FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 29, 1996
Commission File Number 0-2585
DIXIE YARNS, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0183370
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1100 South Watkins Street
Chattanooga, Tennessee 37404
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (423) 698-2501
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 as of July 30, 1996
Common Stock, $3 Par Value 10,466,994 shares
Class B Common Stock, $3 Par Value 735,228 shares
Class C Common Stock, $3 Par Value 0 shares
DIXIE YARNS, INC 2
INDEX
Part I. Financial Information: Page No.
Consolidated Condensed Balance Sheets --
June 29, 1996 and December 30, 1995 3
Consolidated Statements of Income --
Three Months Ended June 29, 1996
and July 1, 1995 5
Consolidated Statements of Income --
Six Months ended June 29, 1996
and July 1, 1995 6
Consolidated Condensed Statements of Cash Flows --
Six Months Ended June 29, 1996
and July 1, 1995 7
Notes to Consolidated Condensed Financial Statements 9
Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
Part II. Other Information:
Item 4 - Submission of Matters to a Vote of Security Holders 14
Item 6 - Exhibits and Reports on Form 8-K 14
PART I - ITEM 1 3
FINANCIAL INFORMATION
DIXIE YARNS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 29, December 30,
1996 1995
____________ ____________
(dollar amounts in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,150 $ 3,413
Accounts receivable (less allowance for
doubtful accounts of $3,405 in 1996
and $3,156 in 1995) 29,982 17,369
Inventories 92,746 103,253
Assets held for sale -- 22,090
Other 10,270 10,518
____________ ____________
TOTAL CURRENT ASSETS 134,148 156,643
PROPERTY, PLANT AND EQUIPMENT 392,085 383,741
Less accumulated amortization and
depreciation 204,090 190,238
____________ ____________
NET PROPERTY, PLANT AND EQUIPMENT 187,995 193,503
INTANGIBLE ASSETS (less accumulated
amortization of $6,501 in 1996
and $5,973 in 1995) 35,247 35,775
OTHER ASSETS 11,209 11,076
____________ ____________
TOTAL ASSETS $ 368,599 $ 396,997
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 4
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
June 29, December 30,
1996 1995
____________ ____________
(dollar amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 27,100 $ 20,394
Accrued expenses 27,319 23,294
Current portion of long-term debt 2,634 2,171
____________ ____________
TOTAL CURRENT LIABILITIES 57,053 45,859
LONG-TERM DEBT
Senior indebtedness 57,295 97,383
Subordinated notes 50,000 50,000
Convertible subordinated debentures 44,782 44,782
____________ ____________
TOTAL LONG-TERM DEBT 152,077 192,165
OTHER LIABILITIES 11,851 11,486
DEFERRED INCOME TAXES 28,971 29,197
STOCKHOLDERS' EQUITY
Common Stock - issued and outstanding,
13,875,026 shares in 1996 and
13,862,799 shares in 1995 41,625 41,588
Class B Common Stock - issued and
outstanding, 735,228 shares in 1996
and 1995 2,206 2,206
Additional paid-in capital 131,629 131,618
Retained earnings 2,776 2,447
Minimum pension liability adjustment (4,116) (4,116)
____________ ____________
174,120 173,743
Less Common Stock in treasury at cost -
3,408,030 shares in 1996 and
3,404,123 shares in 1995 55,473 55,453
____________ ____________
TOTAL STOCKHOLDERS' EQUITY 118,647 118,290
____________ ____________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 368,599 $ 396,997
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 5
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
_________________________________
June 29, July 1,
1996 1995
______________ ______________
(dollar amounts in thousands,
except per share data)
Net sales $ 167,962 $ 177,809
Cost of sales 137,533 151,637
____________ ____________
GROSS PROFIT 30,429 26,172
Selling and administrative
expenses 19,800 20,799
Other (income) expense - net 4,287 69
____________ ____________
INCOME BEFORE INTEREST AND TAXES 6,342 5,304
Interest expense 3,805 4,186
____________ ____________
INCOME BEFORE INCOME TAXES 2,537 1,118
Income tax provision 1,217 687
____________ ____________
NET INCOME $ 1,320 $ 431
____________ ____________
____________ ____________
Per common and common
equivalent share:
Net income $ .12 $ .03
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 6
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
_________________________________
June 29, July 1,
1996 1995
______________ ______________
(dollar amounts in thousands,
except per share data)
Net sales $ 329,482 $ 359,455
Cost of sales 274,793 304,731
____________ ____________
GROSS PROFIT 54,689 54,724
Selling and administrative
expenses 40,606 42,601
Other (income) expense - net 4,980 1,022
____________ ____________
INCOME BEFORE INTEREST AND TAXES 9,103 11,101
Interest expense 7,782 8,112
____________ ____________
INCOME BEFORE INCOME TAXES 1,321 2,989
Income tax provision 992 1,675
____________ ____________
NET INCOME $ 329 $ 1,314
____________ ____________
____________ ____________
Per common and common
equivalent share:
Net income $ .03 $ .09
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 7
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
___________________________
June 29, July 1,
1996 1995
____________ ____________
(dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 329 $ 1,314
Depreciation and amortization 14,586 18,804
Provision (benefit) for
deferred income taxes (196) 594
(Gain) loss on property, plant
and equipment (558) 938
____________ ____________
14,161 21,650
Changes in operating assets and
liabilities 8,548 (16,109)
____________ ____________
NET CASH PROVIDED BY
OPERATING ACTIVITIES 22,709 5,541
CASH FLOWS FROM INVESTING ACTIVITIES
Net proceeds from sale of
property, plant and equipment 23,194 318
Purchase of property, plant and
equipment (8,570) (18,786)
____________ ____________
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 14,624 (18,468)
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 8
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
- CONTINUED
(UNAUDITED)
Six Months Ended
___________________________
June 29, July 1,
1996 1995
____________ ____________
(dollar amounts in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in
credit line borrowings (38,150) 12,952
Payments on term-loan (1,250) -0-
Capital stock acquired (20) (23)
Other (176) (363)
____________ ____________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (39,596) 12,566
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,263) (361)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,413 1,904
____________ ____________
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 1,150 $ 1,543
____________ ____________
____________ ____________
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 7,960 $ 7,505
____________ ____________
____________ ____________
Tax refunds received, net
of income taxes paid $ (706) $ (1,324)
____________ ____________
____________ ____________
See Notes to Consolidated Condensed Financial Statements.
DIXIE YARNS, INC. 9
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial statements which do not include all of the
information and footnotes required in annual financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and six months ended June 29, 1996 are not
necessarily indicative of the results that may be expected for the entire
year.
NOTE B - INVENTORIES
Inventories are summarized as follows:
June 29, December 30,
1996 1995
____________ ____________
(dollar amounts in thousands)
At current cost
Raw materials $ 20,463 $ 21,012
Work-in-process 19,561 24,441
Finished goods 64,949 73,314
Supplies, repair parts
and other 4,891 6,772
____________ ____________
109,864 125,539
Excess of current cost
over LIFO value (17,118) (22,286)
____________ ____________
$ 92,746 $ 103,253
____________ ____________
____________ ____________
NOTE C - DEBT AND CREDIT ARRANGEMENTS
Under the terms of the Company's unsecured revolving credit and term-loan
agreement, revolving credit availability is permanently reduced by 50% of
the net cash proceeds from certain significant asset sales. Accordingly,
the revolving credit availability was reduced by $15.5 million as a result
of the sale of Threads USA on June 3, 1996. The net effect of the
availability reduction and debt repayments increased unused borrowing
capacity under the Company's revolving credit agreements from $38.8 million
at December 30, 1995 to $61.4 million at June 29, 1996.
10
NOTE D - SALE OF THE COMPANY'S THREADS USA BUSINESS
On June 3, 1996, the Company sold its Threads USA business, including
substantially all of its property, plant and equipment, raw material and
in-process inventories and certain other assets to American & Efird, Inc.,
a subsidiary of Ruddick Corporation, for $27.2 million cash. Under the
terms of the asset purchase agreement: (i) thread inventories retained by
the Company are to be held for purchase by American & Efird to service the
Threads USA business; (ii) Threads USA's branded product lines must be
continued until the earlier of six months or all such inventories are
purchased from the Company; and (iii) the Company is prohibited from
competing in the thread business for a period of five years. Accounts
receivable associated with Threads USA were retained by the Company. Net
proceeds from these transactions are anticipated to exceed $50.0 million
and are expected to be used primarily to reduce the Company's outstanding
long-term debt.
In the fourth quarter of 1995, the Company recorded a valuation allowance
of approximately $41.5 million to reduce its investment in Threads USA to
estimated net realizable value. Approximately $4.0 million of cost to exit
the Threads USA business (consisting primarily of severance costs and
pension related settlement expenses which, in accordance with GAAP, could
not be recognized as part of the valuation allowance) was recorded in the
second quarter of 1996 when the asset purchase agreement was executed.
This cost was included in "Other (income) expense-net" in the Company's
consolidated statements of income.
Also, in the second quarter of 1996, the Company recorded a $3.6 million
gain primarily resulting from liquidations of thread LIFO inventory
quantities carried at lower costs prevailing in prior years. This gain was
included as a reduction of costs of sales in the Company's consolidated
statements of income.
Threads USA sales were $21.8 million and $45.6 million, respectively in the
second quarter and first six months of 1996. Operating profits for Threads
USA were $.8 million for the second quarter of 1996 and $1.8 million for
the first six months of 1996.
PART I - ITEM 2 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following is presented to update the discussion of results of
operations and financial condition included in the Company's 1995 Annual
Report.
RESULTS OF OPERATIONS
On June 3, 1996, the Company sold its Threads USA business, including
substantially all of its property, plant and equipment, raw material and
in-process inventories and certain other assets to American & Efird, Inc.
for $27.2 million cash. Under the terms of the asset purchase agreement:
(i) thread inventories retained by the Company are to be held for purchase
by American & Efird to service the Threads USA business; (ii) Threads USA's
branded product lines must be continued until the earlier of six months or
all such inventories are purchased from the Company; and (iii) the Company
is prohibited from competing in the thread business for a period of five
years. Accounts receivable associated with Threads USA were retained by
the Company. Net proceeds from these transactions are anticipated to
exceed $50.0 million and are expected to be used primarily to reduce the
Company's outstanding long-term debt.
In the fourth quarter of 1995, the Company recorded a valuation allowance
of approximately $41.5 million to reduce its investment in Threads USA to
estimated net realizable value. Approximately $4.0 million of cost to exit
the Threads USA business (consisting primarily of severance costs and
pension related settlement expenses which, in accordance with GAAP, could
not be recognized as part of the valuation allowance) was recorded in the
second quarter of 1996 when the asset purchase agreement was executed.
This cost was included in "Other (income) expense-net" in the Company's
consolidated statements of income.
Also, in the second quarter of 1996, the Company recorded a $3.6 million
gain primarily resulting from liquidations of thread LIFO inventory
quantities carried at lower costs prevailing in prior years. This gain was
included as a reduction of costs of sales in the Company's consolidated
statements of income.
12
The following table sets forth selected operating data (in millions of
dollars) related to the two business segments of the Company:
Floorcovering and Textile Products.
Quarter Ended Six Months Ended
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
SALES
Floorcovering $ 96.0 $ 92.3 $184.2 $186.5
Textile products 72.9 86.4 147.5 174.8
Intersegment elimination (0.9) (0.9) (2.2) (1.8)
Total sales $168.0 $177.8 $329.5 $359.5
OPERATING PROFIT (LOSS)
Floorcovering
Excluding unusual items $ 6.4 $ 5.1 $ 10.8 $ 11.5
Unusual items -- 2.9 -- 2.9
Floorcovering total 6.4 8.0 10.8 14.4
Textile products
Excluding unusual items 1.4 0.5 1.0 1.3
Unusual items -- (1.8) -- (1.8)
Textile products total 1.4 (1.3) 1.0 (0.5)
Combined
Excluding unusual items 7.8 5.6 11.8 12.8
Unusual items -- 1.1 -- 1.1
Company total $ 7.8 $ 6.7 $ 11.8 $ 13.9
Unusual items in 1995 included a $2.9 million casualty insurance gain in
floorcovering and a $1.8 million facilities consolidation charge in textile
products.
The decline in 1996 sales is principally the result of the Company's
strategy to improve margins by reducing sales of lower margin textile
products. This strategy resulted in the consolidation of two synthetic
yarn facilities and the sale of an open-end cotton yarn plant in the second
and third quarters of 1995, respectively, reducing the Company's capacity
to produce commodity textile products. Textile sales were also impacted by
weak demand for knit fabrics and the sale of the Company's Threads USA
business on June 3, 1996.
Excluding unusual items in 1995, operating profits in the second quarter of
1996 improved $1.3 million in the Company's floorcovering business and $.9
million in its textile operations compared with the previous year. The
improved floorcovering results are principally due to stronger second
quarter demand for most of the Company's floorcovering products and
manufacturing cost reductions. Improved textile earnings reflect the shift
in business to higher margin products and reductions in selling and
administrative expenses.
13
Excluding unusal items in 1995, year-to-date 1996 operating profits
declined $.7 million in the Company's floorcovering operations and $.3
million in its textile operations compared to the prior year. The lower
1996 floorcovering operating profits reflected weak demand for carpet yarn
in the first quarter. Weak retail demand of customers for certain textile
products in the first quarter of 1996 affected year-to-date textile
results.
Interest expense decreased in both the second quarter and for the first six
months of 1996, compared with the comparable 1995 periods as a result of
the lower debt levels in 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 29, 1996, operating activities generated
funds of $22.7 million (including $11.9 million of working capital
reduction associated with the sale of Threads) while net proceeds from the
sale of property, plant and equipment (primarily the assets of Threads USA)
provided additional funds of $23.2 million. These funds were used to
reduce the Company's outstanding long-term debt by $39.6 million and to
finance capital expenditures of $8.6 million.
Under the terms of the Company's unsecured revolving credit and term-loan
agreement, revolving credit availability is permanently reduced by 50% of
the net cash proceeds from certain significant asset sales. Accordingly,
the revolving credit availability was reduced by $15.5 million as a result
of the sale of Threads USA on June 3, 1996. The net effect of the
availability reduction and debt repayments increased unused borrowing
capacity under the Company's revolving credit agreements from $38.8 million
at December 30, 1995 to $61.4 million at June 29, 1996.
Operating cash flows for the remainder of the year are expected to exceed
the Company's liquidity requirements, including capital expenditures, with
the excess funds available to reduce debt. The Company also anticipates
further debt reductions of approximately $15.0 million funded by the
collection of accounts receivable retained in and the sale of inventories
associated with the Threads transaction.
PART II. OTHER INFORMATION 14
Item 4 - Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 2, 1996.
(c) The meeting was held to consider and vote upon the election of
Directors for the following year. All Directors were elected with
the results of the vote for each Director summarized as follows:
FOR AGAINST ABSTAIN TOTAL
Paul K. Brock 22,402,668 249,413 88,885 22,740,966
Lovic A. Brooks, Jr. 22,566,173 85,908 88,885 22,740,966
Daniel K. Frierson 22,554,963 97,118 88,885 22,740,966
Paul K. Frierson 22,557,568 94,513 88,885 22,740,966
J. Frank Harrison, Jr. 22,567,468 84,613 88,885 22,740,966
James H. Martin, Jr. 22,405,673 246,408 88,885 22,740,966
Peter L. Smith 22,404,973 247,108 88,885 22,740,966
Joseph T. Spence, Jr. 22,565,773 86,308 88,885 22,740,966
Robert J. Sudderth, Jr. 22,566,263 85,818 88,885 22,740,966
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(i) Exhibits Incorporated by Reference
None.
(ii) Exhibits Filed with this Report
(11) Statement re: Computation of Earnings Per Share.
(b) Reports on Form 8-K
Current Report on Form 8-K, dated June 3, 1996, reporting the sale
of substantially all of the assets employed in the Company's
industrial sewing threads business to American & Efird, Inc.
15
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.
DIXIE YARNS, INC.
__________________________
(Registrant)
August 12, 1996
____________________
(Date)
/s/DANIEL K. FRIERSON
__________________________
Daniel K. Frierson
Chairman of the Board,
President and CEO
/s/D. EUGENE LASATER
__________________________
D. Eugene Lasater
Controller
QUARTERLY REPORT ON FORM 10-Q 16
ITEM 6(a)
EXHIBITS
QUARTER ENDED JUNE 29, 1996
DIXIE YARNS, INC.
CHATTANOOGA, TENNESSEE
Exhibit Index
EXHIBIT
NO. EXHIBIT DESCRIPTION INCORPORATION BY REFERENCE
(11) Statement re: Computation Filed herewith.
of Earnings Per Share.
EXHIBIT (11)
EXHIBIT 11
DIXIE YARNS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(amounts in thousands, except per share data)
Three Months Ended Six Months Ended
__________________ __________________
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
________ _______ ________ _______
PRIMARY:
NET INCOME $ 1,320 $ 431 $ 329 $ 1,314
________ _______ ________ _______
________ _______ ________ _______
Weighted average number of
Common Shares outstanding
assuming conversion of
Class B Common Stock 11,200 12,243 11,198 12,243
Net effect of dilutive stock
options based on the
treasury stock method using
average market price 5 18 4 19
Net effect of put options
based on the reverse
treasury stock method using
average market price -0- 1,826 -0- 1,789
________ _______ ________ _______
TOTAL SHARES 11,205 14,087 11,202 14,051
________ _______ ________ _______
________ _______ ________ _______
PER SHARE AMOUNT $ .12 $ .03 $ .03 $ .09
________ _______ ________ _______
________ _______ ________ _______
FULLY DILUTED:
Net income $ 1,320 $ 431 $ 329 $ 1,314
After-tax interest
requirement of
convertible subordinated
debentures (A) -0- -0- -0- -0-
________ _______ ________ _______
ADJUSTED NET INCOME $ 1,320 $ 431 $ 329 $ 1,314
________ _______ ________ _______
________ _______ ________ _______
EXHIBIT 11
DIXIE YARNS, INC.
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - CONTINUED
Three Months Ended Six Months Ended
__________________ __________________
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
________ _______ ________ _______
FULLY DILUTED - CONTINUED:
Weighted average number of
Common Shares outstanding
assuming conversion of
Class B Common Stock 11,200 12,243 11,198 12,243
Net effect of dilutive stock
options based on the
treasury stock method using
quarter end market price
if higher than the average
market price 6 22 6 22
Net effect of put options
based on the reverse
treasury stock method using
quarter end market price
if lower than the average
market price -0- 1,826 -0- 1,789
Net effect of conversion of
convertible subordinated
debentures (A) -0- -0- -0- -0-
________ _______ ________ _______
TOTAL SHARES 11,206 14,091 11,204 14,054
________ _______ ________ _______
________ _______ ________ _______
PER SHARE AMOUNT $ .12 $ .03 $ .03 $ .09
________ _______ ________ _______
________ _______ ________ _______
(A) Conversion of convertible subordinated debentures to 1,391 shares
with an after-tax interest requirement of $473 for the three months ended
June 29, 1996 and July 1, 1995, respectively and of $945 for the six months
ended June 29, 1996 and July 1, 1995, respectively has been excluded from
computation since the effect was anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF DIXIE YARNS, INC. AT AND
FOR THE SIX MONTHS ENDED JUNE 29, 1996 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> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 1,150
<SECURITIES> 0
<RECEIVABLES> 33,387
<ALLOWANCES> 3,405
<INVENTORY> 92,746
<CURRENT-ASSETS> 134,148
<PP&E> 392,085
<DEPRECIATION> 204,090
<TOTAL-ASSETS> 368,599
<CURRENT-LIABILITIES> 57,053
<BONDS> 152,077
<COMMON> 43,831
0
0
<OTHER-SE> 74,816
<TOTAL-LIABILITY-AND-EQUITY> 368,599
<SALES> 329,482
<TOTAL-REVENUES> 329,482
<CGS> 274,793
<TOTAL-COSTS> 274,793
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<INTEREST-EXPENSE> 7,782
<INCOME-PRETAX> 1,321
<INCOME-TAX> 992
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