the range. Accordingly,
the Company has accrued $0.4 million for these penalties.
The Company has concluded that a loss related to penalties on unpaid customs
duties is not probable. The Company believes that the range of reasonably
possible losses related to customs duties penalties is between $0 and
approximately $35 million. The Company believes that the assertion of these
penalties would be excessive and would vigorously defend against any such
assertion.
The Company intends to diligently pursue the timely resolution of this matter
and, accordingly, the Company's estimate of the potential losses could change
materially in future periods. The assertion of potential penalties may be
material to the Company's financial position and results of operations. These
penalties could be asserted at any time. Although the Company has accrued
interest on the unpaid value-added taxes and customs duties, the Company does
not expect to be assessed interest charges in connection with any penalties that
may be asserted.
# # #
13