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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
ended December 27, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transaction period
from _________ to __________
Commission file number 0-9321
PRINTRONIX, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2903992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14600 Myford Road
Irvine, California 92606
(Address of principal executive offices) (Zip Code)
(714) 368-2300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class of Common Stock Outstanding at January 24, 2003
--------------------- -------------------------------
$0.01 par value 5,834,091
PRINTRONIX, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
December 27, 2002 and March 29, 2002 3 - 4
Consolidated Statements of Operations for the Three and
Nine Months Ended December 27, 2002 and December 28, 2001 5
Consolidated Statements of Comprehensive Income for the
Three and Nine Months Ended December 27, 2002 and
December 28, 2001 6
Consolidated Statements of Cash Flows for the Nine
Months Ended December 27, 2002 and December 28, 2001 7
Condensed Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosure about Market Risk 23
Item 4. Controls and Procedures 24
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Certifications Pursuant to the Sarbanes - Oxley Act of 2002 27
2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
(Unaudited)
December 27, 2002 March 29, 2002
----------------- --------------
ASSETS:
Current assets:
Cash and cash equivalents $ 25,272 $ 22,618
Accounts receivable, net of allowance for doubtful
accounts of $2,803 and $2,524 as of December 27,
2002 and March 29, 2002, respectively 18,883 18,232
Inventories:
Raw materials, subassemblies and work in process 11,906 12,443
Finished goods 3,122 2,620
--------- ---------
Total inventory 15,028 15,063
Prepaid expenses and other current assets 1,520 1,346
Deferred income tax assets 4,263 4,010
--------- ---------
Total current assets 64,966 61,269
--------- ---------
Property, plant and equipment, at cost:
Machinery and equipment 28,991 29,154
Furniture and fixtures 25,768 27,513
Buildings and improvements 22,835 22,819
Land 8,100 8,100
Leasehold improvements 946 792
--------- ---------
86,640 88,378
Less: Accumulated depreciation and amortization (46,442) (45,481)
--------- ---------
Property, plant and equipment, net 40,198 42,897
Long-term deferred income tax assets, net 455 488
Other assets 176 305
--------- ---------
Total assets $ 105,795 $ 104,959
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
3
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS continued
(Amounts in thousands, except share and per share data)
(Unaudited)
December 27, 2002 March 29, 2002
----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 700 $ 700
Accounts payable 8,159 7,546
Accrued liabilities:
Payroll and employee benefits 4,576 4,840
Warranty 1,417 1,304
Deferred revenue 988 1,449
Other 5,306 4,944
--------- ---------
Total current liabilities 21,146 20,783
--------- ---------
Long-term debt, net of current portion 15,050 15,575
Other non-current liabilities 13 59
Commitments and contingencies (See Note 8)
Stockholders' equity:
Common stock, $0.01 par value
(Authorized 30,000,000 shares, issued and
outstanding 5,793,696 and 5,849,864 shares as of
December 27, 2002 and March 29, 2002,
respectively) 58 58
Additional paid-in capital 28,822 28,815
Retained earnings 40,793 39,669
Accumulated other comprehensive income (loss) (87) --
--------- ---------
Total stockholders' equity 69,586 68,542
--------- ---------
Total liabilities and stockholders' equity $ 105,795 $ 104,959
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
4
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------- -----------------------------
December 27, December 28, December 27, December 28,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $ 34,132 $ 33,970 $ 103,441 $ 110,096
Cost of sales 22,121 22,502 67,309 75,032
----------- ----------- ----------- -----------
Gross margin 12,011 11,468 36,132 35,064
Operating expenses:
Engineering and development 3,754 3,905 11,893 11,715
Sales and marketing 5,178 4,599 15,777 14,111
General and administrative 2,132 2,226 6,617 6,649
----------- ----------- ----------- -----------
Total operating expenses 11,064 10,730 34,287 32,475
----------- ----------- ----------- -----------
Income from operations 947 738 1,845 2,589
Interest expense, net 38 168 122 680
Other (income) expense, net (115) (10) (580) 167
----------- ----------- ----------- -----------
Income before provision for income taxes 1,024 580 2,303 1,742
Provision for income taxes 205 20 461 253
----------- ----------- ----------- -----------
Net income $ 819 $ 560 $ 1,842 $ 1,489
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.14 $ 0.10 $ 0.31 $ 0.25
Diluted $ 0.14 $ 0.09 $ 0.31 $ 0.25
Weighted average common shares:
Basic 5,814,230 5,853,202 5,851,855 5,848,960
Diluted 5,966,407 5,993,909 6,027,064 5,927,642
The accompanying notes are an integral part of these consolidated financial
statements.
5
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
December 27, December 28, December 27, December 28,
2002 2001 2002 2001
------- ------- ------- -------
Net income $ 819 $ 560 $ 1,842 $ 1,489
Other comprehensive (loss) income, net
of tax (86) -- (87) --
------- ------- ------- -------
Comprehensive income $ 733 $ 560 $ 1,755 $ 1,489
======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
6
PRINTRONIX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Nine Months Ended
---------------------------
December 27, December 28,
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 1,842 $ 1,489
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 5,666 6,375
Provision for doubtful accounts receivable 279 310
Loss on disposal of property and equipment 196 500
Deferred income taxes (220) --
Changes in assets and liabilities:
Accounts receivable (930) 1,680
Inventories 35 4,811
Other assets (178) 51
Accounts payable 613 (939)
Payroll and employee benefits (264) 274
Deferred revenue (483) (209)
Tax benefit from exercise of employee stock options 108 --
Other liabilities 363 344
-------- --------
Net cash provided by operating activities 7,027 14,686
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,156) (3,130)
Proceeds from disposition of property, plant and
equipment 126 52
-------- --------
Net cash used in investing activities (3,030) (3,078)
-------- --------
Cash flows from financing activities:
Payments made on long-term note (525) (525)
Payments made on line of credit -- (3,500)
Repurchase and retirement of common stock (1,358) --
Proceeds from the exercise of stock options 540 58
-------- --------
Net cash used in financing activities (1,343) (3,967)
-------- --------
Net increase in cash and cash equivalents 2,654 7,641
Cash and cash equivalents at beginning of period 22,618 9,832
-------- --------
Cash and cash equivalents at end of period $ 25,272 $ 17,473
======== ========
Supplementary disclosures of cash flow information:
Income tax paid $ 602 $ 821
Interest paid $ 418 $ 1,040
The accompanying notes are an integral part of these consolidated financial
statements.
7
PRINTRONIX, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 2002
(Unaudited)
1) Basis of Presentation
The unaudited, consolidated financial statements included herein have been
prepared by Printronix, Inc., pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, we believe that the
disclosures are adequate to make the information presented not misleading.
In the opinion of management, the consolidated financial statements reflect
all adjustments (which include only normal recurring adjustments) considered
necessary for a fair statement of the financial position and results of
operations as of and for the periods presented. These consolidated financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in our latest Annual Report on
Form 10-K for the fiscal year ended March 29, 2002, as filed with the
Securities and Exchange Commission. The consolidated balance sheet as of
March 29, 2002, presented herein has been derived from the audited
consolidated balance sheet contained in our latest Annual Report on Form
10-K. The results of operations for the interim periods presented are not
necessarily indicative of the results for the full year.
Unless the context otherwise requires, the terms "we," "our," "us,"
"Company" and "Printronix" refer to Printronix, Inc. and its consolidated
subsidiaries.
Certain amounts for the previous fiscal year have been reclassified to
conform to the fiscal year 2003 presentation.
2) Other Assets
Other assets included intangible assets with historical costs of $0.9
million and $1.4 million as of December 27, 2002 and March 29, 2002,
respectively. The related net book value was $15 thousand as of December 27,
2002, which will be fully amortized during the fourth fiscal quarter of the
year. The net book value was $148 thousand as of March 29, 2002.
Our internal research and development costs, which include software
development costs, are expensed as incurred. Under our current product
development methods and procedures, the technological feasibility of the
software being developed is not established until substantially all of the
product development costs have been incurred. As a result, we have not
capitalized any software development costs for software that is embedded in
our products, as the remaining costs eligible for capitalization are not
material.
8
3) Bank Borrowings and Debt Arrangements
On May 1, 2000, we entered into a $17.5 million, seven-year note secured by
our Irvine facility and a $10.0 million three-year unsecured line of credit.
During the first quarter of fiscal year 2002, we repaid the line of credit
borrowings as scheduled and cancelled the $10.0 million unsecured line of
credit. Interest on the seven-year note is at variable rates based on the
London Interbank Offered Rate ("LIBOR") plus 1.25%, and is reset at our
discretion for periods not exceeding one year. The seven-year note contains
customary default provisions, no restrictive covenants and requires monthly
principal and interest payments, with a balloon payment of $12.6 million due
June 1, 2007. The interest rate on the note was 2.75% at December 27, 2002.
During the current quarter, the weighted average interest rate on the note
was 3.0%. Total interest expense was $0.1 million for the current quarter
compared with $0.3 million for the same quarter last year. Total fiscal year
to date interest expense was $0.4 million and $1.0 million for the current
and prior year periods, respectively. We ended the current quarter with a
balance of $15.8 million on the note, which consisted of $15.1 million
long-term debt and $0.7 million for the current portion of long-term debt.
At December 27, 2002, one of our foreign subsidiaries maintained unsecured
lines of credit for $2.1 million with foreign banks, which included a
standby letter of credit of $1.8 million. These credit facilities are
subject to parent company guarantees, require payment of certain loan fees,
and provide for interest at approximately 0.75% to 1.0% above the bank's
cost of raising capital. During fiscal year 2002 and for the nine months
ended December 27, 2002, there were no cash borrowings against these lines
of credit.
In April 2000, we implemented a foreign currency-hedging program in order to
mitigate currency rate fluctuation exposure related to foreign currency cash
inflows. The program allows us to enter into foreign currency forward
exchange contracts with maturities from 30 to 180 days with a major
financial institution. We do not use the contracts for speculative or
trading purposes. Gains and losses under these contracts were immaterial for
all fiscal periods presented.
On June 26, 2000, we entered into a credit agreement with a major foreign
bank to support our hedging activities. This credit agreement has no
restrictive covenants and is available to fund any forward currency
contracts should we be unable to satisfy our obligations. During fiscal year
2002 and for the nine months ended December 27, 2002, there were no
borrowings under this credit agreement.
4) Net Income per Share
Basic net income per share is computed using the weighted average number of
shares of common stock outstanding during the period. Diluted net income per
share is computed using the weighted average number of shares of common
stock outstanding and potential shares outstanding during the period, if
dilutive. Net income per share information for the periods presented, is as
follows:
9
(Amounts in thousands, except share and per share data)
Three Months Ended Nine Months Ended
------------------ -----------------
December 27, December 28, December 27, December 28,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Net income $ 819 $ 560 $ 1,842 $ 1,489
Basic weighted average shares
outstanding 5,814,230 5,853,202 5,851,855 5,848,960
Basic net income per share $ 0.14 $ 0.10 $ 0.31 $ 0.25
Effect of dilutive securities:
Basic weighted average shares
outstanding 5,814,230 5,853,202 5,851,855 5,848,960
Dilutive effect of stock options 152,177 140,707 175,209 78,682
---------- ---------- ---------- ----------
Dilutive weighted average shares
outstanding 5,966,407 5,993,909 6,027,064 5,927,642
Diluted net income per share $ 0.14 $ 0.09 $ 0.31 $ 0.25
The dilutive weighted average shares outstanding does not include the
antidilutive impact of 724,884 and 973,645 shares for the three months ended
December 27, 2002 and December 28, 2001, respectively. The antidilutive
impact for the nine months ended December 27, 2002 and December 28, 2001 was
575,386 and 1,039,252 shares, respectively. The above shares were
antidilutive because the exercise price of the stock options exceeded the
average market value of the stock in the periods presented.
5) Common Stock
During the third quarter of fiscal year 2003, 56,064 shares of common stock
were repurchased at prices ranging from $9.47 to $11.87 per share for a
total cost of $0.6 million under our stock buyback program. For the nine
months ended December 27, 2002, 128,664 shares have been repurchased under
this program at prices ranging from $9.03 to $11.87 per share, for a total
cost of $1.4 million. Future purchases of 367,398 shares of common stock may
be made at our discretion. Stock options exercised totaled 13,576 and 72,496
for the three months and nine months ended December 27, 2002, respectively.
6) Stock Incentive Plan
Under our 1994 Stock Incentive Plan, options may be granted to purchase
shares of our common stock. As of December 27, 2002, there were 1,468,824
stock options issued and outstanding, and 606,061 stock options available to
grant.
7) Restructuring Charges
In fiscal year 2001, we recorded charges of $1.8 million to provide for the
restructuring of certain line matrix, thermal and verifier manufacturing and
support operations. The restructuring was initiated to reduce production
costs by relocating certain line matrix and thermal manufacturing processes
to our Singapore plant, and by consolidating the manufacture of critical
10
line matrix components into the Irvine facility. In addition, configuration
activities for printers for the domestic market were consolidated into the
Irvine facility from the Memphis facility, and the verification products
operations were relocated to the Irvine facility. The restructuring resulted
in the elimination of 72 positions, or approximately 7.1% of the worldwide
workforce. During fiscal year 2001, we essentially completed all announced
restructuring activities.
During the current quarter, we utilized $54 thousand of the remaining
restructuring accrual for leasehold and rental costs on the unoccupied
portion of the Memphis facilities. The remaining accrual of $82 thousand as
of December 27, 2002, is for the lease-related expenses on the unoccupied
portion of the Memphis facilities and will be fully utilized in the next 10
months. Due to the continuing soft commercial real estate market in the
Memphis area, we expect to continue to experience slow progress toward
subleasing the unoccupied portion of the facilities. We believe the
remaining restructuring accrual is adequate to cover the expected future
cash payments. The remaining restructuring accrual is included in Accrued
Liabilities Other. The restructuring accrual and utilization are summarized
as follows:
(Amounts in thousands)
Accrual Accrual
as of as of
December 27, Amounts Amounts March 29,
2002 Utilized Reclassed 2002
------------ -------- --------- --------
Write-down and disposal of fixed $ -- $ -- $ 50 $ 50
assets
Other liabilities for lease-related
expenses 82 72 -- 154
---- ---- ---- ----
Total restructuring accrual $ 82 $ 72 $ 50 $204
==== ==== ==== ====
8) Commitments and Contingencies
Operating Leases
Except for Irvine and Singapore, we conduct our foreign operations, Memphis
operations and U.S. sales offices using leased facilities. The leases are
non-cancelable operating leases, which expire at various dates from fiscal
year 2003 through fiscal year 2006. In Irvine, we own the building and the
land. In Singapore, we own the building and lease the land. The land lease
expires in fiscal year 2026. There were no material changes in our operating
lease commitments as of December 27, 2002, from that reported in Note 8 to
our Annual Report on Form 10-K.
11
Environmental Assessment
In January 1994 and March 1996, we were notified by the California
Regional Water Quality Control Board - Santa Ana Region (the "Board") that
ground under one of our former production plants as well as ground
adjacent to property previously occupied by the Company were thought to be
contaminated with various chlorinated volatile organic compounds ("VOCs").
Evidence adduced from site studies undertaken to date indicates that
compounds containing the VOCs were not used by Printronix during its
tenancy, but were used by the prior tenant during its long-term occupancy
of the site. Presently, the Board continues to investigate the source of
the VOCs and there are currently no further orders outstanding against us.
In August 2002, we responded to an inquiry from the California Department
of Toxic Substance Control (the "Department") regarding our operations at
the site. Presently, the Department is reviewing the information provided
to them and there are no further orders outstanding against us.
As of December 27, 2002 and March 29, 2002, we have accrued $0.2 million,
included in Accrued Liabilities Other, which is a reasonable estimate to
cover any additional expenses related to environmental tests that could be
requested by the Board. We are convinced we bear no responsibility for any
contamination at the sites and intend to vigorously defend any action that
might be brought against us with respect thereto. Furthermore, we believe
that we have adequately accrued for any future expenditures in connection
with environmental matters and that such expenditures will not have a
material adverse effect on our financial condition or results of
operations.
Legal Matters
We are involved in various claims and legal matters in the ordinary course
of business. We do not believe that these matters will have a material
adverse effect on our financial position or results of operations.
Accrued Liabilities Other
Accrued liabilities other includes reserves for potential tax issues.
9) New Pronouncements
In June 2001, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets." This statement requires that goodwill and
other intangible assets be tested for impairment at least annually and
prohibits periodic amortization of goodwill and some intangible assets
into income. We adopted this statement in April 2002. The adoption of this
pronouncement did not have a material impact on our financial position or
results of operations.
12
All goodwill and some intangible assets were fully amortized as of March 29,
2002. SFAS No. 142 requires us to reassess the useful lives of the remaining
intangible asset and adjust the remaining amortization periods accordingly.
Our review of the remaining intangible asset resulted in no change in the
remaining amortization periods. The remaining intangible asset continues to
be amortized into income under SFAS 142.
The following table presents goodwill, intangible assets and accumulated
amortization balances at December 27, 2002 and March 29, 2002.
(Amounts in thousands)
December 27, 2002 March 29, 2002
------------------------------------ ------------------------------------
Gross
Carrying Accumulated Net Carrying Gross Carrying Accumulated Net Carrying
Amount Amortization Amount Amount Amortization Amount
------- ------- ------- ------- ------- -------
Goodwill $ -- $ -- $ -- $ 392 $ (392) $ --
Intangible asset - other -- -- -- 86 (86) --
Intangible asset -
unpatented technology 889 (874) 15 889 (741) 148
------- ------- ------- ------- ------- -------
Total goodwill and intangible assets $ 889 $ (874) $ 15 $ 1,367 $(1,219) $ 148
======= ======= ======= ======= ======= =======
Amortization expense for the current quarter and the prior year quarter was
$45 thousand and $100 thousand, respectively. The fiscal year to date
amortization expense was $133 thousand and $261 thousand for the current and
prior year periods, respectively. The remaining net intangible asset will be
fully amortized during fiscal year 2003.
The following table presents the transitional disclosures required by SFAS
No. 142.
(Amounts in thousands, except per share data) Three Months Ended Nine Months Ended
------------------------------- -------------------------------
December 27, December 28, December 27, December 28,
2002 2001 2002 2001
--------- --------- --------- ---------
Adjusted net income:
Reported net income $ 819 $ 560 $ 1,842 $ 1,489
Add back: amortization of goodwill -- 55 -- 127
--------- --------- --------- ---------
Adjusted net income $ 819 $ 615 $ 1,842 $ 1,616
========= ========= ========= =========
Basic earnings per share:
Reported basic earnings per share $ 0.14 $ 0.10 $ 0.31 $ 0.25
Add back: amortization of goodwill -- 0.01 -- 0.02
--------- --------- --------- ---------
Adjusted basic earnings per share $ 0.14 $ 0.11 $ 0.31 $ 0.27
========= ========= ========= =========
Diluted earnings per share:
Reported diluted earnings per share $ 0.14 $ 0.09 $ 0.31 $ 0.25
Add back: amortization of goodwill -- 0.01 -- 0.02
--------- --------- --------- ---------
Adjusted diluted earnings per share $ 0.14 $ 0.10 $ 0.31 $ 0.27
========= ========= ========= =========
13
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses
recognition and measurement of losses related to impairment or disposal of
long-lived assets. We adopted this statement in April 2002. The adoption
of this pronouncement did not have a material impact on our financial
position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF")
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)", which had required a liability for an exit
cost be recognized at the date of a company's commitment to an exit plan.
SFAS No. 146 is effective for exit or disposal activities initiated after
December 31, 2002 and requires that a liability for an exit cost be
recognized when incurred. This statement also requires that the initial
measurement of this liability be at fair value. Should we have a
restructuring activity in the future, this statement would primarily
impact the timing of the recognition of the expense. We do not believe the
adoption of this statement will have a material impact on our financial
position or results of operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This interpretation provides for
additional disclosures to be made by a guarantor in its interim and annual
financial statements about obligations that it has issued. This
interpretation is effective for financial statements of interim or annual
periods ending after December 15, 2002.
Our financial statements reflect reserves for potential warranty claims
based upon our claim experience. Estimated amounts for future warranty
obligations are charged to cost of sales in the period in which the
products are sold. Deferred revenues for extended warranties are not
material.
The following table presents the required disclosures concerning product
warranties for the quarter ended December 27, 2002.
(Amounts in thousands)
Three Months Ended
------------------
December 27,
2002
-------
Beginning warranty liability $ 1,262
New warranties 314
Adjustments to pre-existing warranties 55
Payments made (214)
-------
Ending warranty liability $ 1,417
=======
14
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." This statement amends
SFAS No. 123, "Accounting for Stock-Based Compensation," to provide
alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of SFAS No. 123 and
Accounting Principles Board Opinion ("APB") No. 28, "Interim Financial
Reporting," to require prominent disclosure in both the annual and interim
financial statements about the method of accounting and the effect on
reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation. This statement is effective
for interim periods after December 15, 2002. We will adopt the disclosure
provisions of this statement in the fourth quarter of fiscal 2003 and do
not believe the adoption will have a material impact on our financial
position or results of operations, as we will continue to account for
stock-based compensation under APB No. 25, "Accounting for Stock Issued to
Employees".
10) Other Comprehensive Income
Other comprehensive income represents unrealized gains and losses on our
Euro foreign currency forward exchange contracts that qualify for hedge
accounting. The aggregate amount of such gains or losses that have not yet
been recognized in net income is reported in the equity portion of the
consolidated balance sheets as other comprehensive income.
We implemented a foreign currency-hedging program in April 2000 in order
to mitigate currency rate fluctuation exposure related to foreign currency
cash inflows. Under the program, we can enter into foreign currency
forward exchange contracts with maturities from 30 to 180 days with a
major financial institution. We do not use the contracts for speculative
or trading purposes. As of December 27, 2002, we had outstanding forward
exchange contracts with a notional amount of $4.9 million. Based on the
fair value of these contracts at December 27, 2002, we recorded a loss of
$51 thousand, which is included in the accrued liabilities other portion
of the consolidated balance sheets.
11) Segment Data
We manufacture and sell a variety of printers and associated products that
have similar economic characteristics as well as similar customers,
production processes and distribution methods and, therefore, have
aggregated similar products and report one segment.
15
PART I. FINANCIAL INFORMATION
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations (Unaudited)
PRINTRONIX, INC. AND SUBSIDIARIES
Except for historical information, this Form 10-Q contains "forward-looking
statements" about Printronix, within the meaning of the Private Securities
Reform Act of 1995. Terms such as "objectives," "believes," "expects," "plans,"
"intends," "should," "estimates," "anticipates," "forecasts," "projections," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to differ
materially, including: adverse business conditions and a failure to achieve
growth in the computer industry and in the economy in general; our ability to
achieve growth in the Asia Pacific market; adverse political and economic events
in our markets; a worsening of the global economy due to general conditions; a
worsening of the global economy resulting from terrorist attacks or war in the
Middle East; our ability to hold or increase market share with respect to line
matrix printers; our ability to successfully compete against entrenched
competition in the thermal printer market; our ability to attract and retain key
personnel; the ability of our customers to achieve their sales projections, upon
which we have in part based our sales and marketing plans; our ability to retain
our customer base and channel; our ability to procure or supply materials and
products due to disruption in international trade; our ability to procure or
supply materials and products at international entry and exit points; and our
ability to continue to develop and market new and innovative products superior
to those of the competition and to keep pace with technological change. We do
not undertake to publicly update or revise any of our forward-looking statements
even if experience or future changes show that the indicated results or events
will not be realized.
RESULTS OF OPERATIONS
Revenues
Compared with the Prior Year Quarter
Consolidated revenues for the current quarter were $34.1 million, an increase of
$0.2 million from the same period last year. An improving market in Europe,
strengthening of the Euro and an improving market in much of Asia Pacific
modestly offset continued weakness due to generally slow economic conditions and
deferral of capital spending programs in the Americas.
Sales to the Americas for the quarter were $16.9 million, down $2.5 million from
a year ago, principally due to lower sales in the OEM channel to the Company's
largest customer, IBM, where sales were lower by $1.6 million, or 26.0%.
EMEA sales were $12.4 million, up $0.9 million, or 8.0%, from the same period
last year as a result of higher line matrix sales in the distribution channel
and a stronger Euro, which contributed $0.4 million of revenue growth.
16
Asia Pacific sales for the quarter increased 56.0% from a year ago to $4.8
million, due to higher sales into most countries in the region through both OEM
and distribution channels. Sales into China were $1.5 million and doubled over
the prior year quarter, due to sales of the line matrix product line,
particularly into the banking industry.
Line matrix sales for the quarter were $26.1 million, a decrease of 2.7% from
the same period last year, primarily due to the softness in the Americas. Line
matrix revenues were 76.4% of total revenues for the quarter, compared with
78.9% in the year ago quarter.
Thermal sales for the quarter were $3.7 million, up 34.3% from the same period a
year ago due to our ongoing Major Accounts and Solution Selling programs.
Thermal sales were 10.7% of total revenues, compared with 8.0% in the year ago
quarter.
Laser sales for the quarter totaled $3.8 million, down 6.6% from the prior year
quarter. Laser sales were 11.1% of total revenues for the quarter, compared with
12.0% in the year ago quarter.
Verification products revenues for the quarter were $0.6 million, up 57.9% from
a year ago.
Sales to our largest customer, IBM, decreased $1.0 million, to $8.1 million, or
23.7% of total sales, for the quarter, compared with $9.1 million, or 26.7%, a
year ago, primarily as a result of lower sales in the Americas. Sales to our
second largest customer were $2.9 million, or 8.6% of total sales for the
quarter, compared with $3.1 million, or 9.3% of total sales last year.
For the current quarter, sales by channel were $12.6 million OEM, $20.2 million
distribution, and $1.3 million direct, or 37.0% OEM, 59.2% distribution, and
3.8% direct as a percent of revenue. For the same period last year, sales by
channel were $14.7 million OEM, $18.7 million distribution, and $0.6 million
direct, or 43.2% OEM, 54.9% distribution, and 1.9% direct as a percent of
revenue.
Compared with the Prior Year To Date
Sales for the nine months ended December 27, 2002 and December 28, 2001 were
$103.4 million, and $110.1 million, respectively. Revenues decreased 6.0% in the
year to date period, primarily driven by lower sales in the OEM channel, as
sales to our largest customer have lagged. A stronger Euro contributed $0.9
million to year to date revenues.
Sales into the Americas were $53.7 million and decreased $7.0 million, or 11.6%,
from the prior year to date period with decreases noted in both the distribution
and OEM channels. Lower sales to our largest customer accounted for 43.0% of the
revenue decrease.
Sales into EMEA were $36.6 million, essentially unchanged from the prior year to
date period. The strengthening of the Euro contributed $0.9 million to revenue
growth. Sales to our largest customer decreased $3.1 million but were almost
fully offset by higher sales to our other OEM customers and sales in the
distribution channel.
17
Sales into Asia Pacific were $13.1 million and increased 3.9% from the prior
year to date period mainly due to increased line matrix sales into the banking
industry in China.
Line matrix sales were $78.3 million, and decreased $8.3 million, or 9.6 %, from
the prior year to date. Line matrix sales were 75.7% and 78.7% of revenues for
the current and prior year to date periods, respectively.
Thermal sales were $11.5 million and increased $3.3 million, or 41.2%, over the
prior year to date due to the success of our ongoing Major Accounts and Solution
Selling programs. Thermal sales were 11.1% and 7.4% of revenues for the current
and prior year to date periods, respectively.
Laser sales were $12.1 million and decreased $1.6 million, or 11.6%, from the
prior year to date. Laser sales were 11.7% and 12.5% of revenues for the current
and prior year to date periods, respectively.
Verification product sales were $1.5 million and decreased 6.7% from the prior
year to date and remained essentially unchanged at less than 2.0% of sales for
the current and prior year to date periods.
Sales to our largest customer, IBM, decreased $6.4 million to $25.4 million, or
24.5% of total sales, for the year to date, compared with $31.7 million, or
28.8% of total sales, in the year ago period. Sales of $9.2 million to our
second largest customer represented 8.9% of total sales for the year to date,
compared with $9.0 million, or 8.2%, last year.
For the current year to date period, sales by channel were $41.2 million OEM,
$58.3 million distribution, and $4.0 million direct, or 39.8% OEM, 56.4%
distribution, and 3.8% direct, as a percent of revenue compared with $47.4
million OEM, $60.4 million distribution, and $2.3 million direct, or 43.1% OEM,
54.8% distribution, and 2.1% direct, as a percent of revenue for the same period
last year.
Gross Margin
Gross margin for the current quarter was 35.2%, up from 33.8% for the same
quarter last year. The strengthening of the Euro contributed $0.3 million of
improvement and continuing cost reductions accounted for the remainder of the
margin improvement.
Gross margin was 34.9% for the nine months ended December 27, 2002, up from
31.8% for the nine months ended December 28, 2001. The strengthening of the Euro
contributed $0.7 million of improvement. A customer contract resolution in the
second quarter of this fiscal year contributed an additional $0.4 million. The
benefit of moving line matrix and thermal printer production from the US to
Singapore, together with certain price increases and continuing cost reductions
accounted for the remainder of the margin improvement.
18
Operating Expenses, Interest Expense, net, Other (Income) Expense, net
Engineering and development expenses for the current quarter decreased 3.9% to
$3.8 million compared with the same period last year due to lower labor related
to product development costs. As a percentage of sales, engineering and
development expenses were 11.0% for the current quarter and 11.5% for the same
quarter last year.
Engineering and development expenses were 11.5% and 10.6% of sales for the nine
months ended December 27, 2002 and December 28, 2001, respectively. The increase
in the year to date expenses was due to higher labor related to product
development costs as a result of inflation.
Sales and marketing expenses for the current quarter increased 12.6% to $5.2
million compared with the same period last year. As a percentage of sales, sales
and marketing expenses were 15.2% for the current quarter and 13.5% for the same
quarter last year.
Sales and marketing expenses were 15.3% and 12.8% of sales for the nine months
ended December 27, 2002 and December 28, 2001, respectively. The increase in
both the current quarter and in the year to date expenses was due to increased
resources being applied to the Major Accounts and Vertical marketing programs.
During the current fiscal quarter, the Company continued to bolster its sales
and marketing capabilities by the addition of one high level sales position and
two high level marketing positions.
General and administrative expenses for the current quarter decreased 4.2% to
$2.1 million compared with the same period last year primarily due to lower
labor costs. As a percentage of sales, general and administrative expenses were
6.2% for the current quarter and 6.6% for the same quarter last year.
General and administrative expenses were 6.4% and 6.0% of sales for the nine
months ended December 27, 2002 and December 28, 2001, respectively. The decrease
in the year to date expenses was primarily due to lower provision for bad debts.
Interest expense in the current quarter decreased $0.2 million due to higher
interest rates in the year ago quarter. Interest income was $0.1 million for
both the current and year ago quarter. More favorable foreign currency
transactions over the year ago quarter also contributed $0.1 million of other
income. Year to date interest expense decreased $0.5 million to $0.4 million
from the prior year to date due to lower interest rates. Year to date interest
income was $0.3 million for both the current and prior year. Foreign currency
exchange gains in the current fiscal year to date versus foreign currency
exchange losses in the prior fiscal year to date contributed $0.7 million to
other income.
INCOME TAXES
We have subsidiaries in various countries and are therefore subject to varying
income tax rates. We apply an expected effective tax rate for the fiscal year.
The effective consolidated income tax rate for the current quarter was 20.0%
compared with 3.4% in the year ago quarter. On a year to date basis, the
19
effective tax rate was 20.0% compared with 14.5% for the prior year to date.
Differences between the effective tax rate for the current quarter and the
current year to date as compared with the prior comparable periods, and the U.S.
federal statutory rate of 35%, is principally the result of the geographic
composition of taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has historically been cash generated from
operations. We ended the quarter with cash and cash equivalents of $25.3
million, an increase of $2.7 million from the beginning of the fiscal year. For
the fiscal year to date, approximately $7.0 million was provided by operations.
The major uses of funds for the fiscal year to date were capital expenditures
totaling $3.2 million, $0.5 million for payments on the long-term note, and $1.4
million for the repurchase of 128,664 shares of Company stock.
A subsidiary of the Company maintains an unsecured line of credit with a foreign
bank for $2.1 million. The Company also maintains a credit agreement with a
foreign bank to support our hedging activities. During and as of the periods
presented, no amounts were borrowed under these agreements. In the prior fiscal
year, the Company maintained a line of credit with a United States bank for
$10.0 million. During the first quarter of the prior fiscal year, we repaid our
line of credit borrowings as scheduled and cancelled the $10.0 million line of
credit. The Company also has a $15.8 million seven-year note, secured by our
Irvine facilities. The note requires monthly principal and interest payments and
a balloon payment of $12.6 million on June 1, 2007. We ended the current fiscal
quarter with long-term debt of $15.1 million and current portion of long-term
debt of $0.7 million on the note.
At the end of the current fiscal quarter, the balance accrued remains at $0.2
million for an environmental issue associated with the closing down of our
Irvine hammerbank factory in fiscal 1994.
Up to 367,398 shares of common stock may be purchased at the discretion of the
Company, as authorized under our stock buyback program.
We do not anticipate any significant changes to our capital expenditure needs in
the foreseeable future, which we expect to fund from cash from operations.
As of December 27, 2002, there have been no material changes in the Company's
significant contractual obligations and commercial commitments as disclosed in
its Annual Report on Form 10-K.
Inventories as of December 27, 2002, increased $1.6 million from $13.4 million
at the end of the second fiscal quarter ended September 27, 2002. The Company
increased inventory levels in anticipation of the United States West Coast port
shutdown and the expected historically seasonally higher sales by our largest
customer, which did not occur. This increase in inventory levels is expected to
be temporary.
If demand for our products decreased, there could be a risk that cash provided
from operations would diminish. We believe we could obtain bank financing
secured by collateral.
20
However, we can offer no assurances that such financing would be available on
favorable terms, or at all. We believe that our internally-generated funds will
adequately provide for working capital requirements, capital expenditures,
engineering and development needs and other financial commitments for the
foreseeable future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We prepare the consolidated financial statements of Printronix in conformity
with accounting principles generally accepted in the United States of America.
As such, we are required to make certain estimates, judgments and assumptions
that we believe are reasonable based on the information available to us at the
time. These estimates and assumptions affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosures of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
product returns, customer programs and incentives, bad debts, inventory
reserves, warranty obligations, intangible assets and other long-lived assets,
income taxes, and contingencies and litigation. Actual results may differ from
these estimates under different assumptions or conditions.
NEW ACCOUNTING STANDARDS
In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." This statement requires that goodwill and other intangible assets be
tested for impairment at least annually and prohibits periodic amortization of
goodwill and some intangible assets into income. We adopted this statement in
April 2002. The adoption of this pronouncement did not have a material impact on
our financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement addresses recognition and
measurement of losses related to impairment or disposal of long-lived assets. We
adopted this statement in April 2002. The adoption of this pronouncement did not
have a material impact on our financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)", which had
required a liability for an exit cost be recognized at the date of a company's
commitment to an exit plan. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002 and requires that a liability for
an exit cost be recognized when incurred. This statement also requires that the
initial measurement of this liability be at fair value. Should we have a
restructuring activity in the future, this statement would primarily impact the
timing of the recognition of the expense. We do not believe the adoption of this
statement will have a material impact on our financial position or results of
operations.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This interpretation provides for additional disclosures
to be made by a guarantor in its interim and annual financial statements about
21
obligations that it has issued. This interpretation is effective for financial
statements of interim or annual periods ending after December 15, 2002. We
adopted this interpretation in the current quarter. The adoption did not have a
material impact on our financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 and Accounting Principles Board Opinion
("APB") No. 28, "Interim Financial Reporting," to require prominent disclosure
in both the annual and interim financial statements about the method of
accounting and the effect on reported net income of an entity's accounting
policy decisions with respect to stock-based employee compensation. This
statement is effective for interim periods after December 15, 2002. We will
adopt the disclosure provisions of this statement in the fourth quarter of
fiscal 2003 and do not believe the adoption will have a material impact on our
financial position or results of operations, as we will continue to account for
stock-based employee compensation under APB No. 25, "Accounting for Stock Issued
to Employees".
22
PART I. FINANCIAL INFORMATION
ITEM 3. Quantitative and Qualitative Disclosure About Market Risk
PRINTRONIX, INC. AND SUBSIDIARIES
MARKET RISK
The Company operates on a global basis and may be impacted by foreign currency
exchange rate fluctuations. We implemented a foreign currency-hedging program in
April 2000 in order to mitigate currency rate fluctuation exposure related to
foreign currency cash inflows. Under the program, we can enter into foreign
currency forward exchange contracts with maturities from 30 to 180 days with a
major financial institution. We do not use the contracts for speculative or
trading purposes. As of December 27, 2002, we had outstanding forward exchange
contracts with a notional amount of $4.9 million. Based on the fair value of
these contracts at December 27, 2002, we recorded a loss of $51 thousand, which
is included in the accrued liabilities other portion of the consolidated balance
sheets.
We have financial instruments that are subject to interest rate risk,
principally debt obligations. Long-term borrowings, consisting of a note secured
by our Irvine facility, are at variable rates based on LIBOR, and are reset at
our discretion for periods not exceeding one year. During the current quarter,
the weighted average interest rate on the note was 3.0%. If interest rates were
to increase by 10% (30 basis points on the note), the impact on our pre-tax
earnings would not be material.
23
PART I. FINANCIAL INFORMATION
ITEM 4. Controls and Procedures
PRINTRONIX, INC. AND SUBSIDIARIES
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including
our principal executive officer and principal financial officer, we conducted an
evaluation of our disclosure controls and procedures, as such term is defined in
Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934, as
amended, within 90 days of the filing date of this quarterly report on Form
10-Q. Based on their evaluation, our principal executive officer and principal
accounting officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic reports filed with the Securities and Exchange
Commission. It should be noted that the design of any system of controls is
based in part upon certain assumptions about the likelihood of future events,
and there can be no assurance that any design will succeed in achieving its
stated goals under all potential future conditions, regardless of how remote.
There have been no significant changes, including corrective actions with regard
to significant deficiencies or material weaknesses, in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced in the paragraph above.
24
PART II. OTHER INFORMATION
PRINTRONIX, INC. AND SUBSIDIARIES
ITEM 1. Legal Proceedings
See "Item 3. Legal Proceedings" reported in Part 1 of our Report on Form
10-K for the fiscal year ended March 29, 2002.
ITEM 6. Exhibits and Reports on Form 8-K
Exhibits
No exhibits were filed or were required to be filed for the
quarterly period covered by this report.
25
PRINTRONIX, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: February 10, 2003 PRINTRONIX, INC.
(Registrant)
By: /s/ George L. Harwood
---------------------------------------
George L. Harwood
Sr. Vice President, Finance,
Chief Financial Officer, and
Secretary (Principal Financial
Officer and Duly Authorized Officer)
26
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certify that, to the best of their knowledge, the
foregoing report of Printronix, Inc. fully complies with the reporting
requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934
and that the information contained in the report fairly presents, in all
material respects, the financial condition and results of operations of
Printronix, Inc.
Date: February 10, 2003
By: /s/ Robert A. Kleist By: /s/ George L. Harwood
-------------------- ---------------------
Robert A. Kleist George L. Harwood
President and Chief Sr. Vice President, Finance,
Executive Officer Chief Financial Officer, and
Secretary (Principal Financial
Officer and Duly Authorized Officer)
27
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Kleist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Printronix;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of the quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date:
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
28
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
February 10, 2003
/s/ Robert A. Kleist
--------------------
Robert A. Kleist
President and Chief Executive Officer
29
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, George L. Harwood, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Printronix;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of the quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date:
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
February 10, 2003
/s/ George L. Harwood
---------------------
George L. Harwood
Sr. Vice President, Finance,
Chief Financial Officer, and Secretary
(Principal Financial Officer and Duly Authorized Officer)
30