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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(AMENDMENT NO. 2)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): August 21, 2001 (June 1, 2001)
AMERICAN HEALTHWAYS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 000-19364 62-1117144
(State or other jurisdiction of (Commission (I.R.S. employer
incorporation or organization) File Number) identification no.)
3841 GREEN HILLS VILLAGE DRIVE
NASHVILLE, TENNESSEE 37215
(Address of principal executive offices) (Zip code)
(615) 665-1122
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
This Form 8-K/A (Amendment No. 2) includes the following financial
information required to be filed pursuant to Item 7 (Financial Statements, Pro
Forma Information and Exhibits) of the Registrant's Current Report on Form 8-K
dated June 6, 2001 and as amended on Form 8-K/A (Amendment No. 1) dated August
15, 2001. This amendment includes changes in the unaudited pro forma information
previously presented on Form 8-K/A (Amendment No. 1).
(a) Financial Statements of Businesses Acquired:
1. Independent Auditors' Report.
2. Balance Sheets of CareSteps.com, Inc. as of August 31, 2000
and May 31, 2001 (unaudited).
3. Statements of Operations of CareSteps.com, Inc. for the period
from December 7, 1999 (date of incorporation) to August 31,
2000, and for the nine months ended May 31, 2001 (unaudited).
4. Statement of Changes in Stockholders' Equity of CareSteps.com,
Inc. for the period from December 7, 1999 (date of
incorporation) to August 31, 2000, and for the nine months
ended May 31, 2001 (unaudited).
5. Statements of Cash Flows of CareSteps.com, Inc. for the period
from December 7, 1999 (date of incorporation) to August 31,
2000, and for the nine months ended May 31, 2001 (unaudited).
6. Notes to Financial Statements.
(b) Pro Forma Information:
1. Unaudited pro forma combined balance sheet of American
Healthways, Inc. as of May 31, 2001 and statements of
operations for the year ended August 31, 2000 and the nine
months ended May 31, 2001.
2. Notes to unaudited pro forma combined balance sheet and
statements of earnings.
(c) Exhibits:
23.1 Consent of Deloitte & Touche LLP
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors
CareSteps.com, Inc.
Nashville, Tennessee
We have audited the accompanying balance sheet of CareSteps.com, Inc. (the
"Company"), as of August 31, 2000 and the related statements of operations,
changes in stockholders' equity and cash flows for the period from December 7,
1999 (date of incorporation) to August 31, 2000. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the accompanying financial statements present fairly, in all
material respects, the financial position of CareSteps.com, Inc. as of August
31, 2000, and the results of its operations and its cash flows for the period
from December 7, 1999 (date of incorporation) to August 31, 2000 in conformity
with accounting principles generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Nashville, Tennessee
July 27, 2001
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CARESTEPS.COM, INC.
BALANCE SHEETS
AUGUST 31, MAY 31,
2000 2001
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 1,731,288 $ 1,310,710
Accounts receivable, net ..................................... -- 69,737
Other current assets ......................................... -- 10,032
----------- -----------
Total current assets ................................ 1,731,288 1,390,479
Property and equipment, net (note 2) .............................. 32,247 50,689
----------- -----------
Total assets ........................................ $ 1,763,535 $ 1,441,168
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................. $ 89,527 $ 117,835
Accrued salaries and benefits ................................ 25,520 83,577
----------- -----------
Total current liabilities ........................... 115,047 201,412
----------- -----------
Commitments and contingencies (note 4)
Stockholders' equity (note 3):
Preferred stock, $.001 par value, 5,000,000 shares authorized,
100 shares outstanding .................................... 1 1
Common stock, $.001 par value, 20,000,000 shares authorized,
15,028,008 and 16,239,372 (unaudited) shares
outstanding, respectively ................................. 7,140 8,351
Additional paid-in capital ................................... 2,368,109 3,392,528
Retained earnings (deficit) .................................. (726,762) (2,161,124)
----------- -----------
Total stockholders' equity .......................... 1,648,488 1,239,756
----------- -----------
Total liabilities and stockholders' equity .......... $ 1,763,535 $ 1,441,168
=========== ===========
See accompanying notes to the financial statements.
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CARESTEPS.COM, INC.
STATEMENTS OF OPERATIONS
PERIOD FROM
DECEMBER 7, 1999 NINE MONTHS
(DATE OF INCORPORATION) ENDED
TO AUGUST 31, MAY 31,
2000 2001
----------------------- ------------
(UNAUDITED)
Revenues ............................... $ -- $ 409,793
Operating expenses:
Salaries and benefits ............. 96,483 920,133
Consulting fees ................... 388,836 74,215
Technology support ................ 120,406 307,118
Marketing ......................... 90,196 126,493
Other operating expenses .......... 60,912 458,705
Depreciation and amortization ..... 511 6,409
---------- ------------
Total operating expenses ...... 757,344 1,893,073
---------- ------------
Loss from operations .......... (757,344) (1,483,280)
Interest income ........................ 30,582 48,918
---------- ------------
Net loss ............................... $ (726,762) $ (1,434,362)
========== ============
See accompanying notes to the financial statements.
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CARESTEPS.COM, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
ADDITIONAL RETAINED
PREFERRED COMMON PAID-IN EARNINGS
STOCK STOCK CAPITAL (DEFICIT) TOTAL
--------- ------ ---------- ------------ ------------
Balance, December 7, 1999
(date of incorporation) ....... $- $3,000 $ -- $ -- $ 3,000
Issuance of common stock,
net of issuance costs ........ 1 4,140 2,368,109 -- 2,372,250
Net loss ........................ - -- -- (726,762) (726,762)
-- ------ ---------- ------------ ------------
Balance, August 31, 2000 ........ 1 7,140 2,368,109 (726,762) 1,648,488
Issuance of common stock ........ - 1,211 1,023,789 -- 1,025,000
Capital contribution ............ - -- 630 -- 630
Net loss ........................ - -- -- (1,434,362) (1,434,362)
-- ------ ---------- ------------ ------------
Balance, May 31, 2001 (unaudited) $1 $8,351 $3,392,528 $ (2,161,124) $ 1,239,756
== ====== ========== ============ ============
See accompanying notes to the financial statements.
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CARESTEPS.COM, INC.
STATEMENTS OF CASH FLOWS
PERIOD FROM
DECEMBER 7, 1999 NINE MONTHS
(DATE OF INCORPORATION) ENDED
TO AUGUST 31, MAY 31,
2000 2001
----------------------- ------------
(UNAUDITED)
Cash flows from operating activities:
Net loss ................................................ $ (726,762) $ (1,434,362)
Depreciation and amortization .......................... 511 6,409
Increase in accounts receivable ........................ -- (69,737)
Increase in other current assets ....................... -- (10,032)
Increase in accounts payable ........................... 89,527 28,308
Increase in accrued salaries and benefits .............. 25,520 58,057
------------ ------------
Net cash flows used in operating activities .......... (611,204) (1,421,357)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment ..................... (32,758) (24,851)
------------ ------------
Net cash flows used in investing activities .......... (32,758) (24,851)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock ................. 2,375,250 1,025,000
Capital contributions .................................. -- 630
------------ ------------
Net cash flows provided by financing activities ...... 2,375,250 1,025,630
------------ ------------
Net increase (decrease) in cash and cash equivalents ....... 1,731,288 (420,578)
Cash and cash equivalents, beginning of period ............. -- 1,731,288
------------ ------------
Cash and cash equivalents, end of period ................... $ 1,731,288 $ 1,317,710
============ ============
See accompanying notes to the financial statements.
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CARESTEPS.COM, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM DECEMBER 7, 1999 (DATE OF INCORPORATION) TO AUGUST 31, 2000
AND NINE MONTHS ENDED MAY 31, 2001 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. ORGANIZATION AND NATURE OF OPERATIONS
CareSteps.com, Inc. (the "Company") through the development and of use
medical software applications provides care management services to payors,
providers and purchasers of healthcare services.
B. BASIS OF PRESENTATION
The accompanying financial statements have been prepared under the
accrual basis of accounting.
C. REVENUE RECOGNITION
Revenues under the Company's contracts with employers and health plans
are recognized as the underlying services are provided.
D. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist principally of demand deposits at
banks and other highly liquid short-term investments with original maturities of
less than three months.
E. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation for equipment
and furniture and fixtures is recognized over useful lives of five to fifteen
years.
F. MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
G. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company adopted this pronouncement on
September 1, 2000, which had no impact on the Company's financial statements.
H. UNAUDITED INTERIM INFORMATION
The unaudited interim financial statements include all adjustments,
consisting only of normal recurring adjustments, which management considers
necessary for a fair presentation of the financial position and results of
operations of the Company. The results of operations the nine months ended May
31, 2001 are not necessarily indicative of the results that may be expected for
a full year.
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(2) PROPERTY AND EQUIPMENT
Property and equipment at August 31, 2000 and May 31, 2001 are as
follows:
AUGUST 31, MAY 31,
2000 2001
---------- --------
(UNAUDITED)
Office equipment ....................... $ 29,839 $ 53,162
Furniture and fixtures ................. 2,919 4,447
-------- --------
Total cost .................... 32,758 57,609
Accumulated depreciation ............... (511) (6,920)
-------- --------
Property and equipment, net ... $ 32,247 $ 50,689
======== ========
(3) STOCKHOLDERS' EQUITY
In April 2000, the Company issued 2,515,508 shares of common stock
valued at $0.846 per share to private investors resulting in proceeds of
$2,028,500 (net of issuance costs of $100,000). Preceding the completion of the
offering and pursuant to the terms of a funding agreement and a consulting
agreement with Springboard L.P., the Company issued 100 shares of Series A
Preferred Stock and 1,625,000 shares of common stock. Based on the terms of
these agreements, management attributed 406,250 of the common shares issued as
payment for consulting services and accordingly recorded consulting expense of
$343,750 with a corresponding increase to additional paid-in capital.
(4) LEASES
The Company operates under facilities and office equipment leases that
expire between August 2001 and August 2003. Future minimum lease payments at
August 31, 2000 are as follows:
YEAR ENDING
AUGUST 31,
-----------
2001 ................ $37,383
2002 ................ 2,230
2003 ................ 2,230
-------
Total .... $41,843
=======
The Company incurred rent expense for the period from December 7, 1999
(date of incorporation) to August 31, 2000, and the nine months ended May 31,
2001 (unaudited) of $4,915 and $33,509, respectively.
(5) SUBSEQUENT EVENTS
In December 2000, the Company completed an offering of 1,181,818 shares
of common stock valued at $0.846 per share to American Healthways, Inc.
resulting in proceeds of $1,000,000. The Company also issued 29,546 shares of
common stock valued at $0.846 to a third party in exchange for certain marketing
and advertising services and recorded a corresponding expense of $25,000.
Effective June 1, 2001, under the terms of an agreement and plan of
merger, American Healthways, Inc. acquired the 93% interest that it did not
already own of the Company's outstanding common stock in exchange for 627,106
shares of American Healthways, Inc. common stock valued at approximately
$13,884,000. Certain stockholders of the Company also received an additional
11,905 shares of American Healthways, Inc. common stock valued at approximately
$251,000 in connection with entering into covenants not to compete. In order to
complete this transaction the Company, under existing stockholder agreements,
was required to make cash payments to certain investors totaling $1,081,668.
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AMERICAN HEALTHWAYS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION BASIS OF PRESENTATION
The unaudited pro forma combined statements of operations of American
Healthways, Inc. for the year ended August 31, 2000 and nine months ended May
31, 2001, are presented to show the effects of the acquisition of CareSteps.com,
Inc. ("CareSteps") as if it had occurred on September 1, 1999. The unaudited pro
forma combined balance sheet reflects the pro forma balance sheet of American
Healthways as if the acquisition had occurred as of May 31, 2001. The pro forma
information is based on the historical financial statements of American
Healthways and CareSteps, giving effect to the acquisition under the purchase
method of accounting and the assumptions and adjustments in the accompanying
notes to the pro forma combined financial information. The allocation of the
purchase price is preliminary, but management does not believe it will change
materially.
The unaudited pro forma financial information does not purport to
represent what American Healthways' results of operations would actually have
been had the transactions in fact occurred on the dates indicated above, nor to
project American Healthways' financial position or results of operations for any
future date or period. In the opinion of American Healthways' management, all
adjustments necessary for a fair presentation have been made. This unaudited pro
forma financial information should be read in conjunction with the accompanying
notes and the consolidated financial statements of American Healthways, Inc. and
the related notes included in American Healthways' 2000 Annual Report on Form
10-K and Quarterly Report on Form 10-Q for the quarter ended May 31, 2001.
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AMERICAN HEALTHWAYS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MAY 31, 2001
(All amounts expressed in thousands)
PRO-FORMA
PRO-FORMA COMBINED
HISTORICAL CARESTEPS ADJUSTMENTS TOTALS
---------- --------- ----------- ---------
Current Assets:
Cash and cash equivalents ........................... $ 9,064 $ 1,311 (841)(1) $ 8,452
(1,082)(3)
Accounts receivable, net ............................ 5,162 70 -- 5,232
Other current assets ................................ 2,016 10 -- 2,026
Deferred tax assets ................................. 724 -- -- 724
-------- -------- -------- --------
Total current assets ............................... 16,966 1,391 (1,923) 16,434
Property and equipment, net ............................ 13,582 51 -- 13,633
Long-term deferred tax assets .......................... 2,132 -- 600 (1) 2,732
Other assets ........................................... 1,500 -- (1,000)(1) 500
Intangible assets, net ................................. 10,414 -- 15,218 (1) 25,632
-------- -------- -------- --------
Total assets ...................................... $ 44,594 $ 1,442 $ 12,895 $ 58,931
======== ======== ======== ========
Current Liabilities:
Accounts payable .................................... $ 1,806 $ 118 $ -- $ 1,924
Accrued salaries and benefits ....................... 4,001 84 -- 4,085
Accrued liabilities ................................. 1,319 -- -- 1,319
Income taxes payable ................................ 1 -- -- 1
Current portion of other
long-term liabilities .............................. 380 -- -- 380
-------- -------- -------- --------
Total current liabilities ......................... 7,507 202 -- 7,709
Other long-term liabilities ............................ 3,253 -- -- 3,253
Stockholders' equity:
Preferred stock ..................................... -- -- -- --
Common stock ........................................ 9 8 (8)(2) 10
1 (1)
Additional paid-in capital .......................... 25,340 3,393 (2,311)(2) 39,474
14,134 (1)
(1,082)(3)
Retained earnings ................................... 8,485 (2,161) 2,161 (2) 8,485
-------- -------- -------- --------
Total stockholders' equity ........................ 33,834 1,240 12,895 47,969
-------- -------- -------- --------
Total liabilities and stockholders' equity ........ $ 44,594 $ 1,442 $ 12,895 $ 58,931
======== ======== ======== ========
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AMERICAN HEALTHWAYS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 2000
(All amounts expressed in thousands, except per share data)
PRO-FORMA
PRO-FORMA COMBINED
HISTORICAL CARESTEPS ADJUSTMENTS TOTALS
---------- --------- ----------- ---------
Revenues ............................................... $ 53,030 $ -- $ -- $ 53,030
Expenses:
Salaries and benefits ............................... 34,975 96 -- 35,071
Other operating expenses ............................ 13,786 660 -- 14,446
Depreciation and amortization ....................... 3,621 1 985(4) 4,607
Interest expense (income) ........................... 22 (31) -- (9)
-------- ------ -------- --------
Total expenses .................................. 52,404 726 985 54,115
-------- ------ -------- --------
Income (loss) before income taxes ...................... 626 (726) (985) (1,085)
Income tax expense ..................................... 478 -- (323)(5) 155
-------- ------ -------- --------
Net income (loss) ...................................... $ 148 $ (726) $ (662) $ (1,240)
======== ====== ======== ========
Basic income (loss) per share .......................... $ 0.02 $ (0.14)
Diluted income (loss) per share ........................ $ 0.02 $ (0.14)
Weighted average common shares and equivalents:
Basic ............................................. 8,269 639(6) 8,908
Diluted ........................................... 8,635 639(6) 9,274
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AMERICAN HEALTHWAYS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED MAY 31, 2001
(All amounts expressed in thousands, except per share data)
PRO-FORMA
PRO-FORMA COMBINED
HISTORICAL CARESTEPS ADJUSTMENTS TOTALS
---------- --------- ----------- ---------
Revenues ............................................... $ 52,694 $ 410 $ -- $ 53,104
Expenses:
Salaries and benefits ............................... 31,420 920 -- 32,340
Other operating expenses ............................ 13,533 967 -- 14,500
Depreciation and amortization ....................... 3,888 6 640(4) 4,534
Interest expense (income) ........................... 62 (49) -- 13
-------- -------- ------ --------
Total expenses .................................. 48,903 1,844 640 51,387
-------- -------- ------ --------
Income (loss) before income taxes ...................... 3,791 (1,434) (640) 1,717
Income tax expense ..................................... 1,649 -- (581)(5) 1,068
-------- -------- ------ --------
Net income (loss) ...................................... $ 2,142 $ (1,434) $ (59) $ 649
======== ======== ====== ========
Basic income per share ................................. $ 0.26 $ 0.07
Diluted income per share ............................... $ 0.24 $ 0.07
Weighted average common shares and equivalents:
Basic ............................................. 8,368 639(6) 9,007
Diluted ........................................... 9,065 639(6) 9,704
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AMERICAN HEALTHWAYS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(All amounts expressed in thousands)
The accompanying pro forma combined balance sheet reflects the pro
forma balance sheet of American Healthways, Inc. as if the acquisition of the
outstanding common stock of CareSteps.com, Inc. had occurred as of May 31, 2001.
The accompanying pro forma combined statements of operations reflect the pro
forma results of American Healthways, Inc. as if the acquisition of
CareSteps.com, Inc. had occurred on September 1, 1999.
PRO FORMA ADJUSTMENTS
1. To reclassify previous investment in unconsolidated subsidiary of
$1,000 and reflect the allocation of the purchase price (consisting of
common stock valued at $14,135 and payment of acquisition related costs
of $841) as follows:
Fair value of assets acquired $ 158
Deferred tax asset 600
Intangible assets:
Non-compete agreements 374
Acquired technology 468
Customer contracts 132
Excess of cost over net assets of purchased companies 14,244
--------
Total purchase price $ 15,976
========
2. To eliminate equity of purchased company.
3. To reflect contractual payments to certain CareSteps.Com, Inc.
investors immediately preceding the acquisition.
4. To reflect additional amortization of identifiable intangible assets
and excess of cost over net assets of purchased companies using the
straight-line method of amortization and the following estimated useful
lives: non-compete agreements - three years; acquired technology -
three years; customer contracts - one year and excess of cost over net
assets of purchased companies - twenty-five years.
In July 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations," and No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June
30, 2001 and that the pooling-of-interest method is not longer allowed.
SFAS No. 142 requires that upon adoption, amortization of goodwill will
cease and instead, the carrying value of goodwill will be evaluated for
impairment on an annual basis. Identifiable intangible assets will
continue to be amortized over their useful lives. SFAS No. 142 is
effective for fiscal years beginning after December 15, 2001; however,
American Healthways, Inc. may elect early adoption of this statement on
September 1, 2001, the beginning of its 2002 fiscal year. American
Healthways, Inc. is evaluating the impact of the adoption of these
standards on previously existing intangible assets and on intangible
assets generated from the acquisition of CareSteps.com, Inc. and has
not yet determined the effect of adoption on its financial position and
results of operations.
5. To record estimated federal and state income tax benefit at a combined
rate of 38%, as a result of the decrease in pro forma combined earnings
before income taxes due to the operating losses before taxes of
CareSteps.com, Inc. and the amortization of non-compete agreements. The
remaining amortization expense of identifiable intangible assets and
excess of cost over net assets of purchased companies is not considered
deductible for income tax purposes.
6. To reflect weighted average shares for stock issued in acquisition.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN HEALTHWAYS, INC.
Date: August 21, 2001 By: /s/ Henry D. Herr
--------------------------------------------------
HENRY D. HERR
Executive Vice President and
Chief Financial Officer
(Principal Financial and Duly Authorized Officer)
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EXHIBIT INDEX
No. Exhibit
--- -------
23.1 Consent of Independent Auditors