Back to GetFilings.com



Table of Contents
 
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 September 30, 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 0-26924
 
 
AMX Corporation
(Exact name of registrant as specified in its charter)
 
Texas
  
75-1815822
(State of Incorporation)
  
(I.R.S. Employer Identification No.)
3000 Research Drive
Richardson, Texas
  
75082
(Address of principal executive offices)
  
(Zip Code)
 
Registrant’s telephone number, including area code:    (469) 624-8000
 
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 ¨
 
Common Stock, $0.01 Par Value
(Title of Each Class)
  
11,141,213
(Number of Shares Outstanding at October 31, 2002)
 

Table of Contents
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2002
INDEX
 
         
Page Number
Part I.
   
Financial Information (Unaudited)
     
Item 1.
      
3
       
4
       
5
       
6
Item 2.
      
11
Item 3.
      
18
Item 4.
      
18
Part II.
   
Other Information
     
Item 4.
      
19
Item 6.
      
19
       
21
       
22

Table of Contents
 
AMX CORPORATION
CONSOLIDATED BALANCE SHEETS
 
    
(Unaudited) September 30,
     
March 31,
  
ASSETS
   
2002
     
2002
  
Current assets:
                  
Cash and cash equivalents
   
$
2,816,288
 
   
$
1,245,452
 
Receivables, less allowance for doubtful accounts of $816,000 at September 30, 2002 and $1,130,000 at March 31, 2002
   
 
9,873,130
 
   
 
13,579,304
 
Inventories
   
 
10,796,602
 
   
 
11,700,211
 
Income tax receivable
   
 
101,451
 
   
 
1,908,225
 
Prepaid expenses
   
 
1,016,293
 
   
 
859,875
 
Other current assets
   
 
57,934
 
   
 
—  
 
    
  
Total current assets
   
 
24,661,698
 
   
 
29,293,067
 
Property and equipment, at cost, net
   
 
7,934,343
 
   
 
8,265,011
 
Deposits and other
   
 
357,345
 
   
 
312,242
 
Goodwill, less accumulated amortization of $1,098,000 at September 30, 2002 and March 31, 2002
   
 
70,634
 
   
 
70,634
 
    
  
Total assets
   
$
33,024,020
 
   
$
37,940,954
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
5,121,835
 
   
$
7,295,345
 
Current portion of long-term debt
   
 
1,021,450
 
   
 
1,021,450
 
Line of credit
   
 
4,000,000
 
   
 
7,600,000
 
Accrued compensation
   
 
1,306,833
 
   
 
1,400,564
 
Accrued restructuring costs
   
 
204,424
 
   
 
448,495
 
Accrued sales commissions
   
 
457,856
 
   
 
600,056
 
Other accrued expenses
   
 
2,727,584
 
   
 
2,773,084
 
    
  
Total current liabilities
   
 
14,839,982
 
   
 
21,138,994
 
Long-term debt
   
 
510,725
 
   
 
1,013,002
 
Commitments and contingencies
                  
Shareholders’ equity:
                  
Preferred stock, $0.01 par value:
                  
Authorized shares — 10,000,000
                  
Issued shares — none
   
 
—  
 
   
 
—  
 
Common stock, $0.01 par value:
                  
Authorized shares — 40,000,000
                  
Issued shares — 11,637,689 at September 30, 2002 and 11,583,525 at March 31, 2002
   
 
116,377
 
   
 
115,835
 
Additional paid-in capital
   
 
24,333,344
 
   
 
24,257,894
 
Retained deficit
   
 
(2,308,124
)
   
 
(4,116,487
)
Less treasury stock (496,476 shares)
   
 
(4,468,284
)
   
 
(4,468,284
)
    
  
Total shareholders’ equity
   
 
17,673,313
 
   
 
15,788,958
 
    
  
Total liabilities and shareholders’ equity
   
$
33,024,020
 
   
$
37,940,954
 
    
  
 
See accompanying notes.

3

Table of Contents
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Three Months Ended
September 30,
     
Six Months Ended
September 30,
  
    
2002
     
2001
     
2002
   
2001
  
Commercial system sales
   
$
19,747,261
 
   
$
19,970,481
 
   
$
37,594,516
   
$
37,390,054
 
Residential system sales
   
 
2,479,146
 
   
 
3,035,753
 
   
 
4,827,169
   
 
7,339,165
 
    
  
  
  
Total sales
   
 
22,226,407
 
   
 
23,006,234
 
   
 
42,421,685
   
 
44,729,219
 
Cost of sales
   
 
10,829,838
 
   
 
13,874,707
 
   
 
20,799,087
   
 
24,472,331
 
    
  
  
  
Gross profit
   
 
11,396,569
 
   
 
9,131,527
 
   
 
21,622,598
   
 
20,256,888
 
Selling and marketing expenses
   
 
5,208,224
 
   
 
8,264,220
 
   
 
10,770,142
   
 
15,360,028
 
Research and development expenses
   
 
2,439,087
 
   
 
1,938,295
 
   
 
4,390,849
   
 
3,833,258
 
Restructuring costs
   
 
—  
 
   
 
(46,463
)
   
 
—  
   
 
(89,742
)
General and administrative expenses
   
 
2,177,180
 
   
 
2,551,188
 
   
 
4,207,956
   
 
4,243,099
 
    
  
  
  
Total operating expenses
   
 
9,824,491
 
   
 
12,707,240
 
   
 
19,368,947
   
 
23,346,643
 
Operating income (loss)
   
 
1,572,078
 
   
 
(3,575,713
)
   
 
2,253,651
   
 
(3,089,755
)
Interest expense
   
 
110,186
 
   
 
223,509
 
   
 
242,703
   
 
409,367
 
Other income (expense), net
   
 
(2,183
)
   
 
(96,662
)
   
 
8,797
   
 
(87,011
)
    
  
  
  
Income (loss) before income taxes
   
 
1,459,709
 
   
 
(3,895,884
)
   
 
2,019,745
   
 
(3,586,133
)
Income tax provision
   
 
141,334
 
   
 
4,237,208
 
   
 
211,382
   
 
4,345,621
 
    
  
  
  
Net income (loss)
   
$
1,318,375
 
   
$
(8,133,092
)
   
$
1,808,363
   
$
(7,931,754
)
    
  
  
  
Basic earnings (loss) per share
   
$
0.12
 
   
$
(0.74
)
   
$
0.16
   
$
(0.72
)
    
  
  
  
Diluted earnings (loss) per share
   
$
0.12
 
   
$
(0.74
)
   
$
0.16
   
$
(0.72
)
    
  
  
  
 
See accompanying notes.

4

Table of Contents
 
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    
Six Months Ended
September 30,
  
    
2002
     
2001
  
Operating Activities
                  
Net income (loss)
   
$
1,808,363
 
   
$
(7,931,754
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
                  
Depreciation
   
 
1,664,715
 
   
 
2,126,736
 
Amortization
   
 
—  
 
   
 
333,980
 
Write-down of demonstration equipment
   
 
—  
 
   
 
708,813
 
Write-down of goodwill
   
 
—  
 
   
 
90,197
 
Provision for losses on receivables
   
 
262,045
 
   
 
515,322
 
Provision for inventory obsolescence
   
 
354,357
 
   
 
2,636,092
 
Deferred income taxes and valuation allowance
   
 
—  
 
   
 
4,331,632
 
Changes in operating assets and liabilities:
                  
Receivables
   
 
3,444,129
 
   
 
(2,514,803
)
Inventories
   
 
549,252
 
   
 
(1,659,171
)
Prepaid expenses and other assets
   
 
(227,370
)
   
 
(160,660
)
Accounts payable
   
 
(2,173,510
)
   
 
2,020,530
 
Other accrued expenses
   
 
(525,502
)
   
 
(793,965
)
Income taxes
   
 
1,806,774
 
   
 
—  
 
    
  
Net cash provided by (used in) operating activities
   
 
6,963,253
 
   
 
(297,051
)
Investing Activities
                  
Purchase of property and equipment
   
 
(1,366,132
)
   
 
(2,189,768
)
    
  
Net cash used in investing activities
   
 
(1,366,132
)
   
 
(2,189,768
)
Financing Activities
                  
Sale of common stock — net proceeds
   
 
75,992
 
   
 
591,782
 
Net increase (decrease) in line of credit
   
 
(3,600,000
)
   
 
1,700,000
 
Repayments of long-term debt
   
 
(502,277
)
   
 
(590,616
)
    
  
Net cash provided by (used in) financing activities
   
 
(4,026,285
)
   
 
1,701,166
 
Effect of exchange rate changes on cash
   
 
—  
 
   
 
(1,103
)
    
  
Net increase (decrease) in cash and cash equivalents
   
 
1,570,836
 
   
 
(786,756
)
Cash and cash equivalents at beginning of period
   
 
1,245,452
 
   
 
1,607,797
 
    
  
Cash and cash equivalents at end of period
   
$
2,816,288
 
   
$
821,041
 
    
  
 
See accompanying notes.

5

Table of Contents
 
AMX Corporation
Notes to Consolidated Financial Statements
 
1.     Basis of Presentation
 
The accompanying consolidated financial statements, which should be read in conjunction with the consolidated financial statements and footnotes thereto included in the AMX Corporation (“AMX” or the “Company”) Annual Report on Form 10-K for the fiscal year ended March 31, 2002, are unaudited (except for the March 31, 2002 consolidated balance sheet, which was derived from the Company’s audited financial statements), but have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Certain prior period amounts have been reclassified to conform to the current year presentation.
 
Operating results for the three and six months ended September 30, 2002 are not necessarily indicative of the results that may be expected for the entire fiscal year ending March 31, 2003.
 
2.    Earnings Per Share
 
The following table sets forth the computation of basic and diluted earnings per share:
 
    
Three Months Ended
September 30,
     
Six Months Ended
September 30,
  
    
2002
   
2001
     
2002
   
2001
  
Numerator:
                                
Net income (loss)
   
$
1,318,375
   
$
(8,133,092
)
   
$
1,808,363
   
$
(7,931,754
)
    
  
  
  
Denominator:
                                
Denominator for basic earnings per share: Weighted-average shares outstanding
   
 
11,132,382
   
 
11,035,819
 
   
 
11,109,839
   
 
10,949,186
 
Effect of dilutive securities:
                                
Employee stock options
   
 
4,026
   
 
—  
 
   
 
2,305
   
 
—  
 
    
  
  
  
Denominator for diluted earnings per share
   
 
11,136,408
   
 
11,035,819
 
   
 
11,112,144
   
 
10,949,186
 
    
  
  
  
Basic and diluted earnings (loss) per share
   
$
0.12
   
$
(0.74
)
   
$
0.16
   
$
(0.72
)
    
  
  
  
 
Of the total stock options outstanding, 1,763,450 and 1,801,947 shares were excluded from the computation of diluted earnings per share for the quarter and six months ended September 30, 2002, respectively, because the option exercise price was greater than the average market price of the common shares for the period, and therefore the effect would have been anti-dilutive. Had the Company reported net income for the three and six months ended September 30, 2001, 320,003 and 449,037 potentially dilutive shares would have been included in the computation of diluted earnings per share, respectively.

6

Table of Contents
 
3.    Inventories
 
The components of inventories are as follows:
 
    
September 30, 2002
     
March 31,
2002
  
Raw materials
   
$
5,269,520
 
   
$
6,237,584
 
Work in progress
   
 
711,975
 
   
 
2,346,446
 
Finished goods
   
 
8,560,070
 
   
 
7,126,905
 
Less reserve for obsolescence
   
 
(3,744,963
)
   
 
(4,010,724
)
    
  
Total
   
$
10,796,602
 
   
$
11,700,211
 
    
  
 
4.    Restructuring Costs
 
Salt Lake City Relocation
 
During the third quarter of 2000, the Company announced plans to shutdown its operations located in Salt Lake City and move those operations to its corporate headquarters in Dallas. The Salt Lake City location included a majority of the Company’s residential operations. A total of 94 employees were impacted by this action, with 26 employees accepting positions in Dallas and 68 employees being terminated. In connection with this restructuring activity, the Company recorded a charge of $2.6 million that represented severance costs, a write-down of assets, and leasehold cancellation charges. All severance payments, severance forfeitures, and asset write-downs were completed prior to March 31, 2001.
 
The leasehold cancellation charges represented the Company’s estimated costs to fulfill its remaining lease obligations for the Salt Lake City facilities, a portion of which was subleased to a third party. The Company reversed the leasehold cancellation reserve as sublease income was received from the sublessee. The reserve was also reduced for lease payments made to the landlord in excess of the sublease income received. As of September 30, 2002, the Company has a remaining reserve of approximately $112,000 representing the estimated remaining leasehold payments for the Salt Lake City facilities.

7

Table of Contents
 
The following is a summary of the Salt Lake City restructuring action from inception through September 30, 2002 (in thousands):
 
    
Severance
     
Leashold cancellation charges
     
Write down of property and equipment
     
Total
  
Initial Restructuring Reserve
   
$
1,304
 
   
$
649
 
   
$
655
 
   
$
2,608
 
Activity through March 31, 2002:
                                    
Severance payments
   
 
(914
)
   
 
—  
 
   
 
—  
 
   
 
(914
)
Severance forfeitures
   
 
(390
)
   
 
—  
 
   
 
—  
 
   
 
(390
)
Payment of lease expenses
   
 
—  
 
   
 
(151
)
   
 
—  
 
   
 
(151
)
Reduction of lease obligation through sublease
   
 
—  
 
   
 
(268
)
   
 
—  
 
   
 
(268
)
Correction of leasehold cancellation reserve
   
 
—  
 
   
 
(118
)
   
 
—  
 
   
 
(118
)
Non-cash write down of property and equipment
   
 
—  
 
   
 
—  
 
   
 
(655
)
   
 
(655
)
    
  
  
  
Reserve at March 31, 2002
   
 
—  
 
   
 
112
 
   
 
—  
 
   
 
112
 
Activity through September 30, 2002:
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
—  
 
    
  
  
  
Reserve at September 30, 2002
   
$
—  
 
   
$
112
 
   
$
—  
 
   
$
112
 
    
  
  
  
 
Consumer Broadband Division
 
In the fourth quarter of fiscal 2001, the Company initiated a corporate-wide restructuring plan that included the discontinuation of its Consumer Broadband Division and retail distribution strategy as well as reduction of approximately 44 employees or 10% of the Company’s workforce. This severance action affected employees across the Company, although many of the terminated employees were from either the Company’s Consumer Broadband Division or information systems department. The severance of the 44 employees and discontinuance of the Consumer Broadband Division was completed prior to March 31, 2001, although certain commitments continued into fiscal 2002, and certain severance payments will continue through December 2002. In conjunction with this plan, the Company recorded a charge of $2.2 million, of which $1.2 million was included in restructuring costs, $0.7 million was included in cost of sales, and $0.2 million was included as a reversal to revenue. As of September 30, 2002, the Company has a remaining reserve of approximately $64,000 representing future severance payments.

8

Table of Contents
 
The following is a summary of the consumer broadband and corporate-wide restructuring action from inception through September 30, 2002 (in thousands):
 
    
Severance
     
Inventory related charges
       
Write down of receivables and intangible assets
       
Non-cancelable commitments and other
     
Total
  
Initial Restructuring Reserve
   
$
859
 
   
$
715
 
     
$
452
 
     
$
145
 
   
$
2,171
 
Activity through March 31, 2002:
                                                 
Severance payments
   
 
(645
)
   
 
—  
 
     
 
—  
 
     
 
—  
 
   
 
(645
)
Write down of inventory
   
 
—  
 
   
 
(715
)
     
 
—  
 
     
 
—  
 
   
 
(715
)
Write down of receivables and intangible assets
   
 
—  
 
   
 
—  
 
     
 
(452
)
     
 
—  
 
   
 
(452
)
Other payments
   
 
—  
 
   
 
—  
 
     
 
—  
 
     
 
(145
)
   
 
(145
)
    
  
    
    
  
Reserve at March 31, 2002
   
 
214
 
   
 
—  
 
     
 
—  
 
     
 
—  
 
   
 
214
 
Activity through September 30, 2002:
                                                 
Severance payments
   
 
(150
)
   
 
—  
 
     
 
—  
 
     
 
—  
 
   
 
(150
)
    
  
    
    
  
Reserve at September 30, 2002
   
$
64
 
   
$
—  
 
     
$
—  
 
     
$
—  
 
   
$
64
 
    
  
    
    
  
 
Corporate Structure Realignment
 
In the third quarter of fiscal 2002, the Company announced a restructuring program that included the realignment of its corporate structure and a reduction of its workforce. The personnel reductions included 66 positions, which were primarily Dallas-based personnel. The reduction in workforce was completed prior to December 31, 2001, although certain severance and other payments continued into the fourth quarter of fiscal 2002 and beyond. In conjunction with this corporate realignment, the Company recorded a charge of $0.6 million, all of which was included in restructuring costs. As of September 30, 2002, the Company has a remaining reserve of approximately $28,000 representing future severance payments.
 
The following is a summary of the corporate realignment from inception through September 30, 2002 (in thousands):
 
    
Severance
  
Initial Restructuring Reserve
   
$
600
 
Activity through March 31, 2002:
         
Severance payments
   
 
(359
)
Other payments
   
 
(29
)
Reversals
   
 
(90
)
    
Reserve at March 31, 2002
   
 
122
 
    
Activity through September 30, 2002:
         
Severance payments
   
 
(71
)
Other payments
   
 
(23
)
    
Reserve at September 30, 2002
   
$
28
 
    

9

Table of Contents
 
5.    One Time Charges
 
During the year-ago quarter ended September 30, 2001, the Company recorded one-time charges of approximately $4.0 million. These one-time charges included reserves for inventory obsolescence of $2.5 million, a charge of $0.7 million taken to write off certain assets, additional receivable related reserves of $0.5 million, and a write off of miscellaneous intangibles of $0.3 million.
 
As a result of the aforementioned charges and historical operating performance of the Company at the time, the Company also recorded a tax provision of approximately $4.2 million for the quarter ended September 30, 2001 in order to record a valuation allowance against its deferred tax assets. Although the Company anticipated a return to profitability, generally accepted accounting principles require that historical operating performance weigh heavily in assessing the realizability of deferred tax assets.
 
6.    Debt
 
The Company has a $12.5 million revolving line of credit from Bank One, Texas, N.A. (“Bank One”). The line of credit provides for interest at varying rates based on the Company’s choice of the prime lending rate or the London Inter-Bank Offered Rate. The interest rate varies depending on the ratio of indebtedness to EBITDA as defined in the loan agreement. The line of credit is collateralized by the assets of the Company and its subsidiaries. At September 30, 2002, $4.0 million was outstanding under the revolving line of credit agreement and $5.9 million was available for future borrowings under the facility’s borrowing base limits. This revolving line of credit expires on September 29, 2003. The Company also has an unsecured term note with Bank One. The term note provides for quarterly payments of principal and interest through April 30, 2004 and has an outstanding principal balance of approximately $1.0 million as of September 30, 2002. Based on prevailing market rates, the carrying value of the Company’s short and long term debt approximates market. The line of credit contains various restrictive and financial covenants. The Company is in compliance with each of these covenants as of September 30, 2002.

10

Table of Contents
 
ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Quarterly Report on Form 10-Q and in the AMX Corporation (“AMX” or the “Company”) Annual Report on Form 10-K. The Company believes that all necessary adjustments (consisting only of normal recurring adjustments) have been included in the amounts stated below to present fairly the following information. Quarterly operating results have varied significantly in the past and can be expected to vary in the future. Results of operations for any particular period are not necessarily indicative of results of operations for a full year.
 
Forward-Looking Information
 
Certain information included herein contains forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) regarding future events or the future financial performance of the Company, and is subject to a number of risks and other factors which could cause the actual results of the Company to differ materially from those contained in and anticipated by the forward-looking statements. These risks, assumptions and uncertainties include: the Company’s strategic alliances; the ability to develop distribution channels for new products; dependence on suppliers, dealers and distributors; reliance on the functionality of systems or equipment, whether the Company’s systems and equipment or those of its customers, dealers, distributors, or manufacturers; domestic and international economic conditions; the financial condition of the Company’s key customers and suppliers; the complexity of new products; ongoing research and development; reliance on third party manufacturers; foreign exchange risks; the ability to realize operating efficiencies; dependence on key personnel; the lack of an industry standard; reliance on others for technology; the ability to protect intellectual property; the quick product life cycle; the resources necessary to compete; the possible effect of government regulations; possible liability for copyright violations on the Internet with the use of the Company’s products; and other risks referenced from time to time in the Company’s filings with the Securities and Exchange Commission. The forward-looking statements contained herein are necessarily dependent upon assumptions, estimates and data that may be incorrect or imprecise. Accordingly, any forward-looking statements included herein do not purport to be predictions of future events or circumstances and may not be realized. Forward-looking statements contained herein include, but are not limited to, forecasts, projections and statements relating to product development and acceptance, inflation, future acquisitions and anticipated capital expenditures. All forecasts and projections in the report are based on management’s current expectations of the Company’s near term results, based on current information available pertaining to the Company, including the aforementioned risk factors. Actual results could differ materially.
 
OVERVIEW
 
AMX Corporation is a leading developer and marketer of systems that control, as an integrated network, a variety of otherwise incompatible electronic devices. AMX simplifies the automation and integration of audio/video, environmental and communications technologies through a variety of intuitive user interfaces. The Company’s systems are used in many different vertical markets such as Broadcasting, Education, Entertainment, Government, Healthcare, Home Theater, Hotels, Houses of Worship, Private Transportation, Network Operations Centers, Presentation Facilities, Retail, and Whole Home Automation. The Company’s systems are able to accommodate evolving technologies, and currently provide centralized control for over 12,000 different electronic devices including but not limited to video components, audio components, teleconferencing devices, lighting equipment, educational media, environmental control systems, and security systems. The Company’s control systems are compatible with the Internet, which allows the end users to communicate with their control systems, as well as send and receive commands, content or information from a remote location.
 
Applications in the commercial market for the Company’s integrated control systems include: use for presentations in corporate board rooms, business training centers, and distance learning classrooms; controls for hotels, meeting and convention facilities; security camera control, video distribution, and public address

11

Table of Contents
systems for stadiums and theme parks; multimedia and teleconferencing support for government and educational facilities; and decision support centers for industrial applications. In the residential market, the Company’s products enable individuals to create an integrated home automation system that can control audio, video and home theater systems, lighting, motorized drapes, heating and air conditioning units, closed circuit cameras, security systems, and other home electronic equipment.
 
The Company’s system sales are made through dealers and distributors who are supported by Company sales and support offices in various geographic areas. In addition, the Company utilizes independent manufacturers’ representatives in areas not served by Company offices. The Company principally relies on approximately 1,000 specialized third-party dealers of electronic and audio-visual equipment to sell, install, support, and service its products in the United States. In addition to maintaining offices in the United Kingdom and Mexico, the Company relies on an international network of 21 exclusive distributors and over 200 dealers to serve its worldwide markets. Dealers and distributors can use the AMX design software to tailor the Company’s control system for the unique requirements of each installation. The Company also sells various customized products, primarily user interface devices, to OEMs and other large customers.
 
The Company believes that the market for its products continues to grow and diversify due to the increasing functionality, greater affordability, and widespread use of a diverse array of electronic devices, particularly sophisticated audio, video, and presentation equipment. Many of these devices have separate control systems that are incompatible due to the absence of any one widely accepted control standard. This creates a need for an integrated control system such as those offered by the Company.
 
The Company’s strategy is to take advantage of the growth in the market for its products by bringing the power and flexibility of integrated control technology to a wide variety of settings. Elements of the Company’s strategy include:
 
 
•
 
Simplification of system installation;
 
 
•
 
Continued product enhancement and development;
 
 
•
 
Emphasis on customer support, service and training;
 
 
•
 
Domestic and international distribution expansion;
 
 
•
 
Flexible systems to accommodate emerging technologies; and
 
 
•
 
Development of alliances with key electronic industry companies.
 
The Company’s primary manufacturing strategy is to contract with a small number of ISO Certified manufacturers, located both domestically and in the Pacific Rim, in order to take advantage of the manufacturing expertise and efficiencies these vendors offer. This outsourcing extends from prototyping to volume manufacturing, and includes activities such as material procurement, final assembly, test, and quality control. The Company currently outsources over 85% of its products.
 
The Company’s quarterly operating results have varied significantly in the past, and can be expected to vary in the future. These quarterly fluctuations have been the result of a number of factors. These factors include seasonal purchasing of the Company’s dealers and distributors, particularly from international distributors, OEMs, and other large customers; sales and marketing expenses related to entering new markets; the timing of new product introductions by the Company and its competitors; fluctuations in commercial and residential construction and remodeling activity; and changes in product or distribution channel mix.

12

Table of Contents
 
FISCAL 2001 RESTRUCTURING AND ONE-TIME CHARGES
 
During the year-ago quarter ended September 30, 2001, the Company recorded one-time charges of approximately $4.0 million. These one-time charges included reserves for inventory obsolescence of $2.5 million, a charge of $0.7 million taken to write off certain assets, additional receivable related reserves of $0.5 million, and a write off of miscellaneous intangibles of $0.3 million.
 
As a result of the aforementioned charges and historical operating performance, the Company also recorded a tax provision of approximately $4.2 million for the quarter ended September 30, 2001 in order to record a valuation allowance against its deferred tax assets. Although the Company anticipated returning to profitability, generally accepted accounting principles require that historical operating performance weigh heavily in assessing the realizability of deferred tax assets.

13

Table of Contents
 
Results of Operations
 
The following table contains the Company’s consolidated statements of operations for the three and six month periods ended September 30, 2002 and 2001, both as reported and 2001 pro-forma results excluding the aforementioned one-time charges and net restructuring costs (in thousands):
 
    
Three Months Ended
September 30 (Unaudited)
     
Six Months Ended
September 30 (Unaudited)
  
    
2002
     
Pro forma
2001 (a) (b)
     
As reported 2001
     
2002
     
Pro forma 2001 (a) (b)
     
As reported 2001
  
Commercial sales
   
$
19,747
 
   
$
19,970
 
   
$
19,970
 
   
$
37,595
 
   
$
37,390
 
   
$
37,390
 
Residential sales
   
 
2,479
 
   
 
3,036
 
   
 
3,036
 
   
 
4,827
 
   
 
7,339
 
   
 
7,339
 
    
  
  
  
  
  
Net sales
   
 
22,226
 
   
 
23,006
 
   
 
23,006
 
   
 
42,422
 
   
 
44,729
 
   
 
44,729
 
Cost of sales
   
 
10,830
 
   
 
11,498
 
   
 
13,875
 
   
 
20,799
 
   
 
22,095
 
   
 
24,472
 
    
  
  
  
  
  
Gross profit
   
 
11,396
 
   
 
11,508
 
   
 
9,131
 
   
 
21,623
 
   
 
22,634
 
   
 
20,257
 
Gross profit percentage
   
 
51.3
%
   
 
50.0
%
   
 
39.7
%
   
 
51.0
%
   
 
50.6
%
   
 
45.3
%
Selling and marketing expenses
   
 
5,208
 
   
 
7,395
 
   
 
8,264
 
   
 
10,770
 
   
 
14,491
 
   
 
15,360
 
Research and development expenses
   
 
2,439
 
   
 
1,938
 
   
 
1,938
 
   
 
4,391
 
   
 
3,833
 
   
 
3,834
 
Restructuring costs
   
 
—  
 
   
 
—  
 
   
 
(46
)
   
 
—  
 
   
 
—  
 
   
 
(90
)
General and administrative expenses
   
 
2,177
 
   
 
1,959
 
   
 
2,551
 
   
 
4,208
 
   
 
3,651
 
   
 
4,243
 
    
  
  
  
  
  
Total operating expenses
   
 
9,824
 
   
 
11,292
 
   
 
12,707
 
   
 
19,369
 
   
 
21,975
 
   
 
23,347
 
    
  
  
  
  
  
Operating profit (loss)
   
 
1,572
 
   
 
216
 
   
 
(3,576
)
   
 
2,254
 
   
 
659
 
   
 
(3,090
)
Operating profit percentage
   
 
7.1
%
   
 
0.9
%
   
 
nm
 
   
 
5.3
%
   
 
1.5
%
   
 
nm
 
Interest expense
   
 
110
 
   
 
224
 
   
 
224
 
   
 
243
 
   
 
409
 
   
 
409
 
Other income, net
   
 
(2
)
   
 
37
 
   
 
(96
)
   
 
9
 
   
 
46
 
   
 
(87
)
    
  
  
  
  
  
Income (loss) before income taxes
   
 
1,460
 
   
 
29
 
   
 
(3,896
)
   
 
2,020
 
   
 
296
 
   
 
(3,586
)
Income tax expense
   
 
142
 
   
 
26
 
   
 
4,237
 
   
 
212
 
   
 
135
 
   
 
4,346
 
    
  
  
  
  
  
Net income (loss)
   
$
1,318
 
   
$
3
 
   
$
(8,133
)
   
$
1,808
 
   
$
161
 
   
$
(7,932
)
    
  
  
  
  
  
(a)
 
Pro forma results for the three and six months ended September 30, 2001 exclude restructuring reversals of $46,000 and $90,000, respectively.
 
(b)
 
Pro forma results for the three and six months ended September 30, 2001 exclude $8.2 million of one-time charges which included inventory related reserves of $3.2 million; additional accounts receivable reserves of $0.5 million; the write-off of miscellaneous intangibles of $0.3 million; and a valuation allowance against deferred tax assets of $4.2 million. These charges were recorded in the following financial statement line items: Cost of sales, $2.4 million; Selling and marketing expenses, $0.9. million; General and administrative expenses, $0.6 million; Other expense, $0.1 million; and Income tax expense, $4.2 million.

14

Table of Contents
 
THE FOLLOWING DISCUSSIONS OF THE THREE MONTHS ENDED SEPTEMBER 30, 2002 RESULTS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2001 AND THE SIX MONTHS ENDED SEPTEMBER 30, 2002 RESULTS COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 2001 ARE PRESENTED ON A PRO-FORMA BASIS EXCLUDING THE ONE TIME AND RESTRUCTURING CHARGES NOTED ABOVE.
 
Three Months Ended September 30, 2002 Results Compared to Three Months Ended September 30, 2001
 
The Company recorded sales during the quarters ended September 30, 2002 and 2001 as follows:
 
Market
   
September 30, 2002
   
September 30, 2001
   
Change
  
Commercial:
                     
Domestic
   
$
12,663,692
   
$
13,861,265
   
(9
)%
International
   
 
7,083,569
   
 
6,109,216
   
16
%
    
  
  
Total Commercial
   
 
19,747,261
   
 
19,970,481
   
(1
)%
    
  
  
Residential
   
 
2,479,146
   
 
3,035,753
   
(18
)%
    
  
  
Total Sales
   
$
22,226,407
   
$
23,006,234
   
(3
)%
    
  
  
 
Total sales declined 3% over the year-ago quarter. The year-ago quarter was favorably impacted by shipping delays experienced during the immediately preceding quarter as a result of challenges encountered in connection with the Company’s ERP system implementation, which went “live” in June 2001. Total commercial revenue declined 1%, consisting of a 9% decrease in domestic commercial revenue, offset by a 16% increase in international commercial revenue. The decline in domestic commercial revenue is a result of the elevated year-ago revenues, the continued residual impact of the Company’s focus on the broadband market in fiscal 2000 and 2001, and the residual impact of other historical operational issues. These issues have also adversely affected the Company’s residential sales, which declined 18% over the year-ago quarter. These issues have had a lesser impact on our international channel, which was up 16% over the year-ago quarter, due to its two-tier distribution structure. In fiscal 2003, the Company has invested significant resources in research and development, and has announced several new products as a result of these efforts. These products are expected to lead to long-term growth for both the residential and commercial markets. The Company expects that it could take several months to realize the growth potential of these new products because typical system integration projects have long lead times and equipment specifications are made early in the design phase.
 
Gross margins of 51% for the quarter ended September 30, 2002 were up from pro-forma margins of 50% for the year-ago quarter. The improvement over the trailing quarter is a reflection of lower costs in the Company’s manufacturing operations as a result of the continued implementation of the Company’s outsourcing strategy and vendor consolidation.
 
Selling and marketing expenses declined significantly to $5.2 million or 23% of net sales compared to $7.4 million or 32% of net sales for the second quarter of fiscal 2002. The decrease in selling and marketing expenses is a result of improved operations management and cost control initiatives launched in the latter half of fiscal 2002, including reduced headcount in the Company’s domestic and international sales organizations. Research and development expenses were $2.4 million or 11% of net sales compared to $1.9

15

Table of Contents
million or 8% of net sales for the first quarter of fiscal 2002. This increase was anticipated as a result of the incremental research and development efforts initiated by the Company in fiscal 2003. The Company has planned to increase its research and development spending significantly over prior year levels. General and administrative expenses were $2.2 million or 10% of net sales compared to $2.0 million or 9% of net sales for the first quarter of fiscal 2002. This increase is primarily a result of increased salary and incentive compensation expense.
 
Interest expense was $0.1 million or 0.5% of net sales compared to $0.2 million or 1.0% of net sales for the second quarter of fiscal 2002. This decline is primarily attributable to lower average outstanding balances on the Company’s revolving line of credit during fiscal 2003.
 
The Company’s effective tax rate was approximately 10% for the quarter ended September 30, 2002. The tax provision of $142,000 recorded for the quarter principally represents foreign taxes on its U.K. subsidiary. The Company does not currently record a tax provision or benefit on its U.S. operations because the Company recorded a full valuation allowance on its deferred tax assets in the quarter ended September 30, 2001. As a result, as the Company incurs domestic tax expense or benefit, an offsetting decrease or increase is recorded to the valuation allowance.
 
Six Months Ended September 30, 2002 Results Compared to Six Months Ended September 30, 2001
 
The Company recorded sales during the six months ended September 30, 2002 and 2001 as follows:
 
    
Six Months Ended September 30,
   
Change
  
Market
   
2002
   
2001
   
Commercial:
                     
Domestic
   
$
24,567,738
   
$
25,468,622
   
(4
)%
International
   
 
13,026,778
   
 
11,921,432
   
9
%
    
  
  
Total Commercial
   
 
37,594,516
   
 
37,390,054
   
1
%
    
  
  
Residential
   
 
4,827,169
   
 
7,339,165
   
(34
)%
    
  
  
Total Sales
   
$
42,421,685
   
$
44,729,219
   
(5
)%
    
  
  
 
Total sales declined 5% over the year-ago period. Total commercial revenue increased 1%, consisting of a 4% decrease in domestic commercial revenue, offset by a 9% increase in international commercial revenue. The decline in domestic commercial revenue is a result of the continued residual impact of the Company’s focus on the broadband market in fiscal 2000 and 2001, and the residual impact of other historical operational issues. These issues have also adversely affected the Company’s residential sales, which declined 34% over the year-ago period. These issues have had a lesser impact on our international channel, which was up 9% over the year-ago period, due to its two-tier distribution structure. In fiscal 2003, the Company has invested significant resources in research and development, and has announced several new products as a result of these efforts. These products are expected to lead to long-term growth for both the residential and commercial markets. The Company expects that it could take several months to realize the growth potential of these new products because typical system integration projects have long lead times and equipment specifications are made early in the design phase.
 
Gross margins for the six months ended September 30, 2002 were up slightly from the year-ago period. The improvement over the trailing quarter is a reflection of lower costs in the Company’s manufacturing

16

Table of Contents
operations as a result of the continued implementation of the Company’s outsourcing strategy and vendor consolidation.
 
Selling and marketing expenses declined significantly to $10.8 million or 25% of net sales compared to $14.5 million or 32% of net sales for the six months ended September 30, 2001. The decrease in selling and marketing expenses is a result of improved operations management and cost control initiatives launched in the latter half of fiscal 2002, including reduced headcount in the Company’s domestic and international sales organizations. Research and development expenses were $4.4 million or 10% of net sales compared to $3.8 million or 9% of net sales for the six months ended September 30, 2001. This increase is related to the incremental research and development efforts initiated by the Company in fiscal 2003. The Company has planned to increase its research and development spending significantly over prior year levels. General and administrative expenses were $4.2 million or 10% of net sales compared to $3.7 million or 8% of net sales for the year ago period. This increase is primarily a result of increased salary and incentive compensation expense.
 
Interest expense was $0.2 million or 0.6% of net sales compared to $0.4 million or 0.9% of net sales for the six months ended September 30, 2001. This decline is primarily attributable to lower average outstanding balances on the Company’s revolving line of credit during fiscal 2003.
 
The Company’s effective tax rate was approximately 10% for the six months ended September 30, 2002. The tax provision of $212,000 recorded for the period principally represents foreign taxes on its U.K. subsidiary. The Company does not currently record a tax provision or benefit on its U.S. operations because the Company recorded a full valuation allowance on its deferred tax assets in the quarter ended September 30, 2001. As a result, as the Company incurs domestic tax expense or benefit, an offsetting decrease or increase is recorded to the valuation allowance.
 
Liquidity and Capital Resources
 
For the six months ended September 30, 2002, cash provided by operations was $7.0 million, consisting of earnings before depreciation and amortization of $3.5 million, a reduction of net accounts receivable of $3.7 million, a reduction of net inventory of $0.9 million, and income tax refunds of approximately $1.8 million, offset by a decline in accounts payable of $2.2 million and changes in other operating assets and liabilities of $0.8 million. Capital expenditures amounted to $1.4 million, consisting primarily of expenditures for tooling equipment related to new product development. The Company used the cash provided by operations to reduce outstanding debt by $4.1 million.
 
The Company has a $12.5 million revolving line of credit from Bank One, Texas, N.A. (“Bank One”). The line of credit provides for interest at varying rates based on the Company’s choice of the prime lending rate or the London Inter-Bank Offered Rate. The interest rate varies depending on the ratio of indebtedness to EBITDA as defined in the loan agreement. The line of credit is collateralized by receivables, inventory, intellectual property, and the net assets of its wholly-owned U.K. subsidiary. At September 30, 2002, $4.0 million was outstanding under the revolving line of credit agreement and $5.9 million was available for future borrowings under the facility’s borrowing base limits. This revolving line of credit expires on September 29, 2003. The Company also has an unsecured term note with Bank One. The term note provides for quarterly payments of principal and interest through April 30, 2004 and has an outstanding principal balance of approximately $1.0 million as of September 30, 2002. Based on prevailing market rates, the carrying value of the Company’s short and long term debt approximates market. The line of credit contains various restrictive and financial covenants. The Company is in compliance with each of these covenants as of September 30, 2002.
 
The Company believes that cash flow from operations and the funding available under existing and future credit facilities will be adequate to fund working capital and capital expenditure requirements for at least the next 12 months.

17

Table of Contents
 
Contingencies
 
The Company is party from time to time to ordinary litigation incidental to its business, none of which is expected to have a material adverse effect on the results of operations, financial position or liquidity of the Company.
 
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
 
From March 31, 2002 until September 30, 2002, there were no material changes from the information concerning market risk contained in the Company’s Annual Report on Form 10-K for the year ended March 31, 2002, as filed with the Securities and Exchange Commision on June 28, 2002 (file no. 0-26924).
 
ITEM 4.     CONTROLS AND PROCEDURES
 
a.
 
Evaluation of disclosure controls and procedures
 
    
 
Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in gathering, analyzing and disclosing information needed to satisfy the Company’s disclosure obligations under the Exchange Act.
 
b.
 
Changes in internal controls
 
    
 
There were no significant changes in the Company’s internal controls or in other factors that could significantly affect those controls since the most recent evaluation of such controls.

18

Table of Contents
 
AMX CORPORATION
PART II.    OTHER INFORMATION
 
Item 4.     Submission of Matters to a Vote of Security Holders
 
The 2002 Annual Meeting of Shareholders of AMX Corporation was held on August 22, 2002 to consider two matters of business. The matters brought before the shareholders and the voting results are as follows:
 
1.    Election of Directors:
 
    
SHARES VOTED FOR
   
SHARES WITHHELD
FROM VOTING FOR
Robert J. Carroll
   
8,882,580
   
973,967
Lawrence N. Goldstein
   
8,910,087
   
946,460
Thomas L. Harrison
   
8,913,117
   
943,430
David R. Richard
   
8,912,827
   
943,720
Richard L. Smith
   
8,918,117
   
938,430
John E. Wilson
   
8,918,117
   
938,430
J. Otis Winters
   
8,931,517
   
925,030
 
There were no shares voting against the election of the directors.
 
2.    Ratification of Ernst & Young LLP as auditors:
 
SHARES
FOR
     
SHARES
AGAINST
     
SHARES
ABSTAINING
9,811,041
     
36,472
     
9,034
 
Item 6.     Exhibits and Reports on Form 8-K
 
a.
 
Exhibits
 
3.1
   
Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Company’s Form S-8 filed March 11, 1996, File no. 333-2202).
3.2
   
Articles of Amendment to the Articles of Incorporation of the Company (incorporated by reference from Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed September 10, 1999, File No. 0-026924).
3.3
   
Articles of Amendment to the Articles of Incorporation of the Company (incorporated by reference from Exhibit 3.1 to the Registrant’s Form 10-Q for the period ended September 30, 2001, File No. 0-026924).
3.4
   
Amended and Restated Bylaws of the Registrant (incorporated by reference from Exhibit 3.4 to the Registrant’s Form 10-K for the fiscal year ended March 31, 2002, File No. 0-026924).
†  10.1
   
Eighth Amendment to Fourth Amended and Restated Loan Agreement and Related Promissory Notes dated as of August 21, 2002

19

Table of Contents
 
†  10.2
   
Letter Loan Agreement dated as of September 30, 2002
†  10.3
   
Revolving Promissory Note dated as of September 30, 2002
†  10.4
   
Term Promissory Note dated as of September 30, 2002
†  10.5
   
Security Agreement dated as of September 30, 2002
†  10.6
   
Pledge Agreement dated as of September 30, 2002
†  10.7
   
Intellectual Property Security Agreement dated as of September 30, 2002
†  10.8
   
Notice of Final Agreement dated as of September 30, 2002
†  10.9
   
Intracreditor Subordination and Confirmation dated as of September 30, 2002
†10.10
   
Export Loan Agreement dated as of September 30, 2002
†10.11
   
Amended and Restated Exim Note dated as of September 30, 2002
†10.12
   
Borrower Agreement dated as of September 30, 2002
†10.13
   
Loan Authorization Notice dated as of September 30, 2002
†  99.1
   
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†  99.2
   
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†  Filed herewith.
 
b.
 
Reports on Form 8-K
 
None

20

Table of Contents
 
AMX CORPORATION
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.
 
       
AMX Corporation
Date:
  
November 14, 2002
      
By:
  
/s/    Jean M. Nelson
           
Jean M. Nelson
Vice President and Chief Financial Officer (Duly
Authorized Officer and Principal Financial Officer)
 

21

Table of Contents
CERTIFICATION
 
I, Robert J. Carroll, certify that:
 
1)
 
I have reviewed this quarterly report on Form 10-Q of AMX Corporation;
 
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.
 
/s/    Robert J. Carroll
Robert J. Carroll
President and Chief Executive Officer
November 14, 2002

22

Table of Contents
CERTIFICATION
 
I, Jean M. Nelson, certify that:
 
1)
 
I have reviewed this quarterly report on Form 10-Q of AMX Corporation;
 
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.
 
/s/    Jean M. Nelson
Jean M. Nelson
President and Chief Financial Officer
November 14, 2002

23