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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996
OR
/ / 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 1-7573
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PARKER DRILLING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 73-0618660
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Parker Building, Eight East Third Street, Tulsa, Oklahoma 74103
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (918) 585-8221
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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
As of June 30, 1996, 56,235,774 common shares were outstanding.
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PARKER DRILLING COMPANY
INDEX
Part I. Financial Information Page No.
Consolidated Condensed Balance Sheets (Unaudited) -
May 31, 1996 and August 31, 1995 2
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Nine Months Ended May 31, 1996 and
May 31, 1995 3
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Three and Nine Months Ended May 31, 1996 and 4
May 31, 1995
Notes to Unaudited Consolidated Condensed
Financial Statements 5
Report of Review by Independent Accountants 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 10
Part II. Other Information
Item 6, Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit 10(a) Credit Agreement, dated as of
April 9, 1996, between Parker Drilling Company
and Bank of Oklahoma, N.A.
Exhibit 15, Letter Re Unaudited Interim
Financial Information
Exhibit 27, Financial Data Schedule (EDGAR version only)
PART 1. FINANCIAL INFORMATION
PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
May 31, Aug. 31,
1996 1995
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ASSETS
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Current assets:
Cash and cash equivalents $ 10,854 $ 20,752
Other short-term investments 4,068 1,372
Accounts and notes receivable 36,718 39,578
Rig materials and supplies 10,061 11,532
Other current assets 7,904 5,146
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Total current assets 69,605 78,380
Property, plant and equipment less accumulated
depreciation, depletion and amortization of
$369,371 at May 31, 1996, and $432,360
at August 31, 1995 124,203 122,258
Other noncurrent assets 27,568 16,321
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Total assets $221,376 $216,959
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt $ 289 $ 289
Accounts payable and accrued liabilities 13,931 16,940
Accrued income taxes 6,303 5,109
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Total current liabilities 20,523 22,338
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Long-term debt 1,463 1,748
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Other long-term liabilities 6,559 5,953
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Common stock, $.16 2/3 par value 9,371 9,287
Capital in excess of par value 207,258 205,310
Retained earnings (accumulated deficit) (21,843) (24,391)
Other (1,955) (3,286)
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Total stockholders' equity 192,831 186,920
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Total liabilities and stockholders' equity $221,376 $216,959
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-------- --------
See accompanying notes to consolidated condensed financial statements.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Nine Months Ended
May 31, May 31,
------------------- --------------------
1996 1995 1996 1995
------- ------- -------- -------
Revenue:
Drilling contracts $33,986 $42,193 $112,266 $111,973
Other 1,012 1,066 3,371 3,307
------- ------- -------- --------
Gross operating revenue 34,998 43,259 115,637 115,280
------- ------- -------- --------
Operating expense:
Drilling 23,000 31,023 76,987 82,890
Other 1,216 1,114 4,036 3,779
Depreciation, depletion and
amortization 5,216 5,456 15,928 16,382
General and administrative 5,977 4,650 16,605 14,805
------- ------- -------- --------
35,409 42,243 113,556 117,856
------- ------- -------- --------
Operating income (loss) (411) 1,016 2,081 (2,576)
------- ------- -------- --------
Other income and (expense):
Interest expense (34) (27) (87) (62)
Interest income 312 327 1,011 904
Other income (expense) - net 1,233 1,694 3,108 4,975
------- ------- -------- --------
1,511 1,994 4,032 5,817
------- ------- -------- --------
Income before income taxes 1,100 3,010 6,113 3,241
------- ------- -------- --------
Income tax expense 790 960 3,565 2,215
------- ------- -------- --------
Net income (loss) 310 2,050 2,548 1,026
------- ------- -------- --------
Earnings (loss) per share,
primary and fully diluted $ .01 $ .04 $ .05 $ .02
------- ------- -------- --------
------- ------- -------- --------
Number of common shares used
in computing earnings (loss)
per share:
Primary 56,251,437 55,206,365 56,014,726 55,010,970
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---------- ---------- ---------- ----------
Fully diluted 56,290,118 55,389,837 56,219,680 55,183,989
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes to consolidated condensed financial statements.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Dollars in Thousands)
(Unaudited)
Nine Months Ended
May 31,
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1996 1995
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Cash flows from operating activities:
Net income (loss) $ 2,548 $ 1,026
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation, depletion and amortization 15,928 16,382
Expenses not requiring cash 1,519 389
Change in operating assets and liabilities (3,678) (1,755)
Other-net (2,587) (3,051)
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Net cash provided by operating activities 13,730 12,991
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Cash flows from investing activities:
Capital expenditures (26,359) (12,992)
Proceeds from the sale of equipment 5,377 6,198
Decrease (increase) in short-term
investments (2,696) (2,315)
Other-net (1,136) 121
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Net cash provided (used) by investing
activities (24,814) (8,988)
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Cash flows from financing activities:
Proceeds from exercise of stock warrants 1,552 -
Other (366) (226)
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Net cash provided (used) by financing
activities 1,186 (226)
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Net change in cash and cash equivalents (9,898) 3,777
Cash and cash equivalents at
beginning of period 20,752 10,660
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Cash and cash equivalents at
end of period $10,854 $14,437
------- -------
------- -------
Supplemental disclosure:
Interest paid $ 120 $ 2
Taxes paid $ 2,556 $ 2,248
Supplemental noncash financing activity:
In November 1994, the Company acquired a limited partner's ownership
interest in two consolidated partnerships in exchange for a promissory
note in the amount of $1,850,000.
See accompanying notes to consolidated condensed financial statements.
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PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements reflect all adjustments (of a normally
recurring nature) which are necessary for a fair presentation of (1) the
financial position as of May 31, 1996 and August 31, 1995, (2) the results
of operations for the three and nine months ended May 31, 1996 and May 31,
1995, and (3) cash flows for the nine months ended May 31, 1996 and May
31, 1995. Results for the nine months ended May 31, 1996, are not
necessarily indicative of the results which will be realized for the year
ending August 31, 1996. The year-end consolidated condensed balance sheet
data was derived from audited financial statements, but does not include
all disclosures required by generally accepted accounting principles. The
financial statements should be read in conjunction with the Company's Form
10-K for the year ended August 31, 1995.
2. Earnings per common share are based on the weighted average number of
common shares and common share equivalents outstanding during the period.
Common shares granted under the 1969 Key Employee Stock Grant Plan, 1980
Incentive Career Stock Plan and the 1991 Stock Grant Plan are issued and
outstanding and are only considered in the computation of weighted average
shares outstanding when their effect on earnings per share is dilutive.
3. In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" was issued. The statement establishes accounting
standards for the impairment of long-lived assets, such as the Company's
drilling, transportation and other equipment and will be effective for the
Company beginning with the year ending August 31, 1997. The Company does
not believe the new standard will have a material effect on the Company's
financial position or results of operations.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The statement
requires the computation of compensation for grants of stock, stock
options and other equity instruments issued to employees based on fair
value. The compensation calculated is to be either recorded as an expense
in the financial statements or, alternatively, disclosed. The Company
anticipates it will elect the disclosure method of complying with the new
standard. Under the provisions of the new statement, it is anticipated
pro forma net income to be disclosed will be lower than net income
reported in the financial statements.
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NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued)
Legal Proceedings
4. A judgment in the amount of $4,860,000 was entered against a
subsidiary of the Company by a judge of the First Civil Specialized
Court in Maynas, Peru on May 10, 1996. The judgment was based on a
claim by former union employees of the Company's subsidiary alleging
that such subsidiary impaired their employment opportunities with that
subsidiary and other employers. The Company disputes the basis for
the claim and the judgment and has appealed the decision. Because the
Company believes there was a lack of evidence and irregularities in
the proceedings, the Company also intends to seek to overturn the
decision through other appropriate proceedings. The original
complaint requested damages in the amount of $22,680,000, and the
plaintiffs' right to seek additional damages in excess of the judgment
by concurring in the appeal expires July 16, 1996. The plaintiffs
have not filed a claim for interest in the proceeding but could
initiate a separate proceeding for interest at a later date if the
judgment is affirmed. Any execution of a final judgment against the
subsidiary will have to be initiated in the United States or other
countries in which the subsidiary has assets or conducts business as
such subsidiary no longer holds assets or conducts business in Peru.
While the Company does not believe that the judgment will have a
material adverse effect on its financial condition, results of
operations or its operations in South America, there can be no
assurance at this time that a final judgment or judgments will not be
entered against the Company's subsidiary in excess of the original
judgment.
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Report of Independent Accountants
To the Board of Directors and Shareholders
Parker Drilling Company
We have reviewed the consolidated condensed balance sheet of Parker
Drilling Company and subsidiaries as of May 31, 1996, and the related
consolidated condensed statements of operations for the three and nine month
periods ended May 31, 1996 and May 31, 1995 and consolidated condensed
statements of cash flows for the nine month periods ended May 31, 1996 and May
31, 1995. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of August 31, 1995, and the
related consolidated statements of operations, redeemable preferred stock and
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report, dated October 17, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of August 31, 1995, is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has been derived.
By: /s/ Coopers & Lybrand L.L.P.
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COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
July 15, 1996
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Third Quarter of Fiscal 1996 Compared with Third Quarter of Fiscal 1995
The Company recorded net income of $.3 million in the third quarter of
fiscal 1996 compared to net income of $2.0 million in the third quarter of
fiscal 1995. This year's third quarter results were impacted by severance
payments for personnel reductions, temporary reductions in revenue while
certain rigs are being upgraded and completion of contracts on other rigs.
Total drilling revenue decreased $8.2 million in the third quarter of this
year from $42.2 million to $34.0 million due in part to lower revenue in the
Latin America region. Last year's third quarter revenue included $3.7 million
from southern Argentina operations which were subsequently terminated when the
Company decided to sell the six rigs and ancillary equipment located in this
market. In other Latin America operations, revenue decreased $4.2 million
primarily due to mobilization fees recorded last year and the temporary
reduction in revenue as three rigs were modified and upgraded in Colombia.
These rigs have re-commenced operations.
In the Asia Pacific region, revenue decreased $1.4 million due to the
completion of contracts in New Zealand, Pakistan and the Philippines. The
reduced revenue in these areas was offset somewhat by additional rig
utilization in Papua New Guinea, including one rig that was modified and
resumed working in the third quarter, and a contract in Vietnam that began in
the second quarter of this year. Revenue from U.S. operations increased $.9
million principally due to the relocation of several rigs in the Lower 48
states to the Gulf Coast region where day rates are higher.
Although total drilling revenue decreased $8.2 million, the drilling
margin decreased only $.2 million. The drilling margin as a percentage of
drilling revenue increased from 26% last year to 32% this year. Contributing
to the improvement in drilling margin percentage were the termination of low-
margin operations in southern Argentina, higher rig utilization in Papua New
Guinea where margins are better and improved margins on the three upgraded
rigs in Colombia.
General and administrative expense increased $1.3 million primarily due to
one-time expenses associated with personnel reductions. Other income
(expense) - net decreased $.5 million due to fewer gains on sales of assets
recorded in this year's third quarter.
The oversupply of rigs that has been prevalent in the U.S. market has
allowed oil companies to demand rigs equipped with more sophisticated
equipment such as diesel-electric power and/or top-drive systems.
Consequently, during the third quarter the Company decided to remove 22 of its
mechanical rigs from its U.S. rig fleet of 39 rigs and place them on the
market for sale. It is anticipated that this sale will be substantially
completed in the fourth quarter of fiscal year 1996.
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RESULTS OF OPERATIONS (Continued)
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First Nine Months of Fiscal 1996 Compared with First Nine Months of Fiscal
1995
The Company recorded net income of $2.5 million for the first nine months
of fiscal 1996 as compared to $1.0 million for the same period last year.
Higher drilling margins were somewhat offset by one-time expenses associated
with personnel reductions and a reduction in other income.
Drilling revenue of $112.3 million for the first nine months of fiscal
1996 was $.3 million higher than last year. Increased revenue from the Asia
Pacific and U.S. operations offset the loss of revenue due to the termination
of operations in southern Argentina.
In the Asia Pacific region, revenue increased $6.4 million as reduced
revenue due to completed contracts in New Zealand, Philippines and Pakistan
was more than offset by increased rig utilization in Papua New Guinea.
Revenue increased $5.5 million in the U.S. due to Rig 245 operating in Alaska
for the entire nine months this year coupled with the relocation of several
rigs in the Lower 48 states to the Gulf Coast region where day rates are
higher.
Although revenue was nearly the same as last year, the profit margin
increased by $6.2 million. The lower-margin revenue generated by the
terminated southern Argentina operations was replaced by revenue from more
profitable operations, particularly Papua New Guinea. Additionally, the
Company benefited from improved margins on the three upgraded rigs which
resumed work in Colombia.
The increase in general and administrative expense was primarily
attributable to severance payments for personnel reductions. Of the $1.9
million decrease in other income, $1.5 million was due to the reversal in
fiscal 1995 of a prior year's foreign currency accrual.
LIQUIDITY AND CAPITAL RESOURCES
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Working capital of the Company was $49.1 million as of May 31, 1996, and
$56.0 million as of August 31, 1995. Cash and short-term investments
comprised $14.9 million and $22.1 million of working capital on these
respective dates. Sources of cash for the first nine months of fiscal 1996
included cash generated from operations of $13.7 million, proceeds of $5.4
million from the sale of property, plant and equipment and $1.6 million
received upon the exercise of stock warrants.
Capital expenditures for the first nine months of fiscal 1996 were $26.4
million, which were primarily related to upgrading and modifying rigs in
connection with international contracts. The Company is pursuing new drilling
projects in its existing markets, as well as in new markets such as Venezuela
and Algeria, that would require capital expenditures in excess of $75 million
over the next several years for upgrades to existing rigs and/or acquisitions
of new rigs. Of such amount, the Company is currently committed over the next
six to nine months to spending approximately $22 million for upgrades to two
rigs in Papua New Guinea, three rigs in Peru and four rigs in Indonesia and
for other ancillary capital expenditures. Any significant increase in capital
expenditures would be subject to restrictions contained in the Company bank
credit facility as specified below.
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LIQUIDITY AND CAPITAL RESOURCES (continued)
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In order to have capital available to take advantage of these and other
contract opportunities and for other general corporate purposes including, but
not limited to, the acquisition of oil service related businesses, on July 11,
1996, the Company sold 9,050,000 shares of Common Stock raising $48.5 million
of net proceeds.
The Company has entered into a $15.0 million bank revolving credit and
letter of credit facility which expires on April 19, 1999 (the "Agreement").
At May 31, 1996, the Company had letters of credit totaling $10.4 million
outstanding under the Agreement. The Agreement contains restrictions on
annual capital expenditures and the issuance of certain senior and
subordinated indebtedness which can be incurred by the Company and certain
operating subsidiaries designated in the Agreement through which the Company
performs the majority of its drilling operations. The Agreement also limits
payment of dividends on Common Stock and requires the Company to maintain
certain financial ratios. The remaining subsidiaries of the Company are not a
party to the Agreement and are able to make capital expenditures with
independent financing from lenders that have no recourse to the Company and
the designated subsidiaries, subject only to an overall limitation of
indebtedness. The restrictions in the Agreement are not anticipated to
restrict growth or investment opportunities in the foreseeable future.
Management believes that the current level of cash and short-term
investments, together with cash generated from operations and the net proceeds
from the sale of Common Stock subsequent to May 31, should be sufficient to
meet the Company's immediate capital needs as well as capital required in
connection with additional contracts which the Company is currently bidding.
Should further opportunities for growth requiring additional capital arise,
the Company believes it would be able to satisfy these needs through a
combination of cash generated from operations, borrowings under the bank
credit agreement and long-term debt financing.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Page
Exhibit 10 (a) Credit Agreement, dated as of April 9, 1996,
between Parker Drilling Company and Bank of Oklahoma, N.A.
Exhibit 15 Letter re Unaudited Interim Financial Information
Exhibit 27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the nine months ended May 31, 1996.
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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.
Parker Drilling Company
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Registrant
Date: July 15, 1996
By: /s/James J. Davis
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James J. Davis
Vice President, Finance and
Chief Financial Officer
By: /s/Randy Ellis
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Randy Ellis
Controller and
Chief Accounting Officer
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