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UNITED STATES
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 SEPTEMBER 30, 2002
COMMISSION FILE NO. 33-93644 AND 333-51839
DAY INTERNATIONAL GROUP, INC.
130 West Second Street
Dayton, Ohio 45402
(937) 224-4000
State of Incorporation: Delaware
IRS Employer Identification No.: 31-1436349
Securities Registered Pursuant to Section 12 (b) of the Act: None
Securities Registered Pursuant to Section 12 (g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
There were 23,298 Common Shares of the Company, $0.01 per share par value,
outstanding as of November 1, 2002.
DAY INTERNATIONAL GROUP, INC.
INDEX
Pages
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 2002 and
December 31, 2001 3
Condensed Consolidated Statements of Operations for the three and nine
months ended September 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2002 and 2001 5
Notes to Condensed Consolidated Financial Statements 6 - 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 18 - 22
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22 - 23
Item 4. Controls and Procedures 23
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 24
Signature 24
Certifications 25 - 26
2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
(IN THOUSANDS)
ASSETS 2002 2001
Cash and cash equivalents $ 728 $ 609
Accounts receivable (less allowance for doubtful
accounts of $2,565 and $1,949) 33,451 29,124
Inventories 35,236 34,276
Other current assets 8,135 9,474
--------- ---------
Total current assets 77,550 73,483
Property, plant and equipment, net of accumulated depreciation of $36,901
and $31,054 73,158 72,216
Goodwill, net of accumulated amortization of $19,614 126,265 125,334
Intangible assets, net of accumulated amortization of $37,867 and $33,127 28,281 32,554
Other assets 11,968 10,417
--------- ---------
TOTAL ASSETS $ 317,222 $ 314,004
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 8,130 $ 6,688
Current maturities of long-term debt 12,658 12,576
Other current liabilities 23,604 24,185
--------- ---------
Total current liabilities 44,392 43,449
Long-term and subordinated long-term debt 244,894 251,255
Other long-term liabilities 26,695 25,864
Commitments and contingencies
--------- ---------
Total liabilities 315,981 320,568
Redeemable preferred stock 121,970 109,354
STOCKHOLDERS' EQUITY (DEFICIT):
Common shares 1 1
Contra-equity associated with the assumption of majority shareholder's
bridge loan (68,772) (68,772)
Retained earnings (deficit) (48,646) (41,646)
Accumulated other comprehensive loss (3,312) (5,501)
--------- ---------
Total stockholders' equity (deficit) (120,729) (115,918)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 317,222 $ 314,004
========= =========
See notes to condensed consolidated financial statements.
3
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS)
THREE MONTHS NINE MONTHS
2002 2001 2002 2001
NET SALES $ 66,901 $ 61,038 $ 192,121 $ 192,668
COST OF GOODS SOLD 42,521 39,890 121,841 124,283
--------- --------- --------- ---------
GROSS PROFIT 24,380 21,148 70,280 68,385
SELLING, GENERAL AND ADMINISTRATIVE 14,372 13,300 40,750 42,242
RESTRUCTURING COSTS 54 118 673
AMORTIZATION OF INTANGIBLES 208 1,115 609 3,332
MANAGEMENT FEES 250 250 750 792
--------- --------- --------- ---------
OPERATING PROFIT 9,550 6,429 28,053 21,346
OTHER EXPENSES:
Interest expense (including amortization of
deferred financing cost of $587, $576, $1,761
and $1,728) 6,760 7,086 20,233 21,534
Other (income) expense (63) (785) (509) 514
--------- --------- --------- ---------
6,697 6,301 19,724 22,048
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 2,853 128 8,329 (702)
INCOME TAX EXPENSE 1,180 1,069 3,329 646
--------- --------- --------- ---------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 1,673 (941) 5,000 (1,348)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
(NET OF TAX EXPENSE OF $394) (Note G) 616
--------- --------- --------- ---------
NET INCOME (LOSS) 1,673 (941) 5,616 (1,348)
PREFERRED STOCK DIVIDENDS (4,211) (3,639) (12,475) (10,776)
AMORTIZATION OF PREFERRED STOCK ISSUANCE COSTS (47) (47) (141) (141)
--------- --------- --------- ---------
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS
$ (2,585) $ (4,627) $ (7,000) $ (12,265)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
4
DAY INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(IN THOUSANDS)
2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,616 $ (1,348)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Cumulative effect of change in accounting principle (616)
Depreciation and amortization 10,934 13,331
Deferred income taxes (622) (5,035)
Foreign currency (gain) loss (10) 516
Undistributed earnings of investee (264)
Non-cash restructuring charge 157
Change in operating assets and liabilities (2,505) (1,190)
-------- --------
Net cash provided by operating activities 12,690 6,274
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,623) (8,806)
-------- --------
Net cash used in investing activities (5,623) (8,806)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan (9,580) (1,509)
Net proceeds from revolving credit facility 3,150 4,150
-------- --------
Net cash provided by (used in) financing activities (6,430) 2,641
EFFECT OF EXCHANGE RATE CHANGES ON CASH (518) (203)
-------- --------
Net increase (decrease) in cash and cash equivalents 119 (94)
Cash and cash equivalents at beginning of period 609 922
-------- --------
Cash and cash equivalents at end of period $ 728 $ 828
-------- --------
NON-CASH TRANSACTIONS:
Preferred stock dividends $ 12,475 $ 10,776
-------- --------
Amortization of preferred stock discount $ 141 $ 141
======== ========
See notes to condensed consolidated financial statements.
5
DAY INTERNATIONAL GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
A. BASIS OF PRESENTATION
The balance sheet as of December 31, 2001, is condensed financial information
derived from the audited balance sheet. The interim financial statements are
unaudited. The financial statements of Day International Group, Inc. (the
"Company") have been prepared in accordance with accounting principles generally
accepted in the United States and, in the opinion of management, reflect all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation in accordance with generally accepted accounting principles for the
periods presented. The results of operations and cash flows for the interim
periods presented are not necessarily indicative of the results for the full
year. Certain prior year amounts have been reclassified to conform to current
year presentation.
B. INVENTORIES
Inventories as of September 30, 2002 and December 31, 2001, consist of:
2002 2001
Finished goods $19,615 $19,094
Work in process 5,350 3,932
Raw materials 10,271 11,250
------- -------
$35,236 $34,276
======= =======
C. BUSINESS SEGMENTS
The Company produces precision-engineered products, specializing in the design
and customization of consumable image-transfer products for the graphic arts
(printing) industry and consumable fiber handling products for the textile
industry. The Image Transfer segment designs, manufactures and markets
high-quality printing blankets and sleeves, pressroom chemicals and automatic
dampening systems used primarily in the offset and flexographic printing
industries. The Textile Products segment manufactures and markets precision
engineered rubber cots and aprons sold to textile yarn spinners and other
engineered rubber products sold to diverse markets.
Segment performance is evaluated based on operating profit results compared to
the annual operating plan. Intersegment sales and transfers are not material.
The Company manages the two segments as separate strategic business units. They
are managed separately because each business unit requires different
manufacturing processes, technology and marketing strategies.
6
THREE MONTHS NINE MONTHS
2002 2001 2002 2001
Third party sales:
Image Transfer $ 54,054 $ 49,053 $ 156,226 $ 153,446
Textile Products 12,847 11,985 35,895 39,222
--------- --------- --------- ---------
Total $ 66,901 $ 61,038 $ 192,121 $ 192,668
========= ========= ========= =========
Segment operating profit:
Image Transfer $ 9,039 $ 7,646 $ 27,670 $ 24,392
Textile Products 1,986 1,413 4,949 5,403
--------- --------- --------- ---------
Total $ 11,025 $ 9,059 $ 32,619 $ 29,795
========= ========= ========= =========
The following is a reconciliation of the segment operating profit reported above
to the amount reported in the consolidated financial statements:
THREE MONTHS NINE MONTHS
2002 2001 2002 2001
Segment operating profit $ 11,025 $ 9,059 $ 32,619 $ 29,795
APB #16 depreciation and amortization (892) (1,091) (2,703) (3,246)
Non-allocated corporate expenses (125) (120) (386) (406)
Restructuring costs (54) (118) (673)
Amortization of intangibles (208) (1,115) (609) (3,332)
Management fees (250) (250) (750) (792)
--------- --------- --------- ---------
Total operating profit $ 9,550 $ 6,429 $ 28,053 $ 21,346
========= ========= ========= =========
D. COMPREHENSIVE INCOME (LOSS)
Total comprehensive income (loss) is comprised of net income (loss), net
currency translation gains and losses and net unrealized gains and losses on
cash flow hedges. Total comprehensive income (loss) for the three months ended
September 30, 2002 and 2001 was $1,993 and $(153). Total comprehensive income
(loss) for the nine months ended September 30, 2002 and 2001 was $7,805 and
$(1,441).
E. CONTINGENCIES
Claims have been made against the Company for the costs of environmental
remedial measures taken or to be taken. Reserves for such liabilities have been
established and no insurance recoveries have been anticipated in the
determination of the reserves. In management's opinion, the aforementioned
claims will be resolved without material adverse effect on the results of
operations, financial position or cash flows of the Company. The Company's
previous parent and its parent, PolyOne, have agreed to indemnify the Company
for certain of the costs associated with these matters.
7
F. RESTRUCTURING COSTS
Pre-tax charges of $673 were recorded in the first three quarters of 2001 for
severance and termination costs for relocating the Textile Products operations
from the Asheville, North Carolina, facility to the Greenville, South Carolina,
facility. During the first quarter of 2002, the Company incurred additional
relocation costs of $109, recorded a charge of $157 for write-off of fixed
assets and recorded a reversal of $103 of the reserve for severance costs. As of
September 30, 2002, final severance payments have been paid to 49 associates.
During the fourth quarter of 2001, the Company ceased operations at its Transfer
Media facility in Longwood, Florida. A pre-tax charge of $3,010 was recorded in
2001 for severance costs for 55 associates, write-off of abandoned assets and
costs related to closing the facility. The Company is attempting to sell the
land and building. As of September 30, 2002, final severance payments have been
paid to all associates and the remaining reserve of $45 for severance costs was
reversed in the second quarter of 2002.
A pre-tax charge of $988 was recorded during the fourth quarter of 2001 for
severance costs for 21 associates, costs for relocating the Pressroom Chemicals'
German sales office and the U.S. sales and administrative functions and loss on
the sale of fixed assets. As of September 30, 2002, final severance payments
have been paid to 20 associates.
Below is a summary of the amounts charged against the reserves for severance and
facility shutdown in 2002:
TEXTILE IMAGE
PRODUCTS TRANSFER
Balance at December 31, 2001 $ 392 $ 1,508
Reversal of reserve (103)
Charges against the reserve for:
Severance costs (193) (549)
Facility shutdown (417)
------- -------
Balance at March 31, 2002 96 542
Reversal of reserve (45)
Charges against the reserve for:
Severance costs (46) (160)
Facility shutdown (32)
------- -------
Balance at June 30, 2002 50 305
Charges against the reserve for:
Severance costs (50) (80)
Facility shutdown (21)
------- -------
Balance at September 30, 2002
$ $ 204
======= =======
8
G. NEW ACCOUNTING PRINCIPLES
In July 2001, the Financial Accounting Standards Board issued SFAS Nos. 141,
"Business Combinations" and 142, "Goodwill and Other Intangible Assets." These
statements will not require amortization of goodwill for periods beginning after
December 15, 2001. Instead an annual review of the recoverability of the
goodwill and intangible assets will be required. These Statements were adopted
as of January 1, 2002. As of January 1, 2002, the Company ceased recording
amortization of goodwill of approximately $3,700 per year and recognized pre-tax
income of $1,010 for the cumulative effect of the change in accounting principle
for the amount of the unamortized deferred credit related to the excess over
cost arising from the TPO acquisition. As of June 30, 2002, the Company has
completed the initial review of the recoverability of goodwill and has
determined that no impairment of goodwill is indicated.
The following is a reconciliation from reported net income (loss) to net income
(loss) adjusted for the amortization of goodwill and the deferred credit related
to an excess over cost:
THREE MONTHS NINE MONTHS
2002 2001 2002 2001
Income (loss) before cumulative effect of change in
accounting principle-as reported $ 1,673 $ (941) $ 5,000 $(1,348)
Amortization of goodwill and deferred credits-net
of tax benefit 558 1,666
------- ------- ------- -------
Adjusted income (loss) before cumulative effect of
change in accounting principle $ 1,673 $ (383) $ 5,000 $ 318
======= ======= ======= =======
H. SUPPLEMENTAL CONSOLIDATING INFORMATION
The Company has outstanding $100,000, 11-1/8% Senior Notes and $115,000, 9 1/2%
Senior Subordinated Notes (collectively, the "Notes"). The Company has no assets
or operations other than its wholly-owned investment in Day International, Inc.
("Day International" or "Guarantor"). Day International has provided a full and
unconditional guarantee of the Notes. The wholly-owned foreign subsidiaries of
Day International are not guarantors with respect to the Notes and do not have
any credit arrangements senior to the Notes. The only intercompany eliminations
are the normal intercompany eliminations with regard to intercompany sales and
the Company's investment in the wholly-owned non-guarantor subsidiaries.
Intercompany notes are in place, which effectively transfers the interest
expense from the Company to Day International. The following are the
supplemental combining condensed balance sheets as of September 30, 2002 and
December 31, 2001, and the supplemental combining condensed statements of
operations and cash flows for the three and nine months ended September 30, 2002
and 2001, with the investments in the subsidiaries accounted for using the
equity method. Separate complete financial statements of the Guarantor are not
presented because management has determined that they are not material to the
investors.
9
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
SEPTEMBER 30, 2002
DAY
DAY INTER-
INTER- NATIONAL NON-
NATIONAL INC. GUARANTOR
GROUP, INC.(GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents $ 812 $ (812) $ 728 $ $ 728
Accounts receivable-net 13,073 20,378 33,451
Inventories 20,231 15,005 35,236
Other current assets 5,744 2,391 8,135
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 812 38,236 38,502 77,550
Intercompany 256,373 (3,078) 3,078 (256,373)
Property, plant and equipment, net 47,974 25,184 73,158
Investment in subsidiaries (43,494) 32,688 (4,918) 15,724
Intangible and other assets 150,751 15,763 166,514
--------- --------- --------- -------- ---------
TOTAL ASSETS $ 213,691 $ 266,571 $ 77,609 $(240,649) $ 317,222
========= ========= ======== ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Accounts payable $ $ 3,414 $ 4,716 $ $ 8,130
Current maturities of long-term
debt 12,511 147 12,658
Other current liabilities 4,330 7,366 11,908 23,604
=-------- --------- -------- --------- ---------
TOTAL CURRENT LIABILITIES 16,841 10,780 16,771 44,392
Intercompany (48,252) 312,175 1,961 (265,884)
Long-term and subordinated
long-term debt 243,861 1,033 244,894
Other long-term liabilities 18,317 8,378 26,695
Redeemable preferred stock 121,970 121,970
Total stockholders' equity
(deficit) (120,729) (74,701) 49,466 25,235 (120,729)
--------- --------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT) $ 213,691 $ 266,571 $ 77,609 $(240,649) $ 317,222
========= ========= ========= ========= =========
10
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED BALANCE SHEET
DECEMBER 31, 2001
DAY DAY
INTER- INTER- NON-
NATIONAL NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
ASSETS
Cash and cash equivalents $ 702 $ (702) $ 609 $ $ 609
Accounts receivable - net 12,029 17,095 29,124
Inventories 20,687 13,589 34,276
Other assets 5,322 4,152 9,474
--------- --------- --------- --------- ---------
TOTAL CURRENT ASSETS 702 37,336 35,445 73,483
Intercompany 262,642 (13,228) 13,228 (262,642)
Property, plant and equipment - net 48,940 23,276 72,216
Investment in subsidiaries (49,142) 31,138 (5,719) 23,723
Intangible and other assets 155,033 13,272 168,305
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 214,202 $ 259,219 $ 79,502 $(238,919) $ 314,004
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ $ 3,373 $ 3,315 $ $ 6,688
Current maturities of long-term debt 12,511 65 12,576
Accrued associate related costs and other expenses 4,512 7,606 12,067 24,185
--------- --------- --------- --------- ---------
TOTAL CURRENT LIABILITIES 17,023 10,979 15,447 43,449
Intercompany (46,388) 307,813 14,862 (276,287)
Long-term and subordinated long-term debt 250,131 1,124 251,255
Other long-term liabilities 17,837 8,027 25,864
Redeemable preferred stock 109,354 109,354
Total stockholders' equity (deficit) (115,918) (77,410) 40,042 37,368 (115,918)
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 214,202 $ 259,219 $ 79,502 $(238,919) $ 314,004
========= ========= ========= ========= =========
11
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002
DAY
DAY INTER-
Inter- NATIONAL NON-
national INC. GUARANTOR
Group, Inc. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $ 38,462 $ 28,439 $ $ 66,901
Cost of goods sold 24,348 18,173 42,521
-------- -------- -------- -------- --------
Gross profit 14,114 10,266 24,380
Selling, general and administrative 1 8,364 6,007 14,372
Amortization of intangibles 208 208
Management fees 250 250
-------- -------- -------- -------- --------
Operating profit (1) 5,292 4,259 9,550
Other expenses (income):
Equity in (earnings) of subsidiaries (1,673) (2,379) 4,052
Interest expense 6,699 61 6,760
Other (income) expense (1) (281) 219 (63)
-------- -------- -------- -------- --------
Income before income taxes 1,673 1,253 3,979 (4,052) 2,853
Income tax expense (benefit) (420) 1,600 1,180
-------- -------- -------- -------- --------
Net income $ 1,673 $ 1,673 $ 2,379 $ (4,052) $ 1,673
======== ========= ======== ======== ========
12
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2001
DAY
DAY INTER-
Inter- NATIONAL NON-
national INC. GUARANTOR
Group, Inc. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $ 37,224 $ 23,814 $ $ 61,038
Cost of goods sold 24,183 15,707 39,890
-------- -------- -------- -------- --------
Gross profit 13,041 8,107 21,148
Selling, general and administrative 5 8,330 4,965 13,300
Restructuring costs 54 54
Amortization of intangibles 1,040 75 1,115
Management fees 250 250
-------- -------- -------- -------- --------
Operating profit (5) 3,367 3,067 6,429
Other (income) expense:
Equity in (earnings) loss of subsidiaries 939 (1,345) 406
Interest expense 7,060 26 7,086
Other (income) expense (1) (929) 145 (785)
-------- -------- -------- -------- --------
Income (loss) before income taxes (943) (1,419) 2,896 (406) 128
Income taxes (benefit) (2) (480) 1,551 1,069
-------- -------- -------- -------- --------
Net income (loss) $ (941) $ (939) $ 1,345 $ (406) $ (941)
======== ======== ======== ======== ========
13
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2002
DAY
DAY INTER-
INTER- NATIONAL NON-
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $ 111,596 $80,525 $ $ 192,121
Cost of goods sold 70,798 51,043 121,841
--------- --------- ------ --------- --------
Gross profit 40,798 29,482 70,280
Selling, general and administrative 55 24,442 16,253 40,750
Restructuring costs 118 118
Amortization of intangibles 609 609
Management fees 750 750
--------- --------- ------ --------- --------
Operating profit (55) 14,879 13,229 28,053
Other expenses (income):
Equity in (earnings) loss of subsidiaries (5,648) (8,344) 13,992
Interest expense 20,171 62 20,233
Other (income) expense (2) (1,534) 1,027 (509)
--------- --------- ------ --------- --------
Income before income taxes 5,595 4,586 12,140 (13,992) 8,329
Income tax expense (benefit) (21) (1,062) 4,412 3,329
--------- --------- ------ --------- --------
Income before cumulative effect
of change in accounting
principles 5,616 5,648 7,728 (13,992) 5,000
Cumulative effect of change in
accounting principles 616 616
--------- --------- ------ --------- --------
Net income $ 5,616 $ 5,648 $8,344 $ (13,992) $ 5,616
========= ========= ====== ========= ========
14
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2001
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Net sales $ $114,995 $77,673 $ $192,668
Cost of goods sold 74,682 49,601 124,283
--------- --------- ------ --------- --------
Gross profit 40,313 28,072 68,385
Selling, general and administrative 48 26,835 15,359 42,242
Restructuring costs 673 673
Amortization of intangibles 3,128 204 3,332
Management fees 792 792
--------- --------- ------ --------- --------
Operating profit (48) 8,885 12,509 21,346
Other (income) expense:
Equity in (earnings) loss of subsidiaries 1,323 (6,664) 5,341
Interest expense 21,455 79 21,534
Other (income) expense (6) (429) 949 514
--------- --------- ------ --------- --------
Income (loss) before income taxes (1,365) (5,477) 11,481 (5,341) (702)
Income taxes (benefit) (17) (4,154) 4,817 646
--------- --------- ------ --------- --------
Net income (loss) $ (1,348) $ (1,323) $ 6,664 $ (5,341) $ (1,348)
========= ======== ======= ========= ===========
15
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
DAY
DAY INTER-
INTER- NATIONAL NON-
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Cash Flows From Operating Activities:
Net income $ 5,616 $ 5,648 $ 8,344 $ (13,992) $ 5,616
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Cumulative effect of change in accounting
principles (616) (616)
Depreciation and amortization 8,934 2,000 10,934
Equity in (earnings) loss of subsidiaries (5,648) (8,344) 13,992
Deferred income taxes and other (588) (34) (622)
Foreign currency (gain) loss (160) 150 (10)
Undistributed earnings of investee (264) (264)
Non-cash restructuring charge 157 157
Changes in operating assets and liabilities (183) 1,531 (3,853) (2,505)
--------- --------- -------- --------- --------
Net cash provided by (used in)
operating activities (215) 6,914 5,991 12,690
Cash Flows From Investing Activities:
Capital expenditures (3,375) (2,248) (5,623)
--------- --------- -------- --------- --------
Net cash used in investing activities (3,375) (2,248) (5,623)
Cash Flows From Financing Activities:
Payments on term loan (9,450) (130) (9,580)
Net borrowings on credit facilities 3,150 3,150
--------- --------- -------- --------- --------
Net cash used in financing activities (6,300) (130) (6,430)
Intercompany transfers and dividends 6,625 (3,649) (2,976)
Effects of exchange rates on cash (518) (518)
--------- --------- -------- --------- --------
Net increase (decrease) in cash and
cash equivalents 110 (110) 119 119
Cash and cash equivalents at beginning
of period 702 (702) 609 609
--------- --------- ------ ---------- --------
Cash and cash equivalents at end of period $ 812 $ (812) $ 728 $ $ 728
========= ========= ========= ========== ========
16
DAY INTERNATIONAL GROUP, INC.
SUPPLEMENTAL COMBINING CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2001
DAY
DAY INTER-
INTER- NATIONAL NON
NATIONAL INC. GUARANTOR
GROUP, INC. (GUARANTOR) SUBSIDIARIES ELIMINATIONS CONSOLIDATED
Cash Flows From Operating Activities:
Net income (loss) $ (1,348) $ (1,323) $6,664 $ (5,341) $ (1,348)
Adjustments to reconcile net
income (loss) to net cash provided by
operating activities:
Depreciation and amortization 11,297 2,034 13,331
Equity in (earnings) loss of subsidiaries 1,323 (6,664) 5,341
Deferred income taxes and other (4,817) (218) (5,035)
Foreign currency loss 120 396 516
Changes in operating assets and liabilities 484 1,709 (3,383) (1,190)
--------- --------- ------ --------- --------
Net cash provided by operating activities 459 322 5,493 6,274
Cash Flows From Investing Activities:
Capital expenditures (5,669) (3,137) (8,806)
--------- --------- ------ --------- --------
Net cash used in investing activities (5,669) (3,137) (8,806)
Cash Flows From Financing Activities:
Payments on term loan (1,500) (9) (1,509)
Net borrowings on credit facilities 4,150 4,150
--------- --------- ------ --------- --------
Net cash provided by (used in)
financing activities 2,650 (9) 2,641
Intercompany transfers and dividends (3,335) 5,573 (2,238)
Effects of exchange rates on cash (203) (203)
--------- --------- ------ --------- --------
Net increase (decrease) in cash and cash
equivalents (226) 226 (94) (94)
Cash and cash equivalents at beginning
of period 590 (590) 922 922
--------- --------- ------ --------- --------
Cash and cash equivalents at end of period $ 364 $ (364) $ 828 $ $ 828
========= ========= ====== ========= ========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT
This Quarterly Report contains forward-looking statements within the meaning of
the Securities Act of 1933. These are subject to certain risks and
uncertainties, including those identified below, which could affect the
Company's actual results and cause such results to differ materially from those
expressed in forward-looking statements. The words "believe," "anticipate,"
"expect," "intend," "will likely result," "will continue," and similar
expressions identify forward-looking statements.
Factors that could cause actual results to differ materially from the
forward-looking statements include but are not limited to (i) the effect of
leverage, including the limitations imposed by the Company's various debt
instruments; (ii) risks related to significant operations in foreign countries,
including the translation of operating results to the U.S. dollar; (iii) the
timely development and market acceptance of new products; (iv) the effect of
competitive products and pricing; (v) the effect of changing general and
industry specific economic conditions; (vi) the effect of environmental
regulations; and (vii) the potential for technology obsolescence.
While made in good faith and with a reasonable basis based on information
currently available to the Company's management, there is no assurance that any
such forward-looking statements will be achieved or accomplished. The Company is
under no obligation to update any forward-looking statements to the extent it
becomes aware that they are not achieved or likely to be achieved for any
reason.
BASIS OF PRESENTATION
The following table sets forth selected financial information in millions of
dollars and as a percentage of net sales:
THREE MONTHS NINE MONTHS
2002 2001 2002 2001
$ % $ % $ % $ %
Net sales 66.9 100.0 61.0 100.0 192.1 100.0 192.7 100.0
Costs of goods sold 42.5 63.6 39.9 65.4 121.8 63.4 124.3 64.5
----- ----- ----- ----- ----- ----- ----- -----
Gross profit 24.4 36.4 21.1 34.6 70.3 36.6 68.4 35.5
Selling, general and administrative expense 14.4 21.5 13.3 21.8 40.7 21.2 42.3 21.9
Restructuring costs 0.1 0.1 0.1 0.1 0.7 0.4
Amortization of intangibles 0.2 0.3 1.1 1.8 0.6 0.3 3.3 1.7
Management fees 0.2 0.3 0.2 0.4 0.8 0.4 0.8 0.4
----- ----- ----- ----- ----- ----- ----- -----
Operating profit 9.6 14.3 6.4 10.5 28.1 14.6 21.3 11.1
===== ===== ===== ===== ===== ===== ===== =====
18
COMPARISON OF RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001
Net sales increased $5.9 million (9.6%) to $66.9 million. Image Transfer's sales
increased $5.0 million (10.2%) to $54.1 million, primarily as a result of higher
export sales from the United States and in Europe ($4.3 million) and by positive
foreign currency rate changes of $1.5 million offset by lower sales volume in
the United States of $1.0 million. The lower U.S. Image Transfer sales volume
was as a result of the continuing weak U.S. printing industry. Textile Products'
sales increased $0.9 million (7.2%) to $12.8 million, primarily as a result of
higher sales volume in the United States of $0.3 million and by positive foreign
currency rate changes of $0.6 million.
Gross profit increased $3.2 million (15.3%) to $24.4 million. As a percentage of
net sales, gross profit increased to 36.4% for the three months ended September
30, 2002, compared to 34.6% for the three months ended September 30, 2001,
primarily as a result of benefits realized from the restructuring activities
performed in the second half of 2001 and the first quarter of 2002. Gross profit
has continued to be negatively affected by lower manufacturing yields of digital
products than expected during initial startup.
Selling, general and administrative expense ("SG&A") increased $1.1 million
(8.1%) to $14.4 million. As a percentage of net sales, SG&A decreased slightly
to approximately 21.5% from 21.8%. Foreign currency translation rate changes
increased SG&A by $0.4 million in the third quarter of 2002 compared to the
third quarter of 2001.
Operating profit increased $3.1 million (48.5%) to $9.6 million, primarily as a
result of decrease in amortization of goodwill from the adoption of SFAS No. 142
($0.9 million) and the higher gross margin, offset by higher SG&A expenses. As a
percentage of net sales, operating profit increased to 14.3% for the three
months ended September 30, 2002, from 10.5% for the comparable period in 2001.
Excluding the restructuring charges and the amortization of goodwill in 2001,
operating profit as a percentage of net sales would have been 14.3% in 2002 and
12.1% in 2001. Image Transfer's operating profit increased $1.4 million (18.2%)
to $9.0 million. As a percentage of net sales, Image Transfer's operating profit
increased to 16.7% for the three months ended September 30, 2002, from 15.6% in
2001, primarily as a result of benefits realized from the restructuring
activities performed in 2001. Textile Products' operating profit increased $0.6
million (40.6%) to $2.0 million, excluding the restructuring costs in 2001. As a
percentage of net sales, Textile Products' operating profit (excluding the
restructuring costs in 2001) increased to 15.5% for the three months ended
September 30, 2002, from 11.8% in 2001, primarily as a result of increased
margins on sales from the U.S. operations.
Other income was $0.1 million for the three months ended September 30, 2002,
compared to other income of $0.8 million for the three months ended September
30, 2001. The other (income) expense is primarily due to foreign currency
transaction (gains) losses incurred in the normal course of international
19
subsidiaries doing business in other than their functional currency as well as a
result of intercompany financing arrangements.
The effective tax rate for the third quarter of 2002 was 41.4%. In 2001 the
Company recorded income tax expense on a loss before taxes. This effect was a
result of non-deductible expenses and international earnings taxable in the
United States.
NINE MONTHS ENDED SEPTEMBER 30, 2002, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 2001
Net sales decreased $0.5 million (0.3%) to $192.1 million. Image Transfer's
sales increased $2.8 million (1.8%) to $156.2 million, primarily as a result of
higher export sales from the United States and in Europe ($4.4 million) and by
positive foreign currency rate changes of $1.5 million offset by lower sales
volume in the United States of $5.5 million. The lower U.S. Image Transfer sales
volume was as a result of the continuing weak U.S. printing industry in 2002.
Textile Products' sales decreased $3.3 million (8.5%) to $35.9 million,
primarily as a result of lower sales volume in the United States of $2.4 million
and in Europe of $1.5 million, offset by positive foreign currency rate changes
of $0.6 million. The lower U.S. Textile Products sales volume was primarily a
result of customers consolidating and closing textile mills as a result of weak
demand for U.S. produced textile products combined with a lower global demand
for spun yarn. The strong U.S. dollar over the past several years has reduced
U.S. textile exports and caused an increase of lower-cost textile imports into
the United States.
Gross profit increased $1.9 million (2.8%) to $70.3 million. As a percentage of
net sales, gross profit increased to 36.6% for the nine months ended September
30, 2002, compared to 35.5% for the nine months ended September 30, 2001,
primarily as a result of benefits realized from the restructuring activities
performed in the second half of 2001, offset by lower Textile sales volumes.
Gross profit has continued to be negatively affected by lower manufacturing
yields of digital products than expected during initial startup.
Selling, general and administrative expense ("SG&A") decreased $1.5 million
(3.5%) to $40.7 million. As a percentage of net sales, SG&A decreased to
approximately 21.2% from 21.9%, primarily as a result of benefits realized from
the restructuring activities performed in 2001. Foreign currency translation
rate changes increased SG&A by $0.4 million in the first three quarters of 2002
compared to 2001.
A pre-tax charge of $0.5 million was recorded in the first quarter of 2001 for
severance and termination costs to relocate the Textile Products operations from
its Asheville, North Carolina, facility to its Greenville, South Carolina,
facility. During the first quarter of 2002, the Company reversed $0.1 million of
the reserve. Additionally, a pre-tax charge of $0.3 million has been recorded in
the first quarter ended of 2002 for relocation of machinery and equipment and
write-off of abandoned assets.
During the fourth quarter of 2001, the Company ceased operations at its Transfer
Media facility in Longwood, Florida. A pre-tax charge of $3.0 million was
recorded in 2001 for severance costs for 55 associates, write-off of abandoned
assets and costs related to closing the facility. As of June 30, 2002, final
20
severance payments have been paid to all associates and the remaining reserve of
$0.1 million for severance costs was reversed in the second quarter of 2002.
Operating profit increased $6.7 million (31.4%) to $28.1 million, primarily as a
result of decrease in amortization of goodwill from the adoption of SFAS No. 142
($2.7 million), the higher gross margin and the reduction in SG&A. As a
percentage of net sales, operating profit increased to 14.6% for the nine months
ended September 30, 2002, from 11.1% for the comparable period in 2001.
Excluding the restructuring charges and the amortization of goodwill in 2001,
operating profit as a percentage of net sales would have been 14.6% in 2002 and
12.8% in 2001. Image Transfer's operating profit increased $3.3 million (13.4%)
to $27.7 million. As a percentage of net sales, Image Transfer's operating
profit increased to 17.7% for the nine months ended September 30, 2002, from
15.9% in 2001, primarily as a result of benefits realized from the restructuring
activities performed in 2001. Textile Products' operating profit decreased $0.5
million (8.4%) to $4.9 million, excluding the restructuring costs in 2002 and
2001, as a result of the decrease in sales volume. As a percentage of net sales,
Textile Products' operating profit (excluding the restructuring costs in 2002
and 2001) was flat at 13.8% for the nine months ended September 30, 2002,
compared to 2001.
Other income was $0.5 million for the nine months ended September 30, 2002,
compared to other expense of $0.5 million for the nine months ended September
30, 2001. The other (income) expense is primarily due to foreign currency
transaction losses incurred in the normal course of international subsidiaries
doing business in other than their functional currency as well as a result of
intercompany financing arrangements.
The effective tax rate benefit for the first three quarters of 2002 was 40.0%.
The Company recorded income tax expense for 2001 on a loss before taxes. This
effect is a result of non-deductible expenses and international earnings taxable
in the United States.
As of January 1, 2002, the Company adopted SFAS Nos. 141, "Business
Combinations" and 142, "Goodwill and Other Intangible Assets" and ceased
recording amortization of goodwill of approximately $3.7 million per year and
recognized pre-tax income of $1.0 million for the cumulative effect of the
change in accounting principle for the amount of the unamortized deferred credit
related to the excess over cost arising from the TPO acquisition. As of June 30,
2002, the Company has completed the initial review of the recoverability of
goodwill and has determined that no impairment of goodwill is indicated.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically generated sufficient funds from its operations to
fund its working capital and capital expenditure requirements. The Company is
able to maintain relatively low levels of working capital as its converters and
distributors typically carry a greater portion of inventory and finance
receivables of the Company's end users.
21
Capital expenditures were $5.6 million and $8.8 million for the nine months
ended September 30, 2002 and 2001, respectively.
As of September 30, 2002, there was $7.3 million outstanding under the Revolving
Credit Facility and the Company had approximately $12.2 million available under
the Revolving Credit Facility (calculated by applying the applicable borrowing
base limitation). The Company's aggregate indebtedness at September 30, 2002, is
approximately $257.6 million and the aggregate liquidation preferences of the
Exchangeable Preferred Stock is $60.5 million and the Convertible Preferred
Stock is $62.9 million. The Company is highly leveraged. The Company's ability
to operate its business, service its debt requirements and reduce its total debt
will depend upon its future operating performance, which will be affected by
prevailing economic conditions and financial, business and other factors,
certain of which are beyond its control, as well as the availability of
revolving credit borrowings. See the Company's Annual Report on Form 10-K for a
more extensive discussion of liquidity and capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company conducts a significant amount of business and has operating and
sales facilities in countries outside the United States. As a result, the
Company is subject to business risks inherent in non-U.S. activities, including
political uncertainty, import and export limitations, exchange controls and
currency fluctuations. The Company believes risks related to its foreign
operations are mitigated due to the political and economic stability of the
countries in which its largest foreign operations are located, the stand-alone
nature of the operations, the Company's limited net asset exposure, forward
foreign exchange contract practices and pricing flexibility. Thus, while changes
in foreign currency values do affect earnings, the longer-term economic effect
of these changes should not have a material adverse effect on the Company's
financial condition, results of operations or liquidity.
Certain of the Company's international subsidiaries make purchases in foreign
currencies, mainly intercompany transactions. As a result, they are subject to
transaction exposures that arise from foreign exchange movements between the
date that the foreign currency transaction is recorded and the date it is
consummated. The Company has entered into forward foreign exchange contracts to
protect it against such foreign exchange movements. The contract value of these
foreign exchange contracts was approximately $9.0 million at September 30, 2002
and $9.3 million at December 31, 2001. These contracts generally expire within
three to twelve months. Foreign currency transaction (gains) losses, included in
other (income) expense, were $0.3 million and $(0.8) million for the three
months ended September 30, 2002 and 2001 and zero and $0.5 million for the nine
months ended September 30, 2002 and 2001.
INTEREST RATE RISKS
The Company is subject to market risk from exposure to changes in the interest
rates based on its financing activities. The Company utilizes a mix of debt
maturities along with both fixed- and variable-
22
rate debt to manage its exposure to changes in interest rates and to minimize
interest expense. The Company does not expect interest rate changes to have a
material effect on income or cash flows in 2002, although there can be no
assurance that interest rates will not materially change.
COMMODITY RISKS
Rubber polymers and fabrics are key components in most of the Image Transfer and
Textile products. The Company is exposed to changes in the costs of these
components. In addition, Image Transfer's pressroom chemical products are
exposed to changes in the cost of certain petroleum-based components. The
largest raw material component in the pressroom chemical products is petroleum
distillates, such as aliphatics and aromatics. When commodity prices increase,
the Company has historically passed on increases to its customers to maintain
its profit margins. Conversely, when commodity prices decline, the Company
generally lowers its sales prices to meet competitive pressures. Because the
Company has historically been able to raise sales prices to offset higher costs,
management believes that a 10% change in the cost of its components could have a
short-term effect until sales price increases take effect, but overall would not
have a material effect on income or cash flows for a fiscal year.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that transactions are properly recorded and
summarized so that reliable financial records and reports can be prepared and
assets safeguarded. In addition, a system of disclosure controls is maintained
to ensure that information required to be disclosed is recorded, processed,
summarized and reported in a timely manner to management responsible for the
preparation and reporting of the Company's financial information.
Management assesses the internal control and disclosure control systems as being
effective as they encompass material matters for the three months and nine
months ended September 30, 2002. To the best of management's knowledge, there
were no changes in the internal control and disclosure control systems
subsequent to September 30, 2002, that would significantly affect the control
systems.
23
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
(99) ADDITIONAL EXHIBITS
99.1 Certification of the Chief Executive Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification of the Chief Financial Officer Pursuant
to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
b. Reports on Form 8-K
None
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.
Day International Group, Inc.
-----------------------------
(Registrant)
Date: November 11, 2002 By: /s/ Thomas J. Koenig
-----------------------------
Thomas J. Koenig
Vice President and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
24
CERTIFICATIONS
I, Dennis R. Wolters, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Day International
Group, Inc.;
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 officer 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the board of
directors:
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 officer 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 11, 2002 By: /s/ Dennis R Wolters
-----------------------------
Dennis R. Wolters
President and Chief Executive Officer
(Principal Executive Officer)
25
I, Thomas J. Koenig, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Day International
Group, Inc.;
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 officer 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the board of
directors:
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 officer 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 11, 2002 By: /s/ Thomas J. Koenig
-----------------------------
Thomas J. Koenig
Vice President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)
26