<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 1996 COMMISSION FILE NO. 1-6651
HILLENBRAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1160484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 STATE ROUTE 46 EAST
BATESVILLE, INDIANA 47006-8835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (812) 934-7000
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
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.
Common Stock, without par value - 68,786,280 as of October 7, 1996.
1
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HILLENBRAND INDUSTRIES, INC.
INDEX TO FORM 10-Q
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Income for the Three Months 3
and Nine Months Ended 8/31/96 and 9/02/95
Consolidated Cash Flows for the Nine Months 4
Ended 8/31/96 and 9/02/95
Consolidated Balance Sheet, 5
8/31/96 and 12/02/95
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Income
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
08/31/96 09/02/95 08/31/96 09/02/95
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net revenues:
Health Care sales........... $135,006 $138,725 $427,712 $407,448
Health Care rentals......... 90,417 91,270 280,125 273,892
Funeral Services............ 123,392 121,069 392,996 382,638
Insurance................... 55,258 47,652 161,297 135,874
--------- --------- --------- ---------
Total revenues.............. 404,073 398,716 1,262,130 1,199,852
Cost of revenues:
Health Care cost of goods sold 79,322 87,531 254,445 252,793
Health Care rental expenses. 57,207 61,862 176,469 185,554
Funeral Services............ 66,261 67,088 210,148 206,868
Insurance................... 38,219 35,492 119,236 102,823
--------- --------- --------- ---------
Total cost of revenues...... 241,009 251,973 760,298 748,038
Other operating expenses...... 106,854 97,955 326,852 306,082
--------- --------- --------- ---------
Operating profit.............. 56,210 48,788 174,980 145,732
Interest expense.............. (6,528) (5,554) (19,085) (16,257)
Other income, net............. 7,188 2,367 12,975 5,542
--------- --------- --------- ---------
Income before income taxes.... 56,870 45,601 168,870 135,017
Income taxes.................. 22,186 19,715 67,210 53,872
--------- --------- --------- ---------
Net income.................... $ 34,684 $ 25,886 $101,660 $ 81,145
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share... $ .50 $ .37 $ 1.46 $ 1.15
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends per common share.... $ .155 $ .15 $ .465 $ .45
--------- --------- --------- ---------
--------- --------- --------- ---------
Average shares outstanding.... 69,197 70,788 69,704 70,824
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Cash Flows
NINE MONTHS ENDED
08/31/96 09/02/95
-------- --------
(In Thousands)
Cash flows from operating activities:
Net income................................... $101,660 $ 81,145
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization.............. 77,471 78,826
Change in noncurrent deferred
income taxes.............................. (2,547) (4,348)
Gain on sale of business................... (1,905) -
Change in net working capital
excluding cash, current debt,
acquisitions and dispositions............. (3,865) (14,368)
Change in insurance items:
Deferred policy acquisition costs......... (47,957) (42,803)
Other, net................................ 34,842 31,304
Other, net................................. 2,439 (3,602)
--------- ---------
Net cash flows from operating activities....... 160,138 126,154
--------- ---------
Cash flows from investing activities:
Capital expenditures, net.................... (70,635) (66,053)
Acquisition of businesses.................... (2,014) (2,550)
Proceeds on sale of business................. 15,000 -
Other investments............................ (3,000) -
Insurance investments:
Purchases.................................. (342,371) (402,020)
Proceeds on maturities..................... 58,820 42,293
Proceeds on sales prior to maturity........ 112,639 196,060
-------- --------
Net cash flows from investing
activities.................................... (231,561) (232,270)
--------- --------
Cash flows from financing activities:
Additions to debt............................ 67,738 17,156
Reductions to debt........................... (39,342) (1,202)
Payment of cash dividends.................... (32,415) (31,859)
Treasury stock acquisitions.................. (50,858) (5,003)
Insurance premiums received.................. 338,099 321,784
Insurance benefits paid...................... (169,973) (151,014)
-------- --------
Net cash flows from financing
activities.................................... 113,249 149,862
-------- --------
Net increase in cash and
cash equivalents.............................. 41,826 43,746
Cash and cash equivalents:
At beginning of period........................ 171,343 120,359
-------- --------
At end of period.............................. $213,169 $164,105
-------- ---------
-------- ---------
See Notes to Consolidated Financial Statements
4
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Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Balance Sheet
ASSETS 08/31/96 12/02/95
-------- --------
(In Thousands)
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 213,169 $ 171,343
Trade receivables. . . . . . . . . . . . . . . 289,984 313,483
Inventories. . . . . . . . . . . . . . . . . . 97,284 111,679
Other. . . . . . . . . . . . . . . . . . . . . 46,350 43,660
---------- ----------
Total current assets . . . . . . . . . . . . . 646,787 640,165
Equipment leased to others, net. . . . . . . . . 98,241 91,329
Property, net .. . . . . . . . . . . . . . . . . 257,525 275,730
Other assets:
Intangible assets, net.. . . . . . . . . . . . 148,233 162,993
Other assets.. . . . . . . . . . . . . . . . . 56,434 49,076
---------- ----------
Total other assets. . . . . . . . . . . . . . 204,667 212,069
Insurance assets:
Investments . . . . . . . . . . . . . . . . . . 1,525,834 1,432,222
Deferred policy acquisition costs . . . . . 387,287 339,330
Deferred income taxes .. . . . . . . . . . . . 69,225 39,518
Other. . . . . . . . . . . . . . . . . . . . . 40,247 39,893
---------- ----------
Total insurance assets . . . . . . . . . . . . . 2,022,593 1,850,963
---------- ----------
Total assets.. . . . . . . . . . . . . . . . . . $3,229,813 $3,070,256
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Short-term debt. . . . . . . . . . . . . . . . $ 71,921 $ 40,450
Current portion of long-term debt. . . . . . . 1,186 2,315
Trade accounts payable.. . . . . . . . . . . . 54,604 70,743
Other. . . . . . . . . . . . . . . . . . . . . 170,992 187,213
---------- ----------
Total current liabilities. . .. . . . . . . . 298,703 300,721
Other liabilities:
Long-term debt . . . . . . . . . . . . . . . . 204,837 206,783
Other long-term liabilities . . . . . . . . . 73,062 79,343
Deferred income taxes. . . . . . . . . . . . . 14,973 14,945
---------- ----------
Total other liabilities.. . . . . . . . . . . 292,872 301,071
Insurance liabilities:
Benefit reserves.. . . . . . . . . . . . . . . 1,393,658 1,252,737
Unearned revenue.. . . . . . . . . . . . . . . 508,892 454,763
General liabilities. . . . . . . . . . . . . . 24,356 15,200
---------- ----------
Total insurance liabilities.. . . . . . . . . 1,926,906 1,722,700
---------- ----------
Total liabilities. . . . . . . . . . . . . . . . 2,518,481 2,324,492
---------- ----------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
Common stock.. . . . . . . . . . . . . . . . . 4,442 4,442
Additional paid-in capital . . . . . . . . . . 13,745 13,238
Retained earnings. . . . . . . . . . . . . . . 945,378 876,133
Accumulated unrealized gain (loss) on
investments . . . . . . . . . . . . . . . . . (27,528) 22,861
Foreign currency translation adjustment . . . 10,741 14,099
Treasury stock . . . . . . . . . . . . . . . . (235,446) (185,009)
---------- ----------
Total shareholders' equity . . . . . . . . . 711,332 745,764
---------- ----------
Total liabilities and
shareholders' equity .. . . . . . . . . . . . . $3,229,813 $3,070,256
---------- ----------
---------- ----------
See Notes to Consolidated Financial Statements
5
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. Basis of Presentation
The unaudited, condensed consolidated financial statements appearing in
this quarterly report on Form 10-Q should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The
statements herein have been prepared in accordance with the Company's
understanding of the instructions to Form 10-Q. In the opinion of
management, such financial statements include all adjustments necessary to
present fairly the financial position, results of operations, and cash
flows, for the interim periods.
2. Supplementary Income Statement Information
Other income, net, is comprised of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
08/31/96 09/02/95 08/31/96 09/02/95
---------- -------- -------- --------
Investment income -- non-
insurance $4,528 $3,661 $12,547 $9,820
Gain on sale of assets of Block
Medical before income taxes 3,150 -- 3,150 --
Other, net (490) (1,294) (2,722) (4,278)
------ ------ ------ ------
$7,188 $2,367 $12,975 $5,542
------ ------ ------ ------
------ ------ ------ ------
3. Supplementary Balance Sheet Information
The following information pertains to non-insurance assets and consolidated
shareholders' equity:
08/31/96 12/02/95
--------- --------
Allowance for possible losses and
discounts on trade receivables... $ 17,696 $ 19,833
Accumulated depreciation of equipment
leased to others and property........... $ 582,976 $ 544,000
Accumulated amortization of intangible
assets.................................. $ 142,692 $ 163,836
Capital Stock:
Preferred stock, without par value:
Authorized 1,000,000 shares;
Shares issued....................... None None
Common stock, without par value:
Authorized 199,000,000 shares;
Shares issued...................... 80,323,912 80,323,912
6
<PAGE>
4. Earnings per Common Share
Earnings per common share were computed by dividing net income by the
average number of common shares outstanding during each period
(69,196,739 for the three months of 1996; 69,703,595 for the nine
months of 1996; 70,788,053 for the three months of 1995; and
70,823,838 for the nine months of 1995). Under a program begun in
1983, the Company has acquired to date 13,008,670 shares of common
stock of which 1,544,835 shares have been reissued for general
corporate purposes. The remaining treasury stock has been excluded in
determining the average number of shares outstanding during each
period. Common share equivalents arising from shares awarded under
the Senior Executive Compensation Program which was initiated in
fiscal year 1978 and various deferred share equivalents have also been
excluded from the computation because of their insignificant dilutive
effect.
5. Contingencies
As discussed under Item 3 of the Company's Annual Report on Form 10-K
for the fiscal year ended December 2, 1995, Hillenbrand Industries,
Inc., and its subsidiary Hill-Rom Company, Inc., are the subject of an
antitrust suit brought by a competitor in the health care equipment
market. The plaintiff seeks monetary damages totaling in excess of
$268.5 million, trebling of any damages that may be allowed by the
court, and injunctions to prevent further alleged unlawful activities.
The Company believes that the claims are without merit and is
aggressively defending itself against all allegations. There was no
material change in the status of this litigation during the quarter
ended August 31, 1996.
The Company has voluntarily entered into remediation agreements with
environmental authorities, and has been issued Notices of Violation
alleging violations of certain permit conditions. Accordingly, the
Company is in the process of implementing plans of abatement in
compliance with agreements and regulations. The Company has also been
notified as a potentially responsible party in investigations of
certain offsite disposal facilities. The cost of all plans of
abatement and waste site cleanups in which the Company is currently
involved is not expected to exceed $10.0 million. The Company has
provided adequate reserves in its financial statements for these
matters. Changes in environmental law might affect the Company's
future operations, capital expenditures and earnings. The cost of
complying with these provisions is not known.
The Company is subject to various other claims and contingencies
arising out of the normal course of business, including those relating
to commercial transactions, product liability, safety, health, taxes,
environmental and other matters. Management believes that the
ultimate liability, if any, in excess of amounts already provided or
covered by insurance, is not likely to have a material adverse effect
on the Company's financial condition, results of operations or cash
flows.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995
Consolidated net revenues of $404.1 million were up $5.4 million, or 1.3%.
Health Care sales declined $3.7 million, or 2.7%, due primarily to lower sales
in Germany and France at Hill-Rom. This decline was largely offset by increased
unit sales of the Advance-Registered Trademark- series beds in the U.S. Sales
at Medeco Security Locks were down due to lower shipments in route management,
partially offset by strong door security shipments. Health Care sales were also
negatively affected by the sale of Block Medical in July. Health Care rental
revenue was marginally lower in the third quarter as lower revenue (lower rates
and units) in the U.S. acute care market was mostly offset by growth (higher
rates and units) in the U.S. long-term care market. Rental revenue in the home
care market was marginally higher, although unit growth continued to be
hampered by changes in Medicare reimbursement policy. Funeral Services sales
were up $2.3 million, or 1.9%, due to a first quarter price increase and higher
sales of Options-TM- cremation caskets and urns. Traditional casket unit volume
was up marginally from the third quarter of 1995. Insurance revenues
grew $7.6 million, or 16.0%, to $55.3 million. Earned premium revenue was up
due to a greater number of policies in force year over year and investment
income increased on the strength of a larger investment portfolio, partially
offset by marginally lower yields.
Gross profit on Health Care sales of $55.7 million increased $4.5 million, or
8.8%, due primarily to increased sales of Advance-Registered Trademark- series
beds, partially offset by higher operating losses in Europe, lower shipments at
Medeco and the sale of Block Medical in July. As a percentage of revenues,
gross profit improved from 36.9% to 41.2% due primarily to increased volume of
higher margin products in the U.S. (including the Advance-Registered Trademark-
series bed). Margins in 1995 were negatively affected by lower electric bed
shipments and higher sales of lower margin used furniture. Gross profit on
rental revenues of $33.2 million grew $3.8 million, or 12.9%, and as a
percentage of revenues improved from 32.2% to 36.7%. This improvement reflected
lower therapy unit service costs, partially offset by higher depreciation.
Funeral Services gross profit of $57.1 million increased $3.2 million, or 5.8%,
and as a percentage of sales was 46.3% versus 44.6% in the third quarter of 1995
due primarily to lower material costs, partially offset by increased sales of
lower priced caskets. Insurance gross profit of $17.0 million was up $4.9
million, or 40.1%. Improvements in the commission and product structure and
higher investment income offset growth in benefits and credited interest on the
larger base of insurance in force.
Other operating expenses increased $8.9 million, or 9.1%, and as a percentage of
revenues were 26.4% compared with 24.6% in 1995. This increase was due
primarily to higher incentive compensation expense as a result of improved
performance. Effective cost control is a priority throughout the Company and
continues to favorably impact operating results.
8
<PAGE>
Interest expense increased $974 thousand, or 17.5%, due to higher debt
associated with European operations.
Other income, net, reflects the $3.2 million pre-tax gain on the sale of the
Block Medical assets and higher investment income generated by higher average
levels of interest - earning assets.
The Company's consolidated effective income tax rate of 39.0% in the third
quarter compares with 40.2% in the first two quarters of 1996 and 43.2% in the
third quarter of 1995. The provision in the third quarter of 1996 includes the
recognition of an income tax benefit of approximately $6.0 million generated by
the book and tax differences in the basis of Block Medical. This item was
essentially offset by an increase in the provision resulting from higher
operating losses in Europe for which the Company is not currently deriving any
tax benefit. In the third quarter of 1995 the effective rate was increased from
38.2% to 43.2% to reflect higher than anticipated operating losses in Europe and
lower than expected U.S. earnings before tax.
NINE MONTHS ENDED AUGUST 31, 1996 COMPARED WITH NINE MONTHS
ENDED SEPTEMBER 2, 1995
Except as noted below, the factors affecting third quarter comparisons also
affected year to date comparisons.
Consolidated net revenues were up 5.2% to $1.3 billion. Health Care sales
increased $20.3 million, or 5.0%, due primarily to strong Advance-Registered
Trademark- series bed shipments by Hill-Rom in the U.S. This growth was
partially offset by lower year to date sales in France and Germany, lower
sales at Medeco and the sale of Block Medical. Health Care rental revenues
increased $6.2 million, or 2.3%. Year over year growth in the home care
market continues to slow due to the aforementioned changes in Medicare
reimbursement policy. Funeral services sales were $10.4 million, or 2.7%,
higher through nine months, and Insurance revenues increased $25.4 million,
or 18.7%.
Gross profit on Health Care sales and rentals increased $18.6 million and $15.3
million, respectively, and as a percentage of revenues improved 2.5 and 4.7
percentage points. Funeral Services gross profit was up $7.1 million, or 4.0%,
and as a percentage of sales was essentially unchanged at 46.5% due to a shift
to lower margin products in the second and third quarters. Insurance gross
profit increased $9.0 million, or 27.3%.
Other operating expenses of $326.9 million were up $20.8 million, or 6.8%.
The $7.4 million increase in other income, net, reflects the pre-tax gain on the
sale of Block assets and higher investment income.
9
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LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities and selected borrowings represent
the Company's primary sources of funds for growth of the business, including
capital expenditures and acquisitions. Cash and cash equivalents (excluding
the investments of insurance operations) grew from $171.3 million at the end
of 1995 to $213.2 million at the end of the third quarter. Net cash flows
from operating activities of $160.1 million were up $34.0 million due
primarily to higher earnings and a smaller increase in net working capital.
Inventories declined $12.2 million versus a $10.3 million increase through
the third quarter of 1995. The 1995 increase reflected additional product
evaluation inventory at Hill-Rom. The decline in 1996 was due to higher
shipments and improved inventory management at Hill-Rom. Annualized
inventory turns on sales improved from 9.6 at year end to 11.1 at quarter
end. Accounts receivable days sales outstanding were 72 at the end of the
third quarter versus 80 at year end 1995.
Capital spending of $70.6 million was higher than in the first nine months of
1995 due to increased production of therapy rental units and expenditures
relative to improving operations in Europe. Investment purchases in insurance
operations reflected funds available from the sale of investments prior to
maturity as Forethought realigns its portfolio to better match maturities with
expected policy benefit payments.
In the first and third quarters, the Company utilized short-term borrowings at a
favorable interest rate to pay down certain debt and fund operations in Europe.
Additional debt capacity allows the Company considerable flexibility in the
funding of future growth in all operations. The increase in insurnace benefits
paid primarily reflects increased insurance in force year over year.
FACTORS THAT MAY AFFECT FUTURE RESULTS
U.S. acute care capital shipments and orders were steady through the third
quarter. However, the long-term strength of future order patterns remains
uncertain. Changes in Medicare reimbursement policy negatively affected
Hill-Rom's rental revenues beginning in the second quarter. This trend will
continue. Losses in certain European operations will continue throughout
1996 and into 1997.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
EXHIBIT NO. DESCRIPTION
27 Financial Data Schedule
B. Reports on Form 8-K
The following report on Form 8-K was filed during the quarter ending
August 31, 1996:
Item 2. Acquisition or Disposition of Assets
Date of Report: July 22, 1996
Unaudited pro forma condensed financial statements filed with report:
Balance sheet as at June 1, 1996
Statements of income:
Year ended December 2, 1995
Six months ended June 1, 1996
Notes to pro forma financial information
11
<PAGE>
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.
HILLENBRAND INDUSTRIES, INC.
DATE: October 11, 1996 BY: /S/ Tom E. Brewer
Tom E. Brewer
Chief Financial Officer
DATE: October 11, 1996 BY: /S/ James D. Van De Velde
James D. Van De Velde
Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-03-1995
<PERIOD-END> AUG-31-1996
<CASH> 213,169
<SECURITIES> 0
<RECEIVABLES> 307,680
<ALLOWANCES> 17,696
<INVENTORY> 97,284
<CURRENT-ASSETS> 646,787
<PP&E> 938,742
<DEPRECIATION> 582,976
<TOTAL-ASSETS> 3,229,813
<CURRENT-LIABILITIES> 298,703
<BONDS> 204,837
0
0
<COMMON> 4,442
<OTHER-SE> 706,890
<TOTAL-LIABILITY-AND-EQUITY> 3,229,813
<SALES> 820,708
<TOTAL-REVENUES> 1,262,130
<CGS> 464,593
<TOTAL-COSTS> 760,298
<OTHER-EXPENSES> 326,852
<LOSS-PROVISION> 1,600
<INTEREST-EXPENSE> 19,085
<INCOME-PRETAX> 168,870
<INCOME-TAX> 67,210
<INCOME-CONTINUING> 101,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,660
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
