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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-13894
TRANSPRO, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1807383
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
100 Gando Drive, New Haven, Connecticut 06513
(Address of principal executive offices, including zip code)
(203) 401-6450
(Registrant's telephone number, including area code)
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 [ ]
The number of shares of common stock, $.01 par value, outstanding as of
November 8, 2002 was 6,981,889.
Exhibit Index is on page 16 of this report.
Page 1 of 20
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INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 2002 and 2001 3
Condensed Consolidated Balance Sheets at September 30, 2002 and
December 31, 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
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. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
Certification of Chief Executive Officer and Chief Financial Officer 19
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) THREE MONTHS NINE MONTHS
(in thousands, except per share amounts) ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------------- ------------------------------
2002 2001 2002 2001
----------- ------------- ------------ --------------
Sales $ 65,922 $ 57,351 $ 179,356 $ 158,428
Cost of sales 51,988 45,551 143,163 134,644
----------- ------------- ------------ --------------
Gross margin 13,934 11,800 36,193 23,784
Selling, general and administrative expenses 10,204 9,465 28,768 28,470
Restructuring and other special charges 492 2,926 675 2,926
----------- ------------- ------------ --------------
Operating income (loss) 3,238 (591) 6,750 (7,612)
Interest expense 1,025 1,261 2,712 3,655
----------- ------------- ------------ --------------
Income (loss) before taxes, cumulative effect of
accounting change and extraordinary item 2,213 (1,852) 4,038 (11,267)
Income tax expense (benefit) 513 (821) (2,963) (4,179)
----------- ------------- ------------ --------------
Income (loss) before cumulative effect of accounting
change and extraordinary item 1,700 (1,031) 7,001 (7,088)
Cumulative effect of accounting change, net of tax -- -- (4,671) --
Loss on debt extinguishment, net of tax -- -- -- (380)
----------- ------------- ------------ --------------
Net income (loss) $ 1,700 $ (1,031) $ 2,330 $ (7,468)
=========== ============= ============ ==============
Basic income (loss) per common share:
Before cumulative effect of accounting change
and extraordinary item $ 0 .24 $ (0.16) $ 0.99 $ (1.09)
Cumulative effect of accounting change -- -- (0.67) --
Loss on debt extinguishment -- -- -- (0.06)
----------- ------------- ------------ --------------
Net income (loss) per common share $ 0.24 $ (0.16) $ 0.32 $ (1.15)
=========== ============= ============ ==============
Diluted income (loss) per common share:
Before cumulative effect of accounting change
and extraordinary item $ 0.24 $ (0.16) $ 0.97 $ (1.09)
Cumulative effect of accounting change -- -- (0.65) --
Loss on debt extinguishment -- -- -- (0.06)
----------- ------------- ------------ --------------
Net income (loss) per common share $ 0.24 $ (0.16) $ 0 .32 $ (1.15)
=========== ============= ============ ==============
Weighed average common shares -- basic 6,982 6,609 6,982 6,593
-- diluted 7,229 6,609 7,220 6,593
The accompanying notes are an integral part of these statements.
3
TRANSPRO, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data) SEPTEMBER 30, DECEMBER 31,
ASSETS 2002 2001
--------------- --------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 280 $ 150
Accounts receivable (less allowances of $3,143 and $2,805) 57,527 30,940
Inventories:
Raw materials 19,297 17,915
Work in process 2,334 1,845
Finished goods 46,025 40,420
-------------- ----------------
Total inventories 67,656 60,180
-------------- ----------------
Deferred income taxes 1,796 1,796
Other current assets 1,818 2,878
-------------- ----------------
Total current assets 129,077 95,944
-------------- ----------------
Property, plant and equipment 75,338 72,720
Accumulated depreciation and amortization (49,850) (48,251)
-------------- ----------------
Net property, plant and equipment 25,488 24,469
-------------- ----------------
Goodwill (net of amortization of $0 and $875) -- 4,671
Other assets 5,433 4,599
-------------- ----------------
Total assets $ 159,998 $ 129,683
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving credit debt and current portion of long-term debt $ 43,273 $ 29,665
Accounts payable 28,537 20,316
Accrued liabilities 21,358 14,458
-------------- ----------------
Total current liabilities 93,168 64,439
-------------- ----------------
Long-term liabilities:
Long-term debt 7,321 7,998
Retirement and postretirement obligations 5,248 5,244
Deferred income taxes 3,037 3,037
-------------- ----------------
Total long-term liabilities 15,606 16,279
-------------- ----------------
Commitments and contingent liabilities
Stockholders' equity:
Preferred stock, $.01 par value: authorized 2,500,000 shares; issued and outstanding as
follows:
Series A junior participating preferred stock, $.01 par value:
authorized 200,000 shares; issued and outstanding -- none at
September 30, 2002 and December 31, 2001 -- --
Series B convertible preferred stock, $.01 par value: authorized 30,000 shares;
issued and outstanding -- 18,920 shares at September 30, 2002 and December
31, 2001 (liquidation preference $1,892) -- --
Common Stock, $.01 par value: authorized 17,500,000 shares; 7,023,825
shares issued at September 30, 2002 and December 31, 2001; 6,981,889
shares outstanding at September 30, 2002 and December 31, 2001 70 70
Paid-in capital 55,037 55,037
Retained deficit (2,005) (4,264)
Accumulated other comprehensive loss (1,863) (1,863)
Treasury stock, at cost - 41,936 shares at September 30, 2002 and December 31, 2001 (15) (15)
-------------- ----------------
Total stockholders' equity 51,224 48,965
-------------- ----------------
Total liabilities and stockholders' equity $ 159,998 $ 129,683
============== ================
The accompanying notes are an integral part of these statements.
4
TRANSPRO, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) NINE MONTHS ENDED
(in thousands) SEPTEMBER 30,
----------------------------
2002 2001
------------ ------------
Cash flows from operating activities:
Net income (loss) $ 2,330 $ (7,468)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating
activities:
Non-cash restructuring charges 516 2,926
Depreciation and amortization 3,740 4,172
Cumulative effect of accounting change 4,671 --
Provision for uncollectible accounts receivable 628 898
Loss on extinguishment of debt -- 380
Changes in operating assets and liabilities:
Accounts receivable (27,215) (6,157)
Inventories (7,958) 16,534
Accounts payable 8,221 (6,557)
Accrued expenses 6,900 (3,367)
Other 31 2,882
------------ ------------
Net cash (used in) provided by operating activities (8,136) 4,243
------------ ------------
Cash flows from investing activities:
Capital expenditures, net of sales and retirements (4,500) (2,091)
------------ ------------
Net cash used in investing activities (4,500) (2,091)
------------ ------------
Cash flows from financing activities:
Dividends paid (71) (113)
Net borrowings under revolving credit facility 13,529 34,811
Borrowings under term loan -- 4,490
Repayments of term loan and capitalized lease obligations (598) (570)
Net repayments under previous revolving credit arrangement -- (40,042)
Deferred debt issuance costs (94) (900)
------------ ------------
Net cash provided by (used in) financing activities 12,766 (2,324)
------------ ------------
Increase (decrease) in cash and cash equivalents 130 (172)
Cash and cash equivalents at beginning of period 150 172
------------ ------------
Cash and cash equivalents at end of period $ 280 $ --
============ ============
The accompanying notes are an integral part of these statements.
5
TRANSPRO, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INTERIM FINANCIAL STATEMENTS
The condensed consolidated financial information should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 2001 including the financial statements and notes thereto
included therein.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
considered necessary for a fair presentation of consolidated financial position,
consolidated results of operations and consolidated cash flows have been
included in the accompanying unaudited condensed consolidated financial
statements. All such adjustments are of a normal recurring nature. Certain
reclassifications have been made to prior period amounts to conform to current
year presentations.
NOTE 2 - COMPREHENSIVE INCOME (LOSS)
For the three and nine months ended September 30, 2002 and 2001,
comprehensive income (loss) was comprised of the reported net income (loss) for
the period of $1.7 million and $2.3 million in 2002 and $(1.0) million and
$(7.5) million in 2001, respectively.
NOTE 3 - RESTRUCTURING AND OTHER SPECIAL CHARGES
During the third quarter of 2001, the Company implemented a
restructuring program designed around its business initiatives to improve
operating performance. The program, which is expected to continue through the
first half of 2003, includes the redesign of our distribution system, headcount
reductions, the transfer of production between manufacturing facilities, a
review of manufacturing locations and a reevaluation of our product offerings.
As a part of the program, the Company recorded restructuring and other
special charges of $1.2 million during the first nine months of 2002. A summary
of these charges is as follows:
BALANCE BALANCE REMAINING
REMAINING AT CHARGE TO CASH (PAYMENTS) NON-CASH AT SEPTEMBER 30,
DECEMBER 31, 2001 OPERATIONS RECEIPTS WRITE-OFFS 2002
------------------- ------------- ----------------- ------------ --------------------
(in thousands)
Workforce related $397 $ 491 $(384) $ -- $504
Asset disposal -- 416 100 (516) --
Facility consolidations 237 250 (249) -- 238
------ ------- ------- ------- -----
Total $634 $ 1,157 $(533) $(516) $742
====== ======= ======= ======= =====
During the third quarter of 2002, the Company announced the closure of
its underutilized Maquoketa, Iowa, Heavy Duty component parts plant in order to
move the manufacturing closer to where the parts are used. As a result, a
restructuring charge of $0.8 million was recorded to reflect severance costs
associated with the elimination of 24 salaried and hourly positions ($0.2
million), closure costs ($0.1 million) and the
6
write-down of assets to net realizable value. Of this amount, $0.5 million
reflecting the write-down of inventory was included in cost of sales. Cash
payments will occur through the end of 2002.
The workforce-related charge reflects the elimination of 119 salaried
and hourly positions within the Heavy Duty and Auto and Light Truck segments
during 2001, and earned stay-pay bonuses within the Heavy Duty Segment in 2002.
Cash payments are expected to continue through the first quarter of 2003.
During the second quarter of 2002, the Company received proceeds of
$0.1 million from the sale of assets, which had been written off during the
fourth quarter of 2001 in connection with the closure of a California
manufacturing facility.
The facility consolidation charges primarily represent inventory and
machinery movement, lease termination and facility exit expenses associated with
the closure of nine Aftermarket segment branch facilities, including one during
2002, as part of the redesign of the Company's distribution system. Cash
payments are expected to continue into 2003 as a result of costs associated with
idle facilities.
NOTE 4 - BORROWING ARRANGEMENTS
On September 27, 2002, the Company entered into an amendment to its
Loan and Security Agreement with Congress Financial Corporation (New England),
which provides for a temporary increase in the maximum credit line from $55.0
million to $65.0 million effective July 1, 2002, with scheduled reductions
through December 20, 2002 back down to $55.0 million. As of September 30, 2002,
the maximum credit line was $62.0 million. The increased credit line provides
the Company with additional flexibility to meet ongoing working capital needs
through its peak seasonal borrowing period.
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be subject to periodic testing for impairment. Intangible assets
determined to have definitive lives will continue to be amortized over their
useful lives. As this statement is effective for fiscal years beginning after
December 15, 2001, the Company has adopted SFAS 142 in the first quarter of
2002. As a result of applying the tests included in SFAS 142, the Company has
determined that there was a transitional impairment loss as the carrying value
of the goodwill recorded by its Automotive and Light Truck segment exceeded the
fair value of the business, based on an allocation of the quoted market price of
the Company's common stock. The cumulative effect of this change in accounting
principle, in the amount of $4.7 million, has been expensed in the consolidated
results of operations in the first quarter of 2002. This write-off has no impact
on cash flow from operations. In the third quarter of 2001, goodwill
amortization was $0.1 million before and $0.06 million after tax, while for the
first nine months of 2001, goodwill amortization was $0.3 million before and
$0.2 million after tax. Loss per share before the cumulative effect of
accounting change and extraordinary item for the third quarter and first nine
months of 2001, basic and diluted, would have been $0.15 and $1.06 respectively,
excluding this amortization. The net loss per share, basic and diluted, for the
third quarter and nine months ended September 30, 2001 would have been $0.15 and
$1.12, respectively, excluding the amortization of goodwill.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. This
statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. This statement is
effective for the Company on January 1, 2003. The adoption of SFAS 143 is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
7
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which excludes from
the definition of long-lived assets goodwill and other intangibles that are not
amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets
to be disposed of by sale be measured at the lower of carrying amount or fair
value less cost to dispose, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be disposed
of rather than limiting such discontinuance to a segment of a business.
Effective January 1, 2002, the Company adopted SFAS 144, which did not have any
impact on the Company's consolidated results of operations, financial position
or cash flows.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was
issued. This statement provides guidance on the classification of gains and
losses from the extinguishment of debt and on the accounting for certain
specified lease transactions. The adoption of this statement, which is effective
for transactions occurring after May 15, 2002, will not have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" ("SFAS 146") was issued. This statement provides
guidance on the recognition and measurement of liabilities associated with
disposal and exit activities, including restructuring, and is effective for the
Company on January 1, 2003. SFAS 146 requires that exit or disposal costs be
recorded as operating expenses when incurred as opposed to being accrued at the
time there is a commitment to an exit plan as required by EITF Issue 94.3. This
statement will have no impact on restructuring costs recorded and accrued during
2002; however, it will impact the timing of the recording of costs incurred in
2003 and thereafter.
NOTE 6 - BUSINESS SEGMENT DATA
Early in 2002, the Company was reorganized into two strategic business
groups based on the type of customer served -- Automotive and Light Truck, and
Heavy Duty, in order to improve customer focus. The Automotive and Light Truck
Group consists of heat exchange products and temperature control products, which
are manufactured and sold to the aftermarket. The Heavy Duty Group consists of
sales to OEM and Aftermarket heavy duty customers.
Prior year financial data has been restated to reflect this new
structure. The table below sets forth information about the reported segments:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2002 2001 2002 2001
-------------- ------------- -------------- ------------
(in thousands)
Trade sales:
Automotive and Light Truck $ 46,714 $ 39,801 $127,194 $108,360
Heavy Duty 19,208 17,550 52,162 50,068
-------------- ------------- -------------- ------------
65,922 57,351 179,356 158,428
Intersegment transfers:
Automotive and Light Truck 602 480 1,579 1,817
Heavy Duty -- -- -- --
Eliminations (602) (480) (1,579) (1,817)
-------------- ------------- -------------- ------------
Total sales $ 65,922 $ 57,351 $179,356 $158,428
============== ============= ============== ============
8
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- -----------------------------
2002 2001 2002 2001
-------------- ------------- -------------- ------------
(in thousands)
Operating income (loss):
Automotive and Light Truck $ 5,842 $ 3,964 $ 12,058 $ 3,953
Restructuring and other special charges (118) (2,340) (100) (2,340)
-------------- ------------- -------------- ------------
Automotive and Light Truck total 5,724 1,624 11,958 1,613
-------------- ------------- -------------- ------------
Heavy Duty (103) (215) 292 (5,123)
Restructuring and other special charges (856) (586) (1,057) (586)
-------------- ------------- -------------- ------------
Heavy Duty total (959) (801) (765) (5,709)
-------------- ------------- -------------- ------------
Corporate expenses (1,527) (1,414) (4,443) (3,516)
-------------- ------------- -------------- ------------
Total operating income (loss) $ 3,238 $ (591) $ 6,750 $ (7,612)
============== ============= ============== ============
NOTE 7 - INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted income
(loss) per share:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ----------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
(in thousands, except per share data)
Numerator:
Income (loss) before cumulative effect of accounting
change and extraordinary item $ 1,700 $ (1,031) $ 7,001 $ (7,088)
Deduct preferred stock dividend (24) (37) (71) (113)
-------------- -------------- -------------- -------------
Income (loss) before cumulative effect of accounting
change and extraordinary item available (attributable)
to common stockholders - basic 1,676 (1,068) 6,930 (7,201)
Cumulative effect of accounting change, net of tax -- -- (4,671) --
Loss on debt extinguishment, net of tax -- -- -- (380)
-------------- -------------- -------------- -------------
Net income (loss) available (attributable) to common
stockholders - basic $ 1,676 $ (1,068) $ 2,259 $ (7,581)
============== ============== ============== =============
Income (loss) before cumulative effect of accounting
change and extraordinary item available (attributable)
to common stockholders - basic $ 1,676 $ (1,068) $ 6,930 $ (7,201)
Add back preferred stock dividend 24 -- 71 --
-------------- -------------- -------------- -------------
Income (loss) before cumulative effect of accounting
change and extraordinary item 1,700 (1,068) 7,001 (7,201)
Cumulative effect of accounting change, net of tax -- -- (4,671) --
Loss on debt extinguishment, net of tax -- -- -- (380)
-------------- -------------- -------------- -------------
Net income (loss) available (attributable) to common
stockholders - diluted $ 1,700 $ (1,068) $ 2,330 $ (7,581)
============== ============== ============== =============
Denominator:
Weighted average common shares - basic 6,982 6,609 6,982 6,593
Dilutive effect of Series B preferred stock 159 -- 158 --
Dilutive effect of stock options 88 -- 80 --
-------------- -------------- -------------- -------------
Weighted average common shares and equivalents
-- diluted 7,229 6,609 7,220 6,593
============== ============== ============== =============
9
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
----------------------------- ----------------------------
2002 2001 2002 2001
-------------- -------------- -------------- -------------
(in thousands, except per share data)
Basic income (loss) per common share:
Before cumulative effect of accounting change and
extraordinary item $ 0 .24 $ (0.16) $ 0 .99 $ (1.09)
Cumulative effect of accounting change -- -- (0.67) --
Loss on debt extinguishment -- -- -- (0.06)
-------------- -------------- -------------- -------------
Net income (loss) per common share $ 0.24 $ (0.16) $ 0 .32 $ (1.15)
============== ============== ============== =============
Diluted income (loss) per common share:
Before cumulative effect of accounting change and
extraordinary item $ 0.24 $ (0.16) $ 0.97 $ (1.09)
Cumulative effect of accounting change -- -- (0.65) --
Loss on debt extinguishment -- -- -- (0.06)
-------------- -------------- -------------- -------------
Net income (loss) per common share $ 0.24 $ (0.16) $ 0.32 $ (1.15)
============== ============== ============== =============
The weighted average basic common shares outstanding was used in the
calculation of the diluted loss per common share for the three and nine months
ended September 30, 2001 as the use of weighted average diluted common shares
outstanding would have an anti-dilutive effect on loss per share from operations
for the periods.
Certain options to purchase common stock were outstanding during the
three and nine months ended September 30, 2002 and 2001, but were not included
in the computation of diluted loss per share because their exercise prices were
greater than the average market price of common shares for the period. The
anti-dilutive options outstanding and their exercise prices are as follows:
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------------------------- --------------------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Options outstanding 91,300 91,300 91,300 91,300
Range of exercise prices $5.50-$11.75 $5.50-$11.75 $5.50-$11.75 $5.50-$11.75
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OPERATING RESULTS
QUARTER ENDED SEPTEMBER 30, 2002 VERSUS QUARTER ENDED SEPTEMBER 30, 2001
Net sales increased 14.9% to $65.9 million in the third quarter of
2002, compared with $57.4 million in the same period a year ago. Automotive and
Light Truck Group revenue increased 17.4% to $46.7 million from $39.8 million in
the third quarter of 2001. Heat Exchanger product sales were 15.7% above last
year primarily as a result of product line expansions by several of our major
customers and previously announced new customer programs, which started late in
the second quarter. Revenue from the Temperature Control business unit was up
32.0% reflecting the addition of several new customers announced during the
first quarter. Heavy Duty Group revenue in the quarter increased 9.5% to $19.2
million from $17.6 million in the
10
comparable period last year. Despite continued market pressure, Heavy Duty OEM
sales grew 18.4%, reflecting the impact of some minor strengthening of customer
volumes and the depressed market condition in 2001. These higher volumes reflect
customer purchases in anticipation of heavy truck engine changes as a result of
new emission regulations, which will become effective in the fourth quarter of
2002. Heavy Duty Aftermarket sales increased 2.6% despite softness in all
markets served by this unit.
Gross margin, as a percentage of sales, was 21.1% in the third quarter
of 2002, compared with 20.6% in the comparable period last year and 20.3% in the
second quarter of 2002. The third quarter of 2002 gross margin includes $0.5
million of restructuring charges associated with the write-down of inventory to
net realizable value at the Company's Maquoketa, Iowa plant, which was closed in
September. Before these restructuring charges, gross margin, as a percentage of
sales, was 21.9% of sales in the third quarter of 2002. Margins benefited from
the Company's multi-phased margin improvement activities, which began in the
second quarter of 2001 and continue today. These include actions within both the
Automotive and Light Truck and Heavy Duty Groups designed to improve labor
efficiency and utilization, lower spending levels and reduce product costs.
While the results of these programs have taken time to work their way through
inventories, they are now beginning to be reflected in additional profit.
Margins also benefited from production levels more aligned with changes in
customer demand. A year ago production levels were lowered in order to reduce
inventory levels. Margins in the Heavy Duty Group also benefited from lower
warranty costs than were recorded a year ago. The higher claims incurred last
year were related to a customer warranty program, which had commenced during the
fourth quarter of 2000. Warranty claims have now returned to historical levels.
While operating expense levels increased $0.7 million or 7.8% from a
year ago, they were lower as a percentage of sales, 15.5% versus 16.5% in 2001.
These improvements primarily reflect benefits generated by the branch closure
actions taken in 2001 and 2002 along with the increased sales volume. Expense
levels last year also reflected a $0.3 million provision made for the write-off
of a receivable from a customer, which declared bankruptcy.
Restructuring charges of $0.5 million during the third quarter of 2002
were primarily related to the closure of the Maquoketa, Iowa Heavy Duty plant in
September. This facility made component parts for internal use and also had some
unrelated sales to third party customers. This underutilized facility was closed
as part of the Company's plant consolidation plan in order to move the
manufacturing closer to where the parts are used. These restructuring charges
reflect severance and other plant closure costs and the write-down of the
facility's fixed assets to net realizable value. In the third quarter of 2001,
the Company recorded $2.9 million of restructuring and other special charges
associated with the announcement of our restructuring program. These costs
included $0.8 million for work force related costs, $0.3 million for facility
consolidation costs and $1.8 million for the impairment of goodwill.
Operating income was $3.2 million in the third quarter of 2002 versus
an operating loss of $0.6 million in the comparable period last year, an
improvement of $3.8 million. The Automotive and Light Truck Group operating
income improved $4.1 million over 2001, resulting from increased sales and the
benefits of the initiative programs. The Heavy Duty Group reported an operating
loss of $1.0 million versus an operating loss of $0.8 million last year as the
impact of restructuring charges offset benefits generated from improved factory
utilization, lower warranty costs and other cost reductions.
Interest costs are 18.7% below the third quarter last year as the
impact of lower interest rates more than offset higher average debt levels
during the third quarter. Interest rates under our Loan Agreement and Industrial
Revenue Bond were 6.25% and 1.27%, respectively in the third quarter of 2002
compared with 8.17% and 2.53%, respectively, a year ago.
11
The Company's effective income tax rate during the third quarter of
2002 was 23.2%, versus 44.3% last year, as the federal income tax provision was
offset by the reversal of a portion of the valuation allowance on the Company's
deferred tax asset, which was recorded in the fourth quarter of 2001.
Net income for the third quarter of 2002 was $1.7 million, or $0.24 per
basic and diluted share, compared with a net loss of $1.0 million, or $0.16 per
basic and diluted share, a year ago. Excluding goodwill amortization in 2001,
the net loss would have been $0.9 million, or $0.15 per basic and diluted share.
NINE MONTHS ENDED SEPTEMBER 30, 2002 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2001
Sales for the nine months ended September 30, 2002 increased 13.2% over
last year's levels. Automotive and Light Truck Group sales were 17.4% above the
year ago period, reflecting the product line expansions and new customer
business that impacted the third quarter as well as the initiation in the first
quarter of several major customer programs which had been postponed in the
fourth quarter of 2001. Heavy Duty Group sales for the first nine months of 2002
were 4.2% higher reflecting the higher OEM volume, which occurred in the third
quarter.
Gross margin for the first nine months of 2002, as a percentage of
sales, increased to 20.2% from 15.0% a year ago. Excluding the impact of $0.5
million of restructuring charges recorded during the third quarter of 2002 in
cost of sales, the 2002 gross margin as a percentage of sales would be 20.4%.
Improved margins within both the Automotive and Light Truck and Heavy Duty
Business Groups reflect the results of the Company's initiative programs, higher
levels of production and lower warranty costs within the Heavy Duty Group.
Operating expenses increased 1.0% but were lower as a percentage of
sales than a year ago, 16.0% versus 18.0% in 2001. Lower expense levels
primarily reflect the impact of the Automotive and Light Truck branch closure
actions taken in 2001 and 2002.
Interest costs were 25.8% lower than last year, reflecting lower
average debt levels for the nine months and lower interest rates.
During March 2002, tax legislation was enacted which included a
provision that allows pre-tax losses incurred in 2001 and 2002 to be carried
back for a period of five years instead of two years. As a result, the Company
recorded a tax benefit in the first quarter of 2002 of $3.8 million, which
reflects a reduction in the deferred tax valuation allowance. The first quarter
tax benefit, along with the $1.3 million refundable income tax at December 31,
2001, was received in cash during the second quarter of 2002.
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be subject to periodic testing for impairment. Intangible assets
determined to have definitive lives will continue to be amortized over their
useful lives. As this statement was effective for years beginning after December
15, 2001, the Company adopted SFAS 142 in the first quarter of 2002. As a result
of applying the tests included in SFAS 142, the Company has determined that
there was a transitional impairment loss relating to the valuation of the
goodwill recorded by its Automotive and Light Truck Group. The cumulative effect
of this change in accounting principle of $4.7 million was expensed in the
consolidated results of operations in the first quarter of 2002. This write-off
has no impact on cash flow
12
from operations. Goodwill amortization for the third quarter and the first nine
months of 2001 was $0.1 million or $0.06 million after tax and $0.3 million or
$0.2 million after tax, respectively.
Income before the cumulative effect of the accounting change and
extraordinary item was $7.0 million, or $0.99 per basic share ($0.97 per diluted
share), in 2002 compared to a loss of $7.1 million, or $1.09 per basic and
diluted share, in the comparable period in 2001. Net income for the first nine
months of 2002 was $2.3 million, or $0.32 per basic and diluted share, while in
the comparable period in 2001 the net loss was $7.5 million, or $1.15 per basic
and diluted share. Excluding the amortization of goodwill, loss before the
cumulative effect of accounting change and extraordinary item for the nine
months ended September 30, 2001 would have been $6.9 million, or $1.06 per basic
and diluted share. The net loss for the nine months ended September 30, 2001
would have been $7.3 million, or $1.12 per basic and diluted share, excluding
this charge.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 2002, operations used $8.1 million of
cash. Accounts receivable have grown by $27.2 million during the period due to
higher sales levels, extended terms on the new business and an ongoing shift in
receivables mix toward longer payment cycles with "blue chip customers".
Although past due balances as a percentage of total receivables have declined
from year-end, the Company expects that its days outstanding will continue to be
greater than its historic norms due to the previously mentioned shift in payment
cycles. Net inventories rose $8.0 million in order to meet higher sales levels,
extra purchases of certain difficult to obtain inventory and year-over-year
seasonal changes in customer demand that will require building certain
inventories prior to year-end. The Company's inventory reduction efforts were
also hampered during the quarter by the West Coast dock strike, which built up
inventory at the docks. These outflows were partially offset by funds provided
from operations and an increase in accounts payable and accrued liabilities.
During the first nine months of 2001, operating activities generated $4.2
million of cash. The Company's inventory reduction programs generated $16.5
million of cash during the first nine months of 2001, which more than offset an
increase in receivables and funds utilized for operations as well as to improve
the aging of accounts payable.
Net capital expenditures were $4.5 million for the first nine months of
2002, compared with $2.1 million last year. The higher level of expenditures
this year reflects the purchase of an existing aluminum tube mill, which the
Company has relocated to its Laredo, Texas facility, the purchase of tooling at
the Company's Mexican facility to accommodate the "in-house" production of
product previously purchased from third parties, and expenditures to support the
Company's information systems initiatives. Capital expenditures are expected to
approximate depreciation expense for the year.
Total debt at the end of the 2002 third quarter was $50.6 million,
$12.9 million above levels at the beginning of the year. These funds were
utilized to meet seasonal working capital needs. A year ago debt levels were
$42.9 million. On September 27, 2002, the Company entered into an amendment to
its Loan and Security Agreement with Congress Financial Corporation (New
England), which provides for a temporary increase in the maximum credit line
from $55.0 million to $65.0 million effective July 1, 2002, with scheduled
reductions through December 20, 2002 back down to $55.0 million. As of September
30, 2002, the maximum credit line was $62.0 million. The increased credit line
provides the Company with additional flexibility to meet ongoing working capital
needs through its peak seasonal borrowing period. At September 30, 2002, the
Company had available $4.8 million for future borrowings under its Loan
Agreement with Congress Financial Corporation.
The Company's working capital requirements peak during the second and
third quarters, reflecting the normal seasonality of the Automotive and Light
Truck business. The Company believes that, together
13
with borrowings under its current Loan Agreement, its cash flow from operations
will be adequate to meet its anticipated ordinary capital expenditure and
working capital requirements.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires estimates
and assumptions that affect the reported amounts of assets and liabilities,
revenues and expenses, and related disclosures of contingent assets and
liabilities in the consolidated financial statements and accompanying notes. A
company's critical accounting policies, as set forth by the U.S. Securities and
Exchange Commission, are those which are most important to the portrayal of its
financial condition and results of operation and often require the utilization
of estimates or subjective judgment. Based upon this definition, we have
identified the critical accounting policies addressed below. Although we believe
that our estimates and assumptions are reasonable, they are based upon
information presently available. Actual results may differ from these estimates
under different assumptions or conditions. The Company also has other key
accounting policies, which involve the use of estimates, which are further
described in Note 2, "Summary of Significant Accounting Policies", in Item 8 of
our Annual Report on Form 10-K.
Revenue Recognition. Sales are recognized at the time products are
shipped to the customer. Accruals for warranty costs, sales returns and
allowances are provided at the time of shipment based upon historical experience
or agreements currently in place with customers. The Company will also accrue
for unusual warranty exposures at the time the exposure is identified and
quantifiable based upon analyses of expected product failure rates and
engineering cost estimates. The Company also establishes reserves for
uncollectible trade accounts receivable based upon historical experience,
anticipated business trends and the current economic conditions. Costs
associated with the acquisition of long-term customer contracts are capitalized
and amortized as a reduction of sales over the life of the agreement. Changes in
our customers' financial condition or other factors could cause our estimates of
uncollectible accounts receivable and the realizability of customer acquisition
costs to vary.
Inventory Valuation. Inventories are valued at the lower of cost
(first-in, first-out method) or market. This requires the Company to make
judgments about the likely method of disposition of its inventory and expected
recoverable value upon disposition. Inventories are reviewed on a continuing
basis, and provisions are also made for slow moving and obsolete inventory based
upon estimates of historical or expected usage as well as the expected
recoverable value upon disposition.
Impairment of Long-Lived Assets. In the event that facts and
circumstances indicate that the carrying amounts of a business unit's long-lived
assets may be impaired, an evaluation of recoverability would be performed. If
an evaluation is required, the estimated future undiscounted cash flows of the
business unit, associated with the long-lived assets, would be compared to the
asset's carrying amount to determine if a write-down is required. If this review
indicates that the assets will not be recoverable, the carrying value of the
Company's assets would be reduced to their estimated fair value. The estimates
used in determining whether an impairment exists involve future cash flows of
each business unit, which are based upon expected revenue trends, cost of
production and operating expenses.
Income Taxes. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. A valuation allowance is recorded to reduce
the carrying amount of deferred tax assets if it is more likely than not that
those such assets will not be realized. Changes to the valuation allowance are
based on the evaluation of all available evidence supporting the Company's
ability to utilize tax benefits prior to their expiration.
14
Pension Plans. The Company establishes and periodically reviews the
assumptions used in the measurement of its retirement plans. The discount rate
will change in relation to increases or decreases in applicable published bond
indices. The return on assets reflects the long-term rate of return on plan
assets expected to be realized over a five to ten year period. As such, it will
normally not be adjusted for short-term trends in the stock or bond markets. The
Company's pension assumptions currently include a 9% long-term annual rate of
return. Differences between actual and assumed portfolio performance are
actuarially calculated into the Company's accrued pension costs based upon input
from a third-party actuary. As the performance of the pension portfolio during
2001 was below the actuarial assumption, the unrecognized component of accrued
pension costs changed from a gain of $4.8 million at December 31, 2000 to a loss
of $1.3 million at December 31, 2001. The Company has been informed by its
independent actuary that as a result of continued performance of the pension
portfolio below actuarial assumptions during 2002, the minimum pension liability
may increase by approximately $4 million. While this increase does not have a
current cash flow impact, it will reduce stockholders' equity. The Company will
be meeting with its actuary to review its actuarial assumptions during the
fourth quarter. In the future, changes in any of the underlying pension
assumptions, along with the ongoing performance of the plan assets, will impact
future funding requirements, minimum pension liability adjustments and net
pension cost amounts.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"), which requires that goodwill and certain other
intangible assets having indefinite lives no longer be amortized to earnings,
but instead be subject to periodic testing for impairment. Intangible assets
determined to have definitive lives will continue to be amortized over their
useful lives. As this statement is effective for fiscal years beginning after
December 15, 2001, the Company has adopted SFAS 142 in the first quarter of
2002. As a result of applying the tests included in SFAS 142, the Company has
determined that there was a transitional impairment loss as the carrying value
of the goodwill recorded by its Automotive and Light Truck segment exceeded the
fair value of the business, based on an allocation of the quoted market price of
the Company's common stock. The cumulative effect of this change in accounting
principle, in the amount of $4.7 million, has been expensed in the consolidated
results of operations in the first quarter of 2002. This write-off has no impact
on cash flow from operations. In the third quarter of 2001, goodwill
amortization was $0.1 million before and $0.06 million after tax, while for the
first nine months of 2001, goodwill amortization was $0.3 million before and
$0.2 million after tax. Loss per share before the cumulative effect of
accounting change and extraordinary item for the third quarter and first nine
months of 2001, basic and diluted, would have been $0.15 and $1.06 respectively,
excluding this amortization. The net loss per share, basic and diluted, for the
third quarter and nine months ended September 30, 2001 would have been $0.15 and
$1.12, respectively, excluding the amortization of goodwill.
In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS 143"), which provides the accounting requirements
for retirement obligations associated with tangible long-lived assets. This
statement requires entities to record the fair value of a liability for an asset
retirement obligation in the period in which it is incurred. This statement is
effective for the Company on January 1, 2003. The adoption of SFAS 143 is not
expected to have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which excludes from
the definition of long-lived assets goodwill and other intangibles that are not
amortized in accordance with SFAS 142. SFAS 144 requires that long-lived assets
to be disposed of by sale be measured at the lower of carrying amount or fair
value less cost to dispose, whether reported in continuing operations or in
discontinued operations. SFAS 144 also expands the reporting of discontinued
operations to include components of an entity that have been or will be
15
disposed of rather than limiting such discontinuance to a segment of a business.
Effective January 1, 2002, the Company adopted SFAS 144, which did not have any
impact on the Company's consolidated results of operations, financial position
or cash flows.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections" was
issued. This statement provides guidance on the classification of gains and
losses from the extinguishment of debt and on the accounting for certain
specified lease transactions. The adoption of this statement, which is effective
for transactions occurring after May 15, 2002, will not have a material impact
on the Company's consolidated financial position, results of operations or cash
flows.
In June 2002, SFAS No. 146, "Accounting for Costs Associated with Exit
or Disposal Activities" ("SFAS 146") was issued. This statement provides
guidance on the recognition and measurement of liabilities associated with
disposal and exit activities, including restructuring, and is effective for the
Company on January 1, 2003. SFAS 146 requires that exit or disposal costs be
recorded as operating expenses when incurred as opposed to being accrued at the
time there is a commitment to an exit plan as required by EITF Issue 94.3. This
statement will have no impact on restructuring costs recorded and accrued during
2002; however, it will impact the timing of the recording of costs incurred in
2003 and thereafter.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are not historical in
nature, are forward-looking statements. Such forward-looking statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's Annual Report on Form 10-K contains certain
detailed factors that could cause the Company's actual results to materially
differ from the forward-looking statements made by the Company. In particular,
statements relating to the future financial performance of the Company are
subject to business conditions and growth in the general economy and automotive
and truck business, the impact of competitive products and pricing, changes in
customer product mix, failure to obtain new customers or retain old customers or
changes in the financial stability of customers, changes in the cost of raw
materials, components or finished products and changes in interest rates.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has certain exposures to market risk related to changes in
interest rates, foreign currency exchange rates and the price of commodities
used in our manufacturing process. While there have been no material changes in
market risk since the filing of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001, during the third quarter of 2002, the
Company extended its purchase order commitment program on commodities to six to
nine months from the three to six month period previously used. This program is
subject to review on an ongoing basis based upon current commodity market
conditions.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management, including its Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely
decisions regarding required disclosure based closely on the definition of
"disclosure controls and procedures" in Rule 13a-14(c). In designing and
16
evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives,
and management necessarily was required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
Within 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and the
Company's Chief Financial Officer, of the effectiveness of the design and
operation of the Company's disclosure controls and procedures. Based on the
foregoing, the Company's Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures were effective.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect the internal
controls subsequent to the date the Company completed its evaluation.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
4. The Seventh Amendment to the Company's Loan and Security Agreement with
Congress Financial Corporation is incorporated by reference to the
Company's Form 8-K filed on September 30, 2002.
b) Reports on Form 8-K During the quarter ended September 30, 2002, the
following Form 8-K's were filed:
o On August 2, 2002, a Form 8-K was filed containing as an exhibit the
press release issued by the Company on July 30, 2002 announcing its
second quarter of 2002 operating results.
o On August 29, 2002, a Form 8-K was filed containing as an exhibit the
Company's press release that it was closing a manufacturing plant
located in Maquoketa, Iowa and as a result, recording a restructuring
charge of approximately $1 million during the third and fourth
quarters of 2002.
o On September 19, 2002, a Form 8-K was filed announcing that the
Company had made a presentation at the RedChip Partners Investor
Conference in New York City.
o On September 30, 2002, a Form 8-K was filed containing as an exhibit
the amendment to its Loan and Security Agreement with Congress
Financial Corporation. This amendment provides for a temporary
increase in the maximum credit line from $55 million to $65 million,
effective July 1, 2002 with scheduled reductions through December 20,
2002 back down to $55 million.
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.
TRANSPRO, INC.
(Registrant)
Date: November 11, 2002 By: /s/ Charles E. Johnson
----------------------------------------
Charles E. Johnson
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 11, 2002 By: /s/ Richard A. Wisot
----------------------------------------
Richard A. Wisot
Vice President, Treasurer, Secretary, and
Chief Financial Officer (Principal
Financial and Accounting Officer)
18
CERTIFICATIONS
I, Charles E. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Transpro, 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 /s/ Charles E. Johnson
----------------------------------
Charles E. Johnson
President and Chief Executive Officer
(Principal Executive Officer)
19
I, Richard A. Wisot, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Transpro, 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 officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) All significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: November 11, 2002 /s/ Richard A. Wisot
----------------------------------
Richard A. Wisot
Vice President, Treasurer, Secretary
and Chief Financial Officer (Principal
Financial and Accounting Officer)
20