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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NO. 1-12641
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 45-0306084
(State of incorporation) (I.R.S. Employer Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (701) 297-4288
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
The number of shares outstanding of the registrant as of June 10, 2003:
Common Stock 100
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1
PART I - FINANCIAL INFORMATON
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended April 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)(UNAUDITED) 2003 2002
---------------------------------------------------------------------------------------------
Revenues
Equipment and truck sales $ 99,273 $110,377
Parts and service 37,095 38,016
-------- --------
Total revenues 136,368 148,393
Cost of revenues
Equipment and truck 88,776 99,920
Parts and service 23,260 23,780
-------- --------
Total cost of revenues 112,036 123,700
-------- --------
Gross profit 24,332 24,693
Selling, general and administrative expenses 22,068 22,148
-------- --------
Operating income 2,264 2,545
Interest expense 457 866
Other income 254 74
-------- --------
Income before income taxes 2,061 1,753
Income tax provision 845 719
-------- --------
Net income $ 1,216 $ 1,034
======== ========
Net income per share - basic and diluted $ 0.10 $ 0.08
======== ========
Weighted average shares outstanding - basic 12,632 13,001
======== ========
Weighted average shares outstanding - diluted 12,706 13,058
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 2003 2003
----------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 619 $ 1,497
Accounts receivable, less allowance for doubtful accounts 29,780 23,738
Income tax receivable -- 800
Receivables from affiliates 203 83
Inventories 152,061 125,048
Prepaid expenses 1,779 1,828
-------- --------
Total current assets 184,442 152,994
Property and equipment, net 16,620 16,820
Other assets:
Goodwill 24,322 24,322
Deferred income tax asset 5,960 5,620
Deposits and other 2,960 2,910
-------- --------
Total assets $234,304 $202,666
======== ========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 2003 2003
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan/borrowing base payables $ 106,228 $ 76,752
Notes payable 1,380 1,565
Current maturities of long-term debt 1,632 1,783
Accounts payable 3,159 4,625
Accrued liabilities 18,746 16,174
Customer advance deposits 4,571 5,389
Deferred tax liability 3,360 2,180
----------- -----------
Total current liabilities 139,076 108,468
Long-term debt, net of current maturities 4,717 5,140
----------- -----------
Total liabilities 143,793 113,608
----------- -----------
Commitments and contingencies
Stockholders equity:
Preferred stock, par value $.01 per share; 500,000 shares authorized;
no shares issued in fiscal 2004 and 2003 -- --
Common stock-
Class A, par value $.01 per share; 20,000,000 shares authorized;
5,731,008 issued in fiscal 2004 and 2003 57 57
Class B, par value $.01 per share; 7,500,000 shares authorized;
7,450,492 issued in fiscal 2004 and 2003 75 75
Additional paid-in-capital 84,703 84,471
Retained earnings 7,903 6,687
Treasury Stock, at cost (493,867 and 551,200 Class A shares in fiscal
2004 and 2003, respectively) (2,227) (2,232)
----------- -----------
Total stockholders' equity 90,511 89,058
----------- -----------
Total liabilities and stockholders' equity $ 234,304 $ 202,666
=========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 30,
(IN THOUSANDS) (UNAUDITED) 2003 2002
---------------------------------------------------------------------------------------------------------
Operating activities:
Net income $ 1,216 $ 1,034
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
Depreciation and amortization 948 1,025
Deferred taxes 840 604
Change in operating assets and liabilities:
Accounts receivable (5,362) (6,181)
Inventories (27,013) (7,973)
Prepaid expenses 49 264
Deposits (114) 66
Floor plan payables/borrowing base payables 15,126 11,354
Accounts payable and accrued liabilities 530 4,271
Customer advance deposits (818) 788
-------- --------
Net cash (used for) provided by operating activities (14,598) 5,252
-------- --------
Investing activities:
Net sales of rental equipment 203 112
Net purchases of property and equipment (375) (274)
Other, net 64 16
-------- --------
Net cash used for investing activities (108) (146)
-------- --------
Financing activities:
Payments on long-term debt (574) (2,695)
Purchase of common stock -- (250)
Sale of treasury stock 237 --
Net proceeds (payments) of short-term notes payable
and revolving credit facilities 14,165 (2,770)
-------- --------
Net cash provided by (used for) financing activities 13,828 (5,715)
-------- --------
Decrease in cash (878) (609)
Cash and cash equivalents, beginning of period 1,497 852
-------- --------
Cash and cash equivalents, end of period $ 619 $ 243
======== ========
Supplemental disclosures:
Cash payments for interest $ 406 $ 942
======== ========
Cash payments for income taxes $ 2 $ 35
======== ========
Noncash investing and financing activities:
Increase in assets and long-term debt due to
refinancing of operating lease $ -- $ 3,656
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
RDO EQUIPMENT CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. NATURE OF BUSINESS:
BASIS OF PREPARATION
The condensed consolidated financial statements for the three months
ended April 30, 2003 and April 30, 2002 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, contained in the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 2003. The
results of operations for the three months ended April 30, 2003 are not
necessarily indicative of the results to be expected for the full year.
Certain reclassifications have been made for consistent presentation.
RECENT DEVELOPMENTS
On April 28, 2003, Ronald D. Offutt, the Company's Chairman, Chief
Executive Officer and President caused RDO Tender Co., a wholly owned subsidiary
of RDO Holdings Co. which is owned primarily by Mr. Offutt, to commence a tender
offer to acquire all of the outstanding shares of class A common stock of RDO
Equipment Co. not owned by RDO Tender Co. and RDO Holdings Co. or the
stockholders of RDO Holdings Co. for $6.01 in cash. The tender offer expired at
5:00 p.m., New York City time, on Monday, June 2, 2003. Upon completion of the
tender offer, RDO Tender Co. held approximately 96.0% of the outstanding class A
shares of RDO Equipment Co. On June 3, 2003, RDO Tender Co. was merged with and
into RDO Equipment Co. pursuant to the "short form" merger provisions of the
Delaware General Corporation Law. The merger was not subject to the approval of
the board of directors of RDO Equipment Co. or the holders of the class A shares
not tendered in the tender offer. As a result of the merger, each outstanding
class A share of RDO Equipment Co. not previously purchased in the tender offer
(other than shares owned by RDO Tender and shares held by stockholders who seek
appraisal rights under Delaware law) was converted into the right to receive
$6.01 in cash, without interest. Upon completion of the merger on June 3, 2003,
RDO Equipment Co. became a wholly owned subsidiary of RDO Holdings Co. The class
A common stock of RDO Equipment Co. is in the process of being delisted from the
New York Stock Exchange. At the time of the NYSE delisting, RDO Equipment Co.
intends to file a Form 15 suspending its periodic reporting obligations under
the Securities Exchange Act of 1934, as amended.
2. INVENTORIES:
All inventories are valued at the lower of cost or market. The specific
identification method is used to determine cost for new and used equipment and
trucks. The first-in, first-out method is used to determine cost for parts
inventory. Inventories consisted of the following at (in thousands):
April 30, January 31,
2003 2003
--------- ---------
New equipment & trucks $ 93,609 $ 73,908
Used equipment & trucks 36,892 30,683
Parts and other 21,560 20,457
--------- ---------
$ 152,061 $ 125,048
========= =========
6
3. FLOOR PLAN\BORROWING BASE PAYABLES:
Floor plan/borrowing base payables are financing arrangements for
inventory and receivables. The terms of certain floor plan arrangements may
include an interest-free term followed by a term during which interest is
charged. Floor plan/borrowing base payables consisted of the following at (in
thousands):
April 30, January 31,
2003 2003
--------- ----------
Interest-bearing $ 57,279 $ 44,114
Noninterest-bearing 48,949 32,638
--------- ----------
$ 106,228 $ 76,752
========= ==========
4. EARNINGS PER SHARE:
Basic net income per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the year.
Diluted net income per share is computed by dividing net income by the sum of
the weighted average number of common shares outstanding plus all additional
common shares that would have been outstanding if potentially dilutive common
shares related to stock options had been issued. The following table reconciles
the number of shares utilized in the net income per common share calculations:
Three Months Ended April 30,
2003 2002
--------- ---------
Net income available to common shareholders $ 1,216 $ 1,034
========= =========
Weighted average number of shares outstanding - basic 12,632 13,001
Dilutive effect of option plan 74 57
--------- ---------
Common and potential common shares outstanding - diluted 12,706 13,058
========= =========
Basic and dilutive net income per share $ 0.10 $ 0.08
========= =========
Options to purchase 832,966 and 722,399 shares of common stock were
outstanding as of April 30, 2003 and 2002, respectively. Outstanding options of
467,950 and 495,950 were not included in the computations of diluted earnings
per share for the three months ended April 30, 2003 and 2002, respectively,
because the exercise prices were greater than the average market prices of the
common shares for the periods. All outstanding options were cashed out in the
merger on June 3, 2003.
5. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases retail space, vehicles and rental equipment under
various non-cancelable operating leases. The leases have varying terms and
expire at various dates through 2013. Generally, the leases require the Company
to pay taxes, insurance and maintenance costs.
7
Future minimum lease payments, by year, required under leases with
initial or remaining terms of one year or more consist of the following:
(IN THOUSANDS) Affiliates Other Total
- ------------------------------------------------------------------------------
2004 $ 2,103 $ 2,159 $ 4,262
2005 2,511 1,989 4,500
2006 2,490 1,645 4,135
2007 2,438 1,159 3,597
2008 2,108 672 2,780
Thereafter 7,645 943 8,588
- ------------------------------------------------------------------------------
Total $ 19,295 $ 8,567 $ 27,862
==============================================================================
GUARANTEES
Certain credit companies provide direct customer financing
(collateralized by customer owned equipment) and credit accounts with recourse
to the Company. The Company would be required to perform under the recourse
agreements if the Company's customers fail to perform completely as contracted.
These contracts related to customer financing have various maturity dates over
the next one to five years. Agricultural contracts with Deere Credit Services,
Inc. ("Deere Credit") are recourse to the Company. The recourse is limited to
the Company's cash deposit amounting to 3% of the aggregate outstanding
contracts. The Company also factors certain accounts receivable to Deere Credit
with recourse, which therefore may be charged back to the Company. The
contingent liability relating to CitiCapital is limited to 5% of the originated
loans for any given year. These commitments represent only a small portion of
the total related account balances; thus only accruals and payments for probable
losses are recognized until the recourse (guarantee) expires. The financial risk
amount is equal to the recourse (guaranteed) portion of the contractual amounts.
Any deposits with credit companies or Deere Credit have been classified as part
of deposits and other assets in the Company's consolidated balance sheets.
As of April 30, 2003, the contingent unrecorded liability and required deposits
for the above guarantees are as follows:
FINANCE
GUARANTEED DEPOSITS
(IN THOUSANDS) AMOUNTS RECEIVABLE
- ------------------------------------------------------------------------------
Deere Credit Services, Inc. $ 3,498 $ 1,640
CitiCapital Commercial Corporation 13,662 ---
Other 252 ---
- ------------------------------------------------------------------------------
Total $ 17,412 $ 1,640
==============================================================================
MINIMUM REPURCHASE GUARANTEES
The Company has entered into sales agreements with certain customers,
which are subject to repurchase agreements. Pursuant to these agreements, the
Company, at the discretion of the customer, may be required to repurchase
equipment at specified future dates at specified repurchase prices. With respect
to these agreements, the Company believes the estimated future retail values of
the equipment equals or exceeds the guaranteed repurchase prices. The Company
accounts for transactions which have a guaranteed repurchase feature as leases.
8
The Company's existing repurchase agreements as of April 30, 2003 expire as
follows:
(IN THOUSANDS)
- -------------------------------------------------------------------------
2004 $ 1,075
2005 1,641
2006 1,752
2007 539
2008 249
- -------------------------------------------------------------------------
Total $ 5,256
=========================================================================
6. SEGMENT INFORMATION:
The Company's operations are classified into three business segments,
based upon the way the Company manages its business: construction, agricultural
and truck. Construction operations include the sale, service and rental of
construction and material handling equipment to customers primarily in the
construction, manufacturing, warehousing and utility industries and to units of
government. Agricultural operations include the sale, service and rental of
agricultural equipment primarily to customers in the agricultural industry.
Truck operations include the sale and service of heavy, medium and light-duty
trucks to customers primarily in the transportation and construction industries,
to units of government and retail customers.
The Company's performance measurement for its operating segments is
income before income taxes. In addition, all corporate expenses are allocated on
a reasonable basis to the Company's operating segments. Identifiable assets are
those used exclusively in the operations of each business segment or which are
allocated when used jointly. Corporate assets are principally comprised of cash,
income tax receivables, certain property and equipment, and deferred income
taxes.
The following table shows the Company's business segments and related
financial information for the three months ended April 30, 2003 and 2002 (in
thousands):
Construction Agricultural Truck Corporate Total
- -------------------------------------------------------------------------------------------------------------------
2003:
Revenues from
external customers $ 69,514 $ 56,125 $ 10,729 $ --- $ 136,368
Other income 196 49 9 --- 254
Interest expense 359 124 (26) --- 457
Depreciation and
amortization 675 224 49 --- 948
Income before income taxes 489 1,466 106 --- 2,061
Identifiable assets 134,045 75,441 16,517 8,301 234,304
Capital expenditures, net (71) 127 27 89 172
2002:
Revenues from
external customers $ 78,654 $ 49,609 $ 20,130 $ --- $ 148,393
Other income 38 26 10 --- 74
Interest expense 652 189 25 --- 866
Depreciation and
amortization 588 376 61 --- 1,025
Income before income taxes 500 1,033 220 --- 1,753
Identifiable assets 126,240 72,429 21,862 11,461 231,992
Capital expenditures, net 266 (142) 24 14 162
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including
results reflected in any forward-looking statement made by or on behalf of the
Company will be impacted by a number of important factors. The factors
identified below under the subsection entitled "Safe Harbor Statement" are
important factors (but not necessarily all important factors) that could cause
the Company's actual future results to differ materially from those expressed in
any forward-looking statement made by or on behalf of the Company. Any
statements contained or incorporated by reference in this Form 10-Q that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate" or "continue" or comparable terminology are
intended to identify forward-looking statements. Forward-looking statements, by
their nature, involve substantial risks and uncertainties.
THE BUSINESS
The Company specializes in the distribution, sale, service, rental and
finance of equipment and trucks to the agricultural, construction,
manufacturing, transportation and warehousing industries, as well as to public
service entities, government agencies and utilities. On April 30, 2003, the
Company operated 45 retail stores in nine states - Arizona, California,
Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and Washington.
Its stores include one of the largest networks of Deere & Company ("Deere")
construction equipment dealerships and agricultural equipment dealerships in
North America.
The Company generates its revenues from sales of new and used equipment
and trucks, sales of parts and service, rental of equipment, customer financing
and related products and services. In addition to outright sales of new and used
equipment, sales include equipment purchased under rent-to-purchase agreements.
Generally under such agreements, the customer is given a period of several
months to exercise the option to purchase the rented equipment and is allowed to
apply a portion of the rental payments to the purchase price. This
rent-to-purchase equipment is included in the Company's inventory until the
option is exercised and the equipment is purchased.
The Company's highest gross margins as a percentage of revenues have
historically been generated from its parts and service revenues. One of the
Company's operating strategies is to increase the demand for parts and service
by establishing, and then increasing, the base of equipment and trucks held by
its customers. Due to product warranty time frames and usage patterns by
customers, there generally is a time lag between equipment and truck sales and
the generation of significant parts and service revenues from such sales. As a
result of this time lag, increases in parts and service revenues do not
necessarily coincide with increases in equipment and truck sales. In addition,
due to differences in gross margin percentages between equipment and truck sales
and parts and service revenues, gross margin percentages may increase during
periods of declining equipment and truck sales and decline when equipment and
truck sales are strong.
Deere, a leading manufacturer and supplier of construction and
agricultural equipment, is the primary supplier of new products sold by the
Company. Sales of new Deere products accounted for approximately 54% of the
Company's sales for the first three months of fiscal 2004 with no other supplier
accounting for more than 10%. The Company's stores also offer complementary
products from other suppliers, used products, new and used parts, product
servicing, product rental, loans, leases and other related products and
services.
10
The Company was incorporated in April 1968 and re-incorporated in
Delaware in January 1997. The Company's executive offices are located at 2829
South University Drive, Fargo, North Dakota 58103. The Company's phone number is
(701) 297-4288. References to the Company in this Form 10-Q include its
subsidiaries.
CRITICAL ACCOUNTING POLICIES
The Company's discussion and analysis of its financial condition and
results of operations are based on the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these consolidated
financial statements requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. There can be no assurance that actual
results will not differ from those estimates. The Company believes the following
accounting policies affect its more significant judgments and estimates used in
the preparation of its consolidated financial statements.
RECEIVABLES. Receivables are valued net of an allowance for doubtful
accounts to arrive at a net realizable amount. The Company estimates its
allowance for doubtful accounts considering a number of factors, including: (1)
historical experience, (2) aging of the accounts receivable and (3) specific
information obtained by the Company on the condition and the current
creditworthiness of its customers. If the financial conditions of the Company's
customers were to deteriorate and affect the ability of its customers to make
payments on their accounts, the Company may be required to increase its
allowance by recording additional bad debt expense. Likewise, should the
financial condition of these customers improve and result in payments or
settlements of previously reserved amounts, the Company may be required to
record a reduction in bad debt expense to reverse the recorded allowance.
INVENTORIES. All inventories are valued at the lower of cost or market.
The specific identification method is used to determine cost for new and used
equipment and trucks. Cost is determined using the first-in, first-out method
for parts inventory. The Company utilizes recent sales information, third party
valuation guides and recent auction results as well as judgements of various
inventory managers within the Company to determine the net realizable value of
inventory. An allowance is provided when it is anticipated that cost will exceed
net realizable value.
LONG-LIVED ASSETS. The Company's long-lived assets are stated at cost
and depreciated over estimated useful lives. The Company periodically reviews
its long-lived assets for impairment and assesses whether significant events or
changes in business circumstances indicate that the carrying value of the assets
may not be fully recoverable. An impairment loss is recognized when the carrying
amount of an asset exceeds the anticipated future undiscounted cash flows
expected to result from the use of the asset and its eventual disposition. The
amount of the impairment loss to be recorded, if any, is calculated by the
excess of the asset's carrying value over its fair value.
GOODWILL. Goodwill is the excess of cost of an acquired entity over the
amounts assigned to assets acquired and liabilities assumed in a purchase of a
business combination. Prior to February 1, 2002, goodwill was amortized on a
straight-line basis over 30 years. Effective February 1, 2002, the Company
ceased amortization of goodwill balances. See discussion under "New Accounting
Pronouncements." Goodwill is tested for impairment on an annual basis or at the
time of a triggering event in accordance with the provisions of SFAS No. 142.
Fair values are estimated based on the Company's best estimate of the expected
present value of future cash flows compared with the corresponding carrying
value of the reporting unit, including goodwill. Currently, the Company has
identified three reporting units under the criteria set forth by SFAS No. 142.
On February 1, 2002, goodwill was tested for impairment in this manner, and the
estimated fair value of the reporting units
11
exceeded their carrying amounts, indicating no impairment of goodwill. The
Company performs its annual goodwill impairment testing during its first
quarter.
DEFERRED TAX ASSETS AND LIABILITIES. Deferred tax assets and
liabilities are recognized for the future consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to reverse. The realization of the
Company's deferred tax assets is dependent upon the ability to generate
sufficient future taxable income which is believed to be more likely than not.
The Company anticipates future taxable income sufficient to realize the recorded
deferred tax assets. Future taxable income is based on the Company's forecasts
of operating results, and there can be no assurance that such results will be
achieved.
REVENUE RECOGNITION. Revenue on equipment, truck and parts sales is
recognized upon delivery of product to customers. Rental and service revenue is
recognized at the time such services are provided. In addition to outright sales
of new and used equipment, certain rentals include rent-to-purchase option
agreements. Under such agreements, customers are given a period of several
months to exercise the option to purchase the rented equipment and may be
allowed to apply a portion of the rental payments to the purchase price. This
rent-to-purchase equipment is included in the Company's inventory until the
option is exercised and the equipment is purchased. Rental revenue is recognized
during the rental period of rent-to-purchase transactions and equipment sales
revenue is recognized when the purchase option is exercised.
GENERAL
During the first three months of fiscal 2004, the Company was affected
by various economic conditions in all operating segments. The Company's
agricultural store regions continued to benefit from the farm legislation passed
last year along with generally favorable growing conditions, which resulted in
increased revenues in this operating segment. Construction operations were
affected by a general slowdown in equipment purchasing by construction equipment
contractors in the Company's geographic areas of responsibility, especially in
the Company's southern regions. These conditions provided for increased
competitive pressures and a decline in unit market potential in the Company's
operating regions during the first quarter. The Company believes these
competitive pressures will continue to affect this operating segment in the rest
of fiscal 2004. The Company's truck revenues continued to decline reflecting the
sale of the Company's Riverside, California truck operations during the third
quarter of fiscal 2003. Remaining truck store revenues were unchanged during the
first three months of fiscal 2004.
12
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data:
Three Months Ended April 30,
2003 2002
---- ----
REVENUE DATA (IN MILLIONS):
Total revenues $ 136.4 $ 148.4
Construction 51.0% 53.0%
Agricultural 41.1% 33.4%
Truck 7.9% 13.6%
Construction revenues $ 69.6 $ 78.7
Equipment sales 68.2% 72.4%
Parts and service 31.8% 27.6%
Agricultural revenues $ 56.1 $ 49.6
Equipment sales 78.4% 77.3%
Parts and service 21.6% 22.7%
Truck revenues $ 10.7 $ 20.1
Truck sales 73.3% 74.9%
Parts and service 26.7% 25.1%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Equipment and truck sales 72.8% 74.4%
Parts and service 27.2 25.6
------- -------
Total revenues 100.0% 100.0%
Gross profit 17.8 16.6
Selling, general and administrative expenses 16.2 14.9
------- -------
Operating income 1.6 1.7
Interest expense 0.3 0.6
Other income 0.2 0.1
-------- --------
Income before income taxes 1.5 1.2
Provision for taxes 0.6 0.5
-------- -------
Net income 0.9% 0.7%
======== =======
13
THREE MONTHS ENDED APRIL 30, 2003 COMPARED TO THREE MONTHS ENDED APRIL 30, 2002
NET INCOME
The Company reported net income of $1.2 million, or $0.10 per share,
for the first three months of fiscal 2004, compared to net income of $1.0
million, or $0.08 per share, for fiscal 2003.
REVENUES
Total revenues of $136.4 million during the first three months of
fiscal 2004 were $12.0 million, or 8.1%, lower than revenues during the first
three months of the previous year. Construction revenues, which represent the
largest segment of the Company, were $69.6 million during the quarter, a $9.1
million, or 11.6%, decrease in revenue in the segment compared to the prior year
due to soft demand for construction equipment, especially in the Company's
southern regions. Agricultural revenues of $56.1 million in the first three
months of fiscal 2004 were $6.5 million, or 13.1%, higher than in fiscal 2003.
The Company's agricultural dealerships are located in areas which are
experiencing favorable crop growing conditions, thus creating farmer optimism
supporting higher sales. Truck revenues of $10.7 million were down $9.4 million,
or 46.8%, compared to last year. The sale of the Riverside, California truck
business in the third quarter of fiscal 2003 accounted for the decrease.
Equipment and truck sales were $99.3 million during the first three
months of fiscal 2004, a decrease of $11.1 million, or 10.1%, from fiscal 2003.
Agricultural equipment sales increased $5.7 million, or 14.9%, to $44.0 million.
Construction equipment sales decreased $9.5 million, or 16.7% to $47.5 million.
Truck sales decreased $7.3 million, or 48.3%, to $7.8 million for the quarter.
Parts and service revenues were $37.1 million in the first three months
of fiscal 2004, representing a decrease of $900,000, or 2.4%, from the prior
year. Parts and service revenues from truck operations decreased approximately
$2.1 million, or 42.0%, to $2.9 million. The decrease in truck parts and service
revenues was attributable to the sale of the Riverside, California truck
business. Construction parts and service revenues increased approximately
$400,000, or 1.8%, to $22.1 million. Agricultural parts and service revenues
increased approximately $800,000, or 7.1%, as sales increased to $12.1 million.
GROSS PROFIT
Gross profit of $24.3 million for the first quarter of fiscal 2004
decreased $400,000 from last fiscal year. Total gross profit as a percentage of
total revenues for the first quarter of fiscal 2004 and 2003 was 17.8% and
16.6%, respectively. While overall gross profit dollars decreased during the
quarter compared to fiscal 2003, gross margins realized improved on a
consolidated basis by approximately 1.2%, primarily associated with agricultural
equipment sales, the result of somewhat improving economic conditions in the
overall agricultural economy in the Company's central and northwest regions.
Parts and service gross margins were approximately $13.8 million, or 37.2% of
revenues, and $14.2 million, or 37.4% of revenues, for the first quarter of
fiscal 2004 and 2003, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses were steady at
$22.1 million for the first three months of fiscal 2004 and 2003. Total SG&A
expenses as a percentage of total revenues for the first quarter of fiscal 2004
and 2003 were 16.2% and 14.9%, respectively. SG&A expenses are affected by the
contribution of revenues by business segment and by the mix of revenues within
each business segment. As a percentage of revenues, SG&A expenses are generally
higher for construction operations than for agricultural and truck operations,
and lower for equipment and truck sales than for parts and
14
service revenues. In the first quarter of fiscal 2004, the Company's SG&A
expenses included approximately $400,000 of professional fees related to legal
and financial advisory services utilized by the special committee of the
Company's Board of Directors to evaluate the tender offer initiated by Ronald D.
Offutt, the Company's Chairman, Chief Executive Officer and President. In
addition, the Company's SG&A expenses were affected by the sale of the Company's
Riverside, California truck business in fiscal 2003.
INTEREST EXPENSE
Interest expense was $500,000 for the first quarter of fiscal 2004, a
decrease of $400,000, or 44.4%, from the first quarter of fiscal 2003. Interest
expense as a percentage of total revenues decreased from 0.6% for the first
three months of fiscal 2003 to 0.3% for fiscal 2004. Reductions in interest
rates as well as the sale of the Riverside, California truck business were the
contributing factors to the decrease in interest expense.
OTHER INCOME
Other income increased approximately $200,000, or 200.0%, from the
first three months of fiscal 2003 to the first three months of fiscal 2004.
Other income is primarily comprised of finance charges from trade receivables.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax
income was 41.0% for the first three months of fiscal 2004 and fiscal 2003.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
equipment, trucks and replacement parts, rental equipment, receivables and
capital expenditures, including acquisitions and openings of additional retail
locations. Historically, the Company has met these liquidity requirements
primarily through cash flow generated from operating activities, floor plan
financing, and borrowings under credit agreements with Deere & Company
("Deere"), Deere Credit Services, Inc. ("Deere Credit"), CitiCapital Commercial
Corporation ("CitiCapital"), Ag Capital Company ("Ag Capital"), GE Commercial
Distribution Finance Corporation ("CDF"), General Motors Acceptance Corporation
("GMAC") and commercial banks.
Deere and Deere Credit provide the primary source of financing for
equipment inventories, particularly for equipment supplied by Deere. The Deere
and Deere Credit financings are provided through two vehicles, the dealer
statement and a borrowing base revolving credit facility. The dealer statement
provides extended terms and varying interest-free periods, depending on the type
of equipment, to enable dealers to carry representative inventories of equipment
and to encourage the purchase of goods by dealers in advance of seasonal retail
demand. Down payments are not required and interest might not be charged for a
substantial part of the period for which inventories are financed. Often,
purchase discounts are available in lieu of interest-free periods. Variable
market rates of interest based on the prime rate are charged on balances
outstanding after any interest-free periods, which in the past have generally
been four to twelve months for agricultural equipment and four months for
construction equipment. These interest-free periods may be changed at Deere and
Deere Credit's discretion and may be longer depending on special financing
programs offered from time to time. Deere and Deere Credit also provide dealer
statement financing to dealers on used equipment accepted in trade and approved
equipment from other suppliers. The Deere Credit borrowing base revolving credit
facility provides financing for eligible equipment inventories (generally
equipment inventories not financed through the dealer statement) and
receivables. The Deere and Deere Credit financing sources have a
15
combined maximum outstanding allowed of $125.0 million. The maximum outstanding
allowed was reduced to $105.0 million beginning May 1, 2003. The total amount
outstanding to Deere and Deere Credit was $79.4 million at April 30, 2003.
The Company also has a borrowing base credit facility with CitiCapital
to provide up to $30.0 million in financing for equipment inventories with
variable rates of interest based on LIBOR. The total amount outstanding at April
30, 2003 was $19.0 million.
Truck floor plan financing is primarily provided by GMAC with variable
market rates of interest based on the prime rate and with no set credit limit.
On April 30, 2003, the Company had unused credit commitments subject to
borrowing base requirements related to inventory and receivable financing and
operating lease financing of dedicated rental equipment of $67.7 million. The
Company had outstanding floor plan/borrowing base payables of approximately
$106.2 million, of which $57.3 million was interest-bearing as of April 30,
2003. The collateral of equipment and truck inventories along with eligible
receivables would support $42.1 million of additional borrowing at April 30,
2003. During the first three months of fiscal 2004 and 2003, the average
interest rate under interest-bearing floor plan/borrowing base financing was
approximately 4.71% and 5.43%, respectively.
Currently, the Company has an unsecured bank line of credit totaling
$1,585,000 with a maturity date of July 1, 2003 and with a variable interest
rate based on the prime rate (4.25% at April 30, 2003). The Company had
approximately $205,000 of unused availability relating to this line of credit at
April 30, 2003. The average interest rates on the Company's lines of credit
during the first three months of fiscal 2004 and 2003 were 4.38% and 5.75%,
respectively.
The Company believes it has sufficient credit availability from its
existing credit facilities and manufacturers to finance its current and future
operations. Various credit facilities are reviewed and renewed annually. As the
credit facilities approach maturity, the Company believes it will be able to
renew or extend these facilities, or replace these facilities with other
facilities. The Company believes cash from operations, available cash and
borrowing capacity will be sufficient to fund its planned internal capital
expenditures and other cash needs for fiscal 2004.
The Company's financing agreements contain various covenants which,
among other matters, require the Company to maintain minimum financial ratios,
as defined, and a minimum level of tangible equity. The Company was in
compliance with all covenants as of April 30, 2003.
The Company has various commitments relating to its operations. The
following is a summary of these commitments as of April 30, 2003.
Payments due by period
----------------------
Within Year 5
Obligations: 1 year Year 2 Year 3 Year 4 or after Total
- -----------------------------------------------------------------------------------------------------------------
Inventory floor plan/
borrowing base payables $ 106,228 $ --- $ --- $ --- $ --- $ 106,228
Note payable/operating line 1,380 --- --- --- --- 1,380
Long-term debt 1,632 2,713 1,121 155 728 6,349
Operating leases and other 6,515 6,032 5,797 3,904 10,870 33,118
- ------------------------------------------------------------------------------------------------------------------
Total $ 115,755 $ 8,745 $ 6,918 $ 4,059 $ 11,598 $ 147,075
==================================================================================================================
16
The Company's long-term debt is primarily related to a note payable
collateralized by certain property and equipment and to the financing of
dedicated rental assets and one dealership location facility. Operating lease
and other commitments are primarily related to operating leases for dealership
locations of $26.3 million, minimum repurchase guarantees of equipment of $5.3
million, and operating leases for dedicated rental assets of $0.8 million and
vehicles of $0.7 million.
In addition to the above commitments, certain credit companies provide
direct customer financing (collateralized by customer owned equipment) and
credit accounts with recourse to the Company totaling $17.4 million and $1.0
million as of April 30, 2003, respectively. These commitments represent only a
small portion of the total related account balances (generally 5%); thus only
accruals and payments for probable losses are recognized until the recourse
(guarantee) expires. Credit risk represents the accounting loss that would be
recognized at the reporting date if the counter-parties failed to perform
completely as contracted. The credit risk amounts are equal to the recourse
(guaranteed) portion of the contractual amounts. These contracts related to
customer financing have various maturity dates over the next one to five years.
Cash used for operating activities was $14.6 million for the first
three months of fiscal 2004. Increased levels of inventories, partially offset
by increased levels of floor plan payables was the primary use of cash in the
first three months of fiscal 2004. Operating activities provided net cash of
$5.3 million for the first three months of fiscal 2003. Increased levels of
floor plan payables, trade payables and accrued liabilities, partially offset by
increased levels of trade receivables and inventories, were the primary
contributing factors to cash provided by operating activities for the first
three months of fiscal 2003.
Cash used for investing activities was $108,000 for the first three
months of fiscal 2004, which was primarily related to purchases of property and
equipment, partially offset by sales of rental equipment. Cash used for
investing activities was $146,000 for the first three months of fiscal 2003,
which was primarily related to purchases of property and equipment.
Cash provided by financing activities was $13.8 million for the first
three months of fiscal 2004, primarily attributable to increased utilization of
the Company's revolving credit facilities. Cash used for financing activities
was $5.7 million for the first three months of fiscal 2003. The primary
contributing factors for the use of cash were payments on long-term debt and
revolving credit facilities along with the purchase of common stock.
CYCLICALITY
Sales of equipment and trucks, particularly new units, historically
have been cyclical, fluctuating with general economic cycles. During economic
downturns, equipment and truck retailers tend to experience similar periods of
decline and recession as the general economy. The impact of an economic downturn
on retailers is generally less than the impact on manufacturers due to the sale
of parts and service by retailers to maintain used equipment and trucks. The
Company believes that its businesses are influenced by worldwide and local
economic conditions (see "Safe Harbor Statement") and that its geographic and
business diversification may generally reduce the overall impact of economic
cycles on the Company's operations.
SEASONALITY
The Company's agricultural operations, particularly in the Midwest,
generally experience a higher volume of equipment sales in the second and third
fiscal quarters due to the crop-growing season. Typically, farmers purchase
equipment prior to planting or harvesting crops. Winter weather conditions in
the Midwest limit equipment purchases during the Company's first and fourth
fiscal quarters. This
17
seasonal effect can be diminished during periods of significant and sustained
weakness in the agricultural economy during which farmers generally purchase
less equipment.
The Company's construction operations generally experience a higher
volume of equipment sales in the second and third fiscal quarters due to
favorable weather patterns, particularly in the Midwest. The general slowdown in
construction activity at the end of the calendar year influences the fourth
fiscal quarter. Further, winter weather conditions in parts of the Southwest and
South Central also limit construction activity to some degree, typically
resulting in lower sales and rentals of construction equipment.
If the Company acquires businesses in geographic areas other than where
it currently has operations, or disposes of certain businesses, it may be
affected more by the above-mentioned or other seasonal and equipment buying
trends.
SAFE HARBOR STATEMENT
This statement is made under the Private Securities Litigation Reform
Act of 1995. The future results of the Company, including results related to
forward-looking statements in this Report, involve a number of risks and
uncertainties. Important factors that will affect future results of the Company,
including factors that could cause actual results to differ materially from
those indicated by forward-looking statements, include, but may not be limited
to, those set forth under the caption "Certain Important Factors" contained in
Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 2003 and in other filings with the Securities and Exchange
Commission. The important factors discussed in the Form 10-K include:
o Dependence on Deere
o Deere termination rights
o Effects of downturn in general economic conditions, cyclicality,
seasonality and weather
o Competition
o Available financing for customers
o Substantial inventory financing requirements and lending industry
changes
o Dependence on key personnel
o Growth by acquisition and store openings
In general, the factors that will affect the Company, which are subject
to change, include: general economic conditions worldwide and locally; global
acts of terrorism; interest rates; housing starts; fuel prices; the factors that
affect the construction contractors' confidence and financial health including
construction demand, the amount of government sponsored projects and weather;
the many interrelated factors that affect farmers' confidence, including farm
cash income, farmer debt levels, credit availability, worldwide demand for
agricultural products, world grain stocks, commodity prices, weather, animal and
plant diseases, crop pests, harvest yields, real estate values and government
farm programs; legislation, primarily legislation relating to agriculture, the
environment, commerce, transportation and government spending on infrastructure;
climatic phenomena such as flooding, droughts, La Nina and El Nino; pricing,
product initiatives and other actions of competitors in the various industries
in which the Company competes, including manufacturers and retailers; the levels
of new and used inventories in these industries; the Company's relationships
with its suppliers; production difficulties, including capacity and supply
constraints experienced by the Company's suppliers; practices by the Company's
suppliers; changes in governmental regulations; labor shortages; employee
relations; currency exchange rates; availability, sufficiency and cost of
insurance; financing arrangements relating to the Company's financial services
operations, including credit availability and customer credit risks; dependence
upon the Company's suppliers; termination rights and other provisions which the
Company's suppliers have under dealer and other agreements; risks associated
with growth, expansion and acquisitions; the positions of the Company's
suppliers and other manufacturers with respect to publicly-traded dealers,
dealer
18
consolidation and specific acquisition opportunities; the Company's acquisition
strategies and the integration and successful operation of acquired businesses;
capital needs and capital market conditions; operating and financial systems to
manage operations; dependence upon key personnel; accounting standards;
technological difficulties, especially involving the Company's suppliers and
other third parties which could cause the Company to be unable to process
customer orders, deliver products or services, or perform other essential
functions; The Company's forward-looking statements are based upon assumptions
relating to these factors. These assumptions are sometimes based upon estimates,
data, communications and other information from suppliers, government agencies
and other sources, which are often revised. The Company makes no commitment to
revise forward-looking statements, or to disclose subsequent facts, events or
circumstances that may bear upon forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in the information set forth in Item
7A of the Company's Annual Report on Form 10-K for the fiscal year ended January
31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed in reports that the Company files or
submits under the Securities Exchange Act of 1934, as amended, is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission. The Company's Chief
Executive Officer and the Chief Financial Officer have reviewed the
effectiveness of the Company's "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) within
ninety days prior to the filing of this report and have concluded that the
disclosure controls and procedures are effective. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the last day they were
evaluated by the Company's Chief Executive Officer and Chief Financial Officer.
19
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On April 28, 2003, Ronald D. Offutt, the Company's Chairman, Chief
Executive Officer and President caused RDO Tender Co., a wholly owned subsidiary
of RDO Holdings Co. which is owned primarily by Mr. Offutt, to commence a tender
offer to acquire all of the outstanding shares of class A common stock of RDO
Equipment Co. not owned by RDO Tender Co. and RDO Holdings Co. or the
stockholders of RDO Holdings Co. for $6.01 in cash. The tender offer expired at
5:00 p.m., New York City time, on Monday, June 2, 2003. Upon completion of the
tender offer, RDO Tender Co. held approximately 96.0% of the outstanding class A
shares of RDO Equipment Co. On June 3, 2003, RDO Tender Co. was merged with and
into RDO Equipment Co. pursuant to the "short form" merger provisions of the
Delaware General Corporation Law. The merger was not subject to the approval of
the board of directors of RDO Equipment Co. or the holders of the class A shares
not tendered in the tender offer. As a result of the merger, each outstanding
class A share of RDO Equipment Co. not previously purchased in the tender offer
(other than shares owned by RDO Tender and shares held by stockholders who seek
appraisal rights under Delaware law) was converted into the right to receive
$6.01 in cash, without interest. Upon completion of the merger on June 3, 2003,
RDO Equipment Co. became a wholly owned subsidiary of RDO Holdings Co. The class
A common stock of RDO Equipment Co. is in the process of being delisted from the
New York Stock Exchange. Upon effectiveness of the NYSE delisting, RDO Equipment
Co. intends to file a Form 15 suspending its periodic reporting obligations
under the Securities Exchange Act of 1934, as amended.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
99.1 Certification of the CEO and CFO pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
(b) REPORTS ON FORM 8-K.
The Company filed a Current Report on Form 8-K dated April 3,
2003 under Item 12 regarding the press release announcing the Company's
fourth quarter and fiscal year 2003 results of operations.
The Company filed a Current Report on Form 8-K dated June 3,
2003 under Item 5 regarding the press release announcing RDO Tender
Co.'s completion of its cash tender offer of $6.01 per share for all
outstanding shares of class A common stock of RDO Equipment not owned
by RDO Tender, RDO Holdings or the stockholders of RDO Holdings.
20
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.
RDO EQUIPMENT CO.
(Registrant)
Date: June 12, 2003 By: /s/ Steven B. Dewald
------------------------------
Steven B. Dewald
Chief Financial Officer
(principal financial officer)
21
CERTIFICATIONS
I, Ronald D. Offutt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RDO Equipment Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a 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
this 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.
Date: June 12, 2003 /s/ Ronald D. Offutt
-----------------------------------
Ronald D. Offutt
Chief Executive Officer
(principal executive officer)
22
CERTIFICATIONS
I, Steven B. Dewald, certify that:
1. I have reviewed this quarterly report on Form 10-Q of RDO Equipment Co.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a 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
this 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.
Date: June 12, 2003 /s/ Steven B. Dewald
---------------------------------------
Steven B. Dewald
Chief Financial Officer
(principal financial officer)
23