SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2002
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 number 0-25226
EMERSON RADIO CORP.
______________________________________________________
(Exact name of registrant as specified in its charter)
DELAWARE 22-3285224
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9 Entin Road Parsippany, New Jersey 07054
________________________________________________________________________________
(Address of principal executive offices) (Zip code)
(973)884-5800
________________________________________________________________________________
(Registrant's telephone number, including area code)
(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 (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. [X] Yes [ ] No
Indicate by check mark whether the registrant is an accelerated Filer (as
defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No
Indicate the number of shares outstanding of common stock as of February 3,
2003: 27,261,902.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except earnings per share data)
Three Months Ended Nine Months Ended
-------------------------------------------- ----------------------------------------
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
-------------------- -------------------- ------------------ -----------------
Net revenues $ 91,262 $ 70,611 $ 293,596 $ 259,307
Costs and expenses:
Cost of sales 73,068 55,470 230,310 208,305
Other operating costs and
expenses 1,058 965 3,251 3,709
Selling, general &
administrative expenses 12,916 13,069 41,363 37,962
-------------------- -------------------- ------------------ ---------------
87,042 69,504 274,924 249,976
-------------------- -------------------- -------------------- ---------------
Operating income 4,220 1,107 18,672 9,331
Interest expense, net (406) (844) (1,981) (2,707)
Litigation settlement -- 2,933 -- 2,933
Minority interest in net
loss of consolidated
subsidiary 1,104 1,751 996 2,070
-------------------- -------------------- -------------------- ---------------
Income before income taxes 4,918 4,947 17,687 11,627
Provision for income taxes 1,640 816 5,797 564
-------------------- -------------------- -------------------- ---------------
Net income $ 3,278 $ 4,131 $ 11,890 $ 11,063
==================== ==================== ==================== ===============
Net income per common share
Basic $ 0.12 $ 0.13 $ 0.43 $ 0.35
==================== ==================== ==================== ===============
Diluted $ 0.12 $ 0.11 $ 0.42 $ 0.31
==================== ==================== ==================== ===============
Weighted average shares outstanding
Basic 27,129 31,274 27,835 31,320
==================== ==================== ==================== ===============
Diluted 28,270 40,253 28,673 40,392
==================== ==================== ==================== ===============
The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, March 31,
2002 2002
------------------------- ---------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 22,960 $ 19,228
Accounts receivable (less allowances of $7,255 and
$5,320, respectively) 22,545 29,401
Other receivables 1,657 2,337
Inventories 46,070 41,657
Prepaid expenses and other current assets 3,701 3,719
Deferred tax assets 4,621 7,671
------------------------- ---------------------
Total current assets 101,554 104,013
Property and equipment - (net of accumulated depreciation
and amortization of $6,311 and $4,688, respectively) 9,926 11,116
Deferred catalog expenses 1,487 2,017
Cost in excess of net assets acquired (net of $2,283 of accumulated
amortization) 7,785 7,944
Trademarks (net of accumulated amortization of $4,964 and
$4,986, respectively) 3,518 3,734
Deferred tax assets 4,685 5,728
Other assets 1,979 1,287
------------------------- ---------------------
Total Assets $ 130,934 $ 135,839
========================= =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank loans and obligations $ 5,161 $ 11,303
Current maturities of long-term debt 4,109 8,853
Accounts payable and other current liabilities 30,778 30,647
Accrued sales returns 4,239 3,817
Income taxes payable 1,228 103
------------------------- ---------------------
Total current liabilities 45,515 54,723
Long-term debt and other obligations 27,893 29,046
Minority interest 16,336 17,330
Shareholders' Equity:
Preferred shares - 10,000,000 shares authorized, 3,677
shares issued and outstanding 3,310 3,310
Common shares - $.01 par value, 75,000,000 shares
authorized; 51,788,244 and 51,475,511 shares issued;
27,219,902 and 31,166,478 shares outstanding,
respectively 518 515
Capital in excess of par value 114,791 114,451
Accumulated other comprehensive losses (208) (122)
Accumulated deficit (57,546) (69,436)
Treasury stock, at cost 24,568,342 and 20,309,033
shares, respectively (19,675) (13,978)
------------------------- ---------------------
Total shareholders' equity 41,190 34,740
------------------------- ---------------------
Total Liabilities and Shareholders' Equity $ 130,934 $ 135,839
========================= =====================
The accompanying notes are an integral part of the interim consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
----------------------------------------------
December 31, December 31,
2002 2001
-------------------- ---------------------
Cash Flows from Operating Activities:
Net income $ 11,890 $ 11,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Minority interest (994) (3,165)
Depreciation and amortization 2,394 2,634
Deferred tax assets 4,093 --
Provision for accounts receivable and
Inventory 4,436 4,315
Other -- (1)
Changes in assets and liabilities, net of
acquisition of SSG:
Accounts receivable 3,017 1,792
Other receivables 680 (4,887)
Inventories (4,851) 3,457
Prepaid and other current assets 548 467
Other assets (1,185) (89)
Accounts payable and other current
Liabilities 467 (5,273)
Income taxes payable 1,125 206
------------------ ---------------------
Net cash provided by operations 21,620 10,519
------------------- ---------------------
Cash Flows from Investing Activities:
Investment in affiliate -- (421)
Additions to property and equipment (495) (563)
-------------------- ---------------------
Net cash used by investing activities (495) (984)
-------------------- ---------------------
Cash Flows from Financing Activities:
Net borrowings (repayments)-notes payable (6,142) 1,363
Long-term debt retirement (5,897) (666)
Repurchase of common stock (5,697) (2,423)
Exercise of stock options 343 --
-------------------- ---------------------
Net cash used by financing activities (17,393) (1,726)
-------------------- ---------------------
Net increase in cash and cash equivalents 3,732 7,809
Cash and cash equivalents at beginning of year 19,228 7,987
-------------------- --------------------
Cash and cash equivalents at end of period $ 22,960 $ 15,796
==================== =====================
The accompanying notes are an integral part of the interim
consolidated financial statements.
EMERSON RADIO CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Emerson Radio
Corp. ("Emerson", consolidated - "Us", "We", "Our") and its majority-owned
subsidiaries, including Sport Supply Group, Inc. ("SSG").
We operate in two business segments: consumer electronics and sporting
goods. The consumer electronics segment designs, sources, imports and markets a
variety of consumer electronic products and licenses the "[EMERSON]" trademark
for a variety of products domestically and internationally to certain licensees.
The sporting goods segment, which is operated through Emerson's 53.2% ownership
of SSG, manufactures, markets, and distributes sports related equipment and
leisure products to institutional customers in the United States.
The unaudited interim consolidated financial statements reflect all normal
and recurring adjustments that are, in the opinion of management, necessary to
present a fair statement of our consolidated financial position as of December
31, 2002 and the results of operations for the three and nine month periods
ended December 31, 2002 and 2001. The unaudited interim consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and accordingly do not include all of the
disclosures normally made in our annual consolidated financial statements. It is
suggested that these unaudited interim consolidated financial statements be read
in conjunction with the consolidated financial statements and notes thereto for
the fiscal year ended March 31, 2002 ("fiscal 2002"), included in our annual
report on Form 10-K.
The consolidated financial statements include our accounts and all of our
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The preparation of the
unaudited interim consolidated financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes; actual results could materially differ from
those estimates.
Due to the seasonal nature of both segments, the results of operations for
the three and nine month periods ended December 31, 2002 are not necessarily
indicative of the results of operations that may be expected for any other
interim period or for the full year ending March 31, 2003 ("fiscal 2003").
Certain reclassifications were made to conform prior years financial
statements to the current presentation.
NOTE 2 - COMPREHENSIVE INCOME
Our comprehensive income for the three and nine month periods ended
December 31, 2002 and 2001 is as follows (in thousands):
Three Months Ended Nine Months Ended
------------------------------------ -----------------------------------
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
----------------- --------------- --------------- ----------------
(Unaudited) (Unaudited)
Net income $ 3,278 $ 4,131 $ 11,890 $ 11,063
Cumulative effect on equity of
SFAS 133, net of taxes -- -- (40) --
Derivatives qualifying as
hedges, net of taxes (7) -- (44) --
Currency translation adjustment (1) (3) -- --
Unrealized losses on
securities, net -- (2) (2) (1)
----------------- --------------- --------------- ----------------
Comprehensive income $ 3,270 $ 4,126 $ 11,804 $ 11,062
================= =============== =============== ================
NOTE 3 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):
For the Three For the Nine
Months Ended Months Ended
--------------------------------------- -----------------------------------
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
-------------------- --------------- ---------------- ---------------
(Unaudited) (Unaudited)
Numerator:
Net income $3,278 $ 4,131 $11,890 $ 11,063
Add back to effect assumed conversions:
Interest on convertible
Debentures -- 441 -- 1,323
-------------------- --------------- ---------------- ---------------
Numerator for diluted earnings $3,278 $ 4,572 $11,890 $ 12,386
per share
==================== =============== ================ ===============
Denominator:
Weighted average common
shares - Basic 27,129 31,274 27,835 31,320
Effect of dilutive securities:
Preferred shares -- 3,395 -- 3,395
Options & warrants 1,141 380 838 473
Convertible debentures -- 5,204 -- 5,204
-------------------- --------------- ---------------- ---------------
Weighted average shares 28,270 40,253 28,673 40,392
Diluted
==================== =============== ================ ===============
Basic earnings per share $ 0.12 $ 0.13 $ 0.43 $ 0.35
==================== =============== ================ ===============
Diluted earnings per share $ 0.12 $ 0.11 $ 0.42 $ 0.31
==================== =============== ================ ===============
NOTE 4- CAPITAL STRUCTURE
Our outstanding capital stock at December 31, 2002 consisted of common
stock and Series A convertible preferred stock in which the conversion feature
expired effective March 31, 2002.
At December 31, 2002, Emerson had outstanding approximately 1.4 million
options with exercise prices ranging from $1.00 to $1.50 and SSG had outstanding
approximately 376,000 options with exercise prices ranging from $0.95 to $9.44.
On August 1, 2002, Emerson granted 200,000 warrants with an exercise price
of $2.20 which fully vest after one year from date of grant in conjunction with
a consulting agreement. The warrants were valued using the Black-Scholes option
valuation model and will be recognized over the related service period of the
consulting agreement which corresponds to the vesting period. For the nine
months ending December 31, 2002, approximately $31,000 was expensed to
operations as a result of the grant of these warrants.
As of August 15, 2002, Emerson's $20.8 million of 8.5% Senior Subordinated
Convertible Debentures (the "Debentures") were fully retired using funds secured
from a financing facility dated June 28, 2002 and from the generation of cash
from operations. See "Note 9 - Borrowings".
NOTE 5 - INVENTORY
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method for the consumer electronics segment and
the weighted-average cost method for the sporting goods segment. As of December
31, 2002 and March 31, 2002, inventories consisted of the following (in
thousands):
December 31, 2002 March 31, 2002
------------------------- ----------------------
(Unaudited)
Raw materials $ 2,048 $ 2,153
Work-in-process 373 258
Finished 46,372 41,531
------------------------- ----------------------
48,793 43,942
Less inventory allowances (2,723) (2,285)
------------------------- ----------------------
$ 46,070 $ 41,657
========================= ======================
NOTE 6 - INCOME TAXES
We have tax net operating loss carry forwards included in net deferred tax
assets that can be used to offset future taxable income and can be carried
forward for 15 to 20 years. We believe the net deferred tax assets will be
realized through tax planning strategies available in future periods and future
profitable operating results. Although realization is not assured, we believe it
is more likely than not that all of the net deferred tax assets will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced or eliminated in the near term if certain tax planning
strategies are not successfully executed or estimates of future taxable income
during the carry forward period are reduced. At December 31, 2002, $9.3 million
of deferred tax assets were carried on the balance sheet. For the nine months of
fiscal 2003, $4.1 million of deferred tax assets were charged to the
consolidated statements of operations.
NOTE 7 - INVESTMENT IN SPORT SUPPLY GROUP, INC.
As of December 31, 2002 and March 31, 2002, Emerson owned 4,746,023 (53.2%
of the issued and outstanding) shares of common stock of SSG. SSG's results of
operations and the minority interest related to those results have been included
in our quarterly results of operations.
Effective March 1997, Emerson entered into a Management Services Agreement
with SSG, under which each company provides various managerial and
administrative services to the other company.
NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS
In June, 2001, the Financial Accounting Standards Board issued Statement
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). Effective April 1,
2002, we adopted SFAS 142 which requires us to cease amortizing goodwill, and to
perform a transitional test for potential goodwill impairment upon adoption and
then test goodwill at least annually for impairment by reporting unit. Had we
ceased amortizing goodwill as of the beginning of fiscal 2002, net income for
the three and nine month periods ending December 31, 2001 would have increased
by approximately $70,000 and $197,000, respectively, and have an effect of $.01
on basic and diluted earnings per share.
Goodwill is required to be tested for impairment in a transitional test
upon adoption and then at least annually by reporting unit. Goodwill impairment
testing must also be performed more frequently if events or other changes in
circumstances indicate that goodwill might be impaired. Under the provisions of
SFAS 142, a two step process is used to evaluate goodwill impairment. Under step
one of the evaluation process, the carrying value of a reporting unit is
compared to its fair value to determine if a potential goodwill impairment
exists. Under step two of the evaluation process, if a potential goodwill
impairment is identified during step one, then the amount of goodwill
impairment, if any, is measured using a hypothetical purchase price allocation
approach.
We have completed our step one analysis of the potential impairment of
goodwill in each of our two reporting units, which analysis has indicated that
we have a potential impairment of goodwill in our sporting goods reporting unit.
We are in the process of conducting step two of our transitional year assessment
for our sporting goods reporting unit, which will be completed by March 31,
2003. As the step two assessment involves complex determinations with respect to
the fair value of the individual assets and liabilities of each reporting unit,
the amount of goodwill impairment, if any, cannot be reliably predicted at this
time. As of December 31, 2002, Emerson and SSG have approximately $400,000 and
$7.4 million of goodwill on their respective balance sheets. Under SFAS 142, any
goodwill impairment recorded upon transition is reported as a non-cash
cumulative effect of a change in accounting principle on the consolidated
statement of operations as of the date of adoption.
NOTE 9 - BORROWINGS
As of December 31, 2002 and March 31, 2002, borrowings and capital lease
obligations (excluding short-term borrowings) consisted of the following (in
thousands):
December 31, March 31,
2002 2002
--------------------- --------------------
(Unaudited)
8 1/2% Senior Subordinated Convertible Debentures $ -- $ 20,750
Term loan 13,000 --
Revolving line of credit 5,500 --
Notes payable under revolving line of credit 13,286 16,839
Equipment notes and other 216 310
------------------- --------------------
32,002 37,899
Less current maturities 4,109 8,853
------------------- --------------------
Long term debt and notes payable $ 27,893 $ 29,046
=================== ====================
Debentures, which were issued by Emerson in August 1995, were retired on
August 15, 2002. These Debentures bore interest at the rate of 8 1/2% per annum,
payable quarterly, and were subordinated to all existing and future senior
indebtedness (as defined in the Indenture governing the Debentures). The
Debentures were convertible into shares of Emerson's common stock at any time
prior to redemption or maturity at an initial conversion price of $3.9875 per
share, subject to adjustment under certain circumstances. The Debentures were
redeemable in whole or in part at our option and, in the case of Emerson's
exercise of the Debentures call provision, required a call price of 101% of
principal. The Debentures were subject to certain restrictions on transfer and
restricted, among other things, the amount of senior indebtedness and other
indebtedness that Emerson, and, in certain instances, its consolidated
subsidiaries, could incur. Each holder of Debentures had the right to cause
Emerson to redeem the Debentures if certain designated events (as defined in the
Indenture governing the Debentures) were to occur.
On June 28, 2002, Emerson entered into a $40 million Revolving Credit and
Term Loan Agreement ("Loan Agreement") with several U.S. financial institutions,
which was funded on July 1, 2002. The Loan Agreement provides for a $25 million
revolving line of credit and a $15 million term loan. The $25 million revolving
line of credit replaced Emerson's $15 million senior secured facility. It
provides for revolving loans, subject to individual maximums which, in the
aggregate, are not to exceed the lesser of $25 million or a "Borrowing Base"
amount based on specified percentages of eligible accounts receivables and
inventories and bears interest ranging from Prime plus 0.50% to 1.25% or, at
Emerson's election, LIBOR plus 2.00% to 2.75% depending on certain financial
covenants. The $15 million term loan combined with cash earned from our
operations was used to retire all of Emerson's Debentures. The interest rate
charged on the term loan ranges from Prime plus 1.00% to 1.75% or, at Emerson's
election, LIBOR plus 2.50% and 3.25% depending on certain financial covenants
and amortizes over a three-year period. Pursuant to the Loan Agreement, Emerson
is restricted from, among other things, paying cash dividends, repurchasing
Emerson's common stock and entering into certain transactions without the
lender's prior consent and is subject to certain financial covenants. Amounts
outstanding under the Loan Agreement are secured by substantially all of
Emerson's assets.
Notes payable under a revolving line of credit (Revolver) were issued by
SSG in March 2001, replacing a prior facility. The facility, as amended provides
for a three-year $25 million revolving line of credit, and provides for
revolving loans and is subject to individual maximums which, in the aggregate,
cannot exceed the lesser of $25 million or a "Borrowing Base" amount based upon
specified percentages of eligible accounts receivables and inventories. Amounts
outstanding under the senior credit facility are secured by substantially all
the assets of SSG and its subsidiaries. The interest rate charged under this
facility is a combination of LIBOR plus 2.5% and the prime rate of interest
ranging from minus .25% to prime plus 1.0%. Pursuant to the amended Loan and
Security Agreement, SSG is restricted from, among other things, paying cash
dividends and entering into certain transactions without the lender's prior
consent.
NOTE 10 - DERIVATIVE FINANCIAL INSTRUMENTS
The Company accounts for its interest rate protection agreement under SFAS
133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133
requires all derivatives to be recorded as assets or liabilities and measured at
fair value. Gains or losses resulting from changes in the values of derivatives
are recognized immediately or deferred, depending on the use of the derivative
and whether or not it qualifies as a hedge.
The Company uses a derivative financial instrument to manage its interest
rate risk associated with fluctuations in interest rates on its debt. As of
December 31, 2002, the Company had outstanding an interest swap agreement that
converts $10 million of its variable rate Loan Agreement to a fixed rate
instrument through 2004. These swap agreements are designated as cash flow
hedges and changes in fair value of the hedges are recorded in other
comprehensive income and reclassified into earnings in the same periods during
which the hedged transaction affects earnings. There is no ineffectiveness
related to these hedges.
NOTE 11 - SEGMENT INFORMATION
The following table presents certain operating segment information for each
of the three and nine month periods ended December 31, 2002 and 2001 (in
thousands):
Three Months Ended December Three Months Ended December 31, 2001
31, 2002
Consumer Consumer
Electronics Sporting Goods Electronics Sporting Goods
--------------------- ----------------------- --------------------- ----------------------
Net revenues $ 72,744 $ 18,518 $ 53,568 $ 17,043
Income (loss) before
income taxes $ 7,413 $ (2,495) $ 8,266 $ (3,319)
Segment assets $ 67,898 $ 63,036 $ 58,023 $ 62,087
Nine Months Ended December 31, 2002 Nine Months Ended December 31, 2001
Consumer Consumer
Electronics Sporting Goods Electronics Sporting Goods
--------------------- ----------------------- --------------------- ----------------------
Net revenues $ 222,217 $ 71,379 $186,064 $ 73,243
Income (loss) before
income taxes $ 19,814 $( 2,127) $ 15,977 $ (4,350)
NOTE 12 - LEGAL PROCEEDINGS
We are involved in legal proceedings and claims of various types in the
ordinary course of our business. While any such litigation to which we are a
party contains an element of uncertainty, we presently believe that the outcome
of each such proceeding or claim which is pending or known to be threatened, or
all of them combined, will not have a material adverse effect on our
consolidated financial position.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
Management's Discussion and Analysis of Results of Operation is presented
in three parts: consolidated operations, the consumer electronics segment and
the sporting goods segment.
In the following discussions, most percentages and dollar amounts have been
rounded to aid presentation. As a result, all figures are approximations.
Consolidated Operations:
The following table sets forth, certain items related to the consolidated
statements of operations as a percentage of net revenues for the three and nine
month periods ended December 31, 2002 and 2001:
Three Months ended Nine Months ended
December 31 December 31
------------------------------------- ------------------------------------
2002 2001 2002 2001
----------------- --------------- -------------- -----------------
(Unaudited) (Unaudited)
Net revenues (in thousands) $91,262 $70,611 $293,596 $259,307
Cost of sales 80.1% 78.6% 78.4% 80.3%
Other operating costs and
Expenses 1.2% 1.4% 1.1% 1.4%
Selling, general and
administrative expenses 14.2% 18.5% 14.1% 14.6%
Operating income 4.6% 1.6% 6.4% 3.6%
Litigation settlement -- 4.2% -- 1.1%
Provision for income
Taxes 1.8% 1.2% 2.0% 0.2%
Net income 3.6% 5.9% 4.1% 4.3%
Net Revenues - Consolidated net revenues for the three and nine month periods
ended December 31, 2002 increased $20.6 million (29.3%) and $34.3 million
(13.2%) as compared to the same periods in fiscal 2002.
Cost of Sales - Cost of sales, as a percentage of consolidated net revenues for
the three month period ended December 31, 2002 increased to 80.1% from 78.6%,
and decreased from 80.3% to 78.4% for the nine month period ended December 31,
2002, respectively. The increase in cost of sales for the three month period
was a result of lower margins in both the consumer electronics and sporting
goods segments. The decrease in cost of sales for the nine month period was
primarily the result of higher margins in both the consumer electronics and
sporting goods segments.
Other Operating Costs and Expenses - Other operating costs and expenses are
associated with the consumer electronics segment. As a percentage of
consolidated net revenues, other operating costs and expenses decreased to 1.2%
from 1.4% for the three months ended December 31, 2002 as compared to the same
period in fiscal 2002. For the nine months ended December 31, 2002, other
operating costs, as a percentage of consolidated net revenues, decreased to 1.1%
from 1.4% as compared to the same period in fiscal 2002.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, as a percentage
of consolidated net revenues, was 14.2% for the three months ended December 31,
2002 as compared to 18.5% for the three months ended December 31, 2001. For the
nine months ended December 31, 2002, S,G&A, as a percentage of consolidated net
revenues, were 14.1% as compared to 14.6% for the same period in fiscal 2002. In
absolute terms S,G&A decreased $153,000 and increased $3.4 million for the three
and nine month periods ended December 31, 2002 as compared to the same periods
in fiscal 2002. The increase for the nine month period in absolute terms was due
to the consumer electronics segment, partially offset by a decrease in the
sporting goods segment.
Litigation settlement - Litigation settlement in fiscal 2002 was the result of
the consumer electronics segment settling litigation in the amount of $2.9
million, net of legal costs with a former trademark licensee whose license
agreement with Emerson ceased in the year ending March 31, 1998. There was no
such settlement in the current period.
Provision for Income Taxes - The provision for income taxes for the three and
nine months ended December 31, 2002 was primarily the result of utilizing a
previously recognized net operating loss carryforwards and a foreign tax
provision primarily associated with the consumer electronics segment.
Net Income - As a result of the foregoing factors, we earned net income of $3.3
million (3.6% of net revenues) and $11.9 million (4.1% of net revenues) for the
three and nine months ended December 31, 2002 as compared to $4.1 million (5.9%
of net revenues) and $11.1 million (4.3% of net revenues) for the same year ago
periods.
Consumer Electronics Segment:
The following table summarizes certain financial information for the three and
nine month periods ended December 31, 2002 and 2001 (in thousands):
Three Months Ended Nine Months Ended
December 31 December 31
------------------------------------- -------------------------------------
2002 2001 2002 2001
------------- ------------------ ---------------- ----------------
(Unaudited) (Unaudited)
Net revenues $72,762 $ 53,568 $222,256 $186,064
Cost of sales 59,635 43,259 180,208 155,722
Other operating costs 1,058 965 3,251 3,768
Selling, general &
administrative 5,406 5,035 18,243 13,353
------------- ------------------- ----------------- ---------------
Operating income 6,663 4,309 20,554 13,221
Litigation settlement -- 2,933 -- 2,933
Interest expense, net (291) (637) (1,547) (1,981)
------------- ------------------- ---------------- ---------------
Income before 6,372 6,605 19,007 14,173
income taxes
Provision for income taxes 1,776 440 5,797 564
------------- ------------------- ---------------- ---------------
Net income $ 4,596 $ 6,165 $ 13,210 $ 13,609
============= =================== ================ ===============
Net Revenues - Net revenues for the three and nine months ended December 31,
2002 increased $19.2 million (35.8%) and $36.2 million (19.5%), respectively, as
compared to the same periods ended December 31, 2001. The increase in net
revenues for the three and nine month periods was comprised of an increase in
licensing revenues, increases in unit sales of audio products and sales of
inward licensed products more than offsetting a slight decrease in unit sales of
microwave oven products.
Our license for the Hello Kitty brand expired on December 31, 2002. Through the
promotion of our proprietary Girl Power branded theme products launched earlier
this fiscal year, representing 3.8% of the nine month revenues in fiscal 2003,
together with other future licensing opportunities, we believe the revenues
earned from the sale of products subject to the Hello Kitty license agreement,
representing 9.4% of the nine month revenues in fiscal 2003, can be replaced.
Cost of Sales - Cost of sales, as a percentage of net revenues, increased to
82.0% from 80.8% for the three months ended December 31, 2002 as compared to the
same period in fiscal 2002. For the nine months ended December 31, 2002, cost of
sales, as a percentage of consumer electronics net revenues, decreased to 81.1%
from 83.7% as compared to the same period in fiscal 2002. The decrease in the
cost of sales for the nine months ended December 31, 2002 was attributable to a
greater impact of licensing revenues and to higher gross profit margins on
product sales.
Gross profit margins continue to be subject to competitive pressures arising
from pricing strategies associated with the product categories in which Emerson
competes. Emerson's products are generally placed in the low-to-medium priced
category of the market, which is highly competitive.
Other Operating Costs and Expenses - Other operating costs and expenses as a
percentage of net revenues decreased to 1.5% for the three and nine month period
ended December 31, 2002 from 1.8% and 2.0% for the same periods in fiscal 2002
primarily due to reduced inventory servicing costs.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A, was $5.4 million
and $18.2 million for the three and nine months ended December 31, 2002,
respectively, as compared to $5.0 million and $13.4 million for the three and
nine months ended December 31, 2001. The increase in S,G&A for the three month
period ended December 31, 2002 was primarily due to an increase in co-operative
advertising costs, partially offset by a decrease in provisions for
uncollectable accounts. For the nine months ended December 31, 2002, the $4.9
million increase in S,G&A was mainly due to:(i) an increase in co-operative
advertising costs; (ii) recoveries of provisions related to substandard
receivables in the prior year, which were not repeated in the current year;
(iii) an increase in provisions for uncollectable accounts; and (iv) an increase
in payroll expenses and freight expenses.
Litigation settlement - There were no litigation settlements in the current
period. The prior period litigation settlement was the result of a settled
litigation in the amount of $2.9 million, net of legal costs with a former
trademark licensee whose license agreement with Emerson ceased in the year
ending March 31, 1998.
Interest Expense, net - Interest expense decreased $346,000 and $434,000 for the
three and nine months ended December 31, 2002, respectively, as compared to the
three and nine months ended December 31, 2001 due to reduced borrowings, the
repayment of the Debentures, and lower interest rates.
Provision for Income Taxes - The provision for income taxes was $1.8 million and
$5.8 million for the three and nine months ended December 31, 2002,
respectively, as compared to $440,000 and $564,000 for the three and nine months
ended December 31, 2001, respectively. The provision for December 31, 2002
primarily consisted of deferred taxes related to previously recognized Federal
and state tax net operating loss benefits and a foreign tax provision. There
were no such provisions for deferred taxes in the prior year.
Net Income - As a result of the foregoing factors, net income of $4.6 million
(6.3% of net revenues) for the three months ended December 31, 2002 as compared
to $6.2 million (11.5% of net revenues) for the three months ended December 31,
2001 was earned. For the nine months ended December 31, 2002 $13.2 million (5.9%
of net revenues) as compared to $13.6 million (7.3% of net revenues) for the
nine months ended December 31, 2001 was earned.
Sporting Goods Segment:
The following table summarizes certain financial information as reported by
SSG for the three and nine month periods ended December 31, 2002 and 2001 (in
thousands):
Three Months Ended December 31 Nine Months Ended December 31
-------------------------------------- ------------------------------------
2002 2001 2002 2001
----------------- ----------------- ---------------- -----------------
(Unaudited) (Unaudited)
Net revenues $ 18,518 $ 17,043 $ 71,379 $73,243
Cost of sales 13,451 12,211 50,141 52,583
Selling, general &
Administrative 7,447 7,944 22,931 24,284
------------------ ----------------- ---------------- -----------------
Operating loss (2,380) (3,112) (1,693) (3,624)
Interest expense, net (115) (207) (434) (726)
------------------ ----------------- ----------------- -----------------
Loss before income (2,495) (3,319) (2,127) (4,350)
Taxes
Provision (benefit) for
income taxes (136) 376 -- --
------------------ ----------------- ----------------- -----------------
Net loss $ (2,359) $ (3,695) $ (2,127) $ (4,350)
================== ================= ================= =================
Net Revenues - Net revenues increased $1.5 million (8.7%) and decreased $1.9
million (2.5%) for the three and nine month periods ended December 31, 2002,
respectively, as compared to the same periods in fiscal 2002. The increase in
net revenues for the three month period was primarily the result of increased
government sales. The decrease for the nine month period was primarily the
result of a general slow-down in school and youth organization funding and
competitive pressures in the marketplace.
Cost of Sales - Cost of sales, as a percentage of net revenues increased from
71.7% for the three month period ended December 31, 2001 to 72.6% for the three
month period ended December 31, 2002. The increase in cost of sales for the
three month period was primarily due to lower margins from Government, Bid and
Team Dealer sales. For the nine month period ended December 31, 2002, cost of
sales, as a percentage of net revenues, decreased to 70.2% from 71.8% for the
nine month period ended December 31, 2001. The year to date decreases are
primarily the result of consolidating several plants, certain exiting
unprofitable product lines and improving product sourcing.
Selling, General and Administrative Expenses ("S,G&A") - S,G&A expenses
decreased approximately $497,000 and $1,353,000 for the three and nine month
periods ended December 31, 2002, respectively, as compared to the three and nine
month periods ended December 31, 2001. S,G&A expenses, as a percentage of
sporting goods net revenues, were 40.2% and 32.1% for the three and nine month
periods ended December 31, 2002, respectively, as compared to 46.6% and 33.2%
for the three and nine month periods in the prior fiscal year. The decreases in
S,G&A were primarily the result of the following: (i) a decrease in payroll
related expenses attributable to a reduced headcount; (ii) a decrease in
depreciation and amortization expense due to assets becoming fully depreciated
and the discontinuation of amortization of goodwill; (iii) a decrease in selling
and promotional expense; and (iv) a decrease in telecommunication and other
facility expenses.
Interest Expense, net - Interest expense decreased by approximately $92,000 and
$292,000 for the three and nine month periods ended December 31, 2002,
respectively, as compared to the three and nine month periods ended December 31,
2001, due primarily to lower borrowing levels and lower interest rates.
Provision (benefit) for Income Taxes - A tax benefit of approximately $136,000
for the three months ended December 31, 2002 as compared to a tax provision of
$376,000 for the three months ended December 31, 2001 was recorded. There were
no provisions for income tax expenses in the nine month periods ended December
31, 2002 and December 31, 2001. SSG has a net operating loss carryforward
included in net deferred tax assets that can be used to offset future taxable
income and can be carried forward for 15 to 20 years. A portion of our net
deferred tax asset has been reduced by a valuation allowance. We believe the
remaining net deferred tax assets will be realized through tax planning
strategies available in future periods and future profitable operating results.
Although realization is not assured, we believe it is more likely than not that
the remaining net deferred tax assets will be realized. The amount of the
deferred tax asset considered realizable, however, could be reduced or
eliminated in the near term if certain tax planning strategies are not
successfully executed or estimates of future taxable income during the
carryforward period are reduced.
Net Loss - As a result of the foregoing factors, the sporting goods segment had
a net loss of $2,359,000 for the three months ended December 31, 2002 as
compared to a net loss of $3,695,000 for the three months ended December 31,
2001. For the nine months ended December 31, 2002 the sporting goods segment had
a net loss of $2,127,000 as compared to a net loss of $4,350,000 for the nine
months ended December 31, 2001.
Liquidity and Capital Resources
Net cash provided by operating activities was $21.6 million for the nine
months ended December 31, 2002. Cash was primarily provided by our profitability
and a decrease in accounts receivable, partially offset by an increase in
inventory.
Net cash used by investing activities was $495,000 for the nine months
ended December 31, 2002. Cash was utilized primarily for the purchase of fixed
assets.
Net cash used for financing activities was $17.4 million for the nine
months ended December 31, 2002. Cash was primarily utilized for the reduction of
borrowings, including the redemption of Emerson's outstanding debentures in July
and August 2002, and the exercise of an option to repurchase Emerson's common
stock.
Emerson and SSG maintain credit facilities as described in Note 9 -
Borrowings. At December 31, 2002, there were approximately $32.0 million of
borrowings outstanding under these facilities, of which approximately $18.7
million of borrowings were outstanding by Emerson and $13.3 million of
borrowings were outstanding by SSG. No letters of credit were outstanding under
these facilities by either Emerson or SSG as of December 31, 2002. As of
December 31, 2002, Emerson and SSG were in compliance with the covenants
contained in their respective credit facilities.
Two of our foreign subsidiaries maintain various credit facilities, as
amended, aggregating $52.5 million with Hong Kong banks consisting of the
following: (i) a $7.5 million credit facility with a $2.5 million seasonal
increase which is used for inventory purchases and (ii) two back-to-back letter
of credit facilities totaling $45 million. At December 31, 2002, our Hong Kong
subsidiary pledged $1.7 million in certificates of deposit to one of its banks
to assure the availability of the $7.5 million credit facility and a $2.5
million seasonal line increase. As of December 31, 2002, there were
approximately $6.6 million and $5.4 million, respectively, of letters of credit
outstanding under these credit facilities.
At present, we believe that future cash flow from operations and our
existing institutional financing noted above will be sufficient to fund all of
our cash requirements for the next twelve months.
There were no substantial commitments for capital expenditures as of
December 31, 2002.
Contingencies
During the past several years, SSG has used the services of Strategic
Technologies, Inc. ("STI") to process their outbound truck freight bills. STI
audited SSG's freight bills and provided a listing of freight invoices that were
scheduled for payment, at which time SSG transferred funds to STI. STI was
required to issue checks to the various carriers within forty-eight (48) hours
of receipt of SSG's funds. STI filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code on July 19, 2002, which was converted to Chapter 7 of the
U.S. Bankruptcy Code on July 31, 2002. It is not possible for SSG to currently
determine the amount of funds, if any, that were transferred to STI and not
subsequently forwarded to SSG's carriers. In certain circumstances, SSG may have
to pay their freight carriers for invoices that were previously paid to STI and
to attempt to recover such monies from STI. No assurance can be made that SSG
will be able to recover such money.
Critical Accounting Policies
For the quarter ended December 31, 2002, the significant changes to our
accounting policies from those reported in Form 10-K for the fiscal year ended
March 31, 2002 were as follows:
Intangible Assets
The sporting goods segment has significant intangible assets related to
goodwill and other acquired intangibles. The determination of related estimated
useful lives and whether or not these assets are impaired involves significant
judgments. Changes in strategy and/or market conditions could significantly
impact these judgments and require adjustments to recorded asset balances.
Effective April 1, 2002, we adopted SFAS 142 which requires us to cease
amortization of goodwill, to perform a transitional test for potential goodwill
impairment upon adoption, and then test goodwill for impairment at least
annually by reporting unit. See Note 8 - "Goodwill and Other Intangible Assets".
Inflation, Foreign Currency, and Interest Rates
Neither inflation nor currency fluctuations had a significant effect on our
results of operations during the first three quarters of fiscal 2003. Our
exposure to currency fluctuations has been minimized by the use of U.S. dollar
denominated purchase orders, and by sourcing production in more than one
country. The consumer electronics segment purchases virtually all of its
products from manufacturers located in various Asian countries.
The interest on borrowings under our credit facilities is based on the
prime and LIBOR rate. We have entered into an interest hedge agreement to
partially mitigate such risk. While a significant increase in interest rates
could have an adverse effect on our financial condition for that portion of debt
not covered by such interest hedge contracts, we believe that given the present
economic climate, interest rates are not expected to increase significantly
during the coming year.
Recent Pronouncements of the Financial Accounting Standards Board
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, Rescission of FASB Statements No. 4,44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections (Statement 145). The effect of
implementing Statement 145 on the Company will be that under Statement 145 gains
and losses on extinguishments of debt will be classified as income or loss from
continuing operations rather than as extraordinary items as previously required
under Statement 4.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. The
effect of implementing Statement 146 on the Company will be that under Statement
146 a liability for a cost associated with an exit or disposal activity will be
recognized and measured at fair value only when the liability is incurred, and
not at the date of an entity's commitment to an exit plan as previously required
under Emerging Issues Task Force (EITF) Issue No. 94-3.
In December 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure. Statement 148 provides alternative methods of transition to
Statement 123's fair value method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of Statement 123 and APB
Opinion No. 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting with respect to stock-based employee compensation on reported net
income and earnings per share in annual and interim financial statements.
Statement 148's amendment of the transition and annual disclosure requirements
of Statement's 123 are effective for fiscal years ending after December 15,
2002. Statement 148's amendment of the disclosure requirements of Opinion 28 is
effective for interim periods beginning after December 15, 2002.
Forward-Looking Information
This report contains various forward-looking statements under the Private
Securities Litigation Reform Act of 1995 (the "Reform Act") and information that
is based on our beliefs as well as assumptions made by and information currently
available to us. When used in this report, the words "anticipate", "believe",
"estimate", "expect", "predict", "project", and similar expressions are intended
to identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, expected or
projected. Among the key factors that could cause actual results to differ
materially are as follows: (i) the ability of the consumer electronics segment
to continue selling products to two of its largest customers whose net revenues
represented 22% and 19% of fiscal 2002 consolidated net revenues; (ii)
competitive factors in the consumer electronics segment, such as competitive
pricing strategies utilized by retailers in the domestic marketplace that
negatively impact product gross margins; (iii) the ability of the consumer
electronics and sporting goods segments to maintain their suppliers, primarily
all of whom are located in the Far East for the consumer electronics segment;
(iv) the ability of the sporting goods segment to have an uninterrupted shipping
service from outside carriers; (v) our ability to comply with the restrictions
imposed upon us by our outstanding indebtedness; and (vi) general economic
conditions and other risks. Due to these uncertainties and risks, readers are
cautioned not to place undue reliance on these forward-looking statements, which
speak only as of the date of this report. For additional risk factors as they
relate to the sporting goods segment, see SSG's Form 10-K for the fiscal year
ended March 29, 2002 Item 7 - "Certain Factors that May Affect the Company's
Business or Future Operating Results", and SSG's Form 10-Q for the quarterly
period ended December 27, 2002 Item 2 - "Certain Factors that May Affect the
Company's Business or Future Operating Results".
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not material.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this Quarterly Report on
Form 10-Q, we carried out an evaluation, under the supervision and with the
participation of management, including our Chief Executive Officer and our Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-14 and 15d-14 under
the Securities and Exchange Act of 1934). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures are effective in timely alerting them to material
information relating to us (including our consolidated subsidiaries) required to
be included in our periodic SEC filings. Since the date of that evaluation,
there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
For information on litigation to which we are a party, reference is made to
Part 1 Item-3-Legal Proceedings in the Company's most recent annual report on
Form 10-K.
ITEM 2. Changes in Securities and Use of Proceeds.
None.
ITEM 3. Default Upon Senior Securities.
(a) None
(b) None
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not Applicable.
ITEM 5. Other Information.
(a) None
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10.27 Revolving Credit and Term Loan Agreement dated June 28, 2002 among
Emerson Radio Corp., Majexco, Imports, Inc., Emerson Radio (Hong Kong)
Ltd., and Emerson Radio International Ltd. Jointly and Severally, and
PNC Bank, National Association.*
10.35.1 Amended Loan and Security Agreement dated October 1, 2002 by and
Between Sport Supply Group, Inc. and Congress Financial Corporation
(incorporated by reference to Exhibit 10.2 of Sport Supply's Quarterly
Report on Form 10-Q for the quarter ended December 27, 2002).
99.1 Certification of Chief Executive Officer, as required by Section 906
of the Sarbanes-Oxley Act of 2002.*
99.2 Certification of Chief Financial Officer, as required by Section 906
Of the Sarbanes-Oxley Act of 2002.*
(b) Reports on Form 8-K - During the three month period ended December 31,
2002, no Form 8-K was filed.
* filed herewith
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.
EMERSON RADIO CORP.
(Registrant)
Date: February 10, 2003 /s/ Geoffrey P. Jurick
-----------------------
Geoffrey P. Jurick
Chairman, Chief Executive Officer and President
Date: February 10, 2003 /s/ Kenneth A. Corby
--------------------
Kenneth A. Corby
Executive Vice President and
Chief Financial Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Geoffrey P. Jurick, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerson Radio Corp.;
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 functions):
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
By: /s/ Geoffrey P. Jurick
___________________________________
Geoffrey P. Jurick
Chief Executive Officer
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth A, Corby, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Emerson Radio Corp.;
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 functions):
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
By: /s/ Kenneth A. Corby
_______________________________
Kenneth A. Corby
Chief Financial Officer