SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported) October 17, 2001
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HUGHES ELECTRONICS CORPORATION
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(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 0-26035 52-1106564
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation or organization) File Number) Identification No.)
200 North Sepulveda Boulevard
El Segundo, California 90245
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(310) 662-9688
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(Address, including zip code, and telephone number,
including area code, of registrants' principal executive office)
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ITEM 5. OTHER EVENTS
On October 17, 2001, a news release was issued on the subject of third
quarter consolidated earnings by Hughes Electronics Corporation (Hughes). The
news release did not include certain financial statements, related footnotes and
certain other financial information that will be filed with the Securities and
Exchange Commission as part of Hughes' Quarterly Report on Form 10-Q. The
release is as follows:
Hughes Reports Third Quarter 2001 Financial Results
HUGHES Revenue Grows by 25%;
Strong DIRECTV U.S. Subscriber Growth Beats Expectations
El Segundo, Calif., October 17, 2001 -- Hughes Electronics Corporation,
the world's leading provider of digital television entertainment, broadband
services, satellite-based private business networks, and global video and data
broadcasting, today reported third quarter 2001 revenues increased 24.6% to
$2,103.3 million, compared with $1,688.5 million in the third quarter of 2000.
EBITDA1 for the quarter was $76.5 million. Excluding a one-time charge primarily
related to severance of $65.3 million, EBITDA for the quarter was $141.8 million
and EBITDA margin1 was 6.7%. In the third quarter of 2000, EBITDA was $107.9
million and EBITDA margin was 6.4%.
"The third quarter was very important for HUGHES because we made key
structural and management changes across the businesses. As a result, we are now
positioned to generate substantially improved operating results," said Jack A.
Shaw, HUGHES' chief executive officer. "I'm particularly pleased with our third
quarter financial results because, despite a slowing economy, we grew our
revenues by about 25%, exceeded DIRECTV U.S. subscriber growth expectations by
adding 425,000 net new subscribers, and met or exceeded our third quarter
operational targets in each of our businesses."
Shaw continued, "Our revenue growth was again driven by strong demand for
DIRECTV(R) services, as well as new satellite transponder sales at PanAmSat and
increased sales in all of Hughes Network Systems' product lines."
Shaw also noted that the $65 million severance charge was related to a 10%
company-wide workforce reduction in the U.S. that is expected to result in
savings of over $110 million annually. Excluding this one-time charge, HUGHES'
EBITDA increased 31%, primarily due to continued operational improvements in
DIRECTV Latin America, the new satellite transponder sales at PanAmSat and lower
corporate expenses. These improvements were partially offset by losses from the
new DIRECTV DSL(TM) service (formerly known as Telocity) and increased
investment in Hughes Network Systems' (HNS) DIRECWAY(TM) broadband business.
HUGHES had a third quarter 2001 net loss of $227.2 million compared to a
net loss of $93.8 million in the same period of 2000. The increased loss was
primarily due to a pre-tax non-cash charge of $212 million resulting from the
revaluation of HUGHES' SkyPerfecTV! investment, increased depreciation and
amortization expense in the Direct-To-Home Broadcast segment and at PanAmSat,
and the lower EBITDA. These declines were partially offset by a pre-tax gain of
about $108 million that resulted from the sale of 4.1 million shares of Thomson
Multimedia common stock, and a favorable adjustment to the expected costs
associated with the shutdown of the DIRECTV Japan business.
Subsequent to the end of the third quarter, HUGHES reached a settlement
with the Raytheon Company on a purchase price adjustment related to Raytheon's
1997 merger with Hughes Defense. Under the terms of the agreement, HUGHES will
reimburse Raytheon $635.5 million of the original $9.5 billion purchase price.
Of the total payment to Raytheon, $500 million was paid on October 16, 2001 and
the remaining balance will be paid within six months. There is no impact to
HUGHES' earnings from this settlement.
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NINE-MONTH FINANCIAL REVIEW
For the first nine months of 2001, revenues increased 14.4% to $5,981.4
million, compared to $5,228.6 million for the same period in 2000. This increase
was primarily due to continued subscriber growth at DIRECTV in the United States
and Latin America, partially offset by fewer sales and sales-type leases at
PanAmSat.
EBITDA through September 2001 was $271.7 million and EBITDA margin was
4.5%, compared to EBITDA of $440.2 million and EBITDA margin of 8.4% in the same
period of 2000. The decrease in EBITDA and EBITDA margin was primarily
attributable to the higher outright sales of satellite transponders at PanAmSat
in the first nine months of 2000, as well as the 2001 one-time severance
charges, increased investment in DIRECWAY and the losses from the new DIRECTV
DSL service. These items were partially offset by improved DIRECTV operating
performance due to the larger subscriber bases in the United States and Latin
America and lower corporate expenses.
For the first nine months of 2001, net losses totaled $489.0 million
compared to net losses of $244.8 million in 2000. The change was primarily due
to an increase in depreciation and amortization expense in the Direct-To-Home
Broadcast segment and at PanAmSat, as well as the lower EBITDA. These declines
were partially offset by reduced losses related to HUGHES' Direct-To-Home
television ventures in Japan, as well as the gain from the sale of Thomson
Multimedia common stock and improved net interest expense.
SEGMENT FINANCIAL REVIEW: THIRD QUARTER 2001
Direct-To-Home Broadcast
Third quarter 2001 revenues for the segment increased 21.8% to $1,572.6
million from $1,291.5 million in the third quarter of 2000. The segment had
negative EBITDA of $74.2 million compared with negative EBITDA of $17.7 million
in the third quarter of 2000.
United States: DIRECTV reported quarterly revenues of $1,363 million, an
increase of 18% from last year's third quarter revenues of $1,154 million. The
increase was primarily due to continued subscriber growth.
DIRECTV substantially exceeded expectations by adding a record 953,000
gross subscribers and, after accounting for churn, 425,000 net subscribers in
the quarter. In addition, DIRECTV made a one-time downward adjustment of
approximately 143,000 subscribers. This adjustment corrected errors that
accumulated over the past 18 months related to subscribers who discontinued
service prior to June 30, 2001 but were counted as active subscribers in
DIRECTV's database. As a result, DIRECTV had 10.3 million subscribers as of
September 30, 2001, representing a 14% increase over the 9.0 million customers
attained as of September 30, 2000.
Excluding a $48 million one-time charge primarily related to severance,
EBITDA for the third quarter of 2001 was $20 million, compared to EBITDA of $36
million in last year's third quarter. EBITDA declined due to increased marketing
expenses related to DIRECTV's record number of gross subscriber additions in the
quarter, which more than offset the additional gross profit gained from
DIRECTV's larger subscriber base.
DIRECTV DSL: The DIRECTV DSL service was created following HUGHES' April
2001 acquisition of Telocity. No comparative financial data for DIRECTV DSL is
provided for the third quarter 2000.
The DIRECTV DSL service had third quarter 2001 revenues of $9 million and
negative EBITDA of $33 million. Approximately 5,000 net customers were added to
the DIRECTV DSL service in the quarter. Subscriber additions in the quarter were
negatively impacted by the bankruptcy of Rhythms NetConnections, formerly a
wholesale provider of broadband services. As of September 30, 2001, DIRECTV DSL
had about 73,000 residential broadband customers in the United States compared
to about 23,000 customers as of September 30, 2000.
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Latin America: DIRECTV Latin America generated $201 million in revenues
for the quarter compared with $136 million in the third quarter of 2000. This
48% increase was primarily due to continued subscriber growth as well as the
consolidation of the Argentinean and Colombian local operating companies in the
first half of 2001.
The DIRECTV service in Latin America added 66,000 net subscribers in the
third quarter of 2001. The total number of DIRECTV subscribers in Latin America
as of September 30, 2001 was approximately 1,497,000 compared to about 1,136,000
as of September 30, 2000, representing an increase of approximately 32%.
Excluding a $10 million one-time severance charge, DIRECTV Latin America
had negative EBITDA of $7 million in the quarter, compared to negative EBITDA of
$50 million in the same period of 2000. The change was primarily due to the
increased gross profit generated from the larger subscriber base, the
consolidation of the Argentinean and Colombian local operating companies, and
reduced marketing and administrative costs.
Satellite Services
PanAmSat, which is 81%-owned by HUGHES, generated third quarter 2001
revenues of $252.9 million compared with $199.3 million in the prior year's
period. The increase was principally driven by a $46 million sales-type lease of
long-term capacity on the company's new PAS-10 Indian Ocean region satellite.
Excluding a $7 million one-time severance charge, EBITDA for the quarter
was $173 million and EBITDA margin was 68.5%, compared with third quarter 2000
EBITDA of $135.5 million and EBITDA margin of 68.0%. The increase in EBITDA was
principally due to the sales-type lease in the quarter.
As of September 30, 2001, PanAmSat had contracts for satellite services
representing future payments (backlog) of approximately $5.85 billion compared
to approximately $5.8 billion at the end of the third quarter of 2000.
Network Systems
Hughes Network Systems (HNS) generated third quarter 2001 revenues of
$339.7 million versus $284.0 million in the third quarter of 2000. The 19.6%
increase was driven by increased sales of phones and systems for mobile
satellite programs, higher sales of enterprise networks and growth in the
DIRECWAY subscriber base. HNS added approximately 13,000 net DIRECWAY broadband
customers in the quarter, bringing the cumulative total to approximately 87,000
subscribers in the United States. Additionally, HNS shipped 500,000 DIRECTV
receiver systems in the third quarter of 2001 compared to 470,000 units in the
same period last year.
In the quarter, HNS reported better than expected EBITDA of negative $22.6
million compared to EBITDA of $16.8 million in the third quarter of 2000. The
decline in EBITDA is primarily attributable to increased investment in the
DIRECWAY broadband business and a one-time gain in the third quarter of 2000
that resulted from successful negotiations with certain narrowband wireless
customers for receivables previously written-off.
BALANCE SHEET
From December 31, 2000 to September 30, 2001, the company's consolidated
cash balance decreased $809.6 million to $698.5 million and total debt increased
$496.7 million to $1,813.3 million. The major uses of cash were for satellite
and capital expenditures, as well as for the purchase of Telocity. The $635.5
million settlement with Raytheon was treated as an increase in accrued
liabilities and a reduction in stockholder's equity in the quarter. The impact
of the $500 million payment made on October 16, 2001 will be reflected in
HUGHES' fourth quarter cash balance.
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Hughes Electronics Corporation is a unit of General Motors Corporation.
The earnings of Hughes Electronics are used to calculate the earnings
attributable to the General Motors Class H common stock (NYSE:GMH).
A live webcast of HUGHES' third quarter 2001 earnings call will be
available on the company's website at www.hughes.com. The call will begin at
2:00 p.m. ET, today. Investors are advised to allow 15 minutes prior to the call
to register and download any necessary software. Following the completion of the
call, the webcast will be archived on the Investor Relations portion of the
HUGHES website.
Hughes Financial Guidance
Prior Full Year 2001 Revised Full Year 2001
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HUGHES
Revenues ~$8.3B No Change
EBITDA $450-500M* No Change*
Cash Requirements $2.5 - 3.0B ~$2.5B
DIRECTV U.S.
Revenue $5.5 - 5.6B No Change
EBITDA $250-300M* $200 - 250M*
Net Subscriber Adds ~1.1M 1.2 - 1.3M**
DIRECTV DSL
EBITDA $(100)M - (120)M No Change
Net Subscriber Adds ~75K 40 - 50K
DIRECTV Latin America
Revenue ~725M No Change
EBITDA ~$(100)M* No Change*
Net Subscriber Adds ~300K No Change
PanAmSat
Revenue $825 - 835M $860 - 870M
New Outright
Sales and Sales-
Type Leases None $45.5M
EBITDA Margin Mid to high 60% range No Change
Hughes Network Systems
Revenue ~$1.3B No Change
EBITDA $(100)M - $(150)M $(100)M - $(115)M
Spaceway
(Included in
HNS totals) $(25)M - (35)M No Change
DIRECWAY Net Sub Adds ~150K 50 - 65K
DIRECWAY EBITDA
(Included in
HNS totals) $(150)M - (180)M $(125)M - (155)M
* EBITDA guidance excludes the impact of the third quarter 2001 severance
charges of $48M at DIRECTV US; $10M at DIRECTV Latin America; $7M at
PanAmSat; and $65M total at HUGHES.
** Excludes impact of 143K database adjustment in Q3 2001
NOTE: Hughes Electronics Corporation believes that some of the foregoing
statements may constitute forward-looking statements. When used in this report,
the words "estimate," "plan," "project," "anticipate," "expect," "intend,"
"outlook," "believe," and other similar expressions are intended to identify
such forward-looking statements and information. Important factors that may
cause actual results of HUGHES to differ materially from the forward-looking
statements in this report are set forth in the Form 10-Ks filed with the SEC by
General Motors and HUGHES.
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1 EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is
the sum of operating profit (loss) and depreciation and amortization.
EBITDA margin is calculated by dividing EBITDA by total revenues.
# # #
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CONSOLIDATED BALANCE SHEETS
(Dollars in Millions) September 30,
2001 December 31,
ASSETS (Unaudited) 2000
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Current Assets
Cash and cash equivalents $698.5 $1,508.1
Accounts and notes receivable 1,275.5 1,253.0
Contracts in process 156.3 186.0
Inventories 374.8 338.0
Deferred income taxes 103.1 89.9
Prepaid expenses and other 1,054.5 778.7
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Total Current Assets 3,662.7 4,153.7
Satellites, net 4,617.6 4,230.0
Property, net 2,097.4 1,707.8
Net Investment in Sales-type Leases 233.5 221.1
Intangible Assets, net 7,288.5 7,151.3
Investments and Other Assets 1,225.4 1,815.4
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Total Assets $19,125.1 $19,279.3
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LIABILITIES AND STOCKHOLDER'S EQUITY
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Current Liabilities
Accounts payable $1,407.9 $1,224.2
Deferred revenues 181.7 137.6
Short-term borrowings and current portion of
long-term debt 838.3 24.6
Accrued liabilities and other 1,909.3 1,304.5
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Total Current Liabilities 4,337.2 2,690.9
Long-Term Debt 975.0 1,292.0
Other Liabilities and Deferred Credits 1,547.9 1,647.3
Deferred Income Taxes 619.6 769.3
Commitments and Contingencies
Minority Interests 527.2 553.7
Stockholder's Equity 11,118.2 12,326.1
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Total Liabilities and Stockholder's Equity $19,125.1 $19,279.3
===============================================================================
Holders of GM Class H common stock have no direct rights in the equity or
assets of Hughes, but rather have rights in the equity and assets of General
Motors (which includes 100% of the stock of Hughes).
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CONSOLIDATED STATEMENTS OF OPERATIONS AND
AVAILABLE SEPARATE CONSOLIDATED NET INCOME (LOSS)
(Dollars in Millions)
(Unaudited)
Nine Months
Third Quarter Ended September 30,
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2001 2000 2001 2000
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Revenues
Direct broadcast, leasing and other services $1,830.9 $1,485.5 $5,267.7 $4,523.3
Product sales 272.4 203.0 713.7 705.3
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Total Revenues 2,103.3 1,688.5 5,981.4 5,228.6
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Operating Costs and Expenses
Broadcast programming and other costs 830.1 681.4 2,355.4 2,035.9
Cost of products sold 246.7 146.2 590.4 580.6
Selling, general and administrative expenses 950.0 753.0 2,763.9 2,171.9
Depreciation and amortization 280.2 238.3 850.9 673.1
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Total Operating Costs and Expenses 2,307.0 1,818.9 6,560.6 5,461.5
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Operating Loss (203.7) (130.4) (579.2) (232.9)
Interest income 9.4 7.1 52.2 15.3
Interest expense (40.6) (66.5) (134.0) (169.2)
Other, net (86.3) (11.9) (90.0) (294.4)
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Loss From Continuing Operations Before
Income Taxes, Minority Interests
and Cumulative Effect of Accounting Chan (321.2) (201.7) (751.0) (681.2)
Income tax benefit 93.1 77.8 217.8 354.4
Minority interests in net losses of subsidiaries 0.9 19.6 51.6 31.7
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Loss from continuing operations
before cumulative effect of
accounting change (227.2) (104.3) (481.6) (295.1)
Income from discontinued operations, net of taxes - 10.5 - 50.3
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Loss before cumulative effect of accounting change (227.2) (93.8) (481.6) (244.8)
Cumulative effect of accounting change, net of taxes - - (7.4) -
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Net Loss (227.2) (93.8) (489.0) (244.8)
Adjustment to exclude the effect of
GM purchase accounting 0.9 5.3 2.5 15.9
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Loss Excluding the Effect of GM
Purchase Accounting Adjustment (226.3) (88.5) (486.5) (228.9)
Preferred stock dividends (24.1) (24.1) (72.3) (72.9)
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Loss Used for Computation of
Available Separate Consolidated
Net Income (Loss) $(250.4) $(112.6) $(558.8) $(301.8)
=============================================================================================
Available Separate Consolidated Net Income (Loss)
Average number of shares of General Motors Class H
Common Stock outstanding
(in millions) (Numerator) 876.8 873.9 876.0 616.7
Average Class H dividend base
(in millions) (Denominator) 1,300.5 1,297.8 1,299.7 1,296.5
Available Separate Consolidated Net Income (Loss) $(168.8) $(75.8) $(376.6) $(143.6)
=============================================================================================
Certain 2000 amounts have been reclassified to conform to the 2001 presentation.
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SELECTED SEGMENT DATA
(Dollars in Millions)
(Unaudited) Nine Months
Third Quarter Ended September 30,
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2001 2000 2001 2000
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DIRECT-TO-HOME BROADCAST
Total Revenues $ 1,572.6 $ 1,291.5 $ 4,590.2 $ 3,717.5
EBITDA (1) $ (74.2) $ (17.7) $ (69.5) $ (40.9)
Operating Loss $ (245.4) $ (150.1) $ (573.8) $ (410.9)
Depreciation and Amortization $ 171.2 $ 132.4 $ 504.3 $ 370.0
Capital Expenditures $ 168.6 $ 262.0 $ 522.5 $ 649.1
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SATELLITE SERVICES
Total Revenues $ 252.9 $ 199.3 $ 666.4 $ 820.7
EBITDA (1) $ 166.2 $ 135.5 $ 440.7 $ 557.9
EBITDA Margin (1) 65.7% 68.0% 66.1% 68.0%
Operating Profit $ 62.1 $ 52.0 $ 136.0 $ 319.1
Operating Profit Margin 24.6% 26.1% 20.4% 38.9%
Depreciation and Amortization $ 104.1 $ 83.5 $ 304.7 $ 238.8
Capital Expenditures $ 80.3 $ 109.4 $ 241.7 $ 317.6
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NETWORK SYSTEMS
Total Revenues $ 339.7 $ 284.0 $ 890.1 $ 1,020.3
EBITDA (1) $ (22.6) $ 16.8 $ (97.7) $ 34.4
Operating Profit (Loss) $ (35.1) $ 1.6 $ (144.2) $ (15.4)
Depreciation and Amortization $ 12.5 $ 15.2 $ 46.5 $ 49.8
Capital Expenditures $ 121.9 $ 79.2 $ 467.2 $ 241.0
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ELIMINATIONS and OTHER
Total Revenues $ (61.9) $ (86.3) $ (165.3) $ (329.9)
EBITDA (1) $ 7.1 $ (26.7) $ (1.8) $ (111.2)
Operating Profit (Loss) $ 14.7 $ (33.9) $ 2.8 $ (125.7)
Depreciation and Amortization $ (7.6) $ 7.2 $ (4.6) $ 14.5
Capital Expenditures $ (4.8) $ (24.6) $ (4.0) $ (2.3)
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TOTAL
Total Revenues $ 2,103.3 $ 1,688.5 $ 5,981.4 $ 5,228.6
EBITDA (1) $ 76.5 $ 107.9 $ 271.7 $ 440.2
EBITDA Margin (1) 3.6% 6.4% 4.5% 8.4%
Operating Loss $ (203.7) $ (130.4) $ (579.2) $ (232.9)
Depreciation and Amortization $ 280.2 $ 238.3 $ 850.9 $ 673.1
Capital Expenditures $ 366.0 $ 426.0 $ 1,227.4 $ 1,205.4
================================================================================
(1) EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is
the sum of operating profit (loss) and depreciation and amortization.
EBITDA margin is calculated by dividing EBITDA by total revenues.
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SIGNATURE
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 hereunto duly authorized.
HUGHES ELECTRONICS CORPORATION
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(Registrant)
By
Date October 17, 2001 /s/Michael J. Gaines
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(Michael J. Gaines,
Chief Financial Officer)
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