SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------------------
FORM 10-Q
(mark one)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Quarter Ended June 28, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
Commission File Number 1-12745
THERMEDICS DETECTION INC.
(Exact name of Registrant as specified in its charter)
Massachusetts 04-3106698
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Mill Road
Chelmsford, Massachusetts 01824-4178
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 622-1000
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 [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of Common Stock, as of the latest practicable
date.
Class Outstanding at July 25, 1997
---------------------------- ----------------------------
Common Stock, $.10 par value 13,354,792
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
THERMEDICS DETECTION INC.
Consolidated Balance Sheet
(Unaudited)
Assets
June 28, December 28,
(In thousands) 1997 1996
------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 45,714 $ 13,484
Accounts receivable, less allowances
of $1,171 and $1,215 8,164 9,387
Inventories:
Raw materials 6,858 6,135
Work in process and finished goods 4,268 2,965
Prepaid and refundable income taxes 2,189 2,173
Prepaid expenses 712 547
-------- --------
67,905 34,691
-------- --------
Property, Plant, and Equipment, at Cost 5,994 5,683
Less: Accumulated depreciation and
amortization 4,374 3,899
-------- --------
1,620 1,784
-------- --------
Cost in Excess of Net Assets of Acquired
Companies 15,813 16,694
-------- --------
Other Assets 301 314
-------- --------
$ 85,639 $ 53,483
======== ========
2PAGE
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THERMEDICS DETECTION INC.
Consolidated Balance Sheet (continued)
(Unaudited)
Liabilities and Shareholders' Investment
June 28, December 28,
(In thousands except share amounts) 1997 1996
-----------------------------------------------------------------------
Current Liabilities:
Promissory note to parent company $ 21,200 $ -
Accounts payable 3,033 3,030
Accrued payroll and employee benefits 1,230 1,375
Accrued installation and warranty expenses 1,020 1,413
Deferred revenue 1,648 1,281
Customer deposits 1,440 637
Accrued income taxes 1,671 334
Other accrued expenses 2,880 3,102
Due to parent company and Thermo Electron
Corporation 900 161
-------- --------
35,022 11,333
-------- --------
Deferred Income Taxes 40 40
-------- --------
Promissory Note to Parent Company - 21,200
-------- --------
Shareholders' Investment (Note 2):
Common stock, $.10 par value, 50,000,000
shares authorized; 13,354,792 and
10,683,500 shares issued and outstanding 1,335 1,068
Capital in excess of par value 40,984 13,130
Retained earnings 9,575 7,136
Cumulative translation adjustment (1,317) (424)
-------- --------
50,577 20,910
-------- --------
$ 85,639 $ 53,483
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
3PAGE
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THERMEDICS DETECTION INC.
Consolidated Statement of Operations
(Unaudited)
Three Months Ended
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues:
Product $ 8,766 $ 6,724
Service 3,631 3,380
------- -------
12,397 10,104
------- -------
Costs and Operating Expenses:
Cost of product revenues 3,907 4,193
Cost of service revenues 1,970 1,883
Selling, general, and administrative
expenses 3,123 4,777
Research and development expenses 1,374 1,203
------- -------
10,374 12,056
------- -------
Operating Income (Loss) 2,023 (1,952)
Interest Income 656 56
Interest Expense, Related Party (317) (252)
Other Income (Expense), Net (3) 125
------- -------
Income (Loss) Before Income Taxes 2,359 (2,023)
Income Tax (Provision) Benefit (944) 779
------- -------
Net Income (Loss) $ 1,415 $(1,244)
======= =======
Earnings (Loss) per Share $ .11 $ (.12)
======= =======
Weighted Average Shares 13,355 10,342
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
4PAGE
<PAGE>
THERMEDICS DETECTION INC.
Consolidated Statement of Operations
(Unaudited)
Six Months Ended
-----------------------
June 28, June 29,
(In thousands except per share amounts) 1997 1996
-----------------------------------------------------------------------
Revenues:
Product $17,839 $13,281
Service 6,987 6,168
------- -------
24,826 19,449
------- -------
Costs and Operating Expenses:
Cost of product revenues 8,521 7,746
Cost of service revenues 3,452 3,512
Selling, general, and administrative
expenses 6,572 8,335
Research and development expenses 2,445 2,379
------- -------
20,990 21,972
------- -------
Operating Income (Loss) 3,836 (2,523)
Interest Income 859 56
Interest Expense, Related Party (623) (473)
Other Income (Expense), Net (7) 80
------- -------
Income (Loss) Before Income Taxes 4,065 (2,860)
Income Tax (Provision) Benefit (1,626) 1,092
------- -------
Net Income (Loss) $ 2,439 $(1,768)
======= =======
Earnings (Loss) per Share $ .20 $ (.17)
======= =======
Weighted Average Shares 12,165 10,220
======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
5PAGE
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THERMEDICS DETECTION INC.
Consolidated Statement of Cash Flows
(Unaudited)
Six Months Ended
-----------------------
June 28, June 29,
(In thousands) 1997 1996
------------------------------------------------------------------------
Operating Activities:
Net income (loss) $ 2,439 $ (1,768)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 746 1,647
Provision for losses on accounts
receivable 43 121
Other noncash expenses 162 1,308
Changes in current accounts, excluding
the effects of acquisitions:
Accounts receivable 945 (95)
Inventories (2,263) 982
Other current assets (235) (1,039)
Accounts payable 38 24
Other current liabilities 2,554 2,820
-------- --------
Net cash provided by operating activities 4,429 4,000
-------- --------
Investing Activities:
Acquisitions, net of cash acquired - (21,668)
Purchases of property, plant, and equipment (396) (317)
Other 80 38
-------- --------
Net cash used in investing activities (316) (21,947)
-------- --------
Financing Activities:
Net proceeds from issuance of Company
common stock (Note 2) 28,121 3,000
Proceeds from issuance of promissory note to
parent company - 21,200
Transfers to parent company and additional
capital contributions, net - 120
Other (35) (30)
-------- --------
Net cash provided by financing activities 28,086 24,290
-------- --------
Exchange Rate Effect on Cash 31 (163)
-------- --------
Increase in Cash and Cash Equivalents 32,230 6,180
Cash and Cash Equivalents at Beginning of
Period 13,484 1,282
-------- --------
Cash and Cash Equivalents at End of Period $ 45,714 $ 7,462
======== ========
Noncash Activities:
Fair value of assets of acquired companies $ - $ 24,328
Cash paid for acquired companies - (21,668)
-------- --------
Liabilities assumed of acquired companies $ - $ 2,660
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
6PAGE
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THERMEDICS DETECTION INC.
Notes to Consolidated Financial Statements
1. General
The interim consolidated financial statements presented have been
prepared by Thermedics Detection Inc. (the Company) without audit and, in
the opinion of management, reflect all adjustments of a normal recurring
nature necessary for a fair statement of the financial position at June
28, 1997, the results of operations for the three- and six-month periods
ended June 28, 1997, and June 29, 1996, and the cash flows for the
six-month periods ended June 28, 1997, and June 29, 1996. Interim results
are not necessarily indicative of results for a full year.
The consolidated balance sheet presented as of December 28, 1996, has
been derived from the consolidated financial statements that have been
audited by the Company's independent public accountants. The consolidated
financial statements and notes are presented as permitted by Form 10-Q
and do not contain certain information included in the annual
consolidated financial statements and notes of the Company. The
consolidated financial statements and notes included herein should be
read in conjunction with the consolidated financial statements and notes
included in the Company's Registration Statement on Form S-1 (File No.
333-19199), filed with the Securities and Exchange Commission.
2. Initial Public Offering
In March 1997, the Company sold 2,671,292 shares of common stock in
an initial public offering at $11.50 per share for net proceeds of $28.1
million. Following the offering, Thermedics Inc. (Thermedics) owned
approximately 75% of the Company's outstanding common stock.
3. Presentation
Certain amounts in 1996 have been reclassified to conform to the 1997
financial statement presentation.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, are made throughout this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," "seeks," "estimates," and similar expressions are
intended to identify forward-looking statements. There are a number of
important factors that could cause the results of the Company to differ
materially from those indicated by such forward-looking statements,
including those detailed under the caption "Risk Factors" included in the
Company's Registration Statement on Form S-1 (File No. 333-19199).
7PAGE
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THERMEDICS DETECTION INC.
Overview
The Company develops, manufactures, and markets high-speed detection
and measurement systems used in on-line industrial process applications,
explosives detection, and laboratory analysis. The Company's industrial
process systems use ultratrace chemical detectors, high-speed gas
chromatography, X-ray imaging, near-infrared spectroscopy, and other
technologies for quality assurance of in-process and finished products,
primarily in the food, beverage, pharmaceutical, forest products,
chemical, and other consumer products industries. The Company's
explosives-detection equipment uses simultaneous trace particle- and
vapor-detection techniques based on its proprietary chemiluminescence and
high-speed gas chromatography technologies. Customers use the Company's
explosives-detection equipment to detect plastic and other explosives at
airports and border crossings, for other high-security screening
applications, and for forensics and search applications.
Historically, the Company's principal product lines were process
detection systems, including Alexus(R) systems used to assure the quality
of refillable plastic containers, and EGIS(R) explosives detectors. The
Company expanded its product lines to include moisture analysis equipment
through its acquisition of Moisture Systems Corporation and Rutter & Co.
B.V. (collectively, Moisture Systems) in January 1996, and also
introduced its InScan(TM) high-speed X-ray imaging systems (InScan
systems) and Flash-GC(TM) gas chromatography systems (Flash-GC systems)
in 1996. The Company has also recently introduced Rampart(TM), the latest
portable trace-detection system that incorporates the advanced Flash-GC
technology in tandem with a highly sensitive chemiluminescence detector.
The Company also performs contract research and development services for
government and industry customers and earns service revenues through
long-term contracts.
A substantial portion of the Company's sales are derived from sales
of products outside the United States, through export sales and sales by
the Company's foreign subsidiaries. Although the Company seeks to charge
its customers in the same currency as its operating costs, the Company's
financial performance and competitive position can be affected by
currency exchange rate fluctuations. The Company expects an increase in
the percentage of its revenues derived from international operations.
Results of Operations
Second Quarter 1997 Compared With Second Quarter 1996
Revenues in the second quarter of 1997 increased 23% to $12.4 million
from $10.1 million in the second quarter of 1996. Product revenues
increased 30% to $8.8 million in 1997 from $6.7 million in 1996, while
service revenues increased 7% to $3.6 million in 1997 from $3.4 million
in 1996. Revenues from the Company's process detection instruments and
related services increased to $4.9 million in 1997 from $3.7 million in
1996, primarily due to Alexus revenues of $1.9 million from the continued
fulfillment of a mandated product-line upgrade from The Coca-Cola Company
to its existing installed base and, to a lesser extent, increased
shipments of the Company's InScan systems, which were introduced in 1996.
8PAGE
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THERMEDICS DETECTION INC.
Second Quarter 1997 Compared With Second Quarter 1996 (continued)
Revenues from the mandated product-line upgrade are expected to continue
through the third quarter of 1997. These increases were offset in part by
a decrease in international plant expansions and, in turn, demand for the
Alexus line of products from customers other than The Coca-Cola Company.
Revenues from the Company's EGIS explosives-detection systems and related
services increased to $3.1 million in 1997 from $1.5 million in 1996,
primarily due to continued international shipments of the EGIS systems to
provide security measures overseas. In May 1997, the Company was awarded
a $5.8 million contract for its EGIS systems from the Federal Aviation
Administration. No revenues were recognized under this contract during
the second quarter of 1997. Revenues from the Company's Moisture Systems
subsidiary decreased to $3.6 million in 1997 from $4.4 million in 1996,
primarily due to a slowdown in product demand in Europe.
The gross profit margin increased to 53% in the second quarter of
1997 from 40% in the second quarter of 1996. The gross profit margin on
product revenues increased to 55% in 1997 from 38% in 1996, primarily due
to a charge of $0.8 million in the second quarter of 1996 as a result of
obsolescence created by planned product changes and, to a lesser extent,
a change in product mix to higher-margin revenues from Moisture Systems.
The gross profit margin on service revenues increased to 46% in 1997 from
44% in 1996, primarily due to increased field service efficiencies.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 25% in the second quarter of 1997 from 45% in the
second quarter of 1996. The decline was primarily due to nonrecurring
costs of $0.4 million in the 1996 period related to a reduction in
personnel and a reduction in leased space in response to lower sales
volume of process detection instruments and, to a lesser extent, an
increase in revenues in 1997. This decrease was offset in part by
increased selling expense as the Company develops a sales force for its
InScan and Flash-GC systems. Research and development expenses remained
unchanged at $1.4 million in the second quarter of 1997 and 1996,
respectively.
Interest income increased to $0.7 million in the second quarter of
1997 from $0.1 million in the second quarter of 1996, primarily due to
interest income earned on invested proceeds from the Company's March 1997
initial public offering (Note 2).
Interest expense, related party, of $0.3 million in the second
quarter of 1997 and 1996 reflects the issuance of a $21.2 million
promissory note to Thermedics Inc. (Thermedics) in connection with the
January 1996 acquisition of Moisture Systems. This note is due March
1998, and bears interest at the 90-day Commercial Paper Composite Rate
plus 25 basis points, set at the beginning of each quarter.
The effective tax rates were 40% and 39% in the second quarter of
1997 and 1996, respectively. The effective tax rates in both periods
exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes. The effective tax rate increased in 1997
due to a change in the mix of income within foreign jurisdictions.
9PAGE
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THERMEDICS DETECTION INC.
First Six Months 1997 Compared With First Six Months 1996
Revenues in the first six months of 1997 increased 28% to $24.8
million from $19.4 million in the first six months of 1996. Product
revenues increased 34% to $17.8 million in 1997 from $13.3 million in
1996, while service revenues increased 13% to $7.0 million in 1997 from
$6.2 million in 1996. Revenues from the Company's process detection
instruments and related services increased to $11.5 million in 1997 from
$6.7 million in 1996, primarily due to $4.1 million from the continued
fulfillment of a mandated product-line upgrade from The Coca-Cola Company
to its existing installed base and, to a lesser extent, increased
shipments of the Company's InScan systems, which were introduced in 1996.
Revenues from the Company's EGIS explosives-detection systems and related
services remained relatively unchanged at $4.2 million in 1997 and $4.4
million in 1996. Revenues from the Company's Moisture Systems subsidiary,
acquired in January 1996, increased to $7.7 million in 1997 from $7.3
million in 1996, primarily due to the inclusion of revenues for the full
six months in 1997, offset in part by lower revenues in 1997 due to a
slowdown in product demand in Europe.
The gross profit margin increased to 52% in the first six months of
1997 from 42% in the first six months of 1996. The gross profit margin on
product revenues increased to 52% in 1997 from 42% in 1996, primarily due
to the inclusion of an $0.8 million charge in the second quarter of 1996
as a result of obsolescence created by planned product changes, as well
as the inclusion of higher-margin revenues from Moisture Systems for the
full six months of 1997. The gross profit margin on service revenues
increased to 51% in 1997 from 43% in 1996, primarily due to increased
field service efficiencies and, to a lesser extent, the inclusion of
higher-margin service revenues from Moisture Systems for the full six
months of 1997.
Selling, general, and administrative expenses as a percentage of
revenues decreased to 26% in the first six months of 1997 from 43% in the
first six months of 1996. The decline was primarily due to nonrecurring
costs in the 1996 period related to a reduction in personnel, a reduction
in leased space, and other adjustments in response to lower sales volume
of process detection instruments and, to a lesser extent, an increase in
revenues in 1997. This decrease was offset in part by increased selling
expenses as the Company develops a sales force for its InScan and
Flash-GC systems. Research and development expenses remained relatively
unchanged at $2.4 million in the first six months of 1997 and 1996,
respectively.
Interest income increased to $0.9 million in the first six months of
1997 from $0.1 million in the first six months of 1996, primarily due to
the reason discussed in the results of operations for the second quarter.
Interest expense, related party, of $0.6 million and $0.5 million in
the first six months of 1997 and 1996, respectively, remained relatively
unchanged. The related debt was discussed in the results of operations
for the second quarter.
10PAGE
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THERMEDICS DETECTION INC.
First Six Months 1997 Compared With First Six Months 1996 (continued)
The effective tax rates were 40% and 38% in the first six months of
1997 and 1996, respectively. The effective tax rates in both periods
exceeded the statutory federal income tax rate primarily due to the
impact of state income taxes. The effective tax rate increased in 1997
due to a change in the mix of income within foreign tax jurisdictions.
Liquidity and Capital Resources
Consolidated working capital was $32.9 million at June 28, 1997,
compared with $23.4 million at December 28, 1996. Cash and cash
equivalents were $45.7 million at June 28, 1997, compared with $13.5
million at December 28, 1996.
During the first six months of 1997, $4.4 million of cash was
provided by operating activities. During this period, cash of $2.3
million was used to fund an increase in inventories resulting from an
order received from the FAA. This use of cash was more than offset by
cash of $2.6 million provided by an increase in other current
liabilities, including $0.8 million of customer deposits, primarily
relating to the mandated product-line upgrade from The Coca-Cola Company.
During the first six months of 1997, the Company expended $0.4
million on purchases of property, plant, and equipment. During the
remainder of 1997, the Company expects to make capital expenditures of
approximately $0.1 million.
In March 1997, the Company sold 2,671,292 shares of its common stock
in an initial public offering at $11.50 per share for net proceeds of
$28.1 million (Note 2).
Although the Company expects to have positive cash flow from its
existing operations, the Company anticipates it will require significant
amounts of cash for the possible acquisition of complementary businesses
and technologies. While the Company currently has no agreement to make an
acquisition, it expects that it would finance any acquisitions through a
combination of internal funds, additional debt or equity financing,
and/or short-term borrowings from Thermedics or Thermo Electron
Corporation, although it has no agreement with these companies to ensure
that funds will be available on acceptable terms or at all. The Company
believes that its existing resources are sufficient to meet the capital
requirements of its existing businesses for the foreseeable future.
PART II - OTHER INFORMATION
Item 6 - Exhibits
See Exhibit Index on the page immediately preceding exhibits.
11PAGE
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THERMEDICS DETECTION INC.
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 as of the 5th day of August
1997.
THERMEDICS DETECTION INC.
Paul F. Kelleher
---------------------
Paul F. Kelleher
Chief Accounting Officer
John N. Hatsopoulos
---------------------
John N. Hatsopoulos
Vice President and Chief
Financial Officer
12PAGE
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THERMEDICS DETECTION INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------------------------------------------------------------------------
11 Statement re: Computation of Earnings (Loss) per Share.
27 Financial Data Schedule.
Exhibit 11
THERMEDICS DETECTION INC.
Computation of Earnings (Loss) per Share
Three Months Ended
--------------------------
June 28, June 29,
1997 1996
-----------------------------------------------------------------------
Computation of Primary Earnings (Loss)
per Share:
Net Income (Loss) (a) $ 1,415,000 $(1,244,000)
----------- -----------
Shares:
Weighted average shares outstanding 13,354,792 10,300,000
Add: Shares issuable from assumed exercise
of options (as determined by the
application of the treasury stock
method) - 42,026
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 13,354,792 10,342,026
----------- -----------
Primary Earnings (Loss) per Share (a) / (b) $ .11 $ (.12)
=========== ===========
PAGE
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Exhibit 11
THERMEDICS DETECTION INC.
Computation of Earnings (Loss) per Share
Six Months Ended
--------------------------
June 28, June 29,
1997 1996
-----------------------------------------------------------------------
Computation of Primary Earnings (Loss)
per Share:
Net Income (Loss) (a) $ 2,439,000 $(1,768,000)
----------- -----------
Shares:
Weighted average shares outstanding 12,165,359 10,166,484
Add: Shares issuable from assumed exercise
of options (as determined by the
application of the treasury stock
method) - 53,957
----------- -----------
Weighted average shares outstanding, as
adjusted (b) 12,165,359 10,220,441
----------- -----------
Primary Earnings (Loss) per Share (a) / (b) $ .20 $ (.17)
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THERMEDICS
DETECTION INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 28,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 45,714
<SECURITIES> 0
<RECEIVABLES> 9,335
<ALLOWANCES> 1,171
<INVENTORY> 11,126
<CURRENT-ASSETS> 67,905
<PP&E> 5,994
<DEPRECIATION> 4,374
<TOTAL-ASSETS> 85,639
<CURRENT-LIABILITIES> 35,022
<BONDS> 0
0
0
<COMMON> 1,335
<OTHER-SE> 49,242
<TOTAL-LIABILITY-AND-EQUITY> 85,639
<SALES> 17,839
<TOTAL-REVENUES> 24,826
<CGS> 8,521
<TOTAL-COSTS> 11,973
<OTHER-EXPENSES> 2,445
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 623
<INCOME-PRETAX> 4,065
<INCOME-TAX> 1,626
<INCOME-CONTINUING> 2,439
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,439
<EPS-PRIMARY> .20
<EPS-DILUTED> 0
</TABLE>
