Management’s Plans and Strategies

Mergers and acquisitions

—    Does the company plan to initiate or expect to receive any merger proposals?

—    How would the company determine if a proposed merger would benefit the shareholders?

—    Can shareholders rely on fairness opinions provided by investment bankers?

—    Why has or hasn’t the company employed anti-takeover measures, and how does this impact shareholder value?

—    Has the compensation committee approved any significant change-in-control payments?

—    Did the company delay any planned M&A transactions due to Sarbanes-Oxley requirements?

—    Did anyone acquire a significant interest in the company recently? If so, what are their intentions? What is management’s reaction to this? Is shareholder approval required for business acquisitions and divestitures?

—    Does the company anticipate Company Z, which now owns a significant percentage of the company’s stock, will increase or decrease its holdings? What impact will this have on share prices? How many seats on the board of directors does Company Z have?

—    Why did the company acquire Subsidiary X or invest in Joint Venture Y? How successful was the acquisition? What is the fair value of the company’s investment? What long-term rates of return does management believe are sustainable for these new investments? What measures did management take to ensure that the amounts paid for these investments were fair?

—    Why did the company divest itself of Subsidiary X? What was the fair value of the assets? Did the company receive at least the fair value? How was fair value determined?

Dividends, investments, and other uses of cash

—    What are management’s plans for the proceeds from the recent issuance of its stock or debt, or from the sale of Subsidiary X, patents, trademarks, or tangible assets such as plant, equipment, or real estate?

—    If the company has reduced dividends, why were dividend reductions made without first reducing other cash outlays, including executive compensation?

—    How does the company’s dividend policy compare to the industry? Has the company considered declaring a stock split or stock dividend? Would a stock split or stock dividend have a positive effect on long-term shareholder value?

—    Has the company considered adopting a dividend reinvestment program?

—    How are investment returns on potential new capital projects assessed?

—    What was the nature of R&D costs for each of the last three years? Does the company spend more or less (as a percentage of sales) on R&D than its competitors? What new products were introduced in 2005 as a result of R&D efforts? Were any R&D projects abandoned? If so, what were their costs?

—    What is the amount of the company’s capital budget for next year and the following year? Are cash flows from operations sufficient for these needs? If not, how will these requirements be financed?

Response to changes in tax laws

—    Does the company expect to create jobs as a result of the American Jobs Creation Act (AJCA)?

—    Has the company revised its nonqualified deferred compensation plans to comply with the AJCA?

—    Does the company have a board-approved plan to claim the tax beak on repatriated earnings under the AJCA?

—    Are there any other new or contemplated tax law changes that had an effect on the company in 2005 or will have an effect in future periods? (Consider Federal, foreign, and state laws.) Will the company consider increasing or decreasing asset allocations as a result of tax law changes in foreign or domestic jurisdictions?

—    How does management assess whether tax-planning strategies are effective in managing its income tax obligations domestically and on a worldwide basis?

Response to changes in economic or political environment

—    What effect does the state of the economy or political environment in the U.S. or in other countries have on the company? Does the company expect any benefits or difficulties as a consequence of these conditions?

—    How did domestic and international economies affect 2005 operations? What would be the impact on 2006 profits if additional foreign economies experience difficulties this year?

—    Who are the company’s major foreign competitors? Does the company have plans to address increased foreign competition? What are they?

—    If U.S. interest or inflation rates rise, how will that affect the company? How will increases in the price of oil and other commodities affect the company?

—    How have the company’s financial results been affected by the war in Iraq? What steps has the company taken to protect its personnel and facilities from terrorism and war?

—    What is the likelihood that a foreign government will nationalize the company’s operations?

—    Which foreign countries, if any, restrict or prohibit the repatriation of earnings or assets?

—    How does the company plan to take advantage of the bankruptcy of Competitor Y? Why did the competitor fail, and what measures is the company taking to ensure that a similar fate is not in store for itself?

—    Does the company rely heavily on imports or exports, or compete with foreign companies? If so, how will the changing value of the dollar or the current political environment affect the company’s competitive position? What measures are being taken to reduce the possibility of loss from foreign currency exchange rate changes?

—    Is the company susceptible to exposures arising from market risks and concentrations (e. g., major customers, products, geographical)? How does the company address these risks?

Prospects for growth and expansion

—    What are the major strategic and operating problems facing the company now and in the next five years? How does management plan to address these issues?

—    Have any new competitors entered the company’s markets? How has the new competition affected the company’s strategic planning? How did the company react to additional competition?

—    How have new products been received in the marketplace? What are the expected market shares and profit contributions of each new product? What are the expected lead times and product life cycles?

—    Are any of the company’s products subject to government regulation? Does the company have any significant new products awaiting government approval? What is the expected approval date?

—    What percentage of the company’s sales is from government contracts? Are any of these contracts subject to renegotiation? When do such contracts expire?

—    Are the benefits or useful lives of any products questionable due to competition, patent challenges or expiration or other factors?

—    Has the company attempted to raise the prices of its products or services recently? Was this successful? If not, then why not? What percentage of the sales increase or decrease was the result of price increases or decreases? Of volume increases or decreases?

—    How does the company maintain the quality of its products? What quality assurance procedures are currently in use? Are additional quality assurance procedures being considered?

—    Does the company have any significant sales or purchase commitments for commodities that are vital to sustain critical operations? Are financial derivative contracts, such as futures contracts, used to ensure a steady supply or constant price for these items?

—    Why does the company rely exclusively on a particular customer or supplier, or on a relatively small number of customers or suppliers? Could this relationship adversely affect shareholder value?

—    Does the company hedge price risks on commodities that are critical to the business?

Prospects for growth and expansion (continued)

—    Are any of the company’s significant customers experiencing financial difficulties? Are any of the company’s significant customers under investigation by the SEC or any other law enforcement agency? What are management’s plans to minimize any adverse impact that might result if these customers become insolvent? Have the company’s credit policies been reviewed to reflect changes in the economic environment?

—    How much did the company spend on advertising in 2005? What are advertising expenditures expected to be in 2006? What factors are considered in determining if advertising is effective?

Workforce and management succession

—    What is the status of labor relations? Do any of the current labor contracts link wages to productivity increases? What issues will the company and union likely seek to negotiate when the current contracts expire?

—    Are members of management required to retire at a certain age? If so, what age? Does the retirement policy preclude those individuals from entering into consulting arrangements with the company? Has the company considered implementing, amending, or eliminating retirement policies?

—    Why did specific managers leave the company? What termination benefits are being paid? Are they precluded from establishing relationships with competitors of the company?

Technological and financial innovation

—    How is the company making use of technology in its manufacturing operations? How is management addressing employee, union, and community concerns about jobs being eliminated through plant automation?

—    Does the company sell its products or services over the Internet? If not, does the company plan to establish Internet commerce?

—    What precautions are being taken to ensure that information transmitted through the Internet does not fall into the wrong hands or become compromised? Does the company have a privacy policy regarding customer and employee information?

—    What new financial products are being offered to customers? Are these products being marketed by competitors? Is the company a participant in any of these transactions? If yes, what is the maximum exposure to the company if the financial products fail to perform as intended?

Cost-cutting and restructuring programs

—    What steps has the company taken to streamline or restructure its operations? Are additional steps under consideration? If yes, when will this be announced, and what is the expected impact on earnings in the current year and future years? Has the company notified employees who might be affected?

—    Does the company plan to offer early retirement or other termination incentives to employees to reduce costs and overhead expenses?

—    What is the company doing to control employee benefit costs?

—    What amount was incurred by the company for health care costs for its workforce last year and last quarter? What steps are being taken to control these costs? Has the company considered self-insurance to better manage these costs? Why does the company provide or not provide health insurance for retirees? Does the company believe it would incur significant cost increases if legislation were passed that regulated managed-care providers?

—    What plans are in place to assist displaced workers? What is the labor union’s position on this issue?

—    Has the company outsourced any of its data processing, manufacturing, or other operations? If not, has this been considered and how were the risks of this action assessed? How much of its operations did the company move to offshore locations? Were the overall economic consequences considered?

Cost-cutting and restructuring programs (continued)

—    Is there any idle production capacity? If so, what actions are being considered to eliminate it?

—    How is the company controlling its energy costs in the current operating environment?

Risk management

—    What risk management techniques are used to evaluate the adequacy and cost effectiveness of insured risks? What is the limit of the company’s product liability and catastrophic loss coverage?

—    Does the company self-insure any risks? How sensitive are earnings to changes in assumptions about self-insurance?

—    Does the company have a risk assessment committee?

—    What guidance has the board of directors given management in developing a risk management system?

—    What oversight role does the board of directors have to ensure the integrity of the company’s risk management system?

—    Has the company purchased or sold any finite-risk insurance products?

—    Is the company considering any changes in its insurance practices?

—    Has the company had difficulty obtaining terrorist insurance? Or any other type of insurance?

—    Is there a proper separation of duties between those who create financial risks and those who manage and control risks?

—    Does the company use enterprise risk management?

—    What is the company’s attitude towards financial risks?

—    Were there any significant foreign currency exchange gains or losses in 2005 and in interim 2006 operations? What is the company doing to minimize the impact of changes in foreign currency rates? Does the company hedge its foreign currency exposures?

—    What types of financial instruments and derivatives does the company use?

—    How are the company’s financial instruments and derivatives valued?

—    Does the board of directors understand the implications of the company’s financial instruments, specifically derivatives (e.g., options, futures, forwards, caps, collars, interest rate swaps)?

—    Does the company have written guidelines and policies on the use of financial instruments and derivative instruments? Who formulated those policies? Did the board of directors approve those policies?

—    Is there a limit system in place (i.e., a system that sets the maximum amount of loss the company would tolerate before liquidating a position)?

—    What are the major risks from the company’s use of financial instruments or derivatives?

—    Do management and the board of directors monitor the company’s financial instruments and derivatives exposures?

—    Does the company plan to change its use of derivatives, co-cos, synthetic leases or other financial instruments?

—    How does the company monitor the retirement plans’ investment performance? Do the external auditors audit the plans’ financial statements? Who sets the investment policy for the plans’ assets?

—    What additional costs were incurred as a result of the events of September 11, 2001? Has the company had to implement additional security measures?

Capital structure

—    What is the company’s current price-earnings ratio? Why is it so high or low compared to competitors? In light of this, why has or hasn’t the company issued additional common stock to meet its business expansion plans?

—    How does the company’s debt-to-equity ratio compare to the ratios of its major competitors? How does the company use debt to maximize shareholder returns? How are the risks associated with the current debt load assessed?

—    What interest rates would the company pay if it were to issue additional long-term debt in today’s market? How do these interest rates compare to those that the company is currently paying on its debt obligations?

—    What portion of the company’s long-term debt bears interest at floating rates? What portion is denominated in foreign currencies? Has the company considered measures to reduce the risk of fluctuations in interest rates or foreign currency exchange rates?

Capital structure (continued)

—    Will the company be able to satisfy its short-term cash requirements without obtaining additional financing through the issuance of new debt or equity securities? How did the company make that assessment? Can capital be raised quickly if needed? What contingency plans are in place if it is necessary for the company to react to sudden changes in the economy? Can the company increase its short-term borrowing arrangements with banks, if necessary, and how is the company’s current relationship with its banks?

—    Has the company considered any revisions to common stock voting rights? Has the company considered issuing other classes of common stock with rights and privileges different from those accorded to the company’s common stock? What would be the benefits of such a class of stock?

—    How do FASB Statement 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and the FASB’s project on liabilities and equity affect the company’s capital structure? (See our Financial Reporting newsletter, FASB Statement No. 150 Brings Big Changes (July 2003), at http://www.bdo.com for a summary of possible changes.)

—    Has the company violated (or approached violating) any loan covenants? If so, what costs were incurred to obtain waivers or to restructure these debts? Are additional violations expected in the near term?

—    Has the company considered adopting or rescinding an employee stock purchase plan?

Sources of financing

—    How has the outlook for the stock market and bond market affected the company’s plans for a public offering of its stock or debt? What industry or company factors are relevant in creating a favorable environment for raising additional equity or issuing debt? Does the company plan to refinance any of its existing debt?

—    Would the company consider obtaining additional financing from a private placement of its common stock or debt to institutional investors? Why or why not? Would institutional investors receive more favorable terms in comparison to the terms that might be negotiated with other third parties?

—    Is the company considering any divestitures? If the company is considering any M&A transactions in order to reduce risks attributable to its current operating concentrations, how would they be financed?

—    Would the company pay a market premium if it were able to purchase large blocks of shares from institutional investors? How would this affect the share price?

—    Why does the company issue options, warrants, and convertible securities if such securities have the potential to dilute the interests of current shareholders? How do these actions increase shareholder value?

Liquidity and debt

—    What is the company’s bond rating? Why was the company’s credit rating changed, and what impact will this have on future borrowings? Did the company anticipate this change? What steps are planned to improve the ratings?

—    Is it possible that the company will restructure its debt or file for bankruptcy protection? What effect would this have on existing shareholders, creditors, employees, and the communities in which the company operates?

—    Have transactions such as asset sales and sale-leasebacks been considered to satisfy liquidity needs?

—    How will liquidity of the company be affected by restrictions placed on Subsidiary X, which prevent it from paying dividends to the parent company?

—    Will any pending litigation affect the company’s liquidity needs? How does management assess the potential economic impact of litigation in deciding what course of action it will take?

—    Why did the company incur a deemed dividend or unusual financing charge as a result of beneficial conversion terms on convertible preferred stock or debt? Why did the company offer below-market conversion terms?