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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 28, 2002
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 1-3985
EDO CORPORATION
(Exact name of registrant as specified in its charter)
New York No. 11-0707740
(State or other jurisdiction (I.R.S. Employee
of incorporation or organization) Identification No.)
60 East 42nd Street, Suite 5010, New York, NY 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 716-2000
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
requirement for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at September 28, 2002
- ------------------------------------- ---------------------------------
Common shares, par value $1 per share 19,684,164
Page 2
EDO CORPORATION
INDEX
Page No.
Face Sheet 1
Index 2
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
September 28, 2002 and
December 31, 2001 3
Consolidated Statements of Earnings -
Three Months Ended
September 28, 2002 and
September 29, 2001 4
Consolidated Statements of Earnings -
Nine Months Ended
September 28, 2002 and
September 29, 2001 5
Consolidated Statements of Cash Flows -
Nine Months Ended
September 28, 2002 and
September 29, 2001 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-18
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 18
Item 4. Controls and Procedures 18
Part II Other Information
Item 4. Submission of Matters to a Vote of 19
Security Holders
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Certifications 21-22
Exhibit Index 23
Page 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
EDO Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
September 28, 2002 December 31, 2001
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 122,134 $ 57,841
Restricted cash 28,238 -
Marketable securities 193 190
Accounts receivable, less allowances 98,407 83,407
Inventories 34,427 22,937
Deferred income tax asset, net 3,018 3,018
Prepayments and other 4,024 2,346
--------- ---------
Total current assets 290,441 169,739
Property, plant and equipment, net 64,813 62,255
Notes receivable 2,645 2,910
Goodwill 60,964 22,874
Other intangible assets 13,252 200
Deferred income tax asset, net 3,343 2,553
Other assets 25,184 25,099
--------- ---------
$ 460,642 $ 285,630
========= =========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 15,681 $ 12,743
Accrued interest payable 3,567 -
Accrued liabilities 54,243 34,654
Contract advances and deposits 18,801 16,702
Current portion of note payable 463 463
--------- ---------
Total current liabilities 92,755 64,562
Long-term debt 137,800 -
Postretirement benefits obligations 44,972 44,675
Environmental obligation 1,806 1,895
Shareholders' equity:
Common shares, par value $1 per share, authorized
50,000,000 shares, issued 19,790,477 in 2002
and 2001 19,790 19,790
Additional paid-in capital 146,374 143,747
Retained earnings 52,103 47,744
Accumulated other comprehensive loss,
net of income tax benefit (13,385) (13,385)
--------- ---------
204,882 197,896
Less: Treasury shares at cost
(106,313 shares in 2002 and
182,459 shares in 2001) (1,489) (2,461)
Unearned ESOP shares (18,854) (19,792)
Deferred compensation under
Long-Term Incentive Plan (637) (300)
Management group receivable (593) (845)
---------- ---------
Total shareholders' equity 183,309 174,498
---------- ---------
$ 460,642 $ 285,630
========== =========
See accompanying Notes to Consolidated Financial Statements.
Page 4
EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands, except per share amounts)
For the three months ended
Sept 28, 2002 Sept 29, 2001
(unaudited)
Net sales $ 85,104 $ 60,353
Costs and expenses
Cost of sales 62,541 43,520
Selling, general and administrative 12,766 7,800
Research and development 2,080 1,875
Write-off of purchased in-process
research and development 150 --
Merger-related costs 204 --
-------- --------
77,741 53,195
-------- --------
Operating earnings 7,363 7,158
Non-operating income (expense)
Interest income 512 101
Interest expense (2,046) (889)
Other, net 34 (82)
-------- --------
(1,500) (870)
-------- --------
Earnings before income taxes 5,863 6,288
Income tax expense (2,492) (2,455)
-------- --------
Net earnings available for common shares 3,371 3,833
======== ========
Earnings per common share:
Basic $ 0.20 $ 0.32
======== ========
Diluted $ 0.19 $ 0.30
======== ========
Weighted average common shares outstanding:
Basic 17,120 12,107
======== ========
Diluted 17,401 13,431
======== ========
Pro-forma amounts assuming retroactive effect
of change in accounting principle:
Net earnings $ -- $ 3,998
Basic net earnings per common share $ -- $ 0.33
Diluted net earnings per common share $ -- $ 0.32
See accompanying Notes to Consolidated Financial Statements.
Page 5
EDO Corporation and Subsidiaries
Consolidated Statements of Earnings
(in thousands, except per share amounts)
For the nine months ended
Sept 28, 2002 Sept 29, 2001
(unaudited)
Net sales $ 225,732 $ 187,280
Costs and expenses
Cost of sales 169,387 138,288
Selling, general and administrative 31,107 24,085
Research and development 5,941 5,857
Write-off of purchased in-process
research and development 150 --
Merger-related costs 204 1,318
--------- ---------
206,789 169,548
--------- ---------
Operating earnings 18,943 17,732
Non-operating income (expense)
Interest income 1,284 688
Interest expense (4,171) (2,516)
Other, net 40 117
--------- ---------
(2,847) (1,711)
--------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principle 16,096 16,021
Income tax expense (6,841) (6,250)
--------- ---------
Net earnings before cumulative effect
of change in accounting principle 9,255 9,771
Cumulative effect of change in accounting
principle, net of tax (3,363) --
Dividends on preferred shares -- (194)
--------- ---------
Net earnings available for common shares $ 5,892 $ 9,577
========= =========
Earnings (loss) per common share:
Basic:
Net earnings before cumulative effect
of change in accounting principle $ 0.54 $ 0.80
Cumulative effect of change in
accounting principle, net of tax (0.19) --
--------- ---------
Net earnings $ 0.35 $ 0.80
========= =========
Diluted:
Net earnings before cumulative effect
of change in accounting principle $ 0.53 $ 0.77
Cumulative effect of change in
accounting principle, net of tax (0.19) --
--------- ---------
Net earnings $ 0.34 $ 0.77
========= =========
Weighted average common shares outstanding:
Basic 17,050 11,972
========= =========
Diluted 17,362 13,594
========= =========
Pro-forma amounts assuming retroactive effect
of change in accounting principle:
Net earnings $ -- $ 10,054
Basic net earnings per common share $ -- $ 0.84
Diluted net earnings per common share $ -- $ 0.80
See accompanying Notes to Consolidated Financial Statements.
Page 6
EDO Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
For the nine months ended
Sept 28, 2002 Sept 29, 2001
(unaudited)
Operating activities:
Net earnings $ 5,892 $ 9,771
Adjustments to earnings from operations to
arrive at cash provided by operations:
Depreciation 7,478 7,133
Amortization 549 827
Bad debt expense -- 350
Write-off of purchased in-process research
and development 150 --
Gain on repurchase of debentures -- (171)
Loss (gain) on sale of property, plant and
equipment 13 (39)
Gain on sale of marketable securities -- (81)
Deferred compensation expense 143 181
ESOP compensation expense 3,230 1,406
Non-cash compensation expense -- 278
Dividends on unallocated ESOP shares 236 --
Common shares issued for directors' fees 119 122
Income tax benefit from stock options 426 --
Real estate tax assessment adjustment -- 7,846
Cumulative effect of change in
accounting principle 3,363 --
Changes in (excluding effect of acquisition):
Accounts receivable 75 (826)
Inventories (4,258) (1,017)
Prepayments and other assets (3,108) (3,677)
Accounts payable and accrued liabilities 1,803 (227)
Contract advances and deposits 2,099 (17,133)
--------- ---------
Cash provided by operations 18,210 4,743
Investing activities:
Cash paid for acquisition of Condor Systems,
Inc., net of cash acquired (58,543) --
Restricted cash (28,238) --
Payments received on notes receivable 262 259
Purchase of plant and equipment (4,094) (11,101)
Proceeds from sale of plant and equipment 6 236
Purchase of marketable securities (3) (58)
Sale or redemption of marketable securities -- 14,455
--------- ---------
Cash (used) provided by investing activities (90,610) 3,791
Financing activities:
Proceeds from exercise of stock options 411 2,518
Proceeds from management group receivables 252 375
Borrowings under revolver -- 6,000
Issuance of convertible subordinated notes 137,800 --
Repayments of long-term debt -- (2,850)
Repurchase of debentures -- (3,184)
Purchase of treasury shares -- (1,021)
Payment of EDO ESOP loan obligation -- (4,891)
Payment of common share cash dividends (1,770) (1,332)
Payment of preferred share cash dividends -- (194)
--------- ---------
Cash provided (used) by financing activities 136,693 (4,579)
Net increase in cash and cash equivalents 64,293 3,955
Cash and cash equivalents at beginning of year 57,841 2,208
--------- ---------
Cash and cash equivalents at end of period $ 122,134 $ 6,163
========= =========
Supplemental disclosures:
Cash paid for: Interest $ -- $ 1,787
Income taxes $ 11,949 $ 4,770
See accompanying Notes to Consolidated Financial Statements.
Page 7
Notes to Consolidated Financial Statements
Unaudited Consolidated Financial Statements
The accompanying unaudited, consolidated financial statements have been prepared
in accordance with instructions to Form 10-Q and, therefore, do not include all
information and footnotes normally included in consolidated financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of EDO
Corporation and Subsidiaries (the "Company") for the year ended December 31,
2001 filed by the Company on Form 10-K with the Securities and Exchange
Commission on March 18, 2002.
The accompanying consolidated financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its consolidated
financial position and results of operations for the interim periods presented.
The results of operations for the interim periods are not necessarily indicative
of the results that may be expected for the entire year.
Acquisitions
In October 2001, the Company acquired all of the outstanding stock of Dynamic
Systems, Inc. ("DSI"), a privately-held company based in Alexandria, Virginia,
for $13.7 million in cash, including transaction costs, resulting in goodwill of
$12.2 million. DSI became part of our Defense segment and provides professional
and information technology services primarily to the U.S. Department of Defense
and other government agencies. The acquisition is expected to strengthen and
expand the range of services the Company offers to both existing and new
customers. The acquisition has been accounted for as a purchase and is included
in the Company's results of operations from its acquisition date. The results of
operations for the periods presented are not materially affected by the timing
of this acquisition.
On July 26, 2002, the Company acquired substantially all of the assets of Condor
Systems, Inc., a privately-held defense electronics company and its domestic
subsidiary (together, "Condor") for $61.9 million in cash and the assumption of
certain normal employee benefit obligations, certain trade and supplier payables
and certain other accrued liabilities primarily related to contract loss
reserves. In addition, the Company assumed approximately $28 million of
outstanding standby letters of credit. Condor had been operating under
protection of Chapter 11 of the U.S. Bankruptcy Code. The acquisition is
expected to expand the Company's electronic warfare business in the areas of
intelligence, reconnaissance and surveillance systems. The acquisition has been
accounted for as a purchase, and, accordingly, is included in the Company's
results of operations as of the acquisition date. The allocation of the purchase
price is preliminary and subject to change.
Unaudited pro forma results of operations, assuming the acquisition of Condor
had been completed at the beginning of each period, which include adjustments to
interest expense, amortization expense and income tax expense are as follows:
2002 2001
(unaudited, in thousands)
Net sales $ 280,609 $ 247,840
Net loss available for common
shares $ (962) $ (18,127)
Basic loss per common share $ (0.06) $ (1.51)
The pro forma results of operations are not necessarily indicative of the actual
results of operations that would have occurred had this acquisition been
completed at the beginning of the periods, or of the results which may occur in
the future.
Page 8
The following table summarizes the preliminary allocation of the purchase price
to the assets acquired and liabilities assumed at the date of acquisition.
At July 26, 2002
(in thousands)
Current assets $ 29,762
Property, plant and equipment 5,960
Goodwill 40,364
Purchased in-process research and
development 150
Purchased technologies (eight-year life) 11,648
Other intangible assets (two-year life) 1,876
Other assets 76
Current liabilities (23,694)
--------
Net assets acquired $ 66,142
========
Business Combinations and Goodwill and Other Intangibles
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001. SFAS No. 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives and
requires that these assets be reviewed for impairment at least annually.
Intangible assets with definite lives will continue to be amortized over their
estimated useful lives. SFAS No. 142 was adopted by the Company effective
January 1, 2002; however the provisions that provide for the non-amortization of
goodwill were effective July 1, 2001 for acquisitions completed after the
issuance of SFAS No. 141. Accordingly, the goodwill acquired in connection with
the purchases of DSI, in October 2001, and Condor, in July 2002, was not
amortized.
The Company performed the required impairment tests of goodwill and
indefinite-lived intangible assets as of January 1, 2002 in the second quarter
of 2002 using the two-step process prescribed in SFAS No. 142. The first step
was a review for potential impairment, while the second step measured the amount
of the impairment. The impairment charge resulting from these transitional
impairment tests was reflected as a cumulative effect of a change in accounting
principle as of January 1, 2002. The $3.4 million, net of tax, charge occurred
in the Engineered Materials segment and is comprised of $2.2 million and $1.9
million of impaired goodwill and trademark, respectively, related to Specialty
Plastics, $0.1 million of impaired goodwill related to the acquisition of Zenix,
offset by a tax benefit of $0.8 million.
The changes in the carrying amount of goodwill for the nine months ended
September 28, 2002 are as follows:
Communications Engineered
Defense and Space Products Materials
Segment Segment Segment Total
(in thousands)
Balance as of January 1, 2002 $ 20,600 $ -- $ 2,274 $ 22,874
Impairment loss -- -- (2,274) (2,274)
Acquisition of Condor
Systems, Inc. 36,672 3,692 -- 40,364
-------- -------- -------- --------
Balance as of Sept. 28, 2002 $ 57,272 3,692 -- $ 60,964
======== ======== ======== ========
Page 9
The goodwill impairment loss is comprised of $0.1 million related to the
acquisition of Zenix in December 1998 and $2.2 million related to the
acquisition of Specialty Plastics also in December 1998. In the case of Zenix,
the trend in sales and earnings performance has been lower than expected
resulting in the impairment of the entire goodwill carrying value. In the case
of Specialty Plastics, the fair value of this reporting unit was estimated using
a discounted cash flow analysis, also resulting in an impairment loss of the
entire goodwill carrying value.
Summarized below are intangible assets subject to amortization:
September 28, December 31,
2002 2001
(in thousands)
Capitalized non-compete agreements related
to the acquisition of DSI $ 200 $ 200
Purchased technologies related to the
acquisition of Condor 11,648 --
Other intangible assets related to the
acquisition of Condor 1,876 --
-------- --------
13,724 200
Accumulated amortization (472) --
-------- --------
Net $ 13,252 $ 200
======== ========
The non-compete agreements and the other intangible assets are being amortized
on a straight-line basis over a two-year period. The purchased technologies are
being amortized on a straight-line basis over an eight-year period. The
amortization expense for the nine months ended September 28, 2002 amounted to
$0.5 million.
Amortization expense for 2002, 2003, 2004, 2005, 2006 and thereafter related to
these intangible assets will be $1.1 million, $2.5 million, $2.0 million, $1.5
million, $1.5 million and $5.1 million, respectively.
Since the total trademark carrying amount of $1.9 million was written off in the
three months ended June 29, 2002 as part of the cumulative effect of a change in
accounting principle, there are no intangible assets other than goodwill not
subject to amortization as of September 28, 2002.
Net earnings for the three and nine-months ended September 29, 2001 included
amortization expense of approximately $0.2 million and $0.6 million,
respectively. Excluding these amounts would have resulted in basic net earnings
per common share and diluted net earnings per common share of $0.33 and $0.32,
respectively, for the three months ended September 29, 2001 and $0.84 and $0.80,
respectively, for the nine months ended September 29, 2001.
Restricted Cash
At September 28, 2002, there is restricted cash of $28.2 million which relates
to amounts collateralizing the outstanding letters of credit assumed as part of
the Condor acquisition. As the letters of credit expire or are cancelled,
collateral is released. On November 8, 2002, the Company increased its credit
facility from $69 million to $140 million which will allow the Company to
replace the letters of credit under the new facility and release the restricted
cash.
Page 10
Inventories
Inventories are summarized by major classification as follows:
Sept 28, 2002 Dec. 31, 2001
(in thousands)
Raw materials and supplies $ 4,990 $ 6,539
Work-in-process 28,719 14,680
Finished goods 718 1,718
------- -------
$34,427 $22,937
======= =======
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share.
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29
2002 2001 2002 2001
(in thousands) (in thousands)
Numerator:
Earnings available for common shares
for basic calculation $ 3,371 $ 3,833 $ 5,892 $ 9,577
Effect of dilutive securities:
Convertible preferred shares -- -- -- 6
Convertible subordinated debentures -- 238 -- 822
------- ------- ------- -------
Numerator for diluted
calculation $ 3,371 $ 4,071 $ 5,892 $10,405
======= ======= ======= =======
Denominator:
Weighted average common shares 17,120 12,107 17,050 11,972
Effect of dilutive securities:
Stock options 281 309 312 249
Convertible preferred shares -- -- -- 206
Convertible subordinated debentures -- 1,015 -- 1,167
------- ------- ------- -------
Denominator for diluted
calculation 17,401 13,431 17,362 13,594
======= ======= ======= =======
Convertible Subordinated Notes
In April 2002, the Company completed its offering of $137.8 million of 5.25%
Convertible Subordinated Notes due 2007 and received $133.7 million, net of
commissions paid. Interest payments on these notes are due April 15 and October
15 of each year, commencing on October 15, 2002. The notes are convertible,
unless previously redeemed or repurchased by us, at the option of the holder at
any time prior to maturity, into the Company's common shares at an initial
conversion price of $31.26 per share, subject to adjustment in certain events.
Comprehensive Income
As of September 28, 2002, accumulated other comprehensive loss included in the
accompanying consolidated balance sheet represents additional minimum
liabilities on benefit plans. Comprehensive income, before cumulative effect of
change in accounting principle, for the three-and nine-month periods ended
September 28, 2002
Page 11
was $3,371,000 and $9,255,000. Comprehensive income for the three-and nine-month
periods ended September 29, 2001 was $3,833,000 and $9,863,000.
Business Segments
EDO Corporation is a supplier of highly engineered products for governments and
industry worldwide. The Company's advanced electronic, electromechanical and
information systems and engineered materials are products, the vast majority of
which are critical to the mission success of its customers. The Company has
three reporting segments: Defense, Communications and Space Products, and
Engineered Materials.
The Defense segment provides integrated front-line war fighting systems and
components including radar countermeasures systems, reconnaissance and
surveillance systems, aircraft stores suspension and release systems, airborne
mine countermeasures systems, integrated combat systems and sonar systems, and
professional, operational, technical and information technology services. The
Communications and Space Products segment addresses the needs of the remote
sensing, communication, navigation and electronic warfare industries with
ultra-miniature electronics and systems and a broad line of antennas. The
Engineered Materials segment supplies piezoelectric and advanced composites for
the communication, navigation, chemical, petrochemical, paper and oil
industries, for civilian infrastructure and military applications.
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
(in thousands)
Net sales:
Defense $ 62,760 $ 43,193 $ 166,119 $ 132,379
Communications and Space Products 12,444 8,050 31,560 27,693
Engineered Materials 9,900 9,110 28,053 27,208
--------- --------- --------- ---------
$ 85,104 $ 60,353 $ 225,732 $ 187,280
========= ========= ========= =========
Operating earnings (loss):
Defense $ 6,009 $ 6,565 $ 18,475 $ 16,019
Communications and Space Products 366 (589) (1,667) (1,127)
Engineered Materials 988 1,182 2,135 2,840
--------- --------- --------- ---------
7,363 7,158 18,943 17,732
Net interest expense (1,534) (788) (2,887) (1,828)
Other, net 34 (82) 40 117
--------- --------- --------- ---------
Earnings before income taxes and
cumulative effect of change in
accounting principle $ 5,863 $ 6,288 $ 16,096 $ 16,021
========= ========= ========= =========
A write-off of purchased in-process research and development costs in 2002 and
merger-related costs attributable to the Condor acquisition in 2002 and the
EDO-AIL Merger applicable to 2001 are included in the segments as follows:
Three months ended Nine months ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2002 2001 2002 2001
(in thousands)
Defense $ 354 $ -- $ 354 $ 937
Communications and Space Products -- -- -- 184
Engineered Materials -- -- -- 197
------ ----- ------ ------
Total $ 354 $ -- $ 354 $1,318
====== ===== ====== ======
Page 12
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations" for a disposal of a segment of a business. The Company adopted
SFAS No. 144 as of January 1, 2002. The effect of the adoption of this Statement
was not material to the Company's operating results or financial position.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 nullifies Emerging Issues Task
Force 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)" and requires that a liability be recognized for costs associated
with an exit or disposal activity only when the liability is incurred. SFAS No.
146 also establishes fair value as the objective for initial measurement of
liabilities related to exit or disposal activities. SFAS No. 146 is effective
for exit and disposal activities initiated after December 31, 2002. The Company
has not determined the effect, if any, that the adoption of SFAS No. 146 will
have on the Company's consolidated financial statements.
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following information should be read in conjunction with the Consolidated
Financial Statements as of September 28, 2002.
Three Months Ended September 28, 2002 compared with the Three Months Ended
September 29, 2001
Net sales for the three months ended September 28, 2002 increased to $85.1
million from $60.4 million for the three months ended September 29, 2001. This
increase comprised sales growth of $19.6 million in the Defense segment, $4.4
million in the Communications and Space Products segment and $0.8 million in the
Engineered Materials segment. In the Defense segment, $8.1 million of the
increase was attributable to two months' sales of Condor Systems, Inc.
("Condor") since its acquisition on July 26, 2002. Additionally in the Defense
segment, there were increases in sales of airborne mine countermeasures systems,
aircraft stores suspension and release equipment, electronic warfare systems
(attributable primarily to the Universal Exciter Upgrade program), sonar
systems, and technology services. The increase in technology services was
attributable in part to the acquisition of Dynamic Systems, Inc.("DSI"), in
October 2001. These increases were partially offset by decreases in sales of
combat systems. In the Communications and Space Products segment, $2.3 million
of the increase was due to sales of electronic protection systems from the
aforementioned acquisition of Condor. Also in this segment, increases in sales
of antenna products were offset by lower sales of space sensor communication
products and interference cancellation products. In the Engineered Materials
segment, there were increases in sales of electro-ceramic products and advanced
fiber composite structural products.
Operating earnings for the three months ended September 28, 2002, before the
write-off of $0.2 million of purchased in-process research and development costs
and $0.2 million of other merger-related costs associated with the Condor
acquisition, were $7.7 million or 9.1% of net sales compared to $7.2 million or
11.9% of net sales for the three months ended September 29, 2001. Operating
earnings increased as a result of the aforementioned increases in sales,
including final deliveries on Lots 4 and 5 of the Universal Exciter Upgrade
program resulting in additional profit based on final costs at completion
compared to prior estimates.
Page 13
These increases in operating earnings were partially offset by the recording of
pension expense of $1.0 million in the three months ended September 28, 2002
compared to pension income of $0.7 million in the three months ended September
29, 2001. In addition, compensation expense related to the Company's Employee
Stock Ownership Plan ("ESOP") increased to $0.9 million in the three months
ended September 28, 2002 compared to $0.3 million in the three months ended
September 29, 2001. Pension and ESOP compensation expense/income are allocated
between cost of sales and selling, general and administrative expense. Operating
earnings for the three months ended September 28, 2002 also reflect $0.4 million
of amortization expense related to the intangible assets associated with the
Condor acquisition.
Selling, general and administrative expenses for the three months ended
September 28, 2002 increased to $12.8 million or 15.0% of net sales from $7.8
million or 12.9% of net sales for the three months ended September 29, 2001.
This increase is primarily attributable to the aforementioned change in pension
expense in 2002 versus pension income in 2001, the increase in ESOP compensation
expense and the acquisition of Condor.
Company-sponsored research and development expenditures of $2.1 million in the
three months ended September 28, 2002 increased slightly from $1.9 million in
the three months ended September 29, 2001.
For the three months ended September 28, 2002, net earnings available for common
shares were $3.4 million or $0.19 per diluted common share on 17.4 million
diluted shares compared to $3.8 million or $0.30 per diluted common share on
13.4 million diluted shares for the three months ended September 29, 2001. Net
earnings for the three months ended September 28, 2002 were impacted by interest
expense incurred on the newly-issued Convertible Subordinated Notes, as
discussed below.
Interest expense for the three months ended September 28, 2002 increased to $2.0
million from $0.9 million for the three months ended September 29, 2001 due to
the issuance of $137.8 million of 5.25% Convertible Subordinated Notes on April
2, 2002. Interest payments are due April 15 and October 15 of each year,
commencing on October 15, 2002. Interest expense also includes amortization of
debt issuance costs related to the Convertible Subordinated Notes.
Income tax expense for the three months ended September 28, 2002 reflects our
estimated effective rate of 43% for the year ending December 31, 2002. This
compares to an effective rate of 39% for the three months ended September 29,
2001. This increase in the effective rate is primarily attributable to the
non-deductible portion of the non-cash ESOP compensation expense, which is based
on the market value of common shares committed-to-be-released.
Nine Months Ended September 28, 2002 compared with the Nine Months Ended
September 29, 2001
Net sales for the nine months ended September 28, 2002 increased to $225.7
million from $187.3 million for the nine months ended September 29, 2001. This
increase comprised sales growth of $33.7 million in the Defense segment, $3.9
million in the Communications and Space Products segment, and $0.8 million in
the Engineered Materials segment. In the Defense segment, $8.1 million of the
increase was attributable to sales of Condor since its acquisition on July 26,
2002. Additionally in the Defense segment, there were increases in sales of
aircraft stores suspension and release equipment, electronic warfare systems
(attributable in part to the Universal Exciter Upgrade program), sonar systems,
and technology services. The increase in technology services was attributable in
part to the acquisition of DSI in October 2001. In the Communications and Space
Products segment, $2.3 million of the increase was attributable to the
aforementioned acquisition of Condor. Also in this segment, increases in sales
of antenna products were partially offset by lower sales of space sensor
communication products.
Page 14
Operating earnings for the nine months ended September 28, 2002, before the
write-off of $0.2 million of purchased in-process research and development and
$0.2 million of other merger-related costs, were $19.3 million or 8.5% of net
sales compared to $19.1 million (before considering one-time EDO-AIL
merger-related costs of $1.3 million) or 10.2% of net sales for the nine months
ended September 29, 2001. Operating earnings in 2002 were impacted by losses in
the Communications and Space Products segment, which primarily related to a $1.5
million charge taken in the three months ended March 30, 2002 to provide for
manufacturing inefficiencies resulting from lowered production levels of Ku-Band
down converters. The lowered production levels resulted from a primary customer
decreasing its forecast of the quantity of Ku-Band down converters it would
purchase from us in 2002. In addition, the Company recorded pension expense of
$3.0 million and ESOP compensation expense of $3.2 million in the nine months
ended September 28, 2002 compared to pension income of $2.0 million and ESOP
compensation expense of $1.4 million in the nine months ended September 29,
2001. Pension and ESOP compensation expense/income are allocated between cost of
sales and selling, general and administrative expense. Operating earnings for
the nine months ended September 28, 2002 also reflect $0.4 million of
amortization expense related to the intangible assets associated with the Condor
acquisition.
Selling, general and administrative expenses for the nine months ended September
28, 2002 increased to $31.1 million or 13.8% of net sales from $24.1 million or
12.9% of net sales for the nine months ended September 29, 2001. This increase
is principally attributable to the aforementioned change in pension expense
versus pension income and the increase in ESOP compensation expense.
Company-sponsored research and development expenditures of $5.9 million in the
nine months ended September 28, 2002 are about the same level as expenditures in
the nine months ended September 29, 2001.
For the nine months ended September 28, 2002, net earnings available for common
shares before the cumulative effect of a change in accounting principle were
$9.3 million or $0.53 per diluted common share on 17.4 million diluted shares
compared to $9.6 million or $0.77 per diluted common share on 13.6 million
diluted shares for the nine months ended September 29, 2001. Net earnings for
the nine months ended September 28, 2002 were also impacted by interest expense
incurred on the newly-issued Convertible Subordinated Notes, as discussed below.
Interest expense for the nine months ended September 28, 2002 increased to $4.2
million from $2.5 million for the nine months ended September 29, 2001. Interest
expense for the nine months ended September 28, 2002 reflects accruals for
interest on the 5.25% Convertible Subordinated Notes issued in April 2002 and
the amortization of the related debt issuance costs. Interest expense for the
nine months ended September 29, 2001 consists primarily of interest on the 7%
Convertible Subordinated Debentures, which were converted into common shares in
the fourth quarter of 2001.
Income tax expense for the nine months ended September 28, 2002 reflects our
estimated effective rate of 43% for the year ending December 31, 2002. This
compares to an effective rate of 39% for the nine months ended September 29,
2001. This increase in the effective rate is primarily attributable to the
non-deductible portion of the non-cash ESOP compensation expense, which is based
on the market value of common shares committed-to-be-released.
Net earnings for the nine months ended September 28, 2002 reflect a $3.4 million
cumulative effect of a change in accounting principle charge which was recorded
as of January 1, 2002, and is shown net of a tax benefit of $0.8 million on the
statement of earnings. This charge pertains to the impairment of goodwill and a
trademark resulting from impairment tests performed in the second quarter of
2002, as required under Statement of Financial Accounting Standard ("SFAS") No.
142. The impairment occurred in the Engineered Materials segment and is
comprised of the following: $2.2 million of goodwill related to the acquisition
of Specialty Plastics, $1.9 million related to the trademark at Specialty
Plastics, and $0.1 million of goodwill related to the acquisition of Zenix.
Page 15
Liquidity and Capital Resources
Our cash, cash equivalents and marketable securities increased to $122.1 million
at September 28, 2002 from $58.0 million at December 31, 2001. This increase was
due to the issuance of $137.8 million of Convertible Subordinated Notes, less
commissions of $4.1 million which were capitalized in other assets, resulting in
$133.7 of net proceeds and $18.2 million of cash provided by operations. These
increases were offset by $61.9 million paid for the acquisition of Condor, $3.5
million for transaction costs related to the acquisition, $4.1 million for
purchases of capital equipment, and $1.8 million for payment of common
dividends.
Restricted cash of $28.2 million represents collateral backing 105% of
outstanding letters of credit assumed with the acquisition of Condor. As the
letters of credit expire or are cancelled, collateral is released. On November
8, 2002, the Company increased its credit facility from $69 million to $140
million, which will allow for the issuance of letters of credit under the new
facility and release of the restricted cash.
Accounts receivable increased to $98.4 million at September 28, 2002 from $83.4
million at December 31, 2001, primarily due to the acquisition of Condor.
Excluding the effect of the Condor acquisition, accounts receivable increased
$1.1 million since December 31, 2001.
Inventories increased to $34.4 million at September 28, 2002 from $22.9 million
at December 31, 2001. Excluding the effect of the Condor acquisition,
inventories decreased by $2.2 million since December 31, 2001 due primarily to
sales.
The notes receivable of $3.1 million at September 28, 2002 (of which $0.4
million is in current assets) are comprised of a note related to the sale of
property at Deer Park in June 2000, which had a balance at September 28, 2002 of
$1.1 million, and $2.0 million in notes related to the sale of the Company's
former College Point facility in January 1996. The Deer Park facility note is
due in monthly installments through July 2015 and bears interest at a rate of
7.5% per annum. The College Point notes are due in annual amounts through
September 2004 with a final payment of $1.3 million due on December 31, 2004 and
bear interest at 7% per annum. The latter notes receivable are secured by a
mortgage on the facility.
Contract advances increased to $18.8 million at September 28, 2002 from $16.7
million at December 31, 2001 attributable to advances associated with the
acquisition of Condor offset by the use of these advances for costs incurred on
foreign contracts. In prior years, we were awarded several large foreign
contracts and received the associated advances. This year, as we continue to
perform the work and recognize revenues under those contracts, the related
advances are reduced.
We have a $69.0 million long-term credit facility with a consortium of banks
co-led by Mellon Bank and Citibank. The credit facility includes $19.0 million
of five-year term debt, which was paid in full in the fourth quarter of 2001,
and $50.0 million in revolving debt. At September 28, 2002 there were no
borrowings under the revolving credit facility of $50.0 million, but there were
outstanding letters of credit under this facility of $31.1 million, leaving
available borrowing capacity of $18.9 million. At September 28, 2002, the
Company was in compliance with its debt covenants. On November 8, 2002, the
Company increased its credit facility from $69 million to $140 million.
In April 2002, we completed our offering of $137.8 million of 5.25% Convertible
Subordinated Notes due 2007. We received $133.7 million, net of commissions
paid. Interest payments on these notes are due April 15 and October 15 of each
year, commencing on October 15, 2002. The notes are convertible, unless
previously redeemed or repurchased by us, at the option of the holder at any
time prior to maturity, into our common shares at an initial conversion price of
$31.26 per share, subject to adjustment in certain events.
Capital expenditures for the nine months ended September 28, 2002 decreased to
$4.1 million from $11.1 million for the nine months ended September 29, 2001.
In 2001 there were significant capital expenditures at the Company's Deer Park
facility.
Page 16
We conduct a significant amount of our business with the United States
Government. Although there are currently no indications of a significant change
in the status of government funding of certain programs, should this occur, our
results of operations, financial position and liquidity could be materially
affected. Such a change could have a significant impact on our profitability and
our stock price. This could affect our ability to acquire additional funds from
our revolving credit facility due to covenant restrictions or from other
sources.
We believe that we have adequate liquidity and sufficient capital to fund our
currently anticipated requirements for working capital, capital expenditures,
research and development expenditures and principal and interest payments. We
continue to focus on positioning ourselves to be a significant player in the
consolidation of first-tier defense suppliers and, to that end, have actively
sought candidates for strategic acquisitions. Future acquisitions may be funded
from any of the following sources: cash on hand; borrowings under our credit
agreement; issuance of our common stock or other equity securities; and/or
convertible or other debt offerings.
We have commitments under a note payable and facility and equipment operating
leases that will be funded from operating sources. We also have commitments
under letters of credit of $57.9 million at September 28, 2002 related primarily
to foreign contracts. Of the outstanding letters of credit, $26.8 million were
assumed as a result of the acquisition of Condor in July 2002 and were cash
collateralized, resulting in restricted cash on the balance sheet at September
28, 2002. We also have commitments under advance payment and performance bonds
($15.9 million at September 28, 2002, which were subsequently reduced to $4.0
million) related to foreign contracts. We do not expect to make payments under
these letters of credit or bonds since these obligations are removed as we
perform under the related contracts. The backlog of unfilled orders at September
28, 2002 increased to $407.5 million from $294.8 million at December 31, 2001.
Critical Accounting Policies
Revenue Recognition
We record revenues and profits on substantially all of our contracts using
percentage of completion methods of accounting. As a result, revisions made to
our estimates of total costs to complete our contracts are recorded in the
period in which the conditions that dictate such revisions become known and can
be estimated. We believe that our profits are fairly stated. Revisions to
estimates do occur and at times are material to our results of operations and
financial position.
Inventory
We manufacture certain products prior to receiving firm contracts in
anticipation of future demand. These products often relate to a specific
technology or application and may not have alternative uses. We believe that
sufficient markets exist and that these products will ultimately be sold.
New Accounting Standards
Business Combinations and Goodwill and Other Intangibles
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also includes guidance
on the initial recognition and measurement
Page 17
of goodwill and other intangible assets arising from business combinations
completed after June 30, 2001. SFAS No. 142 prohibits the amortization of
goodwill and intangible assets with indefinite useful lives and requires that
these assets be reviewed for impairment at least annually. Intangible assets
with definite lives will continue to be amortized over their estimated useful
lives. SFAS No. 142 was adopted by the Company effective January 1, 2002;
however the provisions that provide for the non-amortization of goodwill were
effective July 1, 2001 for acquisitions completed after the issuance of SFAS No.
141. Accordingly, the goodwill acquired in connection with the purchase of DSI
in October 2001, and Condor in July 2002, was not amortized.
The Company performed the required impairment tests of goodwill and indefinite
lived intangible assets as of January 1, 2002 in the second quarter of 2002
using the two-step process prescribed in SFAS No. 142. The first step was a
review for potential impairment, while the second step measured the amount of
the impairment. The impairment charge resulting from these transitional
impairment tests was reflected as a cumulative effect of a change in accounting
principle as of January 1, 2002. The $3.4 million, net of tax, charge occurred
in the Engineered Materials segment and is comprised of $2.2 million and $1.9
million of impaired goodwill and trademark, respectively, related to Specialty
Plastics, $0.1 million of impaired goodwill related to the acquisition of Zenix,
offset by a tax benefit of $0.8 million.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations" for a disposal of a segment of a business. The Company adopted
SFAS 144 as of January 1, 2002. The effect of the adoption of this Statement was
not material to the Company's operating results or financial position.
On July 30, 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". SFAS No. 146 requires that a liability be
recognized for costs associated with an exit or disposal activity only when the
liability is incurred. SFAS No. 146 also establishes fair value as the objective
for initial measurement of liabilities related to exit or disposal activities.
SFAS No. 146 is effective for exit and disposal activities initiated after
December 31, 2002. The Company has not determined the effect, if any, that the
adoption of SFAS No. 146 will have on the Company's consolidated financial
statements.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Statements in this quarterly report and in oral statements that may be made by
representatives of the Company relating to plans, strategies, economic
performance and trends and other statements that are not descriptions of
historical facts may be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27(a) of the
Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements are inherently subject to risks and uncertainties,
and actual results could differ materially from those currently anticipated due
to a number of factors, which include but are not limited to the following for
each of the types of information noted below.
U.S. and international military program sales, follow-on procurement, contract
continuance, and future program awards, upgrades and spares support are subject
to: U.S. and international military budget constraints and determinations; U.S.
congressional and international legislative body discretion; U.S. and
international government administration policies and priorities; changing world
military threats,
Page 18
strategies and missions; competition from foreign manufacturers of platforms and
equipment; NATO country determinations regarding participation in common
programs; changes in U.S. and international government procurement timing,
strategies and practices; and the general state of world military readiness and
deployment.
Commercial satellite programs and equipment sales, follow-on procurement,
contract continuance and future program awards are subject to: establishment and
continuance of various consortiums for satellite constellation programs; delay
in launch dates due to equipment, weather or other factors beyond the control of
the Company; and development of sufficient customer base to support a particular
satellite constellation program.
Commercial product sales are subject to: success of product development programs
currently underway or planned; competitiveness of current and future product
production costs and prices and market and consumer base development of new
product programs.
Achievement of margins on sales, earnings and cash flow can be affected by:
unanticipated technical problems; government termination of contracts for
convenience; decline in expected levels of sales; underestimation of anticipated
costs on specific programs; the ability to effect acquisitions; and risks
inherent in integrating recent acquisitions into the Company's overall
structure. Expectations of future Federal income tax rates can be affected by a
variety of factors, including amounts of profits relating to foreign sales.
The Company has no obligation to update any forward-looking statements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The information called for by this item is provided under Item 2 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Within the 90 day period prior to filing this Quarterly Report on Form 10-Q, EDO
carried out an evaluation, under the supervision and with the participation of
its management, including its Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of EDO's disclosure
controls and procedures. Based upon the evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the design and operation of these
disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports that EDO files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange Commission
rules and forms.
Changes in internal controls
There were no significant changes in EDO's internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation.
Page 19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Exhibits to this Report are listed in the Exhibit Index
appearing on page 23 hereof.
(b) Reports on Form 8-K
On August 5, 2002 the Corporation filed a Current Report on Form 8-K to
report the acquisition of substantially all of the assets of Condor
Systems, Inc. and CEI Systems, Inc. by a wholly-owned subsidiary of the
Company.
On August 7, 2002 the Corporation filed a Current Report on Form 8-K
furnishing Statements under Oath of its Principal Executive Officer and
Principal Financial Officer regarding facts and circumstances related to
Exchange Act filings.
On October 9, 2002, the Corporation filed a Current Report on Form
8-K/A with exhibits relating to the Condor acquisition.
Page 20
SIGNATURE
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.
EDO Corporation
-----------------------------------------
(Registrant)
by: /s/ D.L. Reed
-----------------------------------------
D.L. Reed - Vice President- Finance
(Principal Financial Officer)
Date: November 12, 2002
Page 21
CERTIFICATIONS
I, James M. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDO 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 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.
Date: November 12, 2002
/s/ James M. Smith
-------------------------------
James M. Smith
Chairman, President and Chief Executive Officer
Page 22
CERTIFICATIONS
I, Darrell L. Reed, certify that:
1. I have reviewed this quarterly report on Form 10-Q of EDO 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 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.
Date: November 12, 2002
/s/ Darrell L. Reed
-------------------------------------------
Darrell L. Reed
Vice President-Finance, Treasurer and Chief
Financial Officer
Page 23
Exhibit Index
Exhibit Description
- ------- -----------
3(ii) By-Laws Restated As Amended Through October 1, 2002