U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to ______________
Commission file number 0 - 7 0 9 3
------------------
MOD-U-KRAF HOMES, INC.
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(Exact name of small business issurer as
specified in its charter)
VIRGINIA 54-0893908
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
P. O. BOX 573, ROCKY MOUNT, VIRGINIA 24151
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(Address of principal executive offices)
(540) 483-0291
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issure (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: 825,649
----------
1
MOD-U-KRAF HOMES, INC.
INDEX
PART I - FINANCIAL INFORMATION
Balance Sheets 3 & 4
Statements of Income 5 & 6
Statements of Cash Flows 7 & 8
Management's Discussion and Analysis 9
Notes to Financial Information 10
PART II - OTHER INFORMATION 11
2
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
September 30, 1999 and 1998
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $2,345,654 $ 733,178
Receivables 49,948 900,229
Cost and estimated earnings in excess
of billings on uncompleted contracts 328,066 163,224
Inventories (Note 4) 2,804,166 2,049,755
Notes receivable, current portion (Note 5) 593,395 510,038
Prepaid expenses 41,019 51,483
Income taxes receivable 12,430 129,495
---------- ----------
Total current assets 6,174,678 4,537,402
LONG-TERM NOTES RECEIVABLE (Note 5) 147,101 162,215
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation 1999 $3,251,946;
1998 $2,869,390. (Note 6) 3,350,187 3,705,389
OTHER ASSETS
Deferred income taxes 416,381 422,644
Cash surrender value of life insurance 166,864 156,821
Reimbursement Account (Note 8) 135,715 129,166
Bond Issue Costs (Note 8) 62,420 66,380
Model homes 460,963 370,531
---------- ----------
$10,914,309 $9,550,548
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 233,374 226,559
Accounts payable and other liabilities 807,343 753,891
Accrued compensation 377,307 279,772
Customer deposits 304,573 178,903
Income taxes payable 549,247 0
---------- ----------
Total current liabilities 2,271,844 1,439,125
LONG-TERM DEFERRED COMPENSATION (Note 7) 861,998 945,372
LONG-TERM DEBT (Note 8) 2,250,000 2,400,000
---------- ----------
Total liabilities 5,383,842 4,784,497
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1999 825,649, 1998 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 4,245,147 3,480,731
---------- ----------
5,530,467 4,766,051
---------- ----------
$10,914,309 $9,550,548
========== ==========
Accompanying notes are an integral part of these financial statements.
3
MOD-U-KRAF HOMES, INC.
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
ASSETS 1999 1998
---------- ----------
CURRENT ASSETS
Cash and cash equivalents $2,345,654 $1,653,742
Receivables 46,948 351,972
Inventories (Note 4) 2,804,166 1,618,016
Cost & estimated earnings in excess
of billings on uncompleted contracts 328,066 0
Notes receivable, current portion (Note 5) 593,395 645,962
Prepaid expenses 41,019 34,627
Income taxes receivable 12,430 76,900
---------- ----------
Total current assets 6,174,678 4,381,219
LONG-TERM NOTES RECEIVABLE (Note 5) 147,101 7,663
PROPERTY AND EQUIPMENT, at cost less
accumulated depreciation
1999 $3,251,946;1998 $2,931,084.(Note 6) 3,350,187 3,574,488
OTHER ASSETS
Deferred income taxes 416,381 416,381
Cash surrender value of life insurance 166,864 157,732
Reimbursement Account (Note 8) 135,715 155,160
Bond Issue Costs (Note 8) 62,420 65,390
Model homes 460,963 477,257
---------- ----------
$10,914,309 $9,235,290
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of L-T liabilities(Note 7 & 8) 233,374 228,279
Accounts payable and other liabilities 807,343 545,378
Accrued compensation 377,307 220,408
Customer deposits 304,573 157,200
Income taxes payable 549,247 0
---------- ----------
Total current liabilities 2,271,844 1,151,265
LONG-TERM DEFERRED COMPENSATION (Note 7) 861,998 925,123
LONG-TERM DEBT (Note 8) 2,250,000 2,400,000
---------- ----------
Total liabilities 5,383,842 4,476,388
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $1 par value, 2,000,000 shares
authorized: shares issued & outstanding
1999 825,649, 1998 825,649 825,649 825,649
Additional Paid in Capital 459,671 459,671
Retained earnings 4,245,147 3,473,582
---------- ----------
5,530,467 4,758,902
---------- ----------
$10,914,309 $9,235,290
========== ==========
Accompanying notes are an integral part of these financial statements.
4
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Quarters Ended September 30, 1999 and September 30, 1998
1999 1998
---------- ----------
Net Sales $6,223,296 $4,207,328
Cost of Sales 4,585,678 3,364,320
---------- ----------
1,637,618 843,008
Selling, General and Administrative
Expenses 1,034,361 856,195
---------- ----------
Income/<Loss> from Operations 603,257 (13,187)
Deferred Compensation Expense 17,926 19,228
Post Retirement Benefits Expense 2,604 2,743
Non-operating Income/<Expenses> (3,620) (15,963)
---------- ----------
Income/<Loss> Before Income Taxes 579,107 (51,121)
Income Taxes 231,642 (79,409)
---------- ----------
Net Income / <Loss> $ 347,465 $ 28,288
========== ===========
Earnings per share:
Net Income / <Loss> $ 0.42 $ 0.03
========== ===========
Depreciation Included in Above Cost $ 109,852 $ 120,373
========== ===========
Accompanying notes are an integral part of these financial statements.
5
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Income
Six Months Ended September 30, 1999 and September 30, 1998
1999 1998
---------- ----------
Net Sales $16,245,886 $10,829,329
Cost of Sales 12,113,238 8,393,103
---------- ----------
4,132,648 2,436,226
Selling, General and Administrative
Expenses 2,661,323 2,225,373
---------- ----------
Income/<Loss> from Operations 1,471,325 210,853
Deferred Compensation Expense 54,526 58,710
Post Retirement Benefits Expense 7,872 8,342
Non-operating Income/<Expenses> (12,805) (66,074)
----------- ----------
Income/<Loss> Before Income Taxes 1,396,122 77,727
Income Taxes 550,278 (20,019)
---------- ----------
Net Income / <Loss> $ 845,844 $ 97,746
========== ==========
Earnings per share:
Net Income / <Loss> $ 1.02 $ 0.12
========== ==========
Depreciation Included in Above Cost $ 343,751 $ 370,015
========== ==========
Accompanying notes are an integral part of these financial statements.
6
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Quarters Ended September 30, 1999 and 1998
1999 1998
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 347,462 $ 28,288
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 109,852 120,373
Deferred income taxes 0 17,268
Loss (gain) on sale of equipment 0 0
Increase in cash value of life insurance (905) ( 906)
Adjustments to post retirement benefits (19,612) (18,171)
<Increase> decrease in:
Trade receivables 142,242 (343,720)
Cost and estimated earnings in excess
of billings on uncompleted contracts (201,529) 18,353
Inventories 310,360 18,093
Prepaid Expenses (40,689) (31,347)
Model placement costs 8,009 8,695
Income taxes receivable (2,560) (118,277)
<Decrease> increase in:
Accounts payable and other Liabilities (150,658) 335,411
Accrued compensation 162,973 65,382
Customer deposits 59,181 43,620
Income taxes payable 231,642 0
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Net cash provided by (used in)
operations 955,768 143,062
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 0 0
Purchase of plant & equipment net of
debt incurred 1999 $0, 1998 $0 (38,862) (46,904)
<Increase> decrease in notes receivable
arising from sales (147,224) 106,782
<Increase> decrease in certificates of deposit 0 0
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Net cash provided by (used in)
investing activities (186,086) 59,878
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FINANCING ACTIVITIES
Payments on short-term borrowings 0 (400,000)
Cash dividends paid (24,769) (24,769)
Payments on Long-term debt (150,000) (150,000)
Debt issue costs, net of debt incurred
1999 $0, 1998 $0 990 61,235
Funding of reimbursement account 111,385 111,312
Earnings on unused bond proceeds (8) 117,174
---------- ----------
Net cash provided by (used in)
financing activities (62,402) (285,048)
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Net increase (decrease) in cash 707,280 (82,108)
CASH
Beginning 1,638,374 815,286
---------- ----------
Ending $2,345,654 $ 733,178
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 20,791 $ 22,601
Income taxes $ 2,560 $ 21,600
Accompanying notes are an integral part of these financial statements.
7
MOD-U-KRAF HOMES, INC.
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1999 and 1998
1999 1998
OPERATING ACTIVITIES ---------- ----------
Net Income/<Loss> $ 845,843 $ 97,746
Noncash <income> expenses included
in income or <loss>:
Depreciation and amortization 343,751 370,015
Deferred income taxes 0 41,629
Loss (gain) on sale of equipment (5,000) 0
Increase in cash value of life insurance (9,132) (18,943)
Adjustments to post retirement benefits (58,030) (53,376)
<Increase> decrease in:
Trade receivables 225,820 (754,783)
Cost and estimated earnings in excess
of billings on uncompleted contracts (251,862) (117,216)
Inventories (1,186,150) 203,308
Prepaid Expenses (6,362) (6,597)
Model placement cost 16,295 (134,514)
Income taxes receivable 64,470 (129,495)
<Decrease> increase in:
Accounts payable and other Liabilities 261,965 387,581
Accrued compensation 156,900 118,260
Customer deposits 147,373 95,176
Income taxes payable 549,247 (5,847)
---------- ----------
Net cash provided by (used in)
operations 1,095,128 92,944
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INVESTING ACTIVITIES
Proceeds from sale of property & equipment 5,000 0
Purchase of plant & equipment net of
debt incurred 1999 $0, 1998 $0 (119,451) (99,060)
<Increase> decrease in notes receivable
arising from sales (86,871) 165,677
<Increase> decrease in certificates of deposit 0 0
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Net cash provided by (used in)
investing activities (201,322) 66,617
---------- ----------
FINANCING ACTIVITIES
Short-term borrowings 0 400,000
Cash dividends paid (74,308) (74,278)
Payments on Short-term borrowings (400,000)
Payments on Long-term debt (150,000) (150,000)
Debt issue costs, net of debt incurred
1999 $0, 1998 $60,245 2,970 63,215
Funding of reimbursement account 19,467 31,792
Earnings on unused bond proceeds (23) 112,896
---------- ----------
Net cash provided by (used in)
financing activities (201,894) (16,375)
---------- ----------
Net increase (decrease) in cash 691,912 143,186
CASH
Beginning 1,653,742 589,992
---------- ----------
Ending $2,345,654 $ 733,178
========== ==========
SUPPLEMENTAL DISCOLOSRES OF CASH FLOW INFORMATION
Cash payments for:
Interest $ 62,265 $ 79,567
Income taxes $ 9,951 $ 73,654
Accompanying notes are an integral part of these financial statements.
8
MOD-U-KRAF HOMES, INC
Management's Discussion and Analysis
of the Third Quarter Statements
Net sales for the third quarter of 1999 were $6,223,296 as compared
to $4,207,328 for the third quarter of 1998, a 48% increase. Sales for
the first nine months of 1999 were $16,245,886 as compared to $10,829,329
in 1998 for a increase in sales volume of 50%.
Cost of Sales was 73.69% of net sales for the third quarter of 1999
and 79.96% for the third quarter of 1998. For the first nine months
cost of sales was 74.56% for 1999 compared to 77.50% for 1998.
Selling, General and Administrative expenses were 16.62% of net sales
for the third quarter of 1999 and 20.35% for the same quarter of 1998.
They were 16.38% for the first nine months of 1999 compared to 20.55% for
the same period in 1998.
The net income for the third quarter of 1999 is $347,465 compared
to net income of $28,288 for the third quarter of 1998. This is $0.42
per share for the third quarter of 1999 and $0.03 per share for the same
period in 1998. Net income for the first nine months is $845,844, $1.02
common share for 1999, compared to $97,746, $0.12 per common share, for
1998.
There was no significant changes in liquidity and capital resources
during the third quarter of the year. Production resumed in the Highway
40 facility on January 4, 1999 and is expected to remain operating for
the foreseeable future. Production at this facility had been suspended
December 18, 1997 because of the adverse weather conditions. It remained
idle through all of 1998. By December of 1998, demand for our houses had
reached a level necessitating starting preparations to re-open the facility.
The Company started a turnkey division a few years ago, which would
give individual Mod-U-Kraf Homes customers the option to have the Company
finish the entire project at the job site. In the past individual
customers would have to hire a contractor to dig out the basement, pour
the foundation, dig the well, put in a driveway, put the siding on the
house, etc to finish zipping up the house once it is set on the foundation.
Initially this was an immaterial part of our business and did not require
any special accounting procedures. Over the past year the Company's
Turnkey division has become a material source of revenue because of the
increased number of turnkey contracts in progress at the end of the quarter.
As a result, management has elected to recognize revenue from fixed-price
and modified fixed-price construction contracts on the percentage-of-
completion method, measured by the cost to cost method. This is reflected
on the Balance Sheet in "Costs and estimated earnings in excess of
billings on uncompleted contracts", which represents revenues recognized
in excess of amounts billed.
The year 2000 assessment of our internal computer systems has been
completed. We believe our computer systems and software are year 2000
compliant. Certain key vendors have informed us that they do not expect
disruptions of services relating to the year 2000 problem. A survey was
sent to our remaining key vendors in May of 1999 to try to determine
if they were year 2000 compliant. To date, all responses to the survey
have been positive. In the event we do get a negative respone to the
survey, a substitute vendor will be lined up. We replaced our telephone
system in August of this year at a cost of $27,000 because our old
telephone system was not year 2000 compliant. We do not foresee a
significat impact on our financial position as a result of this issue.
<PAGE>
9
MOD-U-KRAF HOMES, INC.
NOTES TO FINANCIAL INFORMATION
1. The financial information furnished herein is not certified, but re-
flects all adjustments, consisting only of normal recurring adjust-
ments which are, in the opinion of management, necessary to a fair
statement of the results for the quarter ended September 30, 1999.
The results for the quarter ended September 30, 1999 are not necessarily
indicative of results to be expected for the entire year. The housing
industry is seasonal in nature and revenues to the Company during
the period April 1 to September 30 are normally greater than revenue
during the balance of the year.
Both primary & fully diluted net income per common share are based
on the weighted average number of shares of common stock outstanding
during each year and common stock equivalents of dilutive stock
options.
2. Revenue and cost recognition
Revenues from fixed-price and modified fixed-price construction
contracts are recognized on the percentage-of-completion method,
measured by the cost-to-cost method. Revenues from cost-plus
contracts are recognized on the basis of costs incurred during the
period plus the fee earned.
Contract costs include all direct material and labor costs. General,
administrative, and indirect costs are charged to expense as incurred.
Provisions for estimated losses on uncompleted contracts are made
in the period in which such losses are determined. Changes in job
performance, job conditions, and estimated profitability are
recognized in the period in which the revisions are determined.
The asset, "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess
of amounts billed.
3. Cost and estimated earnings on uncompleted contracts
1999 1998
---- ----
Costs incurred on uncompleted contracts 572,003 1,744,395
Estimated earings 63,556 649,624
--------- -------
635,559 2,394,019
Less billings to date 307,493 2,230,795
----------- -------
Costs and estimated earnings in excess
of billings on uncompleted contracts 328,066 163,224
=========== =======
4. Inventories
The components of inventories are as follows 1999 1998
---- ----
Raw Materials 1,093,880 858,597
Work-In-Progress 382,706 195,732
Finished Goods 1,040,302 573,366
Land and Units held for sale 287,278 422,060
--------- ---------
2,804,166 2,049,755
========= =========
5. Notes Receivable 1999 1998
---- ----
Various mortgage notes receivable secured by
deeds of trust 152,522 159,381
Various construction loans(all current) 580,311 495,646
Demand note receivabe with interest payable
quarterly at 9%, unsecured - 3,938
Life insurance note receivable from an
officer of the Company(non-interest bearing) 2,038 2,038
Note receivable from the President, payable
in annual principal installments of $5,625
with interest at 5.03% 5,625 11,250
--------- ---------
740,496 672,253
Less current portion 593,395 510,038
--------- ---------
147,101 162,215
========= =========
6. Property and Equipment 1999 1998
---- ----
Land and improvements 775,724 775,724
Buildings 2,926,754 2,918,912
Manufacturing equipment 2,313,893 2,237,585
Other furniture, fixtures and equipment 585,762 642,558
--------- ---------
6,602,133 6,574,779
Less accumulated depreciation (3,251,946) (2,869,390)
--------- ---------
3,350,187 3,705,389
========= =========
7. Deferred Compensation, Related Parties 1999 1998
---- ----
Present Value of deferred compensation
benefits payable to the widow of O.Z. Oliver
at $6,311 monthly until the earlier of her
death or Sept. 2006, discounted at 8.50% in
1999 and 1998. 398,525 438,467
Present Value of deferred compensation
benefits payable to Robert K. Fitts at $5,560
monthly until his death after which the
benefits are payable to his spouse until the
earlier of her death or July 2007, discounted
at 8.50% in 1999 and 1998. 426,440 455,514
Present value of estimated post-retirement
benefits other than pensions discounted at
8.50% in 1999 and 1998. 120,407 127,950
--------- ---------
945,372 1,021,931
Less Current Maturities 83,374 76,559
--------- ---------
861,998 945,372
========= =========
8. Long-Term Debt
On July 12, 1995, the IDA of Franklin County, VA issued bonds in the
amount of $3,000,000 to finance the constructin of a manufacturing
facility. The Series 1995 variable Rate Demand Indutrial Revenue
Bonds are secured by the Company's irrevocable Letter of Credit with
Crestar Bank. The letter of credit agreement subjects the Company to
certain financial and operating covenants, all of which the Company
was in compliance with at year end. Crestar Bank holds a first lien
and security interest on the facility. The bonds are payable in
annual principal amounts of $150,000 through 2015. The interest rate
was 4.00% at September 30, 1999.
The Company has entered into an agreement of sale to purchase the
facility from the IDA. The Company's obligation under the Agreement
of Sale is equal to the required principal and interest payments on
the bonds and is payable in monthly installments currently estimated
at $22,000. The monthly payments are deposited into a Reimbursement
Account with Crestar Bank and used to pay all principal, interest
and fees related to the Bonds. The Company also agreed to maintain
an additional required deposit in the Reimbursement Account equal to
55 days of interest at 15.0% on the bonds. As of September 30, 1999,
the Reimbursement Account balance was as follows:
Required prepaid interest deposit $ 67,810
Unused monthly principal deposits 37,500
Earnings 29,658
--------
$134,968
The Company's policy is to reflect the balance of the Reimbursement
Account as an asset until the funds are used by the trustee for
payment of bond obligations, at which time the Company reduces its
obligations under the asset sale agreement.
As of September 30, 1999, all $3,000,000 of the bond proceeds have been
drawn from the trustee. The Company's obligation under the asset
sale agreement is reflected at the amount of bond proceeds that have
been drawn.
In July 1998, all of the remaining bond proceeds were drawn from the
trustee. The Company's obligation under the asset sale agreement
is reflected at the amount of bond proceeds that have been drawn less
cululative payments of $600,000. The unused proceeds and related
earnings at July 1998 were used to complete additions to the new
manufacturing facility and for bond related expenses.
Debt issue costs will be amortized over the life of the bonds.
9. The Board Of Directors of Mod-U-Kraf Homes, Inc. on November 3, 1999
declared a $.03 per share cash dividend on all shares outstanding
on November 19, 1999 and to be paid on December 3, 1999.
10. The Company uses the annualized method in its computation of Federal
Income Taxes.
11. Revenues are recorded when the houses are delivered for sales made
on account. Cash sales paid in advance are recorded when produced.
10
MOD-U-KRAF HOMES, INC.
OTHER INFORMATION
NONE
11
MOD-U-KRAF HOMES, INC.
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.
MOD-U-KRAF HOMES, INC.
------------------------------------
(Registrant)
Date: November 3, 1999
s/Dale H. Powell
------------------------------------
Dale H. Powell
President and Chairman of the Board
s/Steven T. Montgomery
------------------------------------
Steven T. Montgomery
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2345654
<SECURITIES> 0
<RECEIVABLES> 49948
<ALLOWANCES> 0
<INVENTORY> 2804166
<CURRENT-ASSETS> 6174678
<PP&E> 6602133
<DEPRECIATION> 3251946
<TOTAL-ASSETS> 10914309
<CURRENT-LIABILITIES> 2271844
<BONDS> 0
0
0
<COMMON> 825649
<OTHER-SE> 4704818
<TOTAL-LIABILITY-AND-EQUITY> 10914309
<SALES> 16245886
<TOTAL-REVENUES> 16245886
<CGS> 12113238
<TOTAL-COSTS> 14774561
<OTHER-EXPENSES> 75203
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62265
<INCOME-PRETAX> 1396122
<INCOME-TAX> 550278
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 845844
<EPS-BASIC> 1.02
<EPS-DILUTED> 1.02
</TABLE>
