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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file number
September 30, 2002 0-31164
PREFORMED LINE PRODUCTS COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Ohio 34-067689
- ------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
660 Beta Drive
Mayfield Village, Ohio 44143
- --------------------------------------- -----------------------------------
(Address of Principal Executive Office) (Zip Code)
(440) 461-5200
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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
---- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
---- -----
The number of common shares, $2 par value, outstanding as of October 31, 2002:
5,772,710.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PREFORMED LINE PRODUCTS COMPANY
INDEX TO FINANCIAL STATEMENTS
PREFORMED LINE PRODUCTS COMPANY:
Consolidated Balance Sheets as of September 30, 2002 (unaudited)
and December 31, 2001...........................................3
Statements of Consolidated Income for the Three and Nine Months
Ended September 30, 2002 and 2001 (unaudited)...................4
Statements of Consolidated Cash Flows for the Nine Months
Ended September 30, 2002 and 2001 (unaudited)...................5
Notes to Consolidated Financial Statements....................................6
PREFORMED LINE PRODUCTS COMPANY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
September 30, December 31,
Thousands of dollars, except share data 2002 2001
------------- ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 10,187 $ 8,409
Accounts receivable, less allowance of $2,662 ($813 in 2001) 27,105 29,251
Inventories - net 36,232 38,637
Deferred income taxes 3,750 3,206
Prepaids and other 5,184 3,727
--------- ---------
TOTAL CURRENT ASSETS 82,458 83,230
Property and equipment - net 49,534 54,206
Investments in foreign joint ventures 8,202 9,976
Deferred income taxes 1,238 1,435
Goodwill, patents and other intangibles 7,290 7,410
Other 4,049 4,933
--------- ---------
TOTAL ASSETS $ 152,771 $ 161,190
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes payable to banks $ 3,173 $ 1,201
Trade accounts payable 11,047 9,560
Accrued compensation and amounts withheld from employees 3,691 3,585
Accrued expenses and other liabilities 4,291 3,890
Accrued profit-sharing and pension contributions 3,738 4,130
Dividends payable 1,155 1,151
Income taxes 523 923
Current portion of long-term debt 1,755 13,198
--------- ---------
TOTAL CURRENT LIABILITIES 29,373 37,638
Long-term debt, less current portion 6,621 2,341
Deferred income taxes 866 431
SHAREHOLDERS' EQUITY
Common shares - $2 par value, 15,000,000 shares authorized,
5,772,710 and 5,757,030 issued and outstanding, net of
389,188 and 398,618 treasury shares at par 11,545 11,514
Retained earnings 126,440 128,721
Accumulated foreign currency translation adjustment (22,074) (19,455)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 115,911 120,780
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 152,771 $ 161,190
========= =========
See notes to consolidated financial statements.
3
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER, 30 2002 AND 2001
Thousands, except per share data Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
-------- -------- --------- ---------
(Unaudited) (Unaudited)
Net sales $ 41,587 $ 49,127 $ 130,449 $ 152,063
Cost of products sold 30,054 35,609 90,420 106,354
-------- -------- --------- ---------
GROSS PROFIT 11,533 13,518 40,029 45,709
Costs and expenses
Selling 6,131 6,196 17,446 18,170
General and administrative 6,726 4,993 17,002 15,959
Research and engineering 1,370 1,498 4,504 4,617
Other operating (income) expenses (49) 995 115 2,010
-------- -------- --------- ---------
14,178 13,682 39,067 40,756
Royalty income - net (217) (414) (1,177) (1,614)
-------- -------- --------- ---------
OPERATING INCOME (LOSS) (2,428) 250 2,139 6,567
Other income (expense)
Equity in net income of foreign joint ventures 122 253 325 353
Interest income 73 67 193 612
Interest expense (162) (336) (537) (1,157)
Other expense (50) (50) (150) (150)
-------- -------- --------- ---------
(17) (66) (169) (342)
-------- -------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (2,445) 184 1,970 6,225
Income taxes (benefit) (346) 26 1,031 2,076
-------- -------- --------- ---------
NET INCOME (LOSS) $ (2,099) $ 158 $ 939 $ 4,149
======== ======== ========= =========
Net income (loss) per share - basic and diluted $ (0.37) $ 0.03 $ 0.16 $ 0.72
======== ======== ========= =========
Cash dividends declared per share $ 0.20 $ 0.20 $ 0.60 $ 0.55
======== ======== ========= =========
Average number of shares outstanding - basic 5,769 5,757 5,764 5,754
======== ======== ========= =========
Average number of shares outstanding - diluted 5,769 5,779 5,791 5,762
======== ======== ========= =========
See notes to consolidated financial statements.
4
PREFORMED LINE PRODUCTS COMPANY
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
Thousands of dollars NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2002 2001
------- -------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 939 $ 4,149
Adjustments to reconcile net income to net cash provided by operations
Depreciation and amortization 6,475 7,241
Noncash abandonment/realignment charges 3,301 2,668
Deferred income taxes (479) 149
Dividends received from joint ventures - net of equity in earnings 1,066 (270)
Loss (gain) on sales of property and equipment (32) (17)
Changes in operating assets and liabilities
Receivables 986 (3,035)
Inventories 295 1,168
Trade payables and accruals 1,606 896
Income taxes (598) (2,219)
Other - net 301 (2,483)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,860 8,247
INVESTING ACTIVITIES
Capital expenditures (3,627) (4,463)
Business acquisitions (38) (761)
Proceeds from the sale of property and equipment 1,010 81
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,655) (5,143)
FINANCING ACTIVITIES
Increase in notes payable to banks 1,967 947
Proceeds from the issuance of debt 11,163 12,800
Payments of debt (17,977) (14,217)
Dividends paid (3,459) (2,880)
Issuance (purchase) of common shares 272 (156)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (8,034) (3,506)
Effects of exchange rate changes on cash and cash equivalents (1,393) (1,706)
------- -------
Increase (decrease) in cash and cash equivalents 1,778 (2,108)
Cash and cash equivalents at beginning of year 8,409 9,470
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,187 $ 7,362
======== =======
See notes to consolidated financial statements.
5
PREFORMED LINE PRODUCTS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 2002
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, these consolidated financial
statements do not include all of the information and notes required by
accounting principles generally accepted in the United States of America for
complete financial statements. The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes. Actual
results could differ from these estimates. However, in the opinion of
management, these consolidated financial statements contain all estimates and
adjustments required to fairly present the financial position, results of
operations, and changes in cash flows for the interim periods. Operating results
for the three-month and nine-month periods ended September 30, 2002 are not
necessarily indicative of the results to be expected for the year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes included in the Company's 2001 Form 10-K filed with the
Securities and Exchange Commission.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements. The accompanying unaudited financial statements do not
include all of the information and notes required by accounting principles
generally accepted in the United States of America for complete financial
statements. Therefore, the financial statements should be read in conjunction
with the 2001 Annual Report on Form 10-K.
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentation.
NOTE B - SUPPLEMENTAL INFORMATION
Inventories
September 30, December 31,
------------- ------------
Dollars in thousands 2002 2001
-------- --------
Finished goods $ 16,530 $ 17,885
Work-in-process 1,323 1,022
Raw material 18,379 19,730
-------- --------
$ 36,232 $ 38,637
======== ========
Comprehensive income
The components of comprehensive income are as follows:
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
Dollars in thousands 2002 2001 2002 2001
-------- ------ ------ -------
Net income $ (2,099) $ 158 $ 939 $ 4,149
Other comprehensive income:
Foreign currency adjustment (2,099) (1,140) (2,619) (4,237)
-------- ------- ------- -------
Comprehensive income $ (4,198) $ (982) $(1,680) $ (88)
======== ======= ======= =======
6
NOTE C - COMPUTATION OF EARNINGS PER SHARE
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
Dollars and shares in thousands, except per share data 2002 2001 2002 2001
------ ------ ------ ------
Numerator
Net income (loss) $ (2,099) $ 158 $ 939 $ 4,149
======== ===== ===== =======
Denominator
Determination of shares
Weighted average common shares outstanding 5,769 5,757 5,764 5,754
Dilutive effect - employee stock options -- 22 27 8
-------- ----- ----- -------
Diluted weighted average common shares
outstanding 5,769 5,779 5,791 5,762
======== ===== ===== =======
Earnings per common share
Basic $ (0.37) $ 0.03 $ 0.16 $ 0.72
Diluted $ (0.37) $ 0.03 $ 0.16 $ 0.72
NOTE D - NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests. Other
intangibles will continue to be amortized over their useful lives and will be
assessed for impairment under SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
The Company has adopted SFAS No. 142 as of January 1, 2002. Consequently, the
Company has discontinued the amortization of goodwill during 2002. In accordance
with the Statement, the Company has completed the impairment test for goodwill,
and has determined that no adjustment to the carrying value of goodwill is
required. Under this Statement, goodwill will continue to be tested annually for
impairment or if events or changes in circumstances indicate that the goodwill
of a reporting unit might be impaired. The aggregate amortization expense for
other intangibles with definite lives for the three and nine months ended
September 30, 2002 was $113,000 and $249,000, respectively, and amortization
expense is estimated to be $368,000 annually for the next five years. The
Company does not have any intangibles with indefinite lives except for goodwill.
The following table sets forth the carrying value and accumulated amortization
of goodwill and intangibles by segment at September 30, 2002. The second table
includes a reconciliation of reported net income to adjusted net income after
goodwill amortization for the three and nine months ending September 30, 2002
and 2001.
Dollars in thousands As of September 30, 2002
----------------------------------------------------
Domestic Foreign Total
-------- ------- -----
Amortized intangible assets
Gross carrying amount - patents and other intangibles $ 4,730 $ 275 $ 5,005
Accumulated amortization - patents and other intangibles (841) (60) (901)
------- ----- -------
Total $ 3,889 $ 215 $ 4,104
======= ===== =======
Unamortized intangible assets
Gross carrying amount - goodwill $ 9,047 $ 918 $ 9,965
Accumulated amortization - goodwill (6,778) (1) (6,779)
------- ----- -------
Total $ 2,269 $ 917 $ 3,186
======= ===== =======
7
Reconciliation of reported net income to adjusted net income.
For the three months ended September 30 For the nine months ended September 30,
--------------------------------------- ---------------------------------------
Thousands of dollars, except per share data 2002 2001 2002 2001
-------- ------- ------- --------
Reported net income (loss) $ (2,099) $ 158 $ 939 $ 4,149
Add back: Goodwill amortization,
after income tax -- 269 -- 555
-------- ------- ------- --------
Adjusted net income (loss) $ (2,099) $ 427 $ 939 $ 4,704
======== ======= ======= ========
Basic earnings per share:
Reported net income (loss) $ (0.37) $ 0.03 $ 0.16 $ 0.72
Goodwill amortization, after income tax -- 0.05 -- 0.10
-------- ------- ------- --------
Adjusted net income (loss) $ (0.37) $ 0.08 $ 0.16 $ 0.82
======== ======= ======= ========
Diluted earnings per share:
Reported net income (loss) $ (0.37) $ 0.03 $ 0.16 $ 0.72
Goodwill amortization, after income tax -- 0.05 -- 0.10
-------- ------- ------- --------
Adjusted net income (loss) $ (0.37) $ 0.08 $ 0.16 $ 0.82
======== ======= ======= ========
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, effective for exit or disposal activities initiated
after December 31, 2002. This Statement nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue No. 94-3, a liability for exit costs was recognized at the
date of the entity's commitment to an exit plan. This Statement also establishes
that fair value is the objective for initial measurement of the liability. The
Company does not expect the adoption of this Statement to have a material impact
on its financial statements and results of operations.
8
NOTE E - BUSINESS SEGMENTS
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
Dollars in thousands 2002 2001 2002 2001
-------- -------- --------- ---------
Net sales
Domestic $ 23,499 $ 27,939 $ 75,747 $ 87,463
Foreign 18,088 21,188 54,702 64,600
-------- -------- --------- ---------
Total net sales $ 41,587 $ 49,127 $ 130,449 $ 152,063
======== ======== ========= =========
Intersegment sales
Domestic $ 592 $ 991 $ 1,802 $ 3,560
Foreign 306 58 690 435
-------- -------- --------- ---------
Total intersegment sales $ 898 $ 1,049 $ 2,492 $ 3,995
======== ======== ========= =========
Operating income (loss)
Domestic - before non-recurring charge $ 1,175 $ 1,370 $ 4,458 $ 4,201
Domestic - non-recurring charge -- (2,601) -- (2,601)
Foreign - before non-recurring charge 1,085 2,001 2,369 5,487
Foreign - non-recurring charge (4,688) (520) (4,688) (520)
-------- -------- --------- ---------
(2,428) 250 2,139 6,567
Equity in net income of joint ventures 122 253 325 353
Interest income
Domestic -- 5 -- 251
Foreign 73 62 193 361
-------- -------- --------- ---------
73 67 193 612
Interest expense
Domestic 66 225 219 818
Foreign 96 111 318 339
-------- -------- --------- ---------
162 336 537 1,157
Other (expense) (50) (50) (150) (150)
-------- -------- --------- ---------
Income (loss) before income taxes $ (2,445) $ 184 $ 1,970 $ 6,225
======== ======== ========= =========
September 30, December 31,
2002 2001
-------------- -------------
Identifiable assets
Domestic $ 80,012 $ 85,934
Foreign 64,557 65,280
-------- --------
144,569 151,214
Corporate 8,202 9,976
-------- --------
Total assets $152,771 $161,190
======== ========
NOTE F - INCOME TAXES
In accordance with the applicable tax laws in a foreign jurisdiction, the
Company is entitled to a preferential tax rate of 0% for the first two profit
making years after utilization of any tax loss carryforwards, which may be
carried forward for five years; and a 50% tax reduction for the succeeding three
years. The aggregate tax and per-share effect was $150,000, or $.03 per share,
for the three-month period and $450,000, or $.08 per share, for the nine-month
period ending September 30, 2002, while aggregate tax and per-share effect was
$180,000, or $.03 per share, for the three-month period and $230,000, or $.04
per share, for the nine-month period ending September 30, 2001.
9
NOTE G - BUSINESS ABANDONMENT CHARGES
During the third quarter of 2002, the Company recorded a charge to write off
certain assets and to record severance payments related to closing its data
communications operations in Europe. This entails winding down a manufacturing
operation, closing five sales offices, terminating leases and reducing personnel
by approximately 130. This action was taken as a result of the continuing
decline in the global telecommunication and data communication markets and after
failing to reach agreement on an acceptable selling price on product supplied to
a significant foreign customer. The Company incurred a pre-tax charge of $4.7
million for these activities. An analysis of the abandonment charges follows:
(Dollars in Thousands) Ending
Abandonment Cash Accrual
Description Charges Payments Balance
- ----------------------------------------------------------------------- ----------- -------- -------
Write-off of inventories, net of currency translation effect, included
in Cost of Products Sold $ 2,110
Write-off of receivables, net of currency translation effect, included
in Costs and expenses 1,160
Severance and other related expenses included in Cost of Products Sold
and Costs and expenses 1,387 $ 1,387
Impaired assets 31
--------- -------- -------
Pre-tax charge $ 4,688 $ -- $ 1,387
--------- -------- -------
Impaired assets include the write-off of costs capitalized at the time certain
assets were acquired and relate to the abandoned assets. Severance and other
costs relate to the reduction of approximately 130 employees including; payment
for severance, earned vacation, costs of exiting leased office space and the
termination of other contractual obligations. Severance and employee related
costs are anticipated to be paid by June 30, 2003. Inventory write-offs relate
to excess product that is being written down to net realizable value as a result
of the Company's decision to exit this market. Accounts receivable write-offs
represent bad debts directly attributable to the decision to exit the data
communication market and result from balancing the reward of continuing
collections with the cost of such pursuit.
Net sales for these operations for the three months ended September 30, 2002
were $4.3 million generating an operating loss of $5.0 million or $.3 million
excluding the abandonment charge. Net sales were $5.1 million for the same
period in 2001 generating an operating loss of $.6 million or $.1 million
excluding the realignment charge. Net sales for the nine months ended September
30, 2002 were $12.1 million generating an operating loss of $5.8 million or $1.1
million excluding the abandonment charge compared to $15.5 million in net sales
for the same period in 2001 generating an operating loss of $.9 million or $.4
million excluding the realignment charge.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the Company's results of operations for the
three-month and nine-month periods ended September 30, 2002 and 2001:
Three months ended September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2002 2001 2002 2001
Dollars in thousands, except per share data
NET SALES AND INCOME
Net sales $ 41,587 $ 49,127 $ 130,449 $ 152,063
Operating income (loss) (2,428) 250 2,139 6,567
Income before income taxes (2,445) 184 1,970 6,225
Net income (2,099) 158 939 4,149
PER SHARE AMOUNTS
Net income - basic $ (0.37) $ 0.03 $ 0.16 $ 0.72
Net income - diluted $ (0.37) $ 0.03 $ 0.16 $ 0.72
Dividends declared $ 0.20 $ 0.20 $ 0.60 $ 0.55
BUSINESS REALIGNMENT AND ABANDONMENT CHARGES TO OPERATIONS
During the third quarter of 2002, the Company recorded a charge to write off
certain assets and to record severance payments related to closing its data
communications operations in Europe. This entails winding down a manufacturing
operation, closing five sales offices, terminating leases and reducing personnel
by approximately 130. This action was taken as a result of the continuing
decline in the global telecommunication and data communication markets and after
failing to reach agreement on an acceptable selling price on products supplied
to a significant foreign customer. As a result of these actions, the Company
recorded a pre-tax charge of $4.7 million ($3.3 million after tax) consisting
of: $2.1 million of inventory write-offs (included in Cost of products sold);
$1.2 million write-down of receivables (included in General and administrative
expenses); $1.4 million in severance payments, lease cancellations and related
expenses (included in Cost of products sold and Costs and expenses). The latter
category involves the outlay of cash, which is expected to be completed by June
30, 2003.
Net sales for these operations for the three months ended September 30, 2002
were $4.3 million generating an operating loss of $5.0 million, or $.3 million
excluding the abandonment charge. Net sales were $5.1 million for the same
period in 2001 generating an operating loss of $.6 million, or $.1 million
excluding the realignment charge. Net sales for the nine months ended September
30, 2002 were $12.1 million generating an operating loss of $5.8 million, or
$1.1 million excluding the abandonment charge compared to $15.5 million in net
sales for the same period in 2001 generating an operating loss of $.9 million,
or $.4 million excluding the realignment charge. The Company anticipates
eliminating approximately a $1.0 million annual loss from closing these
operations. In addition, the Company has announced that it is pursuing strategic
alternatives with respect to its domestic data communication operations and has
engaged a third party advisor for this project.
During the third quarter ended September 30, 2001, the Company recorded business
realignment charges to write off assets and to record severance payments related
to its data communications product line in the domestic and Asia Pacific
markets. These charges included abandoning a three-year effort to expand into
the market for local area network hubs and media converters and re-evaluating
the strategy for penetrating the Asia-Pacific market with its data communication
products. As a result of these two actions, the Company recorded a pre-tax
charge of $3.1 million ($2.0 million after tax) consisting of: $2.0 million of
inventory write-offs (included in Cost of products sold); $.7 million write-down
of assets (included in Other operating expenses); and $.4 million in severance
payments, lease cancellations and related expenses (included in Selling and
general and administrative expenses).
11
The following table sets forth the Company's summarized results of operations
for the three and nine-month periods ended September 30, 2002 and 2001 deducting
the business abandonment and realignment charges to arrive at amounts that are
on a comparable basis.
Three months ended September,
-----------------------------------------------------------------------------------------
2002 2001
--------------------------------------------- -------------------------------------------
Business
Reported Abandonment Comparable Reported Realignment Comparable
Results Charges Results Results Charges Results
NET SALES AND INCOME
Net Sales $ 41,587 -- $ 41,587 $ 49,127 -- $ 49,127
Gross Profit 11,533 $ 2,580 14,113 13,518 $ 1,988 15,506
Costs and expenses
Selling 6,131 714 5,417 6,196 287 5,909
General and administrative 6,726 1,534 5,192 4,993 170 4,823
Research and engineering 1,370 -- 1,370 1,498 17 1,481
Other operating expenses (49) (140) 91 995 659 336
----------- --------------- ------------- ----------- ------------- -------------
14,178 2,108 12,070 13,682 1,133 12,549
Royalty income - net 217 -- 217 414 -- 414
----------- --------------- ------------- ----------- ------------- -------------
Operating Income (2,428) 4,688 2,260 250 3,121 3,371
Other income (expense) (17) -- (17) (66) -- (66)
----------- --------------- ------------- ----------- ------------- -------------
Income before income tax (2,445) 4,688 2,243 184 3,121 3,305
Income tax (346) 1,406 1,060 26 1,092 1,118
----------- --------------- ------------- ----------- ------------- -------------
Net income $ (2,099)$ 3,282 $ 1,183 $ 158 $ 2,029 $ 2,187
=========== =============== ============= =========== ============= =============
PER SHARE AMOUNTS, BASIC AND DILUTED
Net income $ (0.37)$ 0.57 $ 0.20 $ 0.03 $ 0.35 $ 0.38
Nine months ended September,
-----------------------------------------------------------------------------------------
2002 2001
--------------------------------------------- -------------------------------------------
Business
Reported Abandonment Comparable Reported Realignment Comparable
Results Charges Results Results Charges Results
NET SALES AND INCOME
Net Sales $ 130,449 -- $ 130,449 $ 152,063 -- $ 152,063
Gross Profit 40,029 $ 2,580 42,609 45,709 $ 1,988 47,697
Costs and expenses
Selling 17,446 714 16,732 18,170 287 17,883
General and administrative 17,002 1,534 15,468 15,959 170 15,789
Research and engineering 4,504 -- 4,504 4,617 17 4,600
Other operating expenses 115 (140) 255 2,010 659 1,351
----------- --------------- ------------- ----------- ------------- -------------
39,067 2,108 36,959 40,756 1,133 39,623
Royalty income - net 1,177 -- 1,177 1,614 -- 1,614
----------- --------------- ------------- ----------- ------------- -------------
Operating Income 2,139 4,688 6,827 6,567 3,121 9,688
Other income (expense) (169) -- (169) (342) -- (342)
----------- --------------- ------------- ----------- ------------- -------------
Income before income tax 1,970 4,688 6,658 6,225 3,121 9,346
Income tax 1,031 1,406 2,437 2,076 1,092 3,168
----------- --------------- ------------- ----------- ------------- -------------
Net income $ 939 $ 3,282 $ 4,221 $ 4,149 $ 2,029 $ 6,178
=========== =============== ============= =========== ============= =============
PER SHARE AMOUNTS, BASIC AND DILUTED
Net income $ 0.16 $ 0.57 $ 0.73 $ 0.72 $ 0.35 $ 1.07
12
The following discussion of the financial results is based on 2002 and 2001
comparable results for the three and nine-month periods ended September 30 and
excludes the abandonment and business realignment charges described in the above
table.
THREE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 2001
Consolidated net sales of $41.6 million for the three months ended September 30,
2002 decreased $7.5 million, or 15%, from the prior year. Domestic net sales
decreased $4.4 million, or 16%, and foreign net sales decreased $3.1 million, or
15%. Lower sales of fiber optic products accounted for approximately 70% of the
decrease in domestic net sales and lower sales of data communication products
accounted for approximately 20% of the domestic net sales decrease. Economic
problems in Central and South America accounted for approximately 73% of the
decrease in foreign net sales and lower foreign data communication sales
accounted for the rest of the decrease. The Company continues to experience
softness in its communications and fiber optic hardware markets and does not
expect a rebound to the previous year's sales level for the remainder of 2002.
Gross profit of $14.1 million for the three months ended September 30, 2002
decreased $1.4 million, or 9%, compared to the same period in the prior year
primarily as a result of lower net sales. The Company expects its gross profit
for 2002 to be lower than the previous year's level as a result of lower sales.
Cost and expenses of $12.1 million were $.5 million lower, or 4%, less than last
year. The reduction is primarily due to lower commission expenses of $.3 million
(included in selling expenses) as a result of lower sales, a $.2 million
decrease in selling expense, and a $.4 million increase in general and
administrative expenses and a $.2 million reduction in other operating expenses.
The increase in general and administrative expense is due primarily to an
increase in bad debt expense of $.4 million due to two domestic customers filing
for protection under U.S. bankruptcy laws. The reduction in other operating
expenses is primarily a result of $.4 million in lower amortization of goodwill
(see NOTE D TO THE CONSOLIDATED FINANCIAL STATEMENTS- NEW ACCOUNTING
PRONOUNCEMENTS).
Royalty income for the three-month period ended September 30, 2002 of $.2
million is $.2 million lower than the comparable period of 2001. The reduction
is a result of the continued softness in the domestic data communication market.
Operating income of $2.2 million for the three months ended September 30, 2002
decreased $1.1 million, or 33%, compared to $3.3 million in the previous year.
This decrease is a result of the $1.4 million decrease in gross profit, and a
$.2 million decrease in royalty income, partially offset by a $.5 million
decrease in costs and expenses. Domestic operating income of $1.2 million for
the three months ended September 30, 2002 decreased $.2 million, compared to the
same period in the previous year. The decrease is primarily a result of lower
gross profit of $.1 million and a reduction in royalty income of $.3 million
partially offset by reduced costs and expenses of $.2 million. Foreign operating
income of $1.1 million for the quarter ended September 30, 2002 decreased $1.0
million, compared to the same period in 2001 primarily due to a lower gross
profit of $1.2 million on lower sales volumes.
Other expense of $.1 million for the three-month period ended September 30, 2002
remained relatively unchanged when compared to 2001.
The effective tax rate on comparable results increased to 47.3% in 2002 from
33.8% in 2001 primarily as a result of receiving taxable dividends from a
non-consolidated foreign affiliate. This dividend income is recorded as a
decrease in the non-consolidated affiliates investment accounts in accordance
with equity accounting and therefore is not included in book income. Excluding
the tax on this dividend, the 2002 effective tax rate would have been 34.6%.
Income taxes for the quarter ended September 30, 2002 of $1.0 million remain
unchanged from the prior year as a result of lower income before income taxes
partially offset by taxable dividends received from a non-consolidated foreign
affiliate. The reported effective tax rate was 14% because of a lower statutory
rate in the country incurring the abandonment charge.
13
Net income was $1.2 million for the three months ended September 30, 2002, which
represents a decrease of $1.0 million, or 46% from the prior year, primarily a
result of lower operating income. Basic and diluted earnings per share for the
quarter ended September 30, 2002 were $.20 compared to $.38 for 2001. The prior
year results included $269,000 or $.05 per share of goodwill amortization.
Goodwill is not being amortized in 2002 as a result of adopting a new accounting
pronouncement (see NOTE D TO THE CONSOLIDATED FINANCIAL STATEMENTS - NEW
ACCOUNTING PRONOUNCEMENTS).
NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 2001
For the nine months ended September 30, 2002, consolidated net sales were $130.4
million, a decrease of $21.6 million, or 14%, from the same period in the prior
year. Domestic net sales decreased $11.7 million, or 13%, and foreign sales
decreased $9.9 million, or 15%. Volume decreases in products related to fiber
optics accounted for approximately 55% of the decrease in domestic sales. This
decrease is the result of a reduction in fiber optic construction in the United
States. Lower sales volume of data communication and telecommunication accounted
for the remainder of the decrease. Foreign sales in local currency were
unfavorably impacted by $.8 million when converted to U.S. dollars as a result
of the stronger U.S. dollar compared to most foreign currencies. Excluding this
unfavorable currency impact, economic problems in Central and South America
accounted for approximately 55% of the foreign sales decline and lower volume
sales of data communication accounted for approximately 38% of the decrease.
Gross profit of $42.6 million for the nine months ended September 30, 2002 was a
decrease of $5.1 million, or 11% compared to the prior year. The stronger U.S.
dollar resulted in $.5 million lower gross profit on foreign sales in local
currency when translated to U.S. dollars. Excluding the impact of foreign
currency translation, gross profit decreased $4.6 million as a result of lower
net sales.
Costs and expenses of $37.0 million were $2.7 million, or 7% lower than last
year. The stronger dollar favorably impacted costs and expenses by $.5 million
when foreign costs in local currency were translated to U.S. dollars. The
remaining improvement in costs and expenses of $2.2 million was primarily due to
lower commission expense (included in selling expense) of $.7 million as a
result of lower sales, a $1.7 million reduction in domestic selling and
administrative expense as a result of the realignment of the data communication
product line undertaken during the third quarter of 2001 and lower amortization
of goodwill of $.9 million (see NOTE D TO THE CONSOLIDATED FINANCIAL STATEMENTS
- - NEW ACCOUNTING PRONOUNCEMENTS). These expense reductions were partially offset
by a $.7 million increase in the domestic bad debt expense and a $.6 million
increase in foreign marketing and selling expense to promote data communication
products.
Royalty income for the nine-month period ended September 30, 2002 of $1.2
million is $.4 million lower than the comparable period of 2001. The reduction
is a result of the continued softness in the domestic data communication market.
Operating income of $6.8 million for the nine months ended September 30, 2002
decreased by $2.8 million, or 30%, compared to the previous year. This decrease
was a result of the $5.1 million decrease in gross profit and a $.4 million
decrease in royalty income partially offset by the $2.7 million decrease in
costs and expenses. Domestic operating income for the nine months ended
September 30, 2002 of $4.4 million increased $.3 million compared to the same
period in the previous year. The improvement in domestic operating income was
primarily a result of the reduction of selling, general and administrative
expenses and lower amortization of goodwill. These cost decreases more than
offset the reduction in gross profit of $1.6 million and lower royalty income of
$.8 million due to lower sales. Foreign operating income of $2.4 million for the
nine months ended September 30, 2002 decreased by $3.1 million compared to the
same period in the previous year. This decrease was primarily a result of lower
gross profit of $3.5 million due to lower sales partially offset by lower sales
commission and royalty expense.
Other expense of $.2 million for the nine months ended September 30, 2002
decreased $.2 million compared to 2001. The decrease in other expense is a
result of a $.6 million decrease in interest expense as a result of lower debt
offset by a decrease in interest income of $.4 million primarily due to interest
received in 2001 on a one-time state tax refund.
14
Income taxes for the nine months ended September 30, 2002 of $2.4 million were
$.7 million lower than the prior year of $3.2 million. The effective tax rate
increased to 36.6% in 2002 from 33.8% in 2001 primarily as a result of receiving
increased taxable dividends of $1.3 million from non-consolidated foreign
affiliates. Excluding the tax on this dividend, the 2002 effective tax rate
would have been 30.2%. The Company has a tax "holiday" in a foreign jurisdiction
which grants an effective tax rate of 0% for the first two profit making years
after utilizing any tax loss carryforwards, and a 50% tax reduction for the
succeeding three years. The aggregate tax and per share effect of this holiday
was $450,000, or $.08 per share, for the nine months ending September 30, 2002
and $230,000, or $.04 per share, in the comparable 2001 period. The reported
effective income tax rate was 52.3% because of a lower statutory rate in the
country incurring the abandonment charge.
As a result of the above, net income for the first nine months of 2002 was $4.2
million, which represents a decrease of $2.0 million, or 32%, from the same
period in the prior year. Earnings per share for the nine months ended September
30, 2002 were $.73 compared to $1.07 for 2001. The prior year includes goodwill
amortization of $555,000 or $.10 per share. Goodwill is no longer amortized
beginning in 2002 (see NOTE D TO THE CONSOLIDATED FINANCIAL STATEMENTS - NEW
ACCOUNTING PRONOUNCEMENTS).
WORKING CAPITAL, LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $13.9 million for the first nine
months of 2002 despite only $.9 million of net income. This was primarily a
result of noncash charges reducing net income by $9.0 million and $1.4 million
in dividends received from non-consolidated affiliates that are excluded from
book income in accordance with equity accounting. Additionally, working capital
was reduced by $2.6 million.
Net cash provided by operating activities of $13.9 million for the first nine
months of 2002 was an increase of $5.6 million when compared to 2001. This
increase was primarily the result of a $8.2 million decrease in working capital,
a $1.3 million increase in dividends from joint ventures, partially offset by
lower net income of $3.2 million and a $.7 million decrease in other noncash
items.
Net cash used in investing activities of $2.7 million represents a reduction of
$2.5 million when compared to 2001. This reduction is primarily the result of
lower capital expenditures and business acquisition costs in 2002 of $1.6
million and $1.0 million in proceeds from the sale of certain long-lived assets.
The Company is continually analyzing potential acquisition candidates and
business alternatives but has no commitments that would materially impact the
operations of the business.
Cash used in financing activities was $8.0 million compared to $3.5 million used
in financing activities in the previous year. This change of $4.5 million was
primarily the result of reducing outstanding debt in the first nine months of
2002 by $4.4 million.
Although the Company believes its existing credit facilities, internally
generated funds and ability to obtain additional financing will be sufficient to
meet the Company's growth and operating needs for the next 12 months, there are
inherent risks related to each of these sources. The Company has evaluated its
long-term borrowing requirements and has completed amending its main credit
facility. The lending institution has approved renewal of the credit facility
and the Company's Board of Directors approved the new amendment on October 23,
2002. Consequently, the credit facility is being considered as long term at
September 30, 2002. The Company's financial position remains strong and its
current ratio at September 30, 2002 was 2.8:1, compared to 2.2:1 at December 31,
2001. At September 30, 2002, the Company's unused balance under its main credit
facility was $35.0 million, which would be $15.0 million under the new
amendment, and its debt to equity ratio was 7%. The ability to internally
generate funds from continuing operations is contingent upon the Company's sales
remaining at current levels or improving.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible
Assets, effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives will
no longer be amortized but will be subject to annual impairment tests. Other
intangibles will continue to be amortized over their useful lives and will be
assessed for impairment under SFAS No. 144, Accounting for the
15
Impairment or Disposal of Long-Lived Assets.
The Company has adopted SFAS No. 142 as of January 1, 2002. Consequently, the
Company has discontinued the amortization of goodwill during 2002. In accordance
with the Statement, the Company has completed the impairment test for goodwill
and has determined that no adjustment to the carrying value of goodwill is
required. Under this Statement goodwill will continue to be tested annually for
impairment or if events or changes in circumstances indicate that the goodwill
of a reporting unit might be impaired. See NOTE D TO THE CONSOLIDATED FINANCIAL
STATEMENTS - NEW ACCOUNTING PRONOUNCEMENTS for further discussion.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities, effective for exit or disposal activities initiated
after December 31, 2002. This Statement nullifies Emerging Issues Task Force
(EITF) Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." This Statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. Under Issue No. 94-3, a liability for exit costs was recognized at the
date of the entity's commitment to an exit plan. This Statement also establishes
that fair value is the objective for initial measurement of the liability. The
Company does not expect the adoption of this Statement to have a material impact
on its financial statements and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company operates manufacturing facilities and offices around the world and
uses fixed and floating rate debt to finance the Company's global operations. As
a result, the Company is subject to business risks inherent in non-U.S.
activities, including political and economic uncertainty, import and export
limitations and market risk related to changes in interest rates and foreign
currency exchange rates. The Company believes the political and economic risks
related to the Company's foreign operations are mitigated due to the stability
of the countries in which the Company's largest foreign operations are located.
Currently, the Company does not use derivative financial instruments such as
interest rate swaps or foreign currency forward exchange contracts to manage the
Company's market risks nor does the Company hold derivatives for trading
purposes.
The Company is exposed to market risk, including changes in interest rates. The
Company is subject to interest rate risk on its variable rate revolving credit
facilities, which consisted of borrowings of $11.5 million at September 30,
2002. A 100 basis point increase in the interest rate would have resulted in an
increase in interest expense of approximately $115,000 for the nine months ended
September 30, 2002.
The Company's primary currency rate exposures are related to foreign denominated
debt, intercompany debt and cash and short-term investments. A hypothetical 10%
change of the U.S. dollar relative to the currencies of the Company's foreign
operations would have a favorable/unfavorable impact on fair values of $2.6
million and loss before taxes of $.2 million.
ITEM 4. CONTROLS AND PROCEDURES
Each of the Company's reporting locations is required to submit financial
results for consolidation utilizing a standardized comprehensive financial
reporting package. Quarterly, a comprehensive questionnaire, intended to
highlight changes in internal controls and operational procedures and to gain
greater assurance that current accounting guidance and reporting regulations are
being followed in the preparation of financial statements, is completed by each
reporting location and submitted for review. The Company has initiated a
quarterly internal representation letter requiring each reporting location's
principal officer and principal financial officer to attest to the fairness of
the presentation of financial information reported, the adequacy of internal
controls and procedures, and disclosure of any known acts of fraud. In addition
the Company's Audit Committee appoints an independent accounting firm to perform
annual audits. Quarterly reviews are performed on a rotational basis at each of
the Company's foreign subsidiaries reporting locations. The independent
accounting firm has complete and open access to all financial records, internal
controls and operating procedures. As part of their audit procedures, they
review the documents previously mentioned and openly discuss any concerns with
the Company's management and independently with the Company's Audit Committee
before any disclosures are made. Finally, the Company reviews the adequacy of
disclosure with its independent accountants and outside legal counsel.
16
We have completed our evaluation of the disclosure controls and procedures
of the Company as of October 25, 2002 and the Company's principal executive
officer and principal financial officer have concluded that they are effective
and are designed to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to the Company's
principal executive and principal financial officers. Further, there have been
no significant changes in the Company's internal controls or in other factors
that could significantly affect these controls subsequent to our evaluation.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims that arise in the
ordinary course of business. In the opinion of management, the amount of any
ultimate liability with respect to these actions will not materially affect our
financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
On August 14, 2002 the Company filed Form 8-K for Regulation FD
Disclosure.
17
FORWARD-LOOKING STATEMENTS
Cautionary Statement for "Safe Harbor" Purposes Under The Private
Securities Litigation Reform Act of 1995
This Form 10-Q contains forward-looking statements regarding the Company's and
management's beliefs and expectations. As a general matter, forward-looking
statements are those focused upon future plans, objectives or performance (as
opposed to historical items) and include statements of anticipated events or
trends and expectations and beliefs relating to matters not historical in
nature. Such forward-looking statements are subject to uncertainties and factors
relating to the Company's operations and business environment, all of which are
difficult to predict and many of which are beyond the Company's control. Such
uncertainties and factors could cause the Company's actual results to differ
materially from those matters expressed in or implied by such forward-looking
statements.
The following factors, among others, could affect the Company's future
performance and cause the Company's actual results to differ materially from
those expressed or implied by forward-looking statements made in this report:
- The overall demand for cable anchoring and control hardware for
electrical transmission and distribution lines on a worldwide basis,
which has a slow growth rate in mature markets such as the United
States, Canada, Japan and Western Europe;
- The effect on the Company's business resulting from economic
uncertainty within Asia-Pacific and Latin American regions;
- Technology developments that affect longer-term trends for
communication lines such as wireless communication;
- The Company's success at continuing to develop proprietary technology
to meet or exceed new industry performance standards and individual
customer expectations;
- The rate of progress in continuing to reduce costs and in modifying the
Company's cost structure to maintain and enhance the Company's
competitiveness;
- The Company's success in strengthening and retaining relationships with
the Company's customers, growing sales at targeted accounts and
expanding geographically;
- The extent to which the Company is successful in expanding the
Company's product lines into new areas for inside plant;
- The Company's ability to identify, complete and integrate acquisitions
for profitable growth;
- The potential impact of consolidation and deregulation among the
Company's suppliers, competitors and customers;
- The relative degree of competitive and customer price pressure on the
Company's products;
- The cost, availability and quality of raw materials required for the
manufacture of products;
- The effects of fluctuation in currency exchange rates upon the
Company's reported results from international operations, together with
non-currency risks of investing in and conducting significant
operations in foreign countries, including those relating to political,
social, economic and regulatory factors;
- Changes in significant government regulations affecting environmental
compliance;
- The Company's ability to continue to compete with larger companies
which have acquired a substantial number of the Company's former
competitors;
18
- The Company's ability to compete in the domestic data communications
market;
- The Company's ability to recover sales in the telecommunications
markets; and
- The factors set forth under the caption "Risk Factors" in the Company
Form 10 Registration Statement filed with the Securities and Exchange
Commission (see Amendment No. 3 to Form 10 filed on August 24, 2001).
The Form 10 can be found on the Securities and Exchange Commission's
website at www.sec.gov.
19
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.
November 7, 2002 /s / Robert G. Ruhlman
----------------------
Robert G. Ruhlman
President and Chief Executive Officer
(Principal Executive Officer)
November 7, 2002 /s / Eric R. Graef
-------------------
Eric R. Graef
Vice President - Finance and Treasurer
(Principal Accounting Officer)
20
CERTIFICATIONS
I, Robert G. Ruhlman, President and Chief Executive Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Preformed Line
Products;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 7, 2002
/s / Robert G. Ruhlman
-------------------------------------
Robert G. Ruhlman
President and Chief Executive Officer
(Principal Executive Officer)
21
I, Eric R. Graef, Vice President-Finance and Treasurer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Preformed Line
Products;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 7, 2002
/s / Eric R. Graef
--------------------------------------
Eric R. Graef
Vice President - Finance and Treasurer
(Principal Accounting Officer)
22