SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly Period Ended April 30,July 31, 1996
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OROF
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-16999
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Urban Outfitters, Inc.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2003332
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation of Organization) Identification No.)
1809 Walnut Street, Philadelphia, PA 19103
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(Address of principal executive office) (Zip Code)
(215) 564-2313
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(Registrant's telephone number including area code)
N/A
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)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____X___ No __________
Title of Each Class Number of Shares Outstanding
of Common Stock at June 1,August 31, 1996
--------------- ----------------------------------------------------------------------- ----------------------------
Common shares, par value, 17,487,700
$.0001 per share 17,518,698
INDEX
PAGE
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PART I Financial Information
ITEM 1 Financial Statements
- ------
Consolidated Balance Sheets at April 30,July 31, 1996 2
(Unaudited) and January 31, 1996
Consolidated Statements of Income for the three and 3
six months ended April 30,July 31, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the 4
threesix months ended April 30,July 31, 1996 and 1995 (Unaudited)
Notes to Consolidated Financial Statements 5
ITEM 2 Management's Discussion and Analysis of Financial 6 - 89
- ------
Condition and Results of Operations
PART II Other Information
ITEM 6 Exhibits and Reports on Form 8-K 910
- ------
SIGNATURES 1011
1
URBAN OUTFITTERS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
APRIL 30,JULY 31, 1996 JANUARY 31, 1996
(UNAUDITED) (AUDITED)
------- -------
Assets
Current assets:
Assets
Current assets:
Cash and cash equivalents............................................... $20,783equivalents ......................................... $13,755 $20,095
Marketable securities................................................... 13,630securities ............................................. 8,799 9,499
Accounts receivable, net of allowance for
doubtful accounts of $592$650 and $531 at April 30,July 31, 1996
and January 31, 1996, respectively................................... 3,331respectively ............................. 3,943 1,573
Inventory............................................................... 12,019Inventory ......................................................... 16,295 10,477
Prepaid expenses and other current assets............................... 5,037assets ......................... 7,296 4,915
------- -------
Total current assets....................................................... 54,800assets ................................................. 50,088 46,559
Property and equipment, less accumulated depreciation and amortization..... 18,127amortization 19,327 16,690
Marketable securities...................................................... 4,476securities ................................................ 12,433 6,247
Other assets............................................................... 1,816assets ......................................................... 1,982 1,621
------- -------
$79,219$83,830 $71,117
======= =======
Liabilities and shareholders' equity
Current liabilities:
Accounts payable........................................................payable .................................................. $ 9,2109,985 $ 6,898
Income taxes payable.................................................... 1,129 --
Accrued expenses and other current liabilities.......................... 3,708liabilities .................... 4,099 3,174
------- -------
Total current liabilities.................................................. 14,047liabilities ............................................ 14,084 10,072
Accrued rent and other liabilities......................................... 1,704liabilities ................................... 1,835 1,593
------- -------
Total liabilities.......................................................... 15,751liabilities .................................................... 15,919 11,665
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Shareholders' equity:
Preferred shares; $.0001 par, 10,000,000 authorized, none issued........issued .. -- --
Common shares; $.0001 par, 50,000,000 shares authorized, 17,335,03617,505,966
and 17,080,372 issued at April 30,July 31, 1996 and January 31, 1996,
respectively.........................................................respectively ................................................... 1 1
Additional paid-in capital.............................................. 18,506capital ........................................ 20,100 17,417
Retained earnings....................................................... 44,961earnings ................................................. 47,810 42,034
------- -------
Total shareholders' equity................................................. 63,468equity ........................................... 67,911 59,452
------- -------
$79,219$83,830 $71,117
======= =======
See accompanying notes
2
URBAN OUTFITTERS, INC.
Consolidated Statements of Income
(In(in thousands, except share and per share data)
(Unaudited)
THREE MONTHS ENDED APRIL 30,
----------------------------
1996 1995
---- ----
Net Sales ...................................... $ 33,635 $ 27,919
Cost of Sales .................................. 16,570 13,812
------------ ------------
Gross profit ......................... 17,065 14,107
Selling, general and administrative expenses ... 12,344 10,499
------------ ------------
Income from operations ............... 4,721 3,608
Interest (income), net ......................... (361) (288)
Other expense (income), net .................... 57 (12)
------------ ------------
Income before income taxes ........... 5,025 3,908
Income tax expense ............................. 2,098 1,641
------------ ------------
Net income ........................... $ 2,927 $ 2,267
============ ============
Net income per common share .................... $ .17 $ .13
============ ============
Weighted average common shares outstanding ..... 17,686,800 17,589,480
============ ============(UNAUDITED)
Three Months Ended July 31 Six Months Ended July 31
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net Sales $ 35,898 $ 29,881 $ 69,532 $ 57,801
Cost of Sales 17,496 14,797 34,066 28,610
----------- ----------- ----------- -----------
Gross profit 18,402 15,084 35,466 29,191
Selling, general and administrative expenses 13,743 11,383 26,086 21,883
----------- ----------- ----------- -----------
Income from operations 4,659 3,701 9,380 7,308
Interest (income), net (355) (309) (725) (597)
Other expenses (income), net 123 38 189 25
----------- ----------- ----------- -----------
Income before income taxes 4,891 3,972 9,916 7,880
Income tax expense 2,042 1,668 4,140 3,310
----------- ----------- ----------- -----------
Net income 2,849 2,304 5,776 4,570
=========== =========== =========== ===========
Net income per common share $ .16 $ .13 $ .33 $ .26
=========== =========== =========== ===========
Weighted average common shares outstanding 17,831,946 17,620,656 17,759,373 17,605,068
=========== =========== =========== ===========
See accompanying notes
3
URBAN OUTFITTERS, INC.
Consolidated Statements of Cash Flows
(In thousands, Unaudited)(in thousands)
THREESIX MONTHS ENDED APRIL 30,
----------------------------JULY 31
------------------------
(UNAUDITED) (UNAUDITED)
1996 1995
---- ------------ --------
Cash flows from operating activities:
Net income..............................................................Income $ 2,9275,776 $ 2,2674,570
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 821 672amortization 1,682 1,387
Provision for losses on accounts receivable.......................... 61 12
Deferred income recognized........................................... (15) (15)receivable 119 73
Changes in assets and liabilities:
Increase in receivables........................................... (1,819) (2,377)receivables (2,489) (2,667)
Increase in inventory............................................. (1,542) (1,253)
Increaseinventory (5,819) (3,350)
(Increase)/decrease in prepaid expenses and other assets..................... (317) (256)assets (742) 50
Increase in payables, accrued expenses and other liabilities...... 4,101 718liabilities 4,254 389
-------- ---------------
Net cash (used) provided by operating activities........................ 4,217 (232)activities 2,781 452
-------- ---------------
Cash flows from investing activities:
Capital expenditures.................................................... (2,259) (1,711)expenditures (4,319) (3,177)
Purchase of investments held-to-maturity................................ (6,245) (798)held-to-maturity (14,096) (1,592)
Purchase of investments available-for-sale.............................. (850) -0-available-for-sale (1,750) 0
Maturities of investments held-to-maturity.............................. 2,485 100
Salesheld-to-maturity 6,499 3,706
Sale of investments available-for-sale................................. 2,250 -0-available-for-sale 3,861 0
-------- ---------------
Net cash used in investing activities................................... (4,619) (2,409)activities (9,805) (1,063)
-------- ---------------
Cash flows from financing activities:
IssuanceExercise of stock options 684 153
Purchase of common shares............................................... 1,090 75shares 0 (73)
-------- ---------------
Net cash provided byused in financing activities............................... 1,090 75activities 684 80
-------- -------
Increase (decrease)--------
Decrease in cash and cash equivalents........................... 688 (2,566)equivalents (6,340) (531)
Cash and cash equivalents at beginning of period...........................period 20,095 9,109
-------- ---------------
Cash and cash equivalents at end of period................................. $20,783period $ 6,54313,755 $ 8,578
======== ===============
See accompanying notes
4
URBAN OUTFITTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 1996, filed with the Securities and
Exchange Commission on April 23, 1996.
2. Marketable Securities
Marketable securities are classified as follows:
April 30,July 31, 1996 January 31, 1996
--------------------------- ----------------
Current portion
Held-to-maturity .................... $12,119Held-to-maturity.................... $ 7,999 $ 6,588
Available-for-sale .................. 1,511Available-for-sale.................. 800 2,911
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13,6308,799 9,499
------- -------
Noncurrent portion
Held-to-maturity .................... 4,476Held-to-maturity.................... 12,433 6,247
------- -------
Total marketable securities ............ $18,106........ $21,232 $15,746
======= =======
3. Stock Split
On May 21, 1996, the Board of Directors of Urban Outfitters, Inc. declared a two
for one stock split in the form of a stock dividend for shareholders of record
on June 1, 1996. That stock split is retroactively reflected inAll applicable shares and per share data have been adjusted for
the financial
statements for all periods presented.
5
split.
4. Additional Information
During the quarter, the Company opened a new Anthropologie store in Greenvale,
NYNew York
City and, subsequent to the quarter, has opened another Anthropologie store in New York City.Santa
Monica, CA.
5
PART I
FINANCIAL INFORMATION (continued)
ITEM 2 Management's Discussion and Analysis of Financial Condition
and
- ------ and Results of Operations
GENERAL
SalesTotal Company sales growth in the second quarter and the first six months of
this fiscal year was 20 percent for both periods. This compares to the same
prior year periods of 23 percent and 22 percent, respectively. While relatively
the same growth rates, the source of the growth varies considerably. In the
prior year, sales growth was almost entirely from new stores opened in Urban
Retail with little contribution from comparable store sales and no contribution
from Wholesale. Conversely, sales growth in the second quarter and the first six
months of this year was from comparable store sales growth of 9.0 percent and
10.4 percent, respectively, from new store openings in Anthropologie and
comparative Wholesale sales growth of 15.9 percent and 11.6 percent for the
second quarter and six months.
The type of sales growth in the current year for the second quarter and the six
months contributed more to earnings than the type of sales growth in the same
periods last yearyear. High increases in comparable store sales and in Wholesale led
to higher inventory turns, lower markdowns, and higher gross profit margins.
Growth in comparable store sales and in Wholesale are subjected to much lower
variable expenses, and therefore, preserve more gross profit to operating profit
and net increase. In contrast, last year's sales growth was primarily from new
store
openingsstores which did not create higher turns and, indeed, burdened gross profit with
no contribution from stores opened more than one year or from the
Wholesale Company. Conversely, the first quartera full range of this year experienced sales
growth in all three areas, led by comparablenew store sales increases of 12.2%. The
earnings benefit from improved comparative store sales and the Wholesale Company
included higher inventory turnover and higher margins, as well as, more sales
leveraging on operating expenses. Notwithstanding these favorable
trends, the second quarter saw a slight increase in operating expenses as a
percentage of sales due to Anthropologie's current higher expense to sales ratio
and its accelerated growth. This .18 percent growth represents a $37,646.00
reduction in net income. These benefitstrends are reflected in the percentpercentage to sales
figures shown below.
The comparative store sales increases in the first
quarter of thisLast year, are primarily a result of the recovery of average selling
prices to the level of the first quarter two years ago and slightly beyond.
Average selling prices in the first, second and third quarters of last year were
below the FY'95 levels. Unit sales were near flat to last year.
Looking ahead, comparable store sales growth in the second quarter of FY'96 were only
slightly ahead of the prior year, while comparative store sales were up 5% and
3% during the third and fourth quarters were 5
percent and 3 percent, respectively. The second quarter could
offerLooking ahead, selling against these higher
levels combined with delayed openings of new Urban Retail stores will put some
opportunity forpressure on earnings growth in comparable store sales, while the third and fourth quarters become somewhat more difficult. Atquarter. Helping to offset
those pressures are Wholesale bookings that, at this point in time, it
appears that planned store openings will take place although somewhat delayed
for Urban Retail stores.date, are running ahead of
last year and plan.
Store openings and the timing of those openings will continue to be a risk due
to the nature of the stores, and management's very deliberate style in selecting store
locations and in completing lease negotiations.
6
RESULTS OF OPERATIONS
The Company's operating years end on January 31, and include 12 periods ending
on the last day of the month. For example, FY'97fiscal year 1996 will end on January
31, 1997.1996. This discussion of results of operations covers the second quarter and
the first quartersix months of FY'97FY97 and FY'96.FY96.
The following table sets forth, for the periods indicated, the percentage of the
Company's net sales represented by certain income statement data. The following
discussion should be read in conjunction with the table which follows:
THREE MONTHS ENDED
-------------------------------
April 30, 1996 April 30, 1995
-------------- --------------
Net Sales 100.0% 100.0%
Cost of goods sold 49.3% 49.5%
Gross profit 50.7% 50.5%
Selling, general and
administrative expenses 36.7% 37.6%
----- ------
Income from operations 14.0% 12.9%
Net interest & other (income) ( .9%) ( 1.1%)
----- ------
Income before income taxes 14.9% 14.0%
Income tax expense 6.2% 5.9%
----- ------
Net income 8.7% 8.1%follows.
SECOND QUARTER ENDED SIX MONTHS ENDED
JULY 31 JULY 31
1996 1995 1996 1995
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 48.7% 49.5% 49.0% 49.5%
Gross profit 51.3% 50.5% 51.0% 50.5%
Selling, general and
administrative expenses 38.3% 38.1% 37.5% 37.9%
----- ----- ----- -----
Income from operations 13.0% 12.4% 13.5% 12.6%
Net interest & other income .6% .9% .8% 1.0%
----- ----- ----- -----
Income before income taxes 13.6% 13.3% 14.3% 13.6%
Income tax expense 5.7% 5.6% 6.0% 5.7%
----- ----- ----- -----
Net income 7.9% 7.7% 8.3% 7.9%
===== ===== ===== =====
======
FIRST
SECOND QUARTER ENDED APRIL 30,JULY 31, 1996 COMPARED
TO THE FIRSTSECOND QUARTER ENDED APRIL 30,JULY 31, 1995
Net sales increased during the firstsecond quarter ended April 30,July 31, 1996 to $33.6$35.9
million, up 20.5%20.1 percent from $27.9$29.9 million during the same period of the prior
year. The sales increases were from$6.0 million increase over the prior year's second quarter was split
among comparable store sales increases of $2.5$2.2 million, sales from stores opened
less than 13 months and new and
enlarged store salesstores of $2.6$3.0 million, and $600,000 from the Wholesale Company.
The comparable store sales growth
was a result of $.8 million. The increases in thepart relate to increases in average selling
prices over the first quarterat retail and very good consumer acceptance of the prior year. The increases brought
the average selling prices back in line with earlier years. New store sales
increases were from four Urban stores openedproducts offered at
various times last yearRetail and one
Anthropologie store openedat Wholesale.
Gross profit during the first quarter of this year. Wholesale grew
at 8.4% when compared to last year's first quarter.
The gross profit margin during the firstsecond quarter ended April 30,July 31, 1996 was $17.1$18.4 million, up
$3.0$3.3 million or 21.0%22.0 percent from the prior year quarter of $14.1 million.quarter. The dollar increase
resulted from the volumes previously described above and from an
improved Retail gross profit
margin percentage of 50.7% up from 50.5% duringpercentages due to initial markup increases and lower markdowns.
Wholesale gross profit margins were down in the second quarter when compared to
the same quarter ofin the prior year. The improved percentage resulted fromreason for the decline was higher initial
mark-ups andgrowth
of a lower mark-downs duringgross profit margin product line compared to the quarter from both retail companies,
offset by a higher mixgrowth of lower margin sales in the Wholesale Company.other
product lines.
7
Selling, general and administrative expenses during the firstsecond quarter ended
April 30,July 31, 1996 were $12.3$13.7 million, up $1.8$2.4 million or 17.6%20.7 percent from the prior
year quarter. These dollar increases were attributed to new stores opened,
enlarged stores, and investments in people and systems necessary to manage the
planned sales growth, particularly in Anthropologie. Stated as a percentage of
$10.5sales, selling, general and administrative expenses increased to 38.3 percent
from 38.1 percent in the prior year. As previously mentioned, the increase
represents an after tax effect of $37 thousand and is due to the growth of
Anthropologie.
Income from operations during the second quarter ended July 31, 1996 was $4.7
million, up $1 million or 25.9 percent from the prior year's second quarter.
The effective income tax rate for the quarter of 42 percent remains unchanged
from last year.
Net income during the second quarter ended July 31, 1996 was $2.8 million, up
$545,000 or 23.7 percent from the prior year.
SIX MONTHS ENDED JULY 31, 1996
COMPARED TO THE SIX MONTHS ENDED JULY 31, 1995
Net sales increased during the six months ended July 31, 1996 to $69.5 million,
up 20.3 percent from $57.8 million during the same period last year. The $11.7
million increase over the prior year's first six months was split among
comparable store sales increase of $4.6 million, sales from stores opened less
than 13 months and new stores of $5.7, and Wholesale sales growth of $1.4
million. The increases relate to increases in average selling prices at retail
and very good consumer acceptance of the products offered at Retail and at
Wholesale.
Gross profit during the six months ended July 31, 1996 was $35.5 million, up
$6.3 million from the same prior year period, a 21.5 percent increase. The
dollar increases were almost entirelycome from the volume increases previously described and
improved Retail gross profit margin percentages due to newinitial markup increases
and lower markdowns. Wholesale gross profit margins were down in the six months
when compared to the same six months in the prior year. The reason for the
decline was higher growth of a lower gross profit margin product line compared
to the growth of other product lines.
Selling, general and administrative expenses during the six months ended July
31, 1996 were $26.1 million, up $4.2 million or 19.2 percent from the same
period in the prior year. These dollar increases were attributed to newly opened
and enlarged stores opened.and investments in people and systems necessary to manage
the sales growth in comparable stores, particularly in Anthropologie. Stated as
a percentage of sales, selling, general and administrative expenses decreased to
36.7%37.5 percent from 37.6%37.9 percent during the six months compared to the same period
in the priorpreceding year. ExpenseThe percent to sales improvement results from leveraging
on relatively high growth in comparable storestores sales, provided for the reduced
percentage.new stores, and Wholesale sales growth.
8
Income from operations during the first quartersix months ended April 30,July 31, 1996 was $4.7$9.4
million, up $1.1$2.1 million or 30.8%28.3 percent from the same period in the prior year first quarter of $3.6
million. The Wholesale Company contributed about one third of those earnings.year.
The effective income tax rate for the quartersix months of 42%42 percent remains unchanged
from last year.
Net income during the first quartersix months ended April 30,July 31, 1996 was $2.9$5.8 million, up $660,000$1.2
million or 29.1%26.4 percent from the same period in the prior year of $2.3 million. Increased sales volumes,
higher gross profit margins and expense leveraging contributed to the net income
growth.year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increaseddecreased $6.3 million to $20.8$13.8 million at April 30,July 31,
1996 from $20.1 million at January 31, 1996. The $688,000This decrease was primarily a
result of a $4.3 million increase in leasehold improvements, other capital
assets and the new Distribution Center. Additionally, cash of $5.5 million was
used to purchase marketable securities. Offsetting these uses of cash was $.7
million received from the exercise of stock options and cash equivalents comes from cash from operationsoperating
activities of $3.8 million, proceeds from the
issuance of common shares of $1.1 million, net growth in short-term payables of
$3.8 million, offset by the seasonal growth of inventory and accounts receivable
of $(3.3) million, capital expenditures of $(2.3) million and the net purchase
of investments of $(2.4)$2.8 million.
The Company's net working capital increaseddecreased from $36.5 million at January 31,
1996 to $40.8$36.0 million at April 30,July 31, 1996. The $4.3$.5 million increasedecrease in net working
capital was funded byduring the cash from net income, adjusted up for non-cash
charges and the proceedssix month period ended July 31, 1996 results primarily from
the issuanceuse of common shares.cash and short term marketable securities to purchase long term
marketable securities and property and equipment.
The Company maintains a line of credit of $10.0 million which is available for
any combination of cash borrowing or letters of credit. The line is unsecured
and any cash borrowing under the line would accrue interest at the LIBOR rate
plus 1/2 of one percent. The Company uses international letters of credit to
purchase private label merchandise and merchandise for the Wholesale Company.
Outstanding balances of letters of credit at January 31, 1996 and at July 31,
1996 were $5.3 million and $4.3 million, respectively. The Company has a $10.0 million revolvingnever
borrowed against the available cash line of credit availablecredit. The last long-term borrowing
was paid down to facilitate
letterzero during the second quarter of credit transactions and cash advances. Interest on any outstanding
balance is payable monthly based on the London Interbank Offered Rate (LIBOR)
plus 1/2%. No cash borrowing has ever taken place on this line and, accordingly,fiscal 1994. There were no
principal amounts were outstandingloan balances at January 31, 1996 or April 30, 1996.
Outstanding letters of credit totaled $5.3 million and $4.1 million at JanuaryJuly 31, 1996, and April 30, 1996, respectively. These letters of credit, which have
terms from one month to one year, collateralize the Company's obligation to
third parties for the purchase of inventory. The fair value of these letters of
credit is estimated to be the same as the contract values. There were no loan
balances of any kind at January 31, 1996 or April 30, 1996.
The Company expects that capital expenditures during FY'97FY97 will be approximately
$13$10 million depending upon the number of stores opened and stores enlarged or
improved during the yearyear. In future years, the Company expects to invest an
amount equal to or greater than that figure, again depending on new and the timing of the new distribution center construction.existing
store plans. The companyCompany believes that existing cash, and investmentsmarketable securities at
April 30,July 31, 1996, as well
asand cash from future operations will be sufficient to meet the
Company's cash needs throughfor at least FY'97, FY'98 and FY'99.
8the next three years.
9
PART II
OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K
- ------
(a) Exhibits: Exhibit 11 - Income Per Share Calculation
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K: During the quarter ended April
30, 1996, Urban Outfitters filed one current report
on Form 8-K. That current report was filed on April
11, 1996 in connection with the safe harbor
provisions of the Private Securities Litigation
Reform Act of 1995.
9None
10
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrantRegistrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
URBAN OUTFITTERS, INC.
(Registrant)
By: /s/ RICHARDRichard A. HAYNE
------------------------Hayne
---------------------------------
Richard A. Hayne
Chairman of the Board of
Directors
By: /s/ KENNETHKenneth K. CLEELAND
---------------------------Cleeland
---------------------------------
Kenneth K. Cleeland
Treasurer
(Principal(Chief Financial Officer)
Dated: June 14,September 13, 1996
10
11