SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 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 0-11174
WARWICK VALLEY TELEPHONE COMPANY
(Exact name of registrant as specified in its charter)
New York 14-1160510
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
47 Main Street, Warwick, New York 10990
(Address of principal executive offices) (Zip Code)
Registrants' telephone number, including area code (845) 986-8080
Former name, former address and former fiscal year, if changed since last
report.
INDICATE BY CHECK 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
Indicate the number of shares outstanding of each of the issuers' classes
of common stock, as of the latest practicable date 1,803,662 common shares, no
par value, outstanding at September 30, 2002.
INDEX TO FORM 10Q
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of 9/30/02 (Unaudited) and 12/31/01.
Consolidated Statement of Income for the Three and Nine Months ended 9/30/02 (Unaudited).
Consolidated Statement of Cash Flows for the Nine Months ended 9/30/02 (Unaudited) and 09/30/01.
Notes to Consolidated Financial Statements (Unaudited).
Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Item 4. Controls and Procedures.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to Vote of Securities Holders.
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K.
2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
($ in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
------- -------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash $ 887 $ 581
Accounts receivable-net of reserve for uncollectibles 3,680 3,438
Materials and supplies 2,097 2,271
Prepaid expenses 549 545
------- -------
TOTAL CURRENT ASSETS 7,213 6,835
------- -------
NONCURRENT ASSETS:
Unamortized debt issuance expense 6 10
Other deferred charges 65 197
Partnerships/Telecommunications business investments 7,484 5,398
------- -------
TOTAL NONCURRENT ASSETS 7,555 5,605
------- -------
PROPERTY, PLANT & EQUIPMENT:
Plant in service 60,464 56,462
Plant under construction 5,371 4,455
------- -------
65,835 60,917
Less: Accumulated depreciation 27,947 25,847
------- -------
TOTAL PROPERTY, PLANT & EQUIPMENT 37,888 35,070
------- -------
TOTAL ASSETS $52,656 $47,510
======= =======
3
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED BALANCE SHEET
($ in thousands)
SEPTEMBER 30, DECEMBER 31,
2002 2001
-------- --------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 6,700 $ 6,250
Accounts payable 855 1,919
Advance billing and payments 509 202
Customer deposits 115 128
Accrued taxes 161 65
Accrued interest 74 30
Other accrued expenses 553 294
-------- --------
TOTAL CURRENT LIABILITIES 8,967 8,888
-------- --------
-------- --------
LONG TERM DEBT 4,000 4,000
-------- --------
DEFERRED CREDITS & OTHER LONG TERM LIABILITIES:
Accumulated deferred federal income taxes 3,577 2,348
Unamortized investment tax credits 21 47
Other deferred credits 83 60
Post retirement benefit obligation 1,267 1,271
-------- --------
TOTAL DEFERRED CREDITS & OTHER LONG TERM LIABILITIES 4,948 3,726
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - 5% cumulative; $100 par value;
Authorized 7,500 shares;
Issued and outstanding 5,000 shares 500 500
Common stock - no par value;
Authorized shares: 2,160,000
Issued 1,994,159 for 9/30/02 and 1,994,080 for 12/31/01 3,476 3,471
Retained earnings 34,150 30,310
Treasury stock at cost, 190,497 shares (3,385) (3,385)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 34,741 30,896
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 52,656 $ 47,510
======== ========
The accompanying notes are an integral part of these financial statements.
4
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
($ in thousands)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
OPERATING REVENUES:
Local network service $ 1,187 $ 1,079 $ 3,458 $ 3,245
Network access service 2,187 1,851 5,979 5,592
Long distance network service 513 535 1,514 1,627
Directory advertising 343 308 984 871
Long distance sales 505 531 1,458 1,571
Internet services 1,591 1,584 4,479 4,556
Other services and sales 669 979 2,347 3,215
----------- ----------- ----------- -----------
Total operating revenues 6,995 6,867 20,219 20,677
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Plant specific 1,087 782 3,144 2,604
Plant non-specific:
Depreciation & amortization 996 900 2,934 2,820
Other 483 520 1,640 1,554
Customer operations 969 1,149 3,010 3,315
Corporate operations 842 707 2,592 2,178
Cost of services and sales 657 413 1,667 1,597
Property, revenue and payroll taxes 425 347 1,153 1,213
----------- ----------- ----------- -----------
Total operating expenses 5,459 4,818 16,140 15,281
----------- ----------- ----------- -----------
OPERATING INCOME 1,536 2,049 4,079 5,396
OTHER INCOME (EXPENSE)
Interest expense (153) (145) (425) (513)
Interest income 0 3 4 11
Income from partnerships 2,019 1,171 5,412 3,566
Other income (expense) 2 70 264 173
----------- ----------- ----------- -----------
Total other income (expense) - net 1,868 1,099 5,255 3,237
INCOME BEFORE TAXES 3,404 3,148 9,334 8,633
FEDERAL INCOME TAXES 1,203 1,061 3,148 2,907
NET INCOME 2,201 2,087 6,186 5,726
PREFERRED DIVIDENDS 6 6 19 19
----------- ----------- ----------- -----------
INCOME APPLICABLE TO COMMON STOCK $ 2,195 $ 2,081 $ 6,167 $ 5,707
----------- ----------- ----------- -----------
NET INCOME PER AVERAGE SHARE OF
OUTSTANDING COMMON STOCK $ 1.22 $ 1.15 $ 3.42 $ 3.16
=========== =========== =========== ===========
CASH DIVIDENDS PAID PER SHARE $ .43 $ .43 $ 1.29 $ 1.27
=========== =========== =========== ===========
AVERAGE SHARES OF COMMON STOCK
OUTSTANDING 1,803,662 1,804,251 1,803,653 1,804,251
=========== =========== =========== ===========
The accompanying notes are an integral part of the financial statements.
5
Item 1. Financial Statements (Continued)
WARWICK VALLEY TELEPHONE COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(Unaudited)
($ in thousands)
2002 2001
------- -------
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $ 6,186 $ 5,724
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 2,935 2,820
Deferred income tax and investment tax credit 1,225 429
Interest charged to construction (257) (186)
Income from partnerships (5,412) (3,566)
Change in assets and liabilities:
(Increase) Decrease in accounts receivable (242) (1,008)
(Increase) Decrease in materials and supplies 175 (1,200)
(Increase) Decrease in prepaid expenses (4) (535)
(Increase) Decrease in deferred charges 132 80
Increase (Decrease) in accounts payable (1,064) 365
Increase (Decrease) in customers' deposits (12) 0
Increase (Decrease) in advance billing and payment 307 (138)
Increase (Decrease) in accrued expenses 140 75
Increase (Decrease) in post retirement benefits obligation (4) (87)
Increase (Decrease) in other liabilities 258 45
------- -------
Net cash provided by operating activities 4,363 2,818
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (5,748) (4,682)
Interest charged to construction 257 186
Distributions from partnerships 4,125 3,026
Capital contributions to partnerships (800) 0
------- -------
Net cash used in investing activities (2,166) (1,470)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable 450 450
Sale of common stock 5 17
Dividends (2,346) (2,309)
------- -------
Net cash provided by (used in) financing activities (1,891) (1,842)
------- -------
Increase (Decrease) in cash and cash equivalents 306 (494)
Cash and cash equivalents at beginning of period 581 738
------- -------
Cash and cash equivalents at the end of period $ 887 $ 244
======= =======
The accompanying notes are an integral part of the financial statements.
6
Item 1. Financial Statements
WARWICK VALLEY TELEPHONE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
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 the Company's management,
all adjustments (consisting of normal recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three and
nine months periods ended September 30, 2002 are not necessarily indicative of
the results that may be expected for the year ending December 31, 2002.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements, and the reported amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates. The balance
sheet as of December 31, 2001 has been derived from the audited consolidated
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
In the financial statements, corresponding notes to financial statements,
and the management discussion and analysis of financial condition and results of
operations the dollar amounts presented are rounded to the nearest thousand.
CONSOLIDATION:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All material intercompany transactions and
balances have been eliminated in the consolidated financial statements. Certain
prior year amounts have been reclassified to conform with the financial
statements in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001.
NOTE 2: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from acquisition, construction, development and/or normal use
of assets. The Company also records a corresponding asset which is depreciated
over the life of the asset. Subsequent to the initial measurement of the asset
retirement obligation, the obligation will be adjusted at the end of each period
to reflect the passage of time and changes in the estimated future cash flows
underlying the obligation. The Company is required to adopt SFAS No. 143 on
January 1, 2003. The Company is currently evaluating the timing of adoption and
the effect that implementation of the new standard may have on its results of
operations and financial position.
In August 2001, the FASB issued SFAS 144, "Accounting for the Impairment
or Disposal of Long Lived Assets", which addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS 144 is
effective for fiscal years beginning after December 15, 2001. The adoption of
SFAS 144 has had no impact on our results of operation or our financial
position.
Warwick Valley Telephone Company's review of asset impairment under FASB
No. 121 for year end December 31, 2001 focused upon the carrying value of
Property, Plant and Equipment. Since approximately 91% of the Company's fixed
assets are used for its regulated operations as a telecommunications service
provider and fall under the requirements of FASB No. 71, the impairment tests of
FASB No. 121 do not apply to these assets. Warwick Valley Telephone Company is a
regulated telephone company. As noted in FASB 71 Section 5 paragraphs a-c,
Warwick Valley Telephone Company's rates for regulated services/products are
subject to approval by an independent third party regulator, such rates are
designed to recover the costs of providing the regulated service and it is
reasonable to assume that the rates are set at levels that will recover Warwick
Valley Telephone Company's costs. As a rate regulated enterprise, the Company's
plant used in regulated operations is used as a basis in setting rates. The
carrying
7
value of these fixed assets will be recovered in the rates charged to customers
in the long run. The deregulated plant and equipment of the Company is
depreciated over a short life cycle. Our examination of the carrying value of
these regulated assets has determined that the value on our books is well less
than the future expected cash flow from them. The Company believes that the
carrying value of all other long lived assets is lower than the recoverable
amount as measured at the higher of net selling price and value in use as
prescribed in FASB No. 121.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS 146 requires that a liability
for costs associated with an exit or disposal activity be recognized and
measured initially at fair value only when the liability is incurred. SFAS 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The Company does not expect the adoption of SFAS 146 to have any
impact on its operating results or financial position.
NOTE 3: REVENUE RECOGNITION
The Company earns revenue principally by providing communication related
services to its customers, which include end users who purchase local service,
toll service, internet access, video over VDSL and interexchange carriers who
resell network access services. These revenues are recognized when the services
are provided.
In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB No. 101). SAB No. 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We were required to adopt the provisions of SAB No. 101 in the
fourth quarter of 2000, retroactive to January 1, 2000. Based upon a review of
our revenue recognition policies, we concluded that the adoption of SAB No. 101
did not require a change in those policies nor did it materially affect the
timing or amount of revenue recognition.
NOTE 4: COMPREHENSIVE INCOME
The Company does not have any components of comprehensive income as stated
in SFAS No. 130 and consequently net income is comprehensive income.
NOTE 5: EARNINGS PER SHARE
Earnings per share are based on the average number of actual shares
outstanding of 1,803,653 and 1,804,251 for the nine-months ending September 30,
2002 and 2001, respectively.
NOTE 6: SEGMENTED INFORMATION
Warwick Valley Telephone Company's segments are strategic business units
that offer different products and services and are managed accordingly. We
evaluate performance based upon income before taxes adjusting for normalizing
one time items, if any. Currently, we have two reportable segments that reflect
our business: 1. Telephone (wireline) and 2. Internet.
The wireline segment provides landline telecommunications services,
including local, network access and long distance services, and messaging and
sells customer premise, private business exchange equipment and yellow and white
pages advertising and electronic publishing.
The Internet segment provides high speed and dial up internet services,
help desk operations, and video over VDSL.
NOTE 7: INVENTORY
Inventories are carried at average original cost except that specific
costs are used in the case of large individual items. As of September 30, 2002
and December 31, 2001, the Material and Supplies inventory consisted of the
following:
2002 2001
------ ------
($ in thousands)
Inventory for outside plant $ 364 $ 653
Inventory for inside plant 1,378 1,157
Inventory for online plant 107 205
Inventory of equipment held for sale or lease 189 256
Inventory of video equipment 59 0
------ ------
$2,097 $2,271
====== ======
8
NOTE 8: INVESTMENTS
The Company has a 7.5% investment interest in the Orange-Poughkeepsie
Limited Partnership ("O-P") which is accounted for under the equity method. The
majority owner and general partner is Verizon Wireless of the East L.P.
The partnership is individually significant as defined by applicable SEC
regulations. The following summarizes the income statement (unaudited) of the
investee:
Nine months ended
September 30,
($ in thousands)
------------------------
2002 2001
------- -------
Net sales $82,110 $58,649
Costs & expenses
Cellular service cost 10,044 8,910
Operating expenses 4,170 4,993
------- -------
14,214 13,903
Net operating income 67,896 44,746
Other income 1,113 984
------- -------
Net income 69,009 45,730
======= =======
WVT income share $ 5,176 $ 3,430
======= =======
Partnership financial statements are typically received well after the
Company's books are closed. Consequently, the Company relies upon Partnership
income estimates (as well as its own estimates) in order to close the Company's
books on a timely basis. Historically, differences between conservatively booked
income and subsequent Partnership reported income have been minor. The Company
typically treats such differences as a timing difference with adjustments taking
place immediately in the next financial period. Additionally, Partnership year
to date income on the consolidated statement of income also includes a true-up
of 2001 income based upon O-P's final audited results.
NOTE 9: POOLING
Each year the Company receives a true-up payment from the National
Exchange Carrier Association ("NECA") for Local Switching Support associated
with Universal Service Administrative Co-op. This year the Company received an
amount which was considered excessive as compared to previous true-ups. The
Company is currently in the process of reviewing the NECA calculations. As a
result the Company has not recognized $453K as revenue and has booked this
amount as a liability in Advanced Billing and Payment until the review has been
completed.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEWS: RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 2002 -
NET INCOME
The Company's net income from all sources increased $461K (or 8.1%) to
$6,186K for the nine-month period ended September 30, 2002, as compared to an
increase of $468K (or 8.9%) to $5,726K for the corresponding period in 2001. Net
income was affected by the inclusion of a fifth payroll period in September.
Without the fifth payroll, normalized net income growth is 9.7%.
9
Net income for the nine month period ending September 30, 2002
($ in thousands):
Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Operating revenues 17,396 4,478 (1,655) 20,219
Operating expenses 13,521 4,274 (1,655) 16,140
Other income (expenses) 5,252 3 5,255
Federal income taxes 3,078 70 3,148
------ ----- ------ ------
Net income 6,049 137 6,186
====== ===== ====== ======
Net income for the nine month period ending September 30, 2001
($ in thousands):
Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Operating revenues 17,513 4,555 (1,391) 20,677
Operating expenses 12,858 3,814 (1,391) 15,281
Other income (expenses) 3,231 6 3,237
Federal income taxes 2,652 255 2,907
------ ----- ------ ------
Net income 5,234 492 5,726
====== ===== ====== ======
The Company's 2002 net income for the nine month period ending September
30, 2002 was affected by a decrease in revenue from two sources, Reciprocal
Compensation ("RC") and Internet Services, by a substantial increase in O-P
income and by the events of the WorldCom bankruptcy. The Company at the end of
the second quarter was owed $245K by WorldCom/MCI for connecting MCI customers
with MCI. This entire amount was booked to the Reserve for Bad Debt. In July the
Company accrued an additional amount of $186K which was also booked to the
Reserve for Bad Debt. The sum of these amounts are reflected in the quarter's
results under Other Services and Sales. The Company will reserve pre-bankruptcy
filing WorldCom revenue until the court clarifies the Company's standing as a
creditor. WorldCom/MCI is currently reimbursing the Company for post-bankruptcy
services; therefore no additional Bad Debt was reserved during the quarter. RC
revenue decreased by 66% over the prior year due primarily to an FCC order (FCC
01-131) reaffirming that dial-up Internet Service Provider ("ISP") traffic is
interstate and thus not subject to RC. In the order, the FCC established a
phase-down approach over several years. This phase down solution allows
compensation for "ISP"-bound traffic to gradually decline. The impact of the
downward trend is now being felt. It is expected that RC revenue will continue
its downward trend until the phase out is complete in 2003. Internet service has
decreased primarily due to dial-up customer migration to competitors who are
able to provide DSL services in areas where WVTC cannot. Where WVTC is the
franchised local telephone carrier and able to provide fast Internet, our DSL
penetration continues to grow and customer retention remains strong.
REVENUE
Operating revenues decreased by $458K (or 2.2%) to $20,219K for the
nine-month period ended September 30, 2002 as compared to $20,677K for the
corresponding period of 2001. The change in operating revenues was primarily the
result of decreases of $707K (or 65.8%) in Reciprocal Compensation, and $226K
(or 7.21%) in long distance sales and long distance network service combined
during the period as compared to the same nine-month period of 2001. Also
contributing to the decrease is flat access line growth which is due in part to
the loss of second lines when dial-up Internet customers switch to DSL. It is
expected that access line growth is likely to remain flat due to the success of
DSL. The launch of our Video product in April 2002 has contributed $38K in
revenue as of September 30, 2002 and is proceeding according to plan.
10
For the nine month period ending September 30, 2002 ($ in thousands):
Revenues From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Local network services 3,458 3,458
Network access revenues 7,634 (1,655) 5,979
Long distance network service 1,514 1,514
Directory advertising 984 984
Long distance sales 1,458 1,458
Internet services 4,479 4,479
Other services and sales 2,347 2,347
------ ----- ------ ------
Total operating revenues 17,395 4,479 (1,655) 20,219
====== ===== ====== ======
For the nine month period ending September 30, 2001 ($ in thousands):
Revenues From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Local network services 3,245 3,245
Network access revenues 6,983 (1,391) 5,592
Long distance network service 1,627 1,627
Directory advertising 871 871
Long distance sales 1,571 1,571
Internet services 4,556 4,556
Other services and sales 3,215 3,215
------ ----- ------ ------
Total operating revenues 17,512 4,556 (1,391) 20,677
====== ===== ====== ======
Long Distance revenues continue to show decreases due primarily to intense
competition from other long distance carriers as well as wireless providers.
Directory revenues have increased 13.0% over the prior period primarily due to
efficiencies gained by full incorporation of the majority of the directory
production process in house thereby resulting in successful
solicitation/retention of customers.
Competitive local exchange (CLEC) services and full inter-exchange Long
Distance service are provided by WVTC in selected areas outside of its own
servicing territory. CLEC revenues are generated by providing local service to
customers located in certain Frontier - a Citizens Communications Company - and
Sprint areas giving the customer a choice of service providers. CLEC revenue
increased 48% (excluding reciprocal compensation) over the
same period last year.
EXPENSE
Operating expenses are 5.6% over 2001 due in large part to the impact of
the WorldCom bankruptcy. The elimination of Operator Services and access charges
have reduced costs somewhat, but these decreases were slightly offset by
increases in Plant and Corporate Operations due to the rollout of our Video
product.
For the nine month period ending September 30, 2002 ($ in thousands):
Expenses From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Plant specific 2,859 285 3,144
Plant non-specific:
Depreciation 2,332 602 2,934
Other 705 935 1,640
Customer operations 2,861 149 3,010
Corporate operations 2,508 84 2,592
Cost of services and sales 1,220 2,102 (1,655) 1,667
Property, revenue and payroll tax 1,036 117 1,153
------ ----- ------ ------
Total operating expenses 13,521 4,274 (1,655) 16,140
====== ===== ====== ======
11
For the nine month period ending September 30, 2001 ($ in thousands):
Expenses From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Plant specific 2,600 4 2,604
Plant non-specific:
Depreciation 2,245 575 2,820
Other 727 827 1,554
Customer operations 3,064 251 3,315
Corporate operations 2,168 10 2,178
Cost of services and sales 988 2,000 (1,391) 1,597
Property, revenue and payroll tax 1,066 147 1,213
------ ----- ------ ------
Total operating expenses 12,858 3,814 (1,391) 15,281
====== ===== ====== ======
OTHER INCOME AND EXPENSE
Other income and expenses increased by $2,018K (or 62.3%) from $3,237K in
the nine-month period ended September 30, 2001 to $5,255K in the corresponding
period of 2002 primarily due to the increase in income from O-P. Year to
date, the partnership earnings increased 50.9% over the same comparable period
last year. O-P call volume was the primary factor for the year over year
increase but it should be noted that there is no guarantee that call volume will
remain strong, that expense allocations from the general partner will remain the
same, and that significant year over year increases will continue.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $887K cash and cash equivalents available at September 30,
2002. The Company has lines of credit with two banks totaling $10 million which
$3,300K remained unused at September 30, 2002. $2,500K of the total line of
credit is at a variable lending rate and borrowings are on a demand basis
without restrictions.
CASH FROM OPERATING ACTIVITIES
During 2002 the Company's primary source of funds continues to be cash
generated from operations, as shown in the consolidated statements of cash
flows. For the period ending September 30, 2002 net cash from operating
activities was less than our capital expenditures due to the Company's entrance
into the video business.
CASH FROM INVESTING ACTIVITIES
Capital expenditures totaled $5,748K during the nine-month period ending
September 30, 2002 as compared to $4,682K for the corresponding period of 2001.
The majority of these expenditures primarily can be attributed to the Company's
expansion into the Video business and network upgrades.
In order to provide the high-quality communications services expected by
our customers, the Company continued to invest in and upgrade its property,
plant and equipment. The amount of investment is influenced by demand for
services and products, ongoing growth, regulatory commitments and plant
refurbishment.
A significant percentage of the Company's capital expenditures during the
quarter was due to the result of our expansion into digital video services. The
Company has been approved to provide Video service in New Jersey and just
recently in New York. Overall, the company has budgeted over $10 million to be
spent on Capital projects in 2002 with approximately 35% of this amount slated
for video services. Upon completion of the 2002 Capital program management
projects approximately 28% of our Interexchange Local Exchange Carrier "ILEC"
and CLEC customers will be subscribing to our voice, video and data services.
O-P is licensed to operate as the wire line licensee in both Orange and
Dutchess Counties, New York. The Company's share in the partnership's earnings
increased by approximately $1,746K (or 50.9%) to $5,176K during the first nine
months of 2002, compared to $3,430K for the corresponding 2001 period.
Partnership earnings are distributed to the Company on a quarterly basis.
12
The Company has a 8.9% ownership interest in Hudson Valley DataNet
("HVDN"), L.L.C., in return for its initial capital contribution of $1 million.
HVDN is a competitive telecommunications company that offers high-speed
bandwidth throughout the region of Orange, Dutchess and Ulster counties. HVDN
has achieved cash flow positive results each month since June 2002.
The Company owns a 17.0% interest in Zefcom, ("Zefcom"), L.L.C., a
licensed reseller of wireless services. As of September 30, 2002 the Company had
made capital contributions of $2 million. Year to date, the Company has invested
$800K according to the terms of its investment agreement with Zefcom.
CASH FROM FINANCING ACTIVITIES
Dividends declared by the Board of Directors of Warwick Valley Telephone
Company were $0.43 per share for the three-month period ending September 30,
2002, compared to $0.43 for the corresponding period in 2001. The total
dividends paid through the third quarter of 2002 for common stock by Warwick
Valley Telephone Company were $1,846K, compared to $1,809K for the same period
in 2001. Warwick Valley Telephone Company's dividend policy considers both the
expectations and requirements of shareowners and the internal requirements of
the company.
OVERVIEWS: RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2002 -
NET INCOME
The Company's net income from all sources increased by $114K (or 5.5%) to
$2,201K for the three-month period ended September 30, 2002, as compared to a
decrease of $256K (or 10.9%)to $2,087K for the corresponding period in 2001.
Net income for the three month period ending September 30, 2002
($ in thousands):
Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Operating revenues 5,930 1,591 (526) 6,995
Operating expenses 4,286 1,699 (526) 5,459
Other income (expenses) 1,868 0 1,868
Federal income taxes 1,217 (14) 1,203
----- ----- ---- -----
Net income 2,295 (94) 2,201
===== ===== ==== =====
Net income for the three month period ending September 30, 2001
($ in thousands):
Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Operating revenues 5,759 1,584 (476) 6,867
Operating expenses 4,111 1,183 (476) 4,818
Other income (expenses) 1,097 2 1,099
Federal income taxes 924 137 1,061
----- ----- ---- -----
Net income 1,821 266 2,087
===== ===== ==== =====
The Company's net income growth was affected by a decrease in revenue from
two sources, Reciprocal Compensation ("RC") and Internet Service revenue and by
an increase in O-P income. RC revenue decreased by 65.8% over the prior year due
primarily to an FCC order (FCC 01-131) reaffirming that dial-up Internet Service
Provider ("ISP") traffic is interstate and thus not subject to RC. In the order,
the FCC established a phase-down approach over several years. This phase down
solution allows compensation for "ISP"-bound traffic to gradually decline. The
impact of the downward trend is now being felt. When comparing third Quarter
2002 to the third Quarter 2001, there has been a 57.0% decline in RC revenue. It
is expected that RC revenue will continue its downward trend until the phase out
is complete in 2003. Internet service has decreased primarily due to dial-up
customer migration to competitors who are able to provide DSL services in areas
where Warwick cannot. Where WVTC is the franchised local telephone carrier and
able to provide fast Internet, our DSL penetration continues to grow and
customer retention remains strong.
13
REVENUE
Operating revenues increased by $128K (or 1.9%) to $6,995K for the three-month
period ended September 30, 2002 as compared to $6,867K for the corresponding
period of 2001. The change in operating revenues was primarily the result of an
increase of $334K (or 18.1%) in network access service rates. This increase was
offset by decreases of $135K (or 57.0%) in reciprocal compensation and $48K (or
4.5%) in long distance sales and long distance network service combined during
the period as compared to the same three-month period of 2001.
For the three month period ending September 30, 2002 ($ in thousands):
Revenues From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Local network services 1,187 1,187
Network access revenues 2,713 (526) 2,187
Long distance network service 513 513
Directory advertising 343 343
Long distance sales 505 505
Internet services 1,591 1,591
Other services and sales 669 669
----- ----- ---- -----
Total operating revenues 5,930 1,591 (526) 6,995
===== ===== ==== =====
For the three month period ending September 30, 2001 ($ in thousands):
Revenues From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Local network services 1,079 1,079
Network access revenues 2,327 (476) 1,851
Long distance network service 535 535
Directory advertising 308 308
Long distance sales 531 531
Internet services 1,584 1,584
Other services and sales 979 979
----- ----- ---- -----
Total operating revenues 5,759 1,584 (476) 6,867
===== ===== ==== =====
Operating revenues increased slightly for the three months ending
September 30, 2002 due to additional CLEC access line growth, network access
revenue rate increases and additional DSL. Overall, Long Distance revenues
continue to show decreases due primarily to intense competition as well as
customers' use of cell phones as a substitute for wireline long distance
service. Directory revenues have increased 11.5% over the prior period primarily
due to efficiencies gained by full incorporation of our sales force in house and
successful solicitation/retention of customers.
Competitive local exchange (CLEC) services and full inter-exchange Long
Distance service are provided by WVTC in selected areas outside of its own
servicing territory. CLEC revenues are generated by providing local service to
customers located in certain Frontier - a Citizens Communications Company - and
Sprint areas giving the customer a choice of service providers. CLEC revenue
during the quarter increased 43.2% (excluding reciprocal compensation) over the
same period last year.
EXPENSE
Operating expenses grew 13.3% over 2001 due in large part to the impact of
the WorldCom bankruptcy. The elimination of Operator Services, and lower access
charges have reduced costs somewhat, but these decreases were slightly offset by
increases in Plant and Corporate Operations due to the rollout of our Video
product.
14
For the three month period ending September 30, 2002 ($ in thousands):
Expenses From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Plant specific 814 273 1,087
Plant non-specific:
Depreciation 801 195 996
Other 175 308 483
Customer operations 898 71 969
Corporate operations 767 75 842
Cost of services and sales 447 736 (526) 657
Property, revenue and payroll tax 384 41 425
----- ----- ---- -----
Total operating expenses 4,286 1,699 (526) 5,459
===== ===== ==== =====
For the three month period ending September 30, 2001 ($ in thousands):
Expenses From: Intercompany Consolidated
Telephone Internet Elimination Total
--------- -------- ----------- -----
Plant specific 781 1 782
Plant non-specific:
Depreciation 713 187 900
Other 248 272 520
Customer operations 1,029 120 1,149
Corporate operations 704 3 707
Cost of services and sales 300 589 (476) 413
Property, revenue and payroll tax 336 11 347
----- ----- ---- -----
Total operating expenses 4,111 1,183 (476) 4,818
===== ===== ==== =====
OTHER INCOME AND EXPENSE
Other income and expense increased by $769K (or 69.9%) to $1,868K in the
three-month period ended September 30, 2002 from $1,099K in the corresponding
period of 2001 primarily due to the increase in income from the O-P. Taken by
itself, the partnership earnings increased 58.4% over the same period last year.
The earnings increase is due primarily to stronger than expected call volume.
There is no guarantee that call volume will remain strong, that expense
allocations from the General Partner will remain the same, and that significant
year over year increases will continue.
OTHER FACTORS:
COMPETITION
The Telecommunications Act of 1996 (the "Act") creates a nationwide
structure in which competition is allowed and encouraged between local exchange
carriers, interexchange carriers, competitive access providers, cable TV
companies and other entities. The markets affected first were the regional toll
areas in New York and New Jersey. Regional toll competition was implemented in
New York on January 1, 1997 and in New Jersey in May 1997. The competition in
these regional toll areas has had the effect of reducing Warwick's revenues. The
reduction in regional toll revenues for the first nine months of 2002 was $75K
(or 11.1%) from $679K to $604K in New York and $100K (or 10.0%) from $998K to
$898K in New Jersey as compared to the same period in 2001. Under the Act the
Company itself can provide competitive local exchange telephone service outside
its franchised territory. The Company is currently competing with Citizen's
Telecommunications of New York in the Middletown, New York as well as with
Sprint in the Vernon, New Jersey areas for local service through access lines.
However, there can be no assurances that the Company will implement any such
additional plans, or that other companies will not begin providing competitive
local exchange telephone service in the Company's franchise territory. How and
whether the WorldCom bankruptcy will affect competition and the competition
policies of the federal and state governments is unclear at this time.
15
REGULATION
On January 10, 2002, the Company's Petition with the New York State Public
Service Commission ("NYSPSC") seeking authority to issue unsecured promissory
notes (the "Notes") was approved. Similar approval was received from the state
of New Jersey Board of Public Utilities ("NJBPUC") on August 8, 2001. The two
state commissions have authorized the Company to issue $18,475K of unsecured
promissory notes. The proceeds of the Notes will be used to replace existing
plant, to refinance existing indebtedness and to purchase equipment used in
connection with the Company's new video business. The Company is reviewing the
loan documents with commission staff.
The Company has filed a petition with the NYSPSC seeking approval to
reorganize its corporate structure in order to create a holding company that
would separate its regulated local exchange operations from its deregulated
operations. Under this reorganization plan, corporate management and
administrative functions would remain at Warwick Valley Telephone Company,
proposed to be renamed WVT Communications Inc., which would become the
unregulated holding company of a regulated local exchange subsidiary (proposed
to be named Warwick Valley Telephone Company) and other, unregulated
subsidiaries. Before the Company may complete this proposed reorganization plan,
it must first obtain the approval of both the NYSPSC and its shareholders.
Under the Investment Company Act of 1940 as amended, a company can be an
"investment company" if more than 40% of its assets consists of "investment
securities." Included in the definition of investment securities are the
securities of issuers in which the company owns an interest of less than 50%.
Although WVTC is the sole owner of several companies, it owns less than a
majority interest in Hudson Valley DataNet, L.L.C., Zefcom, L.L.C. and the
Orange County-Poughkeepsie Partnership. Determining whether more than 40% of
WVTC's assets consist of its interests in these less-than-majority-owned
companies is difficult, because the Investment Company Act does not fix a clear
procedure for calculating their value.
The amount which WVTC has paid for its interest in the O-P and the other
similar interests as of September 30, 2002 totals only $3,250K, which is clearly
less than 40% of WVTC's assets. However, because the income received by WVTC
from the O-P is substantial, the value of WVTC's interest could be significantly
greater than the amount WVTC paid for it. As a result, the value of WVTC's
interest in the Partnership and the other similar interests could, by some
methods of valuation, exceed 40% of WVTC's assets. Registering as an investment
company would impose many duties on WVTC that could not practically be combined
with its activities as a telecommunications company, and restructuring its
holdings to avoid the 40% limit would also be impractical for WVTC and, in the
view of management, unnecessary to fulfill the purposes of the Investment
Company Act. WVTC considers itself to be a telecommunications company and not an
investment company and does not hold itself out as an investment company. The
Company has formally applied to the Securities and Exchange Commission (the
"SEC") for a determination under Section 3(b) (2) of the Investment Company Act
that it is not an investment company because it is primarily engaged in the
telecommunications business. The SEC is not required to grant this relief. WVTC
has not determined how it would restructure its holdings of non-majority
interests in companies if relief were not granted.
FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q, including, without
limitation, statements containing the words "believes," "anticipates,"
"intends," "expects" and words of similar import, constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or industry results to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among others the
following: general economic and business conditions, both nationally and in the
geographic regions in which the Company operates; industry capacity; demographic
changes; existing governmental regulations and changes in or the failure to
comply with, governmental regulations; legislative proposals relating to the
businesses in which the Company operates; competition; or the loss of any
significant ability to attract and retain qualified personnel. Given these
uncertainties, current and prospective investors should be cautioned in their
reliance on such forward-looking statements. The Company disclaims any
obligations to update any such factors or to publicly announce the results of
any revision to any of the forward-looking statements contained herein to
reflect future events or developments.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
The Company does not hold or issue derivative instruments for any purposes
or other financial instruments for trading purposes. The Company's only assets
exposed to market risk are its interest bearing bank accounts, into which the
Company deposits its excess operating funds on a daily basis. The Company's
mortgage liabilities currently bear interest at a fixed rate. If the Company
refinances its liabilities when they mature the nature and amount of the
16
applicable interest rate or rates will be determined at that time. The Company
also has a line of credit which accrues interest at 0.75% below the prime rate.
On May 1, 2000 the Company repaid its $3 million Series I bond with short-term
borrowing. The Company has the option of renewing such short-term borrowing
every thirty, sixty or ninety days at prime rate or LIBOR rate plus 1.75%.
While the LIBOR rate has been very favorable of late, there is no guarantee that
such rates will continue. The interest rates on the Company's $18.475 million
term loan will vary based upon the Company's total leverage ratio and several
interest rate options, such as LIBOR or a long term fixed rate, among others.
ITEM 4. CONTROLS AND PROCEDURES -
(a) Evaluation of disclosure controls and procedures
The term "disclosure controls and procedures" is defined in Rules
13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934
(Exchange Act). These rules refer to the controls and other
procedures of a company that are designed to ensure that information
required to be disclosed by a company in the reports that it files
under the Exchange Act is recorded, processed, summarized and
reported within required time periods. Our Chief Executive Officer
and our Chief Financial Officer have evaluated the effectiveness of
our disclosure controls and procedures as of a date within 90 days
before the filing of this quarterly report (the Evaluation Date),
and they have concluded that, as of the Evaluation Date, such
controls and procedures were effective at ensuring that required
information will be disclosed on a timely basis in our reports filed
under the Exchange Act.
(b) Changes in internal controls
We maintain a system of internal accounting controls that are
designed to provide reasonable assurance that our books and records
accurately reflect our transactions and that our established
policies and procedures are followed. For the quarter ended
September 30, 2002, there were no significant changes to our
internal controls or in other factors that could significantly
affect our internal controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -
Shortly before our Investment Company Act application was filed with the
SEC, the Company was served with a complaint filed by a shareholder with the
U.S. District Court for the Southern District of New York. The complaint
alleges, among other things, that the Company is required to either register as
an investment company or divest the O-P interest. The management of the Company
believes that the complaint is without merit. Proceedings have been voluntarily
stayed pending the final outcome of the Company's SEC application.
ITEM 2. CHANGES IN SECURITIES - Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - Not Applicable
ITEM 5. OTHER INFORMATION -
On October 1, 2002, Warwick Valley Telephone Company (traded on NASDAQ
with the symbol WWVY) filed an application with the Securities and Exchange
Commission under Section 3(b)(2) of the Investment Company Act of 1940 for an
order of exemption from the provisions of that act. The Company had previously
reported its intention to file such an application in its Quarterly Report on
Form 10-Q for the period ended June 30, 2002. The Company does not believe it is
an investment company within the meaning of the Investment Company Act but
concluded that it was prudent to request an order of exemption because of the
current profitability of its long-standing 7.5% limited partnership interest in
O-P.
17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits -
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by
M. Lynn Pike-principle Executive Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 signed by
Philip A. Grybas-principle Financial Officer.
b) Reports on Form 8-K - Form 8-K reporting date: October 1, 2002
Item Reported - Item 9. Regulation FD Disclosure: The Company filed
an application with the Securities Exchange Commission under Section
3(b) (2) of the Investment Company Act of 1940 for an order of
exemption from the provisions of that act.
18
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.
Warwick Valley Telephone Company
Registrant
Date 11/14/02 /s/ M. Lynn Pike
------------------------------------------
M. Lynn Pike, President
(Chief Executive Officer)
Date 11/14/02 /s/ Philip A. Grybas
-------------------------------------------
Philip A. Grybas, Vice President, Treasurer
(Principal Financial and Chief
Accounting Officer)
19
CERTIFICATIONS
I, M. Lynn Pike, Chief Executive Officer of Warwick Valley Telephone Company,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of Warwick Valley
Telephone Company;
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 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 14, 2002 /s/ M. Lynn Pike
----------------- ----------------
Name: M. Lynn Pike
Title: President, Chief Executive Officer
I, Philip A. Grybas, Chief Financial Officer of Warwick Valley Telephone
Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Warwick Valley
Telephone Company;
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 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 14, 2002 /s/ Philip A. Grybas
----------------- --------------------
Name: Philip A. Grybas
Title: Vice President, Chief Financial Officer