SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the quarterly period
ended June 27, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 for the transition period
from to
Commission File No. 0-25586 and 33-66740
Uniroyal Chemical Corporation
(exact name of registrant as specified in its charter)
Delaware 06-1258925
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Uniroyal Chemical Company, Inc.
(exact name of registrant as specified in its charter)
New Jersey 06-1148490
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Benson Road
Middlebury, Connecticut 06749
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203)353-5400
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 July 15, 1998:
Uniroyal Chemical Corporation 100 shares of Common Stock;
Uniroyal Chemical Company, Inc. 100 shares of No Class Common
Stock.
Registrants meet the conditions set forth in General Instruction
(h)(1)(a) and (b) of Form 10-Q and are therefore filing this Form
with the reduced disclosure format.
THE REGISTRANTS ARE NOT REQUIRED BY SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 TO FILE THIS REPORT, WHICH IS
BEING FILED TO COMPLY WITH CERTAIN PROVISIONS OF THE INDENTURES
APPLICABLE TO ONE SERIES OF OUTSTANDING PUBLIC DEBT OF UNIROYAL
CHEMICAL CORPORATION AND ONE SERIES OF OUTSTANDING PUBLIC DEBT
OF UNIROYAL CHEMICAL COMPANY, INC. UNIROYAL CHEMICAL
CORPORATION IS A WHOLLY-OWNED SUBSIDIARY OF CROMPTON & KNOWLES
CORPORATION. UNIROYAL CHEMICAL COMPANY, INC. IS A WHOLLY-OWNED
SUBSIDIARY OF UNIROYAL CHEMICAL CORPORATION.
UNIROYAL CHEMICAL CORPORATION
UNIROYAL CHEMICAL COMPANY, INC.
FORM 10-Q
FOR QUARTER ENDED JUNE 27, 1998
INDEX
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements and
Accompanying Notes
. Consolidated Statements of Earnings
(unaudited) - Quarters and six months ended
June 27, 1998 and June 28, 1997
. Consolidated Balance Sheets - June 27, 1998
(unaudited) and December 27, 1997
Uniroyal Chemical Corporation
Uniroyal Chemical Company, Inc.
. Consolidated Statements of Cash Flows
(unaudited) - Six months ended
June 27, 1998 and June 28, 1997
. Notes to Consolidated Financial
Statements - Quarter ended June 27, 1998
(unaudited)
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
*Exhibit 27 Financial Data Schedules
* Copies of these Exhibits are annexed to this report on Form
10-Q provided to the Securities and Exchange Commission.
UNIROYAL CHEMICAL CORPORATION UNAUDITED
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Statements of Earnings
Quarters and six months ended June 27, 1998 and June 28, 1997
(In thousands of dollars)
Quarters ended Six months ended
June 27, June 28, June 27, June 28,
1998 1997 1998 1997
Net Sales $ 327,816 $ 323,813 $ 655,960 $ 631,696
Cost of products sold 189,929 195,041 387,155 382,727
Selling, general and administrative 45,686 43,177 91,532 83,965
Depreciation and amortization 16,736 15,931 33,198 31,755
Research and development 10,254 9,872 20,564 19,693
Operating profit 65,211 59,792 123,511 113,556
Interest expense 22,160 24,579 44,451 49,336
Other (income) expense (1,467) 634 (1,317) 707
Earnings before income
taxes and extraordinary loss 44,518 34,579 80,377 63,513
Provision for income taxes 16,584 13,140 29,900 24,135
Earnings before
extraordinary loss 27,934 21,439 50,477 39,378
Extraordinary loss on early
extinguishment of debt (14,026) (1,227) (15,977) (1,227)
Net earnings $ 13,908 $ 20,212 $ 34,500 $ 38,151
UNIROYAL CHEMICAL CORPORATION June 27, 1998 Unaudited
Consolidated Balance Sheets
June 27, 1998 and December 27, 1997
(In thousands of dollars)
June 27, December 27,
ASSETS 1998 1997
CURRENT ASSETS
Cash $ 6,238 $ 4,800
Accounts receivable 231,224 210,054
Inventories 234,395 221,249
Other current assets 56,314 65,388
Total current assets 528,171 501,491
NON-CURRENT ASSETS
Property, plant and equipment 365,139 374,421
Costs in excess of acquired net assets 125,502 127,784
Other assets 158,353 169,864
$ 1,177,165 $ 1,173,560
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 2,944 $ 1,770
Accounts payable 91,758 105,901
Accrued expenses 98,618 99,890
Income taxes payable 30,770 27,262
Total current liabilities 224,090 234,823
NON-CURRENT LIABILITIES
Long-term debt 500,271 864,648
Postretirement health care liability 140,736 141,660
Due to Parent 369,845 11,352
Other liabilities 140,284 155,219
STOCKHOLDERS' EQUITY (DEFICIT)
Additional paid-in capital 173,930 173,930
Accumulated deficit (329,611) (369,762)
Accumulated translation adjustment (39,620) (35,550)
Pension liability adjustment (2,760) (2,760)
Total stockholders' deficit (198,061) (234,142)
$ 1,177,165 $ 1,173,560
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL COMPANY, INC. June 27, 1998 Unaudited
Consolidated Balance Sheets
June 27, 1998 and December 27, 1997
(In thousands of dollars)
June 27, December 27,
ASSETS 1998 1997
CURRENT ASSETS
Cash $ 6,238 $ 4,800
Accounts receivable 231,224 210,054
Inventories 234,395 221,249
Other current assets 56,314 65,388
Total current assets 528,171 501,491
NON-CURRENT ASSETS
Property, plant and equipment 365,139 374,421
Costs in excess of acquired net assets 125,502 127,784
Other assets 158,353 169,864
$ 1,177,165 $ 1,173,560
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Notes payable $ 2,944 $ 1,770
Accounts payable 91,758 105,901
Accrued expenses 98,618 99,890
Income taxes payable 30,770 27,262
Total current liabilities 224,090 234,823
NON-CURRENT LIABILITIES
Long-term debt 500,271 864,648
Postretirement health care liability 140,736 141,660
Due to Parent 369,845 11,352
Other liabilities 140,284 155,219
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 1 1
Additional paid-in capital 175,612 175,612
Accumulated deficit (331,294) (371,445)
Accumulated translation adjustment (39,620) (35,550)
Pension liability adjustment (2,760) (2,760)
Total stockholders' deficit (198,061) (234,142)
$ 1,177,165 $ 1,173,560
See accompanying notes to consolidated financial statements.
UNIROYAL CHEMICAL CORPORATION UNAUDITED
UNIROYAL CHEMICAL COMPANY, INC.
Consolidated Statements of Cash Flows
Six months ended June 27, 1998 and June 28, 1997
(In thousands of dollars)
June 27, June 28,
Increase (decrease) to cash 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 34,500 $ 38,151
Adjustments to reconcile net earnings
to net cash provided by operations:
Extraordinary loss on early
extinguishment of debt 15,977 1,227
Depreciation and amortization 33,198 31,755
Noncash interest 5,167 6,946
Deferred taxes 6,762 11,625
Changes in assets and liabilities, net (30,043) (11,772)
Net cash provided by operations 65,561 77,932
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (16,398) (12,726)
Purchase of Receivables from Parent (16,957) (10,000)
Other investing activities 22 682
Net cash used by investing activities (33,333) (22,044)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings from Parent 358,787 -
Redemption of 11% and 12% notes and other
payments on long-term borrowings (374,310) (48,363)
Proceeds (payments) from
short-term borrowings 1,174 (5,157)
Premium paid on early extinguishment of debt (15,482) (1,464)
Net cash used by financing activities (29,831) (54,984)
CASH
Effect of exchange rates on cash (959) (504)
Change in cash 1,438 400
Cash at beginning of period 4,800 21,015
Cash at end of period $ 6,238 $ 21,415
UNIROYAL CHEMICAL CORPORATION
UNIROYAL CHEMICAL COMPANY, INC.
Notes to Unaudited Consolidated Financial Statements
Quarter Ended June 27, 1998
PRESENTATION ON CONSOLIDATED FINANCIAL STATEMENTS
Uniroyal Chemical Corporation ("UCC") was incorporated in
Delaware in December 1988 for the sole purpose of acquiring
Uniroyal Chemical Company, Inc. ("Uniroyal Chemical") in October
1989. Uniroyal Chemical, a New Jersey corporation, is a direct
wholly-owned subsidiary of UCC. Herein, UCC and Uniroyal
Chemical, collectively, are referred to as the "Company".
On August 21, 1996, Crompton & Knowles Corporation ("Parent")
acquired all of the issued and outstanding capital stock of UCC,
at which time UCC became a wholly-owned subsidiary of the Parent.
Uniroyal Chemical remained a direct wholly-owned subsidiary of
UCC.
UCC is dependent on cash flow from Uniroyal Chemical and its
subsidiaries to service its debt and meet its other cash needs.
Accordingly, the consolidated financial statements of Uniroyal
Chemical set forth herein are presented on a basis of accounting
which reflects all of the adjustments to account for the
acquisition of Uniroyal Chemical by UCC and substantially all of
the operations (primarily interest expense), assets and
liabilities of UCC.
The information included in the foregoing consolidated financial
statements is unaudited but reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of
the results for the interim periods presented. Certain amounts
in the accompanying consolidated financial statements have been
reclassified to conform to the current year presentation. It is
suggested that the interim consolidated financial statements be
read in conjunction with the consolidated financial statements
and notes thereto included in the Company's 1997 Form 10-K.
Included in accounts receivable are allowances for doubtful
accounts of $6.8 million in 1998 and $6.1 million at December 27,
1997. Accounts receivable includes $67 million of receivables
purchased from the Parent at June 27, 1998 and $50 million at
December 27, 1997.
Accumulated depreciation amounted to $336.1 million in 1998 and
$315.9 million at December 27, 1997.
Accumulated amortization of cost in excess of acquired net assets
amounted to $33.6 million in 1998 and $31.4 million at December
27, 1997.
Accumulated amortization of patents, unpatented technology,
trademarks and other intangibles included in other assets
amounted to $128.7 million in 1998 and $121.4 million at December
27, 1997.
Cash payments for the six months ended June 27, 1998 and June 28,
1997 included interest of $40.2 million and $42.1 million and
income taxes of $6.5 million and $7.0 million, respectively.
INVENTORIES
Components of inventories are as follows:
June 27, Dec 27,
(In thousands) 1998 1997
Finished goods $174,680 $151,229
Work in process 10,664 14,786
Raw materials and supplies 49,051 55,234
$234,395 $221,249
COMPREHENSIVE INCOME
Effective in the first quarter of 1998, the Company adopted
Financial Accounting Standards Board Statement No. 130 "Reporting
Comprehensive Income". The statement establishes standards for
reporting "comprehensive income" and its components in financial
statements and notes thereto. An analysis of the Company's
comprehensive income follows:
Second Quarter Six Months
Ended Ended
June 27, June 28, June 27, June 28,
(In thousands) 1998 1997 1998 1997
Net earnings $ 13,908 $ 20,212 $ 34,500 $ 38,151
Other comprehensive
(income) expense:
Foreign currency
translation adjustments 1,219 1,833 4,070 3,058
Minimum pension liability
adjustments, net - - - (953)
1,219 1,833 4,070 2,105
Comprehensive income $ 12,689 $ 18,379 $ 30,430 $ 36,046
LONG TERM DEBT
On March 31, 1998, the Parent amended its $600 million revolving
credit agreement with a syndicate of banks. The termination date
was extended to September 2003 from August 2001. Borrowings
under the credit agreement were amended as follows: Tranche I
provides a maximum of $375 million (up from $300 million)
available to the Parent for working capital and general corporate
purposes. Tranche II provides a maximum of $75 million (down
from $150 million) available to Uniroyal Chemical for working
capital and general corporate purposes. Tranche III continues to
provide up to $150 million available to the European and Canadian
subsidiaries of the Parent and Company.
On May 8, 1998, UCC redeemed the outstanding 11% Senior
Subordinated Notes at a price of 105.5% of the principal amount
thereof plus accrued and unpaid interest and the 12% Senior
Subordinated Discount Notes at a price of 100% of the principal
amount thereof plus accrued and unpaid interest. The payment for
the redemption including interest and premium amounted to $372.3
million and was funded through the issuance of two intercompany
notes with the Parent. The intercompany notes bear the same
principal, interest, maturity, and subordination as the notes
redeemed in accordance with terms of the Company's remaining
public indebtedness.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The response to this item has been limited to an analysis of the
results of operations for the six months ended June 27, 1998 as
compared with the six months ended June 28, 1997 as Registrants
meet the conditions set forth in the General Instruction
(H)(1)(a) and (b) of Form 10-Q.
YEAR TO DATE RESULTS
Overview
The Company's results for the six months ended June 27, 1998
includes the operations of the European and Asian colors
business transferred from the Parent on December 27,
1997. Net sales of these operations amounted to $41.7 million
and $44.0 million, and net earnings amounted to $2.4 million and
$2.4 million, for the first six months ended 1998 and 1997,
respectively. The financial statements have not been restated for
the first six months of 1997 as the impact was not considered
material.
Net sales of $656.0 million for the six months ended June 27,
1998 increased by 4% from $631.7 million for the comparable
period in 1997. All of the increase was attributable to the
sales of the transferred operations partially offset by lower
sales in other operations. Net earnings before extraordinary
losses on early extinguishment of debt increased 28% to $50.5
million versus $39.4 million in 1997. Net earnings of $34.5
million (including $2.4 million from transferred operations)
compared to $38.2 million in the first six months of 1997. Gross
margin as a percentage of net sales increased to 41.0% from 39.4%
in the comparable 1997 period. The increase was attributable
primarily to lower raw material and other manufacturing costs.
Operating profit increased 9% to $123.5 million as a result of
lower raw material and other manufacturing costs.
Sales by Major Product Line
Chemicals and polymers sales of $244.3 million decreased 4% from
the first six months of 1997. The decrease was primarily
attributed to lower foreign currency translation of
approximately 2% and lower pricing and lower unit volume of 1%
each. Sales of rubber chemicals were lower than 1997 primarily
due to lower pricing, foreign currency translation and unit
volume. EPDM sales increased primarily due to improved pricing.
Nitrile rubber sales decreased primarily as a result of lower
unit volume.
Crop protection sales of $208.4 million decreased 5% from the
comparable 1997 period primarily as a result of lower unit volume
due to weather conditions in California, which were unfavorable
for its miticide products.
Specialty sales of $160.3 million increased 2% from the six month
period of 1997 primarily due to increased unit volume. Improved
pricing of 1% was offset by the impact of lower foreign currency
translation.
Colors sales of $43.0 million were $42.5 million higher than the
first six months of 1997 due to the transfer of the European and
Asian colors business from the Parent.
Other
Selling, general and administrative expenses of $91.5 million
increased 9%, depreciation and amortization of $33.2 million
increased 5%, and research and development costs of $20.6 million
increased 4% from the first six months of 1997. These increases
were primarily due to the impact of transferring the European and
Asian colors business from the Parent.
Interest expense for the six months ended June 27, 1998 of $44.5
million decreased 10% from the first six months of 1997 primarily
due to lower levels of indebtedness. The effective tax rate of
37.2% decreased from 38.0% in the comparable 1997 period.
YEAR 2000 COMPLIANCE
In 1995 the Company initiated a program to update the current
information technology systems on a worldwide basis. The Company
evaluated its major computer systems and software applications
with the goal of avoiding interruption in the supply of goods,
services and business information at the turn of the century.
Year 2000 compliance remediation costs are not expected to have a
material effect on the Company's results of operation.
ACCOUNTING STANDARD CHANGES
In June 1997 the Financial Accounting Standards Board issued
Statement No. 131 "Disclosures about Segments of an Enterprise
and Related Information", which is effective for fiscal years
beginning after 1997. In June 1998, the Financial Accounting
Standards Board issued Statement No. 133 "Accounting for
Derivative Instruments and Hedging Activities", which is
effective for fiscal years beginning after 1999. The Company is
currently evaluating the statements and plans to adopt Statement
No. 131 in the fourth quarter of 1998 and Statement No. 133 in
the first quarter of 2000.
ENVIRONMENTAL MATTERS
Uniroyal Chemical is involved in claims, litigation,
administrative proceedings and investigations of various types in
a number of jurisdictions. A number of such matters involve
claims for a material amount of damages and relate to or allege
environmental liabilities, including clean-up costs associated
with hazardous waste disposal sites, natural resource damages,
property damage and personal injury. Uniroyal Chemical and some
of its subsidiaries have been identified by federal, state or
local governmental agencies, and by other potentially responsible
parties (each a "PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, or
comparable state statutes, as a PRP with respect to costs
associated with waste disposal sites at various locations in the
United States. In addition, Uniroyal Chemical is involved with
environmental remediation and compliance activities at some of
its current and former sites in the United States and abroad.
Each quarter, Uniroyal Chemical evaluates and reviews estimates
for future remediation and other costs to determine appropriate
environmental reserve amounts. For each site, a determination is
made of the specific measures that are believed to be required to
remediate the site, the estimated total cost to carry out the
remediation plan, the portion of the total remediation costs to
be borne by Uniroyal Chemical and the anticipated time frame over
which payments toward the remediation plan will occur. As of
June 27, 1998, Uniroyal Chemical's reserves for environmental
remediation activities totaled $97.7 million. These estimates
may change in the future should additional sites be identified,
further remediation measures be required or undertaken, the
interpretation of current laws and regulations be modified or
additional environmental laws and regulations be enacted.
Uniroyal Chemical intends to assert all meritorious legal
defenses and other equitable factors which are available to it
with respect to the above matters. Uniroyal Chemical believes
that the resolution of these environmental matters will not have
a material adverse effect on its consolidated financial position.
While Uniroyal Chemical believes it is unlikely, the resolution
of these environmental matters could have a material adverse
effect on its consolidated results of operation in any given year
if a significant number of these matters are resolved
unfavorably.
FORWARD-LOOKING STATEMENTS
The information in this Form 10-Q contains forward-looking
statements and estimates which are based on currently available
information. The Company's actual results may differ
significantly from the results discussed. Investors are
cautioned that there can be no assurance that the actual results
will not differ materially from those suggested in such forward-
looking statements and estimates.
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings
(i) Reference is made to page 4 (Other Environmental
Matters) of the Registrants' Annual Report on Form 10-K for the
fiscal year ended December 27, 1997, for information pertaining
to a suit brought by Sundor Canada Inc. against Uniroyal Chemical
Co./Cie. and others. In June 1998, final settlement was reached
among the parties in accordance with the terms previously
disclosed and after judicial approval the suit was dismissed with
prejudice.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
(27)* Financial Data Schedules
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
* Copies of these Exhibits are annexed to this report on Form
10-Q provided to the Securities and Exchange Commission.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, each Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNIROYAL CHEMICAL CORPORATION
UNIROYAL CHEMICAL COMPANY, INC.
(Registrants)
Date: August 25, 1998 By /s/ Charles J. Marsden
Vice President and
Chief Financial Officer and
Director
(Principal Financial Officer)
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