SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000, or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to___________
__________________
Commission file number 0-17272
__________________
TECHNE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1427402
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
614 MCKINLEY PLACE N.E. (612) 379-8854
MINNEAPOLIS, MN 55413 (Registrant's telephone
(Address of principal number, including area code)
executive offices) (Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
At November 2, 2000, 20,728,571 shares of the Company's Common Stock (par
value $.01) were outstanding.
ITEM 1 - FINANCIAL STATEMENTS
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
9/30/00 6/30/00
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 21,257,529 $ 17,356,108
Short-term investments 49,494,945 42,468,183
Accounts receivable (net) 15,545,123 15,600,868
Inventories 4,538,498 4,651,615
Income taxes receivable - 3,290,314
Deferred income taxes 2,472,000 2,440,000
Other current assets 621,012 494,117
------------ ------------
Total current assets 93,929,107 86,301,205
Deferred income taxes 3,997,000 3,938,000
Property and equipment (net) 46,480,227 46,266,177
Intangible assets (net) 34,113,186 36,335,500
Other assets 7,713,843 7,568,699
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TOTAL ASSETS $186,233,363 $180,409,581
============ ============
LIABILITIES & EQUITY
Trade accounts payable $ 2,790,689 $ 2,630,164
Salary and related accruals 2,011,059 2,998,696
Other payables 5,970,573 6,107,979
Income taxes payable 271,636 -
Current portion of long-term debt 839,150 824,315
------------ ------------
Total current liabilities 11,883,107 12,561,154
Royalty payable 6,807,000 7,768,000
Long-term debt 18,722,394 18,935,049
Common stock, par value $.01 per
share; authorized 50,000,000; issued
and outstanding 20,725,671 and
20,690,999, respectively 207,257 206,910
Additional paid-in capital 53,582,651 53,064,354
Retained earnings 95,830,726 88,336,230
Accumulated foreign currency
translation adjustments (799,772) (462,116)
------------ ------------
Total stockholders' equity 148,820,862 141,145,378
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $186,233,363 $180,409,581
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
9/30/00 9/30/99
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<S> <C> <C>
Sales $27,721,563 $24,621,053
Cost of sales 6,804,189 6,996,770
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Gross margin 20,917,374 17,624,283
Operating expenses (income):
Selling, general and administrative 4,474,526 4,405,198
Research and development 3,268,709 3,190,895
Amortization expense 2,222,314 2,307,313
Interest expense 353,625 367,098
Interest income (684,850) (236,460)
----------- -----------
9,634,324 10,034,044
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Earnings before income taxes 11,283,050 7,590,239
Income taxes 3,780,000 2,742,000
----------- -----------
Net earnings $ 7,503,050 $ 4,848,239
=========== ===========
Basic earnings per share $ 0.36 $ 0.24
Diluted earnings per share $ 0.35 $ 0.23
Weighted average common
shares outstanding:
Basic 20,707,458 20,150,702
Diluted 21,379,990 20,823,718
Post-stock split (Note D):
Pro forma basic earnings per share $ 0.18 $ 0.12
Pro forma diluted earnings per share $ 0.18 $ 0.12
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------
9/30/00 9/30/99
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 7,503,050 $ 4,848,239
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation and amortization 3,120,650 3,063,986
Deferred income taxes (109,000) (312,000)
Other 189,856 613,781
Change in current assets and current
liabilities:
(Increase) decrease in:
Accounts receivable (83,343) 52,830
Inventories 89,284 730,588
Other current assets (130,199) (128,535)
Increase (decrease) in:
Trade account/other payables (893,491) (16,940)
Salary and related accruals (979,281) (564,169)
Income taxes, net 3,643,775 1,586,084
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,351,301 9,873,864
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments (15,130,294) (3,360,000)
Proceeds from sale of short-term
Investments 8,103,532 1,648,000
Additions to property and equipment (1,126,942) (24,353,398)
Real estate deposit - (2,000,000)
Increase in other long term assets (335,000) (1,450,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,488,704) (29,515,398)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 459,090 219,426
Proceeds from issuance of long-term debt - 20,400,000
Payments on long-term debt (197,820) (60,394)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 261,270 20,559,032
EFFECT OF EXCHANGE RATE CHANGES ON CASH (222,446) 413,714
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NET CHANGE IN CASH AND EQUIVALENTS 3,901,421 1,331,212
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 17,356,108 12,769,468
------------ ------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 21,257,529 $ 14,100,680
============ ============
</TABLE>
See notes to unaudited Consolidated Financial Statements.
TECHNE CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
A. BASIS OF PRESENTATION:
The unaudited Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles and with instructions
to Form 10-Q and Article 10 of Regulation S-X. The accompanying unaudited
Consolidated Financial Statements reflect all adjustments which are, in the
opinion of management, necessary to a fair presentation of the results for the
interim periods presented. All such adjustments are of a normal recurring
nature.
A summary of significant accounting policies followed by the Company is
detailed in the Annual Report to Shareholders for Fiscal 2000. The Company
follows these policies in preparation of the interim Financial Statements.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that the Consolidated
Financial Statements be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto for the fiscal year ended June 30, 2000
included in the Company's Annual Report to Shareholders for Fiscal 2000.
Certain Consolidated Balance Sheet captions appearing in this interim report
are as follows:
<TABLE>
<CAPTION>
9/30/00 6/30/00
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<S> <C> <C>
ACCOUNTS RECEIVABLE
Accounts receivable $15,704,123 $15,762,868
Less reserve for bad debts 159,000 162,000
----------- -----------
NET ACCOUNTS RECEIVABLE $15,545,123 $15,600,868
=========== ===========
INVENTORIES
Raw materials $ 2,117,863 $ 2,288,719
Supplies 94,272 124,732
Finished goods 2,326,363 2,238,164
----------- -----------
TOTAL INVENTORIES $ 4,538,498 $ 4,651,615
=========== ===========
FIXED ASSETS
Land $ 871,000 $ 871,000
Buildings and improvements 44,472,362 43,965,312
Laboratory equipment 14,634,841 14,114,039
Office equipment 3,584,671 3,535,164
Leasehold improvements 147,931 180,770
----------- -----------
63,710,805 62,666,285
Less accumulated depreciation
and amortization 17,230,578 16,400,108
----------- -----------
NET FIXED ASSETS $46,480,227 $46,266,177
=========== ===========
INTANGIBLE ASSETS
Customer list $18,010,000 $18,010,000
Technology licensing agreements 500,000 500,000
Goodwill 39,075,089 39,075,089
----------- -----------
57,585,089 57,585,089
Less accumulated amortization 23,471,903 21,249,589
----------- -----------
NET INTANGIBLE ASSETS $34,113,186 $36,335,500
=========== ===========
</TABLE>
Effective July 1, 2000, the Company adopted Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
provides guidance on accounting for derivatives and hedge transactions. The
adoption of this pronouncement did not impact operating results or financial
position.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which provides guidance in applying generally accepted accounting
principles to revenue recognition in financial statements. The application of
this SAB did not have a material impact on the Company's reported operating
results or financial position.
B. EARNINGS PER SHARE:
Shares used in the earnings per share computations are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------
9/30/00 9/30/99
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<S> <C> <C>
Weighted average common shares
outstanding-basic 20,707,458 20,150,702
Dilutive effect of stock options and
Warrants 672,532 673,016
---------- ----------
Average common shares outstanding-diluted 21,379,990 20,823,718
========== ==========
</TABLE>
C. SEGMENT INFORMATION:
Following is financial information relating to the Company's operating
segments:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
9/30/00 9/30/99
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<S> <C> <C>
External sales
Hematology $ 3,508,217 $ 3,163,688
Biotechnology 17,920,915 15,074,320
R&D Systems Europe 6,292,431 6,383,045
----------- -----------
Total external sales $27,721,563 $24,621,053
=========== ===========
Intersegment sales
Hematology $ -- $ --
Biotechnology 3,400,657 3,186,429
R&D Systems Europe 21,252 61,270
----------- -----------
Total intersegment sales $ 3,421,909 $ 3,247,699
=========== ===========
Income before taxes
Hematology $ 1,085,158 $ 929,974
Biotechnology 9,573,285 6,572,996
R&D Systems Europe 1,132,812 1,046,301
Corporate and other (508,205) (959,032)
----------- -----------
Total income before taxes $11,283,050 $ 7,590,239
=========== ===========
</TABLE>
D. STOCK SPLIT:
On November 9, 2000, the Company declared a two-for-one stock split to be
effected in the form of a 100% stock dividend to shareholders of record on
November 24, 2000. The payment date for the stock split is December 1, 2000.
The shareholders also approved an amendment to the Company's Articles of
Incorporation to increase authorized common stock from 50,000,000 to
100,000,000 shares.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Quarter Ended September 30, 2000
vs. Quarter Ended September 30, 1999
Techne Corporation (Techne) has two operating subsidiaries: Research and
Diagnostic Systems, Inc. (R&D Systems) located in Minneapolis, Minnesota and
R&D Systems Europe Ltd. (R&D Europe) located in Abingdon, England. R&D Systems
has two divisions: Biotechnology and Hematology. The Biotechnology Division's
principal products are purified cytokines (proteins), antibodies and assay
kits, which are sold primarily to biomedical researchers at pharmaceutical
companies and academic and government research laboratories. The Hematology
Division's principal products are whole blood hematology controls and
calibrators which are sold to hospital and clinical laboratories to check the
performance of their hematology instruments to assure the accuracy of
hematology test results. R&D Europe sells R&D Systems' biotechnology products
in Europe, both directly and through a sales subsidiary in Germany. The
Company has a foreign sales corporation, Techne Export Inc.
The Company has an equity interest in ChemoCentryx, Inc. (CCX), a technology
and drug development company working in the area of chemokines. Chemokines are
cytokines which regulate the trafficking patterns of leukocytes, the effector
cells of the human immune system. In conjunction with the equity investment
and joint research efforts, Techne obtains exclusive worldwide research and
diagnostic marketing rights to chemokine proteins, antibodies and receptors
discovered or developed by CCX or R&D Systems. The Company accounts for this
investment under the equity method of accounting and recognizes 100% of the
losses of CCX due to the limited amount of cash consideration provided by the
holders of the common shares of CCX. The Company's investment in CCX was
$3,448,980 and $3,553,516 at September 30, 2000 and June 30, 2000,
respectively.
Net Sales
Net sales for the quarter ended September 30, 2000 were $27,721,563, an
increase of $3,100,510 (13%) from the quarter ended September 30, 1999. R&D
Systems' Biotechnology Division sales increased $2,846,595 (19%) and R&D
Systems' Hematology Division sales increased $344,529 (11%) for the quarter
ended September 30, 2000. R&D Europe sales decreased $90,614 (1%) for the
quarter. The increase in Biotechnology Division sales was due largely to
increases in protein and antibody sales. The increase in Hematology sales was
due to increased OEM and retail sales. R&D Europe's decline in revenue was
entirely a result of changes in foreign currency exchange rates.
Gross Margins
Gross margins, as a percentage of sales, increased from the prior year.
Margins for the first quarter of fiscal 2001 were 75.5% compared to 71.6% for
the same quarter in fiscal 2000. Biotechnology Division margins increased from
73.2% to 79.1% for the quarter ended September 30, 2000. Margins in the first
quarter of last year were affected by the higher cost of inventory acquired
from Genzyme Corporation. R&D Europe gross margins decreased from 44.7% to
39.3% for the quarter ended September 30, 2000 as a result of changes in
exchange rates. Hematology Division gross margins decreased slightly for the
quarter from 45.6% to 44.4% as a result of changes in product mix.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $69,328 (2%) from the
first quarter of fiscal 2000. This was mainly the result of increased wages
and benefits offset by exchange rate changes.
Research and Development Expenses
Research and development expenses increased $77,814 (2%) for the quarter ended
September 30, 2000. Research and development expenses by R&D Systems
increased $458,000 (17%) for the quarter ended September 30, 2000. The R&D
Systems research expense increase relates to products currently under
development, many of which will be released in fiscal 2001. Products currently
under development include both biotechnology and hematology products. The
increase in R&D Systems research expense for the quarter was offset by a
reduction in R&D Europe research expense as a result of the cancellation of a
research agreement with British Biotechnology Group plc. The increase in R&D
Systems research expense was also offset by a reduction in ChemoCentryx
research expenses due to grant money received by CCX beginning in the second
quarter of fiscal 2000.
Net Earnings
Earnings before income taxes increased $3,692,811 from $7,590,239 in the first
quarter of fiscal 2000 to $11,283,050 in the first quarter of fiscal 2001. The
increase in earnings before income taxes was due primarily to the increase in
sales and improved gross margins discussed previously.
Income taxes for the quarter ended September 30, 2000 were provided at a rate
of approximately 34% of consolidated pretax earnings compared to 36% for the
prior year. The decrease in tax rate from the prior year is due to the results
of CCX for which no taxes are provided. U.S. federal taxes have been reduced
by the credit for research and development expenditures and the benefit of the
foreign sales corporation. Foreign income taxes have been provided at rates
which approximate the tax rates in the United Kingdom and Germany.
Liquidity and Capital Resources
At September 30, 2000, cash and cash equivalents and short-term investments
were $70,752,474 compared to $59,824,291 at June 30, 2000. The Company
believes it can meet its future cash, working capital and capital addition
requirements through currently available funds, cash generated from operations
and maturities of short-term investments. The Company has an unsecured line of
credit of $750,000. The interest rate on the line of credit is at prime.
There were no borrowings on the line in the prior or current fiscal years.
Cash Flows From Operating Activities
The Company generated cash of $12,351,301 from operating activities in the
first three months of fiscal 2001 compared to $9,873,864 for the first three
months of fiscal 2000. The increase was mainly the result of increased net
earnings.
Cash Flows From Investing Activities
During the three months ended September 30, 2000 and the three months ended
September 30, 1999, short-term investments increased by $7,026,762 and
$1,712,000. The Company's investment policy is to place excess cash in short-
term tax-exempt bonds. The objective of this policy is to obtain the highest
possible return with the lowest risk, while keeping the funds accessible.
Capital expenditures for fixed assets for the first three months of fiscal 2001
and 2000 were $1,126,942 and $24,353,398 (including $21.9 million for the
purchase of R&D Systems' Minneapolis facility), respectively. Included in the
fiscal 2001 and 2000 additions were $507,000 and $1,900,000 for building
improvements related to remodeling of facilities by R&D Systems. The remaining
capital additions in fiscal 2001 and 2000 were for laboratory and computer
equipment. Total expenditures for capital additions and building improvements
planned for the remainder of fiscal 2001 are expected to cost approximately $5
million and are expected to be financed through currently available funds and
cash generated from operating activities.
During the first three months of fiscal 2000, the Company invested an
additional $1 million in ChemoCentryx, Inc. The Company also paid $2 million
and issued warrants to purchase 60,000 shares of common stock as a deposit on
an option to purchase property adjacent to its Minneapolis facility.
Cash Flows From Financing Activities
Cash of $459,090 and $219,426 was received during the three months ended
September 30, 2000 and 1999, respectively, for the exercise of options for
34,284 and 24,770 shares of common stock. During the first three months of
fiscal 2001 and 2000 options for 500 and 10,792 shares of common stock were
exercised by the surrender of 112 and 3,475 shares of the Company's common
stock with fair market values of $8,554 and $112,271, respectively.
The Board of Directors has authorized the Company, subject to market conditions
and share price, to purchase and retire up to $10 million of its common stock.
From the start of the repurchase program through May 8, 2000, 650,600 shares
have been purchased at a market value of $8,754,114.
The Company has never paid cash dividends and has no plans to do so in fiscal
2001.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At September 30, 2000, the Company had an investment portfolio of fixed income
securities, excluding those classified as cash and cash equivalents, of
$49,494,945. These securities, like all fixed income instruments, are subject
to interest rate risk and will decline in value if market interest rates
increase. However, the Company has the ability to hold its fixed income
investments until maturity and therefore the Company does not expect any such
increase to have an adverse impact on income or cash flows.
The Company operates internationally, and thus is subject to potentially
adverse movements in foreign currency rate changes. The Company does not enter
into foreign exchange forward contracts to reduce its exposure to foreign
currency rate changes on intercompany foreign currency denominated balance
sheet positions.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On September 19, 2000 the Company brought a declaratory judgment action against
Amgen, Inc. in the United States District Court for the District of Minnesota.
Amgen had presented to the Company for payment invoices in the amount of $31.9
million for materials provided to the Company over past years, allegedly
pursuant to a contract under which no accounting or invoices were rendered for
nine years. The Company seeks to have the Court declare that no amount is owed
and seeks compensation from Amgen for breach of contract and unfair business
practices in violation of applicable statutes. Subsequent to the filing of
the Company's action, Amgen acknowledged error in its invoicing, reduced the
amount the amount of its invoices to $28.0 million and filed a counterclaim for
such amount. The Company believes that it owes no material amount to Amgen and
that the ultimate resolution of the matter will not have a material effect on
the financial condition or operations of the Company.
ITEM 2 - CHANGES IN SECURITIES
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SHAREHOLDERS
(a) The Annual Meeting of the Registrant's shareholders was held on Thursday,
November 9, 2000.
(b) A proposal to set the number of directors at eight was adopted by a vote
of 16,465,605 in favor with 29,029 shares against, 16,524 shares abstaining and
no shares represented by broker nonvotes.
(c) Proxies for the Annual Meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and all
such nominees were elected, as follows:
Nominee For Withheld
------- --- --------
Thomas E. Oland 16,342,997 168,161
Roger C. Lucas 16,332,242 178,916
Howard V. O'Connell 16,336,648 174,510
G. Arthur Herbert 16,335,667 175,491
Randolph Steer 15,647,138 864,020
Lowell E. Sears 16,342,767 168,391
Christopher S. Henney 16,341,602 169,556
Timothy M. Heaney 16,342,947 168,211
(d) A proposal to amend the Company's Articles of Incorporation to increase
the authorized common stock from 50,000,000 to 100,000,000 shares was adopted
by a vote of 15,774,917 in favor with 719,058 shares against, 17,183 shares
abstaining and no shares represented by broker nonvotes.
(e) A proposal to increase the number of shares of the Company's common stock
reserved for issuance under the Company's 1997 Incentive Stock Option Plan from
600,000 to 1,600,000 and under its 1998 Nonqualified Stock Option Plan from
300,000 to 800,000 was adopted by a vote of 10,966,649 in favor with 1,794,630
shares against, 39,974 shares abstaining and 3,709,905 shares represented by
broker nonvotes.
ITEM 5 - OTHER INFORMATION
Forward Looking Information and Cautionary Statements: Statements in this
filing, and elsewhere, which look forward in time involve risks and
uncertainties which may affect the actual results of operations. The following
important factors, among others, have affected and, in the future, could affect
the Company's actual results: the introduction and acceptance of new
biotechnology and hematology products, the levels and particular directions of
research into cytokines by the Company's customers, the impact of the growing
number of producers of cytokine research products and related price
competition, the retention of hematology OEM and proficiency survey business,
the impact of changes in foreign currency exchange rates, the outcome of
litigation involving the Company and the costs and results of research and
product development efforts of the Company and of companies in which the
Company has invested or with which it has formed strategic relationships.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
See exhibit index immediately following signature page.
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
2000.
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 thereunto duly authorized.
TECHNE CORPORATION
(Company)
Date: November 14, 2000 Thomas E. Oland
-----------------------------
President, Chief Executive and
Financial Officer
EXHIBIT INDEX
TO
FORM 10-Q
TECHNE CORPORATION
Exhibit # Description
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3.1 Restated Articles of Incorporation
27 Financial Data Schedule
