<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------ ------------
Commission file number 1-1370
BRIGGS & STRATTON CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-0182330
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12301 West Wirth Street, Wauwatosa, Wisconsin 53222
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
414/259-5333
- --------------------------------------------------------------------------------
(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
-- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Outstanding at
Class November 2, 1998
- --------------------------------------------------------------------------------
COMMON STOCK, par value $0.01 per share 23,268,691 Shares
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<PAGE> 2
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Condensed Balance Sheets -
September 27, 1998 and June 28, 1998 3
Consolidated Condensed Statements of Income -
Three Months ended September 27, 1998 and
September 28, 1997 5
Consolidated Condensed Statements of Cash Flow -
Three Months ended September 27, 1998 and
September 28, 1997 6
Notes to Consolidated Condensed Financial
Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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<PAGE> 3
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
Sept. 27 June 28
1998 1998
----------- --------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,108 $ 84,527
Receivables, net 149,072 136,629
Inventories -
Finished products and parts 91,856 58,975
Work in process 59,480 45,217
Raw materials 5,347 3,684
-------- --------
Total inventories 156,683 107,876
Future income tax benefits 29,408 31,287
Prepaid expenses 25,863 21,727
-------- --------
Total current assets 368,134 382,046
-------- --------
OTHER ASSETS:
Marketable securities 1,785 -
Deferred income tax assets 8,260 9,555
Capitalized software 7,555 9,881
-------- --------
Total other assets 17,600 19,436
-------- --------
PLANT AND EQUIPMENT -
Cost 820,747 812,428
Less - Accumulated depreciation 429,015 420,501
-------- --------
Total plant and equipment, net 391,732 391,927
-------- --------
$777,466 $793,409
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 4
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (Continued)
(In thousands)
LIABILITIES & SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Sept. 27 June 28
1998 1998
----------- --------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 65,966 $ 76,915
Domestic notes payable 15,653 4,700
Foreign loans 15,867 14,336
Current maturities of long-term debt 15,000 15,000
Accrued liabilities 96,983 101,465
Dividends payable 6,853 -
Federal and state income taxes 9,708 10,529
-------- --------
Total current liabilities 226,030 222,945
-------- --------
OTHER LIABILITIES:
Deferred revenue on sale of plant and equipment 15,874 15,893
Accrued pension cost 24,322 26,477
Accrued employee benefits 12,700 12,571
Accrued postretirement health care obligation 70,248 70,933
Long-term debt 128,154 128,102
-------- --------
Total other liabilities 251,298 253,976
-------- --------
SHAREHOLDERS' INVESTMENT:
Common stock-
Authorized 60,000 shares, $.01 par value,
Issued 28,927 shares 289 289
Additional paid-in capital 37,485 37,776
Retained earnings 531,393 533,805
Unearned compensation on restricted stock (278) -
Cumulative translation adjustments (1,584) (2,110)
Treasury stock at cost, 5,476 and 5,103 shares,
respectively (267,167) (253,272)
-------- --------
Total shareholders' investment 300,138 316,488
-------- --------
$777,466 $793,409
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 5
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
Sept. 27 Sept. 28
1998 1997
------- --------
<S> <C> <C>
NET SALES $223,981 $170,557
COST OF GOODS SOLD 186,369 144,146
-------- --------
Gross profit on sales 37,612 26,411
ENGINEERING, SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 29,248 29,174
-------- --------
Income(loss) from operations 8,364 (2,763)
INTEREST EXPENSE (3,410) (3,794)
OTHER INCOME, net 2,147 2,315
-------- -------
Income(loss) before provision(credit)
for income taxes 7,101 (4,242)
PROVISION(CREDIT) FOR INCOME TAXES 2,660 (1,610)
-------- --------
Net income(loss) $ 4,441 $ (2,632)
======== ========
EARNINGS PER SHARE DATA -
Average shares outstanding 23,635 25,165
Basic earnings(loss) per share $ .19 $ (.10)
======== ========
Diluted average shares outstanding 23,701 25,315
======== ========
Diluted earnings(loss) per share $ .19 $ (.10)
======== ========
CASH DIVIDENDS PER SHARE $ .29 $ .28
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 6
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: Sept. 27, 1998 Sept. 28, 1997
-------------- --------------
<S> <C> <C>
Net income(loss) $ 4,441 $ (2,632)
Adjustments to reconcile net income(loss) to net
cash provided by operating activities -
Depreciation 12,332 10,928
Amortization of discount on long-term debt 52 51
Provision for deferred income taxes 3,174 381
Amortization of compensation on
restricted stock 10 -
Loss on disposition of plant and equipment 147 1
(Increase)decrease in operating assets -
Accounts receivable (13,714) 8,343
Inventories (48,805) (78,846)
Other current assets (4,255) 2,503
Other assets 538 (1,217)
Increase(decrease) in liabilities -
Accounts payable and accrued
liabilities (8,136) (9,880)
Other liabilities (2,328) 869
--------- ----------
Net cash used in operating activities (56,544) (69,499)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to plant and equipment (13,609) (12,855)
Proceeds received on sale of plant and equipment 771 138
--------- ----------
Net cash used in investing activities (12,838) (12,717)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings on domestic and foreign loans 12,960 6,557
Dividends (6,853) (7,001)
Purchase of common stock for treasury (14,556) (26,396)
Proceeds from exercise of stock options 82 1,209
--------- ----------
Net cash used in financing activities (8,367) (25,631)
--------- ----------
EFFECT OF FOREIGN CURRENCY EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS 330 (187)
--------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (77,419) (108,034)
CASH AND CASH EQUIVALENTS, beginning 84,527 112,859
--------- ----------
CASH AND CASH EQUIVALENTS, ending $ 7,108 $ 4,825
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 5,214 $ 2,051
========= =========
Income taxes paid $ 1,176 $ 857
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE> 7
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and therefore do not include all information
and footnotes necessary for a fair presentation of financial position, results
of operations and cash flows in conformity with generally accepted accounting
principles. However, in the opinion of the Company, adequate disclosures have
been presented to make the information not misleading, and all adjustments
necessary to present fair statements of the results of operations and financial
position have been included. All of these adjustments are of a normal recurring
nature. These condensed financial statements should be read in conjunction with
the financial statements and the notes thereto which were included in the
Company's latest Annual Report on Form 10-K.
The Company adopted Financial Accounting Standard (FAS) No. 130,
Reporting Comprehensive Income, in the quarter ended September 1998. This
statement requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive financial
reporting method that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. The
Company has foreign currency translation adjustments accounted for under FAS
Statement No. 52 which fall within this definition. Total comprehensive income
is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September
----------------------------
1998 1997
---- ----
<S> <C> <C>
Net income(loss) $4,441 $(2,632)
Foreign currency translation adjustments 526 (243)
------ -------
Total comprehensive income(loss) $4,967 $(2,875)
====== =======
</TABLE>
The Company's Board of Directors authorized awards of a total of 8,000
shares of restricted stock to key employees in August 1998 from the Company's
treasury stock. These shares are subject to forfeiture if employment terminates
or there is a change in control prior to the end of five years from the date of
issue. The market value of these shares was recorded as Unearned Compensation on
Restricted Stock and is being amortized to compensation expense over the five
years.
The caption entitled Marketable Securities represents stock received in
the sale of the Company's software business at the end of the quarter. These
securities are being classified as available-for-sale and are being reported at
fair market value. There was no material amount of unrealized gain or loss
incurred on this stock in the quarter, and thus there was no new component in
the Shareholders' Investment section of the balance sheet for the unrealized
gain or loss.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of the Company's
financial condition and results of operations for the periods included in the
accompanying consolidated condensed financial statements.
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<PAGE> 8
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
RESULTS OF OPERATIONS
SALES
Net sales for the three months ended September 1998 were 31% or $53
million higher than in the same period of the preceding year. The principal
reason for this change was a 48% increase in engine unit shipments. This was the
result of both domestic and international lawn and garden equipment
manufacturers building product earlier this year than last year. The unit
shipment increase was greater than the sales dollar increase because shipments
were more heavily weighted towards lower horsepower, lower selling price
engines.
GROSS PROFIT
The gross profit rate increased to 16.8% in the current year from 15.5%
in the preceding year. This resulted in additional gross profit totaling $2.9
million between years. Significant reasons for this improvement were lower costs
of $1.1 million for aluminum, the major raw material used in engines, and lower
costs on purchased engines which totaled $1.4 million and were caused by
favorable exchange rates.
ENGINEERING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
This category increased by a small amount between years. An increase of
$.6 million in advertising expenses was almost completely offset by a decrease
in consulting costs related to implementation of the new company-wide
information system.
INTEREST EXPENSE
Interest expense decreased $.4 million. The repayment of $15 million of
higher interest rate debt at the end of fiscal year 1998 caused this change.
PROVISION FOR INCOME TAXES
The effective tax rate used in the current fiscal quarter was 37.5%.
This is management's estimate of what the rate will be for the entire 1999
fiscal year. Last year's first quarter rate was 38.0%; however, the final
effective rate for the entire 1998 fiscal year was 37.6%.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow used in operating activities was $57 million in fiscal 1999
and $69 million in fiscal 1998. The primary use of these funds was the seasonal
increase in inventories of $49 million and $79 million in the respective years.
The smaller increase in fiscal 1999 was due to the higher sales in that year.
This also caused an increase of $14 million in accounts receivable in fiscal
1999 versus a decrease of $8 million in fiscal 1998.
Cash used in investing activities totaled $13 million in each year and
was primarily made up of expenditures for additions to plant and equipment.
-8-
<PAGE> 9
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Cash used in financing activities totaled $8 million in fiscal 1999 and
$26 million in fiscal 1998. This change resulted from a reduction of $12 million
in purchases of common stock and $7 million in additional borrowings on domestic
and foreign loans.
FUTURE LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1997, the Company's Board of Directors authorized the
purchase of up to $300 million of shares of its common stock by means of a
tender offer and open market or private transactions. As of the end of September
1998, purchases totaled $279 million. The Company plans to complete this
repurchase program by the end of the second fiscal quarter. The Company intends
to fund the remaining purchases of its common stock through a combination of
available cash, cash generated from operations and additional borrowings.
Management expects capital expenditures to total $70 million in fiscal
1999 for reinvestment in equipment and new products.
The Company currently intends to increase future cash dividends per
share at a rate approximating the inflation rate, subject to the discretion of
its Board of Directors and requirements of applicable law.
OUTLOOK
Overall, the Company expects that engine unit sales will reflect a
small increase in fiscal 1999 compared to fiscal 1998. As discussed earlier, the
Company experienced a significant increase in engine unit shipments in the first
quarter of fiscal 1999. It appears that this may represent a shift in original
equipment manufacturers' timing of purchases from later in the year to earlier
in the year. The Company continues to believe that the fiscal year will be a
good one if weather conditions are normal.
OTHER MATTERS
In September 1998 the Company announced that it signed a letter of
intent to sell its foundry business. The purchasing company will supply Briggs &
Stratton Corporation with crankshafts, camshafts and other products.
Near the end of the September 1998 quarter, the Company completed the
sale of its software business. The proceeds on the sale were in the form of
marketable securities, and are shown as such on the end of quarter balance
sheet. This sale did not result in any material gains or losses, but will result
in the loss of $2 million gross profit and the elimination of $10 million in
selling expenses in the remainder of fiscal 1999.
The Company reported in detail on its comprehensive Year 2000 Program
to address year 2000 issues in its Annual Report on Form 10-K filed September 8,
1998. There has been no significant change in the information reported in that
filing.
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<PAGE> 10
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations may contain forward-looking statements that
involve risks and uncertainties that could cause actual results to differ
materially from those projected in the forward-looking statements. The words
"anticipate", "believe", "estimate", "expect", "objective", and "think" or
similar expressions are intended to identify forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, among other
things, the effects of weather on the purchasing patterns of the Company's
customers and end use purchasers of the Company's engines; the seasonal nature
of the Company's business; actions of competitors; changes in laws and
regulations, including accounting standards; employee relations; customer
demand; prices of purchased raw materials and parts; domestic economic
conditions, including housing starts and changes in consumer disposable income;
foreign economic conditions, including currency rate fluctuations; the ability
of the Company's customers and suppliers to meet year 2000 compliance; and
unanticipated internal year 2000 issues. Some or all of the factors may be
beyond the Company's control.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the September 8, 1998 filing
of the Company's Annual Report on Form 10-K.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on October 21, 1998, the only
item of business was the election of directors. The following schedule indicates
the votes cast for and withheld with respect to each nominee for director.
Name of Nominee* For Withheld
---------------- --- --------
Eunice M. Filter 20,701,684 168,219
Clarence B. Rogers, Jr. 20,677,619 192,283
Frederick P. Stratton, Jr. 20,695,155 174,748
*Nominees were elected to a three-year term expiring in 2001.
Directors whose terms of office continue past the Annual Meeting of
Shareholders are: Michael E. Batten, Robert H. Eldridge, Peter A. Georgescu,
Robert J. O'Toole, John S. Shiely, and Charles I. Story.
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<PAGE> 11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits.
Exhibit
Number Description
------- -----------
11 Computation of Earnings Per Share of Common Stock*
12 Computation of Ratio of Earnings to Fixed Charges*
27 Financial Data Schedule, September 27, 1998*
*Filed herewith
(b) Reports on Form 8-K.
There were no reports on Form 8-K for the first quarter ended September
27, 1998.
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.
BRIGGS & STRATTON CORPORATION
(Registrant)
Date: November 2, 1998 /s/ J. E. Brenn
--------------------------------------------
J. E. Brenn
Senior Vice President and Chief Financial
Officer
Date: November 2, 1998 /s/ T. J. Teske
--------------------------------------------
T. J. Teske
Controller
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<PAGE> 12
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
11 Computation of Earnings Per Share of Common Stock
(Filed herewith)
12 Computation of Ratio of Earnings to Fixed Charges
(Filed herewith)
27 Financial Data Schedule
(Filed herewith)
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<PAGE> 1
EXHIBIT 11
BRIGGS & STRATTON CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(In thousands except per share data)
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
COMPUTATIONS FOR STATEMENTS OF INCOME
Net income $ 4,441 $ (2,632)
============= ============
Basic earnings per share of common stock:
Average shares of common stock outstanding 23,635 25,165
============= ============
Basic earnings per share of common stock: $ 0.19 $ (0.10)
============= ============
Diluted earnings per share of common stock:
Average shares of common stock outstanding 23,635 25,165
Incremental common shares applicable to common stock options based
on the common stock average market price during the period 66 150
Incremental common shares applicable to restricted common stock based
on the common stock average market price during the period - -
------------- ------------
Average common shares assuming dilution 23,701 25,315
============= ============
Fully diluted earnings per average share of common stock, assuming
conversion of all applicable securities $ 0.19 $ (0.10)
============= ============
</TABLE>
<PAGE> 1
EXHIBIT 12
BRIGGS & STRATTON CORPORATION & SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Dollars in thousands)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Net income $ 4,441 $ (2,632)
Add:
Interest 3,410 3,794
Income tax expense and other taxes on income 2,660 (1,610)
Fixed charges of unconsolidated subsidiaries 40 139
------------- -------------
Earnings as defined $ 10,551 $ (309)
============= =============
Interest $ 3,410 $ 3,794
Fixed charges of unconsolidated subsidiaries 40 139
------------- -------------
Fixed charges as defined $ 3,450 $ 3,933
============= =============
Ratio of earnings to fixed charges 3.1 x -
============= =============
</TABLE>
For the quarter ended September 28, 1997, earnings were inadequate to cover
fixed charges by $4,242.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF BRIGGS & STRATTON CORPORATION FOR THE QUARTER ENDED SEPTEMBER 27,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-27-1999
<PERIOD-START> JUN-29-1998
<PERIOD-END> SEP-27-1998
<CASH> 7,108
<SECURITIES> 0
<RECEIVABLES> 149,072
<ALLOWANCES> 0
<INVENTORY> 156,683
<CURRENT-ASSETS> 368,134
<PP&E> 820,747
<DEPRECIATION> 429,015
<TOTAL-ASSETS> 777,466
<CURRENT-LIABILITIES> 226,030
<BONDS> 0
0
0
<COMMON> 289
<OTHER-SE> 299,849
<TOTAL-LIABILITY-AND-EQUITY> 777,466
<SALES> 223,981
<TOTAL-REVENUES> 223,981
<CGS> 186,369
<TOTAL-COSTS> 186,369
<OTHER-EXPENSES> 27,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,410
<INCOME-PRETAX> 7,101
<INCOME-TAX> 2,660
<INCOME-CONTINUING> 4,441
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,441
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
