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