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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1995
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 1-7608
LOCTITE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-0701067
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
10 COLUMBUS BOULEVARD, HARTFORD, CONNECTICUT 06106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(203) 520-5000
(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 / /
The number of shares of common stock outstanding as of April 30, 1995, was
35,377,935, $.01 par value.
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INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statement of Earnings and Retained Earnings for the
quarters ended March 31, 1995 and 1994............................ 2
Consolidated Statement of Cash Flows for the three-month periods
ended March 31, 1995 and 1994..................................... 3
Consolidated Balance Sheet at March 31, 1995 and December 31,
1994.............................................................. 4-5
Notes To Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Changes in Financial Condition.................................... 7-9
PART II. OTHER INFORMATION
Item 6. Listing of Exhibits and Reports on Form 8-K......................... 10
Signatures.................................................................... 11
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
(Unaudited)
(amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
-----------------------
<S> <C> <C>
Net sales............................................................ $196,797 $159,882
Cost of sales........................................................ 73,932 62,075
-------- --------
Gross margin......................................................... 122,865 97,807
-------- --------
Research & development expense....................................... 7,183 6,559
Selling, general and administrative expenses......................... 81,474 64,037
-------- --------
88,657 70,596
-------- --------
Earnings from operations............................................. 34,208 27,211
Investment income.................................................... 1,271 2,218
Interest expense..................................................... (1,744) (1,407)
Other income (expense)............................................... 174 (934)
Foreign exchange loss................................................ (612) (2,682)
-------- --------
Earnings before income taxes......................................... 33,297 24,406
Provisions for income taxes.......................................... 8,657 6,102
-------- --------
Net earnings......................................................... 24,640 18,304
Retained earnings, beginning of period............................... 389,514 342,441
Less:
Cash dividends declared (1995 -- $.21 and 1994 -- $.20).............. 7,528 7,078
Stock repurchases.................................................... 2,522 3,239
-------- --------
Retained earnings, end of period..................................... $404,104 $350,428
======== ========
Earnings per share................................................... $ 0.70 $ 0.52
======== ========
Average number of shares outstanding................................. 35,368 35,372
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
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LOCTITE CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1995 1994
-----------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.................................................... $ 24,640 $ 18,304
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization.............................. 8,114 6,892
Deferred income taxes...................................... (374) 20
(Gain) loss on sale of fixed assets........................ (49) 720
Provision for losses -- accounts receivable................ 831 555
Undistributed earnings of affiliates....................... (31) (2)
Change in:
Trade and other receivables................................ (15,819) (8,459)
Inventory.................................................. (5,428) (3,558)
Prepaid and other current assets........................... (4,585) (1,704)
Accounts payable and accrued expenses...................... (12,861) (12,031)
Interest payable........................................... 363 (201)
Taxes payable.............................................. 5,950 2,816
Other........................................................... 2,571 1,560
-------- --------
Cash provided by operating activities................................ 3,322 4,912
-------- --------
Cash flows from investing activities:
Additions to property, plant and equipment...................... (6,030) (13,379)
Dispositions of property, plant and equipment................... 176 165
Goodwill & intangible portion of acquisitions................... (4,898) (13,325)
(Increase) decrease in short-term investments................... (4,754) 7,135
(Increase) decrease in long-term investments.................... (199) 438
-------- --------
Cash used in investing activities.................................... (15,705) (18,966)
-------- --------
Cash flows from financing activities:
Stock repurchases............................................... (1,909) (1,647)
Issuances of common stock....................................... 1,067 1,720
Dividends paid.................................................. (7,525) (7,079)
Increase (decrease) in short-term debt.......................... 11,400 (435)
(Decrease) increase in long-term debt........................... (106) 14
Payments under capital lease obligations........................ (510) (259)
-------- --------
Cash provided by (used in) financing activities...................... 2,417 (7,686)
-------- --------
Effect of exchange rate changes on cash.............................. 514 550
-------- --------
Decrease in cash and cash equivalents................................ (9,452) (21,190)
Cash and cash equivalents:
Beginning of period............................................. 33,264 44,552
-------- --------
End of period................................................... $ 23,812 $ 23,362
======== ========
Interest paid........................................................ $ 1,317 $ 1,906
Taxes paid (net of refunds).......................................... $ 3,087 $ 2,702
</TABLE>
The accompanying notes are an integral part of these statements.
3
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LOCTITE CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 23,812 $ 33,264
Time and certificates of deposit................................ 41,426 34,594
Marketable securities........................................... 109 96
Accounts and notes receivable (less allowances of $6,439 and
$5,811)........................................................ 158,143 139,093
Other receivables............................................... 18,779 14,577
Inventories:
Finished goods............................................. 54,965 49,824
Work in process............................................ 23,683 22,463
Raw materials.............................................. 23,921 22,585
-------- --------
102,569 94,872
Deferred income tax benefit..................................... 14,291 13,978
Prepaid expenses and other current assets....................... 16,038 11,150
-------- --------
Total current assets................................................. 375,167 341,624
-------- --------
Investments:
Marketable securities and other long-term investments........... 183 192
Venture capital investments..................................... 4,888 4,687
-------- --------
5,071 4,879
-------- --------
Property, plant and equipment:
Land and land improvements...................................... 23,497 22,378
Buildings....................................................... 126,384 121,480
Machinery and equipment......................................... 204,978 197,194
Construction in progress........................................ 2,086 1,913
-------- --------
356,945 342,965
Less -- accumulated depreciation................................ 147,450 139,627
-------- --------
209,495 203,338
Deferred income tax benefit.......................................... 6,549 6,463
Goodwill (net of amortization of $18,586 and $17,761)................ 101,424 94,725
Other intangibles (net of amortization of $9,106 and $8,743)......... 14,514 14,232
Other assets......................................................... 3,995 3,815
-------- --------
Total assets......................................................... $716,215 $669,076
======== ========
</TABLE>
The accompanying notes are an integral part of these financials.
4
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<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
--------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt................................................. $106,067 $ 94,202
Long-term debt -- current maturities............................ 554 530
Accounts payable................................................ 34,937 35,719
Accrued salaries, wages and other compensation.................. 17,377 23,185
Accrued taxes, other than income taxes.......................... 6,633 5,643
Accrued income taxes............................................ 24,758 18,956
Dividends payable............................................... 7,431 7,428
Accrued pension and retirement benefits......................... 4,989 4,407
Accrued insurance............................................... 6,819 6,595
Accrued liabilities--other...................................... 26,110 21,070
-------- --------
Total current liabilities............................................ 235,675 217,735
-------- --------
Long-term liabilities:
Long-term debt.................................................. 2,801 2,694
Capital lease obligations....................................... 2,496 2,189
Retirement and postretirement obligations....................... 14,345 13,236
Other........................................................... 11,359 9,862
-------- --------
31,001 27,981
-------- --------
Stockholders' equity:
Common stock, $.01 par value:................................... 46,117 45,128
Authorized 100,000,000 shares; issued 35,362,750 shares
at March 31, 1995 and 35,369,678 shares at December 31,
1994
Retained earnings............................................... 404,104 389,514
Foreign currency translation adjustment......................... 1,974 (8,552)
Investment valuation allowance.................................. (20) (215)
Adjustment for minimum pension liability........................ (2,636) (2,515)
-------- --------
Total stockholders' equity........................................... 449,539 423,360
-------- --------
Total liabilities and stockholders' equity........................... $716,215 $669,076
======== ========
</TABLE>
5
<PAGE> 8
LOCTITE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in the accompanying
unaudited financial statements. All such adjustments are of a normal recurring
nature.
The notes to the consolidated financial statements contained in Loctite
Corporation's December 31, 1994 Annual Report on Form 10-K should be read in
conjunction with the consolidated financial statements and notes to consolidated
financial statements contained herein.
NOTE 2 -- ACQUISITIONS
During the first quarter of 1995, the Company acquired certain assets from
its distributor in Sweden and merged this business with the Loctite Sweden AB
subsidiary. The cost of this acquisition is not material to the Company for
purposes of pro forma presentation.
NOTE 3 -- INCREASE IN AUTHORIZED SHARES
On April 26, 1995, the shareholders of the Company approved an amendment to
Article Four of the Certificate of Incorporation to increase the authorized
number of shares of Common Stock of Loctite Corporation from 100,000,000 shares
to 300,000,000 shares.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND CHANGES IN FINANCIAL CONDITION
OPERATING RESULTS
QUARTER ENDED MARCH 31, 1995 VERSUS QUARTER ENDED MARCH 31, 1994
Loctite management primarily measures the results of the Company based on
businesses and regions. Trade sales between regions are reflected as sales of
the region servicing the customer.
Net sales for the quarters ended March 31, 1995 and March 31, 1994 were
$196.8 million and $159.9 million, respectively. A summary (in millions) is as
follows:
<TABLE>
<CAPTION>
QUARTER QUARTER LOCAL
ENDED ENDED DOLLAR CURRENCY
3/31/95 3/31/94 % GROWTH % GROWTH
------- ------- -------- --------
<S> <C> <C> <C> <C>
SALES:
North American Region............................. $ 67.8 $ 64.3 6% 8%
European Region................................... 83.4 62.6 33 21
Asia/Pacific Region............................... 19.6 14.9 32 22
Latin American Region............................. 22.9 15.4 49 50
Luminescent Systems............................... 3.1 2.7 14 14
------- ------- ---- ----
TOTAL SALES.................................. $196.8 $159.9 23% 18%
------- ------- ---- ----
------- ------- ---- ----
Industrial Business:
North American Region............................. $ 40.2 $ 37.6 7% 9%
European Region................................... 46.4 32.7 42 27
Asia/Pacific Region............................... 17.4 13.2 33 23
Latin American Region............................. 6.5 4.6 41 41
Luminescent Systems............................... 3.1 2.7 14 14
------- ------- ---- ----
Total Industrial Business Sales.............. $113.6 $ 90.8 25% 20%
------- ------- ---- ----
------- ------- ---- ----
Automotive Aftermarket Business:
North American Region............................. $ 16.8 $ 16.8 -- 2%
European Region................................... 11.7 10.7 10% (1)
Asia/Pacific Region............................... 1.8 1.3 30 24
Latin American Region............................. 3.0 2.2 33 36
------- ------- ---- ----
Total Automotive Aftermarket Business
Sales...................................... $ 33.3 $ 31.0 7% 4%
------- ------- ---- ----
------- ------- ---- ----
Retail (Consumer) Business:
North American Region............................. $ 10.8 $ 9.9 9% 10%
European Region................................... 25.3 19.2 32 21
Asia/Pacific Region............................... .4 .4 n/m n/m
Latin American Region............................. 13.4 8.6 58 59
------- ------- ---- ----
Total Retail (Consumer) Business Sales....... $ 49.9 $ 38.1 31% 26%
------- ------- ---- ----
------- ------- ---- ----
</TABLE>
- ---------------
n/m = not meaningful.
Certain prior period amounts were reclassified between regions and businesses to
conform with the 1995 presentation.
7
<PAGE> 10
Sales in the North American region increased by 8% in local currency and 6%
in U.S. dollars, in comparison to the first quarter of 1994. The retail
(consumer) business strong growth of 10% in local currency and 9% in U.S.
dollars was the result of increased promotional activity. In the industrial
business, volume increases in major product lines contributed to the growth of
9% in local currency and 7% in U.S. dollars. The automotive aftermarket
continued as a slower growth area in North America. The sale of a small
business, Loctite VSI, in 1994 had a slight effect on the quarterly results
comparison.
In the European region, local currency sales growth of 21% was enhanced to
33% in U.S. dollars as the exchange rate comparison continued to be favorable.
The five major countries (France, Italy, U.K., Germany, and Spain) reported an
average local sales growth of 17%. The Swedish distributor acquired in 1995 and
the 1994 acquisitions discussed in the 1994 Annual Report on Form 10-K have
contributed to the sales growth in the first quarter of 1995. Sales in the
industrial market in the European region improved by 27% in local currencies and
42% in U.S. dollars as the Company began to benefit from a new structure and a
re-emphasis on market focus. Additionally, sales in the retail (consumer)
business grew by 21% in local currencies and 32% in U.S. dollars as a result of
expanded advertising and sales efforts.
The Asia/Pacific region's local currency sales gains of 22% were increased
to 32% in U.S. dollars primarily due to the strength of the Japanese yen in
relation to the U.S. dollar. All major countries (Japan, Australia, Korea,
Singapore, and Malaysia) registered double digit sales growth in both local
currency and U.S. dollars. Management's redirection of sales efforts contributed
to volume increases in major product lines in both the industrial and automotive
aftermarket business. This was the predominant factor in this region's sales
growth.
Latin American sales increased 49% in U.S. dollars compared to the first
quarter of 1994. All major countries (Brazil, Venezuela, Costa Rica, Colombia,
and Chile) reported double digit percentage growth. In Brazil, sales increases
were experienced in all three businesses as buyers continued to react positively
to the new Brazilian economic plan implemented during the second quarter of
1994. Significant volume increases were seen in major product lines throughout
the industrial, automotive aftermarket and retail (consumer) businesses.
Luminescent Systems' sales increased by 14% in U.S. dollars in comparison
to the first quarter of 1994. This increase is the result of rising sales of
aviation lighting and electrical components for the automotive industry.
Gross margin increased from 61.2% of sales in the first quarter of 1994 to
62.4% in the first quarter of 1995. The mix in sales by business and geographic
region is a contributing factor to this improvement. The improved margin
percentages in the European, Pacific, and Latin American regions were partially
offset by the decrease in the North American region.
Operating expenses as a percentage to sales were 45% in the first quarter
of 1995 and 44% in the first quarter of 1994. Of the total $18.1 million
increase, marketing expenses increased by $14.0 million or 29% to support the
increased sales volume, advertising campaigns principally in the U.K. and
France, and the 18% increase in the sales and marketing headcount.
Investment income for the quarter ended March 31, 1995 was $0.9 million
lower than the respective prior year quarter due in large part to lower average
deposit levels in foreign locations.
Other income (expense) for the quarter ended March 31, 1995 improved by
$1.1 million in relation to the corresponding prior year quarter due largely to
the sale of a small operation, Canton Biomedical Division of Loctite VSI, Inc.,
which resulted in a $0.8 million pre-tax loss recorded during the first quarter
of 1994.
Foreign exchange loss improved by $2.1 million during the quarter ended
March 31, 1995 versus the comparable prior year quarter due primarily to the new
economic plan introduced in Brasil during the second quarter of 1994. The plan
has had the effect of dramatically reducing rates of inflation and currency
devaluation to approximately 2% per month during the first quarter of 1995
compared to rates of inflation and currency devaluation of approximately 40% per
month during the first quarter of 1994.
8
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Income taxes, as a percentage of earnings before taxes, were 26% for the
three month period ended March 31, 1995 and 25% for the comparable period ended
March 31, 1994.
FINANCIAL CONDITION
The decrease in cash and cash equivalents from $33.3 at December 31, 1994
to 23.8 million at March 31, 1995 and the related increase in short-term debt
from $94.2 million at December 31, 1994 to $106.1 million at March 31, 1995 was
primarily due to cash outflow for dividends paid, additions to property, plant
and equipment, and acquisition of a Sweden distributor and installment payments
on previous acquisitions, partially offset by cash provided by operating
activities. For complete details of the change in cash and cash equivalents see
the financial statement titled "Consolidated Statement of Cash Flows."
Accounts and notes receivable increased by $19.1 million from December 31,
1994 to March 31, 1995. A portion of this increase is attributed to a $4.7
million foreign currency translation effect due to a comparatively weaker U.S.
dollar at March 31, 1995 versus December 31, 1994. The largest increases were
reported in Europe, resulting from increased sales activity.
Goodwill increased from $94.7 million at December 31, 1994 to $101.4
million at March 31, 1995 primarily due to the acquisition of a Swedish
distributor during the first quarter of 1995.
The improvement in the foreign currency translation adjustment in
stockholders' equity from a $8.6 million negative position at December 31, 1994
to a $2.0 million positive position at March 31, 1995, was due to the effect of
a comparatively weaker U.S. dollar on the Company's net asset position at March
31 in its foreign subsidiaries.
ACQUISITIONS
During the first quarter of 1995 the Company acquired certain assets from
its distributor in Sweden and merged this business with its Loctite Sweden AB
subsidiary. The cost of this acquisition was not material to the Company.
ENVIRONMENTAL MATTERS
Continuing compliance with existing federal, state, and local provisions
dealing with protection of the environment is not expected to have a material
effect upon the Company's capital expenditures, earnings, and competitive
position. As previously reported in its 1994 Annual Report on Form 10-K, the
Company has been investigating a soil and groundwater contamination problem at
its Newington, Connecticut facility which has probably resulted from the failure
of an underground storage tank and/or prior waste handling practices by Company
personnel, or by other prior or concurrent users of the site, and/or adjacent
sites. The tank, which formerly held chlorinated solvents, has been removed.
Consultants hired by the Company have been working closely with officials of the
Connecticut Department of Environmental Protection ("DEP") to identify the exact
source(s) of the contamination and its/their parameters. The Company spent
approximately $0.2 million in 1993 and approximately $0.5 million in 1994 in
continuing subsurface investigation and is nearing the completion of the
investigative phase of the work at this site. The Company expects to spend
approximately $0.9 million in 1995 to implement a site remediation plan
developed by the Company's environmental consultants and for additional
professional consulting services related thereto, including additional
investigative work, on-going operation and maintenance of equipment, and initial
monitoring costs.
The DEP, in consultation with the U.S. Environmental Protection Agency, has
recently determined that the remediation program is not subject to federal
jurisdiction as a hazardous waste storage facility under the Resource
Conservation and Recovery Act. Therefore, the remediation program will be
implemented with the oversight of the DEP. Given this program, the Company
believes that the aforementioned costs are reasonable and that after 1995
expenditures will be in the range of $0.1 million per year for an indefinite
period to operate and maintain site remediation equipment. The Company does not
presently anticipate any further expenditures in connection with site
remediation beyond those mentioned above.
9
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter -- None
10
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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.
LOCTITE CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date: May 12, 1995 By: /s/ DAVID FREEMAN
---------------------------------------------
David Freeman
President and Chief Executive Officer
Date: May 12, 1995 By: /s/ ROBERT L. ALLER
---------------------------------------------
Robert L. Aller, Senior Vice President
and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 23,812
<SECURITIES> 109
<RECEIVABLES> 164,582
<ALLOWANCES> 6,439
<INVENTORY> 102,569
<CURRENT-ASSETS> 375,167
<PP&E> 356,945
<DEPRECIATION> 147,450
<TOTAL-ASSETS> 716,215
<CURRENT-LIABILITIES> 235,675
<BONDS> 5,297
<COMMON> 46,117
0
0
<OTHER-SE> 403,422
<TOTAL-LIABILITY-AND-EQUITY> 716,215
<SALES> 196,797
<TOTAL-REVENUES> 196,797
<CGS> 73,932
<TOTAL-COSTS> 73,932
<OTHER-EXPENSES> 87,826
<LOSS-PROVISION> 831
<INTEREST-EXPENSE> 1,744
<INCOME-PRETAX> 33,297
<INCOME-TAX> 8,657
<INCOME-CONTINUING> 24,640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,640
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
