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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
COMMISSION FILE NUMBER: 0-21039
STRAYER EDUCATION, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN THIS CHARTER)
<TABLE>
<S> <C>
Maryland 52-1975978
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1025 15th Street, N.W.
Washington, DC 20005 20005
(Address of principal executive
offices) (Zip Code)
Registrant's telephone number,
including area code: (202) 408-2400
</TABLE>
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, AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / THE REGISTRANT BECOME SUBJECT
TO SUCH FILING REQUIREMENTS ON JULY 25, 1996.
AS OF SEPTEMBER 30, 1999, THERE WERE OUTSTANDING 15,413,443 SHARES OF COMMON
STOCK, PAR VALUE $.01 PER SHARE, OF THE REGISTRANT.
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STRAYER EDUCATION, INC.
INDEX
FORM 10-Q
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets at.......................................... 3
December 31, 1998 and September 30, 1999
Condensed Consolidated Statements of Income....................................... 4
for the three and nine month periods ended September 30, 1998 and 1999
Condensed Consolidated Statements of Comprehensive Income. ....................... 4
for the three and nine month periods ended September 30, 1998 and 1999
Condensed Consolidated Statements of Cash Flows................................... 5
for the nine month periods ended September 30, 1998 and 1999
Notes to Condensed Consolidated Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of........................................... 8
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative...................................................... 10
Disclosures About Market Risk
PART II - OTHER INFORMATION
Items 1-6, Exhibits and Reports on Form 8-K................................................... 10
SIGNATURES ............................................................................................... 11
INDEX TO EXHIBITS......................................................................................... 12
</TABLE>
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STRAYER EDUCATION, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
--------------------- -----------------
Current Assets: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $18,614 $13,328
Marketable securities available for sale, at market 6,420 5,926
Short-term investments - restricted 922 951
Tuition receivable, net of allowances for doubtful
accounts 11,812 16,960
Income taxes receivable 275 551
Other current assets 491 705
--------------------- -----------------
Total current assets 38,534 38,421
Student loans receivable, net of allowances for losses 5,524 6,425
Property and equipment, net 13,880 16,423
Marketable securities available for sale, at market 38,986 38,270
Other assets 222 306
--------------------- -----------------
Total assets $97,146 $99,845
===================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $166 $150
Accrued expenses 943 1,681
Dividends payable 789 925
Unearned tuition 13,273 20,403
--------------------- -----------------
Total current liabilities 15,171 23,159
Deferred income taxes 330 54
--------------------- -----------------
Total liabilities 15,501 23,213
--------------------- -----------------
Stockholders' equity:
Common Stock - Par value $.01; 50,000,000 shares
authorized; 15,696,526 and 15,413,443 shares
issued and outstanding in 1998 and 1999, respectively 158 154
Additional paid-in capital 50,470 35,431
Retained earnings 30,274 40,965
Accumulated other comprehensive income 743 82
--------------------- -----------------
Total stockholders' equity 81,645 76,632
--------------------- -----------------
Total liabilities and stockholders' equity $97,146 $99,845
===================== =================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $11,783 $12,866 $45,007 $49,423
------------- ------------- ------------- -------------
Costs and Expenses:
Instruction and educational support 5,283 6,178 16,173 18,236
Selling and promotion 2,037 2,698 4,665 5,844
General and administration 2,185 2,611 6,472 6,997
------------- ------------- ------------- -------------
9,505 11,487 27,310 31,077
------------- ------------- ------------- -------------
Income from operations 2,278 1,379 17,697 18,346
Investment and other income 838 982 2,223 3,370
------------- ------------- ------------- -------------
Income before income taxes 3,116 2,361 19,920 21,716
Provision for income taxes 1,226 852 7,729 8,537
------------- ------------- ------------- -------------
Net income $1,890 $1,509 $12,191 $13,179
============= ============= ============= =============
Basic net income per share $0.12 $0.10 $0.78 $0.85
============= ============= ============= =============
Diluted net income per share $0.12 $0.10 $0.76 $0.83
============= ============= ============= =============
</TABLE>
STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,890 $1,509 $12,191 $13,179
Other comprehensive income:
Unrealized gain (loss) on investments, net of
taxes (681) (498) (272) (661)
------------- ------------- ------------- -------------
Comprehensive income $1,209 $1,011 $11,919 $12,518
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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STRAYER EDUCATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
For the nine months September 30,
----------------------------------------
1998 1999
---- ----
<S> <C> <C>
Net income $12,191 $13,179
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by
activities:
Deferred tax expense (credit) --- (276)
Depreciation and amortization 1,174 1,395
Changes in assets and liabilities
Short-term investments - restricted (33) (29)
Tuition receivable, net (3,800) (5,148)
Inventories 1,018 ---
Income taxes receivable (392) (276)
Other current assets 323 (214)
Accounts payable (120) (16)
Accrued expenses 3,023 738
Unearned tuition 5,960 7,130
Student loans originated or acquired (3,302) (3,868)
Collections on student loans receivable 2,459 2,967
Other assets (11) (84)
---------------- ---------------
Net cash provided by operating
activities 18,490 15,498
---------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment (6,781) (3,938)
Purchases of marketable securities (13,441) (6,522)
Maturities of marketable securities 8,628 7,071
---------------- ---------------
Net cash used in investing activities (11,594) (3,389)
---------------- ---------------
Cash flows from financing activities:
Repurchase of common stock --- (15,910)
Proceeds from exercise of stock options 1,012 868
Dividends paid (2,021) (2,353)
---------------- ---------------
Net cash used in financing activities (1,009) (17,395)
---------------- ---------------
Net increase (decrease) in cash and
cash equivalents 5,887 (5,286)
Cash and cash equivalents - beginning of period 15,934 18,614
---------------- ---------------
Cash and cash equivalents - end of period $21,821 $13,328
================ ===============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED.
1. BASIS OF PRESENTATION
The financial statements are presented on a consolidated basis. The
accompanying 1998 and 1999 financial statements include the accounts of
Strayer Education, Inc. (the Company), Strayer University, Inc. (the
University), Education Loan Processing, Inc. (ELP) and Professional
Education, Inc. (Pro Ed), collectively referred to herein as the
"Company" or "Companies."
The results of operations for the three and nine months ended September
30, 1999 are not necessarily indicative of the results to be expected
for the full fiscal year. All information as of September 30, 1999, and
for the three and nine month periods ended September 30, 1998 and 1999
is unaudited but, in the opinion of management contains all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the condensed consolidated financial position,
results of operations and cash flows of the Companies.
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 these condensed consolidated financial statements be read in
conjunction with the financial statements and notes thereto included in
the Company's December 31, 1998 Annual Report on Form 10-K.
2. NATURE OF OPERATIONS
The University is a proprietary accredited institution of higher
education that provides undergraduate and graduate degrees in various
fields of study through its thirteen campuses in the District of
Columbia, Maryland and Virginia. ELP is a finance company that
purchases and services student loans, principally for the University.
For purposes of the consolidated balance sheets, all of ELP's assets
and liabilities have been classified as current assets and liabilities
with the exception of student loans receivable, which have been
classified as non-current consistent with industry practice.
3. INCOME PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted
earnings per share is computed by dividing net income by the weighted
average common and potentially dilutive common equivalent shares
outstanding, determined as follows.
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
------------------- -------------------
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average shares outstanding used to
compute basic earnings per share ..... 15,639 15,467 15,586 15,569
Incremental shares issuable upon the
assumed exercise of stock options .... 424 179 471 221
------ ------ ------ ------
Shares used to compute diluted earnings per
share ................................ 16,063 15,646 16,057 15,790
====== ====== ====== ======
</TABLE>
Incremental shares issuable upon the assumed exercise of outstanding
stock options are computed using the treasury stock method based on the
average market price during the related periods.
4. CREDIT FACILITY
The Company maintains a credit facility from a bank in the amount of
$10.0 million. Interest on any borrowings under the facility will
accrue at an annual rate not to exceed 0.75% above the London Interbank
Offered Rate. The Company does not pay a fee for this facility, but in
the event of any borrowings, an origination fee of 1% will be due on
the amounts borrowed from time to time thereunder.
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STRAYER EDUCATION, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF SEPTEMBER 30, 1998 AND 1999 IS UNAUDITED
5. SUBSEQUENT EVENTS
The Company's Board of Directors declared a dividend of $.06 per share
to shareholders of record as of October 11, 1999.
On October 18, 1999, The Company's Board of Directors authorized an
additional buy back of outstanding common stock of up to 25% percent of
net income beginning in the year 2000.
6. RELATED PARTY TRANSACTION
On June 30, 1999, the Company purchased the Takoma Park Campus building
from a corporation wholly owned by the Company's President, CEO and
majority stockholder for a purchase price of approximately $1.0
million.
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ITEM 2: MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Certain statements included in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" as well as
elsewhere in this report on Form 10-Q are forward-looking statements.
They are based on the Company's current expectations and are subject to
a number of uncertainties and risks. The Company's actual results may
differ materially. The uncertainties and risks include the pace of
growth of student enrollment, Company's continued compliance with Title
IV of the Higher Education Act, changes in federal and state
governmental regulations, changes in accreditation standards, Company's
ability to implement its growth strategies, and the economic
environment. Further information about these and other relevant risks
and uncertainties may be found in the Company's annual report on Form
10-K and its other filings with the Securities and Exchange Commission,
all of which are available from the Commission and from the Company's
worldwide web site.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1998
Revenues. Revenue increased 9% from $11.8 million in the third quarter
of 1998 to $12.9 million in the third quarter of 1999, principally due to an
increase in student enrollments and a 5% tuition increase effective for 1999.
Instruction and educational support expenses. Instruction and
educational support expenses increased 17% from $5.3 million in the third
quarter of 1998 to $6.2 million in the third quarter of 1999. A salary increase
of 5% effective in 1999 and the addition of new faculty due to enrollment growth
and campus expansion contributed to the increase.
Selling and promotion expenses. Selling and promotion expenses
increased 32% from $2.0 million in the third quarter of 1998 to $2.7 million in
the third quarter of 1999, principally due to increases in advertising costs
related to the new campuses in Richmond, Virginia and Montgomery County, Anne
Arundel County and White Marsh, Maryland, increased advertising for the Distance
Learning Program and increases in the number of admissions representatives at
the new campuses.
General and administration expenses. General and administration
expenses increased 19% from $2.2 million in the third quarter of 1998 to $2.6
million in the third quarter of 1999, principally due to costs associated with
opening new campuses and salary increases for administrative personnel.
Income from operations. Operating income decreased 39%, from $2.3
million in the third quarter of 1998 to $1.4 million in the third quarter of
1999. The decrease was due to the aforementioned factors.
Investment and other income. Investment and other income increased 17%,
from $838,000 in the third quarter of 1998 to $982,000 in the third quarter of
1999. The increase was due to better performance of the investment portfolio in
1999.
Net income. Net income decreased 20%, from $1.9 million in the third
quarter of 1998 to $1.5 million in the third quarter of 1999.
Comprehensive income. Comprehensive income decreased 17% from $1.2
million in the third quarter of 1998 to $1.0 million in the third quarter of
1999 due to the performance of the Company's investments in marketable
securities.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
Revenues. Revenue increased 10% from $45.0 million for the nine months
ended September 30, 1998 to $49.4 million for the corresponding period in 1999,
principally due to an increase in student enrollments and a 5% tuition increase
effective for 1999.
Instruction and educational support expenses. Instruction and
educational support expenses increased 13% from $16.2 million for the nine
months ended September 30, 1998 to $18.2 million for the corresponding period in
1999. A salary increase of 5% effective in 1999 and the addition of new faculty
due to enrollment growth and the addition of new campuses contributed to the
increase.
Selling and promotion expenses. Selling and promotion expenses
increased 26% from $4.7 million for the nine months ended September 30, 1998 to
$5.8 million for the corresponding period in 1999, principally due to increases
in advertising costs related to the new campuses, increased advertising for the
Distance Learning Program, and increases in the number of admissions
representatives.
General and administration expenses. General and administration
expenses increased 8% from $6.5 million for the nine months ended September 30,
1998 to $7.0 million for the corresponding period in 1999, principally due to
costs associated with opening new campuses and salary increases for
administrative personnel.
Income from operations. Operating income increased 4%, from $17.7
million for the nine months ended September 30, 1998 to $18.3 million for the
corresponding period in 1999. The increase was due to the aforementioned
factors.
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ITEM 2: MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Investment and other income. Investment and other income increased 52%
from $2.2 million for the nine months ended September 30, 1998 to $3.4 million
for the corresponding period in 1999. The increase was due to better performance
of the investment portfolio.
Net income. Net income increased 8%, from $12.2 million for the nine
months ended September 30, 1998 to $13.2 million for the corresponding period in
1999.
Comprehensive income. Comprehensive income increased 5% from $11.9
million in the third quarter of 1998 to $12.5 million in the third quarter of
1999 due to the aforementioned factors offset by the performance of the
Company's investments in marketable securities.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1999, the Company generated
cash from operating activities of $15.5 million. Net cash used in investing
activities was $3.4 million, principally for property and equipment
acquisitions. Dividends and the Company's stock repurchase plan accounted for
substantially all of the cash used in financing activities. The Company believes
that existing cash, cash equivalents and marketable securities aggregating $57.5
million, cash generated from operating activities and, if necessary, cash
borrowed under the credit facility will be sufficient to meet the Company's
requirements for at least the next 24 months. If the University decides to
purchase additional campus facilities, it may finance such acquisitions with
indebtedness.
On October 18, 1999, The Company's Board of Directors authorized an
additional buy back of outstanding common stock of up to 25% percent of net
income beginning in the year 2000. Management believes its current cash reserves
and those generated from future operations will be adequate to cover the
repurchase program. Any shares of common stock repurchased will be subsequently
retired.
YEAR 2000
The Year 2000 issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs that have been written using six digits (e.g.,
12/31/99), rather than eight (e.g., 12/31/1999), to define the applicable year
of business. This date definition limitation could, unless corrected, cause some
computer programs, hardware and non-information technology systems to be unable
to process information containing dates after December 31, 1999.
As of September 30, 1999, the Company has completed the identification
and assessment of its internal IT systems, and those systems have been modified
by the suppliers of those systems to address Year 2000 issues. In addition to
its internal IT systems, the Company completed the identification and assessment
of the level of Year 2000 issues with its suppliers and external IT systems. The
Company also has completed its identification and assessment of its non-IT
systems, which includes its telephone systems, heating and air-conditioning,
elevators and other business equipment. As a result of the Company's assessment
and remediation of internal, external and non-IT systems, the Company
anticipates minimal business disruptions as a result of the year 2000 issue.
There can be no guarantee, however, that internal systems, external systems,
non-IT systems, and the systems of the Company's major suppliers will operate
without failure as a result of the year 2000 issue. The Company cannot assure
that undetected internal and external Year 2000 issues will not materially
impact its business, financial condition, results of operations and cash flows.
The Company derives a significant portion of its revenues from the
student funding provided by Title IV Programs. The Department of Education
processes the applications for this funding. The Department of Education has
indicated in its Year 2000 Quarterly Report to the Office of Management and
Budget, August 13, 1999, that all of the 14 mission-critical systems have
completed renovation, validation and implementation, including independent
verification and validation and have been phased into production. In addition,
all of the 161 non-critical systems administered by the Department, have been
fully renovated, validated and implemented and phased into production. Although
the work has been completed on all of the systems, the Department is rapidly
expanding end-to-end testing, contingency planning and outreach. A failure in
the Department of Education's IT systems may have a material impact on the
business, financial condition, results of operations, and cash flows of the
Company.
Although, the Company has completed the identification and assessment
of its IT systems, the Company has and will continue to test its mission
critical systems and expects testing to be completed by December 1999.
Management expects to develop contingency plans to address possible year 2000
system failures by the Company or its suppliers by December 1999. Even if these
plans are completed and implemented in a timely manner, they may be insufficient
to address system failures.
The Company's costs to date for its Year 2000 compliance project,
excluding the salaries of its employees, have not been material. In fact, the
Company's IT systems have been modified by the suppliers of those systems and
such modifications were included as part of normal upgrades of those systems.
The Company does not currently believe that the future costs associated with its
remaining IT systems or its non-IT systems will be material.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
In order to present a proposal at the 2000 Annual Meeting of
Stockholders, a Strayer stockholder must provide written
notice of the proposal to the Company no later than February
24, 2000. The Company intends to use discretionary voting
authority with respect to any matter brought before the 2000
Annual Meeting of Stockholders of which the Company has not
received written notice by February 24, 2000. The address to
which such a written notice must be sent is Strayer Education,
Inc., 8550 Cinder Bed Dr., Newington, Virginia 22122, Attn:
Investor Relations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits: The following are annexed as Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
27.2 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
statement is being signed by a duly authorized officer of the Registrant and in
the capacity as the principal financial officer.
STRAYER EDUCATION, INC.
/s/ HARRY T. WILKINS
---------------------------------
Chief Financial Officer
Date: November 1, 1999
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS NUMBER DESCRIPTION PAGE
- --------------- ----------- ----
<S> <C> <C>
27.2 Financial Data Schedule 14
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 13,328
<SECURITIES> 44,196
<RECEIVABLES> 24,189
<ALLOWANCES> 804
<INVENTORY> 0
<CURRENT-ASSETS> 38,421
<PP&E> 23,659
<DEPRECIATION> 7,236
<TOTAL-ASSETS> 99,845
<CURRENT-LIABILITIES> 23,159
<BONDS> 0
0
0
<COMMON> 154
<OTHER-SE> 76,478
<TOTAL-LIABILITY-AND-EQUITY> 99,845
<SALES> 0
<TOTAL-REVENUES> 12,866
<CGS> 0
<TOTAL-COSTS> 11,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 532
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,361
<INCOME-TAX> 852
<INCOME-CONTINUING> 1,509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,509
<EPS-BASIC> .10
<EPS-DILUTED> .10
</TABLE>
