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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended October 6, 2002
or
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the transition period from ___ to ___
Commission file number: 333-76569
Luigino's, Inc.
(Exact name of registrant as specified in its charter)
Minnesota 2038 59-3015985
(State of other (Primary Standard (I.R.S. Employer
jurisdiction of incorporation Industrial Identification No.)
or organization) Classification Code)
525 Lake Avenue South
Duluth, MN 55802
(218) 723-5555
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices.)
Check whether the registrant: (1) 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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common 1,000
- ------------------------------------ ------------------------------------
(Class) (Outstanding at November 18, 2002)
LUIGINO'S, INC AND SUBSIDIARY
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
--------
Item 1. Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets as of October 6, 2002 (Unaudited) and
December 30, 2001 ................................................... 3
Consolidated Statements of Operations for the third fiscal
quarter and 40 weeks ended October 6, 2002 (Unaudited) and
October 7, 2001 (Unaudited) ......................................... 4
Consolidated Statements of Cash Flows for 40 weeks ended October 6,
2002 (Unaudited) and October 7, 2001 (Unaudited) .................... 5
Notes to Financial Statements (Unaudited) ........................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ...............................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..........16
Item 4. Disclosure Controls and Procedures ..................................17
PART II - OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Security Holders .................17
Item 6. Other Information ...................................................17
Item 7. Exhibits and Reports on Form 8-K ....................................17
Signatures ...................................................................18
Sarbanes-Oxley Section 302 Certifications of Chief Executive Officer and
Chief Financial Officer ......................................................19
2
LUIGINO'S, INC. AND SUBSIDIARY
Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Data)
(Unaudited)
October 6, December 30,
2002 2001
--------- ---------
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 1,934 $ 3,440
Receivables, net of allowance for doubtful accounts of
$146 and $146 ........................................ 23,147 29,007
Inventories ............................................ 21,242 19,571
Prepaid expenses and other ............................. 2,698 2,939
--------- ---------
Total current assets ................................. 49,021 54,957
--------- ---------
Property, Plant and Equipment:
Land ................................................... 22 22
Buildings and improvements ............................. 20,823 16,878
Machinery and equipment ................................ 122,586 116,636
Office equipment and leasehold improvements ............ 6,652 5,855
Construction in progress ............................... 7,762 7,486
Less - - Accumulated depreciation ...................... (66,717) (57,644)
--------- ---------
Net property, plant and equipment .................... 91,128 89,233
--------- ---------
Other Assets:
Receivables from stockholder ........................... 4,472 4,722
Deferred costs, principally debt issuance costs ........ 3,913 6,323
Restricted cash ........................................ 46 44
Goodwill ............................................... 39,648 39,648
Other intangibles, net of amort of $9,731 and $5,884 ... 24,920 28,766
--------- ---------
Total other assets ................................... 72,999 79,503
--------- ---------
Total Assets ............................................... $ 213,148 $ 223,693
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt ................... $ 10,451 $ 10,451
Accounts payable ....................................... 17,942 20,557
Accrued expenses - -
Accrued payroll and benefits ......................... 5,195 5,889
Accrued interest ..................................... 2,029 4,557
Accrued promotions and other ......................... 6,311 6,142
Declared shareholder tax distributions ............... -- 7,655
--------- ---------
Total current liabilities ............................ 41,928 55,251
Long-term debt, less current maturities .................... 150,352 151,995
Deferred taxes ............................................. 9,066 9,600
--------- ---------
Total liabilities .................................... 201,346 216,846
--------- ---------
Commitments and Contingencies
Stockholders' Equity :
Common stock - -
Voting, $1 stated par value, 600 shares authorized;
100 shares issued and outstanding .................. -- --
Nonvoting, $1 stated par value, 900 shares authorized;
900 shares issued and outstanding .................. 1 1
Additional paid-in capital ............................. 655 655
Declared shareholder tax distributions ................. -- (8,074)
Swap fair market valuation ............................. (538) --
Retained earnings ...................................... 11,684 14,265
--------- ---------
Total stockholders' equity ........................... 11,802 6,847
--------- ---------
Total Liabilities and Stockholders' Equity ................. $ 213,148 $ 223,693
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
3
LUIGINO'S, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(In Thousands)
(Unaudited)
Third Fiscal Quarter Ended 40 Weeks Ended
-------------------------------- --------------------------------
October 6, 2002 October 7, 2001 October 6, 2002 October 7, 2001
--------------- --------------- --------------- ---------------
Net Sales .................................. $ 70,980 $ 67,762 $ 220,688 $ 218,113
Cost of Goods Sold ......................... 47,284 45,167 153,318 155,371
--------- --------- --------- ---------
Gross profit .......................... 23,696 22,595 67,370 62,742
--------- --------- --------- ---------
Operating Expenses:
Selling and marketing expenses ........ 6,563 4,877 20,757 15,763
General and administrative expenses ... 7,522 8,202 25,250 27,009
--------- --------- --------- ---------
Total operating expenses .............. 14,085 13,079 46,007 42,772
--------- --------- --------- ---------
Operating income ...................... 9,611 9,516 21,363 19,970
Other Income (Expense):
Interest expense ...................... (3,422) (3,729) (12,221) (13,017)
Extinguishment of debt ................ (1,160) -- (1,160) --
Interest income ....................... 54 77 183 300
Other, net ............................ (94) (6) 3 (317)
--------- --------- --------- ---------
Total other expense ................... (4,622) (3,658) (13,195) (13,034)
--------- --------- --------- ---------
Net Income ................................. $ 4,989 $ 5,858 $ 8,168 $ 6,936
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
4
LUIGINO'S, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
First 40 Weeks Ended
--------------------------------
October 6, 2002 October 7, 2001
--------------- ---------------
Operating Activities:
Net Income ............................................... $ 8,168 $ 6,936
Adjustments to net loss provided by (used in)
operating activites -
Depreciation and amortization ........................... 16,223 16,076
Deferred income taxes ................................... -- (332)
Changes in operating assets and liabilities:
Receivables ............................................ 5,861 1,269
Inventories ............................................ (1,672) (1,379)
Prepaid expenses and other ............................. 240 (863)
Accounts payable and accrued expenses .................. (6,740) 3,675
-------- --------
Net cash provided by operating activities ............ 22,080 25,382
-------- --------
Investing Activities:
Purchases of property, plant and equipment ............... (10,967) (5,042)
Payments for deferred costs .............................. (310) (806)
Business acquisition ..................................... -- (66,587)
-------- --------
Net cash used in investing activities ................ (11,277) (72,435)
-------- --------
Financing Activities:
Borrowings on revolving credit agreement ................. 77,700 68,211
Payments on revolving credit agreement ................... (63,966) (69,200)
Proceeds from debt ....................................... 56,234 60,000
Repayments of debt ....................................... (71,611) (9,879)
Increase in deferred financing costs ..................... (584) (1,632)
Increase (decrease) in restricted cash ................... (3) 37
Decrease in notes receivable ............................. 250 444
Distributions to stockholders ............................ (10,329) --
-------- --------
Net cash provided by (used in) financing activities .. (12,309) 47,981
-------- --------
(Decrease) increase in cash and cash equivalents ............ (1,506) 928
Cash and cash equivalents, beginning of period .............. 3,440 313
-------- --------
Cash and cash equivalents, end of period .................... $ 1,934 $ 1,241
======== ========
Supplemental Information:
Interest paid .......................................... 13,303 14,574
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
5
LUIGINO'S, INC. AND SUBSIDIARY
Notes to Financial Statements
(Dollars in Thousands)
(Unaudited)
1. Operations:
Luigino's, Inc. and Subsidiary (the "Company"), a Minnesota corporation, markets
food products primarily under the Michelina's and Budget Gourmet name brands.
The Michelina's label is manufactured at production facilities located in
Minnesota and Ohio. The Budget Gourmet label is sourced through a co-pack
agreement with Heinz Frozen Food Company (HFF) and internal production in
Minnesota and Ohio. The Company's products, distributed predominately in the
North American market, are sold through independent and chain store retail
grocery outlets.
2. Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments consisting solely of normal recurring items
considered necessary for a fair presentation have been included.
Operating results for the 40 weeks ended October 6, 2002 are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 29, 2002. Certain amounts in the financial statements for the prior
quarter have been reclassified to conform with the current period's
presentation. Those reclassifications had no effect on stockholders' equity or
net income.
For further information, refer to the audited financial statements and footnotes
thereto included in the Company's Form 10-K for the fiscal year ended December
30, 2001, filed on March 19, 2002 with the Securities and Exchange Commission.
3. Recent Accounting Pronouncements:
Effective with the first quarter of 2002, the Company adopted the provisions of
Emerging Issues Task Force (EITF) Issues 00-14,"Accounting for Certain Sales
Incentives" and 00-25,"Vendor Income Statement Characterization of Consideration
from a Vendor to a Retailer." These EITF Issues provide that certain sales
incentives and consideration paid by the Company to a retailer, such as new item
placement fees, coupon redemption costs, feature price discounts, in-store
display incentive and cooperative advertising, are reductions of net sales.
Prior to adoption, the Company recognized these expenditures as selling
expenses. To conform to current year presentation, prior year amounts have been
appropriately reclassified. The result of these adoptions was a reclassification
between selling expenses and net sales with no impact on net income. The amounts
of reclassification of these promotional expenses for the third quarter 2002 and
2001 are $8,428 and $12,999, respectively, and for the 40 weeks ended October 6,
2002 and October 7, 2001 are $40,972 and $46,781, respectively.
On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for
issuance Statement of Financial Accounting Standards (SFAS) 141, "Business
Combinations," and SFAS 142, "Goodwill and Intangible Assets." These statements
change the accounting for business combinations, goodwill and intangible assts.
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations and further clarifies the criteria for recognizing intangible
assets separate from goodwill. SFAS 142 provides that goodwill and other
indefinite-lived intangible assets are no longer amortized but are reviewed
annually, or more frequently if necessary, for impairment. Separable intangible
assets that are deemed to have a definite life will continue to be amortized
over their useful lives.
The Company adopted the provisions of SFAS 141 and SFAS 142 effective with the
first quarter of 2002 and has discontinued the amortization of its goodwill and
indefinite-lived intangible assets.
6
"Adjusted Earnings" - SFAS 142 Transitional Disclosure
For comparability, the table below reconciles the Company's reported earnings
for the third quarter, and fiscal year end to "adjusted" earnings for the 40
weeks ended October 7, 2001 and the year ended December 30, 2001, which exclude
goodwill amortization. There was no goodwill to amortize prior to 2001.
Third Quarter Year-to-date 52 Weeks
(12 weeks) ended (40 weeks) ended Ended
--------------------- ---------------------- -----------
October 6, October 7, October 6, October 7, December 30,
2002 2001 2002 2001 2001
------- ------- ------- ------- -------
Reported net income ................ $ 4,989 $ 5,858 $ 8,168 $ 6,936 $15,669
Goodwill amortization, net of tax .. -- 762 -- 2,437 3,199
------- ------- ------- ------- -------
Adjusted net income ................ $ 4,989 $ 6,620 $ 8,168 $ 9,373 $18,868
======= ======= ======= ======= =======
Carrying amounts for other intangible assets and goodwill, net of accumulated
amortization, as of October 6, 2002 and October 7, 2001, respectively, are
$64,568 and $70,290.
The Company has completed the transitional impairment testing. The Company has
one segment for goodwill and financial reporting purposes. The transitional
analyses resulted in no impairment charges.
Intangible assets as of October 6, 2002 consisted of the following:
Gross
Carrying Accumulated
(In thousands) Amount Amortization
- -------------------------------------------------------------------------
Amortized intangible assets:
Restricted covenant .......................... $10,000 $ 8,460
Transitional agreement ....................... 150 150
--------------------
10,150 8,610
====================
Unamortized intangible assets:
Trademarks ................................... 22,892
Patent sublicense ............................ 488
--------
23,380
========
Amortization of intangibles for the
40 weeks ended October 6, 2002 ............ $ 3,846
--------
Estimated amortization expense of the amortized intangible assets will be $1,154
in 2002, $386 in 2003, and $0 thereafter.
In August 2001, the FASB issued Statements of Financial Accounting Standards No.
144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets". This statement supersedes Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and amends other guidance related to the accounting
and reporting of long-lived assets. The Company adopted SFAS 144 effective first
quarter 2002. The adoption of SFAS 144 did not have an impact on the Company's
financial condition or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 62, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS 4. SFAS 145 also amends
SFAS 13 to require certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting
7
for sub-leases when the original lessee remains a secondary obligor or
guarantor. Upon adoption, any gain or loss on extinguishment of debt previously
classified as an extraordinary item in prior periods presented be reclassified
to conform with the provisions of SFAS 145. SFAS 145's amendment and technical
correction to SFAS 13 is effective for all transactions occurring after May 15,
2002. The Company adopted SFAS 145 effective for the third quarter of 2002. The
adoption of SFAS 145 resulted in the $1,160 loss due to the extinguishment of
debt being recorded as other expense in the third quarter of 2002.
In July 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit
or Disposal Activities." The statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
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)." SFAS 146 requires that a liability for costs associated
with an exit or disposal activity be recognized when a liability is incurred.
Under Issue 94-3, a liability for an exit cost as generally defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. We do not expect the adoption of SFAS 146
to have a material impact on our financial statements.
4. Fiscal Year:
The Company has elected a 52/53 week fiscal year which ends on the Sunday
closest to December 31. The Company's fiscal year includes a 16-week first
fiscal quarter, 12-week second and third fiscal quarters and a 12- or 13-week
fourth fiscal quarter.
5. Inventories:
Inventories are stated at the lower of first-in, first-out cost or market and
consisted of the following:
October 6, 2002 December 30, 2001
--------------- -----------------
Finished Goods $ 10,460 $ 8,974
Raw Materials 8,287 7,748
Packaging Supplies 2,495 2,849
--------- ---------
$ 21,242 $ 19,571
========= =========
6. Acquisition of The All American Gourmet Company:
On February 9, 2001, the Company acquired all of the outstanding capital stock
of The All-American Gourmet Company, a Delaware Corporation (AAG) pursuant to a
Purchase Agreement by and between the Company and HFF, a Delaware Corporation
and the parent of AAG. At the date of closing, the only assets owned by AAG were
intangible assets consisting of trademarks, logos, patent licenses, product
formulas, quality specifications, customer lists, and marketing materials. The
aggregate consideration for the acquisition of AAG was $66.6 million in cash.
The Company also agreed to purchase certain finished goods inventory from the
former parent HFF, over a six-month period following closing. The Company
entered into a two-year co-pack agreement with HFF, whereby the Company has
agreed to purchase a minimum of 8 million and 6 million cases in fiscal years
2001 and 2002, respectively.
The Company's acquisition was accounted for by using the purchase method. The
purchase price was allocated to the acquired assets and assumed liabilities
based on a determination of the fair values of the assets purchased and
liabilities assumed. The purchase price and related acquisition costs exceeded
the fair values assigned to tangible assets by approximately $66,627. Except for
the amortization on the $10,000 of restrictive covenant, effective first quarter
of 2002, the Company has discontinued the amortization of goodwill and
indefinite-lived intangible assets.
The following unaudited pro forma condensed results of operations for the
periods ended October 6, 2002 and October 7, 2001 have been prepared as if the
transaction occurred on January 1, 2001.
8
For the 40 Weeks Ended
Pro Forma
October 6, 2002 October 7, 2001
- ------------------------------ ----------------- -----------------
Net Sales.................. $ 220,688 $ 226,833
Income from Operations..... 21,363 21,915
Net Income................. 8,168 8,205
The financial information does not purport to represent results which would have
been obtained if the acquisition had been in effect on January 1, 2001 or any
future results which may in fact be realized.
The Company is organized as a Subchapter S corporation. Accordingly, all tax
liabilities are the responsibility of individual shareholders. Deferred tax
assets and liabilities become the responsibility of the Company if and when the
Subchapter S corporation structure is converted to a C-Corporation. The
Company's subsidiary, AAG, is a C-Corporation. As such, AAG will be responsible
for federal, state and foreign taxes. As a part of the acquisition of AAG, the
Company recorded a $9,600 deferred tax liability and corresponding increase to
goodwill due to financial reporting and tax reporting basis differences.
At October 6, 2002, AAG has approximately $200 of federal net operating tax loss
carryforwards. The losses are available to offset future federal taxable income
through fiscal year 2021. Further, AAG may be classified as a personal holding
company ("PHC") for federal income tax purposes. AAG, as a PHC, may be assessed
a tax (in addition to the regular corporate federal income tax) on its
undistributed PHC income. For the 40 week period ended October 6, 2002, AAG does
not have any undistributed PHC income.
7. Debt:
On September 27, 2002, the Company entered into a new $75,000 credit facility to
replace the $100,000 credit facility used to fund the AAG acquisition and to
fund the Company's revolving credit. The new credit facility includes (a) a
$42,500 term loan with maturities for each of the five years subsequent to
December 31, 2001 of $5,000, $10,000, $12,500, $11,250, and $3,750, and (b) a
$32,500 revolving credit facility maturing on January 4, 2006, subject to
certain borrowing base limitations. At October 6, 2002, the Company had
outstanding balances of $13,734, on the revolving line of credit.
On February 4, 1999, the Company issued $100,000 of 10% Senior Subordinated
Notes due February 1, 2006, pursuant to an Indenture dated February 4, 1999
between the Company and U.S. Bank Trust National Association as Trustee. The
Senior Subordinated Notes are due February 1, 2006 and may be redeemed by the
Company for a premium after March 1, 2003. The Company may also redeem up to
$35,000 of the Senior Subordinated Notes with net cash proceeds of any public
offerings of Common Stock at any time prior to February 1, 2002 at a redemption
price of 110% of the principal amount redeemed, provided that such redemption
occurs within 45 days of the closing of such public offering.
The Company entered into two fixed interest rate swaps in February 2002 totaling
$30,000. One is a $20,000 swap at an interest rate of 3.49%, plus the current
margin spread of 2.00% maturing on December 31, 2003 and the other is a $10,000
swap at an interest rate of 3.07%, plus the current margin spread of 2.00% with
$2,500 maturing on December 31, 2002, March 31, 2003, June 30, 2003 and
September 30, 2003, respectively.
The swap agreements were entered into to fix the rate of interest on the
floating rate senior credit facility. The swaps are accounted for as cash flow
hedges and their total fair market value as of October 6, 2002 is a liability of
$538.
Based on a total leverage ratio calculated on a quarterly basis, borrowings
under the term loan and revolving credit facility bear interest either at 1.75%
to 2.25% over the rate offered to major banks in the London Interbank Eurodollar
market ("Eurodollar Rate"), or at 0% to 0.5% over Alternative Base Rate, which
is the larger of the Prime Rate or the Federal Funds Rate plus 0.5%. Advances
through October 6, 2002 bore interest at the Eurodollar Rate plus 2.00% and
Prime Rate plus 0.25% with a weighted-
9
average interest rate of 5.00% at October 6, 2002. The Company also pays a fee
of 0.25% to 0.50% on the unused daily balance of the revolver based on a
leverage ratio calculated on a quarterly basis.
The credit facility and Indenture contain various restrictive covenants. The
Credit Agreement among other matters, requires the Company to maintain a minimum
debt service coverage ratio, a maximum total leverage ratio, a maximum senior
leverage ratio and a minimum tangible net worth, all as defined in the credit
agreement. The credit agreement also limits additional indebtedness, capital
expenditures and cash dividends. At October 6, 2002, the Company was in
compliance with all covenants in the credit agreement and Indenture.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion of the financial condition and results of operations of
Luigino's, Inc. and Subsidiary (the "Company" or "Luigino's") should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
Results of Operations
The following table sets forth, for the periods indicated, the major components
of Luigino's statements of operations expressed as a percentage of net sales:
Third Fiscal Quarter Ended 40 Weeks Ended
------------------------ ------------------------
October 6, October 7, October 6, October 7,
2002 2001 2002 2001
--------- --------- --------- ---------
Net Sales ........................ 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold ............... 66.6 66.7 69.5 71.2
----- ----- ----- -----
Gross profit ................. 33.4 33.3 30.5 28.8
Operating Expenses:
Selling and promotional ...... 9.3 7.2 9.4 7.2
General and administrative ... 10.6 12.1 11.4 12.4
----- ----- ----- -----
Total operating expenses ..... 19.9 19.3 20.8 19.6
Operating income ............. 13.5 14.0 9.7 9.2
Other Income (Expense):
Interest expense ............. (4.8) (5.5) (5.5) (6.0)
Extinguishment of debt ....... (1.6) 0.0 (0.6) 0.0
Interest income .............. 0.0 0.1 0.1 0.1
Other, net ................... (0.1) 0.0 (0.0) (0.1)
----- ----- ----- -----
Total other expense ........ (6.5) (5.4) (6.0) (6.0)
----- ----- ----- -----
Net Income ....................... 7.0% 8.6% 3.7% 3.2%
===== ===== ===== =====
10
Third Fiscal Quarter 2002 compared to Third Fiscal Quarter 2001
Net Sales. The following table sets forth the Company's net sales by product
line and the percentage change from the prior period:
Third Fiscal Quarter Ended
-------------------------------- Percentage
October 6, 2002 October 7, 2001 Change
--------------- --------------- ----------
(Dollars in thousands)
Popular ......................... $38,652 $41,301 (6.4)%
Economy ......................... 18,743 19,433 (3.6)
Signature ....................... 3,646 4,371 (16.6)
Snacks .......................... 2,433 2,657 (8.4)
Bowls ........................... 7,506 -- --
------- ------- -----
$70,980 $67,762 4.7%
======= ======= =====
Total net sales for the third fiscal quarter ended October 6, 2002 increased
$3.2 million or 4.7% to $71.0 million from $67.8 million for the comparable
quarter in 2001. Unit volume increased 6.8% in the third fiscal quarter of 2002
over the same quarter in 2001. Retailers continue to shift to a one-value-brand
strategy resulting in net sales in the Popular and Economy product lines
decreasing 6.4% and 3.6% respectively. Signature and Snacks product lines
declined 16.6% and 8.4% respectively due to decreased distribution. The Bowls
product line, which was launched in the first quarter of 2002, reported net
sales of $7.5 million in the third fiscal quarter ended October 6, 2002.
Canadian net sales were $10.8 million or 15.2% of total net sales in the third
fiscal quarter of 2002, as compared to $7.3 million or 10.7% of net sales in the
third fiscal quarter of 2001. Canadian sales have benefited from the
introduction of the Bowls product line, the growth of the frozen entree market,
and the continued use of advertising.
Gross Profit. Gross profit in the third fiscal quarter of 2002 increased $1.1
million to $23.7 million from $22.6 million in the third quarter of 2001. The
increase is volume related. The gross margin for the third fiscal quarter of
2002 was 33.4% as compared to 33.3% for the comparable quarter in 2001.
Selling and Marketing Expenses. Selling and marketing expenses for the third
fiscal quarter ended October 6, 2002, increased $1.7 million to $6.6 million due
primarily to increased advertising expenses.
General and Administrative Expenses. General and administrative expenses
decreased $0.7 million to $7.5 million in the third fiscal quarter of 2002. The
decline is due primarily to the discontinuance of goodwill amortization.
Operating Income. Operating income for the third fiscal quarter ended October 6,
2002 was $9.6 million as compared to $9.5 million for the same quarter in 2001.
This increase is the net result of the volume driven increase in gross profit
and the reduction in amortization expense, offset, partially, by increased
advertising expenses.
Interest Expense. Interest expense for the third fiscal quarter of 2002 was $3.4
million as compared with $3.7 million for 2001. The $0.3 million decrease is the
result of lower interest rates on the senior bank debt in the third fiscal
quarter of 2002.
Extinguishment of Debt. During the third fiscal quarter of 2002 the Company
refinanced its senior bank debt resulting in a $1.2 million expense due to the
write off of deferred financing costs associated with the previous senior bank
debt facility.
Interest Income. Interest income was $0.1 million for both the third fiscal
quarters of 2002 and 2001.
11
Other, Net. Other expense was $0.1 million in the third fiscal quarter of 2002,
as compared to zero in 2001.
Net Income. For the reasons stated earlier, net income for the third fiscal
quarter ended October 6, 2002 was $5.0 million compared to $5.9 million in the
third fiscal quarter of 2001.
The 40 Weeks Ended October 6, 2002 compared to the 40 weeks ended October 7,
2001
Net Sales. The following table sets forth the Company's net sales by product
line and the percentage change from prior period.
40 Weeks Ended
-------------------------------- Percentage
October 6, 2002 October 7, 2001 Change
--------------- --------------- ----------
(Dollars in thousands)
Popular ......................... $125,091 $131,671 (5.0)%
Economy ......................... 60,673 59,147 2.6
Signature ....................... 13,199 16,859 (21.7)
Snacks .......................... 7,791 10,436 (25.3)
Bowls ........................... 13,934 -- --
-------- -------- -----
$220,688 $218,113 1.2%
======== ======== =====
Total net sales for the 40 weeks ended October 6, 2002 increased $2.6 million or
1.2% to $220.7 million from $218.1 million in 2001. Unit volume increased 1.4%.
As noted earlier, the continued shift of retailers to a one-value-brand strategy
has negatively affected net sales in the Popular and Economy product lines. As a
result, net sales of the Popular product line decreased $6.6 million or 5.0% for
the 40 weeks ended October 6, 2002 as compared with the comparable period in
2001. Net sales of the Economy product line increased $1.6 million or 2.6% due
primarily to the acquisition of The All American Gourmet Company. Both Signature
and Snacks product lines reported a decline in net sales of $3.7 and $2.6
million respectively, due to decreased distribution. The Bowls product line,
which was introduced in the first quarter of 2002, reported net sales of $13.9
million for the 40 weeks ended October 6, 2002.
Canadian net sales contributed $36.0 million or 16.3% of net sales for the 40
weeks ended October 6, 2002, compared to $30.0 million or 13.8% of net sales for
the comparable 40 week period in 2001. The increase in Canadian sales is the
result of the continued growth of the frozen entree market in Canada, the
introduction of the Bowls product line in the first quarter of 2002, and the
volume impact from the continued use of advertising.
Gross Profit. Gross profit for the 40 week period ended October 6, 2002
increased $4.7 million to $67.4 million from $62.7 million in 2001. Gross margin
improved to 30.5% of net sales from 28.8%. The gross profit and margin
improvements are primarily the result of realizing the full year impact of the
May, 2001, Budget Gourmet brands price increases, improved operating
efficiencies, and lower commodity costs.
Selling and Marketing Expenses. Selling and marketing expenses for the 40 weeks
ended October 6, 2002 increased $5.0 million to $20.8 million due primarily to
higher advertising, distribution and reclamation expenses.
General and Administration Expense. General and administrative expenses for the
40 weeks ended October 6, 2002 decreased $1.8 million to $25.2 million from
$27.0 million for the comparable period last year. The decrease is the net
result of a $2.3 million decrease in amortization expenses due to the
discontinuance of goodwill amortization, partially offset by a $0.5 million or
2.0% increase in general spending.
Operating Income. Operating income for the 40 weeks ended October 6, 2002 was
$21.4, an increase of $1.4 million over the comparable period last year. The
increase in operating income was primarily due to
12
the gross profit improvement and decreased amortization expense partially offset
by higher advertising expenses.
Interest Expense. Interest expense was $12.2 million for the 40 week period
ended October 6, 2002 as compared to $13.0 million for the same 40 week period
in 2001. This $0.8 million decrease is the result of lower interest rates on the
senior bank debt.
Extinguishment of Debt. During the third fiscal quarter of 2002 the Company
refinanced its senior bank debt resulting in a $1.2 million expense due to the
write off of deferred financing costs associated with the previous senior bank
debt facility.
Interest Income. Interest income for the 40 week period in 2002 was $0.2 million
as compared to $0.3 million for the comparable period in 2001.
Other Net. There was no other income or expenses for the 40 weeks ended October
6, 2002 as compared $0.3 million expense in 2001.
Net Income. For the reasons stated above, the net income for the 40 week period
in 2002 was $8.2 million as compared to $6.9 million in 2001.
Liquidity and Capital Resources
On September 27, 2002 the Company refinanced its then existing senior bank debt
with a $75.0 million credit facility with LaSalle Bank, N.A. The credit facility
includes (a) a $42.5 million term loan with maturities of $5.0 million, $10.0
million, $12.5 million, $11.25 million and $3.75 million respectively in fiscal
years 2002 to 2006, and (b) a $32.5 million revolving credit facility expiring
on January 4, 2006, subject to certain borrowing base limitations.
At October 6, 2002, the Company had $13.7 million outstanding on its $32.5
million line of senior revolving credit with LaSalle Bank, N.A. The cash and
cash equivalents were $1.9 million as of October 6, 2002 as compared to $3.4
million as of December 30, 2001. As of October 6, 2002, the Company was in
compliance with all covenants of its senior credit agreement with LaSalle Bank.
Operating activities provided $22.1 million of cash in the first 40 weeks of
2002, as compared to $25.4 million for the first 40 weeks of 2001. This $3.3
million decrease in cash provided by operating activities is the result of $5.0
million reduction in working capital offset by a $1.3 million increase in net
income, a $0.1 million increase in depreciation and amortization, and a $0.3
million increase in deferred income taxes.
Investing activities used $11.3 million of cash for the 40 weeks ending October
6, 2002, as compared to $72.4 million for the comparable period in 2001. In the
first quarter of 2001, the Company used $66.6 million to acquire the All
American Gourmet Company.
Financing activities used $12.3 million of cash in the first 40 weeks ended
October 6, 2002 as compared to $48.0 million in cash provided for the same 40
weeks in 2001. The Company paid $10.3 million in distributions to shareholders
in 2002, $7.7 million to cover their tax liability related to 2001 operating
results and $2.6 million as partial payment of their 2002 tax liability. On
February 9, 2001, the Company obtained $66.6 million of cash primarily for the
acquisition of AAG through borrowings under a $100.0 million credit facility
which replaced its then existing revolving credit facility. On September 27,
2002, the Company refinanced this $100.0 million credit facility with a $75.0
million credit facility with LaSalle Bank, N.A. , drawing $56.2 million, $42.5
million of term and $13.7 million of revolver to pay off the former credit
facility and cover related fees and expenses.
As a part of the Company's strategic growth plan, the Company incurred
approximately $9.0 million for new item placement expenses for the first 40
weeks of 2002 to introduce new products and increase product penetration. The
Company plans on spending approximately $12.0 million on plant and equipment
purchases in 2002, of which $11.0 million has been incurred as of October 6,
2002, primarily to increase the production and distribution capacity at its
Jackson, Ohio plant.
13
The Company anticipates continuing to elect Subchapter S treatment under the
U.S. Internal Revenue Code. Consequently, the Company will continue to make
quarterly distributions to the shareholders based upon their estimated tax
liabilities. The Company's subsidiary, AAG, is a C-Corporation. As such, AAG
will be responsible for all tax liabilities including deferred taxes.
Of the $160.8 million of total indebtedness on October 6, 2002, $100.0 million
consisted of 10% senior subordinated notes issued pursuant to an Indenture dated
February 4, 1999 between the Company and U.S. Bank Trust National Association as
trustee. Interest on the senior subordinated notes is payable semi-annually in
arrears on February 1 and August 1 of each year. The senior subordinated notes
are due February 1, 2006, but may be redeemed by the Company for a premium after
March 1, 2003. Based upon the current level of operations, the Company believes
that cash flow from operations and available cash, together with available
borrowings under the credit agreement, will be adequate to meet the future
liquidity needs, including payment requirements on the senior subordinated
notes, for at least the next several years. The Company may, however, need to
refinance all or a portion of the principal of the senior subordinated notes on
or before maturity. There can be no assurance that the business will generate
sufficient cash flow from operations, or that future borrowings will be
available under the credit agreement in an amount sufficient to enable the
Company to service indebtedness or to fund other liquidity needs. In addition,
there can be no assurance that the Company will be able to obtain any such
refinancing on commercially reasonable terms or at all. The Company's ability to
make scheduled payments of principal of, or to pay the interest or premiums, if
any, on, or to refinance its indebtedness or to fund planned capital
expenditures will depend on future performance, which, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond the Company's control.
The Company believes that the relatively moderate rate of inflation over the
past few years has not had a significant impact on sales or profitability.
New Accounting Pronouncements
Effective with the first quarter of 2002, the Company adopted the provisions of
Emerging Issues Task Force (EITF) Issues 00-14,"Accounting for Certain Sales
Incentives" and 00-25,"Vendor Income Statement Characterization of Consideration
from a Vendor to a Retailer." These EITF Issues provide that certain sales
incentives and consideration paid by the Company to a retailer, such as new item
placement fees, coupon redemption costs, feature price discounts, in-store
display incentive and cooperative advertising, are reductions of net sales.
Prior to adoption, the Company recognized these expenditures as selling
expenses. To conform to current year presentation, prior year amounts have been
appropriately reclassified. The result of these adoptions was a reclassification
between selling expenses and net sales with no impact on net income. The amounts
of reclassification of these promotional expenses for the third quarter 2002 and
2001 are $8,428 and $12,999, respectively, and for the 40 weeks ended October 6,
2002 and October 7, 2001 are $40,972 and $46,781, respectively.
On June 29, 2001, the Financial Accounting Standards Board (FASB) approved for
issuance Statement of Financial Accounting Standards (SFAS) 141, "Business
Combinations," and SFAS 142, "Goodwill and Intangible Assets." These statements
change the accounting for business combinations, goodwill and intangible assets.
SFAS 141 eliminates the pooling-of-interests method of accounting for business
combinations and further clarifies the criteria for recognizing intangible
assets separate from goodwill. SFAS 142 provides that goodwill and other
indefinite-lived intangible assets are no longer amortized but are reviewed
annually, or more frequently if necessary, for impairment. Separable intangible
assets that are deemed to have a definite life will continue to be amortized
over their useful lives.
The Company adopted the provisions of SFAS 141 and SFAS 142 in the first quarter
of 2002 and has discontinued the amortization of its goodwill and
indefinite-lived intangible assets.
14
"Adjusted Earnings" - SFAS 142 Transitional Disclosure
For comparability, the table below reconciles the Company's reported earnings
for the third quarter, and fiscal year end to "adjusted" earnings for the 40
weeks ended October 7, 2001 and the year ended December 30, 2001, which exclude
goodwill amortization. There was no goodwill to amortize prior to 2001.
Third Quarter Year-to-date 52 Weeks
(12 weeks) ended (40 weeks) ended Ended
------------------------ ------------------------ ------------
October 6, October 7, October 6, October 7, December 30,
2002 2001 2002 2001 2001
------- ------- ------- ------- -------
Reported net income ................. $ 4,989 $ 5,858 $ 8,168 $ 6,936 $15,669
Goodwill amortization, net of tax ... -- 762 -- 2,437 3,199
------- ------- ------- ------- -------
Adjusted net income ................. $ 4,989 $ 6,620 $ 8,168 $ 9,373 $18,868
======= ======= ======= ======= =======
Carrying amounts for other intangible assets and goodwill, net of accumulated
amortization, as of October 6, 2002 and October 7, 2001, respectively, are
$64,568 and $70,290.
The Company has completed the transitional impairment testing. The Company has
one segment for goodwill and financial reporting purposes. The transitional
analyses resulted in no impairment charges.
Intangible assets as of October 6, 2002 consisted of the following:
Gross
Carrying Accumulated
(In thousands) Amount Amortization
- -------------------------------------------------------------------------
Amortized intangible assets:
Restricted Covenant ......................... $10,000 $ 8,460
Transitional Agreement ...................... 150 150
--------------------
10,150 8,610
====================
Unamortized intangible assets:
Trademarks .................................. 22,892
Patent Sublicense ........................... 488
--------
23,380
========
Amortization of intangibles for the
40 weeks ended October 6, 2002 ............ $ 3,846
--------
Estimated amortization expense of the amortized intangible assets will be $1,154
in 2002, $386 in 2003, and $0 for 2004, 2005 and 2006.
In August 2001, the FASB issued Statements of Financial Accounting Standards No.
144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived
Assets". This statement supersedes Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" and amends other guidance related to the accounting
and reporting of long-lived assets. The Company adopted SFAS 144 effective first
quarter 2002. The adoption of SFAS 144 did not have an impact on the Company's
financial condition or results of operations.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 62, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS 145 will require gains and losses on extinguishments of debt to be
classified as income or loss from continuing operations rather than as
extraordinary items as previously required under SFAS 4. SFAS 145 also amends
SFAS 13 to require certain modifications to capital leases be treated as a
sale-leaseback and modifies the accounting for sub-leases when the original
lessee remains a secondary obligor or guarantor. Upon adoption, any gain or loss
on extinguishment of debt previously classified as an extraordinary item in
prior periods presented be reclassified to conform with the provisions of SFAS
145. SFAS 145's amendment and
15
technical correction to SFAS 13 is effective for all transactions occurring
after May 15, 2002. The Company adopted SFAS 145 in the third quarter of 2002.
The adoption of SFAS 145 resulted in the $1,160 loss due to the extinguishment
of debt being recorded as an operating expense in the third quarter of 2002.
In July 2002, FASB issued SFAS 146, "Accounting for Costs Associated with Exit
or Disposal Activities." The statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
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)." SFAS 146 requires that a liability for costs associated
with an exit or disposal activity be recognized when a liability is incurred.
Under Issue 94-3, a liability for an exit cost as generally defined in Issue
94-3 was recognized at the date of an entity's commitment to an exit plan. The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002. We do not expect a material impact on our
financial statements upon adoption of SFAS 146.
Cautionary Statement
This Form 10-Q contains forward-looking statements within the meaning of federal
securities laws. These statements include statements regarding continued
adequate cash flow, introduction of new products, investment in new capacity,
and expectations of increased product penetration, as well as other indications
of intent, belief or current expectations of the Company and its management.
These forward-looking statements are not guarantees of future performance and
involve a number of risks and uncertainties that may cause the Company's actual
results to differ materially from the results discussed in these statements. The
Company's forward-looking statements are subject to risks, uncertainties and
assumptions including, among other things: general economic and business
conditions; the Company's expectations and estimates concerning future financial
performance, financing plans and the impact of competition; anticipated trends
in the Company's industry; and other risks and uncertainties detailed from time
to time in the Company's filings with the Securities and Exchange Commission,
including Exhibit 99.1 to this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk Considerations
Credit Risk. Financial instruments which potentially subject Luigino's to
significant concentrations of credit risk consist primarily of cash and trade
accounts receivable. The Company maintains cash and cash equivalents and other
financial instruments with various financial institutions. The Company's policy
is to limit exposure to any one institution. When the Company formulates its
investment strategy, it considers periodic evaluations of the relative credit
standing of these financial institutions. The Company's concentrations of credit
risk for trade accounts receivable are limited due to the large number of
entities comprising the customer base. The Company has an exclusive distribution
agreement with J.M. Schneider Corporation in Canada, which accounted for 16.3%
of net sales for the 40 weeks ended October 6, 2002. The Company does not
currently foresee a credit risk with this distributor.
Interest Rate Risk. The Company uses financial instruments, including fixed and
variable rate debt, as well as interest rate swaps, to finance operations and to
hedge interest rate expenses. The swap contracts are entered into for periods
consistent with relative underlying exposures, and do not constitute position
independent of those exposures. The Company does not enter into contract for
speculative purposes. There has been no material change in the Company's market
risks associated with debt and interest rate swap obligations during its third
fiscal quarter ending October 6, 2002.
The Company entered into two fixed interest rate swaps in February 2002 totaling
$30,000. A $20,000 swap at an interest rate of 3.49%, plus the current margin
spread of 2.0% maturing on December 31, 2003 and a $10,000 swap at an interest
rate of 3.07%, plus the current margin spread of 2.0% with $2,500 maturing on
December 31, 2002, March 31, 2003, June 30, 2003 and September 30, 2003,
respectively.
16
The swap agreements were entered into to fix the rate of interest on the
floating rate senior credit facility. The swaps are accounted for as cash flow
hedges and their fair values are reflected in the financial statements under the
Stockholders' Equity section of the Consolidated Balance Sheet.
Other Market Risks. The Company has no history of, and does not anticipate in
the future, investing in derivative commodity instruments or other such
financial instruments. Transactions with international customers are entered
into in U.S. dollars, precluding the need for foreign currency hedges. As a
result, the exposure to market risk is not material.
Item 4. Disclosure Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer (collectively,
the "Certifying Officers") are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
concluded (based upon their evaluation of these controls and procedures as of a
date within 90 days of the filing of this report) that the Company's disclosure
controls and procedures are effective to ensure that information required to be
disclosed by the Company in this report is accumulated and communicated to the
Company's management, including its principal executive officers as appropriate,
to allow timely decisions regarding required disclosure. The Certifying Officers
also have indicated that there were no significant changes in the Company's
internal controls or other factors that could significantly affect such controls
subsequent to the date of the evaluation, and there were no corrective actions
with regard to significant deficiencies and material weaknesses.
PART II - OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Security Holders.
None.
Item 6. Other Information
In connection with the "safe harbor" provisions of the Private Securities
Litigation and Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in forward-looking statements of the
Company made by, or on behalf of the Company. See Exhibit 99.1 to this report.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits
Number Description
------ -----------
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act of
1995
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer)
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer)
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K on October 3, 2002 to disclose a new
senior credit agreement with LaSalle Bank, N.A.
17
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.
LUIGINO'S, INC.
Date: November 18, 2002 By: /s/ Thomas W. Knuesel
---------------------------------
Thomas W. Knuesel
Chief Financial Officer
(principal financial and
accounting officer)
18
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Ronald O. Bubar, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Luigino's, 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
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 and 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 18, 2002
By /s/Ronald O. Bubar
----------------------------------------
Ronald O. Bubar
Chief Executive Officer
19
SARBANES-OXLEY SECTION 302 CERTIFICATION
I, Thomas W. Knuesel, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Luigino's, 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
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 and 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 18, 2002
By /s/Thomas W. Knuesel
----------------------------------------
Thomas W. Knuesel
Chief Financial Officer
20
EXHIBIT INDEX
Number Description
------ -----------
99.1 Cautionary Statements for Purposes of the "Safe Harbor"
Provisions of the Private Securities Litigation Reform Act
of 1995
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer)
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer)
21