<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 30, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 20-8969
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NOVAMETRIX MEDICAL SYSTEMS INC.
-------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-0977422
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5 Technology Drive, Wallingford, CT 06492
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (203) 265-7701
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(Former name, former address and former fiscal
year if changed since last report)
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
--- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, $0.01 par value: 8,679,735 shares issued and outstanding as of
August 25, 2000
Page 1 of 17
Index to Exhibits at Page 16
<PAGE> 2
NOVAMETRIX MEDICAL SYSTEMS INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Consolidated Statements of Income -
Quarters ended July 30, 2000 and August 1, 1999 3
Condensed Consolidated Balance Sheets -
July 30, 2000 and April 30, 2000 4
Condensed Consolidated Statements of Cash Flows -
Quarters ended July 30, 2000 and August 1, 1999 6
Notes to Condensed Consolidated Financial Statements -
July 30, 2000 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
Page 2 of 17
<PAGE> 3
PART I - FINANCIAL INFORMATION
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JULY 30, 2000 AUGUST 1, 1999
------------- --------------
<S> <C> <C>
Net sales $ 12,605,339 $ 7,684,741
Costs and expenses:
Cost of products sold 5,307,056 3,232,647
Research and product development 1,109,273 972,191
Selling, general and administrative 4,253,347 3,216,910
Interest expense 221,122 156,963
Goodwill amortization 77,578 25,757
Other expense 27,875 8,163
------------ ------------
10,996,251 7,612,631
------------ ------------
Income before income taxes and cumulative
effect of a change in accounting principle 1,609,088 72,110
Income taxes 571,000 23,100
------------ ------------
Income before cumulative effect of a
change in accounting principle 1,038,088 49,010
Cumulative effect of a change in
accounting principle (223,544)
------------ ------------
Net income (loss) $ 1,038,088 $ (174,534)
============ ============
Per common share amounts:
Income before cumulative effect of a
change in accounting principle
Basic $ 0.12 $ 0.01
Diluted $ 0.12 $ 0.01
Cumulative effect of a change in
accounting principle
Basic $ (0.03)
Diluted $ (0.03)
Net income (loss)
Basic $ 0.12 $ (0.02)
Diluted $ 0.12 $ (0.02)
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
Page 3 of 17
<PAGE> 4
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JULY 30, 2000 APRIL 30, 2000
------ ------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 277,917 $ 283,262
Accounts receivable, less allowance for
losses of $300,000 17,936,058 15,412,529
Current portion of notes receivable 136,430 260,722
Inventories:
Finished products 5,199,622 4,450,432
Work in process 1,958,993 1,321,196
Materials 4,076,902 4,091,089
----------- -----------
11,235,517 9,862,717
Deferred income taxes, net 1,409,866 1,880,866
Prepaid expenses 975,894 854,839
----------- -----------
TOTAL CURRENT ASSETS 31,971,682 28,554,935
Notes receivable, less current portion 1,653,113 1,607,563
Equipment, less accumulated depreciation
and amortization of $8,300,148 and
$8,028,572, respectively 3,393,408 3,350,115
License, technology, patents and other costs
less accumulated amortization of $4,559,360
and $4,409,429, respectively 5,160,048 5,118,945
Goodwill, less accumulated amortization of
$336,169 and $258,591, respectively 7,367,270 7,444,848
Deferred income taxes, net 1,074,261 1,074,261
----------- -----------
$50,619,782 $47,150,667
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
Page 4 of 17
<PAGE> 5
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY JULY 30, 2000 APRIL 30, 2000
------------------------------------ ------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 4,028,650 $ 2,968,833
Accrued expenses 3,539,393 3,730,147
Current portion of debt and capital lease obligation 6,450,826 4,335,264
----------- -----------
TOTAL CURRENT LIABILITIES 14,018,869 11,034,244
Long-term debt and capital lease obligation, less
current portion 5,213,558 5,850,601
SHAREHOLDERS' EQUITY
Common Stock, $.01 par value, authorized
20,000,000 shares, issued 9,470,590 at
July 30, 2000 and 9,450,304 at
April 30, 2000, including Treasury shares 94,706 94,503
Additional paid-in capital 35,080,584 34,997,342
Retained-earnings (deficit) 19,126 (1,018,962)
Treasury stock - 799,355 shares (3,807,061) (3,807,061)
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31,387,355 30,265,822
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$50,619,782 $47,150,667
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
Page 5 of 17
<PAGE> 6
NOVAMETRIX MEDICAL SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JULY 30, 2000 AUGUST 1, 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,038,088 $ (174,534)
Adjustments to reconcile net income (loss)
to net cash used by operating activities:
Depreciation 271,801 257,438
Amortization 262,947 168,548
Deferred income taxes 471,000 23,100
Cumulative effect of change in accounting principle 223,544
Changes in operating assets and liabilities:
Accounts and notes receivable (2,444,787) (121,854)
Inventories (1,372,800) (1,015,586)
Prepaid expenses (121,055) (246,328)
Accounts payable 1,059,817 (90,874)
Accrued expenses (190,754) (174,072)
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,025,743) (1,150,618)
INVESTING ACTIVITIES
Purchases of equipment (314,644) (198,453)
Purchases of licenses, technology, patents and other (226,472) (211,246)
Purchase of Children's Medical Ventures, Inc.,
less cash acquired (9,118,386)
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (541,116) (9,528,085)
FINANCING ACTIVITIES
Revolving line of credit, net 2,115,000 1,200,000
Proceeds from notes payable 9,600,000
Principal payments on borrowings (636,481) (161,934)
Net proceeds from stock option exercises 83,445 41,641
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,561,964 10,679,707
----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,345) 1,004
Cash and cash equivalents at beginning of period 283,262 269,399
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Cash and cash equivalents at end of period $ 277,917 $ 270,403
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements (unaudited)
Page 6 of 17
<PAGE> 7
NOVAMETRIX MEDICAL SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 30, 2000
NOTE 1 -- BASIS OF PRESENTATION: The accompanying unaudited condensed
consolidated financial statements of Novametrix Medical Systems Inc. (the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals and the cumulative effect
of a change in accounting principle for the quarter ended August 1, 1999)
considered necessary for a fair presentation have been included. Operating
results for the quarter ended July 30, 2000 are not necessarily indicative of
the results that may be expected for the year ending April 29, 2001. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended April 30, 2000.
NOTE 2 -- ACQUISITION OF BUSINESS: On June 30, 1999, the Company acquired 100%
of the capital stock of Children's Medical Ventures, Inc., a privately held
developer and marketer of neonatal and pediatric care products and services.
The purchase price was comprised of $8.7 million in cash and a warrant to
purchase 25,000 shares of the Company's Common Stock at an exercise price of
$4.3625 per share. The purchase price and related costs were financed with two
term loans aggregating $9.6 million. The acquisition was accounted for as a
purchase; accordingly, the purchase price was allocated to the underlying
assets and liabilities based upon their respective estimated fair values at the
date of acquisition. The excess of the fair value of the net assets acquired
(goodwill) was approximately $7.7 million and is being amortized on a
straight-line basis over 25 years. The accompanying condensed consolidated
statement of income does not include any revenues or expenses related to this
acquisition prior to the closing date. Following are the Company's unaudited
pro forma results for the quarter ended August 1, 1999 assuming that the
acquisition had taken place at the beginning of that period:
<TABLE>
<CAPTION>
Quarter Ended
August 1, 1999
----------------
<S> <C>
Net revenue $ 8,924,000
Loss before cumulative effect of
a change in accounting principle (123,000)
Net loss (346,000)
</TABLE>
Page 7 of 17
<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended
August 1, 1999
--------------
<S> <C>
Per common share amounts:
Loss before cumulative effect of
a change in accounting principle
Basic $ (0.02)
Diluted $ (0.02)
Net loss
Basic $ (0.04)
Diluted $ (0.04)
Weighted average common shares:
Basic 7,939,814
Diluted 8,130,074
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which would have actually resulted had the acquisition been in effect as of the
first day of the period presented above.
NOTE 3 -- REPORTABLE SEGMENTS: The Company is domiciled in the United States
and operates in one industry segment - the design, manufacture and marketing of
non-invasive monitors, sensors and accessories, and developmental care products
for the critical care marketplace.
NOTE 4 -- ACCOUNTING CHANGE: Effective May 3, 1999, the Company adopted
Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-up
Activities". The SOP requires the Company to write-off any start-up costs which
had been previously capitalized and to expense any future start-up costs as
incurred. Earnings during the first quarter of the prior fiscal year were
reduced by $223,544 (approximately $329,000 before taxes) or $0.03 per diluted
share as a result of the adoption of SOP 98-5.
NOTE 5 -- PER SHARE AMOUNTS: The calculation of basic earnings per share
excludes any dilutive effects of options, warrants and convertible securities.
The calculation of diluted earnings per share excludes anti-dilutive options
and warrants whose exercise price exceeds the average market price.
Page 8 of 17
<PAGE> 9
The following table sets forth the calculation of basic and diluted
earnings per share for the quarters ended July 30, 2000 and August 1, 1999:
<TABLE>
<CAPTION>
Quarters Ended
July 30, 2000 August 1, 1999
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<S> <C> <C>
NUMERATOR
Income before cumulative effect of
a change in accounting principle $ 1,038,088 $ 49,010
Cumulative effect of a change in
accounting principle (223,544)
----------- ----------
Net income (loss) $ 1,038,088 $ (174,534)
=========== ==========
DENOMINATOR
Denominator for basic earnings per share:
Weighted average shares outstanding 8,659,333 7,939,814
Effect of dilutive securities:
Stock options and warrants 272,331 190,260
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Denominator for diluted earnings per share 8,931,664 8,130,074
=========== ==========
Basic earnings (loss) per share $ 0.12 $ (0.02)
Diluted earnings (loss) per share $ 0.12 $ (0.02)
</TABLE>
NOTE 6-- DEBT AND CAPITAL LEASE OBLIGATION: The Company maintains a revolving
credit agreement with its primary bank which provides for borrowing to a
maximum of $8,000,000, expires August 31, 2001 and bears interest at the London
Interbank Offered Rate ("LIBOR") plus 1.6% (8.22% at July 30, 2000). The
Company also has a term loan with its primary bank which provides for monthly
installments of $50,000 plus interest at LIBOR plus 1.4% (8.02 at July 30,
2000) through November 2003. The Company entered into an interest rate swap
agreement during fiscal 1999 to hedge a notional amount equal to the remaining
principal balance of the term loan. The rate is fixed at 6.77% and the
agreement expires November 2003. During June 1999, the Company entered into two
additional term loans each in the amount of $4,800,000 to finance the
acquisition of Children's Medical Ventures, Inc. Under an amended and restated
agreement with the Company's primary bank, the Company entered into a five year
term loan which is payable in monthly installments of $80,000 plus interest at
LIBOR plus 1.8% (8.42% at July 30, 2000) and expires during June 2004. The
Company also entered into a five year term loan with another bank which is
payable in monthly installments of $80,000 plus interest at LIBOR plus 1.6%
(8.22% at July 30, 2000) and expires during June 2004.
Page 9 of 17
<PAGE> 10
Pursuant to the terms of the amended and restated bank agreements and the
new term loan agreements, the Company is required, among other things, to
maintain certain financial ratios, minimum levels of working capital and net
worth, and is restricted from the payment of dividends.
DEBT AND CAPITAL LEASE OBLIGATION CONSIST OF:
<TABLE>
<CAPTION>
July 30, 2000 April 30, 2000
------------- --------------
<S> <C> <C>
Note payable to bank under revolving
credit agreement $ 3,890,000 $ 1,775,000
Term loans payable to banks 7,730,000 8,360,000
Capital lease obligation 44,384 50,865
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11,664,384 10,185,865
Less current portion 6,450,826 4,335,264
----------- -----------
$ 5,213,558 $ 5,850,601
=========== ===========
</TABLE>
Page 10 of 17
<PAGE> 11
NOVAMETRIX MEDICAL SYSTEMS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the first quarter of fiscal 2001 increased by approximately
$4,920,000 or 64% to $12,605,000 compared to net sales of approximately
$7,685,000 for the first quarter of fiscal 2000. The growth was primarily due
to record first quarter sales to domestic hospitals representing 55% of the
overall increase in sales. Domestic sales was driven by increasing demand for
the Company's pulse oximetry conversion programs. Children's Medical Ventures
("ChMV"), acquired on June 30, 1999 and included for a portion of the first
quarter of the prior year, accounted for approximately 31% of the overall
increase in sales. International sales grew approximately 26% over the first
quarter of the prior fiscal year and sales to original equipment manufacturers
("OEM") increased approximately 9% compared to the first quarter of the prior
fiscal year.
Cost of products sold as a percentage of net sales was 42% for both the
first quarter of fiscal 2001 and the first quarter of fiscal 2000. The Company
is continuing to pursue product cost reductions and manufacturing efficiency
improvements.
Research and product development ("R&D") expenses as a percentage of sales
were 8.8% compared to 12.7% in the first quarter of the prior year. The
addition of ChMV, which is not an R&D intensive business, lowered the
quarter-to-quarter comparison. R&D spending increased by approximately $137,000
or 14% for the first quarter of fiscal 2001 compared to the first quarter of
the prior fiscal year. The additional R&D expenses associated with a full
quarter of ChMV expenses and increased outside professional services were the
primary causes for the increase. Management expects R&D spending to approximate
8% to 9% of revenue for fiscal 2001.
Selling, general and administrative ("S,G&A") expenses as a percentage of
sales improved to 33.7% in the first quarter of the current year compared to
41.9% in the first quarter of the prior year. S,G&A spending increased
approximately $1,036,000 for the first quarter of fiscal 2001 compared to the
first quarter of fiscal 2000 with approximately 35% of the increase pertaining
to ChMV expenses. Selling expenses excluding ChMV, which represented
approximately 47% of the overall change in S,G&A, increased primarily as a
result of increased domestic selling expenses associated with the higher sales
volume and the incremental sales staff required to support the Company's pulse
oximetry hospital conversion programs. Partially offsetting these increases
were reductions in international selling expenses primarily caused by decreased
dealer commission expenses. General and administrative ("G&A") expenses
excluding ChMV were responsible for approximately 18% of the increase in S,G&A
due to increased salaries and related benefits, insurance and depreciation.
Interest expense increased approximately $64,000 for the first quarter of
fiscal 2001 compared to the first quarter of the prior fiscal year. Increased
borrowings associated with the acquisition of ChMV were responsible for the
increase in interest expense in the current year. Interest expense for the
first quarter of the prior fiscal year included only one month of debt
associated with the acquisition on June 30, 1999.
Goodwill amortization increased approximately $52,000 for the first
quarter of fiscal 2001 compared to the first quarter of fiscal 2000 due to the
full quarter effect in the current year of the amortization associated with the
ChMV acquisition.
Page 11 of 17
<PAGE> 12
Income tax expense for the quarter ended July 30, 2000 was $571,000
compared to approximately $23,000 for the first quarter of the prior fiscal
year as a result of both higher pre-tax earnings and an increased effective tax
rate. The income tax rate for the quarter ended July 30, 2000 was 35.5%
compared to 32.0% for the quarter ended August 1, 1999 as a result of
reductions in certain income tax benefits. The Company anticipates that it will
fully utilize its net operating loss carryforwards and business tax credits for
federal income tax purposes by the end of the fiscal year.
Pre-tax income improved to $1.6 million or 12.8% of net sales compared to
$72,000 or 0.9% of net sales in the first quarter of the prior year. Net income
for the first quarter ended July 30, 2000 was approximately $1,038,000 or $0.12
per diluted share compared to income before the cumulative effect of a change
in accounting principle of approximately $49,000 or $0.01 per diluted share for
the quarter ended August 1, 1999. The prior year was impacted by the adoption
of an accounting standard requiring the expensing of start-up costs previously
capitalized and a one-time charge of approximately $224,000 or $0.03 per
diluted share. This resulted in a net loss of approximately $175,000 or $0.02
per diluted share for the first quarter of the prior fiscal year.
Except for orders pursuant to long-term agreements, the Company
traditionally ships its products on a current basis. As such, the Company does
not consider its backlog levels to be a meaningful indicator of future sales.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $18.0 million at July 30, 2000 compared
to $17.5 million at April 30, 2000. The increase in working capital was
primarily attributable to increases in inventory and accounts receivable,
partially offset by increased accounts payable and additional borrowing under
the revolving credit agreement. The Company's current ratio was 2.3 to 1 at
July 30, 2000 compared to 2.6 to 1 at April 30, 2000.
Approximately $1.0 million of cash was used by operating activities for
the three months ended July 30, 2000 compared to approximately $1.2 million for
the first three months of the prior fiscal year. Increases in inventory and
accounts receivable, partially offset by increases in accounts payable and
earnings before deferred taxes, depreciation and amortization accounted for the
majority of cash used from operations.
Approximately $1.6 million was provided from financing activities during
the first three months of fiscal 2001 compared to approximately $10.7 million
for the first three months of the prior fiscal year. During the first quarter
of fiscal 2000, the Company borrowed approximately $9.6 million to finance the
acquisition of Children's Medical Ventures, Inc. Funds provided from financing
activities for the first three months of fiscal 2001 were primarily related to
additional borrowings under the revolving credit facility for working capital
requirements, partially offset by principal payments under term debt
agreements.
Page 12 of 17
<PAGE> 13
The Company expects cash from operations and funds available under the
Company's revolving credit agreement to adequately support its planned
operating requirements for the balance of fiscal 2001. In addition,
approximately $3.3 million of additional proceeds may potentially be realized
from the exercise of the Company's Class B Warrants, which are callable under
specified conditions, exercisable at $5.85 per share and expire on December 8,
2000. Management believes that additional funds, if needed, are obtainable on
commercially reasonable terms.
FORWARD LOOKING INFORMATION
This Quarterly Report contains forward looking statements about the
Company's projected operating results. The Company's ability to achieve its
projected results is dependent upon a variety of factors, many of which are
outside of management's control, including without limitation, global economic
changes, an unanticipated slowdown in the healthcare industry, unanticipated
technological developments which affect the competitiveness of the Company's
products, or an unanticipated delay or loss of business. The Company does not
intend to update publicly any of the forward looking statements contained
herein.
Page 13 of 17
<PAGE> 14
PART II- OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: The exhibits required to be filed as part of the Quarterly
Report on Form 10-Q are listed in the attached Index to Exhibits.
(b) Reports on Form 8-K: There were no reports filed on Form 8-K filed
during the quarter ended July 30, 2000.
Page 14 of 17
<PAGE> 15
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.
NOVAMETRIX MEDICAL SYSTEMS INC.
Dated: September 12, 2000 s/William J. Lacourciere
------------------ ------------------------
William J. Lacourciere
Chairman of the Board
and Chief Executive Officer
Dated: September 12, 2000 s/Joseph A. Vincent
------------------ -------------------
Joseph A. Vincent
Executive Vice President
and Chief Financial Officer
Page 15 of 17
<PAGE> 16
INDEX TO EXHIBITS
PAGE
27 Financial Data Schedule 17
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