Consulting, LLC

[Specific Excerpts from Academic Integrity Code –Section IV. Academic Integrity Code Violations]

The following is a list of violations of the Academic Integrity Code. This list is not exhaustive; however, its terms are broad enough to encompass most potential Code violations.

• Lying. False academic information in any form, regardless of communication method

(e.g. including email or other electronic communication). • Cheating. The use of fraud or deceit to gain an advantage in academic endeavors,

regardless of delivery methods (e.g. face-to-face, online, or via distance education). Examples of cheating include but are not limited to fraud, deception, impermissible communication of information, copying, falsifying data, unauthorized use or possession of study aids, memoranda, books, data, or other information, for the purpose of unfairly manipulating academic materials.

• Plagiarism. Presenting the words or ideas of another as one’s own work or ideas. All directly quoted material must be properly cited. Plagiarism includes but is not limited to borrowing, downloading, cutting and pasting, and paraphrasing without acknowledgement, including from online sources, or allowing a person’s academic work to be submitted as another’s work.

• Unauthorized Assistance. Giving or receiving assistance not specifically permitted by an instructor. (Examples: see under cheating)

• Stealing of Academic Materials. The act of taking academic materials, without an instructor’s or student’s consent, for the purpose of gaining an advantage over other students. This includes but is not limited to stealing or attempted stealing of notes, papers, books, library materials, tests, answer keys, computer programs, or any electronic devices.

• Multiple Submission without an Instructor’s Consent. Submitting the same work more than once without permission from all faculty involved.

• Assisting Code Violations. Helping another student violate the Code. Examples of assisting code violations include but are not limited to allowing another student to copy work, provide answers to questions appearing on assignments, quizzes, or exams, unauthorized collaboration, and taking an exam for another student.

As respects all coursework assigned in FIN 4950, especially work product associated with the comprehensive risk analysis (Case Project), each student is expected to abide by Appalachian’s Academic Integrity Code. Re-submission of this completed statement of the Honor Pledge is required as part of your submitted Case Analysis/Paper. I have reviewed and understand the above examples of Academic Integrity Code Violations. ___________________________ Signature Date _______________________________________ Printed Name

[Specific Excerpts from Academic Integrity Code –Section IV. Academic Integrity Code Violations]

The following is a list of violations of the Academic Integrity Code. This list is not exhaustive; however, its terms are broad enough to encompass most potential Code violations.

• Lying. False academic information in any form, regardless of communication method

(e.g. including email or other electronic communication). • Cheating. The use of fraud or deceit to gain an advantage in academic endeavors,

regardless of delivery methods (e.g. face-to-face, online, or via distance education). Examples of cheating include but are not limited to fraud, deception, impermissible communication of information, copying, falsifying data, unauthorized use or possession of study aids, memoranda, books, data, or other information, for the purpose of unfairly manipulating academic materials.

• Plagiarism. Presenting the words or ideas of another as one’s own work or ideas. All directly quoted material must be properly cited. Plagiarism includes but is not limited to borrowing, downloading, cutting and pasting, and paraphrasing without acknowledgement, including from online sources, or allowing a person’s academic work to be submitted as another’s work.

• Unauthorized Assistance. Giving or receiving assistance not specifically permitted by an instructor. (Examples: see under cheating)

• Stealing of Academic Materials. The act of taking academic materials, without an instructor’s or student’s consent, for the purpose of gaining an advantage over other students. This includes but is not limited to stealing or attempted stealing of notes, papers, books, library materials, tests, answer keys, computer programs, or any electronic devices.

• Multiple Submission without an Instructor’s Consent. Submitting the same work more than once without permission from all faculty involved.

• Assisting Code Violations. Helping another student violate the Code. Examples of assisting code violations include but are not limited to allowing another student to copy work, provide answers to questions appearing on assignments, quizzes, or exams, unauthorized collaboration, and taking an exam for another student.

As respects all coursework assigned in FIN 4950, especially work product associated with the comprehensive risk analysis (Case Project), each student is expected to abide by Appalachian’s Academic Integrity Code. Re-submission of this completed statement of the Honor Pledge is required as part of your submitted Case Analysis/Paper. I have reviewed and understand the above examples of Academic Integrity Code Violations. ___________________________ Signature Date _______________________________________ Printed Name

4

Table of Contents I.Introduction....................................................................................................................................................5

II.StrategicRisk..................................................................................................................................................6

TampaFacility................................................................................................................................................6

LakeNormanHouse.......................................................................................................................................8

Personnel.......................................................................................................................................................9

ExternalEnvironment...................................................................................................................................10

II.OperationalRisk...........................................................................................................................................13

HighPointPlant............................................................................................................................................13

Just-In-TimeInventorySystem.....................................................................................................................14

TransportationofGoods..............................................................................................................................14

LostTimeIncidents......................................................................................................................................15

WorkSafetyPrograms.................................................................................................................................16

BacktoWorkPrograms................................................................................................................................18

HiringPracticesandWorkplaceDiscrimination...........................................................................................20

ContingencyPlanning...................................................................................................................................21

III.FinancialRisk...............................................................................................................................................23

InternalInvestment......................................................................................................................................23

RiskFinancing...............................................................................................................................................27

IV.HazardRisk..................................................................................................................................................29

NaturalPerils................................................................................................................................................29

Property.......................................................................................................................................................32

InternalHazards...........................................................................................................................................33

AgencyCostsandAssociatedRisk................................................................................................................37

AccidentsandLossControlProgram............................................................................................................39

Insurance......................................................................................................................................................40

V.Conclusion................................................................................................................................................42

5

I. Introduction On behalf of everyone here at Clearview Consulting, LLC we would like to begin by thanking

Jigsaw Manufacturing Company (JIGM) for your business and we are honored to have the

opportunity to develop a mutually beneficial professional relationship. The following contains a

report of our recommendations to assist your firm in reducing overall cost of risk, improving loss

control measures, and ensuring that you will have the resources needed to survive and prosper in

the furniture manufacturing industry for many years to come. We have categorized the risks facing

your firm as follows: Strategic Risk, Operational Risk, Financial Risk, and Hazard Risk. We discuss

the factors that fall under these categories in detail. As we go through, bear in mind that these

categories are not absolute. Many items that we discuss will fall under more than one of these risk

quadrants and will be mentioned throughout this report. We also identify the areas where we see

mistakes by your firm and present to you why we believe there is room for improvement. We hope

you find our analysis to be helpful to moving forward.

6

II. Strategic Risk

We will begin by looking at the strategic risks that are present within your firm. This section

will capture some of the big picture risks that face your company including trends in the economic,

sociocultural, technological, and demographic sectors of the external environment. We will also

point out steps that can be taken internally to combat these risks and take advantage of the

circumstances.

Tampa Facility

Before any suggestions can be made concerning what to do with your Tampa facility, it must

be brought to your attention that you are in direct violation of your lease by using the facility as a

manufacturing plant. Article VIII of your Tampa lease clearly states, “The Leased Premises may be

occupied and used by Tenant exclusively as a warehouse… Nothing herein shall give Tenant the

right to use the property for any other purpose or to sublease, assign, or license the use of the

property to any sub lessee, assignee, or licensee, which or who shall use the property for any other

use”. Article XII, Section 1 of the lease also discusses how defaulting on your arranged agreement

gives the landlord the right to terminate your lease if you have not remedied these violations in the

allotted time frame.1 Adding to the cause is the fact that you are greatly overpaying for rent and a

considerable amount of money needs to be put into the company to improve loss control (i.e.

sprinklers, training programs, etc.). In addition, it should be noted that the Tampa area is rated by

Climate Central as the city most vulnerable to hurricanes in the United States (this will be discussed

further in the hazard section of this report).2 Taking all of this into account, we strongly suggest

finding a way out of this lease and moving the production of your Jameson Brand elsewhere.

Although not easy or guaranteed, there are far better options available to you than defaulting. The

1 For additional risks noted in the lease, refer to lines 111-118 in the Exposures column of the Risk

Identification Table

2 Freeman, A. (2012, June 6). 5 Most Vulnerable U.S. Cities to Hrricanes. Retrieved November 2,

2015 from Climate Central: http://www.climatecentral.org/news/top-5-most-vulnerable-us-cities-to-hurricanes

7

easiest way to would be to simply ask your landlord if he or she would be willing to terminate your

lease. Considering the rental market in Tampa is very poor at the moment, it would be very difficult

for your landlord to find another tenant to lease the space at the same price. This option does not

seem viable given the current situation, but is worth negotiating nonetheless. As an alternative you

could propose a buy-out to your landlord. However, since you still have a significant amount of time

left in your lease, this could prove to be difficult and pricey. Although it may not seem to be the most

attractive option, it may be your best choice at this point and is our suggestion on dealing with this

issue. You may even offer your security deposit as part of the transaction to try to influence the

decision. If neither of these prove to be successful, unfortunately, your only remaining option would

be to walk away from the lease. By doing so, you would still be liable for the rest of the lease until

the landlord finds a new tenant. However, this is not as terrible as it sounds. You would no longer

be in violation of the lease and your operations would be moved from the area that poses such a

high risk for severe weather. Landlords have a duty by law to mitigate damages. This means they

are obligated to attempt to find another tenant to lease your space instead of just doing nothing and

collecting rent from you.3 If a new tenant pays higher rent, then you are off the hook. However, if

they pay lower rent (which is the most likely case in this scenario) you are liable for the difference.

Although it is the law, some landlords still may not be incentivized to work toward finding a new

tenant. This is especially true given the condition that the Tampa market is in. This is why we

suggest taking it upon yourself to attempt to find a new tenant to assume at least a portion of your

lease obligations. In doing so, remember that it is stated in your lease that you cannot “…sublease,

assign, or license the use of the property to any sub lessee… who shall use the property for any

other use”. This means that the tenant you find to lease this space must be using it as a warehouse

and nothing more. Otherwise you will once again be violating the parameters of the lease. However,

this is good news for you because the demand for a warehouse should be more than the demand

for a manufacturing facility.

3 Steinberger, J. (2207, January 23). Getting Out of a Commercial Lease. Retrieved on November 5,

2015 from Entrepreneur: http://www.entrepreneur.com/article/173568

8

Once you exit the lease, hopefully in a relatively smooth and inexpensive manner, we

suggest moving your Jameson brand operations to a safer area - away from the coast, out of flood

plains, and away from major fault lines. If you plan to rent again in the future, hire a legal

professional before entering into a binding contract to review the lease agreement (or draft one if

there is none on the part of the landlord). Make sure you know what limitations and covenants are

included. Attempt to include certain provisions that will allow you to exit the lease early under

special circumstances. However, we suggest that you purchase the facility that you are moving the

Jameson brand into (this will be discussed further). Part of the reason is to avoid these contractual

risks and unfavorable commitments in the future.

Lake Norman House

The house that was purchased on Lake Norman seems as though it is being used more for

pleasure than actually being an integral part of your operations. We understand the intuition behind

inviting bigger clients to this venue in order to build a more personal relationship with them. An

attempt to curtail any of their purchasing doubts is admirable. However, putting the house in

Jigsaw’s name puts way too much liability risk on the company. Seeing that employees and owners

of the company mostly use the house for personal reasons, we suggest putting the title in the name

of an individual instead of tying it to the company. We also suggest that you insure it under a

homeowner’s policy special form 3 (HO3). In doing so, Jigsaw can no longer be held liable for

anything that happens at the Lake Norman property. It should be noted that any liability or medical

payments that arise from the operation of a watercraft the size of yours is excluded from the

watercraft liability section of the HO3 policy form if it is being used for “business purposes”.4 That

being said, if you are using your boat to entertain business clients and they were to be injured you

would not have any coverage. Property damage to a boat of this size is also excluded from an HO3.

4 International Risk Management Institute, Inc. (2015). Watercraft Liability. Retrieved from IRMI:

http://www.irmi.com/online/prmi/ch011/1l11c000/bl002740.aspx

9

With that in mind, we suggest you buy a separate boat insurance policy and we discourage using it

for any business purpose.

Personnel

Given the economic environment, we understand why you felt the need to decrease your

workforce significantly in the past few years. However, doing so and forcing your remaining

employees to work extended shifts for no additional pay has diminished and somewhat neglected

them. You are also greatly increasing the chance of those employees getting injured on the job. No

matter how well trained or hard working an employee is, requiring them to work twelve-hour shifts in

a physically demanding job will eventually result in exhaustion. Fatigue increases the chance for

careless errors that should have never been. This is why we propose that you begin hiring more

manufacturing employees. You could also begin the search process by offering employment to

some of the better employees that you fired a couple years ago, assuming they are still interested.

Hopefully this will repair some of those damaged relationships and improve your image. Hiring more

employees will allow you to move to an eight or nine-hour shift instead of a twelve-hour shift. This

will not only improve the morale of your manufacturing employees, but will also reduce the hazard

risk associated with long shifts. We also encourage corporate level management to get more

involved in the hiring process of new employees. By only handling it locally, you are limiting your

potential to bring in quality employees from all parts of the country as well as other industries.

Usually corporate level employees have far reaching contacts that should be utilized to attempt to

hire the best of the best. Diversification in the workforce should not be disregarded because it can

potentially bring new and innovative perspectives to an errant process or procedure that may have

otherwise gone overlooked.

In relation to increasing the overall attitude employees have toward their job at Jigsaw, we

like the suggestion for a 401(k) program. Keeping employees happy and vested in the company can

positively impact work ethic. You may be surprised to find how much more they will put into their job

and actually enjoy it if the proper incentives are in place. Also, instead of offering incentives that

10

increase risk of employee injury such as fishing contests and providing alcoholic beverages, we

suggest expanding your current health plan to promote employee wellness and reduce the burden

of having to shop for affordable coverage. A group health plan will be relatively expensive given

your recent loss history, but we believe you can make steady improvements in the coming years to

reduce accidents. This will help to ensure that your employees are taken care of just in case there is

a gap in the workers compensation coverage (such as extended medical bills due to needed routine

care) and they are not able to afford health insurance on their own. This will prove to be valuable to

your employees and show that Jigsaw Manufacturing Company cares about employee well-being.

We understand there have been some internal communication issues as well. Specifically,

the situation surrounding Irene Kennedy and Quinlan Casey. This is a matter that needs to be

handled quickly. It does not matter who reports to whom, the message that needs to be relayed is

that employees of the same organization should be working toward the same goal. In this case that

goal is keeping your employees safe. One of Mrs. Kennedy’s duties as Claims Administrator is to

make available the loss information to anyone in the company that may need it. Someone such as

Mr. Casey who is attempting to analyze the losses in order to try to prevent similar ones from

happening in the future must be able to access this information. This is a problem that can be

prevented and should easy to fix if the proper measures are in place. Politely urge Mrs. Kennedy to

share the necessary information with her colleagues and assure that she continues to do so in the

future. Also make clear the repercussions she will face if she fails to do so. Suggestions detailing

exactly what Mr. Casey should do to enhance safety will be discussed later in the Operations

section of this report.

External Environment

Since the economy and the housing market have begun to recover, expectations are that

the furniture industry will fall in line and do the same. You should be proud that your company

survived the collapse of the furniture industry that followed the housing bust. As you know, many of

your competitors were not able to adapt and make the necessary changes to stay alive in the

11

industry. Due to the fact that the industry is rapidly changing, we wanted to make you aware of

some of the trends that the industry is experiencing right now so that your company can be

proactive and innovative in order to stay on top of the competition.

One of the biggest changes in the furniture industry right now is how consumer preferences

are beginning to drive manufacturing in a different direction. Baby Boomers are exiting the market

and a much younger generation with different tastes are entering the market. With that, there are

fewer consumers wishing to fill a big house with high-end furniture and more people are looking to

fill smaller spaces with cost efficient furniture. Although quality is still a critical factor, it is no longer

the most important variable in the manufacturing process. Technology, logistical efficiencies, and

speed are growing in importance. According to Multifamily Executive, as of 2013, the average

apartment size was 982 square feet and shrinking. In metropolitan areas, space is coming at a very

high premium. This means that the consumers beginning to take over the market (the 20 to 35 age

group) are in need of less and smaller furniture and want it at a lower price. At the same time,

consumers are also trending towards increased functionality and storage. As apartments continue

to shrink, floor plans have been moving towards multi-purpose rooms. As a result, there is now less

distinction between kitchens, living rooms and dining rooms. This is forcing manufacturers to rethink

and redesign products to meet the increasing demand for multi-purpose furniture. This is also why

brands like IKEA are starting to gain more and more market share. They are attacking a cost

leadership strategy that increases functionality, but sacrifices quality.5 We are not suggesting that

you stop producing your higher-end quality goods, but we are urging you to consider developing

more cost efficient products that can be sold at a lower price to reach a broader customer base.

This can be done under another brand name to avoid disparaging higher-end customers, all the

while capturing such an important and growing market segment. We suggest developing a research

and development department in order to accomplish this. By finding a handful of qualified people

5 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

12

that know the industry, you can continue to monitor it closely, and forecast where the industry is

heading to create products that are ahead of the latest trend. If properly implemented you should be

able to regain some of the market share that you may have lost to competitors. In addition, the

department could test and monitor products in order to prevent another recall from happening.

In recent years, international markets have been opening up around the world. Although it

may involve quite a bit of time and effort to establish distribution channels and build international

relationships, it could prove to be rather profitable to venture into selling overseas. With areas like

Russia and Eastern Europe beginning to establish themselves as importers, opportunities have

begun to emerge in those countries. It is also worth noting that growing middle classes in areas like

China and India are increasing demand for higher-end furniture.6 Exporting to these areas could

offset the drop in demand you have been seeing in that product market domestically. Another way

to establish yourself in the industry and differentiate your products from those of your competitors is

by building your brand. In order to do so, top management needs an all-encompassing strategic

marketing plan. You currently do not have a marketing department. Is there anyone in the firm

dedicated to promoting the company? If not you should consider assigning or hiring some

employees to be responsible for making your brand a household name. Advertising campaigns and

product line promotions will help get your name out there, but more needs to be done to really

brand yourselves in today’s multimedia world. Non-traditional methods of promoting such as mobile

device advertising, targeted web advertising, social media network integration are key to increasing

product awareness and really establishing yourself in the global economy.

6 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

13

II. Operational Risk We will now shift our focus to the risks that are present in the day-to day operations of your

company. These risks have presented themselves due to flawed processes and procedures, or lack

thereof. To account for these risks, a top-down approach needs to be taken. From that, you have to

instill a mindset of loss control and safety throughout the company down to the plant managers,

supervisors and employees. It needs to be made clear that accident prevention is priority and those

hindering that effort will be dealt with accordingly.

High Point Plant While reviewing your operations, one of the first risks that caught our attention concerns

your High Point facility. It seems to be of sufficient size to suit your operations, but the fact that it

was outdated even in 1985 raises red flags. Thirty years later, the condition of the building is likely

hazardous to not only you and your employees, but it also poses a threat to your furniture lines that

are manufactured at that facility. Should the structural integrity of the building fail, it could very well

damage equipment that is vital to production and cause a disruption of your business for an

extended period of time. Even more important is the fact that this plant also serves as your

corporate headquarters. Production being interrupted should be a top concern for business

longevity and security. Not only that, but you could also be violating building codes if this facility

hasn’t been updated since you acquired it. Local building codes require any building suffering

damage of 25 percent or more be rebuilt to current codes and any building 11 years or older with 50

percent or more damage must be demolished and rebuilt. We suggest getting this plant inspected

by a professional to ensure that you are not violating any codes. We would like to hear back from

the inspector to further justify our recommendations, but as of now, we suggest scrapping the

building all together and building a new one. Your company will most likely need to do this in the

next decade anyway due to the fact that buildings simply don’t last forever, and considering how

low of an interest rate environment we are in right now, there couldn’t be a more cost effective time

to do so. Additionally, you could continue production of your Jigsaw and Kid’s Designs lines in the

14

old facility while the new one is under construction, as not to disturb your business as you would if

you had to renovate your current facility.

Just-In-Time Inventory System We are very concerned with the high levels of inventory being stored at all of your facilities.

While it is prudent to diversify your inventory throughout your facilities to avoid one occurrence from

causing a severe loss, we suggest employing a just-in-time inventory system. This will increase

efficiency and decrease waste by shipping in raw materials only as they are needed in the

production process, ultimately decreasing costs associated with holding so much inventory. This will

also decrease the risk associated with holding high levels of inventory. If you have fewer finished

products sitting idle in your facilities, the severity of a loss due to a natural peril will be much lower.

This results in being able to possibly lower your limits of insurance for said risks. Lowering your

premium and reducing your overall cost of risk will free up funds to pursue other projects. A just in

time inventory system will also reduce the extent to which tractor-trailers must be relied upon. This

lessened use would reduce the hazard risk associated with the transportation of your finished

goods to storage. However, in order to successfully employ a proper just in time inventory system,

your company will need to put forth great effort into being able to produce an exceptionally accurate

and detailed demand forecast. If you lack employees with expertise in this area, we recommend

hiring out the service to a qualified professional.

Transportation of Goods This leads us directly to our next concern, which involves all of the risk surrounding the

delivery of your final product to the end customer. Before diving directly into the details, we

encourage you to take a look at the visuals and accompanying values provided in the Claims

Workbook on the Workers Compensation Analysis by Department sheet. As you can clearly see,

your Distribution/Trucking department is yielding the second highest workers compensation losses

behind your manufacturing department. In addition, those losses have been steadily increasing by

approximately $73,000 each year over the past three years, which should raise serious concern

and lead to implementation of loss control measures. Our suggestion would be to protect your

15

operations and limit liability by contracting out the transportation of your finished products to a third-

party trucking company. The box trucks at each location would then be obsolete and could be sold.

There are simply too many risks that need to be overcome in order to keep this portion of your

operation in house. In order to continue, new drivers would need to be hired to eliminate long shifts

with ridiculous requests that are being handed down by the shipping supervisors. Driving a

commercial vehicle for sixteen hours is dangerous, illegal, and it is unethical to ask this of your

employees. You are putting both them and innocent people on the highway in danger. Before hiring

new drivers is even considered, you would need to enforce a more comprehensive and rigorous

hiring policy to ensure that you are employing qualified drivers and not just anyone who applies.

Plant managers would then need to be trained to make sure they know how to carry out this new

policy. In addition, you have the problem of furniture mysteriously disappearing from shipments. It is

only reasonable to suspect it that company drivers are misplacing the furniture. If employees cannot

be trusted, then they should not be allowed to transport shipments with thousands of dollars’ worth

of expensive furniture. Equipping each truck with telephones and radar detectors increase the

chances of an accident and encourage reckless behavior. The injuries that are arising from the use

of these devices are reflected in your recent loss history.7

Lost Time Incidents Another big concern we have is that employees are abusing some of the privilege being

granted to them. Encouraging employees to further their education is a great initiative and we have

no issue with allowing them to do classwork during lunch. Giving each employee the flexibility to

choose how he or she spends their lunch hour is great incentive as long as it does not jeopardize

the well-being of the company. Turning a blind eye and allowing lunch breaks to extend “well past”

an hour creates a lost time hazard. If you allow one or two employees to do so even periodically,

missed time will begin to add up quickly. In addition, other employees will begin to notice the

leniency and might try to find ways to take advantage of this themselves. We would be shocked if

this were not already taking place. Our fix is simple, be stern when it comes to breaks and time off

7 Refer to Claims Data By Department sheet under Claims Workbook in the appendix

16

the job so that you minimize wasting valuable company time and resources. Make it clear, in

writing, when breaks are to take place and how time-off is allocated. Those who fail to comply

should be reprimanded based on the rules that were set. Each employee needs to be made aware,

before the act occurs, what punishment they will face if rules are violated. Managers and

supervisors must be held responsible for enforcing these rules in order for any significant progress

to be made.

Work Safety Programs Before we address executing better get back to work programs, we would like to discuss the

lack of proper safety protocol that lead to so many preventable lost time accidents. We recognize

that your company is reluctant to free up funds for safety initiatives. Looking at your balance sheet,

we noticed that Jigsaw Manufacturing Company is retaining a considerable amount of earnings

while sitting on a significant amount of cash. This liquidity provides you with a great opportunity to

enhance the safety of your employees. The formation and implementation of safety initiatives is a

rather substantial task and is a crucial aspect to the operations of any business. According to

Heinrich’s Domino Theory, 88% of accidents in the workplace are a result of unsafe acts by

workers, and the remaining 12% of accidents are due to defective equipment. This led Heinrich to

believe that efforts to improve safety are more effective when they are focused on loss prevention

through human relations rather than engineering processes. However, this is not to say that

engineering processes should be ignored. Current theories determine that accidents are caused by

four main factors. Those being: unsafe acts of people, unsafe mechanical equipment, the physical

environment, and attitude of management. We believe the most important aspect of any safety

initiative is the aggressive leadership from top management. Employees must realize that

management is serious about loss control. Otherwise employees have little incentive to improve the

overall safety of the work environment.8 Once a mindset of loss control has been established

8 Leverett, E. J. (1989). Loss Control Makes Good Sense. In E. J. Leverett, Risk Management (pp.

21.7-21.8). Athens, GA: Department of Risk Management and Insurance, College of Business Administration,

University of Georgia.

17

employees can begin to be educated. To start, set a number of safety goals that you wish for all of

your employees to strive toward and follow. An excellent example is the DuPont Model. One aspect

of this model is that any mishaps resulting in a day off the job must be reported to the safety

director within twenty four hours so that they may take measures to try and prevent it from

happening again in the future. Management should come together to form realistic safety goals that

all are comfortable with and can be realistically achieved. After identifying what’s necessary to

accomplish these goals, it needs to be relayed to each and every employee. This is where

employee education is key. All of your employees need to know exactly what it is you are asking of

them and exactly how you want them to react when an accident occurs. Confusion amongst

employees in an emergency can prevent an accident from being squandered or lessened. Consider

assigning responsibilities to certain employees when it comes to safety protocol. One example

would be making weekly pre-loss inspections of the facilities mandatory for plant managers.9 Our

goal here is to give you a framework instead of being too specific. Your company possesses the

people most qualified to build a safety program that is tailor-made to your company. Nobody knows

your company like you and your employees. It will take a lot of time and consolidated effort to

analyze your operations from top to bottom in order to create an effective safety plan.

The next phase in your program would be to measure the performance of all of your

employees. This can be as simple as a sign that displays the number of days that have passed

since a lost-time accident occurred. We suggest taking it further and incentivizing your employees

to take it upon themselves to measure their own safety performance. This can be done through an

employee safety incentive program. In such a system, the employee’s safety record would be the

main factor in considering promotions or bonuses. Plant managers would also be rewarded for

taking initiatives to ensure that little or no accidents occur under their supervision. This would

9 International Risk Management Institute, Inc. (2015). Watercraft Liability. Retrieved from IRMI:

http://www.irmi.com/online/pracrisk/ch00000d/prmd0001-safety.aspx

18

ensure that safety is the number one concern of every employee in the facility. A final step would be

to correct any problems that have surfaced during the process and continue to monitor results.

Review loss data on a consistent basis, perhaps quarterly, to determine where corrections and

improvements can be made. In the appendix under the “Claims” tab we have presented your

current losses a number of ways including location, injury type, department, and others. We

encourage you to examine this data and continue to use some form of grouping moving forward.

Being able to identify exactly were losses are occurring will be extremely valuable as you can then

adjust your programs accordingly and focus your attention where improvements are most needed.10

If you continue to emphasize the importance of the program and ensure that all of your employees

cooperate, a system such as the one we have laid out will be sure to reduce your worker’s

compensation losses and help minimize your overall cost of risk. If such a program would have

been in place during the time of Andy Garcia’s accident, his injuries and your losses could have

been reduced or completely prevented. If employees had been educated on proper safety protocol,

everyone would have known exactly where the first aid kit was located and emergency medical

responders would have been contacted. If this had been the case, Mr. Garcia’s fingers could have

possibly been salvaged. In that scenario, he would have been able to return to work sooner,

minimizing not only his injuries but also your workers compensation losses.

Back to Work Programs We can now look at how to integrate employees in situations similar to that of Mr. Garcia

back into the workforce quicker and more smoothly. There are many types of transitional, modified,

or light duties that disabled workers can perform while they are in the healing process and

attempting to get back to full health. From the company’s perspective, the most cost efficient way

that can happen is to allow the employee to return to their former position with accommodations for

their physical limitations. Keeping employees as they were is ideal for them as well, and research

even suggests that minimizing disruption in the employees’ normal routine can enhance their

10 International Risk Management Institute, Inc. (2015). Loss Control. Retrieved from IRMI:

http://www.irmi.com/online/crm/ch004/1l04a000.aspx

19

emotional state and even lead to a quicker recovery.11 This may involve modification of their normal

job, such as lowering your expectation of their production and allowing them to work at a slower

pace. This may also involve altering the workplace around them to adapt to their needs or allowing

them more breaks. Of course, adjustments such as these are not always possible. If the disabled

employee is not able to perform their normal duties, it may be necessary for another employee to

be brought in to temporarily fill the position. The disabled employee can then be transferred to a

position that they are capable of performing under the circumstances. The plant manager that

suggested moving Mr. Garcia to a desk to answer phones was prudent. This provides Mr. Garcia

with a great opportunity to continue his employment at Jigsaw Manufacturing Company despite the

unfortunate situation. We do not believe this will insinuate that your company allows workers to

shirk their duties, but instead that your company encourages your workers to transition back into the

workforce instead of sitting idly at home. As mentioned before, getting back to work can improve the

emotional state of an injured employee and act as a healing catalyst. We believe that if Mr. Garcia

had been allowed to continue working at Jigsaw in some capacity, the notions of forming a union

would not have been formulated and there would be no need to consider firing him. You should be

aware that firing Mr. Garcia as retaliation for motioning to start a union is in direct violation of the

law and could very easily result in a wrongful termination lawsuit against your company. In order to

fire an employee, you need to have legitimate cause, such as gross misconduct or poor

performance.12 Mr. Garcia’s actions were protected under the law. Employment practices liability is

insured on a claims-made basis. With that in mind, we suggest increasing your employer’s liability

limits because Mr. Garcia could still file a claim against you at any time.13

11 International Risk Management Institute, Inc. (2015). Types of Transitional Duty. Retrieved from

IRMI: https://www.irmi.com/online/iwc/ch016/1l16e000/al022940.aspx

12 Beesly, C. (2012, February 22). How to Fire an Employee and Stay within the Law. Retrieved on

November 7, 2015 from U.S. Small Business Association: https://www.sba.gov/blogs/how-fire-employee-and-

stay-within-law

13 Refer to the Insurance Program Workbook in the appendix

20

Hiring Practices and Workplace Discrimination

An issue of the utmost concern is the hiring practices that are in effect at your upholstering

division. By hiring only women in this department, whether it is formal or informal, you are not

adhering to the standards set by the Equal Employment Opportunity Commission. This puts you in

direct violation of the law. Title VII of the Civil Rights Act of 1964, as written, “protects applicants

and employees from discrimination in hiring, promotion, discharge, pay, fringe benefits, job training,

classification, referral, and other aspects of employment, on the basis of race, color, religion, sex

(including pregnancy), or national origin.”14 Not only are you in violation by primarily hiring females,

but the male employee that was being persecuted for simply being a male in a predominately

female work environment has very strong grounds to file a Charge of Discrimination with the U.S.

Equal Employment Opportunity Commission. This could very well lead to the filing of a job

discrimination lawsuit against you.15 Considering that this male employee was also being bullied to

the point of finding a dead rat in his locker, the prosecution has a very strong case. This presents a

major legal hazard, especially to directors and officers of your company who can be held personally

liable for these actions, (which is one reason why we suggested raising Directors and Officers

Liability policy limits).16 These errant hiring practices need to be stopped immediately. You can no

longer hire an employee for a certain job based primarily on gender or any of the aforementioned

human characteristics.

14 Equal Employment Opportunity Commission. (2009, November). Equal Opportunity Employment is

the Law. Retrieved from U.S. Equal Employment Opportunity Commission:

http://www1.eeoc.gov/employers/upload/eeoc_self_print_poster.pdf

15 Equal Employment Opportunity Commission. (n.d.). Filing a Charge of Discrimination. Retrieved on

November 9, 2015 from U.S. Equal Employment Opportunity Commission:

http://www.eeoc.gov/employees/charge.cfm

16 Refer to the Insurance Program Workbook in the appendix

21

Contingency Planning

It would be in the best interest of Jigsaw Manufacturing Company to develop a contingency

plan for each facility. You may look to hire a full-time employee or consultant with expertise in this

area. Contingency plans are put in place to ensure business continuity in the event catastrophic

damage occurs at a facility to the point that it can no longer be used for production. Natural

disasters and other perils can halt operations for an extended period of time if preventative action is

not taken. All of your facilities are in high-risk weather areas. This paired with the physical condition

of the facilities increases the probability of suffering a severe loss. Formulating a viable contingency

plan is a rigorous process and management will need to spend a lot of time assessing various

options.

The first step is to identify the risks to which the plan must respond. Any event that could

cease operations needs to be evaluated. The focus of this research should be to reveal single

points of failure (SPOFs). SPOF refers to any single input to a process that, if missing, would cause

the process or several processes to be unable to function. Once an SPOF is uncovered the

damaging effects thereof can be eliminated or reduced. The actual risks must then be analyzed to

determine the probability of them occurring. There are three main components to consider when

you are doing this evaluation: threats, assets at risk, and mitigating factors. Threats are measured

based on the probability that they will actually occur (i.e. once every ten years). A duration to each

threat must be determined. That is, estimating how long it would hinder your operations. Assets at

risk that must be considered include not only physical assets, but financial assets such as goodwill,

delayed collection of funds, and lost competitive advantages. Mitigating factors refer to measures

that are in place to reduce the effect of the threat if it were to occur, but do not eliminate the threat

itself. Examples of these would include backup generators during a power outage or sprinkler

systems to reduce damage from fire.

The next step in the contingency planning process would be to perform a business impact

analysis. A business impact analysis identifies functions that are critical to operations and

22

determines the impact an occurrence would have on that function. The loss of business that would

be incurred as a result of that particular threat occurring will then need to be estimated. When doing

this estimation operating, financial, and legal/regulatory impact (such as being able to fulfill

contractual obligations to customers and suppliers) should all be considered. You can then come to

a conclusion as to how long it will take for each function to recover from said impact and what

resources will be required to do so. The next phase of this process would be to develop recovery

strategies. It must be determined exactly how necessary resources will be obtained to continue to

perform these critical operating functions. Recovery options can include transferring part or all of

your operations to another one of your facilities. Some firms have even built facilities for the sole

purpose of serving as a backup in times of emergency. If you do not find either of these options

attractive consider setting up an emergency satellite location where the administrative function of

your business can continue to operate. This satellite location would serve as a default headquarters

in times of emergency. Other businesses may be able to accommodate for this in the form of a

reciprocal agreement. Agreements with suppliers also need to be established to enable this

process. Each of these options must be thoroughly evaluated to decide which alternatives are the

most efficient and cost effective for you. In any event, it is vital that you have arranged for the

recovery of important documents and records. Backup and protection of records is necessary to

ensure their availability after a disaster. Storing records off-site allows management to be prepared

to rebuild business functions if the recovery plan is ever needed.

Once a business recovery procedure has been agreed upon and approved it needs to have

guidelines established that can be reviewed and practiced. The viability of the plan needs to be

tested by running a mock emergency response. Testing the plan can not only reveal deficiencies,

but can also be used for training purposes. It is recommended that the plan be tested at least once

a year to ensure smooth execution in the event of an actual occurrence. After your plan is tested

and authenticated, it must continue to be reviewed to adjust for risks that are always changing and

23

arising. By having a contingency plan in place you are greatly reducing your business continuity risk

and proactively working towards a more stable and lasting operation.17

III. Financial Risk Here we would like to talk about some steps you can take financially to reduce your overall

cost of risk and maximize firm value. We will also identify areas where we feel you are taking on too

much risk and offer suggestions accordingly. You have done very well to have survived what has

been a trying decade for American furniture manufacturers. Shrinking consumer demand, advances

in technology, a flood of imported products and the subsequent global recession have threatened

firms of all sizes in the industry. A number of firms have failed to adapt and have been forced to

close or merge.18 While previous years have been bleak, the departure of competitors in furniture

production does present opportunities for your firm to gain valuable market share. With sound

oversight and a long-term vision we believe this can be accomplished.

Internal Investment We will begin by taking a look at your financial statements. As it stands Jigsaw

Manufacturing Company is very liquid with virtually zero debt for a company of this size. This is not

a bad scenario per se if the company were generating more revenue. As you can attest, a projected

growth rate of only two percent and net income decreasing by half from 2013 to 2014 indicate that

the company is underperforming. Obviously the driving force behind earnings is sales. In order to

generate sales you must invest in the company. This can be done a number of ways and the time to

act is now. This is the lowest interest rate environment we have experienced in decades. The

Federal Reserve is begging businesses to spend money in order to try and get the economy

growing at pre-2008 rates. The worst way to earn a return on capital right now is to have it sitting in

cash. As mentioned before, consider building a new facility to replace the outdated High Point plant.

17 International Risk Management Institute, Inc. (2015). Disaster Contingency Planning 101. Retrieved

from IRMI: http://www.irmi.com/online/rr/ch001320/1l05marc.aspx

18 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

24

Management has already entertained the thought of severing ties with Tampa and we believe this is

good idea and already gave suggestions on this basis as well. Continuing to rent at above market

rates wastes valuable capital that could be used elsewhere. Poor allocation of capital resources

such as this does not go unnoticed by investors and your stock price will reflect these decisions.

However, if you do pursue relocation, we have warned against defaulting on the lease as you have

considered. Doing so will hurt your ability to borrow and will make borrowing money more

expensive. It is a good idea to keep debtors paid and maintain a solid credit rating so that you can

access money on short notice in times of emergency. The ability to borrow is critical when it comes

to meeting the cash flow demands of retaining risk. In addition to having a large amount of cash on

your balance sheet, you also have a relatively large amount of capital tied up in inventory. This

exposes you to risk, especially in a declining sales environment. Also mentioned earlier, the longer

your finished products remain in your possession, the greater chance they have of being damaged,

destroyed, or stolen. In turn, you will need to spend more on insurance to protect against this loss.

We are touching on this again in reference to financials because we want to communicate how

much more efficiently a Just-In-Time Inventory system would utilize your financials and related

assets.

You may also look to expand through acquisitions. As we mentioned, the industry has

consolidated significantly in the years since the financial crisis. A number of firms in the region may

be struggling and looking to sell at a discounted price. Again, this provides you with a wonderful

opportunity with the credit that is available to you. Increasing the scale and scope of your business

will allow you to reign in some of the high fixed costs you currently face. This will also provide you

with an alternative to outsourcing. There are several problems emerging from manufacturing in

China and other far-east countries. First, labor cost in these regions are actually on the rise, 15-

20% per year.19 A supply chain spanning around the globe is wrought with challenges including

19 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

25

language barriers, supply disruptions, and quality control. Of these, our biggest fear is that your

contract with Chop Shop will negatively impact the quality of your product. Since inception, Jigsaw’s

line of furniture has established a core consumer base. If quality is compromised, you risk alienating

the moderate to high price consumer. Retailers could discover that you are cutting costs

significantly and may not be willing to pay as much for your products. This could negate any cost

savings that manufacturing overseas awarded. While oil prices have steadily declined in the last

year, from 2009 to 2013 rising oil prices and a decrease in shipbuilding lead to furniture shipping

costs skyrocketing up 71%. Any company operating or doing business outside of the United States

needs to be aware of exchange rate and currency risk exposure they will face. Since Jigsaw

imports a majority of the raw material used in manufacturing and sells domestically, you have

recently enjoyed low input cost due to a dollar that is strong relative to other currencies. Bear in

mind that if the opposite were true (as it certainly will be at some point in the future) you would be

adversely affected. The Chinese Yuan continues to appreciate against the dollar, cutting into profits

once realized from operating in the country.20 Also be aware that you are dealing with a very

unstable currency in the Brazilian Real. At least one person within the company needs to be

responsible for analyzing this risk and ensuring that the proper measures are in place to protect

yourself against unwanted volatility. Management needs to establish a risk tolerance level and

make regular adjustments based on the current financial health of the firm. It can sometimes require

obscure financial instruments to hedge your risk. Those making these decisions need to have

expertise in futures contracts, currency swaps, and other derivatives so that whatever position you

hold can be tailored to accommodate the risk appetite you have set.

Another way to invest internally is through employee compensation. Doing so will be a

preemptive measure against the proposed Employee Free Act and the talk of forming a union.

20 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

26

Investing in employees now will save you millions in the future. Meanwhile, the firing of disgruntled

employees will undoubtedly result in litigation against you (as mentioned earlier). Refer back to the

Strategic Risk section for considerations on increasing wages and looking at other benefits you

could offer to improve the relationship with your employees. A Forbes contributor writes that, “Low

compensation can not only hinder motivation and performance, but can actually create vengeful

employees”.21 Better pay will motivate, but it is important for your employees to feel comfortable and

valued as well. With these incentives in place you can encourage your human resource department

to recruit talent from local universities and trade schools. Hiring educated, driven individuals will

reduce turnover and provide a higher return on your investment.

As we mentioned before, it has been a tough time for the industry as sales have dropped off

sharply over the last few years. Be aware that with recent efforts to generate revenue by selling

direct to consumer via your website you risk alienating a large portion of your customer base –

retailers. Consumers control retail distribution channels and the latest data suggests that they still

prefer brick and mortar stores, at least when it comes to buying furniture.22 The website does

provide some opportunity and it can still be used to promote your products. Instead of selling, you

should consider giving retailers the chance to advertise on your website. This will allow your

customers to shop your catalog and simultaneously grow the business of your buyers. On that note,

industry conditions have also made it very difficult to collect on some of your receivables. You

should always budget for the percentage of these that will never be paid and look for customers

who consistently refuse to pay. Alternatively, you could sell your accounts receivable to a bank or

another firm that specializes in this area. This reduces the burden of collecting internally, which can

21 Sundheim, K. (2013, November 26). What Really Motivates Employees? Retrieved on November

12, 2015 from Forbes: http://www.forbes.com/sites/kensundheim/2013/11/26/what-really-motivates-

employees/

22 Anderson Bauman Torutellot Vos (ABTV). (2013). The American Furniture Industry: Industry Watch

Update. Greensboro, NC: Anderson Bauman Torutellot Vos (ABTV).

27

be costly and time-consuming. We believe this is an area where you can afford to reduce

dependence on manual labor.

If relocation of the Tampa and/or other facilities is agreed upon, a major factor that should

be considered when evaluating new locations is the state and local tax environment. The current

corporate tax rate that applies to you is ten percent above the federal corporate income tax. If you

are a U.S. company there is no way of avoiding the federal corporate income tax outside of

deductions. However, corporate income taxes, individual income taxes, and sales taxes can be

avoided or reduced at the state and local level. The data indicates that states with tax systems

favorable to businesses are the most effective in generating both economic and employment

growth. If you are looking to stay on the east coast, Indiana and New Hampshire are two states we

would recommend - Indiana due to its central location and New Hampshire because of your large

consumer presence in the Northeast. Both are ranked in Tax Foundation’s top ten tax-friendly

states for businesses. North Carolina is in the process of implementing a restructured tax code that

promoted it from the 44th to 15th ranked state on that same list in just a year’s time.23 Tax favorability

should not be the only reason to relocate to an area, but can certainly be an advantage.

Risk Financing A top priority at Jigsaw Manufacturing Company should be to reduce your overall cost of

risk. Full transfer of risk to a guaranteed cost insurer is not economical nor does it promote loss

control within the firm. Fortunately there are other options available. Our professional analysis

concludes that the risk financing option best suited for your firm is through a large deductible. An

insurance policy with a large deductible allows your company to accomplish significant cost savings

on your annual premium. Most of the losses that your firm will incur within the large deductible we

recommend are high frequency, low severity in nature. These type of risks are easy to identify and

control with proper oversight and support from management. For example, your firm has recently

23 Walczak, J., Drenkard, S., & Henchman, J. (2015). 2016 State Business Tax Climate Index.

Washington, DC: Tax Foundation.

28

incurred losses that have directly resulted from a lack of proper safety training and accident protocol

(pulled muscles, concussions, cuts, etc.). These losses, while minor, increase your premium with

each accumulating claim. When these risks get transferred back to your company via the large

deductible we have recommended, it should create a clear financial incentive for managers to

control losses (and therefore risk). Other retention options such as self-insurance require the

company retaining the risk to assume control of claims handling, litigation and other services

normally handled by insurers. In order to meet these requirements an entire department would have

to be created, several new employees would need to be hired, and additional overhead would be

necessary. As Jigsaw Manufacturing, Inc. goes through a potential change in ownership, complete

overhaul of processes and procedures (as we recommend), and several operations changes in the

coming months, we do not believe it would be wise for your company to take on this excess

responsibility at this time. We have presented to you the deductible amount we recommend based

on your financials, claims history, and expected future losses24. We have also included some

benchmark figures that risk management professionals use to determine an adequate deductible

amount. We believe that roughly 150% of expected loss (E(Loss)) is the best measure to use as it

is based directly on loss data and is a rather liberal estimation (barring a major loss, chance of

exceeding this deductible in an average year with proper loss control measures is slim). This should

create a clear financial incentive for management to actively encourage loss control. In order to get

ground level employees involved, we recommend sharing a portion of the cost savings. Consider

offering bonuses tied directly to safety records. We also encourage negotiating a policy in which

Jigsaw Manufacturing is responsible for no more than 20% of an individual loss that exceeds the

deductible. This prevents your company from exhausting the deductible on a single incident and

allows for the retention of smaller losses that may occur during the policy period.25

24 Refer to Financial Ratios workbook in the appendix

25 International Risk Management Institute, Inc. (2015). Risk Retention. Retrieved from IRMI:

http://www.irmi.com/online/pracrisk/ch00000b/prmb0001.aspx#jd_methods_of_risk_retention

29

IV. Hazard Risk The following risks that we present to you are generally classified as hazard risks. Hazard

risks are pure risks. That is, in the event that these situations arise (or, as we will point out, are

currently taking place) your firm stands only to lose as a result. Hazard risks can either be avoided,

transferred, retained, or some combination of each. Property and liability loss exposures that cannot

be avoided or retained are typically transferred through insurance.26 We will present to you a

number of loss exposures that currently threaten your firm and provide our professional

recommendation as to how these exposures should be handled.

Natural Perils We understand that Jigsaw Manufacturing Company has the desire to reach new customers

and expand the business well into the future. The recent purchases of the Tampa facility in 2005

and the Wilmington facility in 2007 acknowledges that you have taken steps to realize this goal. We

are not opposed to these purchases as far as expansion is concerned, but we have identified

issues with these facilities that need to be addressed in order for your firm to continue to have

success. Both Tampa and Wilmington, being located with such proximity to the coast, are obviously

exposed to severe weather. In fact, Climate Central ranks the Tampa-St. Petersburg area as being

the city most vulnerable to a landfall hurricane in the United States based on storm frequency and

tracks. They also make the case that Tampa is extremely susceptible to storm surge. Their

research concludes that the odds of a flood exceeding six and a half feet of high tide before the

year 2030 lies somewhere between fourteen and twenty percent.27 As far as Wilmington is

concerned, CoreLogic, a property analysis and data firm, listed it as eighth among the top ten U.S.

26 Quadrants of Risk: Hazard, Operational, Financial, and Strategic. (2013). In The Institutes,

Enterprise Risk and Insurance Management (pp. 1.27-1.28). Malvern, PA: The Institutes.

27 Freeman, A. (2012, June 6). 5 Most Vulnerable U.S. Cities to Hurricanes. Retrieved on November

14, 2015 from Climate Central : http://www.climatecentral.org/news/top-5-most-vulnerable-us-cities-to-

hurricanes

30

cities “at risk of damage from a hurricane or tropical storm”.28 That being said, Jigsaw

Manufacturing Company could have operations crippled by a storm hitting either location. We also

have to look at the possibility of all three locations being considerably impacted by a single event.

As we have witnessed in the not so distant past, hurricanes tend to track from the south and

head northeast. Take the summer of 2004 for example (just one year prior to locating in Tampa),

Hurricane Frances struck the southeast coast of Florida on September 5 and moved west-

northwestward across the state, directly striking Tampa as a Category 2 storm. Frances then

redirected northeast and tracked across eastern Alabama and western Georgia to the Mid-Atlantic

States from September 7 to September 9. In the process, Frances produced “notable” storm surges

to both the Atlantic and Gulf coasts of Florida. Widespread rains and freshwater flooding impacted

the eastern states mentioned. In addition, 101 tornadoes were associated with the storm. To put

this into perspective, the storm brought rainfall totals of 8.44 inches, 3.82 inches, and 3.12 inches to

Tampa, Greensboro and Wilmington, respectively.29 The following week on September 16,

Hurricane Ivan made landfall slightly west of the Florida panhandle and took a track nearly identical

to that of Frances. This time however, Ivan drifted off the mid-Atlantic coast and re-entered the

Atlantic Ocean, circled, and headed south-southwestward to strike Florida a second time on

September 21 as an extratropical low. Like the predecessor Frances, Ivan brought significant

rainfall and to Tampa, Wilmington and the Triad and produced a number of subsequent tornadoes

across the southeastern United States.30

We remind you of this example to expose the danger your firm faces by operating solely in

these three cities. All three of your current locations were pummeled with rain and wind almost

28 Burkhart, J. (2013, June 9). Triangle Business Journal. Report: Wilmington among top 10 cities at

risk from hurricane damage. Retrieved on November 14, 2015 from Triangle Business Journal:

http://www.bizjournals.com/triangle/blog/2013/06/report-wilmington-among-top-10-cities.html

29 Beven, John L. (2005). Tropical Cyclone Report: Hurricane Frances. National Hurricane Center.

30 Stewart, Stacy R. (2004). Tropical Cyclone Report: Hurricane Ivan. National Hurricane Center.

31

continuously for two weeks. A scenario in which two of the three locations where you currently

operate suffering a direct hit is not that difficult to imagine. We hope to have relayed the message

that these events are not only a possibility, but they are not rare. National Oceanic and Atmospheric

Administration (NOAA) statistics indicate that, on average, a major (Category 3 or greater)

hurricane will pass within fifty nautical miles of Wilmington every five to seven years and Tampa

every eight to eleven years.31 It would be in the best interest of Jigsaw Manufacturing Company to

seek other, less vulnerable, locations to move at least one of your facilities.

We have mentioned the Triad, and while High Point does not pose the obvious risks of

being located so close to the ocean, we would like to inform you of some natural hazards that face

the region. The Federal Emergency Management Agency (FEMA) has developed a way to

designate areas that are exposed to earthquakes and the effects of earthquakes such as

aftershocks and landslides. The model places High Point and Wilmington in “Seismic Design

Category B” and states that, “[these locations] could experience shaking of moderate intensity” with

potential effects including “heavy furniture moved, fallen plaster and other slight damage”.32 While

we do not believe that the risk of earthquake facing High Point and Wilmington is significant enough

on its own to constitute relocation, we do believe it is important to be aware that it could happen.

Though the buildings’ structures are unlikely to experience significant damage, we do encourage

insuring them to some extent. A separate coverage has to be purchased in addition to your

commercial general liability insurance policy to protect against earthquake risk. Please refer to the

attached recommended insurance schedule for more details. We also encourage you to inspect the

facilities and contents therein to examine what may be vulnerable to violent shakes, falling objects,

and the like. Wind and tornadoes should also be considered. North Carolina averaged nineteen

31 National Hurricane Center. (2015, June 2). Tropical Cyclone Climatology. Retrieved from National

Hurricane Center: http://www.nhc.noaa.gov/climo/

32 Department of Homeland Security. (2015, March 19). Earthquake Hazard Maps. Retrieved on

November 15, 2015 from Federal Emergency Management Agency: http://www.fema.gov/earthquake-hazard-

maps#

32

tornadoes annually from 1953 to 2005 while Florida averaged fifty eight in that span of time,

according to FEMA. FEMA also deems both states as being high risk for a “high-wind event”.33

When something as chaotic as a tornado strikes, we realize there is little you can do to protect your

property from windblown debris. However, action can be taken beforehand to limit damage if a high

wind event were to occur. Again, examine the facilities and surrounding area. Take action to

remove trees and freestanding signs close to your facilities that could cause damage if they were to

be blown over. Also ensure that heavy machinery is secured to the floor. The potential cost savings

that will result from taking such steps will be substantial. Not only in terms of the avoided physical

damage, but to the extent that your firm can avoid suspending operations to make repairs or

replace equipment if such an event were to occur.

Property If you so choose to continue at the current locations, there are some problems need to be

brought to your attention. The effort to heighten security at your locations is certainly commendable,

but the existing systems that are in place present many opportunities for litigation against you. As a

property owner, under common law you owe a standard of care to those that come onto your

premises regardless of whether or not that person is trespassing. However, both North Carolina and

Florida courts have distinguished the trespasser designation. That is to say, a lessened standard of

care is owed to trespassers than to others. Nonetheless, care is still owed and if a person is injured

on your premises you will be held liable to some extent.34 The presence of attack dogs, electric

fences, and untrained armed guards definitely increases the chance of an employee, vendor,

trespasser, or even an innocent bystander sustaining an injury on your premises. A safer alternative

would be to hire-out a security service.

33 Federal Emergency Management Agency. (2007, May). Tornado Risks and Hazards in the Midwest

United States. Tornado Recovery Advisory, pp. 3-4.

34 International Risk Management Institute, Inc. (2015). State Amendments to Traditional Common

Law Classifications. Retrieved from IRMI: http://www.irmi.com/online/prmi/ch016/1l16p000/al16p050-state-

amendments-to-traditional-common-law-classifications.aspx

33

The Tampa facility is experiencing issues with waste management and pollution control,

partly due to lack of oversight that was previously mentioned. It appears as though management

has chosen to cut ties with We-Transport-It, but has failed to implement a new plan to properly

dispose of hazardous waste. Credit to either laziness or indifference, employees have begun

dumping by-products in a stream bed outside the facility. Federal law requires furniture

manufactures to “follow certain procedures when generating, transporting, sorting, treating, or

disposing of hazardous waste”. Requirements are based on how much hazardous waste your

business generates in a calendar month. It is your responsibility to determine this amount. Failure to

identify these hazards properly can result in “substantial civil and criminal penalties”.35 We have

attached an EPA brochure with more information. In addition, you may be subject to state and local

regulations. Local authorities should be contacted to determine any specific requirements that

apply. We are aware of the lead contamination issues at the Wilmington plant as well. We

encourage you to be open and compliant as the EPA conducts their investigation. As the

owner/operator of the site you are a “Potentially Responsible Party” by the EPA’s designation.36 The

EPA has already communicated that it is your responsibility to either conduct or fund cleanup of the

area. Delaying this any further will only incur more cost, especially if the lead reaches the ocean as

the regulators have warned.

Internal Hazards We would now like to shift our focus from natural perils to the hazard risks that are present

within your firm. These risks are avoidable and/or can be controlled with proper oversight. We have

identified a number of issues that threaten the permanency of Jigsaw Manufacturing Company.

Please refer to the risk map in the attached appendix as you read through the next few pages, as

35 United States Environmental Protection Agency. (2004, January). RCRA in Focus: Furniture

Manufacturing and Refurbishing. Washington, DC.

36 United States Environmental Protection Agency. (2011, August). A Community Guide to EPA’s

Superfund Program. Washington, DC.

34

we have prioritized what we have decided to be the most pressing issues facing your firm and

included how each should be addressed.

The number one issue facing your firm is the lack of cyber security and effective information

technology systems. We understand that Jigsaw is a family run business and has been since

inception. By itself, this not a danger to your business. However, when family matters creep into

strategic decisions and begin to take precedence, problems can ensue. We feel as though this is

the situation regarding Chip Cole. Chip is, without a doubt, qualified for his current position of IT

Manager, but we question his intent and devotion to Jigsaw Manufacturing Company. He has

openly expressed that his passion lies in modernizing equipment. The desire, interest, and

expertise that Chip possesses in this field could be an invaluable human resource for your

organization if he were to be properly utilized. However, the current issues surrounding the

divestiture of ownership has made Chip very unhappy. He feels cheated and does not approve of

his younger sister Maureen jumping ahead of him in the competition to determine who will be the

future of the company. His feelings are such that he has entertained the thought of sabotaging the

company. The immediate threat to you is that he has the power to do so. With Chip as the sole

computer programmer, Jigsaw has put itself at the mercy of Chip Cole. Chip’s intentions aside,

losing him for whatever reason would be devastating to the firm. The consequences would be

immeasurable. It would take months to get systems back into place. An outside company would

have to be hired to completely overhaul the processes and coding that Chip has set up. Meanwhile,

many of your retailers will have sought other suppliers in the time you were shut down and may

never return. Chip’s relaxed handling of proprietary and customer information also needs to be

addressed. Company computers should only be used for business purposes and need to be limited

in their capacity to avoid mishandled. Private information must be encrypted and customer records

should only be accessible to trustworthy employees who need the information to get an order

processed and delivered. With regard to company computers, we recommend ending your lease

agreement with Charlotte Computer Warehouse, which contains a hold-harmless clause that is very

unfavorable to you. If you employ an IT department (as we will discuss) there is no reason to pay

35

another company a premium that will include maintenance cost. Secondly, the equipment

breakdown insurance we recommend covers not only damage and repairs to machinery, but

computer equipment as well.37 If this is the case you can rest assured that any loss or damage will

be adequately covered.

We believe we have developed a solution that will satisfy Jigsaw’s goal of keeping the

company a family-run organization, fix the issues related to the change in ownership, and eradicate

Chip’s discontent. First and foremost, Paul Cole and Ben Casey need to create a living will that

outlines exactly what their wishes are for their ownership stake in the company. If something were

to happen to either man before a legal, binding document is on record, Jigsaw could suffer

immensely. If there is tension between family members now, while both men are still alive, one can

only imagine the firestorm that would ensue if one of these men pass. Mr. Cole and Mr. Casey also

need to come to agreement as to when exactly the company will be handed down. The uncertainty

surrounding the situation further damages relationships both internally and with investors. Those

involved with the company have a right to know that the transition is going to be a smooth and

thoughtful process. As for how ownership should be divested, we recommend distributing it evenly

to each child and grandchild, rather than an individual as Mr. Cole and Mr. Casey have suggested.

We mentioned the problem we see with turning the company over to Maureen Cole Pilgrim. We

also have serious concerns about Ben Casey III’s youth and inexperience running an organization

at only thirty years of age. In addition, if he continues to pursue motorcycle racing while serving as a

company executive it will present you with major risk. Could you afford to suddenly lose such a

valuable employee if the worst were to happen? As an alternative, we suggest giving each child or

grandchild a seat on the board and have them involved in making decisions for the firm. Each

individual having a smaller piece of the company should incentivize company growth and long-term

success. Meanwhile, we recommend that an outside person be hired to run the company and day

37 International Risk Management Institute, Inc. (2015). Overview of Equipment Breakdown

Insurance. Retrieved from IRMI: http://www.irmi.com/online/cpi/ch011/1l11d000/al11d070.aspx

36

to day operations. This would eliminate any family member from gaining hierarchy over another,

with each having reached their proverbial ceiling at Jigsaw Manufacturing Company with a seat on

the board. This individual would then report to the board, and thus providing a nice system of

checks and balances. Concerning Chip, we believe he should be able to keep his current IT

Manager position, with some changes. First, hire a team around him. We recommend bringing in six

to twelve individuals to help develop and implement a new IT strategy. The new strategy needs to

be streamlined with interchangeable parts and people so that the loss of a key employee or code

will not cripple operations. Secondly, give Chip a supervisory role over this new team. As we

mentioned before, Chip has the knowledge and interest to thrive in the job if given the opportunity.

The autonomy of the position should eliminate his disgruntlement of having to report to another

family member. We also believe any remaining anguish towards the company will subside due to

his stake in the success of the firm, his coworkers, and himself.

From what we have discovered, there seems to be a laissez-faire approach to management

throughout the company. As we investigated, we found multiple examples of well positioned

individuals ignoring or even encouraging behavior that could have a very negative impact on your

company. These instances include, motorcycle and forklift racing on the premises, consumption of

alcohol by employees during work hours, and viewing pornography on a company computer in an

open area. The Chief Financial Officer, Chuck Jackson, seems to have an apathetic attitude that is

especially concerning given his role. He has suggested that he does not like working with “figures”,

referring to bookkeeping duties, and has given these responsibilities to an assistant. If this is the

case, a practiced accountant needs to be either hired or contracted. It is also Mr. Jackson’s

responsibility to handle or ensure that all financial transactions are made properly. Making a weekly

bank deposit should not be treated as a perk awarded to employees who have little vested interest

in the financial health of the company. This permissive approach puts not only you, but the well-

being of your employees in danger. It is important that you hire qualified individuals who are serious

about their jobs and the company, and remove those who are not. It is also essential to maintain a

positive image. The presence of numerous media outlets allows negative information about your

37

company to spread more quickly than ever before. If your customers continue to hear these types of

reports it will ultimately effect your bottom line.

Contrary to management’s belief, the recall of 2009 model bunk beds is not covered under

your commercial general liability insurance policy. An endorsement can be purchased to protect

against future recalls, but we believe that implementing a quality control program would be a better

use of the company’s funds. An entire department could be created that is fully devoted to the

inspection and testing of products before they are released for sale, and could even be a sub-

department under the research and development field that we earlier recommended you form.

Trained personnel would easily be able to detect patterns of faulty design or assembly. An

investment in a few additional employee salaries would be well worth the cost if litigation such as a

class action lawsuit were to be avoided.

Agency Costs and Associated Risk The issues surrounding the transportation of raw materials and finished products need to be

addressed immediately. Jigsaw Manufacturing will certainly incur some severe and potentially

devastating losses if changes are not made. We strongly encourage terminating the exclusive

contract you have with Direct Transport Services (DTS). This contract presents hazard risk on two

fronts. First, so much of your business is reliant upon DTS. What happens to Jigsaw Manufacturing

Company if DTS suddenly goes out of business or unexpectedly increases their price so much that

you are unable to make a profit? DTS’s disturbing accident history makes this a very realistic

concern. If this were to take place and you do not have another transportation service

commissioned production would have to be slowed or temporarily halted. Not to mention you once

again run the risk of losing customers if their shipments cannot be delivered in a timely manner. We

strongly encourage you to develop long-term, positive relationships with a network of distributors.

Secondly, DTS has repeatedly shown that they are not a reliable service provider. There is no

excuse for accepting damaged materials and having goods misplaced when Jigsaw will

undoubtedly be responsible for the cost. As we will discuss, we believe that your firm is better

38

suited to handle the transportation of raw materials and inventory while the actual delivery of

finished products should be contracted.

This brings us to issue of your main supplier. Doing business in any unstable political

environment will invite risk. We do not feel as though you should cut all ties with the Brazilian

Company if you believe that their lumber is important to the quality of your product line. However,

as with DTS, you should seriously consider diversifying suppliers for many of the same reasons.

There is simply too much at stake when you rely so heavily on one entity. We believe to have found

a way to solve this issue. Moving your plant(s) would make logistic sense as well as reduce risk. If

you choose to relocate the Wilmington and/or the Tampa facility, we invite you to explore sites that

are close in proximity to potential suppliers. A 2011 industry study revealed that more than forty

three percent of U.S. hardwood manufacturers were operating in the Southeast.38 Locating near

one of these suppliers would allow you to transport inventory between plants as needed and solves

the issue of wasted backhauls by fully utilizing your trucks for the benefit of Jigsaw Manufacturing

Company. That being said, owning and operating tractor-trailers as you currently do presents some

risk. However, we believe that sound judgment on the part of drivers, encouragement of loss control

from management, and transfer of some risk through proper insurance makes continued operation

of the tractor-trailers practical. Perfecting logistics and improving efficiency will give you a

competitive advantage and allow you to concentrate on building the superior furniture that has

propelled your company to become one of the top manufacturers in the industry. Utilizing the trucks

in this way should remove any argument for continuing to provide transportation services to third-

parties. There is simply too much liability associated with hiring out hauling services for this to be a

viable source of income for your company. Travelling only between your facilities and suppliers will

also eliminate the need for your drivers to travel unnecessarily long distances, work extended

38 Buelmann, U., Bumgardner, M., Espinoza, O. & Smith, B. (2011). Manufacturers and Distributors in

the U.S. Hardwood Lumber Supply Chain: Perceptions of Industry Trends. Blacksburg, VA: International

Scientific Conference on Hardwood Processing.

39

hours, and violate the law. Breaking the law and bribing law enforcement are obviously egregious

offenses and any employee guilty of or encouraging this sort of behavior should be terminated.

These are blatant hazards that should be avoided at all costs. Jigsaw Manufacturing Company is

not profiting from these acts. Our investigation revealed that drivers and supervisors are splitting the

proceeds while you assume a majority of the risk. Continuing to turn a blind eye to these issues is

irresponsible and could be detrimental to your firm. Jigsaw should work to establish itself as a

company with a positive image. Replacing these types of employees would be a step in the right

direction.

Accidents and Loss Control Program Upon review of your records, we have discovered a steady increase in work-related

incidents and reported claims over the last several years. Meanwhile, the number of employees

have steadily decreased. The cost associated with workplace injuries include not only the

settlement of the claim but high insurance premiums, damaged property and lost time that occur as

a result. In fact, it is estimated that these indirect expenses over time will accumulate four to eight

times the original claim amount.39 Your current rate of incurred losses cannot be sustained. If no

loss control measures are taken, we project 2015 losses to be nearly two million dollars40. As you

look through the data you will find most of these losses to be minor and avoidable if proper loss

control measures are put in place. In order to develop an effective loss control program hazards

must be identified, measured, and analyzed. We hope that our review of your company has pointed

out some of the major hazards, but no one knows the risks that arise in your day to day operations

like your employees. Although we already went into detail about safety programs earlier in the

Operations section, we want to reiterate the importance of loss control programs and give a few

more suggestions on how to reduce your hazard risk. To get a handle on some risks that may

39 Leverett, E. J. (1989). Loss Control Makes Good Sense. In E. J. Leverett, Risk Management (pp.

21.7-21.8). Athens, GA: Department of Risk Management and Insurance, College of Business Administration,

University of Georgia.

40Refer to Loss Forecasting tab in the Loss Forecasting Workbook in the appendix

40

otherwise slip through the cracks, we encourage you to conduct interviews with your employees.

Surveys or questionnaires can also be distributed to gather this information. After these risks have

been identified, an appropriate loss control technique can be implemented. Yet again to harp on the

importance of education, ensure that all employees are trained on the proper use of equipment. For

you specifically, this would include the operation of overhead cranes, forklifts, company vehicles,

and other machinery used in production. It is important that the safety procedures we mentioned

earlier are clearly communicated in the event that an accident does occur in order to reduce losses.

Personal protective equipment (PPE) needs to be provided and accessible in your manufacturing

plants. Just remember that once such measures are in place it is important that they continue to be

monitored.

Insurance It is very important to maintain adequate levels of insurance. We have discovered several

gaps in your current program that need to be addressed. Perhaps most important is the means by

which coverage was attained for your business personal property at the Tampa facility. As it stands,

the coverage was purchased through a family member of an employee. That employee, Mr. John-

Boy Walsh, failed to give us the name of this family member or even confirm that he was a licensed

insurance broker. As we see it, without the backing of a sound institution, the property is effectively

uninsured. Another insurer that you currently have a policy with, AutoCrashers Insurance Company,

has a low rating with A.M. Best – a well-known rating agency dedicated to the insurance market. A

priority for you, as an insured, is to be certain that any insurer you conduct business with has the

ability to pay losses when they are incurred. Your company is especially vulnerable to risks

associated with worker’s compensation where payment of claims can extend over a number of

years. Therefore it is very important that insurers you use are financially stable in the long-term.

After all, the insolvency of an insurer is more likely to occur after a severe loss when you are most

41

reliant upon them.41 We recommend replacing AutoCrashers with a credible insurer for Tampa

immediately.

With respect to our suggestions for your current insurance program, we have attached a

new schedule with changes. We would like to briefly discuss a few of these. Several of your

properties were inaccurately classified. You may have thought that these properties were covered

under your Business Personal Property when in fact they need a special endorsement or separate

coverage entirely. We have revised your current property schedule and addressed how each item

should be insured so that you will have adequate coverage.42 You are currently underinsured on

almost every front. We have adjusted the limits to appropriate levels. The increased cost associated

with being properly insured will be well worth the investment if a devastating loss were to occur. We

have added equipment breakdown coverage and adjusted your business income coverage to

include extra expenses. These coverages do not eliminate the need to establish a business

continuity plan. For this reason we recommend hiring a risk manager or risk management team, as

you have considered. Identifying losses, reviewing insurance programs, implementing loss

reduction initiatives and other items we have discussed require constant attention. If you plan to

continue operations in Tampa, flood insurance must be secured. As we have pointed out Tampa is

very susceptible to hurricanes and flooding. In fact, we encourage you to insure all of your property

against flood at full replacement cost using a difference in conditions policy in excess of what can

be obtained from the National Flood Insurance Program. Sprinkler systems need to be installed at

all locations to further fire prevention and loss control efforts. Spray booths should be isolated and

properly ventilated as well. You might also want to consult a fire protection engineer to identify

exposures that may have gotten overlooked. Buildings are often built to code and not always

41 International Risk Management Institute, Inc. (2015). Insurer Solvency. Retrieved from IRMI:

http://www.irmi.com/online/pracrisk/ch00000c/prmc0001.aspx

42 The revised property schedule in its entirety can be found in the appendix under the Property

Values tab

42

optimally designed to protect against fires.43 Taking these steps will result in lower insurance

premiums and reduce your overall cost of risk.

V. Conclusion We hope that our analysis and recommendations have offered some valuable insight. We

believe that, with some changes, Jigsaw Manufacturing Company is primed for long-term success.

Moving forward, you must begin to look at the risks that face your firm from an all-encompassing

point of view. It is important to get ahead of the curve on these issues and avoid reacting after a

devastating event has taken place. Addressing risk in retrospect can cost you dearly and threaten

your very existence. That being said, you have already endured some very trying circumstances

and we believe you can overcome any future tribulation. Thank you again for your business.

43 International Risk Management Institute, Inc. (2015). Fire Protection. Retrieved from IRMI:

http://www.irmi.com/online/pracrisk/ch00000d/prmd0003.aspx

43

Appendix

44

Claims

45

CurrentYearIncidents(2014) Department Facility Incurred Paid Status

PulledBackMuscle(liftingfurniture) Manufacturing HighPoint 14,500 1,500 C

BrokenLeg(fallingoffloadingdock) Distribution/Trucking HighPoint 16,000 2,600 O

Concussion(hitbylumberduringoffloading) Distribution/Trucking HighPoint 3,000 1,200 C

Amputatedfingers(operatingsaw) Manufacturing HighPoint 85,500 11,200 O

Fatality(crashedmotorcycleinrace) Manufacturing HighPoint 225,000 55,600 O

Carpaltunnel(officeworker–typing) Clerical HighPoint 32,500 17,500 C

Lungdisorder(breathingsawdust) Manufacturing Wilmington 58,000 6,000 O

Dislocatedshoulder(slippedonfloor) Manufacturing HP-Showroom 1,500 1,000 C

Brokenback(runoverbyDTStruck) Distribution/Trucking Wilmington 121,000 28,500 O

Carpaltunnel(officeemployee) Clerical Tampa 24,000 3,500 C

Hurtback(movingfurniture) Clerical HP-Showroom 25,000 7,000 O

Cutfinger(openingenvelope) Clerical HP-Showroom 500 150 C

Brokenjaw(fightwithfellowworker) Distribution/Trucking Wilmington 12,000 4,800 C

Cutfinger(fishhookcaughthand) Manufacturing Tampa 1,500 50 C

Facialcuts(attackedbyotherworkers) Distribution/Trucking Wilmington 250 75 C

Respiratoryproblems(breathingsawdust) Manufacturing HighPoint 35,000 7,000 O

Pulledback(unloadinglumber) Distribution/Trucking Wilmington 9,000 4,000 C

Pulledbackmuscle(cleaninggrounds) Maintenance/Security Tampa 9,500 1,500 C

Multiplechemicalsensitivity(spraybooth) Manufacturing Tampa 11,000 7,000 C

Splinterinhand(workingwithwood) Manufacturing Wilmington 500 - C

Hernia(loadingboxtrucks) Distribution/Trucking Tampa 13,800 1,500 O

Eyeinjury(airbornesawdust) Manufacturing HighPoint 5,000 500 C

Smashedfinger(assemblingfurniture) Manufacturing Tampa 1,000 - C

Backstrain(unloadingtruck) Distribution/Trucking HighPoint 2,500 150 O

FingerLaceration Maintenance/Security Wilmington 1,000 200 C

BitbyDog Maintenance/Security Wilmington 5,500 1,500 O

BackSpasms(sittingtoolong) OfficeWorker HighPoint 5,000 500 C

SeveredFinger Manufacturing HighPoint 45,000 6,500 O

BrokenLeg(fallingoffloadingdock) Distribution/Trucking HighPoint 13,000 3,250 O

Concussion(hitbytruckduringoffloading) Distribution/Trucking HighPoint 4,000 1,750 C

AmputatedFingers-operatingsaw Manufacturing Tampa 45,000 18,000 O

Paraplegic(crashedforkliftinrace) Manufacturing HighPoint 325,000 105,000 O

DislocatedShoulder(slippedonfloor) Manufacturing Tampa 3,000 1,800 C

CarpalTunnel(officeemployee) Clerical Wilmington 20,000 8,500 O

HurtBack(loadingtruck) Distribution/Trucking HighPoint 5,000 700 C

CutFinger(openingenvelope) Clerical HighPoint 500 - O

BrokenJaw(fightwithco-worker) Distribution/Trucking Wilmington 6,500 4,800 C

SprainedAnkle(trippedonfactoryfloor) Manufacturing Tampa 1,000 250 C

RespiratoryProblems(operatingspraybooth) Manufacturing HighPoint 75,000 5,500 O

HeartAttack(scaredbydogs) OfficeWorker Wilmington 18,000 - O

CarpalTunnel(computeroperator) OfficeWorker HighPoint 55,000 12,000 O

WORKERSCOMPENSATIONLOSSHISTORY

46

LastYear(2013) Department Facility Incurred Paid Status

Burnedhand(operatingsouderer) Manufacturing Tampa 15,000 3,500 C

Amputatedfingers(operatingsaw) Manufacturing HighPoint 45,500 15,750 O

Slippeddisc(liftingboxes) Distribution/Trucking HighPoint 15,000 9,200 C

Tornvocalchord(yellingatmotorcyclerace) Clerical HighPoint 8,000 - C

Papercut Clerical Tampa 200 - C

Lowerbackinjury(liftingmicrowave) Clerical HighPoint 18,500 7,000 C

Facialbruises(airbagdeployed) Distribution/Trucking HighPoint 5,500 2,500 C

Crushedleg(runoverbyDTStruck) Distribution/Trucking Wilmington 55,000 25,000 O

Temporaryblindness(paintoverspray) Manufacturing HighPoint 4,500 2,000 C

Eyeinjury(sprayboothoverspray) Manufacturing HighPoint 7,000 4,500 C

Slippeddisc(unloadingfurniture) Distribution/Trucking Tampa 42,000 12,000 O

Stapleinfinger(upholsterymfg) Manufacturing Tampa 2,500 1,200 C

Thumbinjury(operatingBlackberry) Clerical HighPoint 700 - C

Brokenback(fellfromladder) Maintenance/Security Wilmington 35,000 5,500 O

Pulledbackmuscle(operatingsaw) Manufacturing HighPoint 5,000 800 C

Headinjury(hitbyoverheadcranehook) Manufacturing HighPoint 51,000 23,500 O

Ringinginears(excessivecellphoneuse) Distribution/Trucking HighPoint 5,000 750 C

HearingLoss(operatingspraybooth) Manufacturing HighPoint 45,000 18,000 O

HandLacerations(productpackaging) Manufacturing HighPoint 500 250 C

SevereBruising(accidentaillyshotbyTaser) Maintenance/Security Tampa 3,260 2,950 C

SeveredToe(lawnmoweraccident) Maintenance/Security Wilmington 14,500 14,000 C

TemporaryBlindness(PaintBoothoverspray) Manufacturing HighPoint 15,000 3,000 C

Backinjury(Sittingintrucktoolong) Distribution/Trucking HighPoint 3,300 400 C

RespiratoryFailure(severepaintallergy) Manufacturing HighPoint 12,000 7,000 O

LegGash(hitbyforklift) Distribution/Trucking Tampa 3,000 880 C

Concussion(forkliftmaterialsfell) Distribution/Trucking HighPoint 4,000 2,950 C

DislocatedShoulder(slippedonfloor) Clerical HighPoint 2,500 500 C

CarpalTunnel(productionworker) Manufacturing HighPoint 39,000 15,500 O

47

TwoYearsAgo(2012) Department Facility Incurred Paid Status

Brokenankle(felloffloadingdock) Distribution/Trucking Tampa 9,500 4,500 O

Pulledbackmuscle(movingbox) Clerical HP-Showroom 14,000 5,000 C

Dislocatedshoulder(felloffmower) Maintenance/Security HighPoint 4,500 1,000 C

Eyeinjury(sprayboothpaintoverspray) Manufacturing HighPoint 5,500 2,500 C

Brokenribs(attackedbyco-worker) Manufacturing Wilmington 4,500 3,500 C

Amputatedfingers(operatingsaw) Manufacturing HighPoint 26,000 24,000 C

CarpalTunnel(assemblymanhammering) Manufacturing Tampa 20,000 18,800 C

Eyeinjury(fabricparticles) Manufacturing Tampa 16,000 10,000 C

SlippedDisk(liftingbox) Distribution/Trucking Tampa 15,000 9,000 C

Hernia(unloadinglumber) Manufacturing Wilmington 18,000 7,000 C

Brokenhand(furniturefell) Clerical HP-Showroom 6,000 1,500 C

Pulledbackmuscle(playingbasketball) Manufacturing HighPoint 24,500 11,000 O

Pulledbackmuscle(boxingfinishedproduct) Manufacturing HighPoint 11,500 7,500 C

CarpalTunnel(loadingtrucks) Distribution/Trucking Wilmington 35,000 8,000 O

FingerCuts(packagingproduct) Manufacturing Tampa 1,200 100 C

FingerPuncture(handcaughtinrattrap) Manufacturing Wilmington 500 - C

ScratchedRetna(paintoverspray) Manufacturing Tampa 750 250 C

CrushedFingers Manufacturing HighPoint 12,000 11,000 C

SprainedAnkle(slippedonsawdust) Manufacturing HighPoint 1,000 250 C

RatPhobia(sawdroppingsincornerofplant) Manufacturing Wilmington 15,000 11,000 O

Hemmoroids(sittingintruck) Distribution/Trucking HighPoint 500 - C

BackStrain(liftingboxes) Maintenance/Security HighPoint 25,000 16,500 O

48

ThreeYearsAgo(2011)

FourYearsAgo(2010)

LIABILITY Location Incurred Paid Status

NotificationofRecallforBunkBeds HighPoint 750,000 - O

Chairbreakswhencustomersitsonit Tampa 30,000 22,000 C

Childfallsoutofbunkbed(breaksbothlegs) HighPoint 50,000 25,000 C

Truckbacksintopedestrianwhileloading Wilmington 25,000 10,000 O

Runofffromsprayboothkillslandscaping Tampa 40,000 20,000 CJigsawdirectorfelloutofboatandalmostdrowned HighPoint 40,000 - O

Forkliftspearscustomerinloadingdockarea HighPoint 40,000 - O

Policecartotaledinaccident Wilmington 50,000 45,000 C

Customergetscutfromloosestaplesinupholstery HighPoint 5,000 - C

Damagetofurnitureintransit Wilmington 20,000 18,000 C

Driverfallsasleepatwheel,killspedestrian Wilmington 500,000 25,000 O

Customerslipsoniceinparkinglot HighPoint 4,000 2,500 C

Sofalegbreaksoff,injurescustomer Wilmington 25,000 1,500 C

Autoaccidentinjuring6non-employees HighPoint 200,000 30,000 O

Therewere11WorkersCompensationClaimswithatotalpresentvalueincurredvalueof$128,500.

Therewere6WorkersCompensationClaimswithatotalpresentvalueincurredvalueof$78,750.

PROPERTY Location LossAmt.

Inventoryshortage/offloadinglumberfromship Wilmington 500,000

Electricalfireinstockroom HighPoint 28,000

Fireinjanitor'sclosed/oilyrags HP-Showroom 1,500

Truckrunsthroughfence HighPoint 3,250

Lawnmowertearsoutbushesinfrontofbuilding HighPoint 11,000

Employeevehiclehitssign Tampa 6,500

Fireinbreakroom/microwaveexplodes Tampa 3,500

Cashshortageinstore HP-Showroom 750

Forkliftbreakdowninwarehouse Wilmington 2,500

Winddamagetobuilding Tampa 8,300

DTStruckbacksintosign Wilmington 8,000

Fireinjanitor’scloset(oilyragscatchfire) HighPoint 15,000

WinddamagefromhurricaneinFlorida Tampa 155,000

Overheadcranedropsfurniture Wilmington 3,000Fireinmanufacturingfromsawdustcombustion HighPoint 122,000

Loadingdockdamaged,hitbytruck HighPoint 6,500

Forkliftimpalescompanycar HighPoint 8,000

49

Department 2014 2013 2012 2011 2010Manufacturing 513 684 958 929 987Clerical/Office 125 130 160 155 188Maintenance/Security 15 15 20 22 25Distribution/Trucking 86 86 94 94 100

Total: 739 915 1,232 1,200 1,300

Estimated#Workersfor2010=725

Department HighPointHP-

ShowroomWilmington Tampa Total

Manufacturing 215 0 160 138 513Clerical/Office 100 10 8 7 125Maintenance/Security 5 0 5 5 15Distribution/Trucking 50 0 18 18 86

Total: 370 10 191 168 739

EmployeeCountByDepartment

EmployeeCountByLocation/ByDepartment2014

50

Loss Limit = $100,000 per claim

ThreeYear(PV)AverageforIncurredLosses $565,793.40ThreeYear(PV)AverageforPaidLosses $221,151.51

INJURYDESCRIPTION DEPARTMENT LOCATION INCURRED PVINC PAID PVPAID YEARCurrentYearIncidents(2014)

PulledBackMuscle(liftingfurniture) Manufacturing HighPoint $14,500.00 $14,500.00 $1,500.00 $1,500.00 0BrokenLeg(fallingoffloadingdock) Distribution/Trucking HighPoint $16,000.00 $16,000.00 $2,600.00 $2,600.00 0

Concussion(hitbylumberduringoffloading)Distribution/Trucking HighPoint

$3,000.00 $3,000.00 $1,200.00 $1,200.00 0Amputatedfingers(operatingsaw) Manufacturing HighPoint $85,500.00 $85,500.00 $11,200.00 $11,200.00 0Fatality(crashedmotorcycleinrace) Manufacturing HighPoint $100,000.00 $100,000.00 $55,600.00 $55,600.00 0Carpaltunnel(officeworker–typing) Clerical HighPoint $32,500.00 $32,500.00 $17,500.00 $17,500.00 0Lungdisorder(breathingsawdust) Manufacturing Wilmington $58,000.00 $58,000.00 $6,000.00 $6,000.00 0Dislocatedshoulder(slippedonfloor) Manufacturing HP-Showroom $1,500.00 $1,500.00 $1,000.00 $1,000.00 0Brokenback(runoverbyDTStruck) Distribution/Trucking Wilmington $100,000.00 $100,000.00 $28,500.00 $28,500.00 0Carpaltunnel(officeemployee) Clerical Tampa $24,000.00 $24,000.00 $3,500.00 $3,500.00 0Hurtback(movingfurniture) Clerical HP-Showroom $25,000.00 $25,000.00 $7,000.00 $7,000.00 0Cutfinger(openingenvelope) Clerical HP-Showroom $500.00 $500.00 $150.00 $150.00 0Brokenjaw(fightwithfellowworker) Distribution/Trucking Wilmington $12,000.00 $12,000.00 $4,800.00 $4,800.00 0Cutfinger(fishhookcaughthand) Manufacturing Tampa $1,500.00 $1,500.00 $50.00 $50.00 0Facialcuts(attackedbyotherworkers) Distribution/Trucking Wilmington $250.00 $250.00 $75.00 $75.00 0Respiratoryproblems(breathingsawdust) Manufacturing HighPoint $35,000.00 $35,000.00 $7,000.00 $7,000.00 0Pulledback(unloadinglumber) Distribution/Trucking Wilmington $9,000.00 $9,000.00 $4,000.00 $4,000.00 0Pulledbackmuscle(cleaninggrounds) Maintenance/Security Tampa $9,500.00 $9,500.00 $1,500.00 $1,500.00 0Multiplechemicalsensitivity(spraybooth) Manufacturing Tampa $11,000.00 $11,000.00 $7,000.00 $7,000.00 0Splinterinhand(workingwithwood) Manufacturing Wilmington $500.00 $500.00 $0.00 $0.00 0Hernia(loadingboxtrucks) Distribution/Trucking Tampa $13,800.00 $13,800.00 $1,500.00 $1,500.00 0Eyeinjury(airbornesawdust) Manufacturing HighPoint $5,000.00 $5,000.00 $500.00 $500.00 0Smashedfinger(assemblingfurniture) Manufacturing Tampa $1,000.00 $1,000.00 $0.00 $0.00 0Backstrain(unloadingtruck) Distribution/Trucking HighPoint $2,500.00 $2,500.00 $150.00 $150.00 0FingerLaceration Maintenance/Security Wilmington $1,000.00 $1,000.00 $200.00 $200.00 0BitbyDog Maintenance/Security Wilmington $5,500.00 $5,500.00 $1,500.00 $1,500.00 0BackSpasms(sittingtoolong) OfficeWorker HighPoint $5,000.00 $5,000.00 $500.00 $500.00 0SeveredFinger Manufacturing HighPoint $45,000.00 $45,000.00 $6,500.00 $6,500.00 0BrokenLeg(fallingoffloadingdock) Distribution/Trucking HighPoint $13,000.00 $13,000.00 $3,250.00 $3,250.00 0Concussion(hitbytruckduringoffloading) Distribution/Trucking HighPoint $4,000.00 $4,000.00 $1,750.00 $1,750.00 0AmputatedFingers-operatingsaw Manufacturing Tampa $45,000.00 $45,000.00 $18,000.00 $18,000.00 0Paraplegic(crashedforkliftinrace) Manufacturing HighPoint $100,000.00 $100,000.00 $100,000.00 $100,000.00 0DislocatedShoulder(slippedonfloor) Manufacturing Tampa $3,000.00 $3,000.00 $1,800.00 $1,800.00 0CarpalTunnel(officeemployee) Clerical Wilmington $20,000.00 $20,000.00 $8,500.00 $8,500.00 0HurtBack(loadingtruck) Distribution/Trucking HighPoint $5,000.00 $5,000.00 $700.00 $700.00 0CutFinger(openingenvelope) Clerical HighPoint $500.00 $500.00 $0.00 $0.00 0BrokenJaw(fightwithco-worker) Distribution/Trucking Wilmington $6,500.00 $6,500.00 $4,800.00 $4,800.00 0SprainedAnkle(trippedonfactoryfloor) Manufacturing Tampa $1,000.00 $1,000.00 $250.00 $250.00 0RespiratoryProblems(operatingspraybooth) Manufacturing HighPoint $75,000.00 $75,000.00 $5,500.00 $5,500.00 0HeartAttack(scaredbydogs) OfficeWorker Wilmington $18,000.00 $18,000.00 $0.00 $0.00 0CarpalTunnel(computeroperator) OfficeWorker HighPoint $55,000.00 $55,000.00 $12,000.00 $12,000.00 0

Total: $964,050.00 Total: $327,575.00

3YEARWORKERSCOMPENSATIONCLAIMSAVERAGEAverageClaimsforYears2012-2014

51

LastYear(2013) DEPARTMENT LOCATION INCURRED PVINC PAID PVPAID YEARBurnedhand(operatingsouderer) Manufacturing Tampa $15,000.00 $15,150.00 $3,500.00 $3,535.00 1Amputatedfingers(operatingsaw) Manufacturing HighPoint $45,500.00 $45,955.00 $15,750.00 $15,907.50 1Slippeddisc(liftingboxes) Distribution/Trucking HighPoint $15,000.00 $15,150.00 $9,200.00 $9,292.00 1

Tornvocalchord(yellingatmotorcyclerace)Clerical HighPoint

$8,000.00 $8,080.00 $0.00 $0.00 1Papercut Clerical Tampa $200.00 $202.00 $0.00 $0.00 1Lowerbackinjury(liftingmicrowave) Clerical HighPoint $18,500.00 $18,685.00 $7,000.00 $7,070.00 1Facialbruises(airbagdeployed) Distribution/Trucking HighPoint $5,500.00 $5,555.00 $2,500.00 $2,525.00 1Crushedleg(runoverbyDTStruck) Distribution/Trucking Wilmington $55,000.00 $55,550.00 $25,000.00 $25,250.00 1Temporaryblindness(paintoverspray) Manufacturing HighPoint $4,500.00 $4,545.00 $2,000.00 $2,020.00 1Eyeinjury(sprayboothoverspray) Manufacturing HighPoint $7,000.00 $7,070.00 $4,500.00 $4,545.00 1Slippeddisc(unloadingfurniture) Distribution/Trucking Tampa $42,000.00 $42,420.00 $12,000.00 $12,120.00 1Stapleinfinger(upholsterymfg) Manufacturing Tampa $2,500.00 $2,525.00 $1,200.00 $1,212.00 1Thumbinjury(operatingBlackberry) Clerical HighPoint $700.00 $707.00 $0.00 $0.00 1Brokenback(fellfromladder) Maintenance/Security Wilmington $35,000.00 $35,350.00 $5,500.00 $5,555.00 1Pulledbackmuscle(operatingsaw) Manufacturing HighPoint $5,000.00 $5,050.00 $800.00 $808.00 1Headinjury(hitbyoverheadcranehook) Manufacturing HighPoint $51,000.00 $51,510.00 $23,500.00 $23,735.00 1Ringinginears(excessivecellphoneuse) Distribution/Trucking HighPoint $5,000.00 $5,050.00 $750.00 $757.50 1HearingLoss(operatingspraybooth) Manufacturing HighPoint $45,000.00 $45,450.00 $18,000.00 $18,180.00 1HandLacerations(productpackaging) Manufacturing HighPoint $500.00 $505.00 $250.00 $252.50 1SevereBruising(accidentaillyshotbyTaser) Maintenance/Security Tampa $3,260.00 $3,292.60 $2,950.00 $2,979.50 1SeveredToe(lawnmoweraccident) Maintenance/Security Wilmington $14,500.00 $14,645.00 $14,000.00 $14,140.00 1TemporaryBlindness(PaintBoothoverspray) Manufacturing HighPoint $15,000.00 $15,150.00 $3,000.00 $3,030.00 1Backinjury(Sittingintrucktoolong) Distribution/Trucking HighPoint $3,300.00 $3,333.00 $400.00 $404.00 1RespiratoryFailure(severepaintallergy) Manufacturing HighPoint $12,000.00 $12,120.00 $7,000.00 $7,070.00 1LegGash(hitbyforklift) Distribution/Trucking Tampa $3,000.00 $3,030.00 $880.00 $888.80 1Concussion(forkliftmaterialsfell) Distribution/Trucking HighPoint $4,000.00 $4,040.00 $2,950.00 $2,979.50 1DislocatedShoulder(slippedonfloor) Clerical HighPoint $2,500.00 $2,525.00 $500.00 $505.00 1CarpalTunnel(productionworker) Manufacturing HighPoint $39,000.00 $39,390.00 $15,500.00 $15,655.00 1

Total: $462,034.60 Total: $180,416.30

TwoYearsAgo(2012) DEPARTMENT LOCATION INCURRED PVINC PAID PVPAID YEARBrokenankle(felloffloadingdock) Distribution/Trucking Tampa $9,500.00 $9,690.95 $4,500.00 $4,590.45 2Pulledbackmuscle(movingbox) Clerical HP-Showroom $14,000.00 $14,281.40 $5,000.00 $5,100.50 2Dislocatedshoulder(felloffmower) Maintenance/Security HighPoint $4,500.00 $4,590.45 $1,000.00 $1,020.10 2Eyeinjury(sprayboothpaintoverspray) Manufacturing HighPoint $5,500.00 $5,610.55 $2,500.00 $2,550.25 2Brokenribs(attackedbyco-worker) Manufacturing Wilmington $4,500.00 $4,590.45 $3,500.00 $3,570.35 2Amputatedfingers(operatingsaw) Manufacturing HighPoint $26,000.00 $26,522.60 $24,000.00 $24,482.40 2CarpalTunnel(assemblymanhammering) Manufacturing Tampa $20,000.00 $20,402.00 $18,800.00 $19,177.88 2Eyeinjury(fabricparticles) Manufacturing Tampa $16,000.00 $16,321.60 $10,000.00 $10,201.00 2SlippedDisk(liftingbox) Distribution/Trucking Tampa $15,000.00 $15,301.50 $9,000.00 $9,180.90 2Hernia(unloadinglumber) Manufacturing Wilmington $18,000.00 $18,361.80 $7,000.00 $7,140.70 2Brokenhand(furniturefell) Clerical HP-Showroom $6,000.00 $6,120.60 $1,500.00 $1,530.15 2Pulledbackmuscle(playingbasketball) Manufacturing HighPoint $24,500.00 $24,992.45 $11,000.00 $11,221.10 2Pulledbackmuscle(boxingfinishedproduct) Manufacturing HighPoint $11,500.00 $11,731.15 $7,500.00 $7,650.75 2CarpalTunnel(loadingtrucks) Distribution/Trucking Wilmington $35,000.00 $35,703.50 $8,000.00 $8,160.80 2FingerCuts(packagingproduct) Manufacturing Tampa $1,200.00 $1,224.12 $100.00 $102.01 2FingerPuncture(handcaughtinrattrap) Manufacturing Wilmington $500.00 $510.05 $0.00 $0.00 2ScratchedRetna(paintoverspray) Manufacturing Tampa $750.00 $765.08 $250.00 $255.03 2CrushedFingers Manufacturing HighPoint $12,000.00 $12,241.20 $11,000.00 $11,221.10 2SprainedAnkle(slippedonsawdust) Manufacturing HighPoint $1,000.00 $1,020.10 $250.00 $255.03 2RatPhobia(sawdroppingsincornerofplant) Manufacturing Wilmington $15,000.00 $15,301.50 $11,000.00 $11,221.10 2Hemmoroids(sittingintruck) Distribution/Trucking HighPoint $500.00 $510.05 $0.00 $0.00 2BackStrain(liftingboxes) Maintenance/Security HighPoint $25,000.00 $25,502.50 $16,500.00 $16,831.65 2

Total: $271,295.60 Total: $155,463.24

52

2014 2013 2012 PVIncurredBack $191,500.00 $118,800.00 $90,000.00 $395,350.46Head/Neck/Face $30,750.00 $87,000.00 $22,250.00 $138,532.72Leg/Ankle/Foot $30,000.00 $72,500.00 $10,500.00 $111,691.06Shoulder/Arm/Hand $316,500.00 $105,700.00 $105,200.00 $520,117.16Internal $210,800.00 $70,000.00 $18,000.00 $293,953.34Misc. $555,500.00 $3,460.00 $20,000.00 $567,980.20

WORKERSCOMPENSATIONLOSSHISTORYBYINJURYTYPE

$0.00$100,000.00$200,000.00$300,000.00$400,000.00$500,000.00$600,000.00

WCLossHistorybyInjuryType2014 2013 2012 PVIncurred

2014 2013 2012 PVIncurred 2014CostPerEEHighPoint $946,500.00 $287,000.00 $110,500.00 $1,322,508.63 $2,558.11HighPointShowroom $27,000.00 $0.00 $20,000.00 $46,467.99 $2,700.00Tampa $109,800.00 $65,960.00 $62,450.00 $235,393.44 $392.62Wilmington $251,750.00 $104,500.00 $73,000.00 $423,254.88 $1,318.06

CostPerEEYearlyTotals(AllDepartments) $1,806.56 $499.96 $215.87 $2,743.74

WORKERSCOMPENSATIONLOSSHISTORYBYLOCATION

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

$1,400,000.00

HighPoint HighPointShowroom Tampa Wilmington

WCLossHistorybyLocation

2014 2013 2012 PVIncurred

$2,558.11$2,700.00

$392.62

$1,318.06

HighPoint HighPointShowroom Tampa Wilmington

2014CostPerEEbyLocation

$1,806.56

$499.96

$215.87

$2,743.74

$0.00

$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

2014 2013 2012 PVIncurred

Cost PerEE Yearly Totals (AllDepartments)

53

2014 2013 2012 PVIncurred 2014CostPerEEClerical/Office $180,500.00 $29,900.00 $20,000.00 $226,547.40 $1,812.38Distribution/Trucking $206,050.00 $132,800.00 $60,000.00 $393,475.15 $4,575.29Maintenance/Security $16,000.00 $52,760.00 $29,500.00 $97,422.36 $6,494.82Manufacturing $932,500.00 $242,000.00 $156,450.00 $1,310,180.03 $2,553.96

WORKERSCOMPENSATIONLOSSHISTORYBYDEPARTMENT

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

$1,400,000.00

Clerical/Office Distribution/Trucking Maintenance/Security Manufacturing

WCLossHistorybyDepartment

2014 2013 2012 PVIncurred

$1,812.38

$4,575.29

$6,494.82

$2,553.96

2014CostPerEEbyDept.

HighPoint HighPointTampa HighPointShowroomWilmington Tampa

Total: WilmingtonTotal: $882,800.00

$513,500.00$1,779,000.00

INCURREDPROPERTYLOSSESBYLOCATION

$193,750.00$2,250.00

$173,300.00

INCURREDLIABILITYLOSSESBYLOCATION

$1,089,000.00$70,000.00$620,000.00

61%

4%

35%

LiabilityLosses:%ofTotal

HighPoint

Tampa

Wilmington

22%

0%

20%58%

PropertyLosses:%ofTotal

HighPoint

HighPointShowroom

Tampa

Wilmington

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

HighPoint Tampa Wilmington

IncurredLiability LossesbyLocation

$0.00

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

HighPoint HighPointShowroom

Tampa Wilmington

IncurredProperty LossesbyLocation

54

Financial Ratios

55

As of 12/31/2014 As of 12/31/2013ASSETS

CURRENT ASSETS Cash and Cash Equivalents 28,496,250$ 8,853,000$

19,420,500 22,695,750 Inventories 27,132,000 45,186,000 Prepaid Expences and Other Current Assets 2,601,000 3,552,000 Total Current Assets 77,649,750 80,286,750

LONG TERM ASSETS Property, Plant and Equipment, net 17,060,250 18,447,000 Intangible Assets (Goodwill) 2,601,000 3,603,750 Cash Surrender Value of Officers' Life Ins. 11,107,500 10,134,750 Other Assets 3,405,750 2,628,000 TOTAL ASSETS 111,824,250$ 115,100,250$

LIABILITIES

CURRENT LIABILITIES Trade Accounts Payable 7,818,750$ 6,294,000$ Accrued Salaries, Wages & Benefits 1,638,000 1,663,500 Other Accrued Expenses 1,464,750 1,709,250 Accrued Dividends 807,750 - Current Maturities of Long Term Debt - 2,174,250 Total Current Liabilities 11,729,250 11,841,000

LONG-TERM DEBT Long-Term Debt, Excluding Current Maturities - 1,739,250 Deferred Compensation 4,401,000 4,204,500 Other Long-Term Liabilities - 33,000 Total Long-Term Liabilities 4,401,000 5,976,750 TOTAL LIABILITIES 16,130,250 17,817,750

SHAREHOLDERS' EQUITY

12,807,000 12,746,250

Retained Earnings 82,554,750 84,337,500 Accumulated Other Comprehensive Income 332,250 198,750 TOTAL SHAREHOLDERS' EQUITY (Net Worth) 95,694,000 97,282,500

TOTAL LIABILITIES & SHAREHOLDERS' EQUITY 111,824,250$ 115,100,250$

authorized, 10,775,000 shares outstanding

Trade Accounts Receivable, less allowance for doubtful accounts of $1,938 and $2,207 on each date

Common Stock, no par value, 20,000,000 shares

JIGSAW MANUFACTURING COMPANY BALANCE SHEET

56

As of 12/31/2014 As of 12/31/2013REVENUES:

Total Net Sales 152,510,250$ 195,871,500$

EXPENSES:Manufacturing Operating Expenses* 116,198,250 150,658,500 Selling & Administrative Expenses** 31,467,000 34,485,000 Restructuring (Credits) Charges - (713,250) Goodwill & Intangible Asset Impairment Charges 955,500 3,685,500 Total Expenses 148,620,750 188,115,750

INCOME BEFORE TAXES AND INTEREST 3,889,500 7,755,750

INCOME TAXES 45% 1,750,275 3,490,088

NET INCOME 2,139,225$ 4,265,663$

JIGSAW MANUFACTURING COMPANY INCOME STATEMENT

* Manufacturing Operating Expenses include Utilities of $$6,597,500 and $7,628,250 in 2009 and 2008 repsectively.

** Selling & Administrative Expenses include Payroll charges of $16,768,000 and $19,553,000 in 2009 and 2008.

FAVORABLE ORSOLVENCY COMPANY UPPER MEDIAN LOWER UNFAVORABLE

Quick Ratio (Times) 4.09 2.3 0.9 0.5 FAVORABLE1

Current Ratio (Times) 6.62 5.0 2.3 1.3 FAVORABLE2

Current Liabilities to Net Worth (%) 12.26 % 18.7 54.4 149.1 FAVORABLECurrent Liabilities to Inventory (%) 43.23 % 52.2 95.4 215.8 FAVORABLETotal Liabilities to Net Worth (%) 16.86 % 33.0 88.7 253.0 FAVORABLE3

Fixed Assets to Net Worth (%) 35.71 % 22.8 45.1 75.1 FAVORABLE

EFFICIENCYCollection Period (Days) 46.48 24.3 38.4 50.9 FAVORABLESales to Inventory (Times) 5.62 12.8 7.8 4.8 FAVORABLE4

Assets to Sales (%) 73.32 % 29.6 42.7 56.9 UNFAVORABLE5

Sales to Net Working Capital (Times) 2.31 10.7 5.6 3.5 UNFAVORABLE6

Accounts Payable to Sales (%) 5.13 % 2.3 4.1 6.8 FAVORABLE

Profitability7

Return on Sales (%) 1.40 % 4.8 1.9 0.2 FAVORABLEReturn on Assets (%) 1.91 % 13.5 5.8 0.4 FAVORABLEReturn on Net Worth (%) 2.24 % 26.8 13.4 1.9 FAVORABLE

DUN AND BRADSTREET KEY BUSINESS RATIOSSIC 2511 Wood Household Furniture

INDUSTRY

Notes

1We believe that some excess cash should be used for loss retention or reinvested into the company2This high degree of liquidity will allow you to seek opportunities for maximising growth3Given the firm's lack of outstanding debt, lines of credit could be utilized to finance retention for years in which losses incurred are above expected4Although within industry average, we feel that the company could improve in this area5This reflects the firm's highly liquid position and indicates a lack of aggresion in sales efforts6This figure should improve with increased sales7Investors would like to see these figures closer to the industry average

57

Industry Benchmarks for Determining an Adequate Deductible*:2-Yr Avg.

1% of Revenue: $1,525,102.50 $1,958,715.00 $1,741,908.7510% Pre-Tax Earnings: $388,950.00 $775,575.00 $582,262.502-5% Working Capitol: $1,318,410.00 − $3,296,025.00 $1,368,915.00 − $3,422,287.50 $2,351,409.381-5% Current Assets: $776,497.50 − $3,882,487.50 $802,867.50 − $4,014,337.50 $2,369,047.501-8% Operating Income (EBIT): $38,895.00 − $311,160.00 $77,557.50 − $620,460.00 $262,018.132-5% Operating Cash Flow (Net Income)**: $42,784.50 − $106,961.25 $85,313.25 − $213,283.13 $112,085.53Budgeted Cost Variation (150% of E(loss))***: Our recommended deductible amount (will decrease significantly once loss control measures are implemented) → $2,762,016.37

Jigsaw Manufacturing Inc. Expected Loss:Maximum Probable Yearly Aggregate Loss: ← (Calculated from highest predicted frequency and severity using regression analysis)

*Calculated from Jigsaw Manufacturing Inc. balance sheet and income statement data**All items on the income statement are cash flows, no adjustment to net income is necessary***Basis for our recommendation

$1,841,344

Lower 2013 UpperLower 2014 Upper

$3,104,979

$0.00

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

$3,000,000.00

1%ofRevenue: 10%Pre-TaxEarnings: 2-5%WorkingCapitol: 1-5%CurrentAssets: 1-8%OperatingIncome(EBIT):

2-5%OperatingCashFlow(NetIncome)**:

BudgetedCostVariation(150%ofE(loss))***:

Industry Benchmarks for Determining an Adequate Deductible

2-YrAvg. E(Loss)

Recommendation: Our professional analysis concludes that the risk retention method best suited for your firm is through a large deductible. An insurance policy with a large deductible allows your company to accomplish significant cost savings on your annual premium. Most of the losses that your firm will incur within the large deductible we recommend are high frequency, low severity in nature. These type of risks are easy to identify and control with proper oversight and support from management. For example, your firm has recently incurred losses that have directly resulted from a lack of proper safety training and accident protocol (pulled muscles, concussions, cuts, etc.) These losses, while minor, increase your premium with each accumulating claim. When these risks get transferred back to your company via the large deductible we have recommended, it should create a clear financial incentive for managers to control losses (risk). Other retention options such as self-insurance require the company retaining the risk to assume control of claims handling, litigation and other services normally handled by insurers. In order to meet these requirements entire departments would have to be created, several new employees would need to be hired, and additional overhead would have to be accepted. As Jigsaw Manufacturing, Inc. goes through a potential change in ownership, complete overhaul of processes and procedures (as we recommend), and several operations changes in the coming months, we do not believe it would be wise for your company to take on this excess responsibility at this time. We have presented to you the deductible amount we recommend based on your financials, claims history, and expected future losses. We have also included some benchmark figures that risk management professionals use to determine an adequate deductible amount. We believe that roughly 150% of E(Loss) is the best measure to use as it is based directly on loss data and is a rather liberal estimation (barring a major loss, chance of exceeding this deductible in an average year with proper loss control measures is slim). We also encourage negotiating a policy in which Jigsaw Manufacturing is responsible for no more than 20% of an individual loss that exceeds the deductible. This prevents your company from exhausting the deductible on a single incident and allows for the retention of smaller losses that may occur during the policy period.

58

Insurance Program

59

RiskExposure/Coverage PolicyLimits InsurerBest'sRating

Property-BPP 80%CoinsuranceSpecialCausesofLoss Buildings (PerScheduleatACV) MindBenderInsCo A-$1,000Deductible BusinessPersonalProperty (PerScheduleatACV)

ExclEarthquake&Flood PersonalPropertyofOthers ZeroExclEquipmentBreakdown

BuildersRiskCoverageFormCompletedValue

Provisionnoprojectscurrently

scheduled MindBenderInsCo A-Bus.Inc.w/outExtraExpense 50%coinsurance $3,000,000 MindBenderInsCo A-

FloodWilmington,NCLocationOnly

$5,000,000eachbuilding$500,000

NFIP N/A

BasicBPPPolicyTampaLocation-SeparateAgent

Unknown Unknown Unknown Unknown

CommercialGeneralLiability OccurrenceForm GeneralAggregateLimit $2,000,000 LegalRiskInsurers AProducts/CompletedOpsAggLimit $2,000,000

Pers&AdvInjuryLimit $1,000,000EachOccurrenceLimit $1,000,000

FireDamageLimit(perfire) $100,000MedicalExpenseLimit(per

person) $0Auto/Truckers SYMBOLS

Liability 01 $500,000 AutoCrashersInsCo C++PersonalInjuryProtection 05 Included

AddedPIP 05 IncludedAutoMedPay Zero

Un/Under-insuredMotorists $100,000

Comprehensive 07,08 (PerScheduleatACV)Collision 07,08 (PerScheduleatACV)

Crime DiscoveryFormInsidethePremises-TheftofMoneyandSecurities(only)

$250,000 Bag&TagInsCo B-

EDPpolicyCoversHardware,Software&Lossof

HighPoint,NCMainframe $350,000 CurryInsCo B

Workers'Compensation&EL CoverageA Statutory WorldInsCo A

CoverageB $100,000D&OLiability 3,000,000$ SpecialtyInsCo A+Umbrella 10,000,000$ SouthernInsCo A

PolicyFeatures/Endorsements

CoversU.S.EmployeesinNC/FL;NoSpecialEndorsements

JigsawManufacturing-InsuranceProgram(AsOf12/31/2014)

60

RiskExposure/Coverage PolicyLimitsPropertyBPP 80%Coinsurance Buildings(100%RC) $20,000,000

SpecialCausesofLossForm

BusinessPersonalProperty(100%RC) $36,500,000

Deductible:$100,000AnnualAggregate,$5,000

perOccurance PersonalPropertyofOthers $10,000

EquipmentBreakdownInclExpeditingExpense

Coverage $2,000,000SpecialCoverage(s)List:

OutdoorSignsEndorsement ReplacementCost $36,000SpecifiedBPPTemperarily

AwayfromPremisesEndorsement ReplacementCost $147,000

BuildersRiskCoverageFormCompletedValue

Provision$200,000

BusinessIncomewithExtraExpense

100%CoinsurancewithExtendedPeriodofIndemnityOption

Approx.EBIT+IncurredExpensesavgfor2013&2014

$175,000,000

Earthquake AllLocations DICPolicy $20,000,000

Flood AllLocations NFIP$500,000eachbuilding

$500,000contentsDICPolicyinexcesstocoverfullRC $18,500,000

CommercialGeneralLiabilityOccurrence GeneralAggregateLimit $2,000,000Products/CompletedOpsAgg

Limit $2,000,000Pers&AdvInjuryLimit $1,000,000EachOccurrenceLimit $1,000,000

FireDamageLimit(perfire) $100,000MedicalExpenseLimit(per

person)$5,000

Auto/Truckers SYMBOLS

Liability 1 $2,000,000

PersonalInjuryProtection 5 IncludedAddedPIP 5 Included

AutoMedPay NoneUn/Under-Insured

Motorists$250,000

Comprehensive 07,08 $3,000,000Collision 07,08 $3,000,000

JigsawManufacturing-RecommendedInsuranceProgramPolicyFeatures/Endorsements

61

JigsawManufacturing-RecommendedInsuranceProgram(Cont'd)

CrimeCommercialCrime DiscoveryBasis Including: $5,000,000

EEDishonestyPropertyotherthanMoneyandSecurities(insideandoutsidepremises)ComputerFraudandFundsTransferKidnap,RansomandExtortion

EDPpolicyCoversHardware,Software&Lossof

HighPoint,NCMainframeSystem

$500,000

Workers'Compensation&ELNC,FL CoverageA Statutory

CoverageB $2,000,000

D&OLiability $10,000,000Umbrella $25,000,000

SpecificallylistcoveragesthispolicyservesasXS

inColumnC

BodilyInjury,PropertyDamage,PersonalInjury,AdvertisingInjury,ContractualLiability

Limitdeterminedfrombenchmarkusingpercent

ofsalesmethod

InlandMarineCoversproductsintransportation

$7,000,000

SpecificallyNoteDetailsofanyNEWCoveragesneededbelow,usingthesamegeneralformatasabove.

IfanyINSURERSneedtobereplaced,notethemherewithabriefdiscussionastoWHY

Werecommendreplacingtheinsurerofyourauto,crime,andEDPpoliciesastheirA.M.Best'sRatingsarebelowA-.WealsorecommendswitchingtheTampapolicytoanaccreditedinsurer.

62

Loss Forecasting

63

(1) *CALCULATIONofUltimatePVIncurred

AccidentYear PeriodPVIncurredfromClaims

Data

LDF'sFromIRMI-

Online.com

UltimatePVIncurred*

2010 1 $78,750 1.11 $87,412.502011 2 $128,500 1.139 $146,361.502012 3 $271,296 1.195 $324,198.242013 4 $462,035 1.31 $605,265.332014 5 $964,050 1.75 $1,687,087.50

(2) CALCULATIONofIncidentRate

AccidentYear PeriodClaims

Frequency#Employees IncidentRate LNIncidentRate

2010 1 6 1,300 0.004615 -5.3783600742011 2 11 1,200 0.009167 -4.6921815632012 3 22 1,232 0.017857 -4.0253516912013 4 28 915 0.030601 -3.4867195552014 5 41 739 0.055480 -2.891725854

(3) CALCULATIONofSeverityRate

AccidentYear PeriodClaims

FrequencyUltimatePVIncurred*

AverageSeverity LNSeverity

2010 1 6 $87,413 $14,568.75 9.5866341032011 2 11 $146,362 $13,305.59 9.4959395952012 3 22 $324,198 $14,736.28 9.5980679942013 4 28 $605,265 $21,616.62 9.9812176862014 5 41 $1,687,088 $41,148.48 10.62494216

64

65

66

INCIDENTOUTPUT

RegressionStatisticsMultipleR 0.953910495RSquare 0.909945232AdjustedRSquare 0.879926976StandardError 0.007074086Observations 5

ANOVAdf SS MS F SignificanceF

Regression 1 0.001516947 0.001516947 30.31306116 0.011795368Residual 3 0.000150128 5.00427E-05Total 4 0.001667075

Coefficients StandardError tStat P-value Lower95% Upper95% Lower95.0% Upper95.0%Intercept -0.013405191 0.007419364 -1.806784358 0.168531688 -0.03701692 0.01020654 -0.03701692 0.010206537Period 0.012316441 0.002237022 5.505729848 0.011795368 0.005197238 0.01943565 0.005197238 0.019435645

Predicted Frequency = Intercept + (Period * Coefficient Estimate)0.060493458 ←Thisfigurewasusedinourcalculation

LNINCIDENTOUTPUT

RegressionStatisticsMultipleR 0.998863488RSquare 0.997728268AdjustedRSquare 0.996971024StandardError 0.053828349Observations 5

ANOVAdf SS MS F SignificanceF

Regression 1 3.817670995 3.817670995 1317.578117 4.59855E-05Residual 3 0.008692474 0.002897491Total 4 3.826363468

Coefficients StandardError tStat P-value Lower95% Upper95% Lower95.0% Upper95.0%Intercept -5.948486882 0.056455649 -105.3656627 1.88466E-06 -6.128153954 -5.76881981 -6.12815395 -5.76881981Period 0.617873045 0.017022019 36.29845888 4.59855E-05 0.563701384 0.672044705 0.563701384 0.672044705

Predicted LN Incident Rate: = Intercept + (#Periods * Coefficient Estimate)

-2.241248613

Predicted Incident Rate - Converted Back= EXP (the Predicted LN Incident Rate just above)

0.106325662 ←Donotuse

Estimated t + 1 Total Losses - LN Frequency and Severity = (LN Frequency Estimate * Severity Estimate * Estimated # Employees)

$3,104,979.02 ←Estimatetoohigh

67

SEVERITYOUTPUT

RegressionStatisticsMultipleR 0.831812984RSquare 0.691912841AdjustedRSquare 0.589217121StandardError 7488.883494Observations 5

ANOVAdf SS MS F SignificanceF

Regression 1 377861980 377861980 6.737504179 0.080677231Residual 3 168250127.9 56083375.98Total 4 546112108

Coefficients StandardError tStat P-value Lower95% Upper95% Lower95.0% Upper95.0%Intercept 2634.000023 7854.407271 0.335353125 0.759440375 -22362.22938 27630.22942 -22362.2294 27630.2294Period 6147.04791 2368.192897 2.595670275 0.080677231 -1389.598826 13683.69465 -1389.59883 13683.6946

Predicted Severity = Intercept + (Period * Coefficient Estimate)$39,516.29

LNSEVERITYOUTPUT

RegressionStatisticsMultipleR 0.865745604RSquare 0.749515451AdjustedRSquare 0.666020602StandardError 0.270396297Observations 5

ANOVAdf SS MS F SignificanceF

Regression 1 0.656330193 0.65633019 8.976786664 0.057847098Residual 3 0.219342472 0.07311416Total 4 0.875672665

Coefficients StandardError tStat P-value Lower95% Upper95% Lower95.0% Upper95.0%Intercept 9.088792046 0.283594029 32.0486016 6.67611E-05 8.186269277 9.99131481 8.186269277 9.991314814Period 0.256189421 0.085506817 2.99612861 0.057847098 -0.015931433 0.52831027 -0.01593143 0.528310274

Predicted Severity = Intercept + (Period * Coefficient Estimate)10.62592857

Predicted Severity Rate - Converted Back= EXP (the Predicted LN Incident Rate just above)

$41,189.08 ←Thisfigurewasusedinourcalculation

Estimated t + 1 Total Losses - Frequency and LN Severity = (Frequency Estimate * LN Severity Estimate * Estimated # Employees)

$1,841,344.25 ←LossforecastforPeriod6(2015)

68

Property Values

69

InsurablePropertyValues ACVReplacement

CostTotalIns.LimitACV

TotalIns.LimitRC

(1)HighPoint,NCLocationRealPropertyBuildings $7,559,174 $11,202,030OutdoorShed $3,396 $5,630OverheadCrane $450,000 $500,000ToroRidingMowers $5,000 $5,500

Total-RealProperty: $8,017,570 $11,713,160

YourBusinessPersonalPropertyForklifts $109,200 $200,000Inventory $7,996,200 $9,496,200FurnitureandLeaseholdImprovements $5,334,618 $9,897,840Machinery/Equipment $1,034,973 $1,034,973MasterComputer $72,446 $90,000

TotalYourBusinessPersonalProperty: $14,547,437 $20,719,013

PersonalPropertyofOthers

TotalPersonalPropertyOfOthers: $0 $0

SpecialPropertyNeedingEndorsementinaBPPPolicyOutdoorSigns $8,000 $12,000TradeshowBooth $87,642 $134,887

TotalSpecialPropertyNeedingEndorsement: $95,642 $146,887

BPPInsuranceScheduleofValues

70

BPPInsuranceScheduleofValues

(2)HighPoint,NCShowroomLocationRealProperty

Total-RealProperty: $0 $0

YourBusinessPersonalPropertyFurnitureandLeaseholdImprovements $956,773 $1,237,230Forklifts $30,000 $50,000

TotalYourBusinessPersonalProperty: $986,773 $1,287,230

PersonalPropertyofOthers

TotalPersonalPropertyOfOthers: $0 $0

SpecialPropertyNeedingEndorsementinaBPPPolicy

TotalSpecialPropertyNeedingEndorsement: $0 $0

71

BPPInsuranceScheduleofValues

(3)Wilmington,NCLocationRealPropertyBuildings $2,446,928 $6,578,970OverheadCrane $450,000 $500,000OutdoorShed $5,369 $7,450ToroRidingMowers $5,000 $5,500

Total-RealProperty: $2,907,297 $7,091,920

YourBusinessPersonalPropertyForklifts $109,200 $200,000Inventory $9,642,800 $12,209,400FurnitureandLeaseholdImprovements $3,695,194 $5,773,740Machinery/Equipment $322,641 $368,235

TotalYourBusinessPersonalProperty: $13,769,835 $18,551,375

PersonalPropertyofOthers

TotalPersonalPropertyOfOthers: $0 $0

SpecialPropertyNeedingEndorsementinaBPPPolicyOutdoorSigns $9,000 $12,000

TotalSpecialPropertyNeedingEndorsement: $9,000 $12,000

72

BPPInsuranceScheduleofValues

(4)Tampa,FLLocationRealPropertyOverheadCrane $450,000 $500,000OutdoorShed $10,500 $12,330ToroRidingMowers $5,000 $5,500

Total-RealProperty: $465,500 $517,830

YourBusinessPersonalPropertyForklifts $109,200 $200,000SpecialtyCraftsmanTools $350,000 $350,000Inventory $3,566,900 $5,426,400FurnitureandLeaseholdImprovements $2,366,205 $3,711,690Machinery/Equipment $413,675 $499,748

TotalYourBusinessPersonalProperty: $6,805,980 $10,187,838

PersonalPropertyofOthers

TotalPersonalPropertyOfOthers: $0 $0

SpecialPropertyNeedingEndorsementinaBPPPolicyOutdoorSigns $9,000 $12,000

TotalSpecialPropertyNeedingEndorsement: $9,000 $12,000

73

BPPInsuranceScheduleofValues

(5)LakeNorman,NCHouseRealProperty

Total-RealProperty: $0 $0

YourBusinessPersonalProperty

TotalYourBusinessPersonalProperty: $0 $0

PersonalPropertyofOthers

TotalPersonalPropertyOfOthers: $0 $0

SpecialPropertyNeedingEndorsementinaBPPPolicy

TotalSpecialPropertyNeedingEndorsement: $0 $0

ForBusinessPropertyPolicy(BPP)Only- Thesewillfillinontheirown ACVValues RCValuesTotalRealPropertyValues: 11,390,367 19,322,910

TotalYourBusinessPersonalPropertyValues: 36,110,025 50,745,456TotalPersonalPropertyofOthers: - -

TotalSpecialPropertyNeedingEndorsement: 113,642 170,887GrandTotal-PropertyValues: 47,614,034 70,239,253

74

(1)HighPoint,NCLocationQuantity

ACVValue/Unit

TotalACVRC

Value/UnitTotalRC

2015NissanArmada 7 $36,500 $255,500 $42,000 $294,0002014FordF-150 2 $19,500 $39,000 $21,000 $42,000TransportTrucks(18Wheel) 8 $180,000 $1,440,000 $210,000 $1,680,00020'BoxTrucks 6 $56,000 $336,000 $67,500 $405,000

TotalValues-AutoPHD $2,070,500 $2,421,000

(2)HighPoint,NCShowroomLocation

TotalValues-AutoPHD $0 $0

(3)Wilmington,NCLocation2014FordF-150 2 $19,500 $39,000 $21,000 $42,00020'BoxTrucks 6 $56,000 $336,000 $67,500 $405,000

TotalValues-AutoPHD $375,000 $447,000

(4)Tampa,FLLocation2014FordF-150 2 $19,500 $39,000 $21,000 $42,00020'BoxTrucks 6 $56,000 $336,000 $67,500 $405,000

TotalValues-AutoPHD $375,000 $447,000

(5)LakeNorman,NCLocation1985FordF-150 1 $3,000 $3,000 $21,000 $21,000

TotalValues-AutoPHD $3,000 $21,000

GrandTotal-AutoPHDValues: 2,823,500 3,336,000

AutoLiability/PHDRisksScheduleofValues

CoverageRequired ACV RCInlandMarineBuildersRisk $180,750 $180,750YachtPolicy $144,000 $196,500BoatOwnersPolicy $20,000 $20,000LakeNormanHouseValue $295,000 $450,000LakeNormanHouseContents $125,400 $315,000

OtherPoliciesRequiredtoPurchaseforPropertyNotCoveredAbove(ifapplicable)

75

Risk Map

76

1 2 3 4 5 1 2 3 4 5ST/EC Overall demand decline 2 3 retainST/EC Increased competition 2 2 retainST/EC 7 Buyout/loss of controling interest 3 3 do nothing

OP/PPE Outdated plant in High Point 3 3 loss control ST/PPE 9 Jigsaw and Kid's Designs primarily manufactured at the High Point facility 3 5 insureFN/EC Currency exposure from imported furniture 3 3 Hedge

ST/PPE 10 Wilmington plant provides sole assembly and finishing work 3 5 insureST/PPE 11 Jameson brand manufactured solely at Florida plant 3 5 insureHZ/BC Major storm impacting all three plants at once 1 5 insureST/BC 22 Executive management in their early 80's 1 4 loss control (Prepare living will)ST/BC Divesting of ownership causing turmoil within family and company 1 4 loss control (Prepare living will)ST/BC Competition to decide how inheritance should be passsed down 1 4 loss control (Prepare living will)ST/BC 8 Ben Casey III's youth and inexperience 3 3 Allow him to gain proper experienceST/BC Ben Casey III's passion for motorcycle racing 2 4 avoidST/BC Chip Cole's "true passion" 3 3 loss controlHZ/LGL Neither owner has will outlining ownership distribution 1 4 loss control (Prepare living will)ST/BC HQ in High Point 1 4 insure

OP/SCL 2 Majority of lumber from Brazil 3 5 Hedge/DiversifyOP/SCL 16 Exclusive contract w/ DTS 3 3 avoid - Seek New Transport CompanyHZ/LGL Terms of contract with DTS - denying claims 4 4 Seek New Transport CompanyHZ/SCL Transport of finished goods to other plants for storage 4 3 transferOP/SCL Ownership of tractor-trailers 3 4 transferOP/LGL Bribing weigh station employees 4 3 avoidanceOP/GL Shipping supervisor encouraging unlawful behavior 3 1 avoidanceOP/GL 23 Company drivers work 16 hour shifts 5 3 avoidanceOP/GL 24 Manufacturing EEs work 12 hour shifts 5 3 loss controlOP/GL Company trucks equipt with radar detectors and cell phones 5 2 avoidanceOP/LGL 15 hiring practices 4 3 loss control (Implement Training Program)HZ/WC Company ownership of forklifts and overhead cranes 2 4 loss control (Implement Training Program)HZ/GL Company issued vehicles 1 4 loss controlHZ/GL EE paying for damages to company vehicle out of pocket 3 2 retain

HZ/PPE House on Lake Norman - party 1 3 avoidanceHZ/GL Company fishing boat 1 3 insuranceHZ/GL High School graduation party 2 4 avoidance

HZ/PPE High School graduation party 2 4 avoidanceST/EC Lack of proper employee incentives, presence of improper incentives loss control - recommend 3-shift schedule HZ/GL Happy Hour Fridays 3 2 avoidanceHZ/GL Fishing contest 1 1 retainOP/GL Company-sponsored softball team 5 1 retainOP/QC EE engage in class work during lunch 4 1 loss control - monitor company time wastedHZ/RCC Computers provided in lunch room 5 2 loss control - monitor company time wastedHZ/BC Computers are not monitored 5 2 AvoidanceHZ/WC 21 Recent history of work related incidents 2 4 insureOP/WC 20 Lack of proper accident protocol 2 3 loss controlHZ/WC Lost time accident involving Andy Garcia loss control - better get back to work plan HZ/RC 19 Prospect of worker's union 1 5 avoid

OP/LGL Firing of disgruntled EEs 2 3 retain HZ/WC Assembly workers wrist pain 2 3 loss control - better get back to work plan OP/LGL Hiring only men in manufacturing and women in upholstering 2 3 loss control - employ equal employment compliance programHZ/PPE 18 Poor security 2 4 loss control - train guards and enhance security featuresHZ/GL Attack dogs 2 5 avoidanceHZ/GL Armed guards 2 5 loss control - train guards and unarm them

HZ/RCC $5000 in petty cash 3 3 AvoidanceHZ/RCC Allowing EE to take petty cash 3 2 AvoidanceHZ/RCC Weekly bank deposit 3 2 loss control - only managers allowed to do HZ/RCC 17 Bookkeeper has full authority to sign checks and approve orders 3 3 avoid - allow someone else to approveST/PPE Lease ends/contingentcy plan? 1 4 loss control - create contingency planOP/RCC Over-paying for rent 2 2 avoidFN/EC considering Default on lease 1 5 AvoidanceHZ/GL Pollution at Wilmington plant 1 5 loss control HZ/GL 12 Improper waste management 3 4 avoidanceOP/BC 5 Chip Cole has complete control of IT 2 5 loss control - train other employees to handle ITFN/EC Allowing customers to order at wholesale prices 4 3 avoidanceHZ/GL Printing of customer information 4 3 avoidHZ/BC Proprietary information unprotected 2 5 loss control ST/EC Reducing payroll by 50% 1 3 avoidHZ/BC 4 Chip Cole is unhappy with his situation 2 5 loss controlHZ/PL Reports of injury after sale 2 3 insureHZ/PL 13 Strangulation hazard with cribs 3 5 insureHZ/PL Product recall 2 5 insure

HZ/PPE Tampa plant insurance coverage 2 3 insure moreHZ/PPE Process by which insurance is obtained 2 3 avoidHZ/PPE Wilmington plant not properly insured 2 3 insure moreFN/EC Rising fuel and labor costs 1 3 hedge/retainFN/EC Considering outsourcing 1 3 loss controlFN/EC High fixed costs 1 2 loss control - attempt to lowerFN/EC Third-party contract with Chop Shop 2 2 loss control

HZ/PPE High Point buildings are 30 years old 2 3 insureHZ/PPE Heat pump providing heat and A/C at High Point plant 2 2 loss controlHZ/PPE 18-ft ceilings at Wilmington plant 2 4 Improvements and bettermentsHZ/PPE 6 Disabled sprinkler system at Wilmington plant 2 5 loss control - enableHZ/PPE Central unit providing warm and cooled air - Tampa no heat 2 2 Install more units as backupHZ/PPE Tampa plant dimensions (15ft. ceilings, one story) 2 2 loss controlHZ/BC Server located at High Point plant 2 4 insureHZ/GL Lease with computer company 2 2 loss control

HZ/PPE Specialty craftsman tools at Tampa Plant 2 2 insureHZ/PPE Riding lawn mowers at each plant 1 3 transferFN/EC 60% reduction in staff over the last two years 1 2 loss controlOP/EC Only hire locally 1 2 retainFN/EC "Employee Free Choice Act" 1 2 retainST/EC Only offering 2% match on 401k (avg. is 4%) 3 1 retainST/EC "Very basic" health insurance plan 5 2 loss control - Group Health PlanHZ/WC "Significant increase" in worker injuries in last 3 years 3 4 loss controlOP/HZ 25 Reluctant to free up funds for safety programs 2 3 loss controlOP/QC Poor communications within company (Quinn and Irene) 1 2 loss controlFN/EC Annual growth rate and discount rate projections 2 2 retain

ID RISK MANAGEMENT METHODSEVERITYRISK IDENTIFICATION FREQUENCYPRIORITY

77

1 2 3 4 5 1 2 3 4 5ID RISK MANAGEMENT METHODSEVERITYRISK IDENTIFICATION FREQUENCYPRIORITY

ST/EC Income tax rate is 45% 1 1 retainHZ/PPE Local building codes 2 2 retainHZ/PPE Freestanding signs at each facility 2 1 insureFN/EC High accounts-receivables 2 3 loss controlOP/EC High inventory 2 4 insureFN/EC High cash surrender value 2 2 loss controlFN/EC Low stock price ($1.19/share) 2 2 retainST/EC Sales drop from 2013 to 2014 2 2 retainFN/EC Net income decreased by half from 2013 to 2014 2 2 retain

ST/PPE Conflicting lease termination dates 2 3 loss controlHZ/LGL Landlord responsible only for "defects and failure of materials" 2 3 insureHZ/LGL Regulatory compliance (Section 3 of lease) 1 3 retain - incentivise complianceHZ/BC Adequate business income coverage (Article 6, section 1C) 2 4 insure HZ/LGL Landlord has to be held harmless 2 2 retainHZ/LGL Adequate property insurance on Tampa plant (Article 7) 2 4 insure HZ/LGL Tampa plant to be used "exclusively as a warehouse" per lease 2 4 avoidHZ/LGL Landlord's right to recover damages in the event of default on lease 1 4 transfer - amend contractHZ/PPE Article XII, Section 1d-4 1 4 transfer - amend contractHZ/PPE 3 Hurricanes/Natural disaster 2 5 insure HZ/LGL Waiver of right to litigation against landlord per lease 2 4 transfer - amend contractHZ/BC 1 Cyber risk 4 5 insuranceHZ/GL 14 Wilmigton facility having a dock 2 4 insure

RCC - Retention Capability and ControlSCL - Supply Chain and Logistics

Secondary Identifiers:BC - Business ContinuityEC - EconomicGL - General LiabilityLGL - LegalPL - Products LiabilityPPE - Property, Plant, and EquipmentQC - Quality Control

HZ - Hazard Risk

Primary Identifiers (Type of Risk):FN - Financial Risk

ST - Strategic RiskOP - Operational Risk

Legend

78

Zz

Buyout/loss of controlling interest Bookkeeper has full authority to sign checks and approve orders

Jigsaw and kids designs primarily manufactured at High Point Facility Improper waste management

Wilmington Plant provides sole assembly and finishing work

Jameson brand manufactured solely at Florida plant Chip Cole has complete control of IT

Executive management in their early 80'sChip Cole is unhappy with his situation

Ben Casey III's youth and inexperienceStrangulation hazard with cribs

Majority of lumber from Brazil Disabled sprinkler system at wilmington plant

Exclusive contract w/ DTSReluctant to free up funds for safety programs

Zz Company drivers work 16 hour shifts

Hurricanes/Natural DisasterManufacturing EEs work 12 hour shifts

Hiring practices Cyber risk

Recent history of work related incidents

Poor securityLack of proper accident protocol

Prospect of worker's unionDock at Wilmington Facility

SEVERITY

1 2 3 4

1

2

5

4

3

5

FREQUENCY