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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ________________
Commission File Number: 333-20095
ATRIUM COMPANIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2642488
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1341 W. MOCKINGBIRD LANE, SUITE 1200W, DALLAS, TEXAS 75247, (214) 630-5757
- --------------------------------------------------------------------------------
(Address of principal executive offices, including zip code and
telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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ATRIUM COMPANIES, INC.
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (Unaudited):
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996.................... 3
Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1997 and 1996........................................................ 4-5
Consolidated Statement of Stockholder's Equity (Deficit) for the Nine Months
Ended September 30, 1997........................................................... 6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
1997 and 1996...................................................................... 7
Notes to Consolidated Financial Statements...................................................... 8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................... 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.............................................................................. 13
Items 2, 3, 4 and 5 are not applicable
Item 6. Exhibits and Reports on Form 8-K............................................................... 13
Signatures.............................................................................................. 13
Exhibit Index........................................................................................... 14
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ATRIUM COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ----------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents ................................................................ $ 1 $ 617
Equity securities - available for sale.................................................... 96 --
Accounts receivable, net ................................................................. 28,508 21,975
Inventories .............................................................................. 20,608 13,474
Prepaid expenses and other current assets ................................................ 786 1,765
Deferred tax asset ....................................................................... 2,367 2,555
--------- ---------
Total current assets .................................................................. 52,366 40,386
PROPERTY, PLANT, AND EQUIPMENT, net ........................................................... 15,892 13,970
GOODWILL, net ................................................................................. 14,876 11,963
DEFERRED FINANCING COSTS, net ................................................................. 5,116 5,173
OTHER ASSETS .................................................................................. 3,573 3,258
--------- ---------
Total assets .......................................................................... $ 91,823 $ 74,750
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ......................................................................... $ 12,780 $ 8,528
Accrued liabilities ...................................................................... 10,216 6,580
--------- ---------
Total current liabilities ............................................................. 22,996 15,108
LONG-TERM LIABILITIES:
Notes payable ............................................................................ 102,961 100,000
Deferred tax liability ................................................................... 844 818
--------- ---------
Total long-term liabilities ........................................................ 103,805 100,818
--------- ---------
Total liabilities .................................................................. 126,801 115,926
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock $.01 par value, 3,000 shares authorized,
100 shares issued and outstanding ..................................................... -- --
Paid-in capital .......................................................................... 32,387 31,936
Accumulated deficit ...................................................................... (67,354) (73,112)
Unrealized loss on equity securities - available for sale ................................ (11) --
--------- ---------
Total stockholder's deficit ........................................................ (34,978) (41,176)
--------- ---------
Total liabilities and stockholder's deficit .................................. $ 91,823 $ 74,750
========= =========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1997 1996
-------- --------
NET SALES .............................................................. $ 54,516 $ 38,641
COST OF GOODS SOLD ..................................................... 35,276 24,801
-------- --------
Gross profit ...................................................... 19,240 13,840
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses ............ 12,300 8,684
Stock option compensation expense ................................. 52 122
-------- --------
12,352 8,806
-------- --------
Income from operations ......................................... 6,888 5,034
INTEREST EXPENSE ....................................................... 2,947 943
OTHER INCOME (EXPENSE), net ............................................ 89 (105)
-------- --------
Income before income taxes ..................................... 4,030 3,986
PROVISION FOR INCOME TAXES ............................................. 1,599 1,447
-------- --------
NET INCOME ............................................................. $ 2,431 $ 2,539
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1997 1996
-------- --------
NET SALES ............................................................. $139,793 $113,046
COST OF GOODS SOLD .................................................... 89,656 73,882
-------- --------
Gross profit ..................................................... 50,137 39,164
OPERATING EXPENSES:
Selling, delivery, general and administrative expenses ........... 33,114 24,851
Stock option compensation expense ................................ 255 370
-------- --------
33,369 25,221
-------- --------
Income from operations ........................................ 16,768 13,943
INTEREST EXPENSE ...................................................... 8,542 3,000
OTHER INCOME (EXPENSE), net ........................................... 1,127 291
-------- --------
Income before income taxes .................................... 9,353 11,234
PROVISION FOR INCOME TAXES ............................................ 3,485 4,018
-------- --------
NET INCOME ............................................................ $ 5,868 $ 7,216
======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
CONSOLIDATED STATEMENT OF
STOCKHOLDER'S EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
Unrealized
Loss on Equity
Common Stock Securities- Total
------------------ Paid-in Accumulated Available Stockholder's
Shares Amount Capital Deficit For Sale Deficit
------ ------ -------- ------------ ------------- -------------
Balance, December 31, 1996 ................... 100 $ -- $ 31,936 $(73,112) $ -- $(41,176)
Contributions from Holding ................ -- -- 196 -- -- 196
Distributions to Holding .................. -- -- -- (110) -- (110)
Stock option compensation expense ......... -- -- 255 -- -- 255
Unrealized loss on equity securities -
available for sale ..................... -- -- -- -- (11) (11)
Net income ................................ -- -- -- 5,868 -- 5,868
------ -------- -------- -------- ------- -------
Balance, September 30, 1997 .................. 100 $ -- $ 32,387 $(67,354) $ (11) $(34,978)
====== ======== ======== ======== ======= =======
The accompanying notes are an integral part of the
consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................ $ 5,868 $ 7,216
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ....................................................... 2,384 1,473
Amortization of deferred financing costs .............................................. 482 207
Stock option compensation expense ................................................... 255 370
Gain on retirement of assets ........................................................ (9) (7)
Gain on sale of equity securities ................................................... (2) --
Deferred tax provision .............................................................. 214 --
Changes in assets and liabilities:
Accounts receivable, net ........................................................ (4,773) (3,833)
Inventories ..................................................................... (5,761) 203
Prepaid expenses and other current assets ....................................... 1,020 692
Accounts payable ................................................................ 3,756 503
Accrued liabilities ............................................................. 3,056 285
-------- --------
Net cash provided by operating activities .................................... 6,490 7,109
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES: ......................................................
Purchases of property, plant and equipment ............................................ (2,326) (2,060)
Proceeds from sale of assets .......................................................... 15 8
Payment for acquisition, net of cash acquired ......................................... (6,505) (10,199)
Purchases of equity securities ........................................................ (480) --
Proceeds from sale of equity securities ............................................... 375 --
Increase in other assets .............................................................. (807) (1,692)
-------- --------
Net cash used in investing activities .............................................. (9,728) (13,943)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving credit facility ........................................ 2,961 7,740
Proceeds from issuance of note payable ................................................ -- 6,000
Payment of note payable ............................................................... -- (6,759)
Deferred financing costs .............................................................. (425) 91
Contributions from Holding ............................................................ 196 --
Distributions to Holding .............................................................. (110) --
Capital contribution .................................................................. -- 13
-------- --------
Net cash provided by financing activities .......................................... 2,622 7,085
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................... (616) 251
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................................. 617 85
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................... $ 1 $ 336
======== ========
SUPPLEMENTAL DISCLOSURE:
Cash paid during the period for:
Interest ........................................................................... $ 5,069 $ 2,581
Income taxes, net of refunds ....................................................... 1,512 5,248
Noncash activities:
Common stock issued by Holding for acquisition ..................................... $ -- $ 5,000
The accompanying notes are an integral part of the
consolidated financial statements.
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ATRIUM COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The unaudited consolidated results of operations of Atrium Companies, Inc. (the
"Company") for the three months and nine months ended September 30, 1997 and
1996, cash flows for the nine months ended September 30, 1997 and 1996 and
financial position as of September 30, 1997 and December 31, 1996 have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting, the instructions to Form 10-Q, and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
These consolidated financial statements and footnotes should be read in
conjunction with the Company's audited financial statements for the fiscal years
ended December 31, 1996, 1995 and 1994, included in the Prospectus dated April
4, 1997 included in the Company's Registration Statement on Form S-4
(Registration No. 333-20095) as filed with the Securities and Exchange
Commission ("the Registration Statement"). In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation of the interim financial information have been included.
The results of operations for any interim period are not necessarily indicative
of the results of operations for a full year. Certain prior period amounts have
been reclassified to conform to the current period presentation.
2. EQUITY SECURITIES - AVAILABLE FOR SALE:
Investments in equity securities - available for sale are carried at market
based on quoted market prices, with unrealized gains (losses) recorded in
stockholder's equity.
3. INVENTORIES:
Inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method of accounting. Work-in-process and finished goods
inventories consist of materials, labor, and manufacturing overhead. Inventories
consisted of the following at September 30, 1997:
Raw materials ........ $ 17,296
Work-in-process ...... 696
Finished goods ....... 4,229
--------
22,221
LIFO reserve ......... (1,613)
--------
$ 20,608
========
4. NOTES PAYABLE:
Notes payable consisted of the following at September 30, 1997:
Senior subordinated notes .... $100,000
Revolving credit facility .... 2,961
--------
$102,961
========
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5. CONTINGENCIES:
The Company is party to various claims, legal actions, and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are without merit or are of such kind, or involve such amounts, that an
unfavorable disposition would not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
The Company was named in 1988 as a potentially responsible party ("PRP") in two
superfund sites pursuant to the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA") (the Chemical
Recycling, Inc. site in Wylie, Texas, and the Diaz Refinery site in Little Rock,
Arkansas). The Company believes that based on the information currently
available, including the substantial number of other PRP's and relatively small
share allocated to it at such sites, its liability, if any, associated with
either of these sites will not have a material adverse effect on the Company's
financial position, results of operations or liquidity.
6. OTHER INCOME (EXPENSE), NET:
Other income (expense), net consisted of the following for the three months and
nine months ended September 30, 1997:
Three Months Nine Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
Insurance settlement ...... $ -- $ 1,193
Other ..................... 89 (66)
------- -------
$ 89 $ 1,127
======= =======
7. SUBSIDIARY GUARANTORS:
In connection with the Note offering, the Company's payment obligations under
the Notes are fully and unconditionally guaranteed, jointly and severally
(collectively, the Subsidiary Guarantees) on a senior subordinated basis by its
wholly-owned subsidiaries: Vinyl Building Specialties of Connecticut, Inc.
(VBS), Bishop Manufacturing Co. of New York, Inc., Bishop Manufacturing Company,
Incorporated (BMC) and Bishop Manufacturing Company of New England, Inc.
(collectively, Bishop) and H-R Window Supply, Inc. (H-R) (collectively, the
Subsidiary Guarantors). The Company has no non-guarantor direct or indirect
subsidiaries. The information presented below is included in the Company's
consolidated financial statements for the periods presented except for the
results of operations of Bishop for the three months and nine months ended
September 30, 1996, as it was acquired on September 30, 1996. Effective May 31,
1997, all of the assets and related liabilities (which represented the
respective receivables and payables) of H-R were contributed to Atrium
Companies, Inc. Effective July 1, 1997, H-R purchased the assets of the Western
Window Division of Gentek Building Products, Inc. (Note 8 - Acquisition). The
results of operations from the purchase of these assets are included since the
date of acquisition. In the opinion of management, separate financial statements
of the respective Subsidiary Guarantors would not provide additional material
information, which would be useful in assessing the financial composition of the
Subsidiary Guarantors. No single Subsidiary Guarantor has any significant legal
restrictions on the ability of investors or creditors to obtain access to its
assets in event of default on the Subsidiary Guarantee other than its
subordination to senior indebtedness.
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Following is summarized financial information pertaining to these Subsidiary
Guarantors:
September 30, December 31,
1997 1996
------------- ------------
Current assets ............. $6,999 7,939
Noncurrent assets .......... 17,212 13,242
Current liabilities ........ 2,266 1,135
Noncurrent liabilities ..... -- --
Three Months Ended September 30,
--------------------------------
1997 1996
--------------------------------
Net sales ................................ $7,085 $4,330
Gross profit ............................. 2,862 1,919
Net income from continuing operations .... 555 870
Nine Months Ended September 30,
-------------------------------
1997 1996
-------------------------------
Net sales ................................ $13,279 $10,781
Gross profit ............................. 5,402 5,440
Net income from continuing operations .... 869 2,007
The Notes and the Subsidiary Guarantees are subordinated to all existing and
future Senior Indebtedness of the Company. The indenture governing the Notes
contains limitations on the amount of additional indebtedness (including Senior
Indebtedness) which the Company may incur. As of September 30, 1997, the maximum
amount of Senior Indebtedness the Company and its Subsidiary Guarantors
collectively, and in the aggregate, could incur was $45,000.
8. ACQUISITION:
On July 1, 1997, the Company purchased through its wholly-owned subsidiary, H-R
Window Supply, Inc., the assets of the Western Window Division of Gentek
Building Products, Inc., located in Anaheim, California. The purchase price was
approximately $6,505 and was funded from borrowings under the Company's
revolving credit facility. The transaction was accounted for under the purchase
method of accounting. The preliminary purchase price allocation is as follows:
Current assets $ 3,173
Noncurrent assets 1,156
Goodwill 3,252
-----------
7,581
Less: liabilities assumed 1,076
-----------
Purchase price $ 6,505
===========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS AND RISK FACTORS
From time to time, the Company issues statements in public filings (including
this Form 10-Q) or press releases, or officers of the Company make public oral
statements with respect to the Company that may be considered forward looking
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Act of 1934. This Quarterly Report on Form 10-Q contains
certain forward looking statements. Actual results could differ materially from
those projected in the forward-looking statements due to a number of factors,
including but not limited to the demand for new home construction, interest
rates, job formation, migration of the inter/intra-U.S. population, the
competitive environment for the Company's products and services, the timing of
new orders, the degree of market penetration of the Company's new products and
other factors set forth herein or in the Registration Statement and other
documents filed by the Company with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
The operations of the Company are cyclical in nature and generally result in
significant increases during the peak building season during the second and
third quarters of the year. Accordingly, results of operations for the three
months and nine months ended September 30, 1997 are not necessarily indicative
of results expected for the full year.
Net Sales. Net sales increased by $15,875 from $38,641 during the third quarter
of 1996 to $54,516 during the third quarter of 1997 and $26,747 from $113,046
during the first nine months of 1996 to $139,793 during the first nine months of
1997. The increase was primarily due to the increase in sales of $8,530 and
$16,461 during the third quarter and first nine months of 1997, respectively, at
the Bishop, Kel-Star and Woodville divisions, all of which were acquired during
the second half of 1996, and the Atrium-West Coast division, acquired from
Gentek Building Products, effective July 1, 1997. Additionally, the Company
experienced slight growth at its distribution centers and within its core
manufacturing divisions, including significant growth at Atrium Wood, which was
awarded a national patio door sales contract during the second quarter of 1997.
Cost of Sales. Cost of sales increased from 64.2% of sales during the third
quarter of 1996 to 64.7% during the third quarter of 1997 and decreased from
65.4% during the first nine months of 1996 to 64.1% during the first nine months
of 1997. The increase in the third quarter is primarily due to slight decreases
in raw material prices and on-going cost reductions at the Company's Atrium Wood
division, which were offset by start-up inefficiencies at Kel-Star. The decrease
during the first nine months of 1997 is a result of declines in raw material
prices.
Selling, Delivery, General and Administrative Expenses. Selling, delivery,
general and administrative expenses increased $3,616 from $8,684 (22.5% of sales
during the third quarter of 1996) to $12,300 (22.6% of sales during the third
quarter of 1997) and $8,263 from $24,851 (22.0% of sales during the first nine
months of 1996) to $33,114 (23.7% of sales during the first nine months of
1997). The increase is largely due to selling, delivery, general and
administrative expenses at the Bishop, Kel-Star, Woodville and Atrium-West Coast
divisions and amortization expense related to software implementation costs.
Additionally, delivery expenses were negatively impacted during the first nine
months of 1997 as a result of the fire at the Company's Extruders division in
January.
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Interest Expense. Interest expense increased $2,004 from $943 during the third
quarter of 1996 to $2,947 during the third quarter of 1997 and $5,542 from
$3,000 during the first nine months of 1996 to $8,542 during the first nine
months of 1997. This increase was due largely to an increase in average
outstanding debt. The increase in outstanding debt relates to the $100,000
Senior Subordinated Notes issued in November 1996.
Other Income. Other income for the first nine months of 1997 includes an
insurance settlement of $1,193. This settlement with the Company's insurance
carrier resulted from the business interruption portion of the Company's
insurance claim filed as a result of the January fire at the Company's Extruders
division.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $20,000 revolving credit facility with Bankers Trust which
expires March 2002. Borrowings under the credit facility were $2,961 at
September 30, 1997, excluding outstanding letters of credit, which totaled $600.
Letters of credit secure workers compensation benefit payments and certain other
obligations. Because of the seasonal nature of the business, the Company's
borrowing requirements are traditionally highest during the second and third
quarters. At September 30, 1997 the Company had additional borrowing capacity
under the credit facility of $16,439.
Cash provided from operations was $6,490 during the first nine months of 1997 as
compared to cash provided by operations of $7,109 during the first nine months
of 1996. The decrease in cash provided by operations during the first nine
months of 1997 was primarily due to decreased net income, which resulted from
higher interest expense.
Capital expenditures totaled $2,326 during the first nine months of 1997,
compared to $2,060 during the first nine months of 1996. Capital expenditures
during the 1997 period were primarily used to increase capacity of and further
automate the Company's extrusion and window manufacturing plants.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to various claims, legal actions, and complaints arising in
the ordinary course of business. In the opinion of management, all such matters
are without merit or are of such kind, or involve such amounts, that an
unfavorable disposition would not have a material adverse effect on the
financial position, results of operations or liquidity of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The Exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATRIUM COMPANIES, INC.
(Registrant)
Date: November 13, 1997 By: /s/ Jeff L. Hull
----------------------- -----------------------------------
Jeff L. Hull
Chief Financial Officer and Secretary
(Principal Financial Officer)
Date: November 13, 1997 By: /s/ Eric W. Long
----------------------- -----------------------------------
Eric W. Long
Corporate Controller
(Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
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