10-Q 1 k72435e10vq.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2002 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2002 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12936 TITAN INTERNATIONAL, INC. (Exact name of Registrant as specified in its Charter) ILLINOIS 36-3228472 (State of Incorporation) (I.R.S. Employer Identification No.) 2701 SPRUCE STREET, QUINCY, IL 62301 (Address of principal executive offices, including Zip Code) (217) 228-6011 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. SHARES OUTSTANDING AT CLASS OCTOBER 30, 2002 ----- ---------------- COMMON STOCK, NO PAR VALUE PER SHARE 20,863,174 ================================================================================ TITAN INTERNATIONAL, INC. TABLE OF CONTENTS
Page Number ----------- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 1 Consolidated Condensed Balance Sheets as of September 30, 2002, and December 31, 2001 2 Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 3 Notes to Consolidated Condensed Financial Statements 4-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-23 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24 Item 4. Controls and Procedures 24 Part II. Other Information 25 Signatures & Certification 26 Certification 27-28
PART I. FINANCIAL INFORMATION Item 1. Financial Statements TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except earnings per share data)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net sales $ 104,660 $ 100,519 $ 354,213 $ 356,915 Cost of sales 101,634 97,678 324,164 331,750 ----------- ----------- ----------- ----------- Gross profit 3,026 2,841 30,049 25,165 Selling, general & administrative expenses 10,047 10,124 30,358 31,624 Research and development expenses 790 757 2,440 2,319 ----------- ----------- ----------- ----------- Loss from operations (7,811) (8,040) (2,749) (8,778) Interest expense 5,211 4,933 15,591 15,968 Loss on investment 9,594 0 9,594 0 Gain on sale of assets 0 0 0 (1,619) Gain on early retirement of debt 0 0 0 (4,356) Other income (744) (1,095) (2,752) (2,198) ----------- ----------- ----------- ----------- Loss before income taxes (21,872) (11,878) (25,182) (16,573) Benefit for income taxes (4,208) (2,376) (5,036) (3,315) ----------- ----------- ----------- ----------- Net loss $ (17,664) $ (9,502) $ (20,146) $ (13,258) =========== =========== =========== =========== Loss per common share: ---------------------- Basic $(.85) $(.46) $(.97) $(.64) Diluted $(.85) $(.46) $(.97) $(.64) Average common shares outstanding: ---------------------------------- Basic 20,816 20,676 20,771 20,644 Diluted 20,816 20,676 20,771 20,644
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data)
SEPTEMBER 30, DECEMBER 31, 2002 2001 ------------- ------------ ASSETS Current assets Cash and cash equivalents $ 35,227 $ 9,214 Accounts receivable (net of allowance of $3,450 and $3,523, respectively) 77,343 78,144 Inventories 110,557 116,801 Deferred income taxes 13,008 21,175 Prepaid and other current assets 33,276 37,389 ----------- ----------- Total current assets 269,411 262,723 Property, plant and equipment, net 190,682 205,047 Restricted cash deposits 27,409 34,661 Other assets 44,657 49,538 Goodwill, net 17,581 16,985 ----------- ----------- Total assets $ 549,740 $ 568,954 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term debt (including current portion of long-term debt) $ 6,952 $ 4,304 Accounts payable 45,332 54,658 Other current liabilities 28,930 23,077 ----------- ----------- Total current liabilities 81,214 82,039 Deferred income taxes 24,161 24,161 Other long-term liabilities 19,881 20,225 Long-term debt 254,242 256,622 ----------- ----------- Total liabilities 379,498 383,047 ----------- ----------- Stockholders' equity Common stock (no par, 60,000,000 shares authorized; 27,555,081 issued) 27 27 Additional paid-in capital 210,827 211,905 Retained earnings 63,540 83,998 Treasury stock (at cost: 6,739,407 and 6,864,947 shares, respectively) (89,604) (91,270) Accumulated other comprehensive loss (14,548) (18,753) ----------- ----------- Total stockholders' equity 170,242 185,907 ----------- ----------- Total liabilities and stockholders' equity $ 549,740 $ 568,954 =========== ===========
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (20,146) $ (13,258) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 25,100 27,678 Loss on investment 3,669 0 Gain on sale of assets 0 (1,619) Gain on early retirement of debt 0 (4,356) (Increase) decrease in current assets: Accounts receivable 2,873 6,650 Inventories 7,121 39,819 Income tax refund 16,284 0 Prepaid and other current assets (3,907) (2,598) Increase (decrease) in current liabilities: Accounts payable (10,728) (7,832) Other current liabilities 5,621 (18,663) Other, net 575 4,402 ---------- ---------- Net cash provided by operating activities 26,462 30,223 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (7,701) (9,516) Proceeds from sale of assets 0 5,200 Other 533 (4,485) ---------- ---------- Net cash used for investing activities (7,168) (8,801) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 1,015 17,474 Payment of debt (2,158) (5,421) Repurchase of bonds 0 (8,910) Proceeds on credit facility, net 0 5,000 Restricted cash withdrawal for loss on investment 5,925 0 Restricted cash decrease 1,327 0 Repurchase of common stock 0 (343) Dividends paid (312) (721) Other, net 588 10 ---------- ---------- Net cash provided by financing activities 6,385 7,089 Effect of exchange rate changes on cash 334 58 Net increase in cash and cash equivalents 26,013 28,569 Cash and cash equivalents at beginning of period 9,214 5,668 ---------- ---------- Cash and cash equivalents at end of period $ 35,227 $ 34,237 ========== ==========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) A. ACCOUNTING POLICIES In the opinion of Titan International, Inc. ("Titan" or the "Company"), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of September 30, 2002, the results of operations for the three and nine months ended September 30, 2002 and 2001, and cash flows for the nine months ended September 30, 2002 and 2001. The financial statements of the Company's foreign subsidiaries are translated in United States currency in accordance with SFAS No. 52, "Foreign Currency Translation". Assets and liabilities are translated to United States dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in "Accumulated other comprehensive loss" in stockholders' equity. Gains and losses that result from foreign currency transactions are included in the accompanying Consolidated Condensed Statements of Operations. Except for the discontinuance of goodwill amortization as required by Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" and the reclassification of gain on early retirement of debt under SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company's 2001 Annual Report on Form 10-K. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission's rules for Form 10-Q's and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2001 Annual Report on Form 10-K. Details in those notes have not changed significantly, except as a result of normal interim transactions and certain matters discussed hereafter. B. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net reflects accumulated depreciation of $211.0 million and $189.6 million at September 30, 2002, and December 31, 2001, respectively. 4 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) C. INVENTORIES Inventories consisted of the following (in thousands):
September 30, December 31, 2002 2001 ------------- ------------- Raw materials $ 35,315 $ 34,771 Work-in-process 16,901 11,549 Finished goods 55,869 67,647 ----------- ----------- 108,085 113,967 LIFO reserve 2,472 2,834 ----------- ----------- $ 110,557 $ 116,801 =========== ===========
D. GOODWILL Goodwill, net reflects accumulated amortization of $5.5 million at September 30, 2002, and December 31, 2001. No goodwill amortization has been recorded in 2002, pursuant to the adoption of SFAS No. 142 as described in note H. The carrying amount of goodwill by segment at September 30, 2002 was (i) agricultural of $9.7 million, (ii) earthmoving/construction of $6.2 million, and (iii) consumer of $1.7 million. The increase in goodwill, net from $17.0 million at December 31, 2001 to $17.6 million at September 30, 2002 is the result of currency exchange fluctuations. The table below provides comparative net earnings and earnings per share information had the non-amortization provisions of SFAS No. 142 been adopted for all periods presented:
Three months ended Nine months ended September 30, September 30, 2002 2001 2002 2001 ---- ---- ---- ---- Net loss (in thousands) ----------------------- As reported $ (17,664) $ (9,502) $ (20,146) $ (13,258) Goodwill amortization, net of tax 0 157 0 470 ---------- ----------- ---------- ----------- Adjusted net loss $ (17,664) $ (9,345) $ (20,146) $ (12,788) ========== =========== ========== =========== Basic & diluted loss per share ------------------------------ As reported $ (.85) $(.46) $(.97) $ (.64) Goodwill amortization, net of tax 0 .01 0 .02 ---------- ----------- ---------- ----------- Adjusted net loss per share $ (.85) $(.45) $(.97) $ (.62) ========== =========== ========== ===========
5 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) E. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
September 30, December 31, 2002 2001 ------------- ------------ Senior subordinated notes $ 136,750 $ 136,750 Term loan 97,350 99,000 Industrial revenue bonds and other 27,094 25,176 ----------- ----------- 261,194 260,926 Less amounts due within one year 6,952 4,304 ----------- ----------- $ 254,242 $ 256,622 =========== ===========
Aggregate maturities of long-term debt at September 30, 2002, were as follows (in thousands): October 1 -- December 31, 2002 $ 2,465 2003 10,378 2004 12,766 2005 15,990 2006 71,436 Thereafter 148,159 ----------- $ 261,194 ===========
F. COMPREHENSIVE INCOME (LOSS) Comprehensive loss, which includes net loss of $(17.7) million and the effect of foreign currency translation adjustments of $0.4 million, totaled $(17.3) million for the third quarter of 2002, compared to $(6.9) million in the third quarter of 2001 which includes net loss of $(9.5) million and the effect of foreign currency translation adjustments of $2.6 million. Comprehensive loss for the nine months ended September 30, 2002 was $(15.9) million, resulting from net loss of $(20.1) million and the effect of foreign currency translations of $4.2 million, compared to $(14.4) million in 2001 which includes net loss of $(13.3) million and the effect of foreign currency translation adjustments of $(1.1) million. 6 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) G. SEGMENT INFORMATION The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three and nine months ended September 30, 2002 and 2001 (in thousands):
Revenues Income (loss) Three months ended from external Intersegment from September 30, 2002 customers revenues operations ------------------ --------- -------- ---------- Agricultural $ 61,523 $ 36,637 $ (879) Earthmoving/construction 33,888 13,646 98 Consumer 9,249 5,679 (516) Reconciling items (a) 0 0 (6,514) ---------- ---------- ---------- Consolidated totals $ 104,660 $ 55,962 $ (7,811) ========== ========== ========== Three months ended September 30, 2001 ------------------ Agricultural $ 54,396 $ 30,547 $ (1,131) Earthmoving/construction 37,181 12,967 631 Consumer 8,942 4,263 (1,252) Reconciling items (a) 0 0 (6,288) ---------- ---------- ---------- Consolidated totals $ 100,519 $ 47,777 $ (8,040) ========== ========== ==========
(a) Represents corporate expenses and depreciation expense related to property, plant and equipment carried at the corporate level. The 2001 amounts also include amortization expense for goodwill carried at the corporate level. No goodwill amortization has been recorded in 2002, pursuant to the adoption of SFAS No. 142 as described in note H. 7 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) G. SEGMENT INFORMATION (CONTINUED)
Revenues Income (loss) Nine months ended from external Intersegment from September 30, 2002 customers revenues operations ------------------ --------- -------- ---------- Agricultural $ 212,025 $ 118,771 $ 11,275 Earthmoving/construction 110,304 43,620 4,850 Consumer 31,884 19,232 555 Reconciling items (a) 0 0 (19,429) ---------- ---------- ---------- Consolidated totals $ 354,213 $ 181,623 $ (2,749) ========== ========== ========== Nine months ended September 30, 2001 ------------------ Agricultural $ 198,320 $ 102,333 $ 7,614 Earthmoving/construction 122,314 42,171 5,896 Consumer 36,281 16,115 (2,189) Reconciling items (a) 0 0 (20,099) ---------- ---------- ---------- Consolidated totals $ 356,915 $ 160,619 $ (8,778) ========== ========== ==========
(a) Represents corporate expenses and depreciation expense related to property, plant and equipment carried at the corporate level. The 2001 amounts also include amortization expense for goodwill carried at the corporate level. No goodwill amortization has been recorded in 2002, pursuant to the adoption of SFAS No. 142 as described in note H. 8 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) G. SEGMENT INFORMATION (CONTINUED)
September 30, December 31, Total assets 2002 2001 ------------ ------------- ------------ Agricultural $ 257,870 $ 252,213 Earthmoving/construction 141,502 151,823 Consumer 35,201 46,783 Reconciling items (b) 115,167 118,135 ---------- ---------- Consolidated totals $ 549,740 $ 568,954 ========== ==========
(b) Represents property, plant and equipment and goodwill related to certain acquisitions and other corporate assets. H. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 142 On January 1, 2002, the Company adopted the non-amortization provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 eliminates the amortization of goodwill and requires goodwill to be tested for impairment at least annually. The Company has determined the reporting units and has conducted transitional tests of goodwill impairment of these units using the discounted cash flow method. The Company's transitional tests showed no impairment of goodwill due to the estimated discounted future cash flows exceeding the current net carrying value of the related unit. In estimating the future cash flows, the Company assumes sales and profitability trends, which have declined in recent years, will return to levels previously experienced by the Company. The Company's sales and profitability trends have been affected by downturns in the United States and world economy and the cumulative impact of the strikes at the Company's Des Moines, Iowa, and Natchez, Mississippi, facilities for 40 and 39 months, respectively. Should future information indicate such assumptions need to be revised downward, the carrying value could be impaired. Prospectively, the Company will evaluate goodwill for impairment in the fourth quarter of each fiscal year or whenever events or circumstances indicate impairment may exist. 9 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) H. NEW ACCOUNTING STANDARDS (CONTINUED) Statement of Financial Accounting Standards Number 144 In July 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets", was issued. This statement retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. SFAS No. 144 was adopted by the Company in the first quarter of 2002 and had no material effect on the Company's financial position, cash flows or results of operations. Statement of Financial Accounting Standards Number 145 In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", was issued. This statement eliminates the requirement that gains and losses on the extinguishment of debt be classified as extraordinary items on the statement of operations. The Company has elected to adopt SFAS No. 145 early. Therefore, the gain on early retirement of debt recorded in the second quarter of 2001 has been reclassified. See Note I for additional information. Statement of Financial Accounting Standards Number 146 In June, 2002, SFAS No. 146, "Accounting for Exit or Disposal Costs" was issued. This statement provides new guidance on accounting and reporting for costs associated with exit or disposal activities. Adoption of this standard is required for any exit or disposal activities initiated subsequent to December 31, 2002. I. GAIN ON EARLY RETIREMENT OF DEBT The Company recorded a gain on early retirement of debt of $4.4 million in the second quarter of 2001. This gain was previously classified as an extraordinary item in accordance with Financial Accounting Standards Board (FASB) Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt". In accordance with FASB Statement No. 4, the gain was shown net of taxes of $1.8 million for a net amount of $2.6 million. In April 2002, SFAS No. 145 was issued rescinding FASB Statement No. 4. The Company has elected to adopt SFAS No. 145 early and has therefore reclassified the gain on early retirement of debt in accordance with SFAS No. 145. 10 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) J. LOSS ON INVESTMENT The Company maintains financial interests in Fabrica Uruguaya de Neumaticos S.A. (FUNSA), a tire manufacturer located in Uruguay, South America. FUNSA is not currently producing tires, however FUNSA is working with its investors, the government of Uruguay and the union to complete a reorganization plan and resume the manufacturing of tires. These plans have been significantly hindered by the major economic crisis that occurred in Uruguay during the third quarter of 2002, including a run on banks and the temporary closing of the banking system. Due to these events and the deterioration of economic conditions, social distress and resultant unrest in the country of Uruguay, the Company is reserving its investment in FUNSA of $9.6 million. The expense of $9.6 million was taken in the third quarter of 2002 and is classified in the accompanying Consolidated Condensed Statements of Operations as "Loss on Investment." On the accompanying Consolidated Condensed Statements of Cash Flows, $3.7 million is shown as a non-cash loss on investment and the remaining $5.9 million is shown as a reduction in restricted cash deposits. K. LEASE COMMITMENTS The Company leases certain buildings and equipment under operating leases, including a lease for the building in Brownsville, Texas. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. At September 30, 2002, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year are as follows (in thousands): October 1 -- December 31, 2002 $ 1,382 2003 4,659 2004 1,971 2005 535 2006 388
11 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) L. INCOME TAX REFUND In July of 2002, the Company received a federal income tax refund of approximately $16.3 million as a result of a net operating loss carryback generated from the losses incurred by the Company in 2001. The amount of the operating loss carryback was increased by a recent change in the tax laws allowing for operating losses to be carried back additional years and allowing the Company to recover additional taxes previously paid. The Company has recorded this refund as an increase to cash and a corresponding decrease in current deferred income taxes and prepaid and other current assets in the accompanying Consolidated Condensed Balance Sheets. 12 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Company's application of these policies involves judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial results. Revenue Recognition The Company records sales revenue and cost of sales when products are shipped to customers and both title and the risks and rewards of ownership are transferred. Provisions are established for sales returns and uncollectible accounts based on historical experience. Should these experience trends change, adjustments would be necessary to the estimated provisions. Product Costing Inventories are valued at the lower of cost or market. For operations in the United States, cost is determined using the last-in, first-out (LIFO) method for approximately 54% of inventories and the first-in, first-out (FIFO) method for the remainder of inventories. Inventory of foreign subsidiaries is valued using the FIFO method. Market is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory as well as inventory carried above market price based on historical experience. Should this experience change, adjustments would be necessary to the estimated provisions. Impairment of Fixed Assets The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Impairment losses are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the fair value of the asset. Significant assumptions relating to future operations must be made when estimating future cash flows. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. 13 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES (CONTINUED) Valuation of Equity Investments The Company assesses the carrying value of its equity investments whenever events and circumstances indicate that the carrying values may not be recoverable. Investment write-downs, if necessary, are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. These write-downs, if any, are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the fair value of the asset. Significant assumptions relating to future investment results must be made when estimating the future cash flows associated with these investments. Should unforeseen events occur or should investment trends change significantly, impairment losses could occur. Impairment of Goodwill The Company will review goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, or whenever events and circumstances indicate that the carrying values may not be recoverable. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. Retirement Benefit Obligations Pension and other postretirement benefit obligations are based on various assumptions used by the Company's actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Actual results that differ from the assumptions and changes in assumptions affect future expenses, cash funding requirements and obligations. For more information concerning these costs and obligations, see the additional discussion of the "Minimum Pension Liability" and Note 14 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2001. 14 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Sales Net sales for the quarter ended September 30, 2002, were $104.7 million, compared to 2001 third quarter net sales of $100.5 million. Net sales for the nine months ended September 30, 2002 were $354.2 million, compared to 2001 net sales of $356.9 million. Net sales for the quarter ended September 30, 2002, increased as the result of a small rebound in agricultural segment sales. The decrease in net sales for the nine months ended September 30, 2002, was primarily due to reduced production by the Company's major customers and the continued negative economic conditions in the global earthmoving/construction and consumer markets. Cost of Sales and Gross Profit Cost of sales was $101.6 and $324.2 million for the third quarter and for the nine months ended September 30, 2002, as compared to $97.7 and $331.8 million in 2001. Gross profit for the third quarter of 2002 was $3.0 million or 2.9% of net sales, compared to $2.8 million or 2.8% of net sales for the third quarter of 2001. Gross profit for the nine months ended September 30, 2002, was $30.0 million or 8.5% of net sales, compared to $25.2 million or 7.1% of net sales for 2001. Gross profit, as a percentage of net sales, was positively impacted by the Company's efforts to control costs. Cost reduction measures have included the closing of several distribution facilities as part of the Company's reorganization of its domestic distribution network. Titan's cost control efforts were partially offset by price increases for steel and rubber, the primary raw materials used by the Company. The Company's profit margins continue to be affected by the excess capacity at the idle Natchez, Mississippi facility. Depreciation on the fixed assets at this facility, along with minimal operating costs, continues to be incurred. A recent third party appraisal indicates the fair value of the fixed assets of this facility is in excess of the carrying value of $20.9 million. The Company continually assesses its capacity requirements and makes necessary changes as dictated by customer demand. Administrative Expenses Selling, general and administrative (SG&A) and research and development (R&D) expenses for the third quarter of 2002 were $10.8 million or 10.4% of net sales, compared to $10.9 million or 10.8% of net sales for 2001. SG&A and R&D expenses for the nine months ended September 30, 2002 were $32.8 million or 9.3% of net sales, compared to $33.9 million or 9.5% of net sales in 2001. The SG&A and R&D percentages were lower due to the Company's efforts to streamline total SG&A expenditures, as well as the cessation of the amortization of goodwill as discussed in footnote D of the accompanying financial statements. The Company's streamlining efforts included headcount reductions. 15 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Operating Results and Other Loss from operations for the third quarter of 2002 was $(7.8) million or (7.5)% of net sales, compared to $(8.0) million or (8.0)% in 2001. Loss from operations for the nine months ended September 30, 2002, was $(2.7) million or (0.8)% of net sales, compared to $(8.8) million or (2.5)% for 2001. Operating results were primarily impacted by the Company's effort to reduce costs as discussed above. Net interest expense was $5.2 million and $15.6 million for the third quarter and for the nine months ended September 30, 2002, respectively, compared to $4.9 million and $16.0 million in 2001. The increased interest expense in the third quarter of 2002 as compared to 2001 is primarily due to an increase in outstanding debt in the third quarter of 2002 as compared to 2001. The $9.6 million loss on investment resulted from the Company's decision to reserve its investment in Fabrica Uruguaya de Neumaticos S.A. (FUNSA), a tire manufacturer located in Uruguay, South America. FUNSA is not currently producing tires, however FUNSA is working with its investors, the government of Uruguay and the union to complete a reorganization plan and resume the manufacturing of tires. These plans have been significantly hindered by the major economic crisis that occurred in Uruguay during the third quarter of 2002, including a run on banks and the temporary closing of the banking system. Due to these events and the deterioration of economic conditions, social distress and resultant unrest in the country of Uruguay, the Company is reserving its investment in FUNSA of $9.6 million. The expense of $9.6 million was taken in the third quarter of 2002 and is classified in the accompanying Consolidated Condensed Statements of Operations as "Loss on Investment." On the accompanying Consolidated Condensed Statements of Cash Flows, $3.7 million is shown as a non-cash loss on investment and the remaining $5.9 million is shown as a reduction in restricted cash deposits. The $1.6 million gain on sale of assets in 2001 was attributed to the sale of an airplane during the first quarter of that year. A gain on early retirement of debt of $4.4 million in the second quarter of 2001 resulted from the early retirement of $13.3 million of the senior subordinated notes. During the quarter and the nine months ended September 30, 2002, the strength of foreign currencies against the dollar benefited Titan by $0.2 million and $1.4 million, respectively. The Company's effective tax benefit on the net loss was 20% for the first nine months of both 2001 and 2002. The effective tax benefit rate difference from the expected domestic federal rate of 35% is the result of anticipated taxable income in foreign jurisdictions and estimates in realizability of tax loss carryback and carryforward amounts. 16 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Net Loss Net loss for the third quarter and for the nine months ended September 30, 2002, was $(17.7) and $(20.1) million, respectively, compared to $(9.5) and $(13.3) million in 2001. Basic and diluted loss per share were $(.85) and $(.97) for the third quarter and for the nine months ended September 30, 2002, compared to $(.46) and $(.64) in 2001. Net loss increased as a result of the loss on investment. Agricultural Segment Results Net sales in the agricultural market were $61.5 and $212.0 million for the third quarter and the nine months ended September 30, 2002, as compared to $54.4 and $198.3 million in 2001. (Loss) income from operations in the agricultural market was $(0.9) and $11.3 million for the third quarter and the nine months ended September 30, 2002, as compared to $(1.1) and $7.6 million in 2001. The increase in net sales and income from operations in the agricultural market was primarily attributed to higher sales volumes resulting from an escalation in customer demand along with Titan's efforts to expand market share. Also, the heightened cost control efforts previously discussed contributed to the increase. Earthmoving/Construction Segment Results The Company's earthmoving/construction market net sales were $33.9 and $110.3 million for the third quarter and the nine months ended September 30, 2002, as compared to $37.2 and $122.3 million for 2001. Income from operations in the earthmoving/construction market was $0.1 and $4.9 million for the third quarter and the nine months ended September 30, 2002, versus $0.6 and $5.9 million in 2001. The year-to-date decrease in income from operations in the earthmoving/ construction market was primarily due to operating inefficiencies resulting from a decrease in the sales volume. However, these inefficiencies were partially offset by the increased cost control efforts previously discussed. Consumer Segment Results Consumer market net sales were $9.2 and $31.9 million for the third quarter of 2002 and the nine months ended September 30, 2002, as compared to $8.9 and $36.3 million for 2001. Consumer market (loss) income from operations was $(0.5) and $0.6 million for the third quarter of 2002 and the nine months ended September 30, 2002, as compared to loss from operations of $(1.3) and $(2.2) million for 2001. Although consumer market year-to-date net sales decreased, income from operations increased as a result of the Company's previously discussed efforts to enhance efficiencies and management's efforts to focus on the Company's higher margin consumer products. 17 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Foreign Subsidiaries Sales Net sales at foreign subsidiaries for the quarter ended September 30, 2002, were $28.8 million, compared to 2001 third quarter sales of $24.6 million. The foreign sales were positively impacted by increased agricultural segment sales. Net sales at foreign subsidiaries for the nine months ended September 30, 2002 were $88.1 million, compared to 2001 net sales of $87.4 million. Corporate Expenses Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $6.5 and $19.4 million for the third quarter and the nine months ended September 30, 2002, respectively, as compared to $6.3 and $20.1 million for comparable periods in 2001. LIQUIDITY AND CAPITAL RESOURCES Cash Flows For the nine months ended September 30, 2002, positive cash flows from operating activities of $26.5 million resulted primarily from a federal income tax refund of $16.3 million as well as depreciation and amortization of $25.1 million. The tax refund reduced deferred income taxes by $8.2 million and other current assets by $8.1 million. Cash inflows were partially offset by the net loss of $(20.1) million and accounts payable decreases of $(10.7) million. The Company invested $7.7 million in capital expenditures in the first nine months of 2002. The expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures will range from $10 million to $12 million in 2002. In the nine months ended September 30, 2002, positive cash flows from financing activities of $6.4 million resulted primarily from a $7.3 million decrease in restricted cash deposits. Other Issues The Company's business is subject to seasonal sales variations that affect inventory levels and accounts receivable balances. There have been no significant changes in interest rates, debt borrowings, or related covenants during the first nine months of 2002. 18 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company had restricted cash of $27.4 million at September 30, 2002. Restricted cash of $15.0 million was held as collateral on the revolving loan agreement. The remaining $12.4 million was collateral on outstanding letters of credit for an industrial revenue bond of $9.6 million and another for $2.8 million. Letters of credit were previously issued under the Company's credit facility, which was replaced in December 2001. The amount of restricted cash was reduced by $7.3 million, primarily resulting from the $5.9 million restricted cash reduction for FUNSA. The Company's term loan and revolving loan agreements contain various covenants and restrictions. The Company is in compliance with these covenants and restrictions as of September 30, 2002. The financial covenants in these loan agreements require the (i) Company's adjusted minimum tangible net worth be equal to or greater than $150 million, (ii) value of equipment, accounts receivable, and inventory be equal to or greater than three times the outstanding principal balance of the term loan, and (iii) value of accounts receivable and inventory be equal to or greater than $100 million. Restrictions include (i) limits on payments of dividends and repurchases of the Company's stock, (ii) restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company, and (iii) limitations on investments, dispositions of assets and guarantees of indebtedness. These covenants and restrictions could limit the Company's ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements. Liquidity Outlook At September 30, 2002, the Company had unrestricted cash and cash equivalents of $35.2 million and no amount was drawn on the $20 million revolving loan agreement. Cash on hand, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, capital expenditures, and payments required on short-term debt for the near term. However, if the Company were to exhaust all currently available working capital sources, or were not to meet the financial covenants and conditions of its loan agreements, the Company might find it extremely difficult or not possible to secure additional funding in order to meet working capital requirements. 19 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK Agricultural Segment Given current economic conditions, the agricultural market sales for the remainder of 2002 are expected to be slightly above 2001 levels. The newly enacted farm bill in the United States and more generous depreciation rules should eventually support an increase in farm equipment sales. However, dry weather has pushed any expected additional sales increases into next year at the earliest. Many variables, including weather, export markets and future government policies and payments can greatly influence the overall health of the agricultural economy. Many of the Company's customers in the agricultural market schedule extended plant shutdowns near the end of the year. Therefore, sales and profitability for the fourth quarter are expected to decline as compared to the first three quarters of 2002. However, the Company believes enhanced efficiencies will allow the operating results to continue to outperform those of 2001. Also, the Company expects to enact price increases in the agricultural market to offset higher raw material costs. Earthmoving/Construction Segment Sales in the earthmoving/construction market for the balance of 2002 are expected to remain lower than 2001. In response to higher raw material costs, the Company expects to enact price increases on its products in the earthmoving/construction market. However, these price increases are not expected to make up for market weaknesses including a general uncertainty in the earthmoving/construction market, which has slowed spending on new equipment. Governmental entities have cut construction spending due to lower government receipts. Also, weakness persists at equipment rental agencies, thereby decreasing their demand to purchase new equipment. Many of the Company's earthmoving/construction customers also schedule extended plant shutdowns toward the end of the year. Therefore, sales and profitability for the remainder of 2002 will likely remain depressed. Consumer Segment Consumer market sales are anticipated to be lower for the remainder of 2002 when compared to 2001. Many items affect the consumer market including weather, competitive pricing, energy prices, and consumer attitude, which remains cautious. However, if the enhanced efficiencies continue, along with management's concerted effort to focus on the Company's higher margin consumer products, the consumer market will show improved margins when compared to 2001. 20 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK (CONTINUED) Market and Economic Uncertainties Market share loss or lower demand in the markets that the Company serves could adversely affect the Company's results of operations, financial position and liquidity in the future. This could result in reduced levels of plant utilization that would increase the costs of the Company's products. In addition, increases in labor, raw material, energy, insurance and other expenses would also result in increased product cost. Due to current pricing pressures brought on by a highly competitive marketplace, these additional costs may not be recoverable. The continuation of the current economic downturn in the United States and worldwide is likely to have an unfavorable impact on the Company's sales and earnings in subsequent periods. MARKET RISK SENSITIVE INSTRUMENTS The Company's risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2001. MINIMUM PENSION LIABILITY Due to the major decline in the equity markets during 2002, the fair value of the Company's pension fund assets has significantly decreased since December 31, 2001. In accordance with Financial Accounting Standards Board (FASB) Statement No. 87, "Employer's Accounting for Pensions", the Company expects to record an additional minimum pension liability adjustment at December 31, 2002. The direct charge to stockholders' equity would not affect net income, but would be included in other comprehensive income (loss). 21 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 142 On January 1, 2002, the Company adopted the non-amortization provisions of Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 eliminates the amortization of goodwill and requires goodwill to be tested for impairment at least annually. The Company has determined the reporting units and has conducted transitional tests of goodwill impairment of these units using the discounted cash flow method. The Company's transitional tests showed no impairment of goodwill due to the estimated discounted future cash flows exceeding the current net carrying value of the related unit. In estimating the future cash flows, the Company assumes sales and profitability trends, which have declined in recent years, will return to levels previously experienced by the Company. The Company's sales and profitability trends have been affected by downturns in the United States and world economy and the cumulative impact of the strikes at the Company's Des Moines, Iowa, and Natchez, Mississippi, facilities for 40 and 39 months, respectively. Should future information indicate such assumptions need to be revised downward, the carrying value could be impaired. Prospectively, the Company will evaluate goodwill for impairment in the fourth quarter of each fiscal year or whenever events or circumstances indicate impairment may exist. Statement of Financial Accounting Standards Number 144 In July 2001, SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets", was issued. This statement retains the previous cash flow test for impairment and broadens the presentation of discontinued operations. SFAS No. 144 was adopted by the Company in the first quarter of 2002 and had no material effect on the Company's financial position, cash flows or results of operations. Statement of Financial Accounting Standards Number 145 In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections", was issued. This statement eliminates the requirement that gains and losses on the extinguishment of debt be classified as extraordinary items on the statement of operations. The Company has elected to adopt SFAS No. 145 early. Therefore, the gain on early retirement of debt recorded in the second quarter of 2001 has been reclassified. See Note I in the Notes to Consolidated Condensed Financial Statements for additional information. 22 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW ACCOUNTING STANDARDS (CONTINUED) Statement of Financial Accounting Standards Number 146 In June, 2002, SFAS No. 146, "Accounting for Exit or Disposal Costs" was issued. This statement provides new guidance on accounting and reporting for costs associated with exit or disposal activities. Adoption of this standard is required for any exit or disposal activities initiated subsequent to December 31, 2002. SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q contains forward-looking statements, including statements regarding, among other items, (i) anticipated trends in the Company's business, (ii) future expenditures for capital projects, (iii) the Company's ability to continue to control costs and maintain quality, (iv) meeting financial covenants and conditions of its loan agreements, (v) the Company's business strategies, including its intention to introduce new products, (vi) expectations concerning the performance and commercial success of the Company's existing and new products and (vii) the Company's intention to consider and pursue acquisitions. Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of certain factors, including, (i) changes in the Company's end-user markets as a result of world economic or regulatory influences, (ii) changes in the competitive marketplace, including new products and pricing changes by the Company's competitors, (iii) availability and price of raw materials, (iv) levels of operating efficiencies, (v) actions of domestic and foreign governments, (vi) results of investments, (vii) impairment of goodwill or fixed assets, and (viii) ability to secure financing at reasonable terms. Any changes in such factors could lead to significantly different results. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire. 23 TITAN INTERNATIONAL, INC. PART I. FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's most recent Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information. ITEM 4. CONTROLS AND PROCEDURES Based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-Q, the Company's principal executive officer and principal financial officer believe the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective. There were not any significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 24 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION ITEMS 1 THROUGH 5 ARE NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended September 30, 2002. 25 TITAN INTERNATIONAL, INC. 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. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: October 30, 2002 BY: /s/ Maurice M. Taylor Jr. ----------------------- ----------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack ----------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) CERTIFICATION Each of the undersigned hereby certifies that, to the best of their knowledge, this report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: October 30, 2002 BY: /s/ Maurice M. Taylor Jr. ----------------------- ----------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack ----------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 26 TITAN INTERNATIONAL, INC. CERTIFICATION I, Maurice M. Taylor Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATE: October 30, 2002 BY: /s/ Maurice M. Taylor Jr. ----------------------- ----------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer 27 TITAN INTERNATIONAL, INC. CERTIFICATION I, Kent W. Hackamack, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and d) 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: October 30, 2002 BY: /s/ Kent W. Hackamack ----------------------- ----------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 28