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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For quarter ended APRIL 30, 1999 Commission file number 1-14990
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GETTY PETROLEUM MARKETING INC.
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(Exact name of registrant as specified in its charter)
MARYLAND 11-3339235
- - - - ------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 JERICHO TURNPIKE, JERICHO, NEW YORK 11753
- - - - --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(516) 338 - 6000
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(Registrant's telephone number, including area 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
--- ---
Registrant has 13,945,526 shares of Common Stock, par value $.01 per share,
outstanding as of April 30, 1999.
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GETTY PETROLEUM MARKETING INC.
INDEX
Part I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets as of April 30, 1999 and
January 31, 1999 1
Consolidated Statements of Operations for the three months ended
April 30, 1999 and 1998 2
Consolidated Statements of Cash Flows for the three months ended
April 30, 1999 and 1998 3
Notes to Consolidated Financial Statements 4 - 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7 - 10
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
- - - - --------------------------------------------------------------------------------------------------
April 30, January 31,
- - - - --------------------------------------------------------------------------------------------------
Assets: 1999 1999
- - - - --------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and equivalents $ 12,608 $ 6,169
Investments 670 1,339
Accounts receivable, net 8,859 9,458
Inventories 17,572 16,475
Deferred income taxes 5,719 7,315
Prepaid expenses and other current assets 4,404 2,886
-------- --------
Total current assets 49,832 43,642
Property and equipment, at cost, less
accumulated depreciation and amortization 105,097 101,504
Other assets 4,441 4,275
-------- --------
Total assets $159,370 $149,421
======== ========
- - - - --------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
- - - - --------------------------------------------------------------------------------------------------
Current liabilities:
Short-term borrowings $ - $ 1,900
Accounts payable 25,982 16,781
Accrued expenses 12,273 12,836
Gasoline taxes payable 17,995 13,560
Income taxes payable - 1,086
-------- --------
Total current liabilities 56,250 46,163
Deferred income taxes 21,763 21,863
Other, principally deposits 21,189 21,175
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Total liabilities 99,202 89,201
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Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
10,000,000 shares for issuance in series (none of which is issued) - -
Common stock, par value $.01 per share; authorized
30,000,000 shares; 13,945,526 and 13,945,156 shares issued
and outstanding at April 30, 1999 and January 31, 1999 139 139
Paid-in capital 60,378 60,446
Retained earnings 1,991 1,747
Unearned ESOP stock (391,590 shares at April 30, 1999 and
425,155 shares at January 31, 1999) (1,880) (2,041)
Accumulated other comprehensive loss (460) (71)
-------- --------
Total stockholders' equity 60,168 60,220
-------- --------
Total liabilities and stockholders' equity $159,370 $149,421
======== ========
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
Three months ended April 30,
-------------------------------------------------------------------------
1999 1998
-------------------------------------------------------------------------
<S> <C> <C>
Sales and operating revenues $158,970 $170,741
Other income 179 170
--------------------
159,149 170,911
--------------------
Cost of sales and operating expenses
(excluding depreciation and amortization) 148,937 167,255
Selling, general and administrative expenses 5,426 5,198
Depreciation and amortization 4,090 3,717
Interest expense 259 211
--------------------
158,712 176,381
--------------------
Earnings (loss) before provision
(credit) for income taxes 437 (5,470)
Provision (credit) for income taxes 193 (2,158)
--------------------
Net earnings (loss) $ 244 ($3,312)
====================
Net earnings (loss) per share:
Basic $ 0.02 ($0.25)
Diluted $ 0.02 ($0.25)
Weighted average shares outstanding:
Basic 13,532 13,336
Diluted 13,540 13,336
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
April 30,
----------------------
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 244 ($3,312)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,090 3,717
Deferred income taxes 1,776 (151)
ESOP charge 92 211
Loss on dispositions of property and equipment 162 4
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 599 643
Inventories (1,097) 4,602
Prepaid expenses and other current assets (1,520) (2,250)
Other assets (285) 22
Accounts payable, accrued expenses and
gasoline taxes payable 13,073 1,710
Income taxes payable (1,086) (307)
Other, principally deposits 14 7
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Net cash provided by operating activities 16,062 4,896
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Cash flows from investing activities:
Capital expenditures (6,788) (4,090)
Acquisitions (801) -
Proceeds (payments) related to dispositions
of property and equipment (135) 29
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Net cash used in investing activities (7,724) (4,061)
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Cash flows from financing activities:
Repayment of short-term borrowings (1,900) -
Stock options and common stock 1 264
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Net cash provided by (used in) financing activities (1,899) 264
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Net increase in cash and equivalents 6,439 1,099
Cash and equivalents at beginning of period 6,169 9,798
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Cash and equivalents at end of period $12,608 $10,897
======= =======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 247 $ 147
Income taxes 1,906 1,212
</TABLE>
See accompanying notes.
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GETTY PETROLEUM MARKETING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. General:
The accompanying consolidated financial statements include the accounts of
Getty Petroleum Marketing Inc. and its wholly-owned subsidiaries (the
"Company"). The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include amounts
that are based on management's best estimates and judgments. While all available
information has been considered, actual amounts could differ from those
estimates. The consolidated financial statements are unaudited but, in the
opinion of management, reflect all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation. These statements should be read in
conjunction with the consolidated financial statements and related notes which
appear in the Company's Annual Report on Form 10-K for the fiscal year ended
January 31, 1999.
2. Earnings (loss) per share:
Basic earnings (loss) per share is computed by dividing net earnings (loss)
by the weighted average number of shares of common stock outstanding during the
periods presented. Diluted earnings per share reflects the potential dilution
from the exercise of stock options in the amount of 8,000 shares for the quarter
ended April 30, 1999. For the quarter ended April 30, 1998, diluted loss per
share does not reflect the potential dilution from the exercise of stock options
since such inclusion would be anti-dilutive.
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3. Stockholders' equity:
A summary of the changes in stockholders' equity for the three months ended
April 30, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
Accumulated
Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Loss(*) ESOP Total
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<S> <C> <C> <C> <C> <C> <C>
Balance,
January 31, 1999 $139 $ 60,446 $ 1,747 $ (71) $(2,041) $60,220
Comprehensive earnings
(loss):
Net earnings 244 244
Net unrealized loss
on equity securities (389) (389)
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Total (145)
-------
ESOP stock committed
to be released (69) 161 92
Issuance of
common stock 1 1
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Balance,
April 30, 1999 $139 $ 60,378 $ 1,991 $ (460) $(1,880) $60,168
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</TABLE>
(*) Represents net unrealized loss on equity securities. For the three months
ended April 30, 1998, the Company had a net unrealized gain on equity securities
of $172.
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4. Segment information:
The Company has two reportable segments: Petroleum Marketing and Heating Oil.
The Petroleum Marketing segment distributes, markets and sells gasoline and
diesel fuel to consumers through a network of 1,269 Getty and other branded
retail outlets. The Heating Oil segment is involved in the sale of fuel oil,
kerosene and propane, and oil burner and related services to residential and
commercial customers in the New York Mid-Hudson Valley region.
The financial results of the Petroleum Marketing and Heating Oil segments for
the quarters ended April 30, 1999 and 1998 are set forth below (in thousands):
<TABLE>
<CAPTION>
Quarter ended April 30, 1999 Quarter ended April 30, 1998
---------------------------- ----------------------------
Petroleum Heating Petroleum Heating
Marketing Oil Total Marketing Oil Total
--------- --- ----- --------- --- -----
<S> <C> <C> <C> <C> <C> <C>
Sales and operating revenues $151,195 $7,775 $158,970 $163,492 $7,249 $170,741
Other income 165 14 179 158 12 170
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151,360 7,789 159,149 163,650 7,261 170,911
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Cost of sales and operating
expenses (excluding depreciation
and amortization) 143,571 5,366 148,937 161,449 5,806 167,255
Selling, general and
administrative expenses 4,749 677 5,426 4,579 619 5,198
Depreciation and amortization 3,898 192 4,090 3,647 70 3,717
Interest expense 259 - 259 211 - 211
-------------------------------------------------------------------
152,477 6,235 158,712 169,886 6,495 176,381
-------------------------------------------------------------------
Earnings (loss) before provision
(credit) for income taxes (1,117) 1,554 437 (6,236) 766 (5,470)
Provision (credit) for
income taxes (493) 686 193 (2,460) 302 (2,158)
-------------------------------------------------------------------
Net earnings (loss) $ (624) $ 868 $ 244 $ (3,776) $ 464 $ (3,312)
===================================================================
Total assets $151,939 $7,431 $159,370 $139,953 $5,454 $145,407
Capital expenditures 6,752 36 6,788 3,967 123 4,090
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales and operating revenues for the first fiscal quarter ended April
30, 1999 were $159.0 million as compared with $170.7 million for the same
quarter last year, a decrease of 6.9%. The decrease in sales and operating
revenues was due primarily to an 8.8% decrease in sales prices, partially offset
by a 1.3% increase in volume. Gallonage sold increased by 3.0 million gallons to
241.5 million gallons.
Gross profit before depreciation and amortization was $10.0 million for
the three months ended April 30, 1999 compared to $3.5 million for the three
months ended April 30, 1998. The improvement of $6.5 million was principally due
to higher product margins, which resulted in an additional $5.9 million of gross
profit, and increased volume.
The Company's financial results are largely dependent on retail
marketing margins and rental income from its dealers. The petroleum marketing
industry has been and continues to be volatile and highly competitive. The cost
of petroleum products purchased as well as the price of petroleum products sold
have fluctuated widely. As a result of the historic volatility of product
margins and the fact that they are affected by numerous diverse factors, it is
not possible to predict with any degree of accuracy future product margin
levels. However, the Company believes that it has only been modestly affected by
inflation since increased costs are passed along to its customers to the extent
permitted by competition.
Other income, which was comparable for each of the three month periods
ended April 30, 1999 and 1998, is generally comprised of investment income, and
net fees charged to Getty Realty Corp. ("Realty") for certain administrative and
technical services the Company has provided since the spin-off under a services
agreement with Realty. The net fees paid by Realty to the Company for services
performed (after deducting the fees paid by the Company to Realty for services
provided by Realty) were $227,000 and $240,000 for the quarters ended April 30,
1999 and 1998, respectively. The quarter ended April 30, 1999 also included a
charge of $181,000 related to the early termination of two leases under a
master lease agreement with Realty and the prior year quarter included a
$200,000 legal charge related to the Company's Mt. Vernon terminal.
Selling, general and administrative expenses were $5.4 million for the
three months ended April 30, 1999, an increase of $.2 million or 4.4% as
compared with $5.2 million for the quarter ended April 30, 1998.
Depreciation and amortization was $4.1 million for the three month
period ended April 30, 1999 as compared with $3.7 million for the three months
ended April 30, 1998. The increase was due to higher depreciation as a result of
capital expenditures.
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Liquidity and Capital Resources
As of April 30, 1999, the Company had a working capital deficit of $6.4
million as compared with a deficit of $2.5 million as of January 31, 1999. The
decrease in working capital was primarily due to $6.8 million of capital
expenditures and $.8 million expended at newly leased locations, partially
offset by working capital generated during the period from operations. The
Company is able to operate its business with negative working capital,
principally because most sales are for cash and payment terms have been received
from vendors and for gasoline taxes.
The Company's principal source of liquidity is its cash flows from
operations, which amounted to $16.1 million during the three months ended April
30, 1999. Management believes that cash requirements for operations, including
rental payments and capital expenditures, can be met by cash flows from
operations, cash and equivalents and credit lines. The Company has uncommitted
lines of credit with three banks in the aggregate amount of $60 million, which
may be utilized for working capital borrowings and letters of credit. As of
April 30, 1999, $2.0 million of the lines of credit were utilized in connection
with outstanding letters of credit to support the Company's insurance programs.
Borrowings under the lines of credit are unsecured and principally bear interest
at the applicable bank's prime rate or, at the Company's option, 1.1% above
LIBOR. The lines of credit are subject to renewal at the discretion of the
banks.
As of April 30, 1999, the Company leased 1,021 retail outlets and 10
terminal facilities from Realty under master lease agreements. Rent expense
aggregated $14.6 million for the quarter ended April 30, 1999, including $14.1
million under master leases with Realty.
During the three months ended April 30, 1999, the Company expended $6.8
million for capital expenditures and $.8 million for acquisitions. The Company's
capital expenditures include discretionary expenditures to improve the image of
the retail outlets, to improve the terminal facilities and for replacement of
service station equipment at existing and newly leased locations.
Year 2000
The Year 2000 issue has arisen because for many years some computer
software programs and systems have utilized only two digits to specify the year.
As a result, these programs and systems may not be able to recognize and process
dates beyond 1999, which may cause these programs to malfunction or not be able
to accurately process information.
The Company has implemented a Year 2000 program for its internal
systems and equipment relating to its information technology systems and
non-information technology
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systems which has four phases: (1) identification; (2) assessment; (3)
remediation (including modification, upgrading and replacement); and (4)
testing. As of April 30, 1999, the identification, assessment and remediation
phases for all of the Company's significant internal business systems and
equipment are complete. Testing of systems and programs following remediation is
expected to be completed by July 31, 1999.
The Company is also reviewing the Year 2000 readiness of third parties
who provide goods or services which are essential to the Company's operations,
such as the parties who provide banking services, credit card processing,
environmental services and product suppliers. The Company has initiated formal
communications with significant third parties in order to determine the extent
to which the Company is vulnerable to any failure by such third parties to
remediate their respective Year 2000 problems and resolve such problems to the
extent practicable.
The Company is developing a contingency plan to address issues specific
to the Year 2000 problem. The Plan is expected to include performing certain
processes manually, obtaining replacement systems, changing suppliers where
necessary as well as other appropriate measures.
The Company's senior management and the Board of Directors receive
regular updates on the status of the Company's Year 2000 program. The Company
does not expect the cost of these Year 2000 efforts to be material since the
Company believes the majority of the compliance costs have been, and will
continue to be, funded by reallocating existing internal resources rather than
incurring incremental costs.
The Year 2000 issue presents a number of risks and uncertainties that
could affect the Company, which include, but are not limited to, the
availability of qualified personnel and other information technology resources;
the ability to identify and remediate all date sensitive lines of computer code
or to replace embedded computer chips in affected systems or equipment; and the
ability of third parties to remediate their respective systems. The failure to
correct a material Year 2000 problem could result in an interruption in, or a
failure of, certain normal business activities or operations. Such failures
could materially and adversely affect the Company's results of operations,
liquidity and financial condition. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material impact on the Company's results of operations, liquidity or financial
condition.
Special Factors Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When we use the words "believes", "expects",
"plans", "estimates" and similar expressions, we intend to identify
forward-looking statements. These forward-looking
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statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance and achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by these forward- looking statements. These factors
include, but are not limited to: volatility of petroleum marketing margins;
maturity of the petroleum marketing industry; the impact of economic growth,
energy efficiency and technology on demand for petroleum products; natural and
political events that may affect the supply of petroleum products; competition;
the effects of regulation; the Company's expectations as to when it will
complete the testing phases of its Year 2000 program as well as its Year 2000
contingency plan; the estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems and equipment will be Year 2000
compliant in a timely manner.
As a result of these and other factors, the Company may experience material
fluctuations in future operating results on a quarterly or annual basis, which
could materially and adversely affect its business, financial condition,
operating results and stock price. An investment in the Company involves various
risks, including those mentioned above and elsewhere in this report and those
which are detailed from time to time in the Company's other filings with the
Securities and Exchange Commission.
Readers should not place undue reliance on forward-looking statements, which
reflect the Company's view only as of the date hereof. The Company undertakes no
obligation to publicly release revisions to these forward-looking statements
that reflect events or circumstances after the date hereof or reflect the
occurrence of unanticipated events.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Designation of Exhibit
in this Quarterly Report
on Form 10-Q Description of Exhibit
------------ ----------------------
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
SIGNATURES
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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.
GETTY PETROLEUM MARKETING INC.
------------------------------
(Registrant)
Dated: June 11, 1999 BY: /s/ Michael K. Hantman
----------------------
(Signature)
MICHAEL K. HANTMAN
Vice President and
Corporate Controller
(Principal Financial and
Accounting Officer)
Dated: June 11, 1999 BY: /s/ Leo Liebowitz
----------------------
(Signature)
LEO LIEBOWITZ
Chairman and Chief
Executive Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF GETTY PETROLEUM MARKETING INC. AND
SUBSIDIARIES AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 12,608
<SECURITIES> 670
<RECEIVABLES> 9,805
<ALLOWANCES> 946
<INVENTORY> 17,572
<CURRENT-ASSETS> 49,832
<PP&E> 219,744
<DEPRECIATION> 114,647
<TOTAL-ASSETS> 159,370
<CURRENT-LIABILITIES> 56,250
<BONDS> 0
0
0
<COMMON> 139
<OTHER-SE> 60,029
<TOTAL-LIABILITY-AND-EQUITY> 159,370
<SALES> 158,970
<TOTAL-REVENUES> 159,149
<CGS> 148,937
<TOTAL-COSTS> 153,027
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 44
<INTEREST-EXPENSE> 259
<INCOME-PRETAX> 437
<INCOME-TAX> 193
<INCOME-CONTINUING> 244
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 244
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>